Dean Barber

Let’s Build a Future

In Site Selection on September 28, 2014 at 6:28 pm

I liked the building. It had some good things going for it – 22 dock doors and a large concrete pad in the back, 32-foot-high ceiling with good lighting and modern office space.

And it was big, more than 250,000 square feet with nearly 700 parking spaces for employees. And it was only a few years old and in excellent condition.

“So what do you think of my building?” the economic developer asked proudly after giving me a tour of the property. He so much wanted a tenant for that large empty space under roof. It would mean jobs and a big win for his community and a feather in his hat.

“I think it’s a very good building,” I replied. “I don’t much care for the goat trail that we took to get here.”

Goat trail is an exaggeration. A narrow, crumbling farm lane, however, is not. Why a company chose to build there I do not know. I was actually shocked by the location, and that’s saying something.

What I do know is this – the company didn’t last there very long, less than two years. It proved in my mind that companies should concentrate on their core focus and leave the driving, the site selection to the experts. See blog “Why Companies Should Outsource Site Selection.”

But it was a nice building.

Cornerstones

When I am asked to speak to audiences of economic developers, which I enjoy, I sometimes get the distinct feeling that I am supposed to provide that all-important one thing that a community should embrace in order to win corporate investment.

Well, there is no silver bullet, but more often than not, it does comes down to two big things – talent and infrastructure. You have to have the human resources, the talent, for a specific operation, and you have to have the physical tools, the infrastructure, in order to compete successfully.

If you don’t have either of those in a sufficient capacity, chances are we are moving on seeking greener pastures. And I’m not talking vegetation.

And while this combination of people and infrastructure may at first blush sound like a simple proposition, I can assure you that actually determining what is on the ground is not so easy as it entails a systematic investigative process.

It’s a lot of work and again most companies are not well-equipped or experienced to do that very well.

More often than not, this blog, written for both a corporate and economic development audience, focuses on people and infrastructure. Both are cornerstones of a business environment.

And when I go on a familiarization tour of a community and/or region (I will be participating in several in the coming weeks), it’s the human capital and the physical support system that I am trying to fathom.

As an aside, I do not go on fam tours for free. As a self-employed consultant, I simply cannot give away three days of my time without being compensated. It’s just not a business model that works for me.

The Need to Move

Enough on that. Let’s get back to infrastructure, which in the bigger scheme of things is a far more important topic than my consultancy. Infrastructure is a very broad term.

It can consist of many things, airports, schools, electric utility grids, pipelines, and on and on. For purposes of today’s blog, we focus mainly on transportation and for good reason — companies need to move people and product around.

And for manufacturing, this is ultra critical. Recently I toured some rural provinces in Costa Rica, a beautiful country with a lot of potential. Not surprisingly, transportation infrastructure was a huge challenge for these outlying regions. Some of the roads I traveled were narrow and teeth rattling.

But we find the very same in parts of rural United States, and even in metropolitan areas, roads and bridges are often inadequate to meet the demands placed on them.

Manufacturers have long been concerned about the failure of this country, the largest economy in the world, to maintain its infrastructure. In a 2013 survey, the National Association of Manufacturers found that 70 percent of manufacturers said U.S. infrastructure was in fair or poor shape and needed a great deal or quite a bit of improvement.

Their concern is echoed by the American Society of Civil Engineers. Last year, ASCE gave the nation’s infrastructure a grade of “D+.”

A Stark Warning

And now NAM came out with another report last week that further sounded the alarm, revealing a decade of troubling trends in infrastructure formation, such as a 3.5 percent drop per year in the volume of highway, road and bridge investments as well as further sharp decreases in mass transit, aviation and water transportation infrastructure investment.

“The United States is stuck in a decade-long period of decline that will eventually harm job creation, future productivity and our ability to compete head-to-head with companies all over the globe,” said Jay Timmons, NAM’s president and CEO. “As we sit idle, our competitors are churning out investments in their infrastructure.”

The NAM study, conducted by Inforum at the University of Maryland, said an additional $100 billion was needed annually to bring infrastructure up to minimum standards. In 2012, investments in roads, bridges, ports and other infrastructure totaled $291 billion, of which governments contributed $181 billion and the private sector contributed $110 billion.

Spending on public infrastructure grew at annual rate above 2 percent from 1956 through 2003, but declined 1.2 percent a year from 2004 through 2012, much of it due to weak state and local expenditures after the 2008 recession.

Here’s What Could Happen

The study determined that for every dollar invested in infrastructure by 2030, there would be a $3 boost to the U.S. economy. Highlights of the report show that if the recommended $100 billion per year was spent on infrastructure improvements, the following would result:

  • Almost 1.3 million jobs would be created by 2015 and 1.7 million by 2017.
  • GDP would be increased 1.3 percent by 2020 and 2.9% by 2030.
  • Household disposable income would see a net gain of $1,300 per household by 2020 and $4,400 by 2030, measured in 2009 dollars.

It is probably not a great stretch to term NAM as a politically conservative group. And yet here is this organization advocating what would amount to a 40 percent increase over the current spending on new infrastructure projects.

NAM is not dropping the other shoe and asking for an increase in the 18.2-cent-a-gallon federal fuel tax, which has not been increased since 1993. Annual collections for the federal fuel tax have been declining as motorists drive more fuel-efficient vehicles and rack up fewer miles than in the past.

Business Warms to More Funding

Congress has relied on a series of stopgap bills in recent years to maintain level funding for transportation. Meanwhile, the business community, including the trucking industry, is starting to realize that paying higher fees may be the answer.

“The infrastructure has gotten bigger and that means you need more funding to maintain it,” Susan Alt, senior vice president of public affairs for Volvo Group North America, which makes commercial trucks and construction equipment, told The Wall Street Journal.

Former U.S. Treasury Secretary Lawrence Summers has called for a “major” plan to boost the country’s economic growth and said borrowing to fix aging infrastructure would help lower the jobless rate.

“What we need in the United States is a comprehensive growth strategy to get that rate from a struggling 2 percent to a 3 percent,” Summers said in an interview broadcast on the Fox News program “Sunday Morning Futures With Maria Bartiromo.” “Over time, that would be transforming of job opportunities for millions of Americans.”

My take: Investing in the country’s transportation infrastructure will pay dividends in the long run, especially for manufacturers who depend heavily on trucking for receiving supplies and delivering products.

It’s also a basic business tenant that you have to spend money to make money. You have position yourself in order to win.

I submit that the U.S. remains a very good bet, and that we – both the public and the private sectors – should have enough confidence as to bet on ourselves and our future. Our competitiveness as a nation is at stake.

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 is prohibited. Excerpts and links may be used with permission.

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  1. This reminds me of the statement Obama said, “You didn’t build that” – meaning the business didn’t build the infrastructure, which was true.

  2. As Dean Barber and others suggest, we need a comprehensive growth strategy for our country. And investing in transportation, water, sewers, utilities and other infrastructure systems is key to the success of such a strategy.

    However, infrastructure investment can be a double-edged sword. Well-designed and well-implemented infrastructure typically inflates the price of well-served land. High land prices will chase some new development to cheaper, but more remote sites. This requires extending expensive infrastructure to these new, more remote development sites, even though there is excess capacity in the already-urbanized area. And once the infrastructure is extended, land prices rise and the cycle begins again. Thus, the infrastructure created to facilitate development ends up chasing it away. We run after development with more infrastructure, but never catch up. The ensuing sprawl is not only bad for the environment, it is also bad for municipal budgets due to the wasteful duplication of expensive infrastructure.

    Fortunately, some communities are addressing this problem by funding infrastructure through an appropriate balance of user fees and access fees. For example, the Washington DC Metrorail system charges fares based on both distance traveled and time-of-day. Thus, people pay a higher fare to use the system when it is congested. The distance-based fare encourages people to locate closer to the activities that they engage in on a regular basis. The time-of-day fare factor encourages people making discretionary trips to travel at off-peak times. Together, distance-based and congestion-based fees make the transportation and land use systems more efficient.

    San Francisco is pricing curbside parking according to demand. So, in high-demand areas, during peak demand periods, parking is more expensive. This makes the roadway network more efficient by encouraging some people to use transit and others to park at off-peak times. This price-induced reduction in curbside parking demand also helps reduce traffic congestion in these high-demand areas.

    Additionally, some communities are dealing with the problem of infrastructure-induced land price inflation by transforming their property tax into a “value capture fee.” This is accomplished by reducing the tax rate on privately-created building values and increasing the tax rate on publicly-created land values. The lower tax rate on buildings makes them cheaper to build, improve and maintain. Surprisingly, the higher tax rate on land value helps keep land prices more affordable as well. As an added benefit, taxes on land values motivate the development of high-value land. High-value land tends to consist of infill sites near urban infrastructure amenities (like transit). Developing these infill locations reduces demand for premature development of outlying areas.

    These results are good for residents and businesses alike. For more information about how the appropriate balance of taxes and fees constitute a key component of a comprehensive growth strategy, see “Funding Infrastructure for Growth, Sustainability and Equity” on the “Resources” page of the website for the DC Tax Revision Commission.

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