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4 _.. .17, '=''F'D s PEC I A-L R E P O R•T •• EC:Q �1 .NtO M !1'`,t) E V:7E:L�D'P*M3EiN? - L • Critics charge that incentives reward companies moving to a state at the expense of the companies that are already there. • . �s, the 30-day window for height Academics may have doubts, but face theros ect of political backlash. ened incentives encouraged another state officials don't. In Oklahoma, Alabama officialshae taken heat for business, Cedar River Paper Co. (a joint about 44 companies have committed showering Mercedes-Benz AG, a for- venture of Weyerhauser and BE&K), to to bringing 11,000 jobs to the state eign company, with a gaudy $300 commit to build a $250 million card- under the Quality Jobs Program. million incentive package last hoard-recycling plant in Cedar Rapids. Indiana officials claim the EDGE pro- October. (Aside from massive tax State incentives are often funneled gram has brought Indiana 2,633 jobs, breaks, the state offered to buy 2,500 to third parties. As part of a $1.7 mil- $635 million in capital investment, and cars for state use.) "We're unjustly lion package to encourage MascoTech $71 million in annual payroll. And enriching companies that are pre- Inc., a Taylor, Michigan-based auto- last year, the Harris Industrial pared to move with the tax dollars parts maker (1993 sales: $1.6 billion), Directory reported that the of companies that are already to locate a 300-employee plant within number of new manufac- ..,-' -'" ' there," charges Jeffrey its borders, Indiana granted $400,000 turing firms in Pennsyl- ` Finkle, executive director to the city of North Vernon to make vania rose 38 percent _: ' of the National Council site improvements. between August 1992 . ."mafor Urban Economic Incentives don't just come in the and August 1993. 6 ~ _'+ '`` '` Development, in form of dollars, though. Local eco- There are limits on ,•„E,,,,s.: .`r Washington, D.C. nomic development groups and cham- incentives, though. Some officials private- ly complain about the David Perlini, Indiana Business Development Director: �a, process. "I would love for "We're a sales organization. We market, we there to be no incentives," advertise, we offer rebates, we dro the says Mark Lautman, president of p price." Rio Rancho Economic Development Corp. and a vice president at New hers of commerce now walk potential Mississippi's constitution forbids the York—based developer Amrep South- recruits through the maze of state state from making improvements on west Inc. The National Governors' eaucracy. And many states have companies' buildings. "And we couldn't Association last summer adopted vol- loped user-friendly programs that sponsor a flight in and out of Memphis untary guidelines exhorting governors oth the way for new businesses. for Sunbeam's sole purpose or charter, to improve the general economic cli- Georgia, for example, has a consoli- as they asked," says David Rumbarger, mate "rather ,than focus on subsidies dated permitting program that allows president of the Area Development for individual projects or companies." companies to get many federal and Partnership, in Hattiesburg, who nego- But few are prepared to stop offering state environmental permits from a tiated with Sunbeam-Oster. incentives. A recent study by Deloitte& single office. And some states just say no, espe- Touche found that most cities and South Carolina officials contacted cially since more of them are adopting states view incentives as essential to Louise Schmidt, president and CEO of a return-on-investment approach to attracting and retaining industry. Life Industries, an Old Beth Page, New incentives. Pennsylvania, for example, "We need a disarmament treaty," York—based maker of boat care prod- recently dropped out of the bidding Finkle insists. But so long as states feel ucts, soon after she decided to move on a steel company when it couldn't--they need to attract-mere jobs,this call the 22-employee firm to Charleston, meet Kentucky's offer. "We just decid- fdr a truce will likely an unheeded.s South Carolina. "They',/e a;iuwn me ed that's as far we could go," buildings, they've gone over the train- Governor Casey says. Daniel Gross overs finance and poll- ing programs available." Schmidt says. Companies and governments also tics from New York City. "They've walked us through the Department of Health and Environ .- -- , , ; . 'i ...`'x , • ,° ' ` k' fi f fY .. mental Control. We've covered every— thing from soup to nuts." espite the proliferation of state and local incentives,site consultants say companies WEIGHING THE COSTS should still screen locations based on fundamental criteria like access to markets, Do incentives work? The jury is still skills,transportation,and tax structure."When a company narrows down the sites to three put. 'The consensus within the aca- top locations,that's when the incentive looms," says Katie Burdorf, site consultant at The demic literature has shifted.from the Wadley-Donovan Group. "The most important factor in these decisions is geography," view that state and local taxes make adds Archie Schaffer of Tyson Foods.And CFOs shouldn't let dollar signs cloud their vision. no difference to the business to the "It's got to make sense for the business without the incentives," says Charles Galloway, hat they make a modest differ says Tim Bartik. a senior executive vice president of site consultant Moran, Stahl & Boyer, in New York. In part, e omist at the Upjohn Institute for that's because not all incentives have true value. "We had one where the state offered$10 Employment Research. million worth of day-care services,which the client couldn't use," Galloway says.. 48 JULY 1994•CFO