Incentives for companies in Georgia sometimes don’t deliver promised jobs


Hungry for jobs, Georgia has spent hundreds of millions of public dollars in the last decade on grants to recruit and retain businesses.

But an extensive review by The Atlanta Journal-Constitution of completed projects shows nearly half the companies the state wooed with deal-closing cash failed to deliver the full number of jobs they promised. Collectively, the under-performers, which were awarded more than $106 million in state grants, fell short of their job-creation promises by 42 percent.

» INTERACTIVE: Which companies delivered on job promises

Even so, government officials rarely recouped the public’s money.

In fact, under the state’s accountability agreement, many companies can — and do — escape any penalty even when they deliver only a portion of the jobs and private investment they pledged. Until very recently, companies had to deliver only 70 percent to satisfy their legal obligations, effectively a C or better. Today, the standard is 80 percent.

The state’s own data, culled by the AJC from thousands of pages of files, raise questions about how carefully it selects the companies that receive incentives and how rigorously it polices their performance.

The AJC based its analysis on a review of more than 150 files covering two categories of state grants awarded since 2002. EDGE grants had been funded from a landmark settlement with tobacco companies but are now paid for with tax dollars. REBA grants are paid directly with taxpayer money.

The AJC analyzed only files state officials have closed, meaning they have issued a final report tallying how many jobs were delivered by a specified deadline.

Altogether, those projects produced roughly 9 out 10 jobs promised, a seeming success. But a closer inspection shows that the results are skewed by a few companies that produced more jobs than they pledged, masking widespread failure among other recipients.

And even some of the success stories didn’t end well.

Some companies benefited from grants and then laid off scores of Georgia workers. Other companies credited with meeting or exceeding their job goals went on to fail or shut down their Georgia plants soon after their files closed out.

The state often treats these grants as long term investments, with a payoff that won’t be realized for 10 to 20 years. When the companies don’t survive that long, there’s little or no payoff.

In Carroll County, Bobcat was credited with creating 85 more jobs than the 100 they promised. But soon after the grant expired the construction machinery maker closed its plant.

Flint River Foods in southeast Georgia produced twice the jobs promised, performing so well that state officials noted in a report that it should receive an “atta boy.” Today the food packager is no longer in business.

 Among those that fell short were Fortune 500 companies like Georgia’s own Home Depot. Even Kia — the state’s largest grant recipient, which is held up as the poster child for economic development — didn’t produce all the jobs it said it would by its deadline, state records show.

 

Other states do better

For half the projects to miss the mark isn’t just par for the course, one expert said.

“Typically, between one-third and 40 percent fall short in job creation,” said Greg LeRoy, executive director of Good Jobs First, a critic of state incentives.

The $160 million in state grants documented in the closed files helped create 22,430 jobs, for an average cost of about $7,000 per job, the AJC analysis showed. When tax abatements and other special subsidies are factored in, the public assistance per job created can easily ratchet up into the tens of thousands of dollars.

In some cases, the state gave money to companies that were floundering or whose applications omitted crucial information. One never told state officials its expansion hinged on winning a huge federal contract. Another got a grant although the state knew its finances were shaky.

Some companies benefited from grants and then laid off workers elsewhere in the state.

Stellar or lackluster, their performance is remarkably hard for the public or elected officials to gauge. Unlike some other states — including incentive-leader Texas — Georgia does not post a scorecard online tracking how well the companies deliver. And it has no plans to do so. The AJC analysis required three reporters to spend three weeks digging through boxes of paper files.

State officials say the incentive program has evolved, building in more safeguards over time.

“What you see is an accountability policy that has made great strides over the years,” said Brian Williamson, deputy commissioner for the state Department of Community Affairs, which administers the grants.

That doesn’t necessarily mean the system is tough enough.

An April 2012 report by the Pew Charitable Trusts that found Georgia was one of 26 states without adequate methods in place to know whether its recruitment incentives were effective.

“The question is, is Georgia getting good results? And the state itself doesn’t really know,” said Josh Goodman, a Pew expert on state economic development.

 

Use on the rise

Supporters say incentives are pivotal in attracting companies. Critics label them corporate welfare.

But love them or hate them, one thing seems clear: at least for the immediate future, the giveaways are here to stay.

“As much concern as there is about whether these incentives are effective, we have just seen a massive increase in their use,” said Marty Romitti, senior vice president at the Center for Regional Economic Competitiveness. The group’s research found Georgia among the most generous states, offering more in combined tax breaks and grants in 2012 than California, whose economy is nearly five times the size of Georgia’s.

Gov. Nathan Deal has nearly doubled the the pool of deal-closings incentives in the state from $21 million to $41 million, budget records show.

Indeed, Georgia has been so aggressive that the incentive critic Good Jobs First this year labeled it the “Poach State,” for engaging in “interstate jobs piracy.”

Even Georgia’s economic development commissioner, who puts together incentive deals, says he’s no fan. In a fair fight, Chris Cummiskey argues that — with the world’s busiest airport and the bustling port in Savannah — Georgia would come up a winner more often than not. But Georgia needs to offer the funds to compete, he said, as other states pile more freebies on the table.

“We do not have to match other states dollar for dollar, but we have to be in the ballpark,” Cummiskey said.

Supporters of the program say incentives are worthwhile because by helping to attract or retain jobs, they create ripple effects, bolstering the economy overall and boosting tax revenue — hopefully, by more than enough to cover the cost of the original incentive. And even if a project fails, local and state officials inherit buildings, land and other infrastructure that may be used by other businesses.

From 2002 to present, including both closed and “open” grants, Georgia has awarded nearly $300 million. Among those still open, or in progress, are recent headline-grabbing deals with companies such as construction equipment giant Caterpillar and life science powerhouse Baxter International.

The companies don’t get cash; instead, the state funnels the money through local development authorities, which buy property, upgrade buildings or purchase equipment the companies need to set up shop.

Faced with some high-profile flops, the state in December 2005 put in place a performance and accountability agreement that demanded companies deliver an average of 70 percent of what they promised in jobs and private investment. If they fail to meet the benchmark, the state may recoup all or some of the grant.

But that standard can be gamed. For instance, a company promising 100 jobs and $1 million in private investment could still receive a passing grade by creating just 40 jobs if they spend the full $1 million on the project.

Concerned that standard was too lax, Cummiskey recently boosted the threshold to 80 percent.

Incentives don’t just go to companies looking to relocate to Georgia. Records show grants have also helped retain more than 10,000 jobs by keeping companies here that claimed they were looking elsewhere.

 

Successes and failures

The incentive program has produced some tremendous successes. Newell Rubbermaid in metro Atlanta, for instance, delivered nearly 600 more jobs than promised and continues to grow. The Crider chicken canning plant in southeast Georgia surpassed its goal of 65 jobs and coming in at 404. In middle Georgia, Bass Pro Shops more than made good on its promise of 270 jobs, tallying 385, records show.

On average, the succesful companies exceeded their job goals by a third.

But there have also been some spectacular failures.

Take the case of one site in Waynesboro, near Augusta. Four companies have cycled through the Burke County property since 1995, three of them with generous state help.

State officials pitched in $600,000 to acquire and prepare land for Kwikset. But the lock manufacturer, a division of Black & Decker, moved out in 2003. Muffler manufacturer Fleetguard agreed to move in and secured $2.25 million in state funds to build a new facility. It promised 400 jobs and ultimately delivered zero, state records show. The state was able to recoup about $1.8 million of the money.

Officials took yet another chance in 2008 and handed over $480,000 to lure Malaysian-based copper wire manufacturer ASTA. The company fell short of the 100 promised jobs, blaming the shortfall on a scarcity of qualified workers. As part of the incentive package, ASTA received a break on local taxes, which pay for schools. It ultimately shut down without paying back a dime.

Currently, Korean wire manufacturer Sam Dong operates in the 200,00o-square-foot building. It employs 78 workers. This time, there was no state help.

In some instances, the total of all state and local incentives, measured on a per-job basis, nearly equalled the workers’ annual pay.

In 2008, the state gave Home Depot a $1 million grant to open a new distribution warehouse in Lowndes County. In addition the Quick Start program provided job training, which it valued at $2.6 million. Local officials ponied up about $5.4 million for land, site preparation and 12 years worth of tax abatements. That works out to $17,181 per job. The jobs created were expected to pay $11.75 an hour, or $24,400 a year.

Home Depot, which made a profit of $2 billion that year, says it delivered 478 of the 570 jobs promised in south Georgia. But company officials were quick to note that they’re ahead of schedule hiring workers at a second project in Cobb County that received another $500,000 in public dollars.

Andrea Schruijer, executive director of Valdosta Lowndes Industrial Authority which landed the south Georgia Home Depot site, said the company has added jobs since the state closed out the file. She said that to attract business in the current climate, it pays to be aggressive.

“Do you play one car dealer against another car dealer? People do it all the time. People do it in their private lives and businesses do it as well,” Schruijer said. “It is a very competitive environment right now.”

But Matt Murray, an economist at the University of Tennessee, said he has a rule of thumb for when jobs cost too much.

“What you find is that when investment gets over $10,000 to $15,000 per job, it becomes very difficult – except over a very long-term payoff period – to justify what we have to do.”

Others have a more blunt assessment.

“Companies say the subsidy will pay for itself. My general answer is, these things don’t come close to paying for themselves,” said Robert Chirinko, a professor of finance at the University of Illinois at Chicago, who has written extensively on economic development.

 

Hidden from public view

Texas, which is among the top states in awarding grants, puts a report card online, detailing the companies’ performance for anyone to see. North Carolina, which frequently competes with Georgia for jobs, published a 58-page annual report in 2011 with details about its spending and success rates.

In Georgia, the state posts grant recipients online but anyone who wants to to know whether companies have met their promises must dig through voluminous paper files, some of which must be retrieved from an archive.

“This information should absolutely be more easily accessible,” said Alan Essig, head of the Georgia Budget and Policy Institute.

Williamson, of the state Department of Community Affairs, said the department doesn’t have the resources to put the performance data online. And he questioned whether it would even be fair to do so.

“You’re talking about a static number that may have changed, they may have added more jobs since then,” he said.

One factor doesn’t show up in the files at all: Layoffs by companies that received grants. Among the closed files reviewed by the AJC, at least twenty-six companies had “mass layoffs” either at sites where they received the incentives or at other Georgia sites, resulting in nearly 9,500 lost jobs since 2005, according to state Labor Department data.

Consider the case of Simonton Building Products, which opened a window manufacturing plant in Toombs County with a promise to hire 85 workers. It did so with the help of a $250,000 state grant plus local tax abatements.

Simonton ultimately hired 195 workers, according to a state tally, and it invested twice the $10 million it initially promised. The company got full credit for the grant, although the day before the final report was filed, the firm notified the state that it was closing the plant and eliminating 182 employees. A victim of the housing downturn, Simonton had also been acquired by Illinois-based Fortune Brands.

The building found a new tenant, with yet another $1 million in state help. Local officials leased out the site to Chicken of the Sea, which has gone on to expand its operations twice. Tuna fish appears to be recession-proof, although the final outcome of that project has yet to be determined as the file remains open.

“Ultimately things worked out just fine,” said Lyons Mayor Willis NeSmith Jr. “We lost on the one hand, but sometimes things don’t go as planned and they still turn out OK.”



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