2015 Regional Report: The Southeast

Mercedes-Benz has exited the Jersey Turnpike headed toward Sandy Springs, Georgia. The automaker’s New Jersey-to-Georgia relocation, announced in January, ranks among the year-to-date’s biggest corporate relocation deals, both in value and impact. Mercedes’ decision to transfer at least 800 headquarters jobs to the Peach State hit Garden State business leaders and government officials with the force of a head-on collision, while helping further strengthen the spine of what’s become known as the Southern Auto Corridor.

Mercedes expects to open a new $100 million plant in Georgia in 2017, joining Porsche and Kia Motors in the Peach State’s expanding automotive cluster. Across the state line in Alabama, the car-makers club includes Hyundai, Honda and Mercedes. North in Tennessee, Volkswagen is expanding its Chattanooga plant, while GM and Nissan’s operations are thriving. Toyota and Nissan are ensconced in Mississippi.

“The corporate takeover is complete. The Southeast absolutely controls the U.S. auto industry.”

Toyota, Ford and GM are major employers in Kentucky. BMW put down South Carolina roots two decades ago. “The auto industry is now located in the Southeastern states,” claims Tom Stringer, who works for BDO. “The corporate takeover is complete. The Southeast absolutely controls the U.S. auto industry.” Cars are not the Southeast’s sole success story. Attracted by lower tax rates and amicable regulatory environments, clusters of financial services, transportation and logistics, call center operations and professional and business services (like temp agencies and staffing services) are growing like kudzu in the region. Employers are lured by the region’s combination of generous incentive packages, right to work laws, newer and well-maintained infrastructure and lifestyle marketing outreach.

For companies seeking low-cost land, low-cost power and low-cost labor, the Southeast offers a trifecta. “The South has all that and a trainable work force,” says Michael Philpot, chairman
of the Southern Economic Development Council. A skilled labor force and training programs for workers help close many relocation deals. “The Southeast holds up very well in terms of site selection,” says Betty McIntosh, senior managing director of Cushman Wakefield’s Business Incentives Practice. McIntosh credits the region’s thriving business networks, including many active chambers of commerce; the collaborative, rather than competitive, attitudes of many local economic-development officials, and the resources offered by regional power authorities.

“You never have to worry about a client being ignored by the local economic development community,” she notes. The attention clients receive “proves southern hospitality is no myth.”

Florida’s economic weather report? Mostly sunny, possibly clouds later on. Real Gross State Product—the overall value of goods and services produced and sold—is slated to grow 3.2 percent this year, according to the Institute for Economic Competitiveness at the University of Central Florida. Housing prices are rebounding, and new construction starts are up. Job creation is slated to rise to 3.1 percent this year, led by gains in construction and professional & business services, as well as transportation/logistics. In the shade: Florida’s exports are down, reflecting slower growth in China and Brazil, its top trade partners, and Latin America overall. The Sunshine State’s population growth rate is also slowing, although it still slipped past New York earlier this year to become the nation’s third-largest state.

“We have paid down debt, removed 3,000 regulations and cut taxes 40 times,” says Dave Hart, executive vice president of the Florida Chamber of Commerce. “The Chamber has backed 104 pro-business” bills and “the governor has signed 104 of them,” he adds.

Gov. Scott’s aggressive use of incentives, his media-ready promotional zeal, and the state’s celebrated lack of individual income taxes helped jumpstart a mature industrial base. Recently, however, the pace of job creation has lagged. From January through May last year, Florida’s private sector job creation rate was 1.8 percent. This year so far, it’s 1.4 percent, dropping more than 4,000 new jobs a month behind last year’s pace.

Meanwhile the state legislature has gotten stingier, budgeting $67.9 million in incentives this fiscal year, down from $93 million last year. The programs also receive mixed reviews. “Their incentive programs are just not that robust,” says Cushman’s McIntosh. The Tax Foundation ranks Florida’s tax burden 20th lowest out of 50 states, and ranks its business tax climate fifth.

The North Carolina economy grew more strongly than expected last year, fostering guarded optimism in a state that has largely lost the economic mojo that elevated the Research Triangle to international prominence in the ’80s and ’90s.

Many of the programs that helped nurture and attract corporations during the go-go years have been scaled back or eliminated. Site selectors complain that state and local economic development officials lack institutional knowledge and talk a good game but miss on the follow through. “Their wounds are largely self-inflicted,” says DBO’s Stringer of the state’s competitiveness problems.

“There is a lot of debate in the state about how to become more competitive,” says Larry Gigerich, managing director of Ginovus, a site selection firm in Indianapolis. “As it stands now, North Carolina is not competitive for a lot of programs.”

The state’s workforce and training programs, however, retain their luster. “The quality of the workforce is great, there are good schools, fine community colleges and excellent universities,” says Cushman’s McIntosh.

Gov. Pat McCrory continues his legislative battle to get funding for deal closings, fighting off Senate efforts to cap awards at $15 million. The Senate would make larger incentives
available for job creation of over 2,000 positions and for investments valued at least $750 million.

Business and government leaders began the year hearing economists and top bankers predict a 4 percent growth rate. Economic development officials celebrated recent wins, including Lidl, the European grocer, which announced a $125 million regional headquarters and distribution center in Alamance County, and Dimensional Fund Advisors, which is locating its East Coast regional
headquarters in Mecklenburg County, a $106 million investment expected to create over 300 jobs in Charlotte. The Tax Foundation ranks North Carolina’s tax burden 17th highest, and ranks its business tax climate 16th. North Carolina spends over $660 million per year on incentive programs.

Tennessee’s automotive-focused economic development efforts continue to pay off. Nissan announced in March that it was expanding its Smyrna operations to the tune of 1,000 jobs. In June, Volkswagen announced a $700 million expansion plan for its Chattanooga operations that would add as many as 10,000 jobs next year. Tennessee has also attracted a number of major investments from tire manufacturers like Bridgestone and auto suppliers.

Overall, non-farm employment in the Volunteer State is expected to grow by 2.2 percent this year, according to the University of Tennessee’s Center for Business and Economic Research. The state’s new policy of providing free community college educations to all high school graduates pleases Ginovus’s Gigerich. He also gives thumbs-up to their recent efforts to streamline and align state agencies to provide better service.

“From the human capital viewpoint, Virginia is very well positioned.”

The Tax Foundation ranks Tennessee’s tax burden 6th lowest and ranks its business tax climate 15th. Tennessee spends more than $1.58 billion per year on incentive programs.

Virginia reached its pre-Recession employment peak late last year, with most job gains coming from education and heath services. Professional and business services, a key cluster, shrunk last fiscal year, reflecting contraction in defense spending. In general, the state’s dependence on government spending darkens the economic horizon. High-tech jobs, an economic driver nationally, shrunk by .8 percent last year, in contrast to the national 8.2 percent growth rate. Overall this year, jobs will grow a projected .6 percent, far behind the national 1.7 percent rate, according to the Bureau of Labor Statistics.

Anticipating the future, the commonwealth has tweaked its incentive programs over the past couple of years to include more funding for job training and programs that reimburse companies for internal training programs, as well as increased job creation tax credits, says Ginovus’ Gigerich. The moves will further strengthen a work force whose quality “is very high,” says Gigerich, reflecting the sizeable presence of senior-level military personnel and top corporate executives. “From the human capital viewpoint they are very well positioned,” he says.

The Tax Foundation ranks Virginia’s tax burden 21st lowest and its business tax climate 27th. Virginia spends over $1.3 billion per year on incentive programs.

Volvo chose a site in Berkeley County for its first North American factory in July, thrilling local officials and business leaders with plans to invest up to $500 million in a 100,000-vehicle a year production facility. The plant will employ up to 2,000 people when production ramps up in 2018.

The news is the cherry on top of the state’s 2015 economic-development sundae. Doug Woodward and Joseph Von Nessen, economists in the University of South Carolina’s Darla Moore School of Business, predict blue skies ahead. “If you liked 2014, you’ll like 2015,” Von Nessen quips.

“If you liked South Carolina’s 2014, you’ll like 2015.”

A closer look reveals some storm clouds. Job creation is shifting from manufacturing toward lower-paying leisure and hospitality and employment services, including temp companies. Real income growth in the Palmetto State consistently lags the national average.

The Tax Foundation ranks South Carolina’s tax burden 9th lowest and ranks its business tax climate 37th. South Carolina spends over $896 million per year on incentive programs. Officials are particularly strong in aligning incentive programs around a company’s actual needs, says DBO’s Stringer.

Georgia’s vaunted economic engine sputtered a bit this year. The Peach State is slated to add 71,000 jobs in 2015, down from last year’s 81,100, according to Georgia State’s Economic Forecasting Center. The Center notes that fewer than a quarter of the new jobs pay at least $60,000.

The state’s increasingly export-oriented economy has been hammered by market slowdowns in Asia, Europe and Latin America, but benefits from a resurgent construction market, including two new sports stadiums. Technology, entertainment (particularly film production) and biotech are growing, and manufacturing shows signs of rebounding. Georgia’s aggressive incentive programs helped bring Mercedes’ North American headquarters to Sandy Springs, leveraging an incentive package estimated at up to $50 million for about 800 jobs, but a few months later lost Volvo to South Carolina.

Focusing on infrastructure, legislators passed closely brokered bills to improve the transportation infrastructure and public transportation, raising gas taxes to pay $900 million for road,
bridge construction and repair and mass transit programs.

The Tax Foundation ranks Georgia’s tax burden 16th lowest and ranks its business tax climate 36th. Georgia spends over $1.4 billion per year on incentive programs.

Cheaper energy costs hammer fuel-dependent economies like Louisiana’s. Choked corporate revenues cause pain in public sectors, and revenue shortfalls led to state budget-tightening. This summer, Louisiana’s incentive programs were sliced about 20 percent.

Still, the state reports success stories. A bright spot is the I-10 corridor and regions south of it. Chemical companies headquartered there take advantage of higher prices in Europe, winning new export customers in volume. Emerging export markets and drilling opportunities in Mexican waters may benefit Louisiana energy interests. The two-parish Lake Charles Metropolitan Statistical Area has logged over $81.7 billion in recent industrial announcements, a figure “seven to 10 times larger than we would typically report for the whole state in the past,” say economists Loren Scott and James Richardson, authors of the Louisiana Economic Outlook: 2015 and 2016.

“Louisiana is not as corrupt as it used to be, but it is very political.”

Getting a foothold in the Pelican State can be daunting. While Gov. (and presidential aspirant) Bobby Jindal personally gets plenty of positive reviews, the state’s shady legacy deters some relocation advisors. Louisiana “is not as corrupt as it used to be, but it is very political,” says Cushman’s McIntosh. Says Ginovus’s Gigerich: “The way Louisiana functioned, if you knew somebody things happened.”

The Tax Foundation ranks Louisiana’s tax burden 5th lowest and its business tax climate 35th. Louisiana spends over $1.8 billion per year on incentive programs.

One of the few states in the nation that’s added manufacturing jobs, Alabama’s economy reflects the generational shift away from textiles in favor of automotive and aerospace. The state is paced to add between 30,000 and 35,000 jobs this year, according to the Center for Business and Economic Research at the University of Alabama.

Government efforts to promote such advanced manufacturing and high-tech growth companies have borne fruit. Alabama’s successful wooing of Airbus brought its aerospace sector international prominence, joining Boeing in a growing cluster. A new focus on attracting pharmaceutical and related industries shows promise. Companies like these require a trained workforce, something Alabama is addressing with educational reforms.

Research conducted by the Culverhouse College Center for Business forecasts GDP growth of 2.3 percent this year and 2.5 percent next, following two years of 2 percent growth. The Tax Foundation ranks Alabama’s tax burden 10th lowest and ranks its business tax climate 28th. Alabama spends over $277 million per year on incentive programs.

The Bluegrass State continues its creaky rebound from the Great Recession, led by Lexington and Louisville. The pair of cities, increasingly collaborative, accounted for 45 percent of the state’s job growth over the past five years, according to economist Paul Coomes. Manufacturing payrolls rose 1.8 percent last year. Meanwhile, hiring in such areas as retail, financial services and government was flat. Toyota’s $531 million Lexus plant expansion in Georgetown, announced in 2013, continues to command local attention; it could open later this year.

Kentucky’s bedrock coal industry has been hammered by falling energy prices. This year, real GDP growth will again lag that of the U.S. overall, says Christopher Bollinger, director of the Center for Business and Economic Research at University of Kentucky. Bollinger forecasts 2 percent GDP growth in the state. The Tax Foundation ranks Kentucky’s tax burden 23rd highest and ranks its business tax climate 26th. Kentucky spends over $1.4 billion a year on incentive programs.

“The economy in Mississippi is “better than it has been in a long time.”

Mississippi’s economy continues to lag. The state added 8,800 jobs last year, nearly a third in transportation and utilities. Still, employment remains nearly 40,000 jobs under the state’s 2008 peak. Casinos, once hailed as an economic driver, now represent a poor bet. Real Gross Domestic Product is currently pegged at 1.4 percent, although it’s slated to rise next year by 2.1 percent, forecasts the Mississippi University Research Center. State economist Darrin Webb professes optimism. The economy overall is “better than it has been in a long time,” he testified earlier this year to the state legislature.

A small state, Mississippi offers excellent resources to companies that seek them out, including Nissan and Toyota, according to Cushman’s McIntosh. “There is a perception problem,” she says. “The officials I’ve worked with have gone all out for the projects I’ve been involved with.”

The Tax Foundation ranks Mississippi’s tax burden 11th lowest and ranks its business tax climate 18th. The state spends over $416 million per year on incentive programs.

The Mountain State offers a mixed bag of economic news. John Deskins, director of the Bureau of Business & Economic Research at WVU, forecasts an uptick in employment growth, income growth and employment through end of decade. West Virginia will, however, still lag the nation in employment, income and population growth over the next five years. The state’s mining industry, its longtime economic driver, is bleeding revenue and jobs and no new sectors have emerged to replace it, keeping per capita income in the state mired near the national bottom. Modest growth of professional and business services, education and health services “will pace the state’s overall performance over the next five years,” says Deskins.

The Tax Foundation ranks West Virginia’s tax burden 19th highest and ranks its business tax climate 21st. West Virginia spends over $1.57 billion per year on incentive programs.

Warren Strugatch :Warren Strugatch is a writer, speaker and consultant based in Stony Brook, NY. He covers economic development, global business, management and marketing.