Piracy: The Illegal Incentive

In the civilized, regulated realm of economic development, there are heaps of financial incentives, job training programs, small business loans and corporate tax rebates available to assist communities grow their local economies. States develop enterprise zones, governors offer opportunity funds and fledgling firms form industry clusters.

But what does 'economic development' look like in impoverished boomtowns, a world away from boardrooms and power suits? To some communities in eastern Africa, massive benefits are reaped from the booties gained by the sea-faring, hijacking pirates that cruise and curse the Gulf of Aden, a wedge of water between Somalia and Yemen that spills into the Arabian Sea.

In 2008 alone, the "pirate economy" has raked in more than $30 million in ransom monies, according to the Associated Press. But the pirates aren't the only ones profiting. Northern Somalian towns like Haradhere, Eyl, and Bossaro actively monitor the pirate activity and actually cater to them! According to the Associated Press, when an oil tanker was captured in November, "businessmen started gathering cigarettes, food and cold glass bottles of orange soda, setting up small kiosks for the pirates who come to shore to resupply almost daily." Pirates often snap up these goods for free, stock them like squirrels, and then handsomely repay the local businesses with ransom money. Stunningly, this actually creates jobs and stimulates economic activity in these resource-strapped, nearly invisible villages.

"Regardless of how the money is coming in, legally or illegally, I can say it has started a life in our town," says Shamso Moalim, a 36-year-old mother of five in Haradhere.

As the international community struggles to quell piracy in Aden's perilous waters, struggles in Somalian shantytowns are easing up a bit. Unfortunately, by all the wrong means.

Recession What?

These days it's hard to stay up on the news without being subjected to talk of recession this and recession that. Now, there's no arguing that the U.S. economy has fallen on trying times, but it's nice to temper the bad with the good for some perspective. So in the spirit of optimism, I thought it would be a refreshing change of pace to veer away from talk of our "doomed" economy and highlight two recent major investment projects that promise to bring thousands of jobs to those in need.

Well-known for its troubled economy, Michigan has been working hard over the past few years to breathe life into a fresh new economy, one that is much less dependent on its automotive roots and more focused on high-tech and life sciences companies. Progressive incentive programs such as the 21st Century Jobs Fund have been helping with the transition.

In April, Michigan residents had much reason to rejoice when the state scored one of the largest non-automotive deals in MichiganŐs history--at a time when the stateŐs unemployment rate is the highest in the nation at 7.2%. Thanks to a $330 million investment by life sciences company MPI Research Inc., Michigan stands to gain 3,300 new direct jobs and an additional 3,300 indirect jobs over the next 15 years. The company, which provides comprehensive pre-clinical research and development services, plans to more than double its current one-million-square-foot facility in Mattawan, MI, as well as launch new operations in Kalamazoo, MI at two closed Pfizer facilities in downtown Kalamazoo that Pfizer is donating to the city. Assistance provided by the Michigan Economic Development Corporation (MEDC) helped convince the company to choose Michigan over competing sites in the U.S. and China.

Based on the MEDCŐs recommendation, the Michigan Economic Growth Authority board approved a state tax credit valued at $86 million over 15 years for MPI. The MEDC is also recommending the downtown Kalamazoo site receive designation as a tax-free Renaissance Zone and that a $2 million grant previously awarded to Western Michigan University be used instead for redevelopment activities at the Kalamazoo site. Through the transportation economic development fund, the Michigan Department of Transportation will chip in and provide funding for improvements at or near the I-94 interchange that are necessary to accommodate the traffic generated by MPIŐs expansion. In addition, local match requirements will be provided by the village of Mattawan. The city of Kalamazoo is also lending a helping hand by way of $150,000 toward environmental due diligence and infrastructure analysis.

The MPI Research expansion is one of five economic development projects the governor announced in April. In all, they are expected to create and retain a total of 9,013 Michigan jobs.

Meanwhile, down south, the Tar Heel State will soon see 900 new, high-paying jobs as a result of GE-Hitachi Nuclear Energy's recent investment promise. The company, which could receive more than $25 million in state incentives for new job creation, plans to invest $704 million to add manufacturing, training, simulation, and testing facilities at its 1,300-acre campus in New Hanover County, NC, near Wilmington. Part of the expansion could also include a commercial uranium enrichment facility. A joint venture of General Electric and Hitachi, GE-Hitachi Nuclear Energy already employs more than 2,000 people in the county.

While wages for all the new jobs will vary, the overall average wage will be about $85,000 a year not including benefits--more than double the New Hanover County average of $33,226.

Unfortunately, these new jobs won't fix skyrocketing gas and food costs, but it is success stories such as these that will hopefully pave the way to brighter economic times for the United States. These stories also reinforce the need for states, and the nation as a whole, to focus economic development energies (and monies) on transitioning to a primarily knowledge-based economy to help our great nation become great again.

Will Minnesota's JOBZ be AXED . . . for good?

It was about this time last year that I blogged about Minnesota's economic development golden child--JOBZ--which was on the legislative chopping block last year--largely criticized for the wage requirement attached to tax incentives offered. The JOBZ program, which was implemented in 2004 and offers tax breaks to businesses in designated zones, survived another year. However, after a not-so-great run in 2007, the program is (again) facing possible extinction. Governor Tim Pawlenty now has his fingers crossed that his beloved program will be resuscitated with some hearty revisions in the 2008 legislative session.

While the program's wage requirements are still an issue for some, it seems that mismanagement is another big concern: Just prior to the opening of the 2008 Minnesota legislative session in February, the Office of the Legislative Auditor reported that the "administration of JOBZ needs significant improvement."

The office maintained that:
* "The JOBZ program has not provided much help to certain economically distressed areas in Greater Minnesota."
* "DEEDŐs process for reviewing JOBZ compliance is slow, inefficient, and may fail to identify some businesses that are not meeting their obligations."
* "The program's effectiveness is reduced by the lack of a statewide perspective in the approval of JOBZ deals and the absence of any budgetary constraints."
* "The estimates published by the Department of Employment and Economic Development overstate the impact of the JOBZ program."
* "There are significant problems with the business subsidy agreements signed by local governments."

The office did, however, make note of the fact that the program "has been a useful economic development tool in some cases."

About 120 companies eagerly signed up the first year of JOBZ. However, since then, the number of new projects has fallen an average 26% a year, and that decline accelerated last year, according to an article on the Minnesota Public Radio (MPR) Web site where Minnesota Department of Employment and Economic Development Commissioner Dan McElroy said, "I wouldn't describe the whole [program's] outlook as bleak. But JOBZ needs clarification by the legislature and we're working hard to get that."

In the MPR article, Mankato business consultant Ed Tschida, who works mainly with city and county governments on economic development projects, often involving JOBZ, offered a bleak prognosis for the program. "Certainly all evidence is that it will continue to decline," said Tschida. "I don't see anything turning that around."

Tschida noted a number of reasons for this decline, including that businesses are finding the benefits of the program aren't as beneficial as expected, concern over court challenges of JOBZ ending the program, and that JOBZ requires companies to pay construction wages that are higher than the going rate in the area.

One legislative effort to "claify" the program involves an extension to the number of years companies receive tax breaks. As it stands now, benefits are on a sliding scale. According to JOBZ's 2015 end date, a company signing up this year gets eight years of tax breaks. A business entering the program in 2004 received 12 years of benefits.

Although some legislators are fighting to save the program, others have their sights set on putting an end to it. In fact, the Senate tax bill contains a provision to end JOBZ.

I guess we'll just have to wait a few months to see if Gov. Pawlenty's much-criticized pride and joy gets a makeover, or if JOBZ is finally AXED.

Now, Only the Brownfields Remain

Saw this article in The New York Times today; it's about how New Jersey's brownfield redevelopment incentives didn't do much during the 1990s, but now that there's hardly any greenfield space left in the state, developers are giving them a shot.

I think it's kind of unfortunate that the easiest way for a developer to earn back their 75% of cleanup cost is by putting retail on the site. I live in New Jersey, and let me tell you, we have enough retail. Can't they change the way the money is generated to give a boost to industrial or high-tech office work development? Companies that build a factory or research center on a brownfield site should be able to get their three-quarters cleanup reimbursement faster, not slower, than a speculative developer building yet another strip mall.

Oh, and I should say (in defense of the Garden State) that when I wrote that there's no greenfield space left to develop on, that's not because we have no green space at all--it's just that so much of the prime stuff has been protected by law (hurray). As the most densely populated state in the country ("New Jersey's density is currently 1,165 people per square mile--denser than both India (at 914) and Japan (835). No other state even comes close." - NY Times), we could be at the forefront of what development along the Bos-Wash corridor is going to look like soon.

From Russia, With Steel

Why is the governor of Ohio and a Russian billionaire taking a walk on 600 acres near the Ohio River today?

Well, of course it has to do with economic development, in the form of a mega-project.

Victor Rashnikov, the owner of Russia-based Magnitogorsk Iron & Steel Works (MMK) is considering investing $1 billion into a steel mill near Portsmouth, OH. The move would create 1,000 jobs, and MMK would become the largest private employer in Scioto County. The steel mill would provide cold-rolled steel for the auto industry.

According to the Associate Press, Ohio is likely to put together a major incentive package similar to Alabama's ThyssenKrupp package. MMK is expected to make a decision within a year.

Source: International Herald Tribune via AP

If you build it, will they come?

The massive increase of oil revenues in most of the United Arab Emirates countries have not only allowed for investment in Asia and the U.S., but also an economic development boom at home, with the aim of attracting foreign investment to the region.

Perhaps to ensure that the memory of his dynasty lives forever, the king of Saudi Arabia has lent his name to the largest private sector investment in Saudi Arabia. King Abdullah Economic City (that is the full name), which began construction in 2005, will cost $26.6 billion and promises to create from 500,000 to 1 million jobs. The Saudi Arabia General Investment Authority plans to build other smaller cities throughout the kingdom.

This week, the city's main developer, Emaar, has signed a series of contracts for energy services: Siemens (based in Germany) will set up a power generation grid and the Arabian BEMCO Contracting Company (based in Jeddah) will install an open-cycle gas turbine power plant. On Saturday, Emaar unveiled its first residential community, Bay La Sun Village, which will be completed by 2008.

The city, when completed, will be located on 55 million square meters of land with 21 miles of shoreline north of the city of Jeddah on the Red Sea. Aside from the industrial district, the futuristic city will have a seaport, "financial island," "education zone," resorts, and a residential area.

In the tradition of building a world-class city from no city at all (see previous BF entry on the new Dubai), there is a lot of hype and marketing surrounding the development. So far, however, there is only expressed interest from local and international investors.

Sources: Korea Times, King Abdullah Economic City, Arabian Business, Khaleej Times

The $350 Million Mile

National Steel Car, a rail car firm based in Ontario, announced today that they (along with the National Alabama Corporation) will be investing $350 million into building a Northern Alabama manufacturing plant. The company plans to employ 1,800 workers and manufacture up to 10,000 freight cars a year. The 2 million-square-foot (1 mile long!!!) facility, located in the Shoals area of Alabama, is scheduled to open in 2009.

Alabama, which has been notoriously successful in luring automotive manufactures and suppliers to the state, had pursued the rail company. In June, the state passed an amendment increasing its borrowing power from $350 million to $750 million to finance incentives packages for companies like National Steel Car. Economic developers in Alabama purchased extra land, and plan to build around 5 miles of rail track to link to the Norfolk Southern Line, as well as highway, sewage, and power upgrades.

National Steel Car, which is the leading North American rail-car supplier, had been searching for a Southern U.S. location for two years. After visiting 150 sites in 12 states, company executives began negotiating with Alabama officials in September 2006. The plant is expected to make an enormous impact in Colbert and Lauderdale counties, which has a combined population of 145,000 residents.

Sources: The Times Daily, Press Release

Manufacture this, punk!

U.S. Steel, Alcoa, Goodyear, and other manufacturing companies have joined with the United Steelworkers labor union to form the Alliance for American Manufacturing (AAM), aiming to preserve and promote manufacturing in the United States.

The alliance, which announced its formation yesterday, asserts that the decline of manufacturing undercuts America's long-term competitiveness, its research capabilities and its ability to produce sophisticated weapons needed for national security. The alliance aims to be partly a policy research organization, tackling subjects like international trade practices, inadequate enforcement of trading regulations by the U.S. government, health policy, and renewable energy.

In a Marketplace report last night, the executive director of the AAM, Scott Paul, quoted Ben Frankin's famous proclamation at the beginning of the American Revolution, "We must all hang together, or most assuredly we will hang separately."

Paul says the U.S. has lost more than three million manufacturing jobs in six years. He blames China -- and says the alliance will target what it calls Beijing's unfair trade practices. The group will also try to convince 20-somethings that manufacturing is hip.

Their new blog, "Manufacture This," will be the voice of the AAM.
And check out their bios!

Scott Paul--AAM Executive Director
"I'm a patriotic liberal who thinks good jobs are worth fighting for."

Horace Cooper--AAM Deputy Director
"Some might say conservative or even right-wing. I refer to it as just 'telling the truth.' "

Jonathan Swain--AAM Communications Director
"A voice of reason and common sense from the Midwest."

AWESOME. Looks like this group has all of their bases covered.

On a side note, it's interesting that Goodyear should join with United Steelworkers, considering the union's strike last year, which reduced the company's sales by about $200 million.

Anyway, speaking of hip, did you know that we have a new myspace page? We are trying just as hard as these manufacturers to show that facility management and site selection is, well, cool.
And check me out:

Pearl Gabel--BF Associate Editor
"I'm patriotic but skeptical, liberal but conservative, and a speaker of truth and gossip hailing from the Mideast. Some might say 'she's just being silly.' I say, 'I'm just keeping it real.' "

Sources: International Herald Tribune, The Dickonson Herald, National Public Radio, Manufacture This

Minnesota JOBZ on the Chopping Block

So, it seems that Minnesota's shining star in the way of economic development programs--JOBZ--is under the gun in the Legislature according to an article in the Star Tribune last week.

The JOBZ program was created with the intent of stimulating economic development in areas of Minnesota that are struggling with job creation by giving companies state tax breaks. Interestingly enough, the senator behind the campaign to end JOBZ, DFLer (Democratic-Farmer-Labor party) Tom Bakk of Cook, MN, was behind the creation of the program in 2003.

According to a few companies who were interviewed in the article in the Star Tribune, one of the main problems with the program is that it requires a certain wage be paid to workers constructing any building using state money. (This requirement is intended to prevent a contractor from using cheap outside labor to undercut the local job market.)

An editorial piece in the Star Tribune ran the next day in defense of the JOBZ program.

So, is JOBZ really worth its weight? For now, that's up to the Legislature to decide.

For the most recent annual JOBZ program report, view the PDF here.