Custom Search
|
|
Let’s Make A Deal
The same is true in the world of corporate site selection although the stakes are decidedly higher – for both the company looking for a new location and the community seeking to land the project. Critical factors like location, interstate highway access, airport facilities and tax structures can make – or break – the deal. Incentives are another site selection factor whose role continues to be debated. Many site selection consultants and corporate real estate executives downplay the role of incentives, at least in the early stages of the site selection process. John Sisson, a Principal with Fluor Global Location Strategies, a site selection firm, agrees. According to Sisson, “Incentives are secondary to finding the right location for the client because other things like the cost of labor, transportation and utilities have a more important impact over the 20 year life cycle of the project.” Sisson draws a distinction between incentives that reduce initial project costs versus long-term operational costs (see sidebar, “An Incentive for Every Reason”). Incentives become increasingly important when the list of possible locations has been reduced to a short list of 3-4 sites that meet the company’s criteria. Sisson’s colleague, Kenny McDonald, a Principal at Fluor, explains that, “We look at incentives to make a good site better. Our job as consultants is to find a workable location and incentives can make it a better location.” With a fewer number of available projects today, it’s a safe bet that the best minds in economic development are working overtime to develop new programs that land their community on the short list. They would do well to consider an approach that has generated significant results in three growing states. First Across the Line Michigan’s economic development team has earned a well-deserved national reputation for being highly creative and successful. In recent years, the state has consistently ranked high in just about every Top Ten list for new projects and job creation. In 1997, economic development officials introduced one of their most innovative tools yet, using a simple, almost irresistible lure: specially selected sites in distressed areas designated tax free for up to 15 years. State officials deliberately named the tax free locations “Renaissance Zones” with the goal of spurring investment in targeted communities. While much of the state had prospered in the 1990s, some areas clearly had not. “We wanted to stimulate development in specific, locally identified geographic areas left behind during Michigan’s boom,” explains Jeff Kaczmarek, Senior Vice President, Community Services for the Michigan Economic Development Corporation (MEDC). Introduced in January 1997, the Renaissance Zone program was the first of its kind in the nation. Kaczmarek notes that tax free zones had been debated in economic development circles for years but “Michigan was the first state to something about it.” The state’s pioneering effort was dramatic in scope – virtually eliminating nearly all state and local taxes levied on business activity for a period of 10 to 15 years for any business (or resident) presently in or moving into a zone. It was further designed so tax relief is phased out in 25% increments over the last three years of the program. Companies in a zone avoid a variety of taxes including: • Single Business Tax (Michigan’s equivalent of a corporate income tax) • State personal income tax • State education tax • Local personal property tax • Local real property tax • Local income tax • Utility users tax The first tax free zones included six urban areas, three rural locations and two former military bases. Each zone can have up to 10 sub zones, allowing local officials to select specific sites in their communities that need a tax free inducement to attract development. Sites ranged from Detroit and Grand Rapids to smaller towns like Saginaw and rural areas like Manistee County. Michigan officials even created tax free havens at two former military sites to assist nearby communities that lost jobs from base closings in the mid 1990s. It didn’t take long for Michigan’s bold approach to highly targeted economic renewal to produce results. In just three years, the program had generated over $330 million in investment. As MEDC president and CEO Doug Rothwell said at the time, “When we came up with the idea for Renaissance Zones, it was with the belief that eliminating taxes could jumpstart business growth in those areas that needed a boost. We got that boost.” Renaissance Zones proved so effective that Michigan quickly expanded the program just two years later. Ten new zones were added in December 1999, bringing the total to 21 today, with 10 urban and seven rural zones. Three are located at former military bases including a one-time tank plant in Warren. The newest zone, the Border-to-Border zone, features sub zones across Michigan from the Upper Peninsula to the Indiana line. Today, the Renaissance Zone “boost” continues unabated. Through January 2002, the program has generated 216 projects and over $1.3 billion in private investment and created more than 5,800 new jobs in just five years. More growth is expected because communities in Michigan have until the end of 2002 to “reset the clock” and extend tax benefits for up to 15 years through recent legislation. One of the state’s most successful zones is in Grand Rapids where 86 projects and over $106 million in investment have been attracted, creating more than 1,000 jobs. According to Susan Shannon, Business Advocate with the City of Grand Rapids, the program was used there to encourage redevelopment of vacant industrial sites such as older, multistory manufacturing facilities that could not be cost effectively renovated without appropriate incentives. One success story is a Brass Works, a former 300,000 square foot brass manufacturing facility adjacent to downtown converted to loft-style offices in 1999. It is now home to numerous businesses that benefit from the site’s tax free status ranging from a brewpub to mindpepper, a new IT firm specializing in web site development. Benton Harbor’s Renaissance Zone has also attracted a variety of expansion-minded home-grown firms and new startups including Edgewater Automation LLC. Announced in February 2001, Edgewater Automation includes a joint venture partner from the Netherlands, Manders Industry, an advanced equipment manufacturer and supplier. The firm builds custom automation machines for the automotive, electronic and appliance industries. It plans to create 46 high-wages, high-skill jobs over the next five years, complementing the region’s growing technology sector. While most projects have been modest in size, one adds a major league name to Benton Harbor’s success stories. In April 2001, Whirlpool Corporation announced that it would relocate its Technical Center from Ohio to a Renaissance Zone in the community. The $25 million project involves almost 400 technical positions and $62 million in direct and indirect wages in the first year of operation alone, further solidifying Whirlpool’s presence in its hometown. The Renaissance Zone program has also been used in Benton Harbor and other Michigan communities to revitalize commercial corridors. In Benton Harbor, a commercial strip called Fairplain South had seriously declined even though it was located at the busiest intersection in Berrien County. It became part of a new Renaissance Zone in January 1999, encouraging the plaza’s owner to completely renovate the aging complex, attracting national retailers like Pier One and Office Deport. Renovations at Fairplane South also spurred re-investment in adjacent properties not part of the Renaissance Zone, attracting other national retailers including Target, Old Navy, T. J. Maxx in addition to local retailers. With results like these, the Renaissance Zone program has been a clear winner for Michigan. The ultimate proof of success? Pennsylvania quickly emulated Michigan’s program – and success. Article Directory: http://www.articledashboard.com The International Economic Development Council. This article originally created by Del Birch and appeared in the February 2002 issue of Business Facilities magazine and then in Retention Monthly. |
|