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High Unemployment Areas Offer Aggressive Incentives to Expanding and Re-locating Businesses

High-unemployment states are working to drive economic development, but does an available labor pool translate to an ideal location in a down economy?

Dec/Jan 10
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Incentives for Growth
Most cities are not offering new economic development incentives in a down economy because new incentive programs are created through statues and take time to implement, but many are working to make existing incentives more lucrative. Culp points to states that are offering more tax incentives per job. Instead of $4,000 to $5,000 per job, for example, some states are offering closer to $8,000 to $10,000.

"Most states are offering incentive programs that offset future tax liabilities. So there is definitely a cost to the state to offering a greater value per new job created. But many of these programs offset future tax liabilities on growth they wouldn't otherwise see," Culp says. "Some states may be willing to knock off the company's corporate income tax at the state level for a period of 10 years. That's not a direct line item from today's cash flow reserves."

Incentives can also be controversial or unavailable. Cash-strapped cities may not be able to give expanding companies what they need most: start-up money, explains Art Wegfahrt, a corporate managing director at Studley in Philadelphia. Tax credits and training assistance don't help companies in their first year, he says, and federal stimulus funds don't appear to be helping the cause.

"The bigger question is 'incenting' a company for the higher-paying jobs. Frankly, as much time as I've spent looking at various stimulus grants and loans, I haven't found anything that's impacting people who have been laid off or who are underemployed," Wegfahrt says. "The amount of money in the Stimulus Bill that went into the economy didn't create as many jobs as they expected."

Tapping Available Facilities
With manufacturing facilities shuttered and corporations downsizing office space, there are also opportunities to pick up real estate at pennies on the dollar. Companies that held cash reserves close to the vest during the economic boom may be positioned to grab facilities that require little retrofitting.
But times have changed, according to Les Cranmer, senior managing director at Studley in Philadelphia. A few years ago, it wasn't unusual to find a company looking to start up, expand, or relocate their operation - and time was of the essence. Those companies looked for the right labor, the right skill sets, and affordable operating costs - and an available building. Those times have gone away.

"Usually companies have a longer fuse, if you will, before start-up would happen," Cranmer says. "On the other hand, you are beginning to see ads from real estate companies hired to market or sell buildings. And one of the features could be ceiling height and age and number of truck docks. Still, real estate is not the driving issue for site selection. Labor with transferable skills would be key in high unemployment cities."

More Competitive than Ever
The bottom line of site selection in the current market climate - especially in cities with high unemployment rates - is negotiation. States and cities are competing aggressively where they can. Although some states are facing budgetary crises that have negatively impacted incentive programs, others are making positive changes to tax structures and incentive programs in a quest to return to growth.

"With fewer new projects, it's more competitive out there, and states are wrestling with more limited resources," Sweeney says. "There is more caution or concern by public officials about what they can do or what they want to do. Things are taking longer to negotiate than in the past."

At the end of the day, unemployment is only one brush stroke in the big painting. Site selectors need to look at all the positives and negatives of each city and state, according to Ron Pollina, president and geo-economist at Pollina Corporate Real Estate, Inc., in Park Ridge, Ill. And for some of the states in the IHS report, he says, the negatives far outweigh the positives.

"If it's an R&D operation, any of these states could work. A right-to-work issue is not an issue for research and development operations. Michigan, Illinois, Indiana, California, Florida, and Arizona, all have good educational systems," Pollina says. "Despite unemployment rates, companies have to do an assessment of what each of these states has to offer and compare it - or they could be leaving millions of dollars on the table."

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