As Lagniappe writer Jeff Poor highlighted in his latest Beltway Beat column (“Help rural communities help themselves,” Jan. 30), Alabama’s “economic revival” since the decline of traditional manufacturing arguably was led by the 1993 announcement that Mercedes-Benz would build a $300 million assembly plant in Tuscaloosa County.
At the time, the automotive industry was a relatively insignificant element of the state’s economy, but since then other manufacturers — including Hyundai and Honda — followed suit with assembly lines of their own in Montgomery and Talladega counties. In January 2018, Toyota and Mazda announced they would build a joint $1.6 billion manufacturing plant in Huntsville, providing as many as 4,000 new jobs to an industry that currently employs nearly 60,000 people statewide.
Today, transportation equipment, including motor vehicles, is the state’s No. 1 export by a wide margin, accounting for $10.9 billion in 2017. But neither the automotive manufacturers nor the burgeoning aerospace industry were attracted to Alabama simply by an underserved workforce. Often, they were lured with millions of dollars’ worth of tax abatements and economic incentives. In recent years, lawmakers have also incentivized larger investors with job training and infrastructure improvements.
The total incentive package to Mercedes-Benz in 1993 was $248 million, with about half coming from Montgomery. Last year, Toyota and Mazda agreed to $379 million in incentives. In 2015, Mercedes accepted another $100 million in local and state incentives to expand its plant, resulting in a cumulative investment of more than $5.8 billion in the state, according to the Alabama Department of Commerce.
Secretary of Commerce Greg Canfield said Monday Alabama’s incentives programs have evolved significantly since he took over the Department in 2011. Today, it closely mirrors those of other states competing for the same developments.
“Most of the incentives structure we created while I’ve been here,” Canfield said. “We wanted to create a more competitive yet sustainable approach to incentivizing economic development projects … and restructure what historically had been a reliance on two primary incentives — tax abatements and borrowing funds in the bond market for making cash payments for economic development.”
Among the newer incentives are the Apprenticeship Tax Credit established in 2016. Available to employers with a Department of Labor-registered apprenticeship program in one of the five industry sectors (advance manufacturing, construction, health care, information technology, and transportation and logistics), eligible employers can claim a $1,000 credit for each apprentice employed for at least seven full months for up to five apprentices annually. In 2017, 25 programs qualified, resulting in $75,000 worth of credits and creating 75 jobs, according to the department.
The Growing Alabama Tax Credit established in 2016 is one of two incentives available through the Alabama Renewal Act. Its dual purpose is to “create new programs for the growth of business and industry in Alabama” and to “create the ‘Growing Alabama’ tax credit to address economic development needs.” According to the Commerce Department, it provides a source of funds for site preparation and public infrastructure of existing industrial sites where investors receive an income tax credit equal to their contributions.
Two projects qualified for the Growing Alabama Tax Credit in 2017, claiming in excess of $6.7 million and reporting the creation of 429 jobs; 2018 numbers are pending.
The other element of the Alabama Renewal Act was the Port Credit. It targets “new programs for the growth of business and industry in Alabama and creates tax credits for increased use of the state’s port facilities.” It’s a one-time income tax credit of “up to $50 per [20-foot equivalent unit], $3 per net ton of bulk cargo or $.04 per net kilogram of air cargo.” Additional credits are available for new facilities investing at least $20 million and creating at least 75 jobs.
While a dollar figure was not available, the department noted five applicants had been approved for the Port Credit through 2017, creating 573 direct jobs.
The Alabama Jobs Act, passed by the Legislature in 2015 and signed into law by then Gov. Robert Bentley, restructured the way incentives are offered to businesses and industries promising at least 25 new jobs in rural counties and 50 new jobs in urban counties. But it capped the credit at $850 million over 10 years. In only two years, after nearly $700 million of the credits had been awarded, Gov. Kay Ivey raised the cap to $300 million annually in one of her first acts after being sworn into office in 2017.
The Jobs Act is scheduled to sunset at the end of 2020. While it won’t be a priority for the Legislature to address in its 2019 session beginning on Fat Tuesday, the Joint Legislative Advisory Committee on Economic Incentives meets twice annually to review its progress. During its latest meeting Jan. 28, Canfield provided a glowing report to the committee and this week recapped it for Lagniappe.
“Based on [its] track record, we’ve had good success,” Canfield said Monday. “[Since 2015], we’ve seen a total of $10.7 billion added to the payroll over 10 years generated from projects we’ve attracted and a 20-year payroll impact in the state [of] $25.1 billion. We’ve had 118 projects under the Alabama Jobs Act … with a capital investment of $10.5 billion, creating just under 24,000 jobs.”
According to the legislation, eligible projects “must be revenue-positive for the state and the incentives offered cannot exceed or equal the tax liability of the project company.”
Canfield touts the Jobs Act as a “pay-as-you-go” program, providing a job creation incentive with an annual cash rebate of up to 3 percent of the previous year’s gross payroll, as well as an investment incentive of up to 1.5 percent of the qualified capital investment expenses for a qualifying project for up to 10 years. Additional provisions are available for employers seeking to expand or relocate to targeted rural counties (those with populations of fewer than 25,000 people) as well as those who hire veterans.
“The jobs credit is calculated based on new jobs created and the payroll impact into the state and the equivalent of an incentive that can be up to 3 percent of the new wages or payroll, and in a rural, targeted county we can go as high as 4 percent to try to attract more investment into rural Alabama,” Canfield said.
“The second element is the investment credit, that replaced an old incentive called the capital income tax credit that used to theoretically allow a company to recover 100 percent of their investment over a 20-year period of time,” he continued. “We did away with that and came up with the investment credit, which calculates differently in terms of how the income tax incentive can be applied. It can be applied against a company’s income tax liability, as well as a company’s utility taxes, but instead of recapturing 100 percent of that investment we allow recapturing 15 percent over 10 years.”
Canfield said the new framework has been “well received” by investors, calling it a “much more sustainable approach” which allows the state to reduce its reliance on borrowed funds.
Examples provided by the Department of Commerce suggest a “high local commitment” investment of $25 million in an eligible project receiving the full investment credit could save as much as 19 percent over 10 years by taking advantage of the Jobs Act, while a “low local commitment” investment, receiving partial investment credit, could save around 9 percent over 10 years.
In Mobile County, projects receiving benefits under the Jobs Act include the second final assembly line expansion currently underway at Airbus, which broke ground last month after being awarded $17 million in combined capital cost reimbursements and jobs credits by the state. When complete, the company promises as many as 400 jobs will be created. There’s also the new Walmart distribution center in Theodore, a $135 million capital investment which was awarded $4.5 million in credits under the Alabama Jobs Act. There, company officials promised 550 jobs with an average pay of $16.83 per hour.
David Rodgers, vice president of economic development for the Mobile Area Chamber of Commerce, oversees business recruitment, expansion opportunities for existing industries, workforce development and international trade, and foreign direct investment for the chamber.
He said the area likely would not have been as attractive to those employers without the Jobs Act incentives.
“I came into this role in 2015, so the grunt work of that legislative push was done prior to when I got here, but I know all those organizations, all those entities got together to make sure we were competitive,” he said, nodding to the Commerce Department as well as the Economic Development Association of Alabama, Economic Development Partnership of Alabama (EDPA) and others.
“In all actuality we mirrored [these programs] after what other states were doing; this was nothing new. What we did is we went to all our competing states and picked off what we thought would make our case better,” Rodgers said.
When evaluating a proposal, Rodgers and Canfield said, both the state and local municipalities often perform independent cost-benefit analyses, “that lets us show what the real impact these projects will have on our community,” Rodgers said.
“Incentives are a tough subject to discuss … it’s out there in the public but you know it’s also necessary to play the game,” he continued. “It’s really about applying the limited amount of resources we have to make sure they go as far as they can. And that’s what we’ve done a very good job of … we’re very strategic about how we put our incentives toward these projects.
“If we’re updating a road, it’s a public road. And the good thing about that is it allows other sites to be developed, or if nothing else it allows more residential areas to be developed.”
Rodgers also noted that 88 percent of employees at the Walmart distribution center are residents of Mobile County.
Last week the chamber released its own 2018 annual report, which showed six economic development projects with a total of $533.9 million in capital investments last year, altogether promising 597 full-time jobs. At the chamber’s annual meeting scheduled for Feb. 13, President and CEO Bill Sisson will “outline upcoming changes in the organization’s economic development activities, including the business retention and expansion program and launching a new foreign direct investment attraction strategy.”
Baldwin County Economic Development Alliance President and CEO Lee Lawson said today’s incentives don’t just target employers, but also employees and the community as a whole. He said with the exception of the UTC Aerospace expansion in Foley, Baldwin County has largely relied upon local incentives for recent developments. But one amenity has proven to be a huge draw for investors.
“AIDT — the state’s workforce training program — is not a true credit but an incentive where the state workforce training group trains their employees for them,” Lawson said. “It’s great to say to employers ‘we can do your pre-employment screening, your training, your hiring …’ and multiple people will tell you that’s the state’s No. 1 incentive.”
Besides its maritime training center on the Causeway next to Austal USA, AIDT also has local facilities for aerospace at the Mobile Aeroplex at Brookley and another in Calvert supporting the AM/NS Steel and Outokumpu stainless steel manufacturing plants. A new AIDT facility in Huntsville was also part of the Toyota-Mazda incentive package.
Cost versus benefits
Criticism of the incentives and abatements is sporadic, but as the state struggles to find revenue for increased health care costs, road construction and repair, and schools and jails, among other things, some wonder whether program recipients should pay a greater share.
As recently as Feb. 4, Michael Farren and Tad DeHaven, a research fellow and research analyst, respectively, with the Mercatus Center at George Mason University, argued such companies as Europe-based Airbus build assembly plants in places like Alabama for political capital, not because they are cost effective or benefit U.S. communities.
“State and municipal subsidies for companies currying federal favor are a pure waste of taxpayer money,” they wrote in an opinion column published in The Hill. Noting “the combined state and local handouts for Airbus are the equivalent of 40 percent of a year’s worth of Alabama corporate income tax revenue,” Farren and DeHaven conclude “these wasted tax dollars mean other businesses and households pay higher taxes for politicians’ credit-claiming ribbon-cutting ceremonies, but there’s no additional benefit for the community.”
But Canfield offered this perspective:
“Since [the Alabama Job Act’s] passage … we’ve seen a total of $10.7 billion in additional payroll over 10 years, with a 20-year return estimated at $25.1 billion. Of the 118 projects under the Jobs Act, there’s been a capital investment of $10.5 billion, creating just under 24,000 jobs. Compared to Alabama’s median hourly wage of $15.70, we attracted in 2018 projects paying an average of $26.98 per hour — a 71 percent increase.”
Canfield said along with improvements to infrastructure, there will also be a push to diversify industry and business in the state as well. He noted Amazon’s footprint in Mobile and Birmingham, along with Facebook and Google data centers in North Alabama, have already added more than 800 IT jobs to the state and hopefully will attract more.
“We have been focusing on innovation and entrepreneurial endeavors with the EDPA … to spur the growth of tech-driven entrepreneurial opportunities across the state,” he said. “The neat thing is if you believe in market forces — if we continue to be successful in attracting advanced manufacturers and tech companies and corporate operations — that market force in and of itself will help retain and help reduce that brain drain. Our goal is to create enough opportunity in the state … across that whole spectrum in Alabama, so that all Alabamians have access to the type of job they are qualified for. But that’s a long-term goal right? It doesn’t happen overnight.”
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