Winter 2004-2005

Seen and Heard this Winter

SEEN: Dozens of companies locating in North Carolina over the winter and the fall quarter, too. We've been tough on the Tar Heel State over the last three years, even when others continued to rank the state high. But if the last six months are any indication, North Carolina, the Grand Dame of economic development, is back in the recruitment game in a huge way.

HEARD: The St. Louis County Council voted unanimously to withdraw the $200,000 it budgeted for the area's primary economic development agency, the Regional Chamber and Growth Association (RCGA). Apparently the Council had a question about RCGA's spending of late. It was revealed that the RCGA paid a clairvoyant $1.4 million in fees over the last seven years for consulting services. The clairvoyant's employment by the RCGA was quickly terminated once the story went public. We want to know did the clairvoyant know the day before he was fired if he would be fired the next day.

Editorial

We Beg to Disagree. Incentives to Industry do Work!

In January, a story written by Arthur E. Foulkes of the American Institute for Economic Research (www.aier.org) was picked up by Scripps Howard News Service and was published in several U.S. daily newspapers, including the Birmingham Post Herald. I read the story with interest since the headline read "No Evidence that Economic Development Grants (incentives) Work." The story was not unlike others written over the years, most notably one in Time Magazine in the late 1990s that centered on the evils of "Corporate Welfare."

After reading this latest attack by Foulkes and the American Institute for Economic Research on the practice of economic development in this country, more specifically in the American South, I had finally had enough. It was great timing that a reporter from South Carolina called right after I finished the second reading of the story. It was time to vent after she asked what I thought about the piece.

Yet, instead of my usual ranting and raving against this idealistic view that incentives to corporations would best be used for education and public safety, as the article stated, I told the reporter on the other end of the phone line to break out her calculator. The number crunching commenced.

"So, you agree with the article that there's no evidence that economic incentives work," I asked. "Let me disprove that assertion." I cited the state I thought provided the easiest example that she would understand. I cited Alabama.

Alabama has spent or credited approximately $800 million in incentives to job makers in the automotive industry since 1993. The incentives have gone to about 125 companies, but almost all of the grants have gone to just four automakers: Mercedes-Benz, Honda, Toyota and Hyundai.

I told the reporter on the phone to jot that $800 million incentive figure down. "Now compare it to this," I said. Since 1993, those four automakers have invested around $5 billion in buildings and equipment in the state of Alabama. In addition, the employment of 10,000 workers by Mercedes, Honda, Toyota and Hyundai, creates a total of about $500 million in salaries for Alabamians annually, just from those four auto making anchors. That's an $800 million investment over 12 years by the state of Alabama and a gross return of $5.4 billion in salaries alone over the same time frame. Would you invest $800 million to receive $5.4 billion 12 years later?

Of course, the $5.4 billion figure is incredibly conservative. It doesn't include the investments made by the four automakers, nor does it include employment, salaries paid, taxes paid, charities paid and other monetary benefits Alabama is currently enjoying from the approximately 120 automotive parts suppliers that have built facilities in the state over the last dozen years as a result of the four automaker's investments. And let's not even consider additional housing or retail investments made during that time. No, that would make the incentive naysayers' neck hair stand up way too straight.

Even over the phone I sensed the reporter's attitude had changed after the numbers were crunched. She no longer maintained such a strong anti-incentive agenda. So she hit me below the belt. "You're a fiscal liberal, aren't you?" she asked. ”No," I simply said.

Liberal or conservative viewpoints have nothing to do with state incentives doled out to major corporations that create jobs and invest hundreds of millions of dollars. It's simply a matter of a good or bad investment. A good investment results in a solid return. A bad investment results in a loss. In the case of Alabama, the investments made in Mercedes, Honda, Toyota and Hyundai have resulted in great returns, both monetarily and in worldwide exposure. That being the case, how could anyone write a story with the headline, "No Evidence that Economic Development Grants Work?"

The reporter still wasn't totally convinced. She said she agreed with the article that incentives to industry would be better spent on education and public safety. I responded by saying, "Alright, go ahead. I want your state to be the first in the South to redirect what's budgeted for industrial and business recruitment to public safety and education. Go ahead. I dare you! Because if you do, your state will be the smartest, safest, 20 percent unemployment state in the South.

Mike Randle
mike@sb-d.com

Goals Set for Appalachia

Long term economic goals were released in the winter quarter by the Appalachian Regional Commission. Four main goals over the next 10 years were highlighted including 200,000 new jobs, improved water and sewer infrastructure for 200,000 households; give 200,000 people more education and job skills and open 250 more miles of the Appalachian Development Highway System. The ARC was founded in 1965 to reduce poverty in more than 200 of the region's economically distressed counties. Its 2005 budget is $66 million and the ARC expects $450 million from the U.S. Transportation Equity Act over the next 10 years for the Appalachian Development Highway System.

Washington, D.C.'s Office Vacancy Lowest in U.S.

When you combine a growing federal government in general with a massive increase in homeland security and military expansion you get tight quarters in the nation's capital. D.C.'s office vacancy rate -- of all classes combined -- is currently around 7 percent. In comparison, the average vacancy rate in U.S. central business districts is more than double D.C.'s vacancy rate, currently at about 15 percent. The average office vacancy rate in the South's central business districts is estimated to be between 11 percent and 12 percent.

North Carolina Turns it Around

Even though manufacturing jobs are still being lost in the thousands almost every month -- 5,000 from the textile industry sector alone in 2004 -- North Carolina added nearly 78,000 new net jobs in 2004, according to the Employment Security Commission. The additional jobs dropped the Tar Heel's unemployment rate by 10 percent, from 6.2 percent in December of 2003 to 5.2 percent in December of 2004. In addition, North Carolina's mass layoffs have dropped about 30 percent compared to a year ago. The leading growth sector in jobs added was in professional and business services.

West Virginia Passes Workers' Compensation Bill

New Gov. Joe Manchin signed new workers' compensation legislation in February that will reduce premiums for West Virginia companies by 15 percent in 2006, saving those businesses about $160 million. In addition, the new legislation enables West Virginia to bond out the state's existing $3 billion in unfunded workers' comp liabilities and transfers the current state-operated workers' comp program to a private mutual company.

Citgo Employees Begin Move

Nearly a year after it was first announced Citgo finally moved its headquarters from Tulsa to Houston over the winter. When completed, over 700 employees will move with the company to Houston. Citgo's economic impact is expected to top $450 million annually in Houston.

Georgia Governor Announces Initiatives

In the winter quarter Georgia Gov. Sonny Perdue announced two new economic development initiatives. The first, the Strategic Industries and Innovation Acts is designed to reward existing industry in the state for creating jobs. It is also designed to simplify business assistance programs in the state. The second initiative, the Governor's Entrepreneur and Small Business Growth Act is designed to assist small businesses in Georgia by shielding them from harmful regulations and rules that could arise from future legislation.

Deregulation of Electricity Slow to Take Hold in Texas

After the California energy crisis, Texas was supposed to be the next U.S. state where the deregulation of the electricity market was to be put to the test. It was written in many publications that if deregulation fouled in Texas, then deregulation was dead. That was nearly four years ago and today the majority of companies in the Lone Star State continue to purchase their electricity from their local utility provider. A recent survey commissioned by Tractebel Energy Services showed that of the 476 companies located in deregulated zones in Texas that responded, 80 percent do not employ an energy manager or department. In addition, most of the companies polled were unsure how to switch energy providers.

D.C., Virginia, Maryland Might Team Up for Nanotech

Economic development is a highly competitive field. State and county borders make it that way. In past issues of SB&D you've read about partnerships between Alabama and Mississippi and Tampa Bay and Orlando in the recruitment of industry. Today you can add D.C., Virginia and Maryland to those few partnerships that transcend borders. The three jurisdictions are in talks to band together in the recruitment of nanotechnology funding and companies. The goal is to collectively market the region's strengths, particularly existing federal and university labs and the fact that the area is already a center for the bioindustry to garner a large chunk of the more than $1 billion the federal government has earmarked for nanotech in the next few years. Virginia Gov. Mark Warner, D.C. Mayor Anthony Williams and Maryland Gov. Robert Ehrlich are solidly behind the partnership idea.

Thirty-Two of 50 Hottest Cities in the South

Expansion Management magazine came out with its "50 Hottest Cities" ranking in the winter and 32 of the 50 are located in the American South. Included in the magazine's top 20 hottest cities were 15 Southern markets. They are: Nashville (1); Atlanta (2); Kansas City (3); Charlotte (4); Oklahoma City (8); Dallas-Fort Worth (9); Jacksonville (10); San Antonio (11); Richmond (13); Knoxville (14); Birmingham (15); Memphis (16); Raleigh-Durham (17); Tulsa (19); Norfolk-Virginia Beach-Newport News (20).

U-Haul Ranks Fayetteville, Ark. No. 1

National truck and trailer rental company U-Haul ranked the top markets in the U.S. for family relocation and Fayetteville, Ark. ranked at the top of the list with 10.3 percent more families moving to the Northwest Arkansas city than leaving. Other markets high on the list include Charlotte, Austin and Mesa, Ariz.

Two New Southern Governors Get to Work

Two new governors in the South took the oath of office at the beginning of the year. Matt Blunt is the new Governor of Missouri and Joe Manchin III is now the Governor of West Virginia.

South Continues Pacing Nation's Population Growth

According to the Census Bureau, the South had the largest numerical increase in population among U.S. regions from 2003 to 2004 with 1.5 million people. Regional populations in the U.S. currently look like this: South 36 percent; West 23 percent; Midwest 22 percent; Northeast 19 percent.

Seven of Top 10 Pro-Business States in the South. South Carolina Named No. 1

Pollina Corporate Real Estate, a Chicago-based consulting firm, recently published a pro-business study outlining the nation's most business-friendly states. Seven Southern states made the firm's top 10 with South Carolina being named the No. 1 pro-business state in the U.S. Following South Carolina is Virginia, South Dakota, North Carolina, Alabama, Wyoming, Georgia, Washington, Florida and Oklahoma.

Rumor has it EADS is looking at the South for New Plant

The European Aeronautic Defense and Space Co., the parent company of Airbus, is rumored to be scouting the South for a facility to build refueling tanker planes for the Air Force. It was just two years ago that talk centered on EADS looking to build a facility in the South. Apparently this time it's more than just talk. Several sources have confirmed EADS has asked for proposals from all states in the South for a $600 million, 1,000-employee facility.

Will Samsung Build a Cluster of Fabs in the South?

In December officials with South Korean electronics company Samsung announced they will spend almost $25 billion (that's with a "b") on upgrading its semiconductor manufacturing operations throughout the world over the next five years. The only fabrication plant the company operates in the U.S. is located in Austin, Tex. That plant makes memory chips and it recently went through a $1.6 billion upgrade. Samsung owns about 300 acres of land in North Austin and rumor has spread that the company might build a cluster of fabs on the property. The acreage is large enough to site four typical fabrication plants.

Pillowtex Facility Sold in N.C.

One of the largest job loss deals in a single location in Southern history occurred a couple of years ago when Pillowtex closed in Kannapolis, N.C. Almost 5,000 workers lost their jobs in and around Kannapolis when the company folded. One of the company's facilities, Plant 1 in Kannapolis, was recently sold to Castle & Cooke, a Los Angeles-based real estate development company owned by David Murdock. The facility totals almost 6 million square feet.

TVA Certifies Third Supersite

The Tennessee Valley Authority has certified its third large industrial site in the South. The PUL Alliance-Wellspring Project is a 1,200-acre site located near Tupelo, Miss., that has been designed to accommodate a project as large as a 6-million-square-foot facility. Few facilities other than automotive plants are that large in the South. The site meets certain criteria for certification, such as rail, interstate and utility infrastructure in place. The other two sites certified by the TVA to date are located in Hopkinsville, Ky., and Columbus, Miss.

Florida Job Creation Continues Surge

Back in the darkest of the recession days of late 2001 and 2002,we wrote an editorial titled, "What Would be Happening in the South Today Without the Automotive Industry and Florida?" Facing the worst downturn in at least 10 years, the automotive industry w as going nuts in the Southern Auto Corridor (go to www.SouthernAutoCorridor.com) between 2001 and 2003, which were three tough years. Virtually every Southern state saw business and plant moratoriums skyrocket. There was a blip on the screen after 9/11 for Florida, but by the end of 2002, that state was the first in the South to emerge on the positive job side. It hasn't stopped since in Florida. The state created 175,000 jobs in 2004, dropping the unemployment rate there to 4.5 percent in December.

Texas Governor Wants Watchdogs

Texas Gov. Rick Perry has proposed the creation of a group of watchdogs at state agencies in the Lone Star State to uncover possible wasteful spending or fraud. Two years ago Perry faced the largest budget deficit of any state in the South. Today, state revenues have improved dramatically in Texas, which, Perry says, is even more reason to protect taxpayer interest.

We Knew you'd be Surprised

This winter the publication "Quality Counts" rated states based on their training for teachers. Which states made up the top five in the U.S.? The state the publication rated as best for teacher training is Louisiana. Following Louisiana was South Carolina, Connecticut, Kentucky and Arkansas. We knew you'd be surprised.

FedEx Expanding at Memphis Airport

There are few single site industries that have the economic effect of FedEx in Memphis. In the South there are only two: Wal-Mart's headquarters and its suppliers in Northwest Arkansas and Disney World in Orlando. Those are the only two single site industries that employ more individuals in the South than does FedEx in Memphis, which employs about 31,000. But watch out Wal-Mart and Disney, FedEx has found room at the Memphis Airport to expand. A land swap between the Tennessee Air National Guard and FedEx at the Memphis International Airport enables FedEx to build new facilities on 103 acres at the airport. No mention of new jobs was given in the press release, but FedEx is investing about $80 for the expansion.

Orlando International Airport Ranked Second Best in the World

Orlando International Airport was recently ranked No. 2 in the world for customer service according to the 2004 Global Airport Satisfaction Index Study conducted by J.D. Power and Associates. Hong Kong International Airport ranked No. 1 in the study.

Atlanta Transportation Plan Meets Air Standards

A $53 billion, 25-year transportation plan put forth by the Atlanta Regional Commission has met standards set by federal environmental and transportation officials. The Atlanta region is the first large market in the U.S. to meet federal air quality rules under the new eight-hour air quality standard. Even though the Atlanta area is projected to almost double in population over the next 25 years, under the new transportation plan, emissions from automobiles are expected to decline throughout the 25-year period as a result of investments made under the plan.

First Wind Powered Community Springs Up in Texas

The Shadow Creek Ranch, a master-planned community in Pearland, Tex., is the first in the state that will get its electricity from wind power. Austin-based Green Mountain Energy Co. is assisting in the development of the community, which is located just 15 miles south of downtown Houston and will include up to 10,000 homes. Green Mountain will offer an energy program that will average about 1,000 kilowatt hours each month of wind-generated electricity for each customer in the development. If all 10,000 potential customers use the program, it will eliminate approximately 18,000 pounds of carbon dioxide emissions each year.

Progress Energy Sells 2,600 Acres to State of N.C.

In an effort to improve its environmental stewardship, Raleigh-based Progress Energy has sold 2,600 acres of land near Asheville, N.C. to the state of North Carolina. North Carolina's Ecosystem Enhancement Program contributed more than $9 million to the purchase, while the Southern Appalachian Highlands Conservancy added $1 million to complete the land buy. The land is expected to be preserved in its natural state for decades.