As published in the September 1, 2014 Toledo Business Journal
Ron Starner
Site Selection magazine
What Makes a Business Climate Good?
Right-to-work critical issue for new investment and new jobs
Toledo Business Journal is reprinting an article written by Ron Starner, executive vice president of Site Selection magazine. The article provides insight into factors that impact new investment and new jobs. In approximately 50% of all projects in the United States involving site selection consultants, their client companies required a right-to-work state for location of the new investment.
Two of the issues critically important to site selectors — work force and incentives — came into sharp relief, thanks to a Michigan governor and a New York Times reporter.
Michigan Gov. Rick Snyder drove home the importance of labor to economic development when he signed into law statutes that made Michigan the nation’s 24th right-to-work state.
This historic action followed by one week the much-talked-about New York Times series on incentives, authored by reporter Louise Story. “As Companies Seek Tax Deals, Governments Pay High Price” served as the lead headline and pretty much summed up the conclusion of the writer.
Both events were noteworthy because they touched on business climate issues that shape the perception of site selectors as they evaluate various jurisdictions for corporate facility projects.
In a survey of site selection consultants who subscribe to Site Selection magazine, respondents ranked work force as the single most important location factor, while incentives ranked fourth.
In that same survey, 79 percent of site selectors said that, when working on a project with a potential location, it is “very important” for the host location to have the flexibility to craft a customized incentives package for the deal. Another 17 percent said that such flexibility is “somewhat important,” while only 4 percent said it is “not important.”
These survey findings matched the consensus of the Site Selectors Forum at the Mid-America Economic Development Council’s (MAEDC) annual Competitiveness Conference in Chicago in December 2012.
Right-to-work status may not be absolutely necessary for a state to win a project, the site consultants said, but in about half of all projects the states that do not have right-to-work laws will probably be screened out of the running at the first stage.
Jerry Szatan, principal of Szatan & Associates in Chicago, told Site Selection following Michigan’s conversion to right-to-work status: “I expect that it will get Michigan a few more looks on site searches, mostly industrial ones. It’s hard to know what percentage.”
Tim Feemster, senior managing director for Newmark Grubb Knight Frank in Dallas, said, “I think it will open up a lot of opportunity to locate in Michigan since now right-to-work is not a fatal flaw. Many companies have that as one of their primary search criteria and in the past, Michigan never made it to the list of states to search. We tend not to challenge our clients on this even though we have found that this is more of a perception issue than factual.”
On the topic of incentives, Jay Biggins, executive managing director of BLS & Company in Princeton, N.J., said, “Incentives are nothing more than a pricing tool that is designed to make a location more cost-competitive for a project.”
Moreover, he noted, clawback provisions and other restrictions are adding levels of accountability that did not even exist in many incentive programs a decade ago.
“Return-on-investment analysis is now becoming the norm,” said Biggins. “It wasn’t even being done in most cases 10 years ago. We are also seeing, increasingly, a requirement for certifications in applications. That is, the CEO of the corporation must personally sign a certified application that states that everything in the application — including the job-creation numbers the company pledges to make — is true. That is adding a whole new level of legal review and enforcement to these incentive programs.”
Overall, the site selectors who spoke at the Chicago forum agreed that Indiana, Nebraska and Iowa provide the best business climates in the Midwest, with Indiana being favored by six of the nine speakers.
Indiana received lots of credit for adopting right-to-work status in 2012, while Tracey Hyatt Bosman of BLS & Company noted that “Indiana did pass the local ability to exempt personal property taxes for data centers.”
Courtney Dunbar, leader of the industrial site consulting team for Olsson Associates in Omaha, said that “Nebraska made some very important changes in the past year when they passed their site and building legislation. They pushed funds toward preparedness for new opportunity for site-prep work.”
The site consultants who participated in the MAEDC forum in Chicago participated in a survey on a variety of economic development issues. Among the findings:
- Seventy-five percent said they work primarily with a state agency contact when conducting a site selection project.
- Eighty-seven percent said that a state’s business climate is either “very important” or “somewhat important” when they are first evaluating potential locations for a project.
- The best way for economic developers to communicate with site selectors about their region is through in-person office meetings.
- The most important characteristics of an economic development website are contact information, ease of finding the site, and amount and currency of data on work force.
- Overall, site selectors are most satisfied (7.5 out of 8) with the ease of finding economic development websites; they are least satisfied with the amount and currency of data on incentives on economic development websites (2.8 out of 8).
In the national survey of site consultants, the respondents said that:
- The three states in the U.S. currently offering the best incentives for business and industry are, in order, Texas, Louisiana, and a tie between Ohio and South Carolina.
- The three countries currently offering the best incentives for business and industry are, in order, the U.S., Canada and Ireland.
- The three countries offering the best overall business climate are, in order, the U.S., Canada and Ireland.
- The top three international regions, in terms of overall business climate, are, in order, North America, Asia-Pacific and Europe.
- The best business climates in the Midwest, in order, are Indiana, Kansas and Iowa.