Dean Barber

On Murderers’ Row: Economic Development at Risk in North Carolina

In Corporate Site Selection and Economic Development on August 23, 2015 at 1:59 am

North Carolina has a lot going for it. It has mountains in the west and seashore in the east, making it the sixth-most visited state in the country.

It has two of the fastest growing metro areas in the country, that of Charlotte and Raleigh/Durham, which combined have accounted for nearly 60 percent of North Carolina’s job growth since the recession.

From old, North Carolina has tobacco, textiles and furniture, still hanging in there, with even new capital investment projects happening.

From new, it has experienced a flood of tech jobs, much of which has been prompted by Research Triangle and the concentration of topnotch universities and companies nearby.

Raleigh, currently home to more than 400 startups, has seen a 23 percent increase in IT jobs in the first half of this year.

Now I have been to North Carolina many times, both on business and pleasure, and I always left impressed with the growth and potential for more growth that I have witnessed there.

Of course, I like economic growth, which is partly why I live in Texas. (See last week’s blog, Armadillo’s Revenge.)

An All-Star Team in Turrmoil

But back to North Carolina, which has been given practically all-star status in economic development circles, proportional to that of the University of North Carolina’s basketball program.

To believe that all is well with economic development in the Tar Heel State, however, would be wrong. The truth is, things are a bit in turmoil there right now.

I started hearing murmurs of discontent, among both economic developers and site selection consultants, more than a year ago in the midst of a transition from a traditional state-run commerce department to a public-private partnership for industry recruitment.

Now this is somewhat understandable, as there is a part of human nature that does not like change. I get that. But when other site selection consultants were telling me of telephone calls not being returned, well, that’s not a good sign.

To be fair, I no longer believe this non-responsive scenario to hold true. The newly-created Economic Development Partnership of North Carolina may have got off to a shaky start, but it is now headed by a consummate professional, Chris Chung, of late of the Missouri Partnership, who above all believes in customer service.

Economic Developers Speaking Out

But you know things are not all hunky dory when Chris, along with other top economic developers in the state, are coming out with public statements that they are concerned about the competitive position that North Carolina finds itself.

They know too well that they are living with a manufactured crisis, made possible by a state legislature dogged by Tea Party activists. More on that later.

Said one fellow site selection consultant in an email exchange last week with me on North Carolina: “Difficult environment to do deals.” He added, “I know Chris is doing the best he can.”

Last week, the North Carolina House rejected a Senate version of an economic development bill, which would have increased annual financing for the Job Development Investment Grant (JDIG) program, truly the mainstay for the state’s incentive package.

JDIG’s Empty Till

The bill will now go to conference, where state lawmakers should, if they have a modicum of common sense, agree to a compromise bill, thereby funding the program.

JDIG is a discretionary incentive that provides sustained annual grants to new and expanding businesses measured against a percentage of withholding taxes paid by new employees.

The immediate problem is that JDIG is currently tapped out, as in there is no more money in the till. And that naturally has economic developers in the state very antsy, as they should be.

The N.C. Economic Developers Association back in May called on legislators to raise the cap on JDIG and extend it for five years beyond its sunset deadline of 2016.

“Without these types of programs, North Carolina and the economic developers across the state will operate at a disadvantage,” says Ernie Pearson, NCEDA president.

Ronnie Bryant, president and CEO of the 16-county Charlotte Regional Partnership, has not been pleased with the turn of events and has made his views known.

He said the Senate version, which caps JDIG at $20 million annually and adds $5 million to the current fiscal year, represents a watered-down compromise “that could potentially hamper business development.”

“I am among many regional and statewide economic-development officials, including John Skvarla, secretary of the North Carolina Department of Commerce, who have stated that JDIG shouldn’t be restricted by caps or a sunset date,” Bryant wrote in his weekly blog.

“This sends mixed messages to companies that are considering moving or expanding here.”

Defending Incentives

For his part, Skvalra, who has called JDIG “North Carolina’s flagship business recruitment tool,” has had to defend the idea that job-creation incentives do not constitute corporate welfare, which is never a good sign.

“Any number of considerations can lead a company to us – or away from us. Good sites, reliable infrastructure and talented workers get us to the finish line. Meaningful financial programs like JDIG and One N.C. put us across the finish line. Clearly, all these factors are important,” Skvalra wrote in a recent guest editorial for The Fayetteville Observer.

“But the absence of clarity regarding JDIG’s future erodes confidence in North Carolina as a destination for new jobs and investment. As the global economy moves ahead, most companies cannot afford to wait. Some have already taken their expansion plans to competing states.”

One of those competing states, neighboring South Carolina, is clearly on a roll. That state won two automotive assembly plants this year alone, when Mercedes-Benz announced in March and Volvo announced in May future factories to be built near Charleston.

Still No Auto Assembly Plant

Volvo had looked at three sites in North Carolina but passed, apparently viewing the overall incentive package being offered as not being particularly worthy. (Georgia was the second choice behind South Carolina.)

Unlike many states in the Southeast, most notably South Carolina, Tennessee, Kentucky, Georgia, Alabama and Mississippi, North Carolina has yet to win its first automotive assembly plant. It remains a stated goal for Chung.

(Jaguar Land Rover, which was reportedly considering North Carolina as a possible location for a new auto plant, has decided not to build in North America.)

Now I have tried in my past writings to avoid the political realm, as that is one sure-fire way to turn people off. I hope my readers can neither identify me as an R or a D, as I do not see myself as either.

Still, politics and economic development are so intertwined, so dependent on one another, that I must tiptoe into this arena, ever so reluctantly.

A Governor’s Feud

The bottom line is that politics are why economic development in North Carolina is having a difficult time of it right now, although I do expect the ship to be righted eventually.

It should be noted that legislators have yet to deliver a budget for the fiscal year that started July 1, the longest stalemate in 13 years.  The state is now operating under a temporary measure that allows it to spend money without a budget.

Knowledgeable observers tell me that the root of the problem is the rise of the Tea Party, particularly in the Senate.

On issue after issue, Gov. Pat McCrory, has been in a fight with the Senate almost since he took office in 2013. In rejecting Medicaid expansion under Obamacare and protecting opponents of gay marriage, the Legislature has forged ahead without him, sometimes overriding his vetoes.

That tattered relationship did not improve when Gov. McCrory criticized the Senate over a plan that would allocate more sales taxes collected in urban centers to rural areas.

This battle between anti-government Tea Party supporters and business-oriented Republicans, pitting urban against rural, is certainly not exclusive to North Carolina. Similar rifts have occurred in other states to be sure.

To Unilaterally Disarm is Not an Option

But in North Carolina, this political fight has resulted in economic development being held hostage. And, mind you, this is happening in a state in the Southeast, where economic development, is played hard and fast, much like its college football.

In an interview last month with the Charlotte Business Journal, Chris Chung acknowledged that North Carolina is at a “competitive disadvantage” with other Southeastern states.

“If we want to unilaterally disarm while the rest of our competitors continue to offer these tools, I really worry about our risk that we fall behind,” he said.

“We’re on murderers’ row when it comes to competition.”

I couldn’t have said it any better. I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm. OUR NEW ADDRESS is 2736 Golfing Green Drive, Dallas, Texas 75234. Dean can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

Armadillo’s Revenge: Texas Grows Despite Oil Slump

In Corporate Site Selection and Economic Development on August 15, 2015 at 5:08 pm

The law of supply and demand is one of the most basic principles in economics. The premise is that when an item is scarce, but many people want it, the price of that item will rise.

Conversely, if there is a larger supply of an item than consumer demand warrants, the price will fall, which is why crude oil slipped to $41.35 a barrel last week, the lowest intraday price since March 2009.

But here is a truism that you should know. Armadillos, the official small mammal in Texas, do not recognize nor abide by the law of supply and demand. They care not a whit about it. They simply go about their business.

Last month, some brainiac in Marietta, Texas, shot at an armadillo, with the bullet righteously ricocheting off the animal’s armor and back into the shooter’s face.

Said the Tyler (Texas) Morning Telegraph in an Aug. 7 editorial: “Don’t mess with Texas armadillos.”

Not Blistering But Not Bad

Just as you should not mess with our critters, you certainly should not predict the demise of the Texas economy, even with the struggling oil and gas industry. Some have suggested as much, and they would be wrong.

The Federal Reserve Bank of Dallas forecasts 2015 job growth for Texas at 156,000 jobs. Not the blistering pace of 2014 when the state added 457,900 jobs, but not bad.

Texas has been able to mitigate the economic damage done by crude’s price decline by cutting taxes and relying on its diversified economy, according to Gov. Greg Abbott.

“While other states have been raising taxes, we cut taxes by $4 billion … and it is attracting businesses from New York, from New Jersey and across the entire country,” Abbott told CNBC last month.

“Texas leads the nation in technology exports, we have the largest medical center, not just in the United States, but in the entire world,” Abbott added, also saying that General Motors is currently investing $1.4 billion to open a new manufacturing facility in Arlington.

A Hit in Jobs and Revenue

Still, in a world awash in oil, even Texans, albeit not their armadillos, cannot escape the law of supply and demand. Upstream oil and gas companies have laid off more than 20,000 workers in the state and more job cuts are likely on the way.

And the state’s revenue will take a hit from lower oil prices, according to an April report from the Dallas Federal Reserve Bank.

“Texas, owing to size and diversification, obtains 9 percent of tax revenue from oil and gas. Oil and gas severance tax revenue in Texas totaled $4.5 billion in 2013. With the halving of oil prices, and potentially lower production, those receipts likely will significantly fall in 2015,” the report said.

Nevertheless, Texas’ exposure to the oil glut is much smaller than that of other states, as crude accounts for 80 percent of Alaska’s tax revenue and nearly 50 percent of North Dakota’s, according to the Fed report.

A Healthier Diversified Economy

If the oil bust of the 1980s taught Texas anything, it was that a diversified economy is a healthier economy. In the decade and a half after 1986, Texas’ economy grew by 118 percent, while the mining industry (which includes oil and gas) grew only 18 percent.

“The Texas strategy of avoiding burdensome taxation and regulation has attracted a variety of businesses across many industries that have diversified the state economy,” according to a recent Wall Street Journal editorial, concluding, “the resilience in Texas is proving again that limiting government is an economic growth strategy for all seasons.”

One thing is for certain, the Texas housing market is on fire, with home prices skyrocketing to an all-time high in the second quarter of 2015. I can relate because I just bought a house in Dallas, where it is a sellers’ market to my chagrin.

“The impact of lower oil prices continues to be delayed, leading to a surprisingly strong second quarter. In fact, Texas home sales are actually stronger than they were this time last year, when oil prices were nearly $100 a barrel,” said Scott Kesner, chairman of the Texas Association of Realtors. “This is further evidence of the strong and enduring demand for Texas real estate.”

Texas home sales increased 46.3 percent from first quarter 2015 and 4.7 percent year-over-year to 88,906 home sales.

The median price for Texas homes also increased, growing 8.1 percent from second quarter 2014 to $200,000, while the average price increased 9 percent year-over-year to $258,786.

OPEC’s Strategy

OPEC, the 12-nation cartel led by Saudi Arabia, has refused to cut output in the light of lower prices and demand. In doing so, the cartel hopes to squeeze its U.S. rivals with higher production costs out of the market.

And that strategy might be working to some degree.  Earnings are down for U.S. producers, forcing them to decommission more than half their rigs and sharply cut investments in exploration and production.

Houston-based oil industry recruiter Swift Worldwide Resources estimates worldwide oil field layoffs have reached 176,100 so far.

Chevron recently announced that it will cut about 1,500 positions over the course of 2015, with bulk of the job cuts will happening in Houston.

OPEC is betting on the American energy revolution, which helped create the worldwide supply glut, resulting in an industry shakeout in which many of the new smaller oil companies that are heavily dependent on leverage not surviving.

Add China, a Strong Dollar and Iran

Add to the mix China, which has been the main driver of global growth. A slowdown in that country has meant that its appetite for raw materials of all sorts, including crude oil, has been and will be curtailed.

At the same time, a strong dollar makes oil more expensive for buyers in overseas markets. The U.S. dollar has soared 7 percent so far this year against a basket of currencies. China added to the pressure on oil by devaluing its currency last week.

And then there is Iran. The country’s nuclear deal with the West could pave the way for lots of new Iranian oil to flood the market at just the wrong time.

Add all this together and you get an environment in which oil companies are postponing investments, furloughing workers and cutting other costs.

Oil consulting firm Wood Mackenzie estimates global oil and natural-gas producers have delayed $200 billion of investment in more than 45 projects following the slump in crude prices that started in late 2014, as reported by Bloomberg.

Texas Will Keep On

Still, to the surprise of many, U.S. oil output remains stubbornly high, with projections that Texas will produce more oil and gas than ever before.

Karr Ingham, an economist for the Texas Alliance of Energy Producers, told a gathering of reporters in Houston last month that crude oil production in Texas will reach an all-time high in 2015.

Ingham, author of the Texas Petro Index (TPI), projected that total oil production in 2015 will be 1.284 billion barrels, surpassing the record high of 1.263 billion barrels set in 1972.

Explaining the apparent disconnect between oil production and wellhead prices in Texas would seem to fly in the face of the law of supply and demand.

According to press reports, Ingham said crude oil prices will have to drop to a price so low that production will be curtailed and demand will rise to remove the worldwide glut.

No one knows what that price point is and how long it will take for that to happen.

One thing is for certain, the armadillos, well, they don’t give a hoot.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm. OUR NEW ADDRESS is 2736 Golfing Green Drive, Dallas, Texas 75234. Dean can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

Moving is a Pain, for People and Companies

In Corporate Site Selection and Economic Development on August 8, 2015 at 2:04 pm

After a week of moving heavy boxes from a former residence to a new one, I am all stove up.

For those don’t know that southernism, it means that I am sore from my earlobes to my toes, as if I were beaten with two by fours. And thus I am more convinced than ever that physical labor does not agree with me and should be avoided whenever possible.

But I could not avoid it last week. While professional movers were hired to pick up and transport our furniture 15 miles from point A to point B, I spent the good part of last week packing and moving boxes in daily trips with my pickup truck.

And it hurt, it really did.

My wife said that I should leave all the packing and box moving for the movers. But I could not do that.

‘Cause when a Texan fancies, he’ll take his chances, chances will be taken, that’s for sure. (I’m quoting from the song “London Homesick Blues” by Gary P. Nunn.)

Bigger in Texas

Thankfully, we’ll be staying in the Metroplex, the terminology used here for the Dallas-Fort Worth metro area, which is gargantuan in size, 9,286 square miles of total area.

Yes, you read that right. It’s bigger than Rhode Island and Connecticut combined.

The 2014 official estimate U.S. Census has the Dallas-Fort Worth Metroplex at 6,954,330, making it the largest metropolitan area in the South and the fourth largest in the country.

The Metroplex added more than 131,000 people from July 1, 2013, to July 1, 2014, and the area’s population has grown by more than one million since the 2000 US census.

If the good news is that we are staying in the Metroplex, the bad is that moving, no matter how you cut it, is a royal pain in the petute. (I don’t think you need a definition here.)

Which got me to thinking about companies and how moving for them is also a difficult and even painful decision, which is the primary reason why my consultancy exists.

When you get down to it, some of the very same factors that are involved in a residential move so too are important for corporate site selection.

Proximity Matters

When we started looking for a new home, my wife wanted to be a closer to her place of work. Our new place is about one mile from a north/south interstate and less than a mile from an east/west interstate highway.

It is now about 10 or 15 minutes from her office, whereas before she had an hour commute via mostly toll roads.

Now she will have no toll roads for her daily commute and there will be lower fuel costs because of the shorter distance traveled.

Transportation costs, particularly for manufacturers moving products, can be a huge cost and is often not given proper consideration in factoring optimal locations in the site selection process.

Thankfully, I have a logistics expert on our team who can do the cost analysis on transportation, which we typically employ on finalist locations.

Taxes Matter

It just so happens that our property taxes will be lower in our new location in comparison to our former location. There are a lot of towns and cities in the DFW Metroplex. I have seen the number 71, which is astounding, but I believe it to be true.

Texas has no state property tax. (Nor state income tax.) The Legislature has authorized local governments to collect the tax. The state does not set tax rates, collect taxes or settle disputes between you and your local governments.

Again, at our new home, 15 miles away from our former home, we will be paying lower property taxes, which was a certainly a factor or an added plus during our residential site search.

Property taxes, and an assortment of other taxes, are typically of importance for companies considering a new location for operations, because they effect the bottom line and the cost of doing business.

An excessive tax bite has often prompted companies to move operations from one state to another. General Electric, along with Aetna Inc. and Travelers Cos., have of late decried the higher taxes in Connecticut.

Trust me, this is how you lose companies.

Energy Matters

I cannot say that utilities and energy costs were a big consideration for us during our home search in the Metroplex, but I can tell you that my wife, being the good steward that she is, insisted that we choose an electric utility that gets a big part of its energy load from renewable sources. And she chose accordingly, as she had that option here.

Energy costs, particularly for manufactures, can be a tremendous cost, so due diligence is required in a location analysis to determine how much they will be paying via the electrical load that they will require.

Many utilities offer complicated rate schedules that will have your eyes glaze over, when you just simply want a comparison number to go by.

Leave it to say, the costs per kilowatt hour (kWh) in this country can vary by a lot, from less than five cents per kilowatt hour to more than 50 cents, in the case of Block Island in Rhode Island, where the nation’s first offshore windfarm is now under construction.

Neighbors Matter

When we were looking for our new home, the condition and the feel of the neighborhood was important to us as was the demographics of the place.

We are not elitists, but neither do we want to live in a neighborhood plagued by crime and poverty, even if the real estate deal may be exceptional.

We knowingly paid more for our place because of the place and the fact that it is truly a seller’s market in the Dallas-Fort Worth area with the influx of people coming here and the limited inventory of residential properties for sale.

But the point is that we wanted to live in a neighborhood where we would feel comfortable and truly make it a home.

Companies are the same way. Most will want to be there for the long haul and want to gauge a community by its corporate presence and the neighbors that it will keep.

Property Matters

Some companies will knowingly pay more to go into an upscale business or industrial park, because they want that setting, particularly if customers come calling.

The last thing a company typically wants is building a nice corporate campus across the street from a junk yard or neighbors that are not conducive to the image that the company wants to portray.

And while companies look for characteristics of a labor draw for its future workforce in terms of quality and quantity, we, too, were looking at the human component in the neighborhoods where we were conducting our personal home site search.

A Specialist Matters

Finally, we employed our own site selection consultant to help us find what we were looking for. Tommy Lankri is one cool dude. A former Israeli Army sniper, this guy is driven. He helped us not only find the property we were looking for, but he proved to be the tough negotiator that we wanted.

I’m telling you, first-generation immigrants to the country always work harder. Tommy has already done astounding things and he will sure to make it big.

But the point is that my wife and I hired a consultant, a Realtor, to help us with our home site selection process. We had sense enough to know that we had gaps in our knowledge and needed that specialist for help. (And those professional movers were of big help, too.)

Which is the very same reason why companies should hire site selection consultants to do their location analysis. Companies know what they do, that’s what they are an expert in.

But they don’t know what they don’t know. They don’t know the many factors and intricacies of site selection, which is precisely why they should, and here is my shameless plug, hire Barber Business Advisors for that.

We can help and save a company time and money in the process, alleviating some of the pain that goes with a move.

In Memoriam

Ted Levine, founder of Development Counsellors International (DCI) passed away last week.  He was 89.

Ted founded DCI in 1960, when it was the only firm specializing in economic development public relations and marketing in the U.S., probably the world.

I did not know Ted well, but I liked him immediately when he offered me some valuable critiques to some of my early blogs. I could tell that he had great wisdom.

His son Andy took over DCI as president a few years ago. I see him as a chip off the old block, a standup guy just like his dad.

Lord, I wish we had more people like that in business today.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm. OUR NEW ADDRESS is 2736 Golfing Green Drive, Dallas, Texas 75234. Dean can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

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