Jackson Jambalaya

The old adage that one shouldn't see how sausage and bills are made applies to economic development as well.  The Wall Street Journal provided a window in how states are at the mercy of a "Guild" of economic development consultants in a story published today:

Governors often find themselves at the Guild's mercy.  Credit: Critical Mass Blog.

Georgia rolls out a red carpet for them at the Masters Golf Tournament. Kentucky gets them tickets to the Kentucky Derby. Arkansas takes them on a private duck hunt with the governor. Utah recently arranged a private ski trip with an Olympic medalist.

Such is the life of site selectors—consultants who jet around the country helping corporations decide where to build new headquarters, factories or expansion projects, often pitting communities against each other in multistate bidding wars to maximize tax breaks, grants, land deals and other incentives.

As communities across America race to win such marquee projects, these middlemen have quietly become some of the most powerful consultants in corporate America.

There are about 500 site selectors active in the U.S. and a 2017 survey found that 54% of companies plan to outsource part of their next corporate location search, according to consulting firm Development Counsellors International....

In some ways, the site selectors act like lobbyists, interacting with government officials as they help their clients obtain favorable deals that sometimes require legislative and regulatory changes. Unlike lobbyists, site selection consultants often work on commission, which is frequently tied to the size of the incentive package they negotiate for their clients. That fee structure has drawn criticism from some of the very economic development officials who are competing against each other for the projects...

 Despite that, Upjohn research shows that the state and local costs of incentives have at least tripled since 1990, reaching $45 billion annually as of 2015. Average incentive awards have also tripled in size as a percentage of business taxes owed by the companies receiving the perks.

What the incentives can alter, in some cases, is the location of the project. That’s fueling competition that has helped turn site selection into a booming cottage industry.

“Kentucky Derby. Mississippi governor’s quail hunt. Georgia quail hunt…I’ve been to all of them,” said Mike Mullis, a Tennessee-based site selector. He works alongside his fiancée, Denise Mott, at a site selection firm he founded in the 1970s, J.M. Mullis Inc. The firm completes an average of about 50 projects a year, according to its website.

Mr. Mullis has developed a reputation for being a tough negotiator on incentives. When he represented Jeff Bezos’s rocket company, Blue Origin, on a site-selection search in 2016, a Washington state official told the Puget Sound Business Journal that Mr. Mullis “constantly hammered” the state to see what incentives they could offer. Mr. Mullis told the paper that the characterization was “pretty consistent with how we operated.”

The consultants formed a Guild that is almost as exclusive as the River Boat Pilots Club:

Mr. Mullis was also an early member of an exclusive club of consultants known as the Site Selectors Guild. New guild members have to be approved by a committee, and every member is required to attend a conference where government officials and other attendees pay $2,000 a ticket for a chance to hobnob with them....

 Since its founding in 2010, the Guild has grown to include 50 consultants and now attracts 355 paid attendees at the marquee event, which usually sells out within an hour, according to the guild’s executive director, Rick Weddle. Mr. Weddle says the industry’s mantra is that “incentives can never make a bad location good. They can make a good location better.” He said site selectors help companies weigh a variety of factors, such as the availability of qualified workers, access to infrastructure, proximity to customers and suppliers, the cost of utilities and other production inputs.....

Unfortunately, Mississippi has found itself at the Guild's mercy.  The Journal continues:

When the U.S. arm of Czech firearm maker Česká Zbrojovka began looking for its first U.S. factory site last year, the company had already committed to the expansion. Even if the subsidiary, called CZ-USA, received no incentives, it still would have proceeded with the project, said CZ-USA’s chairman, Bogdan Heczko.

Still, he decided it would make sense to “see how much we can get.”

Mr. Heczko’s company was originally deciding between two states—Kansas and Missouri—which have a long history of competing on incentives. Then CZ-USA hired Mr. Mullis to help with the search. Mr. Mullis advised CZ-USA to broaden the search to more states, according to Mr. Heczko. Mr. Mullis said he helped the firm scout locations in a dozen states, including Arkansas.

In early December, Mr. Mullis and a handful of other site selectors spent the day hunting at a private retreat with Arkansas Gov. Asa Hutchinson. Mr. Mullis said events like these are good “relationship-building” opportunities.

At the end of the day, as Mr. Mullis relaxed on a couch in a spacious hunting lodge in Northeast Arkansas, Mr. Hutchinson approached him to ask for his advice on how to attract the gun manufacturer to his state.

“What do we need to do to close this deal? We want this project,” Mr. Hutchinson said, according to Mr. Mullis.

Mr. Hutchinson confirmed in an interview that Mr. Mullis gave him advice on how to “fine-tune” Arkansas’ pitch to his client. He also said Mr. Mullis “is a very good shot.”

Mr. Hutchinson—who has okayed 435 incentive deals since becoming governor in 2015—ultimately allocated $4 million from a fund he controls, the “Quick Action Closing Fund,” to pay for improvements at the site in Little Rock selected by CZ-USA. That was in addition to more than $20 million of loans, rebates, tax breaks and other incentives Mr. Mullis helped negotiate. The company pledged to invest $90 million and create 565 jobs, according to a press release.

What the article did not report is that Mississippi was one of the states competing for the CZ plant. Mississippi offered a Rankin County site for the plant. Such a site would have access to good schools and the Jackson International Airport. The "broker" strung Mississippi along, using it to leverage a better deal out of Arkansas. Governor Bryant even flew to Las Vegas in January to close the deal - only to find a suddenly-crawfishing consultant in Sin City.  The sudden decision to back out of the deal and jump over to Arkansas was only sudden to Mississippi as it discovered it was played all along by the founding member of The Guild.  

Unfortunately, the crawfisher was instrumental in bringing Continental Tire to Mississippi so the state has little choice but to play his game by his rules if it wants a crack at future projects. 

 Economic development negotiations are usually protected from public records laws and the consultants are paid by the client.  Thus The Guild operates in a corporate swamp where rules are few as they play states against each other.  Woe to the Governor who has to explain to his voters why he didn't try to bring jobs to his state.