Saturday, May 18, 2019

The Guild Giveth, the Guild Taketh

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. 

11 comments:

Anonymous said...

What was the total amount of incentives given to Continental Tire to come to Mississippi?

Anonymous said...

The "guild" sounds like a cartel to me. Rather than buyers negotiating with sellers in a competitive market, it's all in the hands of a few "brokers." This is the kind of thing that Jim Hood's office has done well at investigating and prosecuting in the past. Election or no election, that's my $0.02.

Kingfish said...

Ever heard of the term "blackball"? Not to mention while you take that route, you will undoubtedly be backstabbed by other states who will take advantage of the ill will between the litigious states and the corporations.

Anonymous said...

If a "government" (city, state, federal) were aware of these machinations, they should do away with them altogether. We agree Kingfish. A great awakening must happen first, and the leaders willing to take those arrows in the back to speak these truths to the masses.....unless Google, Facebook, YouTube, etc. silence the truth behind all the corruption.

Anonymous said...

You can say what you want about site selectors but the truth is Mississippi is only really attractive for foreign companies. Not a lot of US companies want to deal with the flag issue, the gay law issue, and don’t forget the states shrinking population.

Anonymous said...

Someone should do a very large study of these deals. Include many deals in many states over several years. I think they would find the following: A very few cases that work out very well. The company prospers and expands many times over many years. A 'good chunk' of deal that are near break even for the taxpayers. 'Good chunk' being 20-50%. (This is a huge range. I have no idea what the actual number is. Hence the need for a study). Two other large samples (maybe 15-30% each) that include 'strong failures' and 'total failures'. My guess is that if all of this was added up the taxpayers would do much better to spend those millions on lottery tickets. Or better yet, not spend at all. Perhaps if a respected expert did a full study, the public would realize that these incentives should be done away with for the most part. (I say for the most part because I really don't mind that say Nisson gets two interstate interchanges added at their new plant site. But keep it small). Maybe studies about this already exist? I'm not interested in 'studies' funded by the folks who make a living doing this. Real studies by independent people and published for the general public to a national audience. Suppose all of the states came together and gave say 1% of what they are spending to attract industries to fund three different, independent studies, that we could all read and compare. Something like that might show that millions or billions of tax dollars are being wasted and lead to the end of this.

Anonymous said...

@11:31 It used to be that if there were even a PERCEPTION of conflict of interest, it would not be allowed. Studies are not needed. Once upon a time, if there was even the POSSIBILITY of graft or corruption, then the money would not be encumbered toward the initiative. Where are the grownups anymore?

Anonymous said...

As a professional economic developer for 20+ years, labor is typically the number one site selection criteria. Incentives are usually the icing after most of the cake has been baked. So if MS ever wants to be competitive across the state versus just a few communities, improving education is Job #1.

Anonymous said...

8:21. Education in this country ass state will never, EVER improve as long as you have kids that don't want to learn, parent(s) that don't care and no home training (or daddies) teaching life to offspring.

Anonymous said...

Improving education is the LAST thing the Mississippi gentry wants. They need them to justify their campaigns of "Saving the Children" or "It's for Students" etc. etc. etc. and to most of all keep the federal dollars rolling in for which there's no accountability and the connected know how to sweep into their pockets.

Anonymous said...

This all sounds bad but it's another attempt to distract.
There's a much more pressing need to pass some more bathroom laws! Otherwise the gays and transgenders

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