Dean Barber

Stereotyping Places: We Do That, Too

In Corporate Site Selection and Economic Development on November 20, 2017 at 4:46 pm

It is not just bigoted people who use stereotypes. Psychologists say that we all categorize — or stereotype – pretty much all the time without knowing it, because our brains are wired to do so automatically.

And it goes beyond prejudging people by age, race and gender, which is wrong and dangerous. I also believe we stereotype places.

I kid you not, a few years ago, an economic developer in Ohio told me there were factory workers in Alabama going to work without shoes. My response: “Hmm, you know I lived in Alabama for 23 years and the only places where I saw people going barefoot was at the beach.”

His statement revealed a certain preconceived notion of people and place that he knew nothing about. Again, we all process and categorizes information to make sense of the world. Never mind that many of our assumptions make absolutely no sense at all.

I do economic development consulting for communities and site-selection consulting for companies, and even I catch myself making negative stereotypical judgments on places, even places that I think I know and like. More on that later.

Unnecessary and Discriminatory

Back in July, I wrote a blog was about attempts to pass a “bathroom bill” in Texasregulating which public restrooms transgender people were allowed to use.

The bill failed because of the business community’s opposition to it. The 4,000-member Texas Association of Business called the bill “unnecessary and discriminatory legislation” that could hurt economic development.

Testifying last week before the House Select Committee on Economic Competitiveness, Dallas Mavericks owner Mark Cuban summed up the testimony of several business leaders at the hearing succinctly: “I could care less where you pee.”

For reasons that I don’t fully understand, my blog from July has been getting a lot of hits lately. Just last week, one person posted remarks on LinkedIn which began with, “Texas and Alabama may be the worst.”

I pondered her opening statement. What did she mean by that? Certainly, both states have had a long history of institutional racism. But to categorize them as “the worst,” I wondered if she was unfairly stereotyping them.

Trust me, Texas is not about secede from the union, despite some knuckleheads who make noise on that issue. And not everyone in Alabama wants embattled GOP candidate Roy Moore (what are we up to nine women now?) to become a U.S. senator.

We Call it Walkin’

Texas, where I have lived for the past eight years, exudes an air, a brand of confidence, growth, brashness and braggadocio. In his closing speech at the Republican National Convention in 2004, President George W. Bush said, “Some folks look at me and see a certain swagger. In Texas, we call it walkin’.”

Adding to that mystique, a New York Times writer, living in Houston, wrote, “You don’t just move to Texas. Texas moves into you.” And strangely, there is some truth to that.

Of course, you could rightfully argue that all places where we live influences our beliefs to some degree. But Texas, once an independent country (the Republic of Texas, 1836-1846), does this is spades.

Texas fosters an image of exceptionalism to the degree that some of us actually begin to subscribe to the myth. I have done so by occasionally wearing cowboy boots with a suit while traveling back east. I know. It’s crazy.

I even own a hat and a belt plate the size of a dinner platter, although I do not wear either in public. But the point is that I could. I could play up the stereotype of being a Texan.

History is a Bitch

I left Alabama about 10 years ago, and despite its shortcomings (and all places have them), I have mostly fond memories of the 23 years that I lived there. It’s a physically beautiful state (much prettier than the Dallas-Fort Worth Metroplex where I now live).

The threat of being viewed through the lens of a negative stereotype, or the fear of doing something that would inadvertently confirm that stereotype seems ever present in Alabama.

Fifty years ago, it was the state’s shameful history during the Civil Rights Movement. Today it is GOP senate candidate Roy Moore, an embarrassment if there ever was one. Tomorrow, who knows who or what it will be, but it will be something.

The mere existence of Roy Moore confirms in some people’s minds that Alabama is a backwards place. That is confirmation bias in a nutshell, and we all have it to some degree. Damn the facts. We believe what we want to believe. (Which is precisely why many people will vote for Roy Moore.)

Economic developers in Alabama, those charged with assisting a rising tide that will lift all boats, cringe at the thought of having to explain the indefensible, proving that both current affairs and history can be a real bitch.

Double A: Aerospace and Automotive

And yet despite all that, Alabama has done pretty well in attracting blue-chip companies from all over the world. At least some have not been scared off, although there is no telling as to the number of lost opportunities, companies that might have come to Alabama but did not because of image.

Still, more than 300 aerospace companies operate in the state, including industry giants such as Airbus, which now produces passenger jets at a new $600 million manufacturing facility in Mobile. Boeing, Lockheed Martin, GE Aviation, Raytheon and GKN Aerospace also manufacture in the state.

So far this year, aerospace companies have unveiled plans to invest at least $500 million and bring more than 2,200 jobs to Alabama in new facilities or expansions of existing operations.

Alabama’s automotive industry was effectively born in 1993 when Mercedes-Benz announced plans to open its only U.S. assembly near Tuscaloosa. Since then, Honda, Hyundai and Toyota, as well as about 160 automotive suppliers, have come to the state.

In 2016, Alabama automakers produced more than 1 million cars and light trucks. The automotive sector employs about 40,000.

Back in Bama

Last week, I spent four days in Alabama, three of which were for business purposes, the fourth devoted to craft beer (Birmingham now has six craft breweries) and catching up with old friends.

Ostensibly, I came back to give a speech to stakeholders of the Lake Martin Area Economic Development Alliance, which encompasses Tallapoosa and Coosa counties.

From my time there, I saw a lot of good things and met a lot of good and talented people. I saw a surprising amount of physical infrastructure dedicated to manufacturing, as well as a depth of vocational training in the industrial skilled trades, which I consider the backbone jobs to manufacturing.

I was not so surprised to see a very pretty lake there, Lake Martin, with its million-dollar plus homes. But it’s nice to have.

This Was Russell Country

I will not go into detail, but much of the physical infrastructure that exists is the result of Russell Brands, LLC., now headquartered in Bowling Green, Ky., as a wholly owned subsidiary of Berkshire Hathaway.

Russell was founded in 1902 in Alexander City, the county seat of Tallapoosa County, and rose to become the dominant employer in the region. By 1990, the company, had become the top manufacturer of athletic uniforms in the U.S., and was operating 13 sewing plants outside Alexander City that employed 15,000 workers.

At that time, I was a business reporter, later to become the business editor, at The Birmingham News. I vaguely remember interviewing John Adams, then president and CEO of Russell.

Later, when I worked at the Economic Development Partnership of Alabama, it was understood that you did not take an industrial prospect to Alexander City because it was a company town, Russell Country, lock, stock and barrel.

Those days are long gone. Today, Russell is but a shell of its former self, employing less than 400 people in Alexander City. On September 28, Russell said it would be getting out of the team uniform manufacturing business after 115 years, and would focus on the consumer apparel market.

Back in Alexander City, many of the old sewing plants have been torn down, giving a war-torn, Walking-Dead appearance to certain areas. But the utility infrastructure remains, as does an empty but impressive looking 85,000-square-foot corporate headquarters building, which can be had for a song. (Contact me and I can tell you more.) In short, there are some very good opportunities here.

And Now Automotive

Today, Coosa and Tallapoosa counties continue their legacy in manufacturing, albeit in a different form. There are now five automotive manufacturers, principally Korean, as the region sits midway between the Hyundai assembly plant in Montgomery, Ala., and the Kia assembly plant in West Point, Ga.

Somewhat surprising is that the starting wages for production workers at these Korean supplier plants in Tallapoosa County is only $9 an hour, essentially ensuring those employees to be working poor.

But I am optimistic as to the future of the region, and not just because I was brought there to give a speech. The manufacturing tradition, the extensive physical infrastructure, and robust vocational training offered at Central Alabama Community College, should give this place a competitive advantage.

Shine the Light and See

I did not know this prior to my visit. I was under the mistaken belief that not much was left or happening with the departure of Russell. In short, I had stereotyped this place as being largely dead, another casualty community to an industry going offshore.

Just as it is wrong to stereotype people, the same thing can be said for places. If you give people and the places where they live the proper spotlight, chances are you will be surprised by what you see.

It may not be what you are looking for, but it is still of value.

I’ll see you down the road. (And Happy Thanksgiving and Roll Tide!)

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. (Send us your RFPs.) Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

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Taking Aerospace to the Next Level: Watch Oklahoma City

In Corporate Site Selection and Economic Development on November 5, 2017 at 7:18 pm

As a consultant to economic development organizations and industry, I have been to many communities, big and small, that have great potential. Or as I used to say when I lived in Alabama, “PO-tential.”

That is, these are places that have the capacity, the power to develop into something bigger and better. More often than not, they reveal glimpses of this power or I would not have recognized it in the first place.

After all, I’m just a consultant who asks a lot of questions. I’m no seer, although I have met a few consultants who consider themselves as such. What I can do is recognize the assets of a community, knowing full well that it takes planning and concerted action to leverage assets and thereby live up to the potential.

For that to happen, there has to be a foundation for success, as well as leadership with vision and buy-in from the community. And it requires a degree of courage and risk taking.

I recently spent time in Oklahoma City, a place that is very much acting upon its potential and in the process transforming itself. I was there at the bequest of the Greater Oklahoma City Chamber to speak to economic developers from the surrounding 10-county region on “the future of work.”

It’s subject that I have frequently tackled in past blogs. (See: The Future of Everything: Four different scenarios for the future of work; A Calm, Stable, Predictable World of Work is Not Happening: Digital technologies will affect us all, and it will get messy;  The Next Big Blue Collar Job: You don’t have to go to a four-year college to learn coding; The Jobs Will Change and So Will We: Artificial intelligence will change how we work.)

While I have only scratched the surface on the future of work, for purposes of this blog, I want to tell you about Oklahoma City, because I think a lot of communities could learn from it.

More Than Energy

When you think of Oklahoma City, or Oklahoma for that matter, you would rightly think of oil and gas. Apparently, there is a working oil well on the grounds of the state capitol. More importantly, the city is a mecca for corporate headquarters for the energy industry.

Devon Energy Corp.; Chesapeake Energy Corp., Continental Resources, Inc.; Chaparral Energy, LLC; Sandridge Energy, Inc.; Gulfport Energy Corp.; Blueknight Energy Partners; Kimray Inc.; and Balon Corp. are all based in OKC and represent historic wealth in the community.

But energy, while important, is not what caught my attention. Two big things stood out to me – the deliberate intention to grow the aerospace industry, the state’s second largest industry generating an annual economic impact of about $43.8 billion, and the continued investment in and transformation of the downtown.

The potential for greater things to happen in both areas is likely because of a concerted effort and action through public and private partnerships. The result will be, actually already has been, economic growth.

A Big Ecosystem

The effort to grow aerospace is already well underway. According to a 2016 report by RegionTrack, an Oklahoma City-based economic research firm specializing in regional economic forecasting and analysis, the aerospace industry in the OKC region is comprised of about 236 public and private sector employers.

They include some blue-chip names in the industry — Boeing, Pratt & Whitney, Lockheed Martin, Northrop Grumman, General Electric Aviation and AAR Aircraft Services.

As a whole, aerospace employers in the OKC region produce an estimated $4.9 billion in goods and services and employ more than 36,600 workers earning $2.7 billion in annual income.

Much of that ecosystem revolves around Tinker Air Force Base, which dates back to World War II when Tinker’s industrial plant repaired B-24 and B-17 bombers and fitted B-29s for combat. Today, Tinker is the headquarters of the Air Force Materiel Command’s Oklahoma City Air Logistics Center, the worldwide manager for a wide range of aircraft, engines, missiles, software and avionics and accessories components.

It’s safe to say that most of the aforementioned companies would not be in the region were it not for Tinker. As such, the base serves as the linchpin, the mothership to these defense contractors, of which Boeing is the largest with 2,600 workers.

In total, Tinker employs about 24,000 workers, of which about 18,000 are civilian. The base generated about $2.2 billion in goods and services while earning about $1.5 billion in wages in 2015.

Within the Air Logistics Center, there are 9,400 military and civilian personnel. They work in 63 buildings covering 8.2 million square feet of industrial floor space, most of which is devoted to maintaining, repairing and overhauling (MRO) military aircraft, including the C/KC-135, B-1B, B-52 and E-3, among others.

Building 9001

One of those buildings stands out as a goliath. A former General Motors plant, it was shut down in 2006. Incredibly, the voters gave Oklahoma County permission to buy the 2.6 million square building for $55 million. It was then promptly gifted to the Air Force for $1 a year.

Today, Building 9001 as it is now called is 75 percent occupied and it’s where a lot of manufacturing of military aircraft replacement parts takes place. Also, a large section is devoted to software engineering.

Shooting For Tier One

With all the jobs, with all the investment, you might think that local economic developers are happy with the state of aerospace in the community. Well, not quite.

Don’t get me wrong, they count their lucky stars that they have Tinker. They fully recognize that Tinker has largely defined the size and scope of aerospace in the local economy. They just want more, but with a twist.

A retired Air Force colonel, Tim Dickinson, now senior business development manager at the Chamber, describes Oklahoma City and the region as a “tier two” community when it comes to aerospace. The goal is to make it a “tier one” community by expanding into commercial work and research and development.

“Let’s create diversity. Let’s grow the commercial side, because the military side is very stable, very solid. Let’s add to our maintenance capabilities by doing commercial manufacturing and let’s go further up the life cycle into R&D,” Dickinson said. “Because if we can get the intellectual capital here, then we really do have something, not just in job stability, but in talent retention.”

Not Great Leaps

What Dickinson is describing is a pivot of sorts, not away from MRO work and Tinker, but ancillary manufacturing that would complement and build upon it. Engine manufacturing in particular would make sense, he said.

“It’s part of the fabric of who we are and what we do. And that would be a great segue from the military to the commercial side, away from MRO and toward manufacturing. Those are not great leaps,” Dickinson said.

“We’re already remaking structural parts for airplanes. Could we not make new structural parts for new airplanes? There are logical steps from where we are now and becoming that tier one community a decade from now.”

Jeff Seymour, director of business development at the Chamber, agrees with Dickinson that expanding into the commercial side is key to building the aerospace industry locally and reaching tier one status.

“A lot of that investment to date has been made to help Tinker directly. I think our challenge is to try to cast a vision in which we say that if we expand the investment out a little bit, it will still be good for Tinker, but also good for diversity and industry in the long term.”

In short, Seymour and Dickinson’s goal is to take aerospace to the next level in the OKC region by going after commercial work.

Talent Pipeline

Both the University of Oklahoma in Norman and Oklahoma State University in Stillwater offer undergraduate and graduate degrees in aerospace engineering. OU is stronger is software applications, whereas OSU concentrates more on airframe.

Both universities have been quite active in research pertaining to unmanned aerial vehicles, the use of which will undoubtedly grow, which will require more manufacturing.

The two universities, plus the fact that military personnel with advanced technical skills can retire in their 40s, provide for an engineering pipeline of talent that would be required if the OKC region is able to go to that next level.

But will it happen? Can the emphasis on the commercial side be realized with manufacturing? I believe so. The potential to become a Tier One aerospace community is there, because the foundation is in place from which to build upon, as is the vision and the will to take it to the next level.

A public/private partnership to create an jet engine test facility, in which companies and the military buy time to use, might be the spark to make bigger things happen. Stay tuned.

In my next blog, I will tell you how the Oklahoma City has exhibited vision and will to build upon the foundation of its downtown and its neighboring environs. It’s quite a story.

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 based in Dallas. BBA helps companies and communities. (Send us your RFPs.) Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

You Gotta Have Somethin’: In Defense of Incentives

In Corporate Site Selection and Economic Development on October 19, 2017 at 8:31 am

There are certain hot-button issues — God, politics, and possibly football – that are so dear to some people that they are incapable of changing their minds once they have formed an opinion.

We are all guilty of this to some degree. We espouse the notion of being objective, unbiased, logical and sensible, but research shows that we consistently fall short.

Confirmation bias causes us to pay closer attention to evidence and arguments that support our own firmly held conclusions and to discount contradictory evidence. We are resolute and the facts be damned.

Once we decide, we don’t like to re-decide. That’s too much work. It’s because of our neurological laziness that we sometimes fall prey to beliefs, impressions, and reports that are just plain wrong.

One of those beliefs, which many economic developers know all too well, is that all financial incentives provided to companies to expand in a given place amounts to “corporate welfare.” Try changing someone’s mind on that one.

Three Mega Projects

This argument goes back for decades, and periodically pops up, usually because of headlines. There are three mega projects in the news right now, and all center around incentives to some degree.

I am referring to FoxConn, which has announced that it will build a plant in Wisconsin, Toyota-Mazda, which publicly announced it will build plant somewhere, and Amazon, which also publicly announced that it will locate a second headquarters somewhere.

The size and scope of these projects, coming literally back to back, have economic developers, a group that is always watched, scrutinized, and second guessed, in a tizzy.

Get Things Right

Wisconsin’s efforts to bring a $10 billion Foxconn Technology Group plant to the state may have hit a snag. The board of the Wisconsin Economic Development Corp. delayed a vote to give final approval to a contract that would provide the Taiwanese firm with $3 billion in economic incentives.

Final action on the contract will not happen before the board’s next scheduled meeting on Nov. 8 at the earliest. Apparently, board members are wanting more safeguards in place.

“We’re going to take whatever time is required to get things right,” WEDC Chief Executive Officer Mark Hogan told the Milwaukee Journal Sentinel. 

The contract being considered would pay up to $2.85 billion in cash to the company over 15 years to offset 17% of its qualifying payroll costs as well as 15% of the capital costs of constructing an up to $10 billion factory that could employ as many as 13,000 people.

Unconventional and Big

The Amazon project has captured the imagination of the nation, partly because the Request for Proposal (RFP) was unconventionally published in a very public manner and the sheer size of it. This project defines big on so many different levels.

If you are reading this on Oct. 19, today is the deadline for the responses from cities that choose to compete. At stake is what Amazon is calling “HQ2,” a second headquarters that will create 50,000 direct jobs averaging $100,000 and approximately the same number of indirect jobs. The capital investment for 8 million square feet of office is estimated to be about $5 billion.

Amazon currently employs about 40,000 people in Seattle, where since 2010 it has paid nearly $26 billion in wages and spent $3.7 billion on buildings and infrastructure. The company estimates it has had an indirect economic impact of $38 billion on Seattle.

Pay to Play

Based on the numbers, I believe the city that wins HQ2 will be offering an incentive package in the billions. The Baltimore Sun has reported that Maryland’s incentive package reaches that mark. And in In New Jersey, outgoing Gov. Chris Christie (R) and bipartisan leadership of the state Legislature have pledged a $5 billion package.

It should be noted that New Jersey ranked 50th and Maryland ranked 43rd in the newly published 2018 State Tax Business Climate Index by the non-partisan Tax Foundation.

That is not to say that Amazon will go to the highest bidder. I don’t think it necessarily will. Tech talent and the culture of the place will go a long way in determining what city will become the next company town. But incentives will play a role, because they have to. It is now the nature of the game. It is what is expected.

The smallest of the three mega-projects is that of Toyota-Mazda. Together the Japanese companies will invest about $1.6 billion in the new plant. By all accounts, that is still a very large project, which is why the automakers are pressing for an incentive package of at least $1 billion, according to a recent Bloomberg report.

About 4,000 direct jobs will be created. Figure another 12,000 to 15,000 indirect jobs will be created.

Will they get it? Probably so based on history. Should they get it? Well, that depends on who you ask.

A Commonplace Tool

It is not just the national headline projects in which economic development incentives are employed. Just do a Google search and you will see that in Bexar County, where San Antonio is the county seat, local economic developers are pushing for a 10-year property tax abatement, worth nearly $3 million, for a credit union that will create about 50 new jobs.

Just last week, officials in San Antonio and Bexar County opted not to bid on the Amazon project, saying the city wouldn’t have been “competitive” on incentives.

In Hoover, Alabama, the city council approved tax rebates of up to $4 million for a Whole Foods Market Plaza shopping center. And in Hodge, Louisiana, the WestRock paper mill, which employs 450 workers with an annual payroll of $28 million, will get a performance-based tax rebate of $1.5 million a year for five years in exchange for a $200 million expansion that will keep the plant competitive.

My point is that incentives are a commonplace tool in economic development, and are not just awarded to the FoxConns, Amazons and the Toyotas of the world.

Textbook Tax-Break Auction

But that doesn’t make it easier for the critics to accept. They contend that companies are going to locate and expand with or without incentives. From their standpoint, granting incentives is an irresponsible and wasteful act that costs taxpayers.

Greg LeRoy, executive director of Good Jobs First, an organization that promotes corporate and government accountability in economic development, has called the Amazon project a “textbook tax-break auction.”

“Taxpayers should watch their wallets as the trophy deal of the decade attracts politicians to a hyper-sophisticated tax-break auction. We fear that many states and localities will offer to grossly overspend to attract Amazon, even though the business basics–especially a metro area’s executive talent pool–will surely control the company’s decision.

“Public auctions for economic development deals, like those staged in the past by Boeing and Tesla, are the rare exception: nearly all are staged in secret. Based on what we know about Amazon, we expect this one to be a textbook show,” he wrote.

A Bad Deal Costs a Good Man

To say there is not a kernel of truth to the critics’ arguments would be a fallacy. To say that mistakes have not been made in awarding incentives would be wrong.

I recently spent time with an economic developer whom I greatly respect and who lost his job because a deal went bad. Several million taxpayer dollars were lost, which naturally caught the attention of the news media.

But that same economic developer could rightfully point to a long track record of good deals that he brokered in which hundreds of millions of dollars, perhaps billions, were invested in his state and thousands of jobs were created.

Did he err? Yes, he would say that he absolutely did. But should he have had to fall on his sword because of one bad deal after a long string of successes? I don’t think so. But that’s what happened.

I could tell that it pained him to talk about it. And yet, he needed to. I’m glad I heard his story, because it put things in context. Incentives can be costly in more ways than one.

Greasing the Skids

But I am philosophically not opposed to incentives, so long as they are judiciously applied with the proper due diligence. Part of that is because I have represented companies in a consulting capacity that have sought incentives during a site selection project.

I always advise companies that incentives should never be the driver of the project, rather that solid business reasons should prevail. But the fact remains that there are substantial costs and risks to a new capital investment and job creation for a company in a new place.

“Greasing the skids” to lessen those upfront costs and risks only make sense to communities that choose to engage in business attraction and compete in the arena for corporate investment. But with this comes great responsibility.

Economic developers and local officials must know what the impact or return on investment will be to the local economy in terms of jobs created, (both direct and indirect) annual payroll, taxes paid, and the general economic ripple effects. Only then, when armed with the numbers, should they be offering public dollars as an inducement.

By the same token, companies should know the numbers and only accept incentives if they are certain they can do what they say they will do in terms of capital investment and job creation.

I Was There

Back in 1994, when I was the business editor of The Birmingham News, I heard complaints that Alabama had “bought” the Mercedes-Benz project, a $325 million assembly plant, with a $250 million incentive package.

I didn’t take those comments too much to heart, because I had seen the numbers showing that the incentives would pay for themselves in a matter of four or five years.

The plant in Tuscaloosa went through a number of expansions. I cannot tell you how many. I can tell you that the plant, now in its 20th year of production, was in the midst of a $1.3 billion expansion, when Mercedes announced last month that it would spend an additional $1 billion to manufacture electric SUVs and create an additional 600 jobs.

The economic impact of the latest expansion is to the state is estimated to be $307.9 million annually, according to the University of Alabama Center for Business and Economic Research. That includes contributing $109.2 million to the state’s GDP and $62.4 million in earnings to Alabama households from direct and indirect jobs.

Once this latest expansion is complete, Mercedes will have invested $6.8 billion in the state, a far cry from the initial investment of $325 million. Looking back, that $250 million incentive package was well spent.

Would Alabama have gotten Mercedes, or later Honda in Lincoln, or later still Hyundai in Montgomery, or Toyota in Huntsville without offering financial incentives? No way, and that’s because other states, offering their own incentive packages, were competing hard for those projects.

When I think of economic development incentives, for some strange reason Billy Preston’s 1974 hit record “Nothing from Nothing” pops into my mind.

Nothin’ from nothin’ leaves nothin’, You gotta have somethin’ if you want to be with me.

Billy understood.

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 based in Dallas. BBA helps companies and communities. (Send us your RFPs.) Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.