Businesses attracted to Georgia, but other states lure more

Despite a tough economic climate, Georgia last year saw a 2 percent increase in the number of companies coming to the state, along with an 11 percent rise in the number of jobs promised.

Still, the Peach State wasn’t one of the top 10 destinations for business relocation.

Georgia ranks sixth in overall business climate, according to this month’s Site Selection magazine, which tracks the competition among the states. Every state wants economic development, usually aiming for a mix of home-grown expansions and move-in businesses. But they must pay a price for that development. Getting into the contest means ponying up — money for marketing, for improvements to local infrastructure, for tax breaks.

The fierce recession and its aftermath have only made the game more urgent.

“We’ve had to do more with less,” said Heidi Green, commissioner of the Georgia Department of Economic Development. “I think Georgia is doing very well.”

The top three states in landing corporate expansions, relocations and jobs were Virginia, Louisiana and Texas, according to Norcross-based Site Selection.

Some analyses — most notably, a study by the Minneapolis Federal Reserve — argue that competition can be harmful if a state gives away too much. The incentives dangled by the winners can end up raising taxes for other companies and consumers.

The critics suggest federal oversight of incentives or at least regional cooperation, but there’s been no serious effort at either.

And so, with unemployment still hovering near double digits — it’s 10 percent in Georgia — and with some of their own companies sniffing around for better deals elsewhere, state governments feel compelled to keep spending.

That means that footloose firms have suitors galore.

The recession didn’t chill the business for companies like Atlanta-based CBRE Consulting, which advises companies on where to move and how to negotiate for the best possible deal. “Actually, this is the busiest I have been in five years,” said Jonathan Sangster, first vice president with CBRE. Sangster worked with California-based King’s Hawaiian Bakery which, after a search for a place to expand in the east, chose Oakwood in Hall County.

Optimistic companies are looking now, to be ready for the upturn that they hope will come in 2011 and 2012, he said.

How does a state take business away from other states? With self-promotion, grants, tax incentives and a constant readiness to connect with company officials.

But if the game is about landing new companies, the state still has bait.

Among the lures:

● Programs that provide grants to relocating companies. Despite the state’s financial woes, the annual budget for the metro version of the program was more than doubled this year to $5 million.

● Quick Start, a program to provide training at the state’s technical colleges for a new company.

● Various tax breaks for creating jobs, including the Quality Jobs Tax Credit, aimed at companies offering higher-than-average pay.

It was responsiveness, as much as incentives, that made Systemax expand its presence in Jackson County, said Richard Leeds, company chairman and CEO.

“If you don’t have the feeling in the process that the government will be cooperative, they could write the biggest check in the world and I won’t go there,” said Leeds.

The company, which already had a division in Georgia, wanted to build a distribution facility, a call center and an outlet store for its TigerDirect subsidiary. They got hiring and training for workers — and a rapid approval process.

“It was not just the amount of money. It was the services they could provide, and the speed that they reacted,” he said. “The city of Jefferson was amazing. The county and state, too.”

The facility will eventually employ about 400, he said.

Sony Ericsson had a 20-person sales office in Buckhead, a Latin American office in Miami and North American headquarters in the Research Triangle of North Carolina.

Wanting to make cuts and consolidate, the company compared a number of locations and decided to bring the other offices to Buckhead, said Anderson Teixeira, president of Sony Ericsson for the Americas.

It was nice, he said, that Georgia sweetened the choice with $4 million in tax credits, but the decision rested more on other factors: logistics, proximity to one big customer — AT&T — and officials’ attitude.

“Perhaps even more important than incentives, I think it was the close collaboration with the state and local economic development teams,” Teixeira said.

The company now has about 180 employees in its Buckhead offices.

Yet personal service from the state will not persuade a firm to move to a place where it is hard to meet customer needs or receive supplies.

Moving is an expensive, disruptive, high-stakes decision. A lot of factors are at work: desire for a location with a good workforce, good transportation, a business-friendly climate — and everyone prefers low taxes.

Companies look for ways to improve their profits, to meet higher demand in good times, to cut capacity when business is weak, to trim costs under pretty much any circumstance.

Especially in recessions.

The business world is always in flux. The need to move or expand can come from different directions — the need to meet added demand, the need to cut unneeded capacity.

“There is no doubt that in the last three years things have changed dramatically,” Hans Gant, senior vice president for the Metro Atlanta Chamber, said. “Companies are using the recession as an opportunity to plan for the long-term future. Just about every major company is looking at driving down costs.”

That priority has sped up consolidations, when a company hopes to add by subtraction, said Mark Sweeney, senior principal at McCallum Sweeney Consulting of Greenville, N.C., which advises companies.

“That is definitely a lot of what is going on,” he said.

Even executives who see rising sales are worried about the future, he said. So many questions hang in the air: What will happen to taxes, to regulations, to trade rules? Will economic growth peter out? Will the already anemic expansion stall and make today’s investment a money pit of loss?

“Uncertainty makes it difficult to plunk down $1 million, $50 million or a billion dollars,” said Sweeney.

Despite the question marks, metro Atlanta has made some high-profile deals, such as the decision of NCR to go from Dayton, Ohio, to Duluth.

“We are very high on Georgia in general and Atlanta in particular,” he said. “They have some good tools in the toolbox to compete.”

Not surprisingly, the biggest negative involves transportation, he said. “There is a very strong perception that there are some noteworthy traffic issues.”

Despite the traffic woes, metro Atlanta last year completed 59 deals, said Gant.

“We have had the three busiest years in our history in terms of project activity,” he said. “The recession has actually bumped up activity.”

Those deals will produce more than 6,500 jobs during the next three years, he said.

Among recent wins: In September, Medline Industries of Illinois announced plans to open a 141-job factory in Douglas County. The month before, Moeller Tech announced plans to put a 75-job manufacturing plant in Elberton. In the spring, Mage Solar said it would add 350 jobs by putting a manufacturing plant and its North American headquarters in Laurens County.

Yet some argue that winning is not all it’s cracked up to be.

Good news for one place is counterbalanced by bad news in another, said Greg Leroy, executive director of Good Jobs First, a Washington-based group that supports “smart growth” and is critical of state-vs.-state competition.

The winning state shifts resources away from its own residents and undermines its quality of life when it offers too-generous incentives, he said. And many companies probably would choose the same locations, regardless of incentives, simply because doing so makes good business sense.

Local communities often defer or eliminate a company’s property taxes to make sure a company will locate there, he said. “In states like Georgia that do that, only two things can happen. Either the quality of the services has to decline or the rate that everyone else pays has to go up.”

Yet there aren’t any winners who quit the game: Georgia officials are convinced that the cost is well worth it.

Since 2003, the Department of Economic Development says it has assisted 1,890 companies who committed to 131,468 jobs and $28 billion in investment.

The lion’s share of the state’s growth since the 1960s has come from people moving in, according to University of Georgia demographer Doug Bachtel. Many of the jobs for those people were likewise transferred from elsewhere or created by companies that moved here. The jobs, the people and the economic growth all entwine, depending on each other but also feeding on each other.