Summer 2005

Around the South

QUOTE

"It's a lot less expensive than New Jersey and for the same size facility. I was also paying a lot each year for snow removal and I won't have to worry about that as much now."

Al Yarsin, President of Miller Products Co., Inc. Yarsin is moving the clean-room supplier from North Bergen, N.J. to Durham, N.C., citing lower costs and the Raleigh-Durham area's growing bio industry cluster. Miller Products was founded in Manhattan in 1930. Yarsin figures that the company will save about 30 percent annually in overhead, including taxes, rent, insurance and maintenance.  

QUIZ

Here's a simple one. Which airport earned the world's No. 1 ranking in passenger traffic in 2004? BONUS: The following airports are the world's five busiest. Rank them one through five.

(a) London (b) Chicago (c) Atlanta (d) Tokyo (e) Los Angeles

(Scroll down for answer)

A Big Kahuna Under Negotiation in Austin  

One of the largest investment deals in the American South's history is being negotiated by Korean semiconductor maker Samsung and local and statewide officials in Texas. Samsung is looking to expand its fab plant in northeast Austin, Tex., by investing $3.5 billion and hiring an additional 700 workers. The city of Austin has already proposed a $48 million incentive package to Samsung and an additional $150 million is expected to come from the state of Texas and Travis County to help finalize the deal.

Business Costs Remain Lowest in the South

Economists keep telling us that lower business costs found in the South don't carry the importance they used to in today's global economy. But you can't ignore the Milken Institute's annual study that tracks business costs in the U.S. if you are an expanding industry looking for a place to set up shop in this country, the largest consumer nation on the planet. Milken's latest Cost of Doing Business Index shows that only Maryland (17th most expensive), Florida (22nd) and Virginia (24th) are included in the 25 most expensive states to conduct business in the U.S. All of the other 14 Southern states' business costs rank in the 25 least expensive states in which to operate a business, with seven states ranked 39th through 45th. Southern states and their Milken rankings can be found below. The five most expensive states to conduct business according to Milken are Hawaii, New York, Massachusetts, California and Connecticut.

2005 Milken Institute Cost of Doing Business Index - Southern States

Ranked Most Expensive to Least Expensive

South's Oldest Apparel Plant Closes - PHOTO

Tallassee Mills, a 161-year-old stone mill located on the banks of the Tallapoosa River in Tallassee, Ala., is closing its doors. The mill, with stone walls more than a yard thick and featuring floor supports made from pine logs, survived the Civil War and once made fabric for slave clothes and Confederate uniforms. The facility is known to be the oldest cloth factory in the U.S. The closing will have little economic effect on little town of Tallassee, which has landed several automotive suppliers, aircraft parts suppliers and other high-wage manufacturers in just the last three years. But the fact that the nation's oldest apparel plant is finally closing its doors is a sad and sentimental reminder of what the South was just 30 years ago and what it is today.

South's ACT, SAT Test Scores Rising

According to ACT, Inc. and The College Board, high school tests scores for students in the South were right at or even above the national average in 2004. The national average ACT composite score was 20.9 compared to 20.4 in the South. The national average SAT Verbal Mean score was 508 compared to 544 in the South. And the national math SAT score was 518 in 2004 compared to an average score of 536 earned by students in Southern states.

www.BioIndustrySouth.com Goes Live

Southern Business & Development has launched its third Web site to date, www.BioIndustrySouth.com. The new site follows the successful debut of www.SouthernAutoCorridor.com in January of 2004. BioIndustrySouth.com is designed to provide companies and executives involved in the life sciences information on opportunities and sites in the South, the world's third-largest economy.

International Paper Relocates HQ from Connecticut to Memphis

International Paper (IP) the world's largest paper and forest products company, is relocating its worldwide headquarters from Stamford, Conn., to Memphis. The decision was made in mid-August. Currently about 3,000 IP workers are in Memphis. The headquarter relocation deal is expected to add about 100 jobs in Memphis. Cost factors were cited by IP officials, even though Stamford, Conn., officials maintain that the relocation will break an agreement made by IP that it would keep its global headquarters in Stamford until 2010.

South Lands Two Counties on 10 Best Paid List

Fairfax County , Va. ( Washington, D.C. region) and Fulton County, Ga. ( Atlanta) are the two counties in the South with the highest payroll per employee according to the U.S. Census Bureau. Both counties made the ten best paid list nationally. Fairfax County ranks fifth in the nation with an average annual payroll of $53,214 and Fulton County's average is ninth-best at $47,583. New York ranks first with $73,032, followed by Santa Clara, Calif., Fairfield, Conn., and San Francisco.

IRS Says Southeast Residents Most Generous

According to the Internal Revenue Service, residents of the Southeast are the most generous Americans when it comes to giving to nonprofit organizations. The IRS based its findings on the size of taxpayers' itemized deductions. Giving USA 2005, which looks at charitable donations annually, reported that in calendar year 2004 over $248 billion in donations occurred in the U.S. About $88 billion of that went to religious organizations. Almost all of the money given directly to victims of the 2004 tsunami won't be reported until the end of 2005.

Headquarter Relocations to Texas Continue

On the heels of Fluor Corp.'s spring quarter decision to relocate its international headquarters from Orange County, Calif., to the Dallas/Fort Worth Metro was an announcement made this summer by Celanese Corp. that it will move its worldwide headquarters from Germany to the D/FW region. Fluor, a $10 billion engineering and construction concern, is building a 120,000-square-foot facility in Las Colinas. Celanese, a $5 billion chemical company, is adding space at its current facilities in Farmers Branch, Tex. One rumored headquarter relocation to North Texas will not happen. Miami-based Burger King Corp., announced in the summer it would build a 250,000-square-foot headquarters facility in nearby Coral Gables. Burger King was founded in Miami more than 50 years ago.

New Workers' Comp Bill Signed in Texas

During the summer Texas Gov. Rick Perry signed a bill that changes the state's workers' compensation system. The new legislation will eliminate the Workers' Compensation Commission, increase benefits for injured workers by as much as 15 percent and change the dispute and resolution process by opening the new Office of Injured Employee Counsel. The changes are expected to lower workers' compensation costs for companies operating in Texas, control medical costs and expand access to health care for injured workers so they can return to work faster. Experts have estimated that Texas' workers' compensation costs are the third-highest in the nation today.

Low-Cost Health Plan Offered to Oklahoma-based Manufacturers

The Central Oklahoma Manufacturers Association (COMA), an affiliate of the Oklahoma Alliance for Manufacturing Excellence, in cooperation with Bankers Financial Benefits and Blue Cross and Blue Shield of Oklahoma, announced in August a new health insurance program that may be the first of its kind in the nation. The new health care coverage is being offered to Oklahoma manufacturers as a group and the plan meets complex state and federal guidelines.

Missouri Governor Signs Jobs Act

Missouri Gov. Matt Blunt signed into law this summer the Missouri Quality Jobs Act. The new legislation provides increased incentives for companies that pay average or better than average Missouri wages and for companies that pay for at least 50 percent of health care costs for their employees.

South Tops All Regions in Air Capacity Recovery Rates

According to Back Aviation Solutions, the South leads all regions by a wide margin in airline capacity compared to pre-9/11 levels. Flights in July of this year in the U.S. as a whole remain 6.1 percent behind levels seen in July of 2001, but they are 12.2 percent behind in the Midwest and 11.2 percent behind in the Northeast. The South is nearing pre-9/11 seating capacity with 33.3 million in July 2005 compared to 33.6 million seats in July of 2001.

Kentucky's Rural Broadband Initiative Receives Grant

ConnectKentucky, the Bluegrass State's effort to bring high-speed Internet access to its rural regions, received a $900,000 grant from the Appalachian Regional Commission over the summer. ConnectKentucky represents an alliance of universities, governments and technology companies in Kentucky.

Louisiana Incubator Named Best

LSU's Louisiana Business & Technology Center (LBTC) was recently named the 2005 Randall M. Whaley Incubator of the Year at the National Business Incubation Association's 19th International Conference on Business Incubation in Baltimore. The Whaley award is NBIA's highest honor, recognizing overall incubator excellence. Since 1988, LBTC-assisted businesses have created nearly 9,000 jobs in Louisiana.

Lawsuits Fly in Carolina over Dell - PHOTO

The North Carolina Institute for Constitutional Law filed a legal challenge in the summer against incentives offered to Dell, Inc. by the State of North Carolina, Forsyth County and the city of Winston-Salem. Much of the new Dell plant in Winston-Salem has already been built (see photo)and we doubt this lawsuit will have any effect on the computer maker opening its new manufacturing and distribution center, slated for first phase completion in early fall. Dell earned $242 million in incentives to build its 1,500-employee facility in Winston-Salem. In a related story, a poll conducted by the North Carolina Economic Developers Association revealed that 61% of 600 citizens polled agree that the N.C. General Assembly should continue to provide economic development incentives and 84% agreed that as long as other states offer incentives, so should North Carolina.

Washington Mutual Picks San Antonio over D/FW for Huge Deal

Seattle-based Washington Mutual, a financial services company, announced in the summer it will place its regional operations center at the MCI campus in North San Antonio. The announcement, which, according to the company, will create about 4,200 jobs over seven years, ended speculation the company would put its new center in the Dallas/Fort Worth region. The deal represents the largest job generating announcement in the South and in the U.S. to date this year.

Another Big Financial Services Deal in Kentucky

Fidelity Investments is consolidating its Midwest operations and expanding its Covington, Ky., campus by adding 1,500 new jobs. Fidelity is spending $115 million in the northern Kentucky expansion.

Virginia, Maryland Dominate Digital Counties Survey

The 2005 Digital Counties Survey, an annual study done by the National Association of Counties and the Center for Digital Government, was dominated by markets in Virginia and Maryland. Counties in four population categories (500,000 or more; 250-499.9; 150-249.9; and 150,000 or less) were included in the survey. Fairfax County, Va., Prince William County, Va., Roanoke County, Va., and Charles County, Md., finished first in each category respectively.

Eli Lilly Reduces Size of Virginia Project Announced Three Years Ago

Indianapolis-based pharmaceutical giant Eli Lilly announced in 2002 it would build a 600,000-square-foot, 700-employee insulin plant in Manassas, Va., which is located in the Washington, D.C. region. The plant has yet to break ground. In the summer quarter, the company announced it will build the facility by 2009, but it will be scaled back to 300,000 square feet and 350 employees. Eli Lilly will spend about $350 million in the deal, down from $450 million.

If Atlanta can do it, every City can

Atlanta, known as having some of the worst vehicle traffic in the South, was upgraded this summer by the Environmental Protection Agency for its improvement in air quality. The upgrade means that Atlanta has earned attainment status for ozone as a result of measures put in place between 2002 and 2004. It also means that efforts that actually began in 1978 have significantly reduced ozone concentrations in the Atlanta metro. The EPA also approved a maintenance plan for the Atlanta area in an effort to keep attainment status.

The Biggest of the Big Wal-Mart Distribution Centers Opens

Large retail distribution centers in the South are nothing new. One-million-square-foot centers are located all over the South in major markets such as Oklahoma City and in tiny towns such as Cullman, Ala. After all, the South has almost the population of the Midwest and Northeast put together. More than anything, population drives retail. But Wal-Mart's newest distribution center in Baytown, Tex., located near Houston, is one for the books. The facility totals 4 million square feet or 92 acres under roof. The facility was built to accommodate the Arkansas-based retailer's decision to move about 25 percent of its entire U.S. shipping container business to the port of Houston. Reports cited labor issues in California as one reason why Wal-Mart moved so much of its imports to Houston. A strike by California laborers in 2003 seriously hindered the retailer's ability to put product on the shelves during the 2003 Christmas season. As opposed to moving products from Asia through the California ports of Los Angeles and Long Beach and then transferring goods via rail to U.S. markets, Wal-Mart will now use the Panama Canal to access Houston.

Texas Investing $50 Million to Fund Genome Project

The Texas Enterprise Fund is investing $50 million to form the Texas Institute for Genomic Medicine. Texas Gov. Rick Perry said that the institute will create about 5,000 jobs with an average salary of $60,000 over the next 10 years. Funding will be given to Texas A&M and Lexicon Genetics. Lexicon will use $35 million to create two copies of its mouse cell line library, which will then be provided to the institute. The remaining $15 million will be used to remodel Texas A&M's System Health Science Center's Institute of Biosciences and Technology in Houston and for the construction of a new building on Texas A&M's primary campus in College Station, Tex. For more information on the life sciences in the South go to www.BioIndustrySouth.com.

Magazine Names Rice University No. 1 in Nanotechnology - PHOTO

In July, Houston's Rice University was ranked the No. 1 higher learning center in the U.S. for nanotechnology commercialization for this year. The recognition was given out by Small Times magazine. Rice was issued 15 nanotechnology patents last year, the most by any school in micro and nanotech patents.

Florida Headed for Real Estate Crisis?

A report done by the Federal Deposit Insurance Corp. (FDIC) indicated that the estimated median household income in Florida was 26 percent below the amount needed to buy a median-priced home in the state. The report stated that growing speculative real estate activity in Florida has led some observers to conclude that localized supply and demand imbalances may be forming in many coastal markets. The FDIC reported that there are 55 boom real estate markets in the U.S. and over 20 percent of those are in Florida. Many parts of the Sunshine State are experiencing growth management difficulties as schools, roads and other infrastructure are well beyond capacity. Florida Gov. Jeb Bush recently signed three bills to deal with growth management in the state. In a related note, the Agency for Workforce Innovation reported that Florida added 228,110 jobs from June 2004 to June 2005, the fastest rate of annual job growth among the nation's 10-most populated states.

Editorial  

This is not the Time to End State Incentives for Industry

By Mike Randle

In 2004, a federal judge in Ohio ruled that state subsidies to relocating or expanding industry were unconstitutional as they relate to interstate commerce. The case, which centered on incentives given DaimlerChrysler to expand its Jeep plant in Toledo, is being appealed to the U.S. Supreme Court. The court ruled that DaimlerChrysler was given special privileges in Ohio, while the products made in the state are sold all over the U.S., therefore the company is violating interstate commerce regulations. Only Congress can regulate interstate commerce.

The ruling is shaky at best and probably will have little effect on incentives doled out to industry by U.S. states in the future. We say that because incentives can come from any number of sources. For example, if state governments are no longer allowed to bid for business expansions, startups and relocations financially, other sources, such as utilities, massive commercial real estate concerns, large non-profit business organizations and even private industry and individuals can't be stopped from taking the place of the states.

The scary thing about ending state incentives for expanding industry centers on this: the federal government at some point -- the entity that would have ended the practice in the first place -- would become the primary source of incentives to locating industry in this country. Why? Well, China and India, the two fastest-growing national economies in the world and two of the this country's largest competitors, offer incentives to locating industry, especially those that are based in the U.S. Could you imagine the federal government having to choose between Arkansas, North Carolina and Texas on which state will get a foreign automotive plant, partly based on the incentives it will ultimately dole out?

The problem with incentives to industry is this: if there is just one player playing the game, everyone has to play. The state-sourced industry incentive game has been played by states in this country in one form or another for more than 200 years. To change it now and hand it over to the federal government in a globally-competitive environment would be a disaster.

Besides, state-sourced incentives to industry shouldn't be eliminated because the system works. Econ-ultra conservatives certainly won't agree with that statement. In fact, the ones I know get angry when I write something to that effect. But the numbers don't lie. We've written this before and we're writing it again. Alabama has spent $800 million in incentives on just four companies in the last dozen years. Those companies are Mercedes-Benz, Honda, Toyota and Hyundai. In those same 12 years those four companies have given back to workers in Alabama over $6 billion in payroll alone. Of course that figure doesn't count future tax revenues, the significant amount of spin-off industries that have located in the state because of just those four deals or the investments the companies made in infrastructure. Retail, housing and other ancillary benefits from just those four companies coming to the state of Alabama has been a huge factor not counted as well.

If the decision in Ohio is not successfully appealed in the U.S. Supreme Court, other entities will take the place of states when it comes to incentives for industry. At least now we have a system that is mostly accountable. Virtually every large incentive package given out by states in this country becomes public knowledge. Is the federal government or private industry going to make public how much money they have spent to recruit a GM, Boeing, Samsung, Citicorp or DaimlerChrysler? Not hardly.

mike@sb-d.com

QUIZ ANSWER