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Where are Wisconsin business incentives?

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JAMES P. LEUTE
Sunday, May 31, 2009
— When a company looks for a site for a new facility, the discussion often starts with geography, moves to labor costs and ends with state incentives.

In 2005, Janesville lost on the first and last elements in the battle to land a $100 million Lowe’s distribution center and its 500 jobs.


Lowe’s decision to build 1.4 million-square-foot facility in Rockford, Ill., was based on two factors. Rockford is only 45 miles from DeKalb, which Lowe’s said was the geographic center of the area to be served by the facility.


And Illinois officials brought a $26.1 million incentive package to the table. Janesville was able to muster only $15.6 million from state and local sources.


The lessons learned in 2005 take on more importance now as Janesville works to recover from the loss of thousands of auto industry jobs.


The Lowe’s project is not unique.


Wisconsin communities routinely find themselves on the short end of recruitment battles with neighboring states that are more freewheeling with incentive dollars and tax abatement programs.


When they’re not losing companies to foreign countries, Midwestern states are increasingly seeing companies relocate to or expand in other U.S. regions.


Last month, Thomas Industries unveiled plans to move 280 manufacturing jobs from its Sheboygan plant to Louisiana.


The move triggered finger pointing at the state Capitol, where some lawmakers said the state didn’t do enough to keep the jobs. Others countered that the move was based on cheaper labor costs in Louisiana.


Wisconsin reportedly offered $2.55 million to move about 80 Louisiana jobs to Sheboygan. Instead, the company took a $9 million deal to move 280 Sheboygan jobs to Louisiana.


The view from afar

Chief Executive magazine readers recently ranked Wisconsin as the 43rd best state for business, as did Forbes magazine. U.S. News and World Report looked at two other studies and determined that Wisconsin was either the 26th or 33rd best state in which to start a business.


“National outfit after national outfit looks at these things and routinely determines that we’re not competitive,” said James Buchen, vice president of government relations for Wisconsin Manufacturers & Commerce, the state’s largest business interest group.


Ron Pollina of the Chicago-based Pollina Corporate Real Estate said Wisconsin hasn’t made much effort to improve its business climate.


“The competition is primarily global, but in the United States, it’s these states that are real aggressive on taxes,” he said. “In this country, we’re seeing 8,500 manufacturing plants close each year. Most states aren’t prepared; they just don’t get it.”


Hands are tied

Away from the Capitol, Wisconsin’s economic development professionals routinely argue that the state’s biennial commitment of about $15 million in cash incentives is woefully inadequate.


They say an additional $85 million in tax credits exists only on paper. Many are never used because they don’t carry street value for companies eyeing Wisconsin. Income tax credits, for example, are of little value to logistics or distribution companies who might not sell anything from a new or expanded building in Wisconsin.


Tax credits tied to job creation are particularly antiquated, they argue, because businesses are generally reducing head counts by consolidation and an increased use of technology.


Janesville officials have lobbied state lawmakers for designation as a “Development Opportunity Zone” to boost the street value of tax credits by tying them to capital investment, as well as job creation.


In addition, Forward Janesville has asked the state to allow the sale, transfer or refund of state tax credits. Such portability, the business group contends, would make the credits much more appealing.


Zach Brandon, executive assistant for the state’s Department of Commerce, said Wisconsin has had confusing and duplicative programs.


The state recently consolidated its programs, a move that Brandon said has been well received by site selection consultants. The state now has about $94 million in tax credits available, he said.


Credits vs. hikes

The debate about the state’s economic development toolbox, however, runs deeper than tax credits. The business-interest group WMC lambasted recent proposals for $2.9 billion in tax increases on top of nearly $3 billion in hikes already proposed or signed into law by the governor.


Buchen said Wisconsin has one of the worst business climates in the country.


“Tax hikes of this magnitude will only make matters worse and cost us jobs at a time we can least afford to lose them,” he said.


Perception and reality

Site selection consultant Bob Hess hopes for a climate change in Wisconsin, the state where he was raised. He’s now with Newmark Knight Frank, one of the largest independent real estate service firms in the world.


“Rankings are certainly one side of it, and Wisconsin is generally in the bottom third,” Hess said. “It’s an Internet world, and when you Google Wisconsin and business climate, that’s what you see.


“Perception becomes reality.”


Wisconsin, however, is also known for its highly skilled labor, outstanding education system, agriculture and quality of life, he said.


“But from just the business side, Wisconsin is never near the top,” he said.


Brandon said his department prefers to hear from consultants such as Hess. Magazine rankings, he said, are typically the result of opinion polls that have no scientific basis.


“Those rankings are just a snapshot in time and not a true reflection of the state’s economic development efforts,” Brandon said. “We pay attention to them, but we give more credibility to scientific modeling.


“It’s perception vs. reality. What we know to be true is that businesses make decisions not by just Googling something. They tend to drill down farther.”


On the horizon

Hess said site consultants often are put off by the highly political, highly charged nature of Wisconsin government.


“In Wisconsin, the case for change has never really been made,” Hess said. “The state needs to get more aggressive with its programs and advertising, and now is the time for that to happen.”


Hess said it’s unlikely Wisconsin will ever be able to compete in the incentive game.


But the state needs to determine what industries it wants to court, learn them inside and out and then develop targeted recruitment and expansion plans.


“You can’t be everything to everyone,” he said. “There are returns on investment if you pick the right things to go after.


“It’s a scary thought to concentrate on doing fewer things better, rather than casting this wide net hoping you don’t miss something and you end up missing everything.”


Brandon said the state has consolidated and improved its programs. It has also sharpened its focus on its core manufacturing and ag sectors.


Emerging industries also are on the state’s radar, he said, noting Wisconsin’s proximity to the much-discussed wind corridor of the nation’s midsection.


“Being an original equipment manufacturer has its place, and we have a good number of those in the state,” he said. “But we can also build our economy on being a supplier to OEMs.


“The goal is to make sure that if we can’t make the final product here, then at least Wisconsin businesses have a fingerprint on it.”


A better array of tax credits program will help do that, he said, while incentive packages laden with cash probably won’t.


“Wisconsin is not going to be a state throwing $150 million at a battery plant,” he said. “Do a cost-benefit analysis of that, and you determine that each job generates ‘X’ in payroll.


“Divide that by the incentive, and I don’t know how those states can close the gap. We have to be responsible to the taxpayers.”


Still, Brandon said the state can target companies through broader tax credit programs and expect reasonable returns on investment.


“This state has a vision and is going after it,” he said. “Ninety-four million dollars in tax credits should be able to get us through this economic downturn.


“It’s a balancing act, but if you get the return on investment, it’s easier to return to the governor and Legislature and ask for more.”


Vision, Hess said, requires leadership from the public and private sectors.


“I get a sense that there’s a grassroots group of people interested in how they can make a difference, but on the political side, that’s a constraint,” he said. “You’ve got to get both sides to meet in the middle, and the question is who will take the lead.


“There’s no reason Wisconsin can’t do it, but it will take some political will, and some people might have to put their careers on the line.”


Last updated: 10:17 am Thursday, December 13, 2012


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