May, 1999
  Incentives Deal of the Month
   from Site Selection's exclusive New Plant database

Though Incentives Lower, Virginia Lands
AOL Facility That Rejected Georgia

Details have begun to surface on the avidly courted 220,000-sq.-ft., $520 million technology center that cyberspace power America OnLine (AOL at www.aol.com ) recently announced that it's building in Virginia's Prince William County. Despite all the hoopla surrounding business location incentives, AOL apparently accepted a much lower incentive package in Northern Virginia than the $40 million it was offered last year by Smyrna, Ga. (in the Atlanta metro).

On Dec. 8 of last year, officials in Cobb County (which includes Smyrna) announced that AOL was coming to town to locate in Highlands Park, a business park that in 1997 landed one of IBM's three North American call centers. Only the particulars of the incentive package remained to be worked out, Cobb officials said. AOL spokeswoman Wendy Goldberg, however, responded, "It's premature to discuss any future growth plans." Not long after, AOL announced it wasn't coming to Smyrna, which drew sharp public criticism from Cobb County officials


Virginia's Offer: $22 to $24 Million
Whatever AOL's location rationale, it wasn't solely based on incentives, it seems.

To be sure, incentives played a role in landing AOL's technology center, which marks a major victory in the recruitment efforts of Prince William County economic development officials. Heretofore, neighboring Loudoun and Fairfax counties had been the major beneficiaries of AOL's rapid expansion in Northern Virginia. Announced concurrently with two other AOL new and expanded facilities in Loudoun County, AOL's technology center in Prince William County received an incentive package that will range from $22 million to $24 million, including:
    • $18 million-plus in sales tax exemptions on the computer equipment AOL purchases for its new site, a measure Virginia lawmakers passed in their recent session; and
    • Some $4 million annually in sales tax break on computer equipment AOL purchases for other sites (in the area?), a move also approved during the Virginia's recent legislative session.

In addition, part of the package to recruit AOL included an agreement by Prince William's Board of Supervisors to halve the county property tax rate on technology equipment. That action will also help 60 percent of other businesses in Prince William County, and should also be a boost for the county's future recruiting efforts.


Georgia's Offer: $40 Million
By comparison, the $40 million Georgia incentive package, The Atlanta Journal-Constitution reports, included:
    • $35 million through a 10-year Cobb Country tax abatement;
    • $5 million for the facility's site, which Gov. Roy Barnes was reportedly prepared to authorize, as well as pushing for legislation to secure an exemption for AOL on Georgia's state sales tax on computer equipment.
    • $700,000 from the state in job training tax breaks and new-employee tax credits, plus state training assistance through the University System of Georgia's Intellectual Capital Partnership Program.

In addition, Smyrna offered to cut a city building permit fee from $20,000 to $5,000, and reduce the fee for a $5,000-a-year business license to $1,000 a year for a four-year span.


Proximity Apparently the Decision-Maker
Despite the generous incentive offers, both areas said they would have received substantial economic benefits from landing AOL's tech center.

The largest private investment in Prince William County's history, the center will provide some $3.5 million annually in county revenue, even with incentives and tax breaks, say Prince William officials. Cobb County officials say that the AOL center would've added some $6.4 million in annual tax revenues. That figure would've been applicable, though, only after AOL's property tax exemptions had expired.

Perhaps the even bigger benefit, officials in both states say, is the ability of a major presence like AOL to attract other high-profile firms.

In the end, AOL's decision seemed to come down to proximity, the same rationale underscored in Site Selection's August/September 1998 cover story ( "AOL's Balancing Act: The Need for Nearness vs. 'Virtual Space' " ). Anxious to avoid the cyberspace hell it hit in 1996, when lack of capacity through its network for a loop, AOL now seems intent on keeping its critical knowledge workers close to one another.

AOL President of Technologies Ray Oglethorpe underscored the importance of the proximity of AOL's Northern Virginia headquarters in choosing the Prince William County site. "We wanted to make sure we avoided any future access problems by jumping ahead," Oglethorpe said. "As the business continues to grow, we have to keep up." Incentives, he added, "were important, but not a determining factor" in the location decision for AOL's technology center.

In other words, the business case outweighed business incentives in the final site selection decision. And that sort of decision, despite the attention-grabbing allure of incentives-bashing headlines, may be far more common than we know.

-- The latest and biggest location incentive packages for new facilities and expansions, drawn from Site Selection's exclusive New Plant database, which has tracked corporate expansion patterns for more than 25 years.


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