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Tuesday, October 21, 2003 - Page updated at 12:00 A.M.
By Katherine Pfleger
WASHINGTON As Boeing hones the list of cities contending for its 7E7 assembly line, its search for the most generous incentives has renewed a debate over how far a bidding war should go.
Boeing already has been offered tax breaks, low-interest loans, employee training and bargain-priced land. But sources close to the bidding process say the company has upped the ante, asking some sites to arrange for a small fleet of modified 747s to bring in oversized parts.
Even experts in corporate incentives found that novel. Greg LeRoy, head of the D.C.-based nonprofit Good Jobs First, said the average state has more than 30 types of incentives at its disposal to lure companies.
But "planes are a new one on me," he said. "I am not aware of a similar request having been made for anybody."
No one's saying publicly if any of the states competing for the 7E7 is willing to provide the planes at an estimated cost of $300 million.
"There is a direct, painful connection in the war among the states and the state fiscal crisis right now," said LeRoy, whose organization studies the best practices in state and local job subsidies. "We've been encouraging states to do a better job of accounting what bang they are getting for the buck."
Incentives pay off
Yet business developers say even generous corporate incentives tend to pay off in the long run with jobs, expanded tax base and an improved regional image, in turn attracting more business.
"When requests are made, each entity or each company making a proposal has got to evaluate their situation how badly they need the investment made there, how badly they need the jobs," said Billy Joe Camp, an economic-development consultant in Birmingham, Ala. "I don't know if there are many large projects that, historically speaking, have not paid off."
One thing everyone agrees on: Companies willing to be nomadic which now includes Boeing stand to score big when they offer communities prizes like the $900 million 7E7 assembly line, which will employ roughly 1,200 workers.
Business developers do sophisticated analysis of financial costs and benefits. Ray Gilley, head of the Metro Orlando Economic Development Commission, says some communities use a formula known as the "REMI model," or Regional Economic Models Inc.
"Someone has to take a calculator out and once knowing what the numbers are see if it's something they can do," said Gilley, whose region in Florida just lost a recent bidding war for the Scripps Institute and a possible 5,000 health-research jobs.
Using REMI software, regional planners can plug in numbers to find the impact of corporate expansions, new facilities and even tax increases.
Other less quantifiable factors also play into the decision making, such as improved name recognition, or branding, for a city.
Gilley says the 7E7 has extra value because of Boeing's prominence. "Think of all the auxiliary industries, their supplier networks. It will create a whole new industry cluster," Gilley said. "If you get one company, it's easier to get a second. And if you have two, it's easier to get a third."
But Stephen Roulac, author of the upcoming book "280 Corporate Real Estate and Place Mistakes and How to Avoid Them," thinks cities shouldn't engage in what he calls "place prostitution," or selling themselves and their futures.
"That may not be the best for, shall we say, their character development," Roulac said.
For instance, he said, massive incentives packages can put a region's existing companies at a disadvantage.
"To the extent that Boeing is able to go into that place with big incentives, they can pay slightly more in wages than other companies and still be profitable," he said.
And by paying slightly higher wages, Boeing can recruit top talent. "Not necessarily for airplane mechanics, but for sales people and receptionists," Roulac said.
Just as in marriage, he has found that companies and cities have long-term happiness when they marry for love, not money.
Joe Pastore, a business professor at Pace University in New York, said politicians are hungry for corporate coups.
"It's a bit of a beauty contest in some ways," he said. "State and cities like to be seen as corporate friendly. That is where the tax revenue comes from. When you lose a player, you run the risk of pulling the thumb out of the dike and losing others."
Nevertheless, he wonders about the public-policy aspects of shelling out millions for tax abatement and other incentives.
But, fortunately for the politicians, the average taxpayer often doesn't notice. "They see jobs. They don't always see cost-per-job," Pastore said.
Watchdog groups worry that numbers on cost-per-job are hard to gauge until the deals are done and the public money committed because the negotiations are often in secret.
In most cases, the names of companies will not even be disclosed to avoid tipping their hands to competitors, driving up real-estate prices or alerting employees to upcoming relocations.
LeRoy of Good Jobs First said the secrecy sometimes makes sense, especially for smaller firms. But "ambiguities with ethics laws are tested in moments like this. You are talking about people having very sensitive information about big-dollar events," he said.
And the deals may leave other companies bitter.
"Many smaller firms that locate in a city or a state are left to wonder why didn't we get the benefit of secret negotiations," said Pete Sepp, vice president of the National Taxpayers Union, a D.C.-based nonprofit that pushes for lower taxes and less wasteful spending.
Camp, the Alabama consultant, said that, in many places, public meetings will be held before a company is granted free land, but people have to watch carefully for notice of them in places like the newspaper or on courthouse bulletin boards.
Boeing has made the existence of its search unusually public, but it is hard to know what it is seeking and getting. The company won't say; prospective sites won't either, for fear of losing the deal.
Sources have said the company asked some sites to solve a logistical problem when it asked for a small number of supersized 747s. Analysts tag the purchase price at roughly $300 million for three planes, though leasing or contracting with an air-cargo firm may be among the creative solutions.
Planes plus other perks
If states or localities come through with planes, that would be on top of other big statements that state legislatures have made with their incentives packages.
Washington has offered the entire aerospace industry $3.2 billion in tax breaks over the next two decades if the 7E7 line comes here. The state's unemployment-compensation system was reworked. Democratic Gov. Gary Locke also came up with other perks, such as a $15.5 million rail-and-dock facility to smooth delivery of parts to Everett "a gift," to avoid a state constitutional prohibition on private-sector grants.
Other states are also emptying their pockets during tight budget years. Tulsa, Okla., taxpayers could provide $350 million in cash and loans, and Texas has reportedly committed $30 million.
Camp compares the competition between states to college athletics: If schools couldn't compete for top athletes, everyone would go to the school they wanted and records would be more even.
"If you want to be a player, you gotta play," Camp said.
Katherine Pfleger: 206-464-2772 or firstname.lastname@example.org
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