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All Politics Is Local, Especially for a New Site

Companies looking to open a facility in an unfamiliar location must assess its local political climate to determine if it’s one in which it can succeed now and in the future.

Q3 2019
While business owners devote the lion’s share of their political attention to federal legislation and regulation, events closer to home merit equal concern. Decisions in the local state house and town hall can go a long way toward helping or hindering company operations.

“Businesses are often more affected by local community ordinances than by anything that goes through — or doesn’t go through — Congress and the federal agencies,” says Sean W. Hadley, a Moorestown, N.J.-based attorney active in government relations.

Unfamiliar Climate
Companies looking to locate a facility in a new region must take special care to assess the pulse of a largely unfamiliar political landscape. Are the governing bodies supportive of free enterprise? Or do they often throw roadblocks in the way of progress?

“A good business climate can tip the scales of the location decision,” says Bradley Migdal, senior managing director of Business Incentives for Cushman & Wakefield’s Global Occupier Services (GOS) division.

What to look for? “The main decision driver (in terms of local regulations, laws, and politics) is often taxation, because the dollars involved are usually the most substantial,” says Dan Breen, managing director of the Location Economics practice of Jones Lang LaSalle in Parsippany, N.J. “That would include property taxes, which for most companies is the largest single tax paid. Income, withholding, and sales taxes are also important.”

Other critical areas include right-to-work and minimum wage legislation, zoning regulations, development ordinances, environmental issues, and permitting.

And how about the quality of the infrastructure? Local governments have jurisdiction over roads, including their quality, cleanliness, and the placement of navigational signs that make it easy or difficult for customers to find businesses. Even the direction of traffic depends upon local regulations.

Many enterprises will want to assess the ease of business licensing and expansion, and whether there are onerous ordinances for the design of storefronts and building exteriors, parking, billboards, and any activities that affect the business environment.

Finally, red flags can fly if a community is known for habitual delays in approving construction projects. “If towns can expedite approvals, that can be appealing for a business looking to locate,” says Breen.

If taking the local political pulse is essential, the process can be elusive for an outsider unfamiliar with the terrain. Economic developers often step into the breach with vital information for the enterprise.

“We pride ourselves on working closely with businesses looking to establish sites in our state,” says Jack Mazurak, director of Communications at the Kentucky Cabinet for Economic Development. “We introduce businesses to relevant partners to keep them abreast of legislative changes or what the public service commission might be doing with rates.”

Looking Ahead
Drawing a bead on the current state of political affairs is one thing. But how about the road ahead? Might there be unpleasant legislative and regulatory surprises?

Businesses are often more affected by local community ordinances than by anything that goes through — or doesn’t go through — Congress and the federal agencies. Sean W. Hadley, N.J.-based attorney, government relations Changes in the tax picture, for example, can occur at any time. “Jersey City recently enacted a 1 percent payroll tax,” says Breen, offering one example. “That move has impacted the thought processes of some companies looking at the city as a potential location. One percent may not sound like much, but it can accelerate pretty quickly if you have a large-scale operation.”

Recent business events can affect future taxes as well. “Suppose a regional mall has recently closed,” says Migdal. “Will that closing lead to higher taxes in general to make up for a decline in sales tax revenue?”

Consultants can help a company look to the future. When doing so, they rely on insights from those closest to the action. “Economic development people are your eyes and ears,” says Breen. “The challenge is that they often have some motivation to not give you the negatives. Even so, many realize that in order to build a great working relationship they need to be forthcoming despite any conflicts. If there is an obstacle coming up, rather than hide it, they will help provide a work around.”

Some economic developers have specialized personnel that can identify pending events. “The general counsel of our cabinet is our liaison with the state legislature,” says Mazurak. “She has worked with them for years and has built good relationships. She has her ear to the ground for changes in legislation that might affect specific industries, businesses, or the state economy in general.”

Consultants have other resources at their disposal. “On the state level, we often get clues about how the dynamics might change from white papers on economic policy and taxation and incentives during gubernatorial elections,” says Breen. “On the local level, it is a little harder because there is not as much news available.” Local companies and trade groups can provide alerts to anticipated changes in the operating environment. The process is hardly foolproof, says Breen. “Sometimes you find things out; sometimes you don’t.”

The main decision driver (in terms of local regulations, laws, and politics) is often taxation, because the dollars involved are usually the most substantial. Dan Breen, managing director, Location Economics practice of Jones Lang LaSalle Of course, it is only possible to look so far ahead in the crystal ball. “When looking for pending changes in regulations and legislation we typically enjoy a six-month window,” says Migdal. “The problem is that we are making 20-year decisions. Who knows what changes in the business environment will occur in that period? That is why we spend a lot of time analyzing all of the potential risks associated with a business decision to make sure we are properly mitigating our clients’ potential risks.”

In the Mix
Ferreting out information about the local political scene shouldn’t stop with the site decision. A region new to a company should be watched carefully for unanticipated changes in the local operating environment. “Ignorance is not bliss when it comes to local laws and regulations,” says Nancy Bocskor, director of the Center for Women in Politics and Public Policy at Texas Woman’s University.

Effectively countering damaging measures means getting an early start. “When a new regulation or legislation is first reported in the media, it’s often too late for you to make an impact,” says Fairfield, Conn.-based attorney Cliff Ennico, who follows the business ramifications of local political activity. “A lot of debate occurs before votes are taken on a proposed measure, and you need to get your voice heard early in the decision cycle. Suppose, for example, there’s a hearing in three weeks about rezoning the downtown business district. If that’s where your business is located, you want to be at that hearing.”

So how do you set up an early warning system? One way is to take advantage of existing resources. Most municipalities have a website. Many local agencies now post their calendars online making it easy to check their activities. Is a meeting scheduled for the near future? Obtain a copy of the agenda to see what topics might impact your business.

Town websites may offer news feeds, e-newsletters, Facebook pages, or Twitter posts. All such media are conduits for news about proposed regulations. Also look for “hyperlocal” websites where people write blogs or maintain online newspapers about local government affairs. Plugging into these information sources can provide you the alerts you need to take action to make your voice heard.

Speak Up
Businesses can have a powerful impact on proposed legislation and regulation by communicating with local politicians. Such input will be much more powerful, though, if a business has taken the time to form relationships in advance with the most powerful movers and shakers.

“In every community there are people who are effective in making things happen and people who are not,” says Ennico. “And the former might not be the people with the biggest offices. In one town, for example, the most powerful person might be the head of one of the local political parties rather than the mayor.”

Enterprises will be more effective in telling their stories by informing the most important players about the needs of the business community at large. A well-prepared free market message can go a long way toward passing beneficial measures and stopping harmful ones. The most effective message will describe a proposal’s impact on the business community at large, in terms of real numbers. Especially powerful is a statement of effect on the local labor force: How will a proposed regulation raise or lower the unemployment rate, and by how much?

“Back up your story with data,” says Bocskor. “People need to know the consequences of government actions that too often sound good before you do the math.”

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