VB: Let’s talk for a moment about economic development incentives. There’s been some criticism lately about the use of them. Should there be reform? Should there be a limit to incentives?
Hart
Hart: I think there’s somewhat a mispercep- tion about incentives. We just don’t go and say, “Well, let’s just throw a bunch of money at it.” We have a formula, and it’s not
a formula I’m going to share with any of my friends in here. I know how we do our math to determine what the incentive package is going to be. We have performance agreements that ensure that we’re going to get what we’re supposed to get so that my return on investment is exactly what I tell the board it’s going to be. It’s a business decision. It’s not, “Let’s roll the dice and see what happens.” … In most cases, you’re actually working with the company to make sure that the deal works. Everybody is partici- pating as a team, and we’re covering some of the external costs of labor, recruitment or training. Things that make a move costly, we’re helping with that … At the end of the day, if we don’t do it, our competition does do it.
Ferrara: You can look at an incen- tive as really an investment by the locality, and there’s a return on invest- ment. You invest in order to create a long-term revenue stream in your locality. I agree with my comrades here that, if we want to be competitive, we have to be in the incentives game, but we have to be smart about how we offer those incentives and how we structure them. There’s accountability on the part of the company to do what they say they’re going to do, and if they don’t, these performance agree- ments have provisions where those incentives are paid back.
McLaren: JLARC [the Joint Legislative Audit & Review Com- mission] did a study on incentives across Virginia and basically JLARC’s
conclusion was they’re working pretty well in Virginia.
Gaskin: That doesn’t mean there won’t be failures. That doesn’t mean that some companies won’t fail or do some things that in retrospect look suspect.
Kilduff:You’ve got to limit your exposure to failure … One of the ways you limit that is in that performance agreement. What a performance agreement means is: You perform, and then we deliver the goods. The build- ing has to be built or refurbished. The jobs have to be created and then you get paid. That’s the best way of doing it that there is.
VB: Let’s talk a little bit about the inventory of sites. How much does the locality need to prepare a site even before you have the prospect? How much of an investment do you need to make?
McLaren
McLaren: I started in this business a long time ago. Those are the days when literally you could have a relation- ship with the project that could last two years. You could show
somebody a cornfield on the edge of town that was close enough to water and sewer that they’d work with you … That’s a laughable scenario today. Somebody’s going to be looking at you on your website, and if they haven’t determined by looking at your website that you have product enough to interest them or a site well enough along to interest them, you’re never even going to know they were looking at you. Much of the site selection process today is different. We’ve gone from a selection process to an elimina- tion process in terms of site selection. A [business prospect] has a check list, and they’ve got different parameters based on quality of labor, quantity of labor, site, utilities, tax structure, util- ity costs — all of those things are on a spreadsheet. They’ve got a matrix they’re going through, trying to elimi-
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nate as many communities and states as quickly as they can to get down to three maybe five sites that then they begin to negotiate with. If you don’t have your ducks in a row, you give them an opportunity to eliminate you.
Ferrara
Ferrara: Along those lines, the top three [issues] in my mind are: time, money and risk. If you don’t have a site that’s ready to go, it’s going to take more time, it’s going to cost
more money, and there’s risk associ- ated with the unknown. The more you can eliminate that and create some predictability in the mind of a consultant or a company, the more competitive you’re going to be.
Hart: The site selection process used to be six months or so ... Now you’ve got 90 days to figure out where [the business will be located], and then they’ve got nine months to get it under production … They’re going to hit the market in a year, and if you don’t have sites that are ready to go, then you are not playing in that game.
McLaren: We’re talking about sites here, but that’s probably a pretty small percentage of the projects that we are looking at. Most of the proj- ects we are looking at are looking for an existing building.
Matherly: Gary is absolutely right; 80 percent of our prospects want buildings, not sites… One nega- tive outcome of our success in this region is that a lot of those buildings that were vacated during the Great Recession are all full now. We’ve been burning through an inventory of existing buildings with each success, and we’re to a point now where we look out there, and we do not have a lot of modern buildings … We need more modern shell buildings up and being built. Certain regions we are competing against might have nine or 10 shell buildings up at a time, and we’re lucky to have one up at any given time.
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