With fewer prospects in a bleak economy, communities are having to entice potential investors with more ambitious incentive packages, said Pat Topping, senior vice president at the Macon Economic Development Commission.
“The less activity you’ve got, it makes you more aggressive,” said Mr. Topping, who also leads the Georgia Economic Developers Association, which has more than 700 members across the state. “Communities are offering more incentives now for legitimate, real projects than they have in the past, and what we’re seeing is companies are asking for more incentives.”
Companies have always looked at communities as partners, but greenbacks are coloring those relationships even more nowadays, said Mr. Topping, who works with inbound prospects often in Macon.
In addition to tax incentives and land grants, companies are looking for more “creative” financing packages. They’ve even begun asking communities to buy factory equipment or even to provide working capital, options that might not have even been on the table when times were better, Mr. Topping said.
It’s a dilemma for economic developers in hard-hit areas: Meet companies’ increasingly rigorous requests or lose important projects to competitors across the state or region who are willing to take the risk, he said.
Macon faced that conundrum recently, when a European steel products company asked the community to finance $75 million worth of equipment for a new factory in the Southeast. The firm’s parent company, an industry leader with a good track record in its home country, wouldn’t put up any funds to guarantee the new venture.
Macon-Bibb County couldn’t take the risk, Mr. Topping said.
“We couldn’t figure out a way to finance it without adversely affecting the county’s credit rating or putting financial risk on the community,” he said.
So the company went to Mississippi, where a city “rolled the dice” to finance a third of the equipment costs, Mr. Topping said. If the company fails, the community has little recourse.
Economic developers in Meriwether County, southwest of Atlanta, made a similar wager that helped them beat out two Alabama cities for the U.S. manufacturing operations of Gustav Wiegard North America LP.
The county provided a 30,000-square-foot building and production equipment, which Wiegard will lease from the community. The steel products factory will initially employ 30 people on a $7 million investment. The company plans to hire up to 20 more people within two years. Officials from the county’s industrial development authority could not be reached for comment.
Gustav Wiegard, managing director of the company, told GlobalAtlanta in an email shortly after the announcement that incentives were a “a very important component” in the selection process.
“Meriwether County’s incentives stood out among the other communities and really showed us that they wanted us to locate there and that they wanted to be our partner,” he said.
Mark Lytle, director of international investment at the Georgia Department of Economic Development, said the willingness to grant bold requests is a function of the times.
“The need for the company to have things that can reduce their cost of entry to the marketplace is more important now because they perceive their risks to be a bit higher,” he said, adding that the state has seen more ambitious demands from some potential investors.
Incentive packages can take various forms, depending on the prospect’s needs. For a manufacturer, reducing or eliminating the cost of land might be more enticing than a local tax break that takes five years to come into effect, he said.
The key for economic developers is to remember that there’s no static formula for winning foreign investment, Mr. Lytle said. It’s a nuanced process that requires business savvy with a combination of factors. Incentives can play an important role, but often they’re relatively small in value compared to the overall cost of entering the market.
The state has often won projects when it didn’t offer as large an incentive package as a competitor, simply because it made better business sense in the long run, Mr. Lytle said.
That said, some communities are written off before negotiations begin because the prospect finds out through a consultant or Internet research that no cash is on the table, said Craig Lesser, managing partner at Pendleton Consulting Group LLC, which helps communities build overseas strategies.
“It’s like playing cards, playing poker. You want to play? You’ve got to ante up,” said Mr. Lesser, who was Georgia’s economic development commissioner when the state won the Kia Motors plant for West Point in 2006.
Getting that $1.2 billion investment required incentives valued at about $400 million, including land and a training center provided by the state, local tax breaks and federal funding for highway improvements.
Kia’s job creation potential – 2,500 direct jobs and thousands more from suppliers – made it worthwhile for the state to wheel and deal, Mr. Lesser said, but he emphasized that each negotiation is different. Any incentive package must balance the needs of both the community and company.
“When a company wants to be in the Southeast, if I’m in Iowa, I could put $10 million on the table and it’s not going to make a difference,” he said.
He suggested that economic developers build strong relationships with clients to become better acquainted with their needs. This is especially true on the international front, where relationships can sometimes supersede an insufficient incentive package or other barriers in a negotiation.
“You do business with people you like and respect and that you know,” he said. “It’s much easier to say no to someone that you don’t have a relationship with.”
In a downturn, companies are unlikely to pull the trigger on new investments, but that doesn’t mean activity has ceased, Mr. Lesser said. Investors, especially from Europe and Asia, are doing their “window shopping” right now, waiting for the best time to put their cash to use.
That means communities should be aggressively bolstering their global ties, even if it means using greater proportion of their tight budgets on international travel, he added.
“This is the time to be firming up the relationships and substantiating them, because the day will come when people will make decisions, and when that day comes they want to make them quickly,” he said.