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Chris Lloyd of McGuireWoods Consulting’s Infrastructure and Economic Development team discussed economic development incentives in The Business Journal of the Greater Triad Area.
The Business Journal Friday, July 2, 2010
Caterpillar might be able to hire workers less expensively and ship goods via interstate highway more easily if it chooses Winston-Salem over its rivals in Alabama and South Carolina for a new factory, but the company might pay somewhat more in state and local taxes.
A Business Journal review of labor market, census and other cost-related data of the kind the heavy-equipment maker will be studying shows a close matchup between the Twin City, Montgomery, Ala., and Spartanburg, S.C.
The Illinois-based Caterpillar announced June 25 that it will choose one of the three cities by the end of the summer for a major parts-making facility that could create as many as 500 jobs.
Data points such as average wages and tax rates won’t make the decision for Caterpillar alone, said Chris Lloyd of McGuireWoods Consulting in Richmond, Va., who was involved in the negotiations that brought Honda Aircraft Co. to Piedmont Triad International Airport. But factors such as which particular interstates are nearby could tip the scales depending on which direction the company expects to grow in the future, for example.
“If they are looking for an East Coast customer base, then South Carolina and North Carolina are going to be better,” Lloyd said, while Alabama would provide more access to the Midwest market.
Caterpillar declined to comment on how it will make its decision, but the list of finalists isn’t surprising since the three cities are similar in many ways.
Each community touts a low cost of living and available educated workers. Also, each is a right-to-work state, meaning low levels of unionization.
One area where Winston-Salem would appear to have an advantage is in labor costs. According to the Bureau of Labor Statistics, the median hourly wage for workers in “production occupations” including factory workers is $13.88, lower than the $14.35 average in Montgomery and $16.51 in Spartanburg.
The Triad also boasts more direct interstate access, to I-40, I-77, I-73/74 and I-85. Both Montgomery and Spartanburg have two interstates each.
Moreover, the FedEx Ground hub in Kernersville and FedEx air cargo hub at the airport are not far from where Caterpillar is looking to possibly locate in Union Cross Business Park in southeast Forsyth County. Those just-in-time shipping options could also prove advantageous for the region.
The incentive deals that each community will put on the table will likely have a big influence on taxes, but North Carolina appears to start off with a disadvantage on that front. According to the Tax Foundation, North Carolina has the lowest “Business Tax Index” score among the three states and is the only one below the national average. North Carolina’s 2010 Business Tax Index score is 4.66, compared to 5.19 for Alabama and 5.03 for South Carolina.
The Business Tax Index incorporates major business taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes. Higher scores indicate more “favorable” tax policies, according to the Tax Foundation.
Caterpillar has other manufacturing sites in all three states, and since the factory up for grabs is expected to provide components rather than finished products, proximity to other factories could play a role. According to Caterpillar’s website, Alabama has the most other factories, eight total in the state including one already in Montgomery.
The closest of five Caterpillar locations in North Carolina to Winston-Salem is in Sanford. The company has six factories in South Carolina, including one in Greenville, which is just 20 miles from Spartanburg.
Role of incentives
Without question, each city will try to use incentives to set itself apart, and North Carolina has gotten more aggressive in that arena since the 1990s when, at one point, a site in Mebane was considered for huge auto plants by both BMW and
Mercedes-Benz. BMW chose Spartanburg instead while Mercedes went to Tuscaloosa in Alabama as both states offered millions in tax breaks and training grants that North Carolina chose not to match.
The competition for deals is fierce these days, said David Fuller, president of the SouthEast Commercial Real Estate Group in Charlotte, and South Carolina is one rival that is fighting especially hard.
“They just seem to have so much more to give in terms of economic incentives,” Fuller said. “They seem to be one of the most aggressive in the Southeast right now.”
But don’t expect North Carolina to give up without a fight. The state has demonstrated in recent years that it will make multimillion-dollar incentive packages available for the right opportunities, as it did to land the Dell plant in Winston-Salem and Google and Apple data facilities in other parts of the state. The Twin City also has millions on hand to lure Caterpillar in the form of tax-break rebates from Dell, which is expected to close its plant there sometime next year and has refunded all the tax breaks it received from Winston-Salem and Forsyth County.
In many cases, companies give the most consideration to site-specific factors including how long it will take to get up and running. Winston-Salem Mayor Allen Joines said he’s pitching his city as the one that will be easiest for Caterpillar to work with and work in.
“We have a very low cost of doing business,” Joines said. “It’s a very stable environment. You can expect no surprises when you come to Winston-Salem.”
Caterpillar, which is expected to make incentives requests in the three states this month, will likely select a location by late summer. Construction could start before year end.