Dean Barber

Archive for 2017|Yearly archive page

A “Trillion-Dollar Blunder” in the Making

In Corporate Site Selection and Economic Development on December 17, 2017 at 9:48 am

A year ago, I wrote a blog entitled, The Big Business Story to Come, about the incoming Trump administration’s plan to cut corporate taxes in a drastic manner to spur economic growth. At the time, I thought it was a dandy idea.

Celebrated by Republicans and scourged by Democrats, a bill that drops the corporate tax rate from 35 percent to 21 percent, is now expected to be voted on and passed this week.

But I’m not so sure this legislation is the cure-all that it is being billed as. Indeed, it may come back to bite us. Just last month, business leaders attending the Wall Street Journal CEO Council were asked for a show of hands if they planned to increase capital spending in the coming year should corporate tax cuts become a reality.

Few responded, prompting President Trump’s top economic adviser, Gary Cohn, to ask, “Why aren’t the other hands up?”

A surprising number of chief executives have said they will use the extra cash to pay shareholders more, and not grow jobs and wages.

No Talk of Tax Cuts

A little more than a week ago, I attended a conference in New Orleans, bringing corporate site selection consultants, like myself, together with economic developers from around the country. The purpose of Economix 2017 was both educational and networking.

Curiously, there was virtually no talk of massive tax cuts for businesses and how that might affect the economic outlook for communities. Now granted, the final details of the Republican Party’s plan were only hammered out on Friday, but the fact that there was little or no discussion about it had me puzzled.

After all, wasn’t this tax plan going to have broad ramifications on us all? Wasn’t it ostensibly designed to spark more corporate investment, more jobs, and higher pay?

For my part, during short, revolving small group sessions, I told economic developers that cutting the corporate tax rate from 35 percent to 21 percent will make the United States a more attractive place for new business ventures, will stimulate investment and create American jobs.

Most of the economic developers nodded in agreement, and I puffed up like a damned blowfish.

Apparently Not

Soon after I returned home from the conference, the Institute for Supply Management, came out with its semi-annual forecast indicating that capital investment and hiring would grow at a slower pace in 2018.

What’s more, only a small share of the factory purchasing managers surveyed said the proposed tax cuts would be driving their capital-spending decisions.

In hindsight, the ISM forecast was in line with what another consultant told me across the dinner table on my last night at Economix, an event sponsored by my friends at Consultant Connect. This particular consultant, who primarily works with European manufacturers, said a lowering of the U.S. corporate tax rate would mean very little to most of his clients.

In response, I think I said something very deep. “Really?”

I’m All Wet

So let us recap. Though far from being scientific surveys, it would appear that CEOs and factory purchasing managers are saying that a dramatic tax rehaul, the biggest since 1986, will have little impact on capital spending.

Furthermore, the subject of tax cuts were are largely ignored at a conference that I attended of corporate site selection consultants and economic developers. And a fellow consultant said his clients could really care less about the federal corporate tax rate.

Now if I am being totally objective, this would indicate that I might be all wet by holding onto the common belief that reducing marginal tax rates will spur economic growth.

To further my self-humiliation, I have learned that the Bureau of Labor Statistics has collected 25 years of data showing that high income earners spend much less for every tax dollar saved, than low income earners — 86 cents versus 48 cents respectively.

And a study by the Congressional Research Service showed that economic growth over a 65-year span was largely unaffected by how much tax the wealthy pay. Indeed, growth is more likely if lower income earners get a tax cut.

Now that was something to ponder right there. And I did so over a glass of bourbon.

Compared to the Rest of the World

There has been this long-running assumption, certainly I have subscribed to it, that our corporate tax rate of 35 percent has been unreasonably high in comparison to the rest of the world and that doesn’t even include state taxes. Faced with that prospect, companies have been compelled to invest in facilities and jobs in offshore locations with lower taxes.

The United States has the third highest corporate income tax rate in the world, exceeded only by the United Arab Emirates and Puerto Rico, according to the nonpartisan Tax Foundation. We also have the highest corporate income tax rate among the 35 industrialized nations of the Organization for Economic Co-operation and Development (OECD).

“The U.S. tax rate is 16.4 percentage points higher than the worldwide average of 22.5 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of 29.5 percent. Over the past ten years, the average worldwide tax rate has been declining, pushing the United States farther from the norm,” according to a Tax Foundation report in August 2016.

Loopholes and Deductions

Clearly, it would seem that the U.S. is out of kilter with the rest of the world. However, the real kicker here is the amount actually paid in taxes relative to taxable income. It varies wildly because of an abundance of loopholes and deductions.

A U.S. Government Accountability Office found in a 2016 study that among large corporations that met that $10 million in assets threshold, 42.3 percent paid no federal income taxes after tax credits in 2012. Among profitable large companies, 19.5 percent paid no federal income taxes. The average effective tax rate among the profitable large corporations was 16.1 percent.

That might be worthy of another glass.

Flush With Cash

Probably the reason why so few CEOs raised their hands at the Wall Street Journalmeeting when asked if lower rates would indeed result in more investment, is that corporations really don’t need the money. In fact, they are flush with cash, sitting on nearly $2.3 trillion of cash reserves, double of what it was in 2001.

Which begs the question (or the answer) as to why they aren’t spending more of their liquid assets on capital improvements, such as building more new factories around the country.

“CEOs aren’t waiting on a tax cut to ‘jump-start the economy’ — a favorite phrase of politicians who have never run a company — or to hand out raises,” wrote former New York Mayor and billionaire chief executive Michael Bloomberg in an op-ed piece. “It’s pure fantasy to think that the tax bill will lead to significantly higher wages and growth, as Republicans have promised.”

A Core Belief

Cutting taxes has been a core belief of the Republican party since Ronald Reagan. The thinking goes that giving corporations and most Americans tax cuts will result in them spending their tax savings on buying stuff and hiring more workers, which generates more economic growth, more jobs, and incomes to rise.

This theory, which I have long subscribed to, has been derisively called “trickle-down economics.” The phrase originates with American humorist Will Rogers, who mocked President Herbert Hoover’s Depression-era recovery efforts, saying that “money was all appropriated for the top in the hopes it would trickle down to the needy.”

Never mind the aforementioned studies by Bureau of Labor Statistics and the Congressional Research Service, if Rogers, who once quipped, “I am not a member of any organized party – I am a Democrat,” were around today, he would have plenty of material to work with. The bill will likely not garner a single Democratic vote.

With the passage of the bill, most impartial observers agree the gap between the haves and have-nots is likely to grow. And while most middle-class families will get sizable benefits (at least until the tax cuts for individuals expire in 2025), they are unlikely to see nearly as large of a benefit as the top.

Makes Problems Worse

Declaring the Republican bill a “trillion-dollar blunder,” Bloomberg says it does nothing to address the nation’s biggest economic problems.

“The largest economic challenges we face include a skills crisis that our public schools are not addressing, crumbling infrastructure that imperils our global competitiveness, wage stagnation coupled with growing wealth inequality, and rising deficits that will worsen as more baby boomers retire.”

Bloomberg says the tax bill makes each of these problems worse, achieving four main things:

  1. It takes money away from schools and students.
  2. It restricts our ability to invest in infrastructure.
  3. It does nothing to boost real wages while making health insurance more expensive.
  4. It makes it harder to control the costs of Medicare and Social Security without cutting defense and other spending — or further exploding the deficit.

It would probably take me four additional blogs to explore each of those points in detail to determine if Bloomberg is right. But if he is, and I suspect that he is, those aren’t much in the way of achievements. Nevermind this bill adds $1 trillion to $1.5 trillion to a $20 trillion deficit. Where are the deficit hawks in the GOP?

Could we see an uptick of corporate investment with lower rates? Probably so, but who will benefit and at what cost? I’m not so sure we are going to like the answers when it’s all said and done.

I’ll see you down the road.

Dean Barber is principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Mr. Barber is available as a keynote speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

Advertisements

Innovation Districts: More Cities Try Their Hand

In Corporate Site Selection and Economic Development on December 4, 2017 at 6:18 am

Economists tell us that productivity growth in the United States has declined sharply since 2004, all the while advances in digital technology have been growing. Now if that is not a head scratcher, I don’t know what is.

These same economists have various explanations for declining productivity growth but there is no consensus, leaving policy makers and supposed economic development gurus like me in a bit of a lurch.

This much we know and can agree upon — our economy depends on productivity improvements for long-term economic growth, and innovation is the fuel to the engine.

For companies, innovation means staying abreast of the digitalization of everything and investing in new technologies that give them a competitive advantage.

For communities, innovation means advancing the skill levels of its people, investing in physical infrastructure (roads, pipe, broadband data transmission) and, yes, betting on and helping young companies that have great potential to grow.

I have to think that innovation makes for damn good economic development. Now the question is how do you bottle and sell that.

A Neighborhood Approach

One strategy being propagated and pushed by the Brookings Institution is that of “innovation districts.” The word “district” implies a small defined geographic area, like a neighborhood.

And that’s precisely what we’re talking about, areas within cities where research universities, medical institutions, and companies cluster and connect with start-ups, accelerators, and incubators.

In a May 2014 paper entitled, “The Rise of Innovation Districts: A New Geography of Innovation in America,” Bruce Katz and Julie Wagner with Brookings wrote:

“In recent years, a rising number of innovative firms and talented workers are choosing to congregate and co-locate in compact, amenity-rich enclaves in the cores of central cities. Rather than building on green-field sites, marquee companies in knowledge-intensive sectors are locating key facilities close to other firms, research labs, and universities so that they can share ideas and practice “open innovation.”

“Instead of inventing on their own in real or metaphorical garages, an array of entrepreneurs are starting their companies in collaborative spaces, where they can mingle with other entrepreneurs and have efficient access to everything from legal advice to sophisticated lab equipment. Rather than submitting to long commutes and daily congestion, a growing share of metropolitan residents are choosing to work and live in places that are walkable, bike-able, and connected by transit and technology.”

Katz and Wagner are speaking to shifting market and demographic dynamics and a reevaluation of the natural strengths of cities, namely proximity, density, walkability, and livability.

Now this won’t work everywhere. It probably only works in urban settings in cities of some size. Essentially, this is clustering but with a new urban twist to essentially attract young people and young companies to create an ecosystem.

Having the Anchor Institutions

Recently, I have spent time in Oklahoma City and Birmingham, Ala., two communities that Brookings says have all the makings for an innovation district. In both cities, there are medical academic centers – the Oklahoma Health Center and the University of Birmingham at Birmingham.

Brookings says these two cities can build an innovation district by connecting their leading-edge anchor institutions to companies, particularly start-ups, in a physically compact, transit-accessible, and technically-wired mixed use area offering housing, office, and retail.

This means remaking the physical landscape, which will be no easy task. Both OHC and UAB have a traditional campus look and feel to them. While their health care institutions are fairly close to one another, they have spread-out physical layouts that are car centric, which hinders people walking to gathering spaces to exchange ideas and build collaborative networks.

So there is a design element that has to be overcome to increase density by bringing in housing, office and retail. The elements are there in Birmingham and OKC, but a lot of planning and execution has to happen if an innovation district, as envisioned by Brookings, is going to become a reality in either city.

So what are the odds? Hell, I don’t know. (How many times have you heard a consultant say that?) I see things in both cities that indicate that they could pull it off. Of course, it will take political will and lots of money being spent for it to happen.

OKC Has MAPS

In Oklahoma City, there is a history of the electorate giving city government the green light to make transformative change. The latest of example of that occurred in September when voters authorized elected leaders to raise and spend an estimated $1.5 billion over the next decade on municipal needs.

The vote provides for a 27-month extension of a 1-cent MAPS sales tax, for street resurfacing and related improvements.

After being told by United Airlines in 1992 that is was in essence an ugly town unworthy of investment, then-Mayor Ron Norick proposed the Metropolitan Area Projects (MAPS) initiative in 1993.

The program featured defined capital projects that would be funded by a penny sales tax. The tax would have a start date and an end date and the projects would be paid for in cash, without incurring debt.

Bricktown, Whitewater and Streetcars

In 1993, the first MAPS vote proposed the construction of a 20,000-seat, indoor sports arena; construction of a 15,000-seat downtown ballpark; construction of a new downtown library; construction of the Bricktown Canal; development of a trolley transit system; development along the North Canadian River; and renovations to the Civic Center Music Hall, Cox Convention Center and Oklahoma State Fairgrounds.

MAPS 2 was approved by voters in 2001. Dubbed “MAPS for Kids,” the $700-million initiative included more than 100 Oklahoma City-area school projects, which included new school construction, extensive renovation to existing schools, technology upgrades, and other improvements.

In 2009, OKC voters approved MAPS 3, an ambitious $777-million plan that continues to change the face of downtown Oklahoma City. MAPS 3 features a 70-acre central park linking the core of downtown with the Oklahoma River; a modern streetcar system; a new convention center; miles of new sidewalks and hike-and-bike trails; river improvements, including a public whitewater kayaking facility; senior health and wellness centers throughout the city; and improvements to the State Fair Park public buildings, meeting halls and exhibit spaces.

All this is happening in Oklahoma City because the vision is there to make things happen, and the voters see the wisdom of that vision.

Can an innovation district happen in OKC? Based on history of making things happen, I would give it a pretty good shot.

Railroad Park, Beer and NIH Funding

Now let’s look at Birmingham, a city that I lived in for more than 20 years. When I left Birmingham in 2007, I thought the city was going nowhere. Since I’ve been gone, great things have happened. (I reject the idea that there is a correlation between the two.)

Railroad Park, a 19-acre green space in downtown Birmingham that celebrates the city’s industrial and artistic heritage, opened in the fall of 2010. In April of 2013, the Birmingham Barons Baseball Club played their first game in their new ballpark, Regions Field. The state-of-the-art 8,500 seat facility in the heart of downtown.

Avondale, what used to be a neighborhood on the skids, is now a hipster haven, featuring cool bars and restaurants and a craft brewery.

Birmingham now has Good People Brewing, Avondale Brewing, Cahaba Brewing, Trim Tab Brewing, Red Hills Brewing, and Ghost Train Brewing, all very good indicators that this is a very civilized place.

More importantly, UAB ranked 25th nationally in 2016 funding from the National Institutes of Health, which is essentially the federal government’s medical research agency. Grants to UAB’s six health- and medical-related schools totaled more than $238 million last year.

Tailor-Made for the 21st Century

Adding to the picture, you have Innovate Birmingham, a $6 million federal grant program to train people for innovation jobs. The program will be administered in the UAB Innovation Lab (UAB iLab) at Innovation Depot, a business incubator that’s home to more than 100 startups. Innovation Depot will connect participants in the program with its tenants and other partner businesses.

Katz said Birmingham has “got the geography that essentially is tailor-made for the 21st century,” in an interview last year with Alabama NewsCenter.

“Proximity, density, vitality, authenticity and you’re beginning to see entrepreneurial startups, scale-ups either off of research from the universities or people just want to be here,” Katz said.

Can an innovation district happen in Birmingham? There is not the voter-approved MAPs tradition as there is in Oklahoma City, but pieces are falling into place, and Birmingham has surprised me as a much-improved city that is very livable.

Of course, I am an aficionado of craft beer, and my views may be colored by that. But it’s a quality of life measure that doesn’t hurt any place. Indeed, I believe craft beer only enhances it.

Real or Hype?

Innovation districts are still an early trend if they are a trend at all. There has yet to be a systematic analysis to prove whether districts characterized by a diversity of institutions, companies, and start-ups can live up to the hype.

That hasn’t stopped a slew of cities from jumping on the innovation district bandwagon. They include Cambridge, Philadelphia, St. Louis, Detroit, Seattle, Boston, and Raleigh-Durham, among others.

The potential for innovative growth appears real, even if most of it is organic rather than planned. One thing is certain. We need ideas, whether they are hatched in universities, startups or mature companies. We need innovation to keep going and growing.

And, of course, we need more craft beer. That’s a given.

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.

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.

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.

Fall From the American Dream

In Corporate Site Selection and Economic Development on October 8, 2017 at 12:05 pm

This last one was different. Only now are we realizing the full extent of the damage. I’m not referring a hurricane, but rather the Great Recession, considered the largest downturn since the Great Depression.

Throughout our history, we have weathered recessions, 34 since 1854.  But this last one cut us to the quick, and to some degree it is still with us, despite the fact that job openings have risen to a record high and that wages are finally rising.

Still, there are indicators that not all is well. The labor participation rate — the proportion of people employed or looking for work in the U.S. — fell to 62.7 percent in September, near a 40-year low. Drug overdoses are now the leading cause of death among Americans under 50. And men have become less appealing to women as marriage partners.

Some economists believe all these are telling factors that are very much tied to this last downturn and the loss of millions of manufacturing jobs.

It’s Not Over

On Sept. 20, 2010, The Economist proclaimed, “It’s Over,” referring to the Great Recession that technically ended in June 2009. But is it really?

Using tax records to trace more than a million workers through the recession and its aftermath, Danny Yagan, an economist at the University of California, Berkeley, found that thousands of workers who lost their jobs ultimately stopped looking.

“The signals say the recession is over, but employment’s not back to normal,” Mr. Yagan told The New York Times “Recession effects aren’t supposed to last this long.”

Certainly, some parts of the country have yet to fully recover.  This holds true especially in rural America where the shutdown of a single major employer can have devastating effects. I have seen it firsthand as a consultant to communities and companies.

Distressed and Disconnected

Indeed, there is a “disconnect between national trends and local realities,” according the Economic Innovation Group, which recently published what it calls The 2017 Distressed Communities Index.

“Distressed communities are disconnected communities,” the report states, “to which the fates of their 52 million inhabitants are diverging from the rest of the country. These are places increasingly alienated from the benefits of the modern economy.”

And it is in these distressed, alienated places where many manufacturing jobs have evaporated. Since 1980, a full third of all manufacturing jobs — five million since 2000 — have been lost, due in part to automation and U.S. trade policies.

In a 2017 paper with the ominous title, “When Work Disappears: Manufacturing Decline and the Falling Marriage-Market Value of Men”, University of Zurich economist David Dorn found that employability and marriageability are deeply intertwined.

Deaths of Despair

A drop from 72 percent of U.S. adults being wed in 1960 to half that in 2014 is due in part to economic forces that are making men less appealing partners to women.

Dorn found that when towns and counties lose manufacturing jobs, fertility and marriage rates among young adults go down, while unmarried births and the share of children living in single-parent homes go up.

As manufacturing jobs are lost, there are also increases to mortality in men aged 18 to 39, Dorn says, with more deaths from liver disease, indicative of alcohol abuse; more deaths from diabetes, related to obesity; and lung cancer, related to smoking, and drug overdoses.

These “deaths of despair” have decimated one demographic group in particular: the white working class, and have taken over a million American lives in the past decade.

A Worsening Crisis

Princeton economists Anne Case and Angus Deaton contend that a gradual “collapse of the white, high-school-educated working class after its heyday in the early 1970s,” has resulted in death rates that have been rising dramatically since 1999 among middle-aged, less educated white Americans, reversing decades of longer life expectancy.

Opioids killed about 33,000 Americans in 2015. Overdose deaths in 2016 will likely exceed 59,000, the largest annual jump ever recorded in the U.S., according to preliminary data compiled by The New York Times. The evidence suggests the crisis is only worsening in 2017.

Last year, Princeton economist Alan Krueger made headlines with a study showing that nearly half of prime age men (or men ages 25 to 54) who are not in the labor force take pain medication on a daily basis. Two-thirds of those men, about 2 million, take prescription pain medication on a daily basis

In a new paper published last month by the Brookings Institution,  Krueger dives deeper and finds that opioid use could account for a 20 percent decline in men’s labor force participation from 1999 to 2015 and a 25 percent of the observed decline in women’s labor force participation.

Of the 35 member countries that make up the Organization for Economic Co-operation and Development, only Italy had a lower labor force participation rate of prime age men than the U.S. in 2016.

Loss of Hope and Identity

Many researchers believe the opioid crisis is due in large part to a loss of hope and identity among white blue-collar workers. The problem is especially acute in small town and rural America, where the unemployment rate remains high and a disproportionate number of residents are on Medicare or Medicaid, according to the Centers for Disease Control and Prevention.

Carol Graham, a senior fellow at the Brookings Institution and a professor at the School of Public Policy at the University of Maryland, says blue-collar whites have had more difficulty in adapting to the loss of manufacturing jobs.

“Discrimination gave blue-collar whites better access to those lifestyles than other groups. Today, minorities are gradually catching up and, perhaps due to their constant challenges in the past, they seem to be better at multitasking in the labor force. They are much more likely to take new low-skilled service jobs in sectors such as health, for example, than are whites, particularly white males,” she wrote.

“While there are challenges for many low-skilled workers in changing economic times, and minorities still face significant disadvantages, among blue-collar whites, due to trends in the economy, the labor and marriage markets, and in health, the fall from the American dream has been a longer and harder one, at least in relative terms.”

Causal or Symptomatic

Federal Reserve Chair Janet Yellen told a Senate Banking Committee hearing in July that rampant opioid abuse in the U.S. is related to the decline in labor force participation among prime-age workers.

“I don’t know if it’s causal or symptomatic of long-running economic maladies that have affected these communities and particularly affected workers who have seen their job opportunities decline,” Yellen said in response to questioning from Sen. Joe Donnelly, D-Ind., on the issue.

The U.S. is “the only advanced nation that I know of where in these communities we’re actually, especially among less-educated men, seeing an increase in death rates partly reflecting opioid use,” she added.

When he was chairman of the Federal Reserve, Ben Bernanke, warned during the recession and the recovery that workers who stayed unemployed too long might drift too far away from the labor market to ever return. That seems to be the case.

Scars Left

Stephen Gold is president and CEO of the Manufacturers Alliance for Productivity and Innovation (MAPI) has said that “maintaining our competitive advantage in global manufacturing starts with people.”

He tells of research showing that of a projected 3.5 million manufacturing jobs expected to be available in the U.S. between 2015-2025, and that 2 million of them could go unfilled.

I think it has become increasingly clear that a significant portion of our American workforce is, in fact, “damaged goods,” and some workers who have been unemployed too long are probably forever lost.

The Great Recession has left its scars and is still being felt in so many places, particularly in rural and small town America. Having treatment centers and vocational training made available in distressed and disconnected communities can only help. I only wish I had better answers than that.

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.

Amazon HQ2: An Avalanche of Glass, Steel, People and Money

In Corporate Site Selection and Economic Development on October 2, 2017 at 7:59 am

A plenitude of cities are vying to become the chosen one for Amazon’s future “HQ2,” a second, equal-footing headquarters that will employ 50,000 people at an initial investment cost of $5 billion.

Most people have little understanding about Amazon, much less its plans for HQ2. (“Amazon wins games by changing the way the games are played then being the only ones who understand the new rules,” wrote a former Amazon employee.) I include myself among the ignorant, which didn’t stop me from writing Even a Blind Hog: Handicapping Amazon HQ2. After all, I am a consultant.

But this much I do know – the city that is chosen will be reshaped and transformed for decades to come.

I actually regret writing my Blind Hog blog, not because I demonstrated that I was pretty much clueless like everyone else, (I did say from the outset that I was probably wrong.), but because of the responses that it generated.

Mind you, some were very good in that there was reasoning behind the thoughts. Others were bad because, well, you’ll see.

We Need It and Sis Boom Bah

The bad ones fell into two categories. The first was the “we need this,” almost a “we deserve this” response. It goes something like: “Hey, Amazon, if you have an ounce of humanity, you will choose us, because, well, we’re kinda hurting here, and we really need you. So please do the right thing and choose us.”

I actually came across this type of response back in August, when I wrote two blogs about where a $1.6 billion Toyota-Mazda assembly plant project. By this rationale, companies should abandon siting billions of dollars of capital for business reasons (talent, supply chain, cost of doing business, etc.), and look to places that are economically challenged.

Of course, it is not about what any community needs. Rather, it’s all about what the company wants or needs, which in the case of Amazon is considerable. Those needs are spelled out in their request for proposal (RFP), which does provide us with certain clues as to where the company might go.

Then there is the “cheerleader” response. It’s something like: “Hey, Amazon, we’re open for business, and we’re the best, because, well, we are. Choose us and you won’t be sorry. Rah, Rah, Rah, Sis Boom Bah!”

The cheerleaders may cite some supporting factoids (often they do not), but their responses exemplify little if any critical thinking on why their city would be a good fit for Amazon.

The truth is you can find flaws in every place, and that no city meets all of Amazon’s needs absolutely. And that is what makes this project so interesting, along with its transformative nature.

Best Be Careful

Since Amazon publicly published its RFP last month, there has been no shortage of people speculating on where it might go. And that is all they are doing, speculating. Count me among the guilty. I had to laugh when I read one big commercial real estate company’s ranking of top cities for the Amazon project, misspelling Pittsburgh in the process.

But Pittsburgh Mayor William Peduto did get it so very right when he said, “This is a transformational opportunity unlike any that we’ve ever seen.”

In my last blog, I quoted a remark frequently made by my grandfather, “Even a blind hog will find an acorn on occasion.” Mayor Peduto’s statement reminded me of another: “Best be careful what you wish for, because you may just get it.”

Whichever city “gets it,” it will get what The Seattle Times calls “an avalanche of glass, steel, people and money.” Like Seattle, the HQ2 city will become a company town. And while the benefits will exude to many, HQ2 may make life actually tougher for some. More on that in a moment.

Hit Me With Your Best Shot

I am purposely not reading the newspaper stories of Philadelphia’s bid, or that of Boston, Dallas, Indianapolis, or Denver, or any other of the umpteen cities vying for HQ2. At this point, it would serve little purpose.

Despite their shortcomings (all places have them), some cities have a real shot at winning HQ2, while others are crafting proposals only because they are succumbing to political pressure to do so. The thinking by local politicos is that they would look bad if they did not throw their hats in the ring.

Economic developers and elected officials can then say, “well, we gave it our best shot.” And then go back to business as usual.

One economic developer told me said he hopes he will not be pressured into crafting a proposal to the Amazon RFP. “It would cost me $50,000 to do this, and I don’t want to waste the time and money,” he said.

Trust me, he would be wasting time and money.

Update: My friend will be working on his city’s Amazon proposal for the next 17 days. (Deadline is Oct. 19.) I told him that I was very sorry.

In my Blind Hog blog, I picked Atlanta, although in hindsight Charlotte and Raleigh-Durham might be better choices. But it matters not what I say or anyone else says in speculation.

What ultimately matters is Amazon’s choice. Then over time, we can watch a city that will be forever changed. We only have to look to Seattle as a petri dish for what is to come.

A Juggernaut Dominance

Amazon has spent about $4 billion acquiring about 8.5 million square feet of downtown office space in Seattle, although some estimate the footprint closer to 10 million. The company expects to grow to 12 million square feet in the next five years.

According to an analysis conducted for The Seattle Times, Amazon occupies 20 percent of all prime office space in the city, more than twice as large as any other company in any other big U.S. city. (In most big cities, the top employer occupies less than 5 percent of local office space.)

About 70 percent of new downtown office space added in 2016 was exclusively for Amazon, which has turned formerly forlorn parts of the city, into vibrant live-work-and-play neighborhoods, according to The Times.

Amazon now occupies more office space than the next 40 biggest employers in Seattle combined. It has more local job openings than all of the other region’s major employers combined.

Rider Levett Bucknall, a firm that tracks construction cranes worldwide, said Seattle led the U.S. with 58 cranes at work. Los Angeles, which has six times Seattle’s area, ranked second with 36 cranes.

In short, expect the Amazon juggernaut dominance to happen in the city chosen for HQ2.

An Unaffordable Future?

In the process, the resulting tech boom (50,000 direct jobs averaging $100,000 and 53,000 indirect jobs) will not only alter the chosen city’s cultural fabric but will also increase the cost of living.

In a 2014 op-ed, Jeff Reifman wrote in GeekWire that an Amazon-fueled future is “will be more male, even more white, wealthier and less diverse, unaffordable to those with lower incomes including the firestarters of culture, artists.”

The influx of high-income earners, along with the lawyers and venture capitalists who will support them, will be a harbinger for growth and rising prices. Seattle’s record growth has made it the nation’s hottest homebuying market, with prices rising faster here than anywhere else in the country.

The median price of a single-family home or condo in Seattle was $522,000 in August, according to real estate company Redfin, a 67 percent spike from April 2010, when Amazon opened its headquarters.

Nested’s 2017 Rental Affordability Index ranked Seattle fifth in a nationwide survey of cities and ninth worldwide, with a cost per square foot of $3.07. Monthly rent for a single person, according to the survey, averages $1,288.76.

In a 2015 study, Redin found that for every 1 percent increase in the number of technology workers between 2014 and 2015, there was roughly a 0.5 percent increase in home prices.

Home prices have jumped 64 percent in Austin since 2009, Redfin’s data show. In Boston, prices are up 71 percent. And in San Francisco, the median price of a home is $1.25 million, a 123 percent increase since 2009.

Am I predicting future affordability problems in the HQ2 city that is chosen? I guess I am at that.

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.

Even a Blind Hog: Handicapping Amazon HQ2

In Corporate Site Selection and Economic Development on September 12, 2017 at 10:59 pm

First, there was Foxconn. Then there was Toyota-Mazda. And now there is Amazon.

The very thought of three billion-dollar-plus, corporate-site-search projects happening within a few months of each other is pretty much unheard of for both economic developers and site selection consultants.

For the uninitiated, economic developers represent locales, whether they be states, cities, counties or regions. Site selection consultants represent companies in the quest to find the best place for future operations.

(I was once an economic developer, but have gone over to the dark side. I am a consultant.)

Politics of the Day

Wisconsin won the Foxconn project, of which various reports place the value between $7 billion and $10 billion. I get the impression that the project was more “site confirmation” than true site selection, with politics a leading factor.

Foxconn may be a forerunner of things to come, with politics playing an increasing role on where some mega-projects ultimately locate. I believe the Trump administration’s hardline position on NAFTA being renegotiated is why both Ford and Toyota have reversed courses on projects in Mexico, although neither company will admit to that.

Based on the politics of the day and history, I have ventured what can only be viewed as an educated guess on where a $1.6 billion joint venture project between Toyota and Mazda will land. Apparently, my conjecture/analysis in two blogs got enough traction that my friend Andy Levine interviewed me this past week for his latest podcast, Episode 27 of The DCI Blog.

Widespread Speculation

Having worked my share of automotive projects, I had at least some foundational knowledge to fall back on. So it came as quite a shock when an economic developer in Oklahoma City suggested that I write a blog, handicapping the $5 billion Amazon project.

I protested, “You know, I really don’t know anything about it, just what I read.”

“Neither does anyone else, and that hasn’t stopped them,” he said. Good point. There has been widespread speculation in the press on what city Amazon will choose as its second, equal-footing headquarters, which it calls HQ2.

And then I remembered my grandfather saying, “Even a blind hog will find an acorn on occasion.”

The worst that can happen is that I am wrong. And I probably am wrong, so let’s just do it, and have a little fun in the process. Are you with me?

Something Entirely New

Maybe we should first acknowledge that we don’t fully understand Amazon, what it is about or how it operates. It might be one reason why your local shopping mall is being torn down.

“Amazon wins games by changing the way the games are played then being the only ones who understand the new rules,” wrote former Amazon employee Ryan Boudinot in an article for GeekWire and who called HQ2 “something entirely new in the history of global capitalism.”

Boudinot says Amazon constantly pits one idea against another in a process called A/B testing. The concept can be seen on its website itself but also through what Boudinot calls a “cutthroat” corporate culture.

“When the announcement came that Amazon would open not a satellite office, but a doppleganger HQ, my first thought was, “They’re going to A/B test the entire company.”

HQ2 will be “be a full equal to our Seattle headquarters,” Amazon CEO Jeff Bezos said in a prepared statement. Somehow, Hunger Games comes to mind.

Think Big

Amazon tells us in its Amazon HQ2 RFP that this will be one big project, again $5 billion big, creating up to 50,000 jobs. The executives, managers, software engineers, legal staff, accountants and administrative workers employed at HQ2 will be making an average annual wage of $100,000 or more a year.

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.

Big requires big. Only big cities need apply. The company states it is looking for metropolitan areas with more than 1 million people, “has a stable and business-friendly climate,” and can “attract and retain strong technical talent.”

The New York Times is picking Denver. My friend and frequent business partner on projects, Tim Feemster, thinks Dallas has a real shot at it. Denver or Dallas, both exhibiting good levels of tech talent, could very well be the choice.

Think East and Extending Hours

But I think it will be “NFL” city, a major market east of the Mississippi River, probably in an eastern time zone to give the company greater band width in terms of time of day business hours and extending its company’s capability to manage its business in Europe and other parts of the world.

That leaves Boston, New York, Philadelphia, Baltimore, Washington, D.C., Charlotte, and Atlanta, all eastern time zone cities.

Cleveland, Indianapolis, Cincinnati, Pittsburgh, and Detroit, all good cities, are not making my first cut, only because I think Amazon will be looking at more high-growth metro areas outside the Midwest. It should be noted that Indianapolis and Detroit have good levels tech talent.

So I’m breaking it down to an NFL city, eastern time zone, and tech talent, I am going to refer to CBRE’s fifth annual Scoring Tech Talent Report.

Think Talent But Also Costs

So now I am looking at New York, Washington, D.C., Atlanta, or Boston. Why not Toronto? Big city, with 183,00 tech jobs. Maybe, but I think of the politics of the day and the Wrath of Khan. Excuse me, I meant the Wrath of Trump. The president would have a field day if HQ2 located in Canada.

I am throwing out Boston and Washington, D.C., for two reasons – the high cost of real estate (although Amazon is no stranger to that in Seattle) and an arguable brain drain when it comes to talent.

The website Recode attributes Real Capital Analytics that the average office price per square foot in Boston is $550, and Zillow in stating the average home price is $560,300, while in Washington, D.C., the office price is $595 per square foot and $382,900 for the average home.

Brain Drain

And while both cities produce a significant number of tech graduates, they have a hard time employing them locally. According to CBRE, from there were 56,623 tech degrees awarded in Washington, D.C., from 2011 to 2015, but 40,270 tech jobs added during the same period.

That is a deficit of 16,353, meaning those graduates probably left the area. Of course, you could rightly argue that those people would stay should Amazon come to town with high-paying jobs.

In Boston, there were 31,400 tech degrees awarded from 2011 to 2015, with 11,790 tech jobs added, a deficit of 19,610. Again the dynamics would certainly change with Amazon’s HQ2. More tech graduates would remain in the city to fill the needed jobs.

I am throwing out New York, which may be a big mistake on my part. The primary reason is because I don’t think “the City” will offer the financial incentives expected or needed by Amazon, and the fact that New York remains a high cost place to do business in terms of taxes, real estate and, well, just about everything.

71 Streets

So that leaves me with Atlanta, with a metro area population nearing 5.8 million and where 71 streets have a variant of “Peachtree” in their names.

In terms of CBRE’s tech talent measure, Atlanta ranks No. 5, behind New York and Washington, D.C. to be sure, but still very good. Atlanta added 22,634 tech degrees from 2011 to 2015, but added 43,180 tech jobs, proving that the talent will flock to the city.

Atlanta has The Georgia Institute of Technology, commonly referred to as Georgia Tech, one of the top research universities in the country. The school provides a technologically focused education to more than 25,000 undergraduate and graduate students in fields ranging from engineering, computing, and sciences, to business, design, and liberal arts.

As large cities go, Atlanta reasonably priced place to do business. Office price per square foot averages $239, while the median home value stands at $212,200, according to Zillow.

In Good Company

Atlanta has Hartsfield–Jackson International Airport, seven miles south of the city’s central business district. The airport serves 150 U.S. destinations and more than 75 international destinations in 50 countries, averaging 275,000 passengers a day. Atlanta is within a two-hour flight of 80 percent of the United States population.

The Atlanta metro area is no stranger to corporate headquarters. Twenty-six companies there are among the 2017 FORTUNE 1000, of which 15 companies are also ranked in the 2017 FORTUNE 500. In fiscal year 2016, these 26 companies generated revenues of $373.9 billion.

Finally, Georgia has historically proved to be a business-friendly state that is willing to go big after the big projects. By and large, its elected officials understand that financial incentives are a necessary reality in today’s world. For that very reason, I am not counting Georgia out in hunt to win the $1.6 billion Toyota-Mazda project.

So there you have it, my choice for the Amazon HQ2 project. Chances are that I am wrong, but I then again I might be right. Are you listening, Amazon? Hey, I can help you with site selection. Honest.

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.

How Disaster Reveals Our True Selves

In Corporate Site Selection and Economic Development on August 31, 2017 at 7:56 pm

Within hours after the Boston Marathon bombing on April 15, 2013, the slogan “Boston Strong” appeared as a hashtag on Twitter and rapidly spread around the world.

It was an expression of Boston’s unity following the tragedy, but it is also very much an American expression. Whenever and wherever disaster strikes, come hell or high water, Americans come together.

And so we watched on our TV screens this great coming together as Hurricane Harvey inundated Houston and the nearby region. A flotilla of small boats and inflatable rafts were launched by first responders and citizen volunteers to rescue those trapped in their homes. Helicopters plucked people from rooftops and chest-high waters.

NBC Nightly News anchor Lester Holt, who spent five days in Texas covering the storm, told GQ Magazine that Hurricane Harvey showcased the best of us.

“I think that when something of a magnitude of a Katrina or a Harvey happens, that we see our true selves—we revert to who we are. And we are a good people who know when it’s time to check all our differences at the door and come together—and I’ve seen it time and time again at natural disasters that people focus on one another because in one way or another they’re all saying to themselves we’re together in this. I have nothing but admiration for the people here. Their self-reliance was apparent.”

Here in Texas, where I live, self-reliance and compassion for others is part and parcel of the brand. We saw Houston Strong, Beaumont Strong and Port Arthur Strong. The storm personified true grit.

My friend, David Dodd, founder and president of the New Orleans-based International Public Private Partnerships in Resilience Center, Inc., agreed that resiliency is cultivated in Texas. Dodd’s firm specializes in economic recovery and resilience, born from leading economic recovery efforts after the devastation wrought by Hurricanes Katrina and Rita.

“Texans are proud—true Texans say, “the State of Texas”. There is meaning behind that. Don’t forget that Texas was its own country. (Republic of Texas, March 2, 1836, to February 19, 1846.) They know that and they feel they are separate and apart from everybody else,” said Dodd, who grew up in Louisiana on the border with Texas, and whose father’s business was in Texas.

“The upside of that pride is that they are going to take care of their own. They are not going to let that mental image of their state as being the greatest place in the world collapse. They are going to do whatever it takes to help their neighbors, if only to uphold that image. The result is still good.”

The Worst Natural Disaster

But tough, tough days lie ahead. Hurricane Harvey is the most costly natural disaster to ever befall the United States, said Dr. Joel N. Myers, founder, president and chairman of AccuWeather in a prepared statement Wednesday.

“This is the costliest and worst natural disaster in American history. AccuWeather has raised its estimate of the impact to the nation’s gross national produce, or GDP, to $190 billion or a full one percent, which exceeds totals of economic impact of Katrina and Sandy combined.

“The GDP is $19 trillion currently. Business leaders and the Federal Reserve, major banks, insurance companies, etc. should begin to factor in the negative impact this catastrophe will have on business, corporate earnings and employment. The disaster is just beginning in certain areas.

“Parts of Houston, the United States’ fourth largest city will be uninhabitable for weeks and possibly months due to water damage, mold, disease-ridden water and all that will follow this 1,000-year flood.”

The National Weather Service announced that a gauge in Cedar Bayou, near Mont Belvieu, Texas, recorded a preliminary rainfall of 51.88 inches.  Experts say it may be weeks before floodwaters recede in some locations.

Prior to Harvey, there were nine weather/climate disaster events this year with losses exceeding $1 billion each across the U.S., resulting in the deaths of 57 people, according to the National Centers for Environmental Information (NCEI). At least 28 people have died in Texas due to Harvey and that number could rise.

Not counting Harvey, the U.S. has sustained 211 weather and climate disasters since 1980 where overall damages/costs reached or exceeded $1 billion The total cost exceeds $1.2 trillion, according to the NCEI.

An Investment With a Return

Economic developers have thought that communities should invest in infrastructure, education and workforce training in order to attract and retain corporate investment. Dodd says they should also think the same way about resilience.

“If you had a bridge and you knew that bridge could go out in the next 20 years, wouldn’t you go ahead and invest in strengthening that bridge? That’s the way communities need to look at resilience. It is an investment that has a return,” he said.

On a personal note, if I were advising a corporate client on a location analysis project and we were looking at an area prone to natural disasters, be it a hurricane, a tornado, or an earthquake, I would be asking questions about community preparedness. I would want to know about special building codes, or nearby shelters, evacuation routes, etc.

Facing the Facts

Some communities do not want to face the facts. I know one that wanted to run from the fact that they have had some past disasters. They didn’t even want to talk about it.

When a community leader learned that prospect companies were asking about disaster preparedness and recovery, he pushed the economic development organization to face the issue head on. Today that same community has a brochure outlining what it has done to become more resilient in the face of a disaster. It was a smart move.

A Silver Lining

The thought that something good could come out of tragedy, especially where there has been loss of life, may seem strange or even callous. But the fact is that we learn from disasters, and sometimes they even present us with opportunities or spark ideas.

“There is in every cloud a silver lining,” said Dodd. “This gives a community the opportunity for a reset. Ironically, it is sometimes easier to do that after a major disruption such as a natural disaster for a community to look at where it is and rebuild in the image that it wants to.”

And in that recovery and rebuilding process, that reinvention of place, a community can and should become more resilient.

Joplin, Missouri

The EF5-rated multiple-vortex tornado struck Joplin, Missouri, late in the afternoon of Sunday, May 22, 2011. It reached a maximum width of nearly 1 mile during its path through the southern part of the city.

It left death and destruction in its wake, killing 161 people, injured some 1,150 others, and causing property damage amounting to $2.8 billion. It was the deadliest tornado to strike the U.S. since 1947, and the seventh-deadliest overall. It also ranks as the costliest single tornado in U.S. history.

In the aftermath of the storm, Joplin Strong emerged.

“We had contingency plans about what happens if our chamber building were to burn down or if it were hit by a tornado, but we never anticipated what happens if 500 of our businesses are destroyed or are substantially damaged or 4,000 of your houses are gone,” said Rob O’Brian, president at Joplin Area Chamber of Commerce & Joplin Regional Partnership.

Much of the response was not unlike seat-of-the-pants flying.

“We had to think about what are the needs were and how to address those needs, things that economic development organizations think about day in and day out on a normal scale. We just had to do it much faster,” O’Brian said.

A Marathon

O’Brian agrees with Dodd that a disaster can change a community’s vision about itself and its future.

“When a disaster happens, it brings a lot of focus and a lot of energy to the forefront. People start talking about recovery and rebuilding and how we can do it and how we can do it differently. They start thinking about how we can raise the bar and end up with a better community for ourselves,” said O’Brian.

“In the heat of the moment, it seems like it will be a far stretch to get there. But within days, people were talking about business opportunities, better housing, and building their businesses back in a better way. You do get there over time. But it is a marathon, although the first initial weeks when everybody is scrambling to address immediate needs, it feels like a sprint. You just preserve and keep working on it every day.”

Ideas Revived

Some ideas that had been discussed and essentially shelved prior to the tornado were revived.

“We had energy and we had momentum, and people came forward saying this was our opportunity. It changed some of the vision and brought focus to bringing those projects, talked about for years, to fruition and all with the idea of coming up with a better community,” O’Brian said.

And a better community has resulted. In June, the Kansas City University of Medicine and Biosciences officially opened a second campus in Joplin. It was Missouri’s first new medical school in 44 years. KCU broke ground on the facility last year on the site of Mercy Hospital Joplin, a temporary facility constructed in the aftermath of the tornado. The land and hospital were donated to the school, along with $30 million in local funding. No public dollars were used.

There are probably lessons to be learned here for Houston.

New Orleans

I look at New Orleans today, still in recovery mode 12 years after Hurricane Katrina.

About 100,000 fewer people live there today than the nearly half-million who had lived there before the storm. In some neighborhoods, like the Lower Ninth Ward, many residents never returned, but newcomers have arrived.

New Orleans now has a growing tech industry, with companies such as Electronic Arts, Gameloft, High Voltage Software, inXile, iSeatz, and Turbosquid having opened studios there in recent years.

It is also is a whiter and more expensive city. Gentrification and a growing cosmopolitan atmosphere has sparked debate within the city as to its historic culture is being lost.

Of course, it is for the people of New Orleans to decide the future of their city. But if income, education and corporate investment are all rising, and I believe that they are, I would hope that opportunities for all are rising, too.

There are probably lessons to be learned here for Houston.

Their Strength is Our Strength

Wherever disaster strikes, Americans reveal their true selves, their true grit. They may not know they have this wellspring of resilience deep within them, but they find it. Knocked down, they find a way to get back up and rebuild their lives. They soldier on.

We mourn for the dead and empathize for those who have lost so much from Hurricane Harvey. They have demonstrated courage and compassion, and given the rest of us faith in ourselves and our fellow man. Their strength is our strength. We are with them.

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.

Where Will the $1.6 Billion Toyota-Mazda Plant Land? Part 2

In Corporate Site Selection and Economic Development on August 23, 2017 at 12:24 pm

In my last blog, I said both political and business factors will determine what location is chosen for a future assembly plant operated jointly by Toyota and Mazda.

For the dozen or so states competing, this is red meat and bidding war has resulted. The prize is 4,000 good-paying direct jobs, three or four times that in indirect jobs, and a capital investment of $1.6 billion.

The fact that this search was publicly kicked off at a time when President Donald’s Trump administration is pushing for wholesale changes to the North American Free Trade Agreement is no coincidence. The first round of negotiations between the United States, Canada and Mexico ended on Sunday.

Said President Trump at a raucous rally of supporters in Phoenix Tuesday night: “I think we’ll probably end up terminating NAFTA at some point.”

Trump’s threat to pull out of NAFTA probably comes as no surprise to Toyota. The company operates two manufacturing facilities in Canada and one in Mexico, with a second, a $1 billion plant, now under construction in Guanajuato.

As I previously stated, Toyota has a history of building political capital. The fact that the company has 10 manufacturing facilities in eight states is indicative of its political acumen that spreading the wealth is a good strategy. It is the basis for my analysis, which essentially is educated guesswork.

My gut tells me that Project Mitt, as it is being referred to, will go to a state that has no or maybe only one OEM assembly plant. There is a certain appeal to being The Big Fish in a little pond.

I also think Southern states will have an edge over Midwestern states for reasons of taxation, regulation and proximity to ports. But when you mix politics and site selection factors, you are capable of getting a bit of a strange brew. It’s one that JLL, hired in an advisory role, will have to taste.

So here is my quick-and-dirty, state-by-state analysis, with accompanying news reports, much of which are hopeful thinking to say the least.

Alabama

A state where I lived for more than 20 years, I cut my teeth on economic development working primarily on automotive projects. I learned that well-coordinated teams win projects and I was lucky enough to frequently be a member of those teams.

We had a spate of success, successfully recruiting not just the OEMs to the state, but many Tier One and Tier Two suppliers as well. Those experiences as the basis for my consultancy today, so I have very fond memories of Alabama.

Alabama has three auto assembly plants –Mercede-Benz in Tuscaloosa, Honda in Lincoln, Hyundai in Montgomery. Between the three of them, they turned out more than 1 million vehicles last year.

Toyota also has an engine manufacturing plant in Huntsville. Auto-making experience is a given for Alabama, but the state may be hard-pressed to come up with the number of workers than the Toyota-Mazda project will require.

Report: Official says north Alabama may have edge in state’s bid for Toyota-Mazda plant  Birmingham Business Journal, Aug 21, 2017

Arkansas

Arkansas was a finalist for the Toyota factory that opened in Blue Springs, Miss., in 2011. Arkansas Economic Development Commission spokesman Jeff Moore said the state “certainly has interest” again. That would be a “duh” statement.

Toyota-owned Hino Motors recently announced plans to expand its operations in Marion to include 563,000 square feet of manufacturing and office space. Hino makes axles and related parts for different Toyota models.

There is no other OEM assembly plant in the state, which is good, but Arkansas’ biggest drawback may be geography. It may be just too far away from the bulk of its suppliers.

Report: Arkansas submits proposal for $1.6 billion Toyota-Mazda auto plant KATV Aug 18, 2017

Georgia

Georgia makes a lot of sense. Kia’s assembly plant in West Point, near the state line with Alabama, opened in 2009. As such, it is one of the newer assembly plants in the country, employing about 3,000 people, and it’s the only one in the state.

The state’s training program, Georgia Quick Start, has improved the skill sets of more than 1 million employees in 6,500 projects. It’s considered one of the best in the country.

There are more than 500 Japanese companies in the state that employ about 30,000 people. The fact that Georgia has five interstate highways that extend more than 100 miles is a plus. Interstate 75, running north to south, is the longest at 355 miles.

Georgia crafted its largest incentive package ever in 2015 in its bid to win a Volvo, only to have the project choose neighboring South Carolina.

Report: Will Georgia make a play for a Toyota-Mazda factory? Atlanta Journal Constitution, Aug 4, 2017

Illinois

While state lawmakers recently approved the expansion of EDGE tax credits, they also last month passed a 32 percent personal income tax hike. To say that Illinois would be a surprise if chosen is an understatement.

A two-year budget impasse has severely hurt the state’s business climate and reputation. Moody’s Investors Service recently affirmed Illinois’ current rating with a negative outlook, saying a downgrade remains possible in the next two years.

According to Moody’s, Illinois owes over $250 billion in unfunded pension debt, far higher than the $130 billion the state says it owes. For the past three years, Illinois has lost more residents than any other state. 114,144 Illinoisans left for other states from July 2015 to July 2016.

Rivian, a privately-funded startup with research facilities near Detroit and San Francisco, bought the former Mitsubishi plant in Normal, which was shut down last year. The company reportedly has a working prototype for an electric vehicle inside the 2.4-million-square-foot plant. When it comes to actual production, well, I believe it when I see it.

One more thing, Illinois is not a right to work state, unlike all its neighboring states. To be blunt, I’m not sure why Illinois would be in the running for this project.

Report: DeKalb, Rochelle are possible sites as Illinois pursues 4000-job Toyota-Mazda plant Chicago Tribune, Aug 10, 2017

Indiana

Toyota has a 19-year-old assembly plant in southern part of the state that builds the Sequoia sport-utility vehicle and Sienna minivan and is undergoing a $600 million expansion.

The company earlier this year announced it would invest $600 million and hire 400 new workers at the Gibson County plant as part of its plan to expand production of the Highlander SUV. That factory has 5,000 workers.

The auto industry employs more than 100,000 people in Indiana, which include Honda, Subaru and Chrysler. The fact that Toyota is already there and that automotive has such a strong presence in the state may preclude Indiana from being chosen.

A site just east of New Carlisle in St. Joseph County could be under consideration, according to The South Bend Tribune. 

Report: Indiana is vying for a Toyota-Mazda plant that will hire 4,000 people  Indianapolis Star, Aug. 21, 2017

Iowa

While Iowa isn’t known for automotive manufacturing, Debi Durham, director of the Iowa Economic Development Authority Toyota, said Toyota has asked the state for information on specific sites that could house a new assembly plant.

Iowa Gov. Kim Reynolds said the state is “extremely competitive” in its hunt for the Toyota-Mazda plant. I am not sure how she would know that, as that would be the call of the project team.

“We are going to do everything we can ― up to a limit. You have to know where you draw a line,” Reynolds said. “But we’re competitive. This would be great for the state of Iowa.”

The Hawkeye state can point to state rankings showing a lower cost of doing business, but the fact remains that it is distant from most existing suppliers. That is not to say that new supply chains cannot be built by Toyota, but I think Iowa is a stretch because of geography.

Report: In Iowa’s hunt for Toyota factory, this site leads the packDesMoinesRegister.com, Aug. 22, 2017

Kentucky

Gov. Matt Bevin told auto executives that a shovel-ready 1,550-acre site in central Kentucky, south of Elizabethtown near Interstate 65, is an ideal location for the investment.

Bevin pushed successfully for a right-to-work law and other business-friendly measures this year, and pledged to compete aggressively against rival states.

Toyota already has an 8-million-square-foot factory in Georgetown, Ky., that makes more than 500,000 Camry, Lexus and Avalon vehicles per year, as well as 600,000 engines.

Toyota is investing $1.3 billion into the 8,200-job facility, which draws from 350 suppliers and commodities vendors, 100 of them in Kentucky.

While there are certainly efficiencies of using an existing supplier network, the fact that Toyota is already in Kentucky, which also boasts two Ford factories in Louisville and General Motors’ Chevrolet Corvette plant in Bowling Green, may dissuade it from locating there.

Report: Kentucky to make big push for $1.6B Mazda-Toyota factory The (Louisville) Courier-Journal, Aug. 9, 2017

Michigan

No foreign automaker operates an assembly plant in Michigan, the traditional home of the nation’s auto industry. Being home court for the Detroit Three auto companies and the UAW certainly has not created great appeal in the past/

But the union threat is not what it was and Michigan, of all places, became a right-to-work state in 2012. Last month, Gov. Rick Snyder signed a package of bills into law last month that allow companies that expand or relocate to Michigan to receive up to a 10-year, 100 percent abatement on the personal income-tax withholdings of new employees. It applies to companies that bring up to 3,000 jobs to the state at average wages in the region.

The Toyota Motor North American R&D Purchasing and Prototype Development Center, the company’s largest research center outside of Japan, officially opened in May in Ann Arbor. The facility employs 1,600.

While Michigan’s business climate has drastically improved, possibly more so than any other state, it may be a long shot for Toyota to have an assembly plant there. Legacies tend to linger.

Report: Michigan’s bidding for $1.6-billion Toyota-Mazda plantDetroit Free Press, Aug 18, 2017

Mississippi

The Toyota plant in Blue Springs, Miss., opened in 2011 as the sole U.S. assembly location for the Corolla, which the future Toyota-Mazda partnership plant will produce in addition to Mazda crossover models.

About half of the 1,700-acre Blue Springs site, remains vacant, with roads and sewers already in place awaiting further investment. With existing supply chains in place for the Corolla, it would only make sense for the project to locate there.

However, Blue Springs, which employs 2,000 people, may not have the capacity to employ an additional 4,000 people, which is what the joint project is calling for.

Again, I look at Toyota’s history of seeking greener (or at least different) pastures for political purposes. I will say the same for Texas, as I did for Kentucky and Indiana.

Report: Mississippi in the running for new auto plant Jackson Clarion Ledger, Aug 8, 2017

North Carolina

I like the line that I used in my last blog – “Ever the bride’s maid and never the bride.” It’s precisely why I am predicting that North Carolina will win the prize.

The Tar Heel state has no automotive assembly plants to compete with for talent, although it has been in the hunt for them for years. That very void and the fact that North Carolina really wants to win this project is what may prove to the difference maker for Toyota, which would gain political capital from the swing-state’s congressional delegation.

North Carolina has about 26,000 workers at 300 automotive suppliers in the state, which gives Toyota a buildable base from which to work. The tech-savvy Research Triangle will be viewed as a plus, especially in a coming age of autonomous cars.

There are four mega-sites in North Carolina that I identified in my last blog. The 1,774-acre Greensboro/Randolph Megasite, southeast of Greensboro, may be the best. We shall see.

Report: NC’s lack of automaker plant presence may boost chances at landing Toyota-Mazda project Winston-Salem Journal, Aug 13, 2017

Ohio

A strong manufacturing workforce; centrally located; a plethora of automotive suppliers — all logical reasons why Ohio should be in the mix.

Also, Toyota has existing assembly plants in neighboring Indiana and Kentucky and the R&D center in Michigan. Ohio just makes sense, as it would be close to existing and potentially new suppliers.

But like Illinois, Ohio is not a right-to-work state. While that didn’t scare off Honda, which operates a non-union assembly plant in Marysville, it might prove to be a stumbling block for Toyota.

Ohio isn’t saying whether it’s trying to land the Toyota-Mazda plant, which doesn’t mean anything. Staying mum is a defensible strategy.

Report: Could Southwest Ohio win 4000-job Toyota-Mazda plant?Cincinnati.com, Aug 17, 2017

South Carolina

From a pure standpoint of manufacturing environment and business climate, it’s hard to beat South Carolina.

And in recent years, some of the world’s best manufacturers – BMW, Mercedes-Benz, Volvo and Boeing among them — have beat a path there.

But it’s South Carolina’s very success that may hamper its ability to lure Toyota there. Those are big companies that I just named with a big presence in a small state. Toyota/Mazda/JLL may like what they see in South Carolina (I certainly do), but they may come to view the field as being just too crowded.

The onus on the state will be to prove just the opposite.

Report: South Carolina among states chasing 4000-job auto plant  Charleston Post Courier, Aug 9, 2017

Tennessee

Tennessee has been biding its time, waiting, watching, and getting ready.

Hoping to lure the Toyota plant that eventually went to Blue Springs, Miss., the state acquired property dubbed the Memphis Regional Megasite. The 4,100-acre site is situated 32 miles east of Memphis along Interstate 40.

Tennessee has spent more than $140 million on the Memphis Megasite, building roads and water and sewer lines.

“There will be a lot (of) people fighting hard for that plant, and we intend to be at the lead,” Tennessee Gov. Bill Haslam told the Associated Press.

Critical to the Toyota-Mazda team’s thinking is whether the site, or rather the surrounding region, offers a sufficient labor pool in terms of quantity (numbers) and quality (skills.) Tennessee must prove its case to prevail.

To be sure, Tennessee has a strong and growing automotive sector that includes three major assembly plants and automotive operations in 86 of its 95 counties and employing some 130,000 people. There are more than 900 automotive suppliers in the state.

Nissan’s North American headquarters is in Franklin, and with an assembly plant in Smyrna. At its Spring Hill site, General Motors produces the Cadillac XT5 and the GMC Acadia, as well as 4-cylinder and 8-cylinder engines. Volkswagen has more than $1 billion invested in its Chattanooga assembly plant that employs more 3,200 workers, turning out Passats.

Report: Gov. Bill Haslam wants Tennessee to land new Toyota-Mazda plantChattanooga Times Free Press, Aug 8, 2017

Texas

Last but not least is my home state. Within a year or two, I figure those Japanese executives who are based at Toyota’s new North American corporate headquarters in Plano, north of Dallas, will learn to swagger. (We call it walking.)

You see, you don’t just move to Texas. Texas moves into you. Having said that, I would be surprised if Texas were chosen with its investment here, which includes an assembly plant in San Antonio, which opened in 2006.

The San Antonio plant, the sole producer of Tundra full size pickups, in addition to Tacomas, has been running overtime to keep up with demand since April 2015. Built with a production capacity of 200,000 vehicles a year, the plant has been producing more than 230,000 for the last two years.

Texas is an unlikely choice because Toyota wants to spread the love and its clout, my overriding premise. However, if there is one state capable of pulling a rabbit out of a 10-gallon hat, it is Texas. I cannot count Texas completely out, only because it continues to surprise me.

Report: San Antonio officials announce bid to win $1.6 billion Toyota factorymySanAntonio.com Aug 4, 2017

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