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Thread: Competition for industry: how far to go?

  1. #1
    Cyburbian Hawkeye66's avatar
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    Competition for industry: how far to go?

    I have an interesting situation. One of our manufacturers in town, who is not based in town is looking for various incentives. They have more or less hinted that they are looking at what we (state & local) can offer versus what the other location can. I am a little nervous about going too far, yet the addition they have planned would be substantial in terms of jobs and long term value.

    Thoughts?

  2. #2
    Cyburbian jordanb's avatar
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    What kind of industry is it?

    Seems like these places usually want huge tax deferments combined with new infrastructure. The city goes millions of dollars in the hole and then has to sit around for twenty years watching the taxable value of the property dwindle. Meanwhile all the jobs go to people in the Town Next Door.
    Reality does not conform to your ideology.
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  3. #3
    Cyburbian Hawkeye66's avatar
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    well, I don't want to get into too much detail. It involves both expanded manufacturing and warehouse space. I am sort of waiting to hear more details from them in terms of how many jobs they are adding, etc.

  4. #4
    Cyburbian MM1648's avatar
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    That is true.

  5. #5
    Cyburbian Brocktoon's avatar
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    Welcome to the high stakes world of retention. It is a buyers market and the companies know that every localities will compete for their project. My advice is pony up...because 25% of something is better than 100% of nothing.

    Contact Iowa's state economic development department and start working on putting together a package.

    You are correct to wait until they can give you a number on the project. If they want to much your are better to let your city council and state EDC decide how much is too mcuh.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  6. #6
    Cyburbian Tide's avatar
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    Common logic would say give until it starts costing you more than if they left. That's probably not an easy assesment, but would actually giving this industry more than you get back in taxes and employment be a smart financial decision? That's the ultimate question.
    Last edited by Tide; 18 Sep 2006 at 11:22 AM.
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  7. #7
    Cyburbian jordanb's avatar
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    Quote Originally posted by Tide View post
    Common logic would say give until it starts costing you more than if they left. That's probably not an easy assesment but would actuallly giving this industry more than you get back in taxes and employment be a smart financial decision? That's the ultimate question.
    ^-- This is an excellent point. Don't let the company take you to the bank. And jobs arguments are mostly specious especially if it's moving to a new location in the same metro. If the deal doesnít make sense in terms of tax dollars realized vs. tax dollars expended, youíre probably getting screwed. And be prepared not to win. If you're conservative then some other city might land the deal but then they'll be the ones getting taken for a ride.

    And in all likelihood the company isn't interested in moving at all but is figuring that they can play you against the city they're currently located in to try to get a ton of improvements and tax breaks.
    Reality does not conform to your ideology.
    http://neighborhoods.chicago.il.us Photographs of Life in the Neighborhoods of Chicago
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    Cyburbian Brocktoon's avatar
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    In doing your cost benefit analysis don't forget to include spin off jobs and other multipliers. Everyone, including the voters, thought Alabama was taken for a ride when that gave a $1 billion incentive package to Mercedes but the spin off jobs created and suppliers that located around the plant along with the additional expansions that MB did in the area made it look like a smart move.

    Also you must cosider the fact that if they build new in another location it could be signal the end of the companies location within your community. Once a company quits expanding within your area it is only a matter of time before they start reducing their presence within the community. Quanifying this for a CB analysis can be difficult but it should be considered.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  9. #9
    Cyburbian Cardinal's avatar
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    Quote Originally posted by Brocktoon View post
    In doing your cost benefit analysis don't forget to include spin off jobs and other multipliers. Everyone, including the voters, thought Alabama was taken for a ride when that gave a $1 billion incentive package to Mercedes but the spin off jobs created and suppliers that located around the plant along with the additional expansions that MB did in the area made it look like a smart move.

    Also you must cosider the fact that if they build new in another location it could be signal the end of the companies location within your community. Once a company quits expanding within your area it is only a matter of time before they start reducing their presence within the community. Quanifying this for a CB analysis can be difficult but it should be considered.
    By Alabama's calculations, a total of 6500 jobs would be created by the Toyota plant a few years ago -- at a time when there were about 3000 unemployed persons in the entire metropolitan region. There are many other factors involved, but as someone who has been practicing economic development since the 1980's I would tell you that this was a bad, bad deal for the state.

    I would almost never recommend including secondary impacts in an assessment. They are often little more than speculation.

    Follow the advice you have already gotten from others. Contact the state economic developers and let them take the lead in determining what incentives to offer.
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  10. #10
    Cyburbian Brocktoon's avatar
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    Quote Originally posted by Cardinal View post
    By Alabama's calculations, a total of 6500 jobs would be created by the Toyota plant a few years ago -- at a time when there were about 3000 unemployed persons in the entire metropolitan region. There are many other factors involved, but as someone who has been practicing economic development since the 1980's I would tell you that this was a bad, bad deal for the state.

    I would almost never recommend including secondary impacts in an assessment. They are often little more than speculation.

    Follow the advice you have already gotten from others. Contact the state economic developers and let them take the lead in determining what incentives to offer.
    The Toyaota plant has has expanded once but I am not farmiliar with the engine plant near Huntsville. It opened in 2003 with and expansioin in 2004. I think its a little early to be judging the impact of the deal. Sometimes the plans laid do not happen. The Kia plant in West Point, GA has been put on hold and many deals do not pan out. That is the risk the city takes.

    The Mercedes deal was decried as a bad deal but few in 'Bama would agree with that statement now. The plant has hired more people than planned and helped established Alabama as a good place to do automotive manufacturing.

    Again our jobs of economic developers is to gather all of the information and to lay out the case to the council so they can make the decision.

    In both of these deals the state offers the incentives. I would doubt that Tuscaloosa and Huntsville are upset they have Mecredes and Toyatoa plants in their community and that they do not want the jobs or the workers eating and shopping in thier communties or the truck drivers buying gas at the local service station. The state might feel they got taken but I doubt these two counties feel that way.

    In an area I worked an auto parts company wanted incentives to expand in the city and the council dragged their feet and said the 50 jobs created were to expensive and giving in to every demand was not good business. A city 40 miles away swooped in and offered all the incentives the company wanted and now that 50 person shop now employs 880 people. Needless to say the city councilhas not dragged its feet on an incentive package since.

    I guess my advice is loo at the big picture and look at the long term benefits and cost of the development not just the short term.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  11. #11
    Cyburbian hilldweller's avatar
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    ^^ Florida has been courting the biotech industry big time with huge incentive packages from the state (see Scripps in West Palm Beach). The Alabama example has been evoked to defend the hundreds of million dollars the state is throwing at biotech firms. I wonder whether the economic impact would be comparable though. I see jobs for scientists but unless there is a spillover into manufacturing I wonder if Florida's investment will be worth the price tag.

  12. #12
    Cyburbian Brocktoon's avatar
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    Quote Originally posted by hilldweller View post
    ^^ Florida has been courting the biotech industry big time with huge incentive packages from the state (see Scripps in West Palm Beach). The Alabama example has been evoked to defend the hundreds of million dollars the state is throwing at biotech firms. I wonder whether the economic impact would be comparable though. I see jobs for scientists but unless there is a spillover into manufacturing I wonder if Florida's investment will be worth the price tag.
    Biotech creates little spinoff industry and creates few jobs unless one of your biotechs hits it big. The failure rate is high and even if a firm is sucessful it takes a substanial sum of money to be successful. Biotechs start ups need expensive and highly specialized equipment. Many area have created biotech incubators to help reduce costs and enable partnerships.

    Comparing manufacturing of autos to biotech is a bit of a stretch in IMO. Is Florida specificly targeting a particular area in biotech and are they doing so in a specific region or can I open Brocktoon's Biotech Basement in the PalmCity/Struart location?
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  13. #13
    Cyburbian hilldweller's avatar
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    Quote Originally posted by Brocktoon View post
    Biotech creates little spinoff industry and creates few jobs unless one of your biotechs hits it big. The failure rate is high and even if a firm is sucessful it takes a substanial sum of money to be successful. Biotechs start ups need expensive and highly specialized equipment. Many area have created biotech incubators to help reduce costs and enable partnerships.

    Comparing manufacturing of autos to biotech is a bit of a stretch in IMO. Is Florida specificly targeting a particular area in biotech and are they doing so in a specific region or can I open Brocktoon's Biotech Basement in the PalmCity/Struart location?
    Florida is targeting biomedical research- firms looking for cures to cancer, diabetes, etc. Some of the major nonprofits from California are setting up shop here including Scripps and Burnham. I'm not sure if there is really a focused strategy for recruitment though.

  14. #14
    Cyburbian Tobinn's avatar
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    Check the teeth

    I'd want to have a look at their books and see how they're doing. About 10 years ago here in Clearwater, the City gave all sorts of incentives to some tech. company, set them up on the former City Hall site, yadda, yadda, yadda. They committed to a large, multi-building office campus with the premise that the site and the surrounding properties would all sort of gel into a significant office park. Three different companies later (the original company appeared to implode in the late 90's) and the only the first, original building has been built, the rest of the site is a dust field and no surrounding property has been redeveloped. In the end I don't think that the City has benefited one iota from this "deal".

    Maybe I'm naive (been accused of worse) but I'd insist on seeing a business plan, their books, anything to provide some backup that they are viable and not about to go under.

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    Cyburbian mike gurnee's avatar
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    Our proposed ethanol plant will generate 1,573 jobs. It is in writing. (But there is a caveat about "unique multipliers").

  16. #16
    Cyburbian Cardinal's avatar
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    Quote Originally posted by mike gurnee View post
    Our proposed ethanol plant will generate 1,573 jobs. It is in writing. (But there is a caveat about "unique multipliers").
    Interesting. I am doing work with the siting and economics of ethanol and corn milling right now. I have never seen numbers like that.
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  17. #17
    Cyburbian
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    Quote Originally posted by Cardinal View post
    Interesting. I am doing work with the siting and economics of ethanol and corn milling right now. I have never seen numbers like that.
    A proposed ethanol plant here is supposed to create 40 full time jobs. There is a few hundred temporary construction jobs. But nothing like 1500.

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