Sweeney Tax incentive commitments are vital
The “No. 1 faux pas” a state or local government can make in economic development these days is to renege on a tax incentive agreement previously made to lure a major capital investment, according to Mark M. Sweeney.
Sweeney, senior principal at McCallum Sweeney Consulting in South Carolina, was in Grand Rapids last week at the invitation of The Right Place to speak to Grand Rapids business and community leaders about the process corporations go through when selecting a new location for a major capital investment.
Only two days before, Sweeney was quoted in The Wall Street Journal in an article about state governments that are responding to budget shortfalls by shutting down tax credit and incentive programs that are supposed to lure businesses and boost employment.
“A couple of places have done that,” said Sweeney, which “makes us extremely leery of going back” to that region when trying to find a location for a corporate client.
“I advise you to not lose sight of the longer-term perspective,” he said.
Birgit Klohs, president of The Right Place Inc. economic development organization in Grand Rapids, said she was among a contingent of economic development professionals from the western half of Michigan who went to Lansing to make the same appeal to state officials.
Klohs said the fear among economic developers is that the new governor or members of the state legislature this fall might respond to Michigan’s ongoing budget crisis by dumping tax credits and incentive agreements that were made under the Granholm administration.
Another major point the delegation made, Klohs said, was a suggestion to reform the MEDC, if necessary — “but don’t gut it” and don’t eliminate a policy of offering incentives to lure corporations here.
McCallum Sweeney Consulting provides site selection and incentive negotiation services to major companies worldwide. It also offers consulting services to economic development organizations trying to meet the challenges of attracting and retaining capital investment and new employment opportunities in today’s competitive economic climate.
Sweeney has assisted clients in a variety of industries, from automotive manufacturing to software development and Internet services. Recent clients include Sallie Mae (credit operations center), Nissan (corporate headquarters plus industrial facilities), Michelin, Dollar General and Oreck. One of its largest projects to date was the Nissan headquarters relocation from Los Angeles to Nashville in 2005, and the Nissan auto plant that located in Mississippi before that.
Sweeney has conducted investment location projects in Europe and Asia, as well as most regions of the United States.
He said that in the current economic climate, Michigan, in general, suffers from a national perception that the entire state is on the ropes because of the tremendous difficulties experienced by the Big Three in Detroit over the past few years.
“The outside world views Michigan as a troubled location, and for the most part, does not make a distinction between east and west,” he said.
Although he noted that at that point he had only spent 24 hours here, Sweeney said his first impression of West Michigan was a strong one, based on “the community leadership” he had met.
“We go to a lot of communities and don’t see that,” he said.
Downtown Grand Rapids, the long list of established manufacturers in the region, and the colleges and universities nearby also made a good impression on him, he said.
One “yellow flag,” he said, was a suspicion he picked up that perhaps industrial wages here tend to be on the higher end compared to the country as a whole.
Sweeney said the strongest states for manufacturing now are in the South Atlantic region and the Deep South, because operating costs, taxes and wages are lower there.
Manufacturers are very cost sensitive because it’s a brutal environment for them, he said.
Indiana and Ohio also do a great job in being attractive to manufacturers, he noted.
While talking to local community leaders in Grand Rapids, Sweeney recounted an embarrassment he witnessed in a southern state when local leaders were in a major meeting with a corporation that was interested in locating there. A mayor told the corporate executives in his welcoming comments, “We really need your taxes.”
“I would advise against leading with that” — even if it was true, he said, adding that the corporation did not select that community for its investment.
Community leaders always have an important role to play in site selection decisions made by corporations, he said.
Sweeney said the last three months have been encouraging as far as new capital investments by manufacturing in the U.S., compared to the dismal years of 2008 and 2009. Manufacturers of wind turbines, in particular, are interested in building plants in the middle of America and now the East Coast, because they need to be as close to potential wind farms as they can get, due to the sheer size of commercial wind turbines.