As the U.S. continues its stop-and-start economic recovery, the Southeast is doing rather well overall. Home to five of the nation’s CEO-ranked Top-10 states and four of its Top-Five states, the region continues to bolster its appeal to relocating executives while retaining homegrown stars.
Thanks to a series of high-profile, incentive-laden manufacturing wins—Volkswagen, BMW and Airbus have either expanded or announced new plants—the Southeast is in the throes of reshaping American manufacturing. The region’s automotive and aviation clusters mushroomed during the 2010s, pulling their multipliers along with them; professional service searches nearly always include Southeastern finalists. Favorable right-to-work laws, increasingly nimble government corporate recruiters, pro-business tax policies, generally mild climate and relatively low costs of living—these and other factors combine to form a business-friendly buffet designed to delight corner-office palates.
“The Southeast will always beat the Northeast and the West Coast in terms of ‘executability,’” says James Renzas, principal of The RSH Group location-strategy consultancy. The Southeastern states “get things done faster,” says Renzas. “They have more land. There is more integration on the part of state and local economic development agencies. There, utilities are huge supporters of economic development.”
Competition among states in the region has led to increasingly pro-business tax policies, faster permitting and more creative, flexible and aggressive incentive programs south of the Mason-Dixon Line and east of the Mississippi. “Clearly, public policy in the Southeast has created a really good business climate on the tax and regulatory sides,” says Larry Gigerich, managing director of site selection firm Ginovus. “On the labor side, the fact that these are right-to-work states and that labor costs are more a ordable are very important factors.”
Increasing emphasis on job-training programs bolsters the region’s appeal. “Many of the states have done wonderful jobs on the workforce-development side,” continues Gigerich. “Georgia and the Carolinas are the top three states for job training and workforce development. They deliver the best job training and retraining for companies relocating or expanding in their states.”
Logistics also drives the region, as both transportation companies and enterprises dependent on distribution favor its northernmost states. With the growth of Latin American trade, this trend has benefitted the more southerly states, as well. “One of the major influences on the Southeast will be the Panama Canal expansion,” says William Hearn, senior vice president of strategic consulting at CBRE, the consulting and economic-incentives group. “Most people believe the southeast ports up to Norfolk will be the benefi ciaries. But I believe we will see more goods moving through the east coast ports that get their dredging done. One of the major projects is the recently opened inland port in Spartanburg, South Carolina, that’s tied to BMW expansion, providing great accessibility to and from both Georgia and North Carolina.”
“When you talk about the Southeast, you are talking about the major leagues of economic development,” notes Chicago based site selector Jerry Szatan. “Economic development in the U.S., in the years since the end of World War II was pretty much invented by the Southeast out of economic necessity.”
Florida (No. 2): Bringing in Business
The Sunshine State continues its recovery from the Great Recession, driven in large part by its successful policies aimed at attracting migratory companies. The state’s business environment “has improved enormously under Governor Scott and Enterprise Florida CEO Gray Swope,” says Gregory Burkart, managing director in the Detroit office and leader of the business incentives advisory practice at Duff & Phelps.
“Before Scott, maybe one in 10 executives had Florida on their site selection list, and we’d try to talk them out of it. Nowadays, it’s one in five, and we try to talk them into it.”
Florida’s legislature’s Office of Economic and Demographic Research told Floridians last December that their personal income growth is ahead of the national average; while GDP growth is advancing, it lags behind the national average. Florida recruits migratory executives with a combination of lures, including its zero percent individual income tax rate, abundant sunshine and work force capabilities. The Tax Foundation ranks Florida’s state and local tax burden 20th-lowest out of 50 states and fifth for business-tax climate. The state spends over $4 billion per year on incentive programs.
Tennessee (No. 3): Bugging Out
Volkswagen’s July announcement that it would invest over $600 million in its Chattanooga plant, adding an additional manufacturing line, was a major win for Tennessee. Other major recent expansions and relocations include the ABC Group’s $25.5 million facility expansion in Sumner County and MicroPort Orthopedics’ $100 million plant upgrade in Arlington. The most important cluster in Tennessee is transportation manufacturing, including automotive. The state’s key advantages in manufacturing include relatively low labor costs and increasing productivity, says Matt Murray, director of the Baker Center at the University of Tennessee.
“We can’t compete with China on wages, but we can on productivity of workforce and economy,” he notes. The Tax Foundation ranks Tennessee’s state and local tax burden 6th-lowest out of 50 states and ranks its business tax climate 15th. The state spends over $1.58 billion a year on incentive programs.
North Carolina (No. 4): Tackling Tax Issues
This spring, North Carolina lawmakers followed up on last year’s widely-lauded tax reform to eliminate entrenched municipal-privilege taxes and reformed the corporate income tax code; the changes are designed to soften tax bite when business cycles fluctuate. There’s growing admiration for the state’s evolving business climate.
“North Carolina is turning economic development upside down in terms of servicing, client handling and tax structure,” says Jay Garner, president of Garner Economics in Atlanta. The region’s three major urban areas continue to experience service-sector growth—Charlotte is now the country’s second-largest center of banking services—while the state’s rural areas continue to shed jobs. Major corporate relocations and expansions this year include Novozymes’ $36 million bio-agricultural R&D facility in Wake County; BorgWarner Turbo Systems’ $32 million factory expansion in Buncombe County; and GKN Driveline’s $18 million plant expansion in Lee County. The Tax Foundation ranks North Carolina’s prereform state and local tax burden 17th-highest out of 50 states, and ranks its business tax climate 44th in the country. The Tar Heel State spends over $660 million a year on incentives.
South Carolina (No. 5): Excelling at Efficiency
BMW’s announcement that it would invest $1 billion in its Spartanburg factory was a major win for the Palmetto State. All counties saw employment growth in 2013 continuing into 2014, yet most job growth clustered around urban areas. There is a positive mindset at the statehouse, says site selector Gingerich. “Governor Haley is making things as efficient as possible. There is one stop for what you need to get done.”
Major recent expansion and relocations include Giti Tire’s $560 million factory in Chester County, GE’s $400 million advanced manufacturing plant in Greenville County and LPL Financial’s $150 regional headquarters in York County. The Tax Foundation ranks South Carolina’s state and local tax burden 9th-lowest out of 50 states, and ranks it 37th in business tax climate. South Carolina spends over $896 million per year on incentive programs.
Louisiana (No. 9): Touting Training
In 2013, Louisiana announced more new jobs and recorded more capital investment than any year since the Great Recession began. Did somebody say, “oil exploration?” The state attracted 67 major projects representing over $26.4 billion in new capital investment, associated with 27,000 new jobs. Nucor has started production on its $750 plant in Convent, and Bell Helicopter began building an $11.4 million aircraft assembly facility in Lafayette.
According to Louisiana State University’s economic forecasters, eight of the state’s metro areas will record robust employment gains through at least 2015, driven by increasing construction activity. Real GDP growth is slated to rise to 2.6% next year, up from the current 2.4%. Site selector Jerry Szatan touts Louisiana’s LED FastStart program, aimed at providing relocation and training programs to expanding and transferring companies. “No state has done more than Louisiana in getting the employer a workforce trained in its particular needs,” he claims.
Recent strides mark a turnaround for a state that “historically has been very challenging” as a business environment, says Thomas Stringer, principal and practice leader at Ryan’s Business Incentives and Site Selection department. “But you have a dynamic administration in place now, implementing substantial policy changes in how they work with businesses.” The Tax Foundation ranks Louisiana’s state and local tax burden fifth-lowest out of 50 states, and ranks its business tax climate 33rd. The state spends over $1.8 billion per year on incentive programs.
Georgia (No. 10): Struggling for Growth
The Peachtree State’s business-friendly governor found friends in the business community by seeking their suggestions for economic development, thus spurring an increasingly pro-business image in the business press. Behind the imagery, however, are troubling metrics. Georgia is one of two states—the other is Nevada—where real per capita GDP has fallen in this young century, slipping beneath the national average for the past 15 years. Positive signs include recent passage of workers’ compensation reform.
Georgia’s “tremendous in terms of increasing the ease of doing business, creating incentive packages and handling business recruitment,” says local economist Jay Garner. Rural areas, however, greatly lag metro Atlanta in infrastructure and workforce readiness. Georgia’s state and local tax burden ranks 16th-lowest in the nation, according to the Tax Foundation, and 32nd in its State Business Tax Climate Index. Georgia spends over $1.4 billion per year on incentive programs.
Virginia (No. 11): Bring on Big Government
Virginia’s close proximity to the nation’s capital positions it as a natural for defense-related industries and contractors of all stripes—and leaves it vulnerable to government cost-cutting and other budgetary rollbacks. Professional, scientific and technical services employment—proxies for government contractors—is down 2.1 percent this year. In contrast, financial services employment is expanding at triple the national rate, and the state remains a magnet for corporate headquarters. More than 70 companies with revenues north of $1 billion call the state home.
“If you are looking for a capable work force, executive-style living, connectivity to service providers and you need to be in proximity to the capital, it’s very tough to beat Virginia,” says site selector Thomas Stringer. Major recent relocation and expansion announcements include Shandong Tranlin Paper Company’s $2 billion investment in advanced manufacturing operations in Chesterfield County, Microsoft’s $347 million Mecklenburg County expansion and CEB’s decision to invest $150 million in a new headquarters in Arlington.
The Tax Foundation ranks Virginia’s state and local tax burden 21st-lowest out of 50 states, and ranks its business tax climate 26th. Virginia spends over $1.29 billion per year on incentive programs Alabama (No 17): Taxed for Talent Driven in part by aerospace gains, Alabama’s economy is on pace to grow 2.4 percent this year, up from 1.9 percent last year, according to the center for Business and Economic Research at the University of Alabama’s Culverhouse College of Commerce.
Last year’s economic development coup—Airbus’s $600 million agreement to build an assembly plant in Mobile—has moved into hiring mode, with about 1,000 workers coming onto payroll. The state’s fast pace of industrialization leaves employers competing for qualified workers.
“The state doesn’t have enough people,” says Stringer. In Alabama, “the first thing you see is their pro-business attitude,” says Gregory Burkart. The Tax Foundation ranks Alabama 10th-lowest out of 50 states, and 21st in business tax climate. Alabama spends upwards of $277 million a year on incentives programs.
Kentucky (No. 25): Hampered by Hidden Costs
Closely associated with thoroughbred horseracing, bourbon distilleries and coal mining, Kentucky continues to diversify its economy through advanced manufacturing gains in the aerospace and automotive industries and growth in life sciences and healthcare. Major expansions and relocations this year include Bardstown Bourbon’s $150 million aluminum production facility in Bowling Green, Diageo’s $115 distillery in Shelby County and Ford’s $80 million upgrade in Frankfort.
Sometimes “hidden costs” catch execs unaware, says site selector Gigerich; “I don’t think people fully evaluate workers’ compensation structure in this state.” The Tax Foundation ranks Kentucky’s state and local tax burden 23rd out of 50 states, and 27th in business tax climate. Tax reform policies put forth by Gov. Steve Beshear earlier this year were derided as ill-conceived, and business leaders complain of gimmickry in budget-balancing policy. The Bluegrass State spends over $1.41 billion per year on incentive programs.
Mississippi (No. 37): Working on Recovery
Mississippi continues rebuilding from coastal devastation caused by hurricanes Katrina and Rita. While historically lagging Southern states, Mississippi’s economy is “expected to perform a little better” this year, according to JP Morgan Chase economists, who predicted real GDP will rise 3 percent, with job gains approaching 1 percent. Unfunded liabilities are a problem, and the gap between basic workforce skills and industry needs yawns wide.
Government remains the dominant employer, followed by real estate concerns, manufacturing and retailing. In July, BorgWarner announced a $43 million plant expansion in Water Valley; in February, Caterpillar announced a $14.8 million engine remanufacturing plant expansion in Corinth. The Tax Foundation ranks Mississippi’s state and local tax burden eleventh-lowest out of 50 states, and ranked its business tax climate 17th. The state spends more than $416 million a year on incentives.
Sidebar: Innovation Depot: Building in Birmingham
Sidebar: State-Provided Training Looms as Game Changer
Johnson Controls CEO Oliver has led a corporate transformation focused on making buildings greener.
In this edition of our Corporate Competitor Podcast, leadership speaker and storytelling expert Don Yaeger…
Boards are being held to a higher standard regarding risk. A more thorough strategy may…
If you're experiencing burnout not because you're overworked, but because you're underinspired, it might be…
When companies elevate the role, they reap significant benefits. Here are five critical ways it…
CEO Ball has led early decoupling from China and diversification that ties into today’s infrastructure…