ThyssenKrupp: An Answer And Some More Questions
A few weeks ago, I wondered about the total cost of the incentives package. Here’s the answer:
Total offer – $810.4 million
Land acquisition – $45 million
Site preparation, water and sewer facilities and river barge terminal – $314 million
Work force development – $77 million
Public road improvements – $25 million
Application fees for foreign trade subzone designation – $85,000
State non-educational tax abatements – $111.5 million
Local non-educational tax abatements – $237.8 million
The runner up in the competition, Louisiana, offered 1.97 billion in incentives. Yes, twice as much as we did.
Which raises the first question, from Dan at Between the Links:
we still won after having our proposal doubled by the competition? News like that gives a little credibility to those crazy coots like Christopher Westly and Robert Lynch:
Alabama has many attributes that make it incredibly attractive for capital investment. It is a right-to-work (read: low labor cost) state that has a world famous work ethic. It has the nation’s lowest capital gains and property taxes. It has extremely temperate weather conditions that make it preferable for manufacturing goods traditionally associated with northern climates. It has also become one of the leading retirement destinations of all states that don’t start with the letter F.
Taken altogether, this means that the marginal benefit of economic incentive packages to firms is not that great. Lynch concluded in a recent interview, “I wish politicians wouldn’t get involved in that game.” . . .
A quick clarification: I’m not saying this is a bad deal for Alabama, but I really think we should talk about this more. Maybe we should at least consider the statements made by economists like Robert Lynch. Is this not at least worth looking in to:
The Washington College economist has been studying state subsidy issues for 20 years and found that such packages rarely cause firms to expand in geographic areas that they would not have otherwise expanded to without state incentives. The implication is that many of the businesses choosing to locate in Alabama would have moved here anyway.
In short, did we just give this company a huge incentive package to get them to do something they would have done anyway?
The second question comes from Southern Business and Development:
Pig in a poke? In mid-April, I was a fellow speaker with Dennis Cuneo at Louisiana Gov. Kathleen Blanco’s annual economic development conference. Cuneo, the site search extraordinaire who just headed up the Toyota search that ended in Tupelo, told me that mini-mills, such as those operated by Nucor, are close to obtaining the technology to produce automotive-grade steel. Say that technology is gained by the mini-mills in five years. If announced next month, that’s about the time [ThyssenKrupp] will reach full production, we would estimate. So, while TK would not have a great deal of competition in the production of auto-grade steel today, it certainly will by the time it gets up and running in the South with this incredibly costly, prospective facility.
And that isn’t the only thing that gives S.B. & D. “a bad feeling about the proposed ThyssenKrupp steel plant.”
I’m neither an economist, nor privy to all the facts about this deal. My fear is that neither are any of the politicians who negotiated it.