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BUSINESS CLIMATE RANKINGS
From Site Selection magazine, November 2017
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Smart Money

Foreign investment, film production and corporate R&D centers grow particularly well in the Peach State’s business climate.

by MARK AREND

BUSINESS CLIMATE RANKINGS

When Georgia won its second Top Business Climate ranking in 2014, it was just getting warmed up. It won a third in 2015, a fourth in 2016 and, in 2017, a fifth consecutive Site Selection Top Business Climate finish. Governor Nathan Deal is the only governor to have headed a state’s executive branch for five consecutive wins. The ranking is a blend of subjective and objective measures — 50 percent is based on a survey of corporate site selectors who indicate their top states, and 50 percent is based on an index of largely Conway Projects Database measures of where facilities are actually being sited (see the methodology).

To underscore Georgia’s case for being a predictable and business-friendly capital investment destination, Georgia ranked the same or better than it did in all of Site Selection’s 2016 measures of state business climates. In other words, even at No. 1 last year for the fourth consecutive time, there was still room for improvement — and the Peach State did just that, sealing a fifth straight win.

“The state’s business climate is excellent,” says George Pretty, partner and location consultant at legal firm Parker Poe, in Charlotte. “I admire the team approach the state takes to recruiting business investment and the follow through once a project has announced. I am excited about the ongoing developments around the Port of Savannah. Georgia has set the bar high for building trust with corporations and their consultants.”

Like last year, the Southeast is the best-represented region in the top 10. Only Ohio and Indiana join that list from outside the region, and both are regulars near the top of Site Selection measures of state economic development success, including the Governors Cups each March. North Carolina, Texas, Ohio and Tennessee round out the top five, the same four as last year, with a minor shift in placement. More notable changes include Kentucky jumping from 14th place in 2016 to 8th this year, and Nevada rising from 21st place to a tie for 12th with Florida.

Highlights of Georgia’s Fiscal Year 2017 capital investment performance include these highlights:

  • Eighty-six projects are foreign direct investment deals that will create more than 6,000 jobs;
  • International investments from European companies number 51, particularly from Germany, Ireland and Italy, creating more than 4,400 jobs;
  • Asian companies will create more than 1,400 jobs and $751 million in capital investment; and
  • Industries seeing significant job growth from this influx in investment include financial technology, logistics and distribution, automotive, digital media and food processing.

“What’s behind five consecutive Top Business Climate rankings?” Site Selection asked Governor Nathan Deal at his State Capitol office in early October.

“The first advantage we have is a very cooperative General Assembly” says the governor. “We have not had the kind of conflicts between the executive branch and the legislative branch that have been a part of our history in the past in Georgia and continues to be the current story of many governors and their legislatures across the country. When you have that relationship, you can then advance policies, because some of them require statutory changes, or at least the legislative branch to buy into them. That’s the biggest plus from my point of view.”

Second, says the governor, timing has been on his side.

“I am fortuitous in that I came in at a time when the state was on the cusp of greatness,” he explains. “We didn’t know it — we were so consumed because of the Great Recession to remember the realities of that day. Sometimes it was difficult to look beyond that. Our policies looked beyond the recession. Admittedly, we did some things we had to do to deal with the reality of the recession — we had to cut spending, and that’s always difficult. But in the process of doing that, we were able to use that as a way to put in place policies that would sustain a resurgence. The most notable one is the ability to roll back sales tax on energy use by manufacturers. That has been very successful as we have seen great growth in our manufacturing sector in Georgia, and we continue to see that.”

Deal
“We asked the hard questions, such as, ‘What are we doing wrong?’ and ‘What could we do better?’ Usually, only the media asks those questions. I thought it was time we asked ourselves those questions.”
— Governor Nathan Deal

Next, says Gov. Deal, “We asked the hard questions, such as, ‘What are we doing wrong?’ ‘What could we do better?’ Usually, only the media asks those questions. I thought it was time we asked ourselves those questions. We did that in a very forthright way with the members of the General Assembly. They concurred, and we put in place policies that address the needs of our state. Education was at the foundation of those. We have made very positive changes in the way we look at the purposes of education. We have a way to go — a long way in our K-12 system. But we are getting the message across to parents that the status quo is not going to be sufficient to get your child a job in the present, and certainly not in the future. Changes have been in process. From the things that can be acted on from the governor’s office to the legislative branch, we’ve made some very significant changes. It started with asking business: What will it take for you to feel more comfortable in Georgia? What will it take for you to expand your business here? And what will attract like-minded businesses here in the first place?”

A Candid Education Assessment

One of the most important business-attraction ingredients is a qualified workforce. Is Georgia finished with the task of putting that in place? Not yet.

“We can tease ourselves all we want to, but we are still lacking in that area,” says Gov. Deal. “But we have made huge progress there. It starts with our initiative to bolster our pre-K program starting with our four-year-olds, and this is the 25th year of our pre-K program. We also looked at what’s happening on the tail end of our K-12 system. How many of our students are actually graduating from high school? Our graduation rates have come up considerably, but is graduating from high school sufficient to get you a job? By and large it is not sufficient. More and more you need some educational skill level beyond high school. One project we’ve worked on [the governor’s High Demand Career Initiative], and we’ll add categories to this next year, is there are currently 12 categories we have identified where jobs exist but we don’t have enough qualified people to take those jobs in our state.”

2017 Executive Survey Business Climate Rankings

Rank State
1 Texas
2 South Carolina
3 Georgia
T4 Tennessee
T4 Alabama
6 North Carolina
7 Florida
8 Arizona
T9 Ohio
T9 Indiana
T9 Nevada

These include truck drivers, welders, nurses and, more recently, film production staff. For those individuals who would attend Georgia technical schools, and more recently the Georgia Film Academy, for those degrees or certificates, the state will pay 100 percent of the tuition costs.

“Perhaps even more important than that is getting children interested in going beyond high school from an educational standpoint,” says the governor. “We had a ‘move on when ready’ program when I came into office but not much attention had been paid to it. We thought we could do more with it, and we now have what’s called dual enrollment. That allows students in their last two years of high school to go to a college or university, take courses there and get credit for the high school graduation and credit in the higher institutions of learning toward a degree or certificate. Enrollment in these continues to grow rapidly every year. Good success stories are coming out of that. Young people who were bored in high school suddenly are put in an environment, especially in the technical college environment, where they can see the end result, and they can see a good job at the end of that. This will continue to be an important part — it not only solves the problem of acquiring skills, it also fills the workforce gap that we currently experience.

“We also emphasize that not every child needs a four-year college degree. We’ve asked our college systems to look at the degree programs they’re offering and to find out if they are graduating people with those degrees and there is no job for them to move into. It’s difficult to do in the regent system because of tenure within that system, but it’s getting done. We will see long term, positive results from that. When you coordinate the education system — and education is your lead to employability — and you coordinate that from very early stages — four-year-olds — all the way through, you’ll provide the workforce now and in the future that businesses will require. That’s what they look for.”

Fiscal Fitness

On the occasion of previous Top Business Climate ranking wins, the governor has made a point of stressing Georgia’s fiscal soundness as a fact to take to the bank.

“That’s not easy to come by,” he relates, “in volatile economic times, which we’ve been in since I became governor. The two years before I took office, we had dipped into our Rainy Day fund to the extent of about $1.4 billion — it was virtually depleted when I took office in 2011. We’ve recently announced that our Rainy Day fund is up to $2.4 billion, and I hope to have it up to $2.5 billion by the time I leave office in January 2019. We will certainly do that, barring another recession. Fiscal responsibility is important.”

In June, Gov. Deal announced Georgia again earned a rating of AAA, with a stable outlook, from each of the three main credit rating agencies — Moody’s, Fitch and Standard & Poor’s. Of the states that issue general obligation bonds, only nine currently meet this standard. This rating resulted in low interest rates during the sale of $1.39 billion in bonds, which includes $349 million of refunding bonds to refund previously issued bonds and achieve total debt service savings of $43.8 million.

“The State of Georgia works diligently to maintain the coveted AAA rating, and we are one of only nine states to earn this distinction,” said the governor at the time. “By consistently earning top marks, we ensure our bonds remain highly sought after and provide the state flexibility to secure low interest rates for capital projects. Ultimately, this AAA bond rating reflects our fiscal responsibility and results in millions of dollars of savings for our taxpayers.

“Rating agencies are very attentive to details,” the governor tells Site Selection. “To say we have a AAA rating by the three major rating agencies is not something we should take lightly. They are serious about it and their reputations are dependent on making sure they give the right ratings to the right states and local governments.” The chief benefit is the message it signals to capital investors — a message of fiscal stability and predictability with respect to incentives when they factor into projects.

This is particularly true for the state’s booming film industry, where the governor says industry executives are “always on pins and needles about whether or not the tax credits will go away. We have reformed those tax credits and made them more workable, one of the big steps being to allow those tax credits to be sold, to allow those who may not have a tax liability but have earned the credits to be able to monetize that. That’s been a huge incentive for the film industry.”

Governor Deal tells entertainment industry executives every year (at increasingly well attended events in Los Angeles) that Georgia can confidently make those tax credits available as long as its fiscal house remains in order. Other states have cut back on or eliminated film industry tax credits, because their budgets are in jeopardy.

“Just to be honest with you,” the governor says he tells them, “if it comes down to a choice between paying K-12 school teachers or a tax credit for the film industry, the film industry will lose every time. The tax credit, like so many things, depends on the financial solvency and stability of the overall state budget. We have a strong foundation on which to build.”

The film industry in fiscal year 2017 had an economic impact of $9.5 billion, and the 320 film and television productions shot in Georgia generated $2.7 billion in direct spending. “We were just told that we have now surpassed California and New York in major films, and are now the leading state in that industry,” the governor notes.

“Just as they worry about our sustaining the tax credits, I worry about the industry sustaining its presence here,” says Gov. Deal. “I realize that if it doesn’t put down roots here, they can pick up and leave as fast as their trucks can haul people out of town. We don’t want that to happen.”

Working against that possibility is the ever-growing crop of studios in Georgia, such at Pinewoods’ 18-studio complex on 700 acres (283 hectares) in Fayetteville, south of Atlanta. “They fill them up as soon as they’re built,” says Gov. Deal. “You can’t pick those up and move them somewhere else. So we’re fortunate in that regard. Providing the people behind the cameras is the other piece we now provide, which is where the idea of the Georgia Film Academy [a collaborative effort of the University System of Georgia and Technical College System of Georgia supporting workforce needs of the film and digital entertainment industries] came from. If we can build a workforce of Georgians with the right skills, then yes, they could go move to another state. But the likelihood is if they are in our state, the industry will come to them.”

In the Race for HQ2

Does Georgia have a shot at winning the contest to land Amazon’s HQ2 project? As this interview was conducted, metro areas around North America, including Atlanta, were finalizing their pitches for delivery to Amazon’s HQ1 in Seattle on or before October 19th.

“Amazon let it be known what some of their basic requirements were, and we feel, depending on where you locate it, we meet all of their criteria,” says the governor. “Now, the transit issue really can only be met in this metropolitan Atlanta area — that’s one of the important aspects of their site selection process. We have a good shot at it, and our economic development team is working to identify potential sites and put our best package together. Those won’t be final proposals but rather possible site locations. As the proposal-winnowing process moves forward, we will hear more specifically from them in more detail what is important to them.”

What Matters Most:

Site Selector's Most Important Location Criteria
1 Workforce skills
2 Transportation infrastructure
3 Utilities (cost, reliability)
4 State and local tax scheme
5 Land/building prices and supply
6 Quality of life
7 Workforce development
8 Ease of permitting and regulatory procedures
9 Incentives
10 Higher education resources
Source: Site Selection survey of corporate real estate executives, October 2017

In the meantime, what’s important to more than a dozen corporate research offices that have opened in recent months and years at Atlanta’s Tech Square is access to Georgia Tech brainpower. The Midtown neighborhood adjacent to the Georgia Institute of Technology is bursting at the seams with new offices for the Siemens Data Analytics and Application Center, the Home Depot Technology Center, NCR Corporation’s new world headquarters, the Panasonic Innovation Center, Southern Company’s Energy Innovation Center and the ThyssenKrupp Research & Innovation Center, to name just a few. If there were such a thing as a safe bet for a spec building, if there’s still room for one, Tech Square would be the spot, and it would soon be leased.

This is good news for Atlanta, but is Georgia’s business climate getting any credit?

“Recognition of that is continuing to grow every day,” says Gov. Deal. “I cannot overestimate in my praise what Georgia Tech has done. [President George] Bud Peterson and his entire Georgia Tech and affiliated operations are critically important to that. The R&D sector really has no end in sight. That area is where companies want their R&D activities located, and we encourage them to do that. It’s good for our state and for graduates of any university in our state. Those are the kinds of jobs that don’t register with a lot of people — that they’re even here,” notes the governor. “They are here and they are continuing to grow.”

The governor has another full year in office — time still to clinch another national business climate win. But he won’t take that for granted. “Delivering a quality workforce will always be one of my top priorities,” he says. “That’s why the education, skills and training we have talked about are so important. It’s about not just attracting new businesses but giving the ones we have here the opportunity to grow. They count for most of our job growth.”


Site Selection’s 2017 Top State Business Climate Rankings

  State Executive Survey Rank Competi-tiveness Rank 2016
New
Plant Rank
2016
New
Plant Per Capita Rank
2017
New
Plant Rank (Jan.- Aug.)
2017
New
Plant
Per
Capita Rank (Jan.- Aug.)
Mature
Firm Tax Index Rank
New
Firm Tax Index Rank
Final Total Points
1 Georgia 3 3 5 9 1 2 3 6 98
2 North Carolina 6 1 4 7 2 5 7 13 94
3 Texas 1 4 1 11 6 30 12 42 93
4 Ohio 9 6 2 3 9 17 5 3 88
5 Tennessee 4 2 14 12 13 11 29 29 87
T6 Alabama 4 18 16 8 21 19 13 19 85
T6 South Carolina 2 11 18 13 14 8 32 34 85
8 Kentucky 13 9 7 2 7 3 18 7 82
9 Virginia 13 6 8 10 4 9 11 39 80
T10 Indiana 9 14 17 17 11 10 43 15 78
T10 Louisiana 17 10 11 4 7 4 10 2 78
T12 Florida 7 19 13 38 12 29 19 36 72
T12 Nevada 9 23 32 26 22 13 4 38 72
14 Michigan 17 5 10 18 15 16 25 25 70
15 Arizona 8 16 22 29 26 36 14 31 69
16 Nebraska 25 20 20 1 18 1 9 1 67
T17 Oklahoma 13 26 23 23 34 39 16 5 64
T17 Mississippi 12 21 31 25 25 18 37 21 64
T17 Wisconsin 21 22 19 19 17 12 35 4 64
20 Utah 17 24 36 33 27 26 6 10 62
21 Illinois 31 13 3 5 5 14 45 24 54
22 New Mexico 17 39 37 34 30 25 22 14 51
23 Colorado 16 28 30 31 28 37 33 47 50
24 Wyoming 21 33 42 27 45 41 1 9 48
25 Missouri 31 12 15 14 20 15 36 26 47
Source: Conway Projects Database

Mark Arend
Editor in Chief of Site Selection magazine

Mark Arend

Mark Arend has been editor in chief of Site Selection magazine since 2001. Prior to joining the editorial staff in 1997, he worked for 10 years in New York City at Wall Street Computer Review, ABA Banking Journal and Global Investment Technology. Mark graduated from the University of Hartford (Conn.) in 1985 and lives near Atlanta, Georgia.

 



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