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Who Benefits Most in a Public Site-Selection Process …The Winner? … The Loser? … Or Maybe Both?

By Jim Edmonson

The publicly conducted site-selection process for the ThyssenKrupp AG project is over, and Alabama appears to be the winner in the fight for what many say is the biggest industrial project in U.S. history. ThyssenKrupp AG has chosen to build its 7-million-square-foot steel-production mill on 3,500 acres 25 miles northeast of Mobile. I say Alabama appears to be the winner because we won’t know the economic outcome for years. ThyssenKrupp will invest $4 billion on construction, employ 2,700 at an annual payroll cost of $150 million, and spin-off an additional $1.2 billion in state-wide business sales, generating up to 50,000 indirect jobs. Wow! Congratulations, Alabama!

At least, I think. I can’t help but think about the costs of this “win.” For starters, the incentive package that attracted ThyssenKrupp is estimated to cost local and state government and school districts $880 million.

Other “costs” of the process concern me. First, the process openly and publicly pitted communities against one another for a project that was going to be placed in the U.S. anyway. I am not saying that economic development negotiations shouldn’t be a competitive process–while many believe competition among communities should be neutralized with the establishment of standard incentives, I don’t. But this process took it to another level, and just being in such a contest ran up the tab for the state, school districts and local government in particular. If the project had landed in Louisiana, it would be responsible for an incentive package that would have totaled $1.6 billion. I pray for the Alabama communities that the mill will stay competitive long enough for state and local government and citizens to capture the benefit. For-profit corporations often close doors faster than they open them when they sense any hint of weak market conditions or their inability to compete. Call any community in Michigan and see what over-dependence on one industry will do to you in the long run. Let’s hope that will not be the case for Alabama and the impacted communities.

Here’s another potential economic development minefield: if everything goes as planned, what about accommodating the new growth associated with the development: new roads, infrastructure, commercial development and residential subdivisions? Did state and local governments take the cost of sprawl into account? Will this growth be sustainable? Growth for growth’s sake does not happen without accumulating some losses along the way. One need only look to Canton, Mississippi, to witness the urban sprawl occurring around the Nissan facility and get an indication of the planning and cost involved. Neighboring communities are affected as well–just observe the exodus of business from traditional business centers near Jackson.

Finally, will communities near the mill target the right businesses, ones that will have an interest in locating near the mill and have a strong stake in staying around? Although the economic development rush will be on, it may be appropriate to just say no to some deals and wait for an opportunity that better fits the dynamics and capacity of the community.
My last question is could Americans have gotten a better deal? Without a doubt.

Here is how ThyssenKrupp rated each state as reported by the Baton Rouge Advocate.
Port Access: Advantage Louisiana
Land Characteristics: Advantage Alabama
Electric Rates: Advantage Alabama
Incentives: Advantage Louisiana
Power Supply: Advantage Alabama
Track Record: Advantage Alabama

Alabama looks like the winner on this project, but Louisiana may be the ultimate winner. Louisiana has an attractive site to market and multiple prospects have lined up. Some prospects are in industrial sectors better suited for long-term investment, with facilities that generally won’t close on weak market conditions and the wages paid from these projects may be higher than ThyssenKrupp’s. If an oil refinery were constructed on the site ThyssenKrupp targeted, it might invest less (say $1 billion) and employ fewer workers (paying them 10-20% more per job), but require a much lower incentive package (costing the state and community less). In the long run, a smaller, more suitable project could win Louisiana increased economic wealth and stability.

Of course the devil is in the details. One observer of the process claimed that ThyssenKrupp missed the subtle points involved in operating a business in different locations in the U.S. I find this to be one of the more important lessons of the deal: the conduct of business in each location is different and ThyssenKrupp may not have emphasized that point enough. The result remains to be seen.

Hats off to all the contestants. Let’s hope your next deal is negotiated in private.

For comprehensive target industry attraction programs, project negotiation assistance and smart growth advice, contact the team at Whittaker Associates.

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