Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, June 4, 1995 TAG: 9506020126
SECTION: BUSINESS PAGE: F-1 EDITION: METRO GRAPHIC: CHARTS
SOURCE: JEFF STURGEON STAFF WRITER
DATELINE: LENGTH: Long
Cost of incentive per new job announced: $1,848
Number of jobs company expects to fill; hourly pay: 150. Machine operators: $13 to $15. Minimum pay for other jobs: $7
Incentives: Land discount of $143,000, grant from Governor's Opportunity Fund of $122,000 and $12,000 for site preparation
Importance of incentives to project, in company's eyes: Very
Project: Butler Parachute Systems Inc. to renovate and expand a Roanoke building for nearly $600,000. The business moved from California.
Cost of incentive per new job announced: $250
Number of jobs company expects to fill; hourly pay: 20. Production: $5.50-$8.50. Rigger $10-$13. Engineer: $13-$27
Incentives: Training grant of an estimated $5,000
Importance of incentives to project, in company's eyes: Little
Project: Corning Inc. to perform $21 million expansion of its plant in Christiansburg making pollution filters for automobiles
Cost of incentive per new job announced: $1,000
Number of jobs company expects to fill; hourly pay: 50 jobs. Pay not disclosed.
Incentives: $50,000 training grant
Importance of incentives to project, in company's eyes: Little
Project: Fiber & Sensor Technologies to build $580,000 fiberoptics factory as it moves from Christiansburg to Blacksburg
Cost of incentive per new job announced: $1,938
Number of jobs company expects to fill; hourly pay: 12-15. Pay: Averages $20
Incentives: Land discount of $29,750
Importance of incentives to project, in company's eyes: Moderate
Project: Georgia-Pacific Corp.'s Big Island paper mill added $100 million worth of new equipment.
Cost of incentive per new job announced: $40,006
Number of jobs company expects to fill; hourly pay: 25. Pay "in the teens," a source said.
Incentives: $1 million in road work and $150,000 to upgrade rail spur
Importance of incentives to project, in company's eyes: Very
Project: Hanover Direct Inc. built $15 million warehouse and distribution center in Roanoke County for distribution of its Domestications line of goods, after having bought an existing warehouse for Tweeds lines
Cost of incentive per new job announced: $3,234
Number of jobs company expects to fill; hourly pay: 325 at Domestications facility, 370 at Tweeds. Pay not available
Incentives: $900,000 to widen Old Hollins Road and add traffic light, $467,697 worth of land, $350,000 grant from Governor's Opportunity Fund, $300,000 training grant and $230,000 for water and sewer improvements
Importance of incentives to project, in company's eyes: Very
Project: Hydraulic and Pneumatic Systems Inc. to build a factory in EastPark Commerce Center in Botetourt County
Cost of incentive per new job announced: $513
Number of jobs company expects to fill; hourly pay: 10-15. Pay not disclosed
Incentives: Site preparation work valued at $7,700
Importance of incentives to project, in company's eyes: Moderate
Project: MascoTech renovated a Salem building at an estimated cost of $3 million for a factory to accessorize engines and axles for the Volvo GM Heavy Truck Corp. in Dublin.
Cost of incentive per new job announced: $1,039
Number of jobs company expects to fill; hourly pay: 120. Pay: "competetive for area".
Incentives: Training grant of up to $124,680
Importance of incentives to project, in company's eyes: Moderate
Project: MW Manufacturers to buy $600,000 equipment and tooling at its Rocky Mount plant.
Cost of incentive per new job announced: $346
Number of jobs company expects to fill; hourly pay: 171. Average pay: $8.75
Incentives: $59,121 training grant
Importance of incentives to project, in company's eyes: Moderate
Project: Noble-Met Ltd. built $1 million factory in Salem to manufacture parts for balloon catheters
Cost of incentive per new job announced: $7,352
Number of jobs company expects to fill; hourly pay: 17. Entry-level jobs: $7.20. Technical: not disclosed
Incentives: Land discount of $125,000
Importance of incentives to project, in company's eyes: Little
Project: Sematco Inc. to build $1 million building in which to perform precision machining
Cost of incentive per new job announced: $9,413
Number of jobs company expects to fill; hourly pay: 15. Pay: $8-$12.
Incentives: Land discount of $141,200
Importance of incentives to project, in company's eyes: Little
Project: South Star Corp. to build $540,000 factory for manufacturing electrical, mechanical and electronic assemblies, as it moves from Roanoke County to Elliston-Lafayette Industrial Park in Montgomery County
Cost of incentive per new job announced: $3,712
Number of jobs company expects to fill; hourly pay: 50. Pay about $5.
Incentives: $175,000 access road; $1,000 worth of utility line work and fee waivers; and land discount of $9,600.
Importance of incentives to project, in company's eyes: Moderate
Project: Tele-Path Industries built $1 million factory in Salem to manufacture communications-related equipment.
Cost of incentive per new job announced: $17,000
Number of jobs company expects to fill; hourly pay: 10 engineering and assembly jobs. Pay not disclosed.
Incentives: Land discount of $170,000.
Importance of incentives to project, in company's eyes: Moderate
Project: Vitramon Inc.'s Roanoke plant, where ceramic chip capacitors are made, added $12 million expansion, $9.5 million worth for equipment.
Cost of incentive per new job announced: $1,589
Number of jobs company expects to fill; hourly pay: 80. Majority will receive $5 to $7.
Incentives: $100,000 parking and training grant of up to $127,120.
Importance of incentives to project, in company's eyes: Moderate
Project: Volvo GM Heavy Truck Corp. in Dublin to perform $200 million expansion of its plant.
Cost of incentive per new job announced: $171,428
Number of jobs company expects to fill; hourly pay: 175. Pay: More than $15.
Incentives: Package, to total $30 million if performance benchmarks are met, includes $3-million construction grant, $1 million worth of fill material and $600,000 in road work.
Importance of incentives to project, in company's eyes: Very
Project: Wolverine Gasket and Manufacturing Co. to perform $12 million expansion of its Blacksburg plant.
Cost of incentive per new job announced: $12,402
Number of jobs company expects to fill; hourly pay: 30. Pay: average more than $10.
Incentives: $72,500 for curb, gutter, water and sewer system work, $81,250 land discount, $81,250 grant from the Governor's Opportunity Fund, $125,000 road work and $12,075 in training funds.
Importance of incentives to project, in company's eyes: Very
SOURCE: The companies, local and state governments
A LOT OF MONEY flows out of public coffers to grant business incentives, and lot of business development is occurring. Officials trumpet their results, but incentives remain controversial. For one, the state is spending millions without an official incentives policy. Critics ask: Are incentives worth the investment?
There are some firm numbers. And there are some guesstimates.
Last year, at least 231 companies announced plans to build new or expanded operations in Virginia, with construction and equipment worth $1.9 billion.
Some of those companies got promises of incentives from state and local governments valued at....well, nobody knows.
The state touts a banner year for economic development, but don't ask what it cost - or what the new jobs pay. And the money the state spent to lure business was given without any firm rules about how it should be spent.
Secretary of Commerce and Trade Robert Skunda said the Allen administration is still young and getting its economic house in order.
"We're moving toward a much more disciplined process for looking not only at giving out incentives and whether they are justified or not, but what kind of payback are we going to get and how soon."
As Gov. George Allen leaves Tuesday for a 12-day trip to Europe to drum up investment in Virginia, state officials are preparing to write an official incentives policy because none exists.
Incentives - designed to induce companies to relocate to or expand in Virginia - take the form of free roads, parking lots, sewer lines, cut-rate land, money with which to train employees and other subsidies that reduce a company's cost to do business.
While officials can consult the basic guidelines for state-funded incentives programs spelled out in their enabling legislation, no rules for the corporate subsidies were ever put in the Virginia code.
Moreover, state officials don't keep track of what local governments spend on incentives, so there is no comprehensive figure for how much money was promised to industry last year.
Allen obtained lawmakers' agreement to have several members of the House of Delegates and Senate and gubernatorial appointees come up with a set of rules.
That's something that some lawmakers have sought at least since Volvo GM Heavy Truck Corp. received a promise of a grant of $30 million a year ago. Senate Finance Committee Chairman Hunter Andrews, D-Hampton, said he was uneasy promising so much assistance without a ceiling on the program.
Results of the the study are due out in time for new policies to become law during or soon after the 1996 legislative session. Already, Skunda said, his office has begun to carefully document information about companies that receive incentives such as the number of people they will employ, the wages workers will receive and the likelihood the companies will remain in business.
Skunda is confident of what he will find. In return for $16 million worth of assistance from the Governor's Opportunity Fund over three years, companies have pledged to invest $1 billion in Virginia, Skunda said.
Individual local governments, in contrast to the state, said they have a good idea of what they are spending, avoid investing more in a company than they get back in taxes over three to five years and hold companies to their promises to build factories and hire workers by demanding that incentives be returned if goals are not met.
Hugh Keough, president of the Virginia Chamber of Commerce, said state officials are on the right track and ought to be given time to craft a comprehensive economic plan. The first draft of Allen's plan, a document called Opportunity Virginia put out in December, "is smart, is working and will continue to work," Keough said.
Those who are not convinced incentives work as well as proponents claim are monitoring the issue closely.
Michael Hensley, director of the Economic Development Assistance Center at Virginia Tech, helps local governments plan their economic growth - including deciding how much to spend to lure businesses. To their credit, he said, localities that used incentives last year tended to spend the money to impart skills to people and build permanent improvements like buildings and roads - investments that pay long-term dividends - as opposed to giving money away through tax breaks.
"My position is: caution," Hensley said. "Incentives have their place but they should be approached with great caution."
The concern isn't limited to activities in Virginia. Last month, the American Economic Development Council in Chicago, a national trade association of economic developers, decided it will take a year to investigate what communities across the nation get for incentives they pay.
"What we hope to find is that we [economic developers], as a profession and the communities and states we represent, have gotten as good a deal as they possibly could, short term, long term. In reality, I think we are going to find in some cases that may not be the case," said Pat Vercauteren, economic developer for Johnson County, Ind., chairman of the study task force. "There's been a great deal of study on incentives, but there doesn't appear to be a great deal of conclusive evidence as to their effectiveness."
A method developed in Oregon to gauge the impact of new jobs, when applied to Virginia's record of incentives, shows Virginia needs employers who pay at least $8.65 an hour. At that wage, a person pays about as much in state income taxes as the state spends per taxpayer to provide basic services.
Skunda acknowledged the state has subsidized companies that pay less than that break-even wage. That's okay, he said, because the communities where those companies do business collect new tax revenue even if the state loses money.
|n n| The use of incentives traces to 1936, when Mississippi created the first modern state economic development program. It courted industries from Northern states with promises of cheap labor, land and taxes. Southern states have more recently lured plants run by foreign automakers, sometimes promising eye-popping sums that raised awareness - and concern - about the cost of incentives as an economic development tool.
Tennessee's incentives package for the Nissan auto factory penciled out to $11,000 in public funds per new job created. South Carolina is paying $70,000 per job for a BMW plant. Alabama wooed Mercedes-Benz at a cost of $150,000 to $200,000 per job.
The latter deal raised a chorus of complaints that states were paying too much for too little and wasting money that could better be spend on better schools, roads and other public improvements. The Corporation for Enterprise Development, a Washington, D.C., consulting firm that released its annual state-by-state economic report card last month, said Mercedes' parent, Damiler-Benz AG of Germany, received incentives comparable in cost to high-cost job-creation strategies such as Depression era make-work programs.
Virginia officials suggest that companies shouldn't expect to receive the same largesse here, because of the state's more conservative approach to incentives. The state Constitution, in fact, forbids direct cash for unrestricted grants to companies, said Morgan Stewart, Skunda's spokesman.
Still, the state is expanding incentive programs. The Governor's Opportunity Fund - doled out at Allen's discretion for building roads, sewer lines and other infrastructure - issues grants averaging $250,000 that must be matched by local government contributions; no Opportunity Fund money goes directly to companies. The fund's budget of $8.5 million was increased to $10 million for the year starting July 1.
Other pools of state money from which incentives are paid include $5 million for road and rail system improvements and $7.7 million to provide worker training grants and run the Work Force Services division.
Add it up, and you get a rough idea of what the state is spending annually on incentives, excluding what has been promised through future tax breaks. Those figures are not yet in.
During this year's legislative session, lawmakers gassed up the main engine of economic development, the state Department of Economic Development, with an extra $4 million, raising its budget to $38 million, a sum that includes federal grants. There is also a $20 million revolving loan fund for financing industrial projects.
Meanwhile, the governor successfully pushed for creation of a new incentive. It's a one-time, state corporate income-tax credit of $1,000 for each new job that corporations create over 100 jobs. Another bill Allen endorsed doubled to 50 the number of enterprise zones - normally economically distressed areas such as inner cities in which business are rewarded with tax breaks for investing distressed areas.
And another bill will free video and film production companies from paying sales and use taxes beginning July 1 - the first such exemption for a whole industry in at least 10 years, Stewart said.
Finally, local governments give discounts on land they own, contribute to infrastructure projects and waive fees normally charged to connect businesses to utility systems. Both the state and localities offer tax credits for recycling and pollution equipment.
While the list might sound extensive, Virginia - which got into the incentives game later than many other states - actually may have some catching up to do. The upcoming study will determine whether the state is missing out on potential new jobs because its incentives are not generous enough.
|n n| "Virginia is a strong player ... a very competitive state," said Dick Kelso, president of the Mid-State Economic Corp. in Waterville, Maine, and an instructor of economic developers in-training at the University of Oklahoma. "They've got a good budget to work with."
And the state has gotten results. Last year, Virginia landed the eighth highest number of new plants and plant expansions in the nation, according to Site Selection, a magazine aimed at economic developers.
This year, Virginia scored a home run - some say, a grand slam - by having Motorola Inc. select a Richmond-area industrial park for a planned new factory. Motorola, which so far has only an option to buy land, can benefit from incentives worth $85.6 million, including $60 million in grants from a program established to foster creation of a semiconductor industry in the state.
"Incentives can be looked at as making an investment in our economic future, the economic future of our communities," Skunda said.
Many economic developers believe officials such as Skunda have little choice but to offer incentives, or else the state would risk having interested industry go elsewhere. Existing industry could be lured away.
"Businesses come and say, 'What are you going to do for me?''' Kelso said.
James River Corp., a paper products maker, last week said it is considering moving its headquarters from Richmond to Connecticut, and has told city and Virginia officials it might need a package of financial incentives to stay. Company officials mentioned the Motorola incentives package as prodding them to ask for similar consideration.
Companies want incentives to lower costs of doing business. "It's economically rational," said Gordon Richards, chief economist at the National Manufacturers Association in Washington, D.C.
Richards said it is not true, as some economists argue, that incentives hurt companies by easing financial pressures that force them to become more efficient. In the real world, he said, companies accept incentives because they can use the help.
Another criticism is that incentives may subsidize companies for building expansions or new plants they would have undertaken anyway. Richards said the proof of such claims has not been proven to him.
Analyst Timothy Bartik of the W.E. Upjohn Institute for Employment Research, a nonprofit organization in Kalamazoo, Mich., sees it this way:
If a company builds a project because of the incentives it receives, the taxes it pays put government ahead - as long as tax receipts eventually exceed the cost of the incentives.
If a company takes incentives to do something it planned to do anyway, "you got snookered," Bartik said.
For the most part, taxpayers must rely on their elected leaders to tell the difference, said John Williamson, who heads the board of the Roanoke Valley Economic Development Partnership.
"If you really think they are going to come, you don't offer them much. And you can tell. Or you think you can tell," Williamson said. "It's really kind of a business negotiating process."
Williamson, also a vice president for rates and finance of Roanoke Gas Co., points to the case of Arkay Packaging, a Hauppauge, N.Y. The manufacturer of packaging for cosmetics plans to build in Botetourt County a factory employing 30 people to start and up to 150 people in the future. "They were from New York. They could have gone anywhere," Williamson said.
Williamson is right, company spokeswoman Taube Pecullan said. She added: "I don't believe we would have come if we had not gotten the help."
Volvo GM called its incentives highly important to its decision to expand its truck factory in Pulaski County. Officials said the huge sum was justified because Volvo GM threatened to take its manufacturing operation elsewhere. The expansion is expected to produce a $200 million taxable investment and 175 jobs, many paying more than $15 an hour.
On the other hand, four of 16 companies in the Roanoke and New River valleys whose projects were subsidized said the incentives they received did little to coax them to build, but they took the money anyway
"I like to sail my own boat," said Jack Kearny, president of Sematco Inc. He said the company would have gone ahead with its planned plant even without a discount on land of $141,200 bought from Botetourt County.
The other three companies are Butler Parachute Systems in Roanoke, which received an estimated $5,000 training grant; Corning Inc. in Blacksburg, which received a $50,000 training grant; and Noble-Met Ltd. in Salem, which received a discount on land of $125,000.
To Sen. Charles Hawkins, R-Chatham, a member of the state task force that is going to study incentives this year, it's a question of whether incentives are too high, too low or just right.
"We have a game with no rules, and it's difficult to understand what the limitations are of what we can do," he said. "What we have may be working fine, but no one knows that for sure yet."
Incentives to Western Virginia Companies in 1994
by CNB