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?
Jennifer LeClaire (Dec/Jan 10)
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Incentives for Growth
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.
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."
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
Tapping Available Facilities
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
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.
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
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