NASHVILLE — Like them or not, the state and local economic incentives that factored into Volkswagen AG’s decision to build a $1 billion auto assembly plant in Chattanooga have become a fact of life, experts say.
“Incentives are expected,” said Dr. Keivan Deravi, an Auburn University economist who advises Alabama officials on incentive-related issues. “Incentives are necessary. Incentives for this kind of deal are a prerequisite.”
Dr. Deravi and Dr. John Rees, an economist who once advised North Carolina officials on incentives, said the benefits from incentives are huge, primarily in form of “multiplier” and “ripple” effects created from subsequent investments by auto industry suppliers.
“I would argue that in many states the supplier factor is as important,” Dr. Rees said. “You’re not just getting a prize (with Volkswagen). You’re also getting all these companies that will come after.”
He said incentives have become a necessary part of the “game.”
Still, Dr. Deravi, Dr. Rees and others said, while incentives have become a must, companies’ final decisions on where to locate new plants often come down to other factors such as location, work force, infrastructure, rail and interstate access, long-term strategy and compatability with the community.
Not everyone is pleased by governments offering the incentives.
“My concerns are that we’re in a race, that economic development has become a race to see how much money the politicians can give away,” said Ben Cunningham of Tennessee Tax Revolt, a group that criticizes government spending. “And in this case, our politicians gave away more than the politicians in other states.”
Mr. Cunningham said officials basically “sprinkled pixie dust” on a large company when they should have been cutting taxes and helping existing businesses.
Tennessee Economic and Community Development Commissioner Matt Kisber said the state has not gone overboard and noted that Volkswagen’s impact on Chattanooga will be enormous.
“I think there could not have been a better opportunity for the future of Chattanooga and the kind of high-quality jobs and economic hub than having Volkswagen land at Enterprise South,” the commissioner said.
Tennessee and local officials say they have not put a final pen to the cost of the incentive package they offered to Volkswagen, which plans to hire 2,000 workers at the 1,350-acre site at the Enterprise South industrial park.
But a quick look at costs of some of the known components quickly adds up to at least $400 million, with Hamilton County officials planning on giving the acreage, normally sold at $60,000 an acre, to VW for free, an $81 million gift.
A state-offered job tax credit of $5,000 per job over 20 years is available on corporate taxes for companies investing at least $1 billion. It is valued at $100,000 a job over 20 years or $200 million for 2,000 employees.
Mike Randle, publisher of Southern Business and Development magazine, estimated job training provisions typically run between $60 million and $80 million. Alabama, which competed for the Volkswagen plant, had offered $65 million for job training as part of an estimated $400 million package.
Commissioner Kisber and Gov. Phil Bredesen say no final figures have been arrived at on what the costs might be in Tennessee.
Dr. Deravi said assembly line and machine maintenance jobs at Alabama’s three auto assembly plants can pay between $20 and $30 an hour.
He figures Volkswagen later will expand its operations and, moreover, “easily create another 2,000 jobs” from suppliers. Those in turn will generate an additional 2,000 jobs, he said.
“You’re looking at 6,000 jobs, half of them pretty high-paying jobs,” Dr. Deravi said. “That’s where the payback would be, all these jobs that you create — all the dynamics you put in place.”
Andy Sher is a Nashville-based staff writer covering Tennessee state government and politics for the Times Free Press. A Washington correspondent from 1999-2005 for the Times Free Press, Andy previously headed up state Capitol coverage for The Chattanooga Times, worked as a state Capitol reporter for The Nashville Banner and was a contributor to The Tennessee Journal, among other publications. Andy worked for 17 years at The Chattanooga Times covering police, health care, county government, ...