Dean Barber

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Game On

In Corporate Site Selection and Economic Development on June 30, 2014 at 12:37 pm

Some years ago, I attended a professional soccer match in Germany.  It was a daunting affair, as I remembered that as I was walking to the stadium, I could hear an almost hysterical voice over a loudspeaker and an accompanying roaring chorus of massed voices.

Hearing that in German was a bit unsettling, as if I were about to enter the belly of the beast.

Once inside, it got crazier still. On the opposite side of the stadium from where I stood for the entire game (no one sat), worked-up fans shouted in unison and waved banners representing their team from some German city. My side waved their own flags just as vigorously and screamed their lungs out to show support for their team.

I have never been to an SEC football game that had as much electricity in the stadium as that event in Germany. And again, hearing it in German, a language I don’t understand, brought forth images of Nuremberg rallies of a very dark age.

The Passion

But these were just football (soccer) fans, albeit fans with a lot of passion. And that is what sports does – create passion.

It’s because of that passion, I will leap to my feet in front of a television from the confines of my home and shout like a possessed soul when my beloved University of Alabama Crimson Tide and/or the Pittsburgh Steelers score a touchdown. During such moments, my wife views me as a demented person needing professional help.

I’m convinced that were it not for that passion, Jerry Jones would not have built a $1 billion stadium in Arlington, Texas, the home field of the Dallas Cowboys. Were it not for the passion created by the game, the Cowboys would not exist, nor would the Texas Rangers be housed in nearby Rangers Ballpark.

Indeed neither team would even exist (nor would any team) were it not for the passion created by the game. 

I started thinking about the psychology created by sports while watching the World Cup on television. Soccer is currently my summer thing, as I am not sure I will be watching it much after the World Cup. But it has a hold on me now, and as it is being shown in many bars and restaurants across the United States, it must have hold on other people, too.

While watching, I’ve noticed that when the camera pans to the crowds in the stadiums, you see delirious people who have probably spent a goodly sum of money to be there. And they have come from all over the world.

That got me thinking about the economic development. Where there is passion, there is often money or commerce that comes with it. And it’s not just major league cities that can capture the magic and the bucks.

I’m going to tell you about three communities – Jackson, Tenn.; Joplin, Mo., and Sioux Falls, S.D. — where I have seen how sports has been leveraged into an aspect of economic development.

Jackson

I do not hold it against Kyle Spurgeon, president of Jackson Chamber, that he mailed a baseball bat to me, which potentially added to my wife’s already considerable arsenal of weapons that could be used against me. (To be fair, she has never turned a hand against me, but knowing that she has the tools at her disposal is a bit unnerving.)

The West Tennessee Healthcare Sportsplex is a baseball and softball facility encompasses 70 acres adjacent to the Jackson Generals Ballpark, home of Jackson’s minor league Seattle Mariners affiliate, Jackson Generals.

Built in 2007, the facility, which is visible from Interstate 40 , includes 17 fields used for regional and national baseball and softball tournaments, clinics and collegiate tournaments. The Sportsplex will have served several million young players and their families in the first 10 years of its life.

“From March to October on any given weekend, there are between 80 and 100 teams playing at the Sportsplex,” Spurgeon said. “Those teams mainly come from Tennessee, Mississippi, Arkansas, Illinois and Kentucky. From an economic development and tourism standpoint, it’s bringing money into the community that were it not for the Sportsplex wouldn’t be there.”

Whenever Jackson gets a prospect visit from a company and/or site selection consultant, the local economic developers will include the Sportsplex and the adjacent double A stadium as a part of the community tour.

“It’s another selling point for us,” Spurgeon said. “Some of the companies that we have worked with are aware of the Sportsplex. It generates discussion. In traveling to Chicago or Atlanta or wherever talking to executives, if they have a son or daughter who have played travel ball, chances are they are familiar with Jackson.”

Jackson was recently recognized by the Tennessee Municipal League for a $50 million, state-of-the-art wellness center downtown, which really sets the community apart. I toured the newly opened LIFT (Living in a Fit Tennessee) last year and was most impressed with the 82,000-square-foot facility.

This truly is a quality-of-life community asset that can and is being assessed by the community. Certainly, it could be a viewed as drawing card in a site selection project if other aspects deemed important to the client company were present.

In short, people want to live and work in a place that is more livable, that offers certain amenities. Jackson is making a case for that.

Joplin

There is a subset of economic development which focuses on tourism, and Joplin, Mo., has narrowed the focus even further to sports tourism. It’s a similar tact taken by Jackson, with the exception that Joplin has a dedicated organization to that purpose.

The Joplin Sports Authority is a 501c3 not-for-profit group that does not own any facilities. Rather, it partners with host facilities and venues that includes Missouri Southern State University, Ozark Christian College, Joplin School District, Carl Junction School District, and the Joplin Parks and Recreation Department.

Surrounding communities such as Carthage, Mo.; Neosho, Mo.; Seneca, Mo.; Carl Junction, Mo.; Pittsburg, Kan.; Baxter Springs, Kan.; Miami, Okla., and Commerce, Okla., also contribute facilities for JSA events.

Joplin has a 4 percent hotel tax, with 3 percent going to the city’s the convention and visitor’s bureau, and 1 percent funding the sports commission. Its director, Craig Hull, is an unabashed advocate for the Joplin area, and bandies about such industry euphemisms as “heads and beds”; “torsos through the turnstiles”; and “cheeks in the seats.”

This past week, the Amateur Athletic Union held a national qualifying track and field championships at Missouri Southern State University in Joplin. About 1,800 athletes, ages 8 to 18, participated in the event, not counting the attending families.

The vast majority of the participants were from out-of-town in a regional qualifying event that includes Missouri, Kansas, Oklahoma, and Arkansas.

“We bring people to town, we get them to spend money, and we send them home with a smile, and we hope to get them back next year. That’s what sports travel tourism is about,” Hull said.

Hull estimates the direct economic impact of the event that ended Sunday to be between $800,000 to $1.1 million. That does not count an indirect effect that a “new dollar” by a visitor will typically re-circulate three times within the community.

“By the end of 2014, we will have had more than 15,000 athletes come through town, a town of 50,000 people with 2,000 hotel rooms. And we try to generate about 10,000 room nights a year,” Hull said.  “If we can take our $250,000 budget and generate 3 million in economic impact, we feel we have done a pretty good job. That’s a 12 to one return on investment.”

I think Hull nailed it. That is a good ROI.

Sioux Falls

The good mayor of Sioux Falls said in effect that we, a group of visiting site selection consultants, would be daft not to include his city as a finalist in any and all projects that would come to us.

As I was a guest in 2013, I did not break the news to him that it doesn’t quite work that way. Still, I was impressed by Mayor Mike Huether’s passion for his city. Besides, Sioux Falls has Slater Barr, an accomplished veteran economic developer. He understands.

One of the places that Slater took our group to was the Sanford Sports Complex. And let me tell you, it was one heck of a complex. Owned and operated by Sanford Health, a major health-care provider based in the Dakotas, the Sports Complex sits on a 162-acre campus that offers basketball, football, baseball, softball, hockey, tennis, volleyball, soccer, wrestling, you name it.

When we were there, we toured toured the Fieldhouse, an indoor sports facility with 62,000 square feet of indoor professional grade turf and state-of-the-art training facilities. We also worked through the Pentagon, which was then under construction.

The Pentagon will be the epicenter of the Sanford Sports Complex and the region’s premier sports facility. It’s a 160,000-square-foot facility that includes nine basketball courts — six high school regulation, two professional/college practice courts and the Heritage Court.

While the Pentagon features modern design and amenities, the Heritage Court at the center is a NBA/college size court with design features reminiscent of 1950’s/1960’s basketball. It’s just really cool. The Pentagon is the home of the Sioux Falls Skyforce, an NBA D-League team which has affiliated itself with the Miami Heat.

Barr says Miami Heat President Pat Riley has been to the Pentagon several times in the past year and that the facility is projected to eventually draw 1.1 million people per year. That will certainly a considerable direct economic impact, but it’s the intangible that may be of more importance.

“But I think the larger impact has to do with talent attraction and quality of life. It’s very important to us to keep our community growing, and statistics show that people tend to relocate to communities that they have already visited in the past that they have developed an affinity or relationship to,” Barr said. “Things like sports create that.”

It’s that emotional bond that sports can create for a place. It should never be underestimated.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

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My Pet Peeves

In Corporate Site Selection and Economic Development, Uncategorized on June 22, 2014 at 6:13 am

I always welcome the opportunity to meet with economic developers when they come to the Dallas-Fort Worth area to call on site selection consultants. If my schedule permits, I’m with you.

Sometimes those invitations come via email and sometimes by phone calls. It matters not to me which way I am initially contacted, although email follow-up will be requested so that I don’t have to tie a string around my finger.

But how people want to be communicated with is a personal preference. And when you are engaged in business development, it is something to take note of and even document.

I recently finished making a slew of appointments with aviation/aerospace/defense industry contacts in Southern California. I noticed that I was far more effective by using a combination of LinkedIn messages/phone calls than I was by email.

If someone has more than 500 LinkedIn contacts, that is a pretty good sign that they take LinkedIn seriously as a business tool, which means it might be a good way to make initial contact with them.

A friend of mine, an economic developer with a utility company, told me this past week that his company forbids the use of any social media at the workplace. Now I understand that to a point – “Hey, here’s a picture of my dog Roscoe fetching a stick that I threw into a pond.”

Social Media can be abused at the job. No doubt about it. But when I asked my friend if his employer understood the value that LinkedIn could provide in business development, he sighed. “They don’t get it.”

It continually amazes me how many business people do not use LinkedIn — that this can be a valuable business development tool in the proverbial tool box. Oh well, some folks just don’t get it.

That’s not a pet peeve so much as a fact.

How About a Yes or a No?

But we all have our pet peeves, things that bother us that probably shouldn’t but still do.

The older I get, the more I try not to let the small stuff get under my skin. Still, I cannot help but notice that there is such a thing as business etiquette, most of it founded upon common sense and just good manners.

For example, if I am asked to submit a proposal – whether it is a strategic/action plan for an economic development organization or for a company on a site selection project — it usually happens as a result of a conference call or a meeting  with that potential client.

And in the aftermath of discussing the wants and needs of that potential client, I am going to put forth substantial time and effort in writing a proposal. It is expected of me, a precursor to winning the job and performing the work.

And, in turn, I would hope and expect for an eventual answer, whether it be a yes or a no. But sometimes, weeks and even months go by and there is silence, even after some gentle prodding. Not getting an answer, after putting forth time and effort, just bugs the heck out of me.

Truly, I would rather hear “no” than not to get an answer at all.

Now this is a common complaint from economic developers, which I think is absolutely valid. If my community is eliminated from consideration on a site selection project after I have submitted an often lengthy request for information/proposal, please let me know. Just don’t leave me hanging. I got a board breathing down my neck.

As a former economic developer, I can relate, and will do all that I can to timely inform those who submitted RFI’s as to whether they remain in the running or not on a given project. To me, it’s a simple courtesy that they deserve.

Think Follow Up

This does not bother me nearly to the same degree, but I cannot help but take note of it and so will mention it.

An economic development group has asked to meet with me while visiting here in the Dallas-Fort Worth area. We schedule a meeting, and it turns out to be a productive meeting. I learned stuff as a result. That’s always a good thing.

But then there’s no follow up. I never hear from them. Now mind you, I am not expecting a hand-written perfumed card. But a simple email follow-up with contact information would be nice.

To me, that’s business development 101. But I wonder about the economic developers who do not do that. Were they just going through the motions to meet some matrix or quota when they met with me?

About half of the meetings that I have with visiting economic developers from around the country who come to the Dallas-Fort Worth area, there is no follow up from them. Strange but true.

Give it To Me Straight

I cannot help but admire business rebels and pathfinders, entrepreneurs who shake up an industry by building a top-notch company that doesn’t follow but leads by its own way. I am a big fan of Richard Branson, founder of Virgin Airlines, and famed oilman T. Boone Pickens.

These are very plain spoken men. You know exactly what they are saying, because they refuse to engage in corporate/consultant jargon. Here’s a couple of my favorite T. Boone quotes. The first one, he attributes to his father.

“Son, a fool with a plan can beat a genius with no plan any day.”

“A plan without action isn’t a plan, it’s a speech.”

 “If you are going to run with the big dogs, you have to get out from under the porch.”

Branson is not so folksy. That’s not him. But he does appreciate the use of clear understandable language. Here’s a story he recently told, which by the way, I picked up on LinkedIn.

“Some people love speaking in jargon, using fancy words and turning everything into acronyms. Personally, I find this simply slows things down, confuses people and causes them to lose interest. It’s far better to use a simple term and commonplace words that everyone will understand, rather than showing off and annoying your audience.

“In some industries, technical terms are everywhere – especially in the financial sector. As somebody who didn’t understand the difference between net and gross for many years, despite running several billion dollar companies, I have always preferred when financial issues are explained clearly.

“A few years ago we were looking into investing money in a financial company. The person I was talking to said: “We only have a 5 percent bid offer spread.” Later I asked one of my team what the guy was talking about. He explained how they were using jargon as a way of hiding the fact they were stealing 5 percent before we even started!

“Sometimes there are more sinister reasons for using jargon, and it is all too easy to fall foul of these tricks. Do you wish people would tell it to you straight rather than blinding you with terminology?”

We’re No. 1!

Now this is a pet peeve that I should just bury internally and ignore. 

And it involves a claim that is often seen on economic development websites but sometimes even uttered aloud, – that a particular place is the very “best” place for   all businesses under the sun, bar none.

Not long ago I met a group of economic developers from a state that I see as having a very favorable business climate. But one local economic developer kept making the claim, repeatedly, that her community was “the best” for all businesses.

More often, you will hear this outlandish statement from an elected official, typically a mayor, who just don’t know any better. But an economic developer should know better.

“I’m sorry, but there is no such a place,” I replied to her dryly. She looked at me as if I had cussed in church.

 “If there were such a place – a single best place for business – don’t you think they would all be there? No, there’s just better places for certain kinds of businesses, which is really the basis for my site selection consulting business.”

“No, really, our city is the best,” she doubled downed.

Alrighty then.

A Transcript Please

This past week alone, I have received emailed invitations from economic development organizations in California and Florida, to attend luncheons. Clearly, these invitations were designed for a local audience, that is, community stakeholders, on local subject manner.

But still, I get these emails on a regular basis. And sometimes, I have the audacity to reply to them.

“Please forgive me, as I will not be catching a plane to attend your luncheon which is 1,300 miles away from me. But I am most interested in the remarks from your local animal control officer. Please send me a transcript if possible.”

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

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It’s a Scary World

In Corporate Site Selection and Economic Development on June 15, 2014 at 8:34 am

Most consultants have the imminent good sense not write a blog, whereas I am foolish enough to publish my thoughts on business trends and happenings on a regular basis.

It is a presumptuous act in many ways. Mark Twain must have had consultants  in mind when he wrote: “To succeed in life, you need two things: ignorance and confidence.”

To which, I must be blessed.

BBA Really is a Business

But I am incapable of turning out an industry white paper or academic treatise once a week. That’s not what this blog  is nor what my business is about.

And be assured that what I do – corporate site selection consulting and economic development consulting under the nameplate of Barber Business Advisors, LLC – is a business.

Apparently that is not fully grasped by some economic developers who would want me to spend multiple days in their communities without compensation. This I cannot do if I am going to keep the doors open.

As one who is self employed, time and money are inextricably linked. Which means, if I could, I would, but if I can’t, I shan’t.

I do like community “fam tours,” to which I am frequently invited. There’s nothing like seeing a place firsthand. But as Lefty Frizzell sang, “If you got the money, honey, I got the time.”

Oil, Blood and Religion

And as a former business journalist, I will confess that when writing this blog I am often reacting to the news of the day. But that is what keeps it topical and interesting, at least that is the hope

Last week, I wrote about coal and how a proposed increased clampdown by the EPA will likely mean less of it being burned by power plants in the United States, as more utilities continue to shift to natural gas. So that particular blog entry was based on breaking news, with the knowledge that energy costs is of great importance to businesses and consumers alike.

This week, I’m leveraging breaking news yet again, with the focus on oil, blood and religion and how it can come back to effect us.  Iraq is in the news as it appears to be a state of meltdown, largely because of a blood feud between Sunni and Shiite sects of Islam that dates back a thousand years.

Fear Premium

And because oil is a global commodity, what happens in one part of the world will affect oil prices everywhere. Crude prices have jumped this past week as a sharp “fear premium” set in quickly because of rapid and unexpected gains of the militants in Iraq.

West Texas Intermediate crude, the oil on which U.S. prices are based, rose 14 cents to $106.67 a barrel Friday. It was up 4.1 percent this week to the highest level since September.

Brent crude, which sets the price of most foreign oil, was up 48 cents to $113.50 a barrel. It rose 4.4 percent this week, the biggest rise in nearly a year. Rising oil prices haven’t yet translated to higher gasoline prices for U.S. drivers, but that could very well happen.

In addition to the unexpected territorial gains of Islamic extremists in Iraq, investors also are unnerved by the war in Syria, terrorism in Nigeria and fighting in Ukraine. Yep, it’s a scary world out there.

But There is Good News

Because of the recent U.S. shale and Canadian oil sand booms, surging North American oil production is dramatically reducing U.S. oil imports and has even led to a glut of light, sweet crude oil.

U.S. oil production recently hit a 25 year high and is expected to grow to 9.2 million barrels a day in 2015 and 9.6 million by 2016. That will make the U.S. the world’s largest oil producer, ahead of even Saudi Arabia and Russia. Meanwhile, net U.S. oil imports have fallen to a 28-year low in 2013.

Our country’s emergence as an oil and gas powerhouse has largely kept global oil prices relatively flat for the past few years despite the political upheavals happening around the world. But that doesn’t mean it will always hold true.

It’s Always Political

The truth is that our energy surplus does not mean that we can escape global risks associated with energy. Who controls the oil fields and pipelines in Iraq can very much affect the global price of oil and our energy costs here at home.

Wrote Bruce Jones with the Brookings Institute this past week:

“In the energy sector, it’s always political. Economies cannot function without energy, nor can they change their energy mix overnight—leaving countries heavily dependent on key trading relationships.

“Energy is also an essential ingredient of strategic power projection, and is treated by most governments not as a market good but as a strategic commodity. These global political considerations will not be removed from America’s energy interests even as the U.S. becomes more energy independent.”

Oil traders do not react well when there’s an impending civil war in one of the world’s biggest producers of crude.

The Great Unraveling

The Sunni insurgents of the Islamic State of Iraq and Syria (ISIS) overran the northern Iraqi city of Tikrit, which hosts a 300,000-barrel per day refinery, while Kurdish forces now control the oil-rich city of Kirkuk after Iraqi troops abandoned their post.

And the Kurds have high hopes of taking advantage of the turmoil by forming their own country. Indeed, what we might be seeing is the emergence of a new Middle East and the unraveling of a not-so-old Middle East, where borders were drawn up by the British and the French after World War I.

This is a place where there has never been (and I don’t think ever will be) a tradition of democracy, and where the definition of a stable government is one where there is a strongman putting a jackboot on somebody’s neck.

Sit Back and Watch

The best we can hope for is that groups who would wish to target the U.S. in terms of terroristic acts are kept in check and that oil production continues in an unabated fashion. Whether we can act militarily to control events is doubtful.

With an Al Qaeda offshoot on one side facing off against Shiite Iranian revolutionary guard on the other, it’s not easy to find someone to root for in this conflict. Neither group has warm and fuzzy feelings about the U.S.

So rather than intervening militarily, as a corrupt, secular regime in Baghdad would hope, maybe, just maybe, we just should sit back and watch our adversaries wage war and thereby weaken each other. That is a tact the Israelis have taken in the past.

You don’t hear our military clamoring for action, and that should tell you something.

A Safe Harbor

Energy costs are crucial to businesses planning for the future, and in deciding where businesses establish operations. Transportation costs over large distances are one contributing reason as to why some re-shoring has occurred.

The U.S. has grown more attractive as a destination for foreign investment. According to a survey by A.T. Kearney, a Chicago-based management-consulting firm, the U.S. ranked first in the firm’s annual survey of senior executives released earlier this month. China was second, followed by Canada, Britain and Brazil.

“There is this continued flight to safety, or perceived safety,” Paul Laudicina, a partner at Kearney, told The Wall Street Journal.

A maelstrom in the Middle East, where energy prices could further escalate, would only strengthen that incentive to bring operations closer to home. With Ukraine, Nigeria and now the Middle East showing signs of instability don’t be surprised if more companies, both foreign and domestic, see the U.S. as protected port in a storm.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

Down But Not Out

In Corporate Site Selection and Economic Development, Energy on June 8, 2014 at 5:27 am

Well before I first went down into a coal mine, I had this fascination with how coal has shaped lives and communities.

Having family roots in Appalachia, I have seen how coal transforms a place and people, both good and bad.

On the good side, it has historically provided for very good wages to people willing to do the work in typically economically depressed areas, while providing the United States with a cheap and reliable source of energy.

On the bad side, it is dangerous work that has cost and shortened lives. In some places, it has scarred the land and has generally created some environmental problems both on a local and national level and even a world-wide basis.

Because of a subscribed-to belief that climate change is happening and in part due to the burning of carbon fuels, coal-fired plants have faced increased regulation during the Obama administration. Not surprisingly, the coal industry sees this as an assault on its very existence.

 A “war on coal” is a common phrase used within the industry and coal communities in Appalachia by people who are utterly convinced that the current administration is dead set on making coal an obsolete fuel.

A Further Clampdown

President Obama only further confirmed that belief last week with proposed a new rule designed to further clampdown on carbon dioxide emissions from American power plants.

The Environmental Protection Agency proposal calls for reductions in carbon dioxide pollutants of 30 percent by 2030 from 2005 levels to stem climate change.

And while the newly proposed measure is certainly no shot in the arm for coal, neither is it a fatal blow. The truth that even before the new EPA proposal, coal-fired power plants in the U.S. have been under significant economic pressure because of low natural gas prices and slow electricity demand growth. Add to that further environmental regulation and you got yourself one very unhappy industry.

The U.S. had 1,308 coal power plants at the end of 2012. Their average age is 42 years, while 11 percent have been operating for more than 60 years. To ensure a reliable supply of electricity while meeting current environmental regulations, utilities have been retiring the older, inefficient plants increasing  the output of those that remain online.

If an average coal plant is currently operating at about 50 percent of capacity, once the older plants retire, the remaining units may increase capacity to about 55 percent, Brandon Blossman, an analyst at Houston-based Tudor Pickering Holt & Co., told Bloomberg.

“You’ll run the balance of the fleet harder,” he said.

Coal’s Share Will Slide

Under the new rules, the U.S. will still burn between 616 million and 636 million tons of coal for power in 2020, compared with 844 million tons if the restrictions did not into effect, a reduction of 25 to 27 percent, according to the EPA.

Coal’s share of the country’s power generation, now about 40 percent, is estimated to fall to about 33 percent in 2020 and 30 to 31 percent in 2030 under the proposed curbs, compared with an increase to 41 percent under existing rules, the EPA’s figures show.

The bottom line is that while demand for coal will be further stifled, which is bound to hurt certain companies and communities dearly, the latest EPA proposal is not the death knell of coal as portrayed by some industry advocates.

Not surprisingly, the National Mining Association said the EPA proposal will increase power prices and threaten energy grid reliability.

“These regulations, if finalized, would be a loss for American consumers, manufacturers and businesses nationwide, but especially for those in states that rely on low cost electricity from coal,” the Washington-based industry group said.

Higher Energy Costs?

Jay Timmons, president and CEO of the National Association of Manufacturers, said the EPA proposal could eliminate any U.S. competitive advantage by “removing reliable and abundant sources of energy from our nation’s energy mix.”

The American Chemistry Council repeated the competitiveness argument:  “As we begin our review of EPA’s proposal, we remain concerned that the regulations could lead to higher energy prices in certain parts of the country, a scenario that would make it more difficult for manufacturers in those states to compete abroad and grow and hire in the U.S.”

As one corporate site selection and economic development consulting, the idea that energy prices could rise in certain parts of the country in relation to others has me most concerned. Could that create even greater discrepancies in the cost of operations between states and regions? I don’t know the answer to that yet, but that will be something that I will be watching closely.

The EPA, by the way, predicts that overall energy costs will actually go down because the proposed regulatory changes, based on a pretty simple market theory that less demand for coal will mean for lower prices.

It is interesting to note that the ACA did throw a bone to the Obama administration by saying this: “We welcome the flexibility the Administration gave to states in designing compliance plans, and urge states to carefully assess how specific programs would affect energy costs, diversity and reliability.” 

A Question of Fairness

Now from my admittedly short-shrift analysis, it would appear that Texas, where I so happen to live, would have to share more of the brunt than other states if the proposed EPA rule goes into effect.

Texas alone will account for a quarter of the total U.S. reductions, with a cut of 39 percent required over the next 15 years if the proposed rule is adopted, whereas coal-dependent states like West Virginia and Kentucky face requirements of less than half that.

The EPA calculated the goals based a complex formula including existing emissions and availability of renewable power. States would be free to choose their own approaches as long as they achieve the goal.

While the proposed overall cut in Texas is considerable, a natural-gas production boom and large increases in wind energy (Texas is the nation’s top wind-power producer) has meant for a weaning off of coal. But that overall trend is happening in other states as well.

Energy Future Holdings Corp., the largest power generator in Texas, filed for bankruptcy on April 29 after a collapse in gas prices cut into revenue at the company’s coal-fired and nuclear power plants.

So there will certainly be winners and losers as we continue to transition away from coal, but the coal industry is not nor will be dead by any means. Coal remains the world’s second largest source of energy, and the U.S. is one of the top exporters of it in the world.

And somehow, someway, I believe that we will continue to use coal as a fuel source in the future in this country, because we will see an emergence of proven clean coal technologies. Too much is at stake not to go that route, even with our natural gas boom.

Controversy is not new to coal. King Edward I banned its use in London in 1306 because of heavy smoke from its fires. Centuries later coal fired the industrial revolution and shrouded London, a resident of that city in 1905 coined the word “smog.”

Personal Observations

Back in the 1980s, as a young reporter with The Birmingham News, I partnered with future Pulitzer-prize winner Rick Bragg in writing about the coal industry in Alabama. If I recall correctly, we wrote a series of stories that won some awards. I think a got plaque that I would subsequently use for a vegetable cutting board.

Far more important than any award was what we learned and reported, as we were able to go down into the mines and watch and talk to the miners at work. When we came back up to the surface via a long elevator ride, our faces were blackened just like the miners. But in the end, we were visitors into their world, albeit we told their stories.

And in the process, we learned how important the coal industry was to the miners and their families and to entire communities that were dependent upon it.

I came away with a lot of respect for coal miners. They are another breed entirely, where race and class plays no part. There’s brotherhood down in the mines and a certain closeness to mining communities.

So I cannot subscribe to the notion that coal is best left in the ground. I believe there is a future role for it and that emerging technologies to essentially clean it up will make it so. This is an area where we need a big R&D push. I hope it will happen and that the coal miners, those who remain, stay safe.

I’ll see you down the road. 

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

 

All Good Things in Moderation

In Corporate Site Selection and Economic Development on June 1, 2014 at 6:07 am

During the more than three years that I have been writing this blog, I have not expounded on the subject of financial incentives being given to companies that will invest capital and jobs in a given place.

If you were to look at my LinkedIn profile or the website for Barber Business Advisors, you would see reference to “incentives negotiation.” That should give you a  clue as to my belief that there is indeed a role for incentives in the corporate site selection process.

Still, I cannot help but notice that this is a very emotional subject for some people. Even economic developers disagree on this, which is somewhat surprising to me. And because of its divisive nature, it is quite unlikely that what I write on this topic will change anybody’s mind.

Still, the blog must go on and so brace yourself, dear readers, for my take on this somewhat controversial topic.

My first point may be the hardest one for some people to accept – that whether you like it or not, incentives are a reality and sometimes, not all the time, play an important role in the site selection process.

Let’s Boil It Down

There is winnowing process inherent to corporate site selection. Locations must be eliminated for a variety of reasons to let the cream rise to the top.  While no place is perfect, our job as a site selection consultantancy is to boil it down, based on the company’s needs, to two or three places, all of which would make for a good location for future operations.

At that point (and not on the front end) discussions on incentives, I believe, are most appropriate.

But well before we get to that stage, we have reached an understanding with our corporate client that incentives should not drive the process of site selection – it should be primary business reasons that have been thoroughly analyzed and vetted — but rather be a contributory factor as to where that ultimate best location may be.

And at that point, the community that offers the most incentives doesn’t necessary have to be the ultimate choice. But if the company is going to invest millions of dollars of capital and jobs in your community, we’d hope to see a little love in return.

Having said that, I believe a local government/economic development organization has every right, indeed has a fiduciary responsibility to its citizenry, to do a cost benefit analysis to determine what is and what is not financially doable in terms of incentives.

I have no problem with reasonable clawback arrangements and believe that they can be written into a contract to protect a community. They key word here is reasonable.

Look, a bad deal is in nobody’s interest. Not for the community or the company where it would have to reside. But by offering virtually no incentives, which is usually rare in projects of any size, a community sends us a not-so-subtle message that there would be no love lost if we continue to look elsewhere.

You Can Get Creative

So what are incentives? Well, they can be a lot of things. They can be grants, low-interest loans, sales and/or property tax abatements over an extended period of time, workforce training, expedited one-stop shop permitting and even free land. Those are some that come to mind, but I have seen communities get very creative in their local offerings.

I’ve seen communities offer free office space to companies while their new building is under construction. I knew of a town that offered a company an apartment during the initial build out year at no cost as well as membership to the local country club. You might think that as goofy, but I’ve seen it work.

Legalities, of course, apply. Private or public/private ED organizations tend to have more leeway than ED departments of city or county local government.

I don’t particularly think of site preparation as an incentive so much as getting to an equal playing field with your competition. In most instances, we want a site to be ready so that we can hit the ground running, which is all the more reason for us to look at certified sites where all the due diligence has been done.

Two Competing Camps

Generally speaking, you have two competing camps in their outlooks on incentives. There are those who believe that incentives amount to no more than corporate welfare and that any and all such offerings should be illegal or at least highly restricted.

Then there are those who believe, as I do, that incentives can be a legitimate tool in the toolbox if used with a degree of prudence and moderation. “Moderation in all things,” is an extrapolation of Aristotle’s Doctrine of the Mean. And there are passages in the Bible that imply the same thing.

So why not “grease the skids” to help make something happen – jobs and capital investment — if you can show that there will be a greater payoff in the end to that of the incentives offered? (Which is the point of a cost-benefit analysis.)

The truth is that for most viable projects that have any sort of extended operating life, the incentives offered are but a pittance of what the total operating costs will be over the long term. And again, it’s not even necessarily the amount of incentives offered so much as they were offered in the first place.

I got this message from an economic developer in southern California recently. Not surprisingly, she was none too happy with Toyota’s announced decision to move its North American corporate headquarters from Torrance, Calif., to Plano, Texas, which is where I just so happen to reside.

She erroneously thought I was crowing about the coming move, when in fact, I was (and still am) most concerned about California’s exasperating business climate in terms of regulation and taxes. (The state was yet again ranked 50th in terms of business climate by 500 polled CEOs by Chief Executive magazine.)

More telling is what she wrote:

“But for those of us engaged in economic development, we know that companies taking advantage of hand-outs, subsidies and tax deferments to this level are not supporting the infrastructure or environment in which they conduct business. Those of you who think that’s appropriate, continue to cheer. But there will be a price to pay – the ony question is how big will the tab be and who will pay it.”

Detect a hint of bitterness there? I think it’s rather clear that she is a member of the corporate welfare camp on incentives.

It Was Not The Incentives

But if you believe that the combined $55 million in state and local incentives that Texas is providing to Toyota — the 14th largest company in the world with $222 billion in sales last year — then you truly don’t get it.

Anyone with a basic understanding of business would soon realize it is not the promised incentives that is prompting Toyota’ move to Plano. Rather, to quote former President George Bush who now living in nearby Dallas, it is “strategery.”

And the company said as much. After citing  quality of life issues, which are certainly real, Jim Lentz, Toyota’s North American CEO, honed in on the big picture business reasons.

“Another reason we chose Plano is simple geography. Locating there will bring us closer to our manufacturing footprint, in a time zone that allows us to communicate more easily with our North American operations, with direct flights to all of our operations — including Japan.”

To Automotive News, Lenz expounded further.

“I wanted to get sales, manufacturing and corporate operations in one location to be more efficient, and to put more resources against engineering and design. If I can have supply and demand sitting next to each other, with information in real time, and collaborating with each other, that makes us a stronger player.”

In addition to a $6.75 million construction grant for a headquarters that will result in at least 3,650 full-time jobs, Plano is giving Toyota a 50 percent property tax abatement for 2018-2027 and a 50 percent tax rebate for the 10 years after that. Based on the $350 million value of the property, the tax abatement would “cost” (It’s hard to cost something you didn’t have coming in) Plano $8.5 million over the decade.

But even with the abatement, the Toyota project is expected to generate more than $70 million in property tax revenue and an equal amount in sales tax revenue over the 10-year period for Plano.

Simple math shows that Plano comes out ahead. And what I see as a modest incentives package offered, virtually chump change to the world’s largest carmaker, is proof to Toyota that it was wanted. And let me tell you, companies like to be wanted.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.