The recent news that Kestrel Aircraft Co. is talking with Wisconsin officials to create up to 600 manufacturing jobs there — jobs originally planned for Maine — drives home the increasingly intense competition among states for employers.
While blue-chip companies such as Caterpillar, HP, Boeing and others have long been wooed by states offering lucrative incentive packages, even young companies such as Kestrel are finding suitors.
“These days, it’s a national platform, a national stage for competition,” said Tim Myllykangas, a Boston-based partner with Cressa Partners, a site-selection consulting firm that works exclusively for corporate clients. “Not for every project, but for most. If nothing else, management is making sure that they’re doing their due diligence — they’re shopping, like for a car.”
In Maine, even the companies the state is trying to retain and grow “are another state’s attraction targets,” said Peter DelGreco, president and CEO of Maine & Co., a private, nonprofit business attraction organization.
Companies consider multiple details when they decide whether to move or site a new facility, said Myllykangas.
Generally, the companies start with a geographic filter — they want to be in a certain time zone or in one region of the country or only in certain states. Then they look at the cost of real estate, the infrastructure that’s available, the cost of energy in some cases, and the available work force.
Companies don’t necessarily want to be in an area where there’s a lot of demand for the type of employees they need — though they want a healthy labor pool.
DelGreco said that more frequently companies are looking to site new operations in areas where they can get a decision on local permits — yes or no — in 10 business days.
He said he’s talking with communities now in Maine to get them to decide what types of businesses they’ll accept and which ones they won’t. If they have those discussions early, the decision-making process can be quicker, he said.
After all of that filtering is done, incentives come into play, said Myllykangas.
“All other things being equal to get to the short list where any of the sites could work, then incentives become huge,” said Myllykangas. “Companies then look for the biggest.”
A low-end incentive package would be in the neighborhood of $1,000 per job; the high-end would be up to $40,000 per job. Most fall in the $3,000 to $15,000 range, he said.
Some states — Texas, the Carolinas, Oklahoma — are always in that higher end, said Myllykangas. The New England states tend to be low in the scale of incentive package offerings, he said.
To justify investments to attract new businesses, the states look at the new job count, the average salary, capital expenditures and personal equipment investment. They do economic impact models to see how the new business might affect the economy and then weigh the incentive package against that benefit.
“If you don’t do that math, you might not recognize the significance,” said Myllykangas. “That’s how the aggressive states look at it.”
What’s an aggressive package?
Bar Harbor-based Jackson Laboratory is expanding with a new research center in Connecticut, creating 600 jobs there. The lab is looking to tap into the work force that’s there and to benefit from the medical research facilities in the area.
But there’s a financial factor, as well.
Connecticut is supplying $291 million over 10 years, an additional $10 million a year for collaboration with Connecticut institutions, land for the new lab and full funding for 10 faculty positions and support staff for at least 10 years. Maine has no such resources available.
Texas dedicates a small percentage of tax revenues toward a discretionary fund for business attraction; it works out to about $400 million a year. That fund has helped Texas attract almost 60,000 new jobs and about $15 billion in new capital investment since its creation in 2003, according to Site Selection magazine.
In an effort to attract a Royal Dutch Shell ethane facility, Ohio is offering $1.4 billion in tax incentives, according to media reports, fighting other states including West Virginia for the business.
States also can get stung. Massachusetts put up at least $43 million to help Evergreen Solar grow in Devens. Last year, the company laid off its 800 workers in Massachusetts and shifted production to China, citing “much higher government support,” according to a New York Times story.
Matt Jacobson, former president and CEO of Maine & Co. and now executive vice president of business development at Resilient Tier V (headquartered at Brunswick Landing), said while incentives used to be offered by states toward the end of the deal, that has changed since the 2008 recession.
Now, said Jacobson, it’s more about putting the money up front — at least in attracting the marquis-type of companies. It can come in the form of states buying buildings for companies or paying relocation costs for thousands of employees.
Maine’s not necessarily so far off, said Jacobson. Companies siting in Pine Tree Zones get back 80 percent of their income tax and see other benefits.
“[Other states] give it lump sum up front,” said Jacobson. “We do it over time. They’re more lucrative, as well.”
Myllykangas said he thought Maine’s Pine Tree Zone program was “a good thing.”
“It’s better than some states, but everyone knows other states have significantly higher incentives,” said Myllykangas.
Jacobson said he believes Maine doesn’t compete well in the area of incentives and has other problems as well. The fact that the population is declining presents a problem to employers looking to move here, he said.
Maine, said DelGreco, does well in attracting companies from high-cost areas that want to expand. They usually can expand more cheaply in Maine than they can in their home areas. He pointed to companies such as Athenahealth and Carbonite as examples.
Steve Levesque, head of the Midcoast Regional Redevelopment Authority, said that Maine is in the middle to low end of offerings to new business. Most of the state’s programs are performance-based, he said, which he sees as a good thing.
“Other states will give outright grants for businesses with no job creation requirement or anything,” he said. “In Maine, we can hold our head up high; we’re performance-based.”
Garrett Martin, executive director at the Maine Center for Economic Policy, agreed.
“It makes little sense for Maine to attempt to pick winners and losers by striking special deals for specific businesses,” said Martin. “We should focus instead on making sure that all businesses have access to the best possible work force, infrastructure and quality of life.”
Martin suggested that building the skills of Maine’s current and future work force, improving the physical infrastructure of regions, and making communities more attractive places for families and businesses is a “far more effective approach to business development than tax cuts and financing assistance.”