eople are not used to Louisiana having a Rhodes scholar and former McKinsey consultant as governor.
So says fellow McKinsey & Co. alumnus Stephen Moret, Louisiana's new secretary of economic development, of his boss, newly elected Gov. Bobby Jindal, who was helping attract companies to Louisiana before the confetti had been swept up from his election win in November 2007.
"Ironically, that started before my inauguration and oath of office," says Jindal of negotiations with numerous corporate prospects. "I can mention two that are public – Nucor
almost immediately, and Albemarle
even before my election."
Chemical concern Albemarle Corp. is moving its headquarters from Richmond, Va., to Baton Rouge. And exactly one year after ThyssenKrupp bypassed a finalist site in St. James Parish for its $3.7-billion steelmaking complex, Nucor says it may decide by the end of this year to invest $2 billion at the same megasite in order to construct a greenfield pig iron facility – the first such investment in the U.S. in more than 30 years.
Though it may yet decide to build it outside the U.S., Nucor in May applied for a permit to build in Louisiana. First-phase employment would be 500, with a second phase bringing in another $1 billion and 250 more jobs. In addition, if St. James wins the project, Nucor says it would build a new high-capacity port on the river, as well as a cogeneration facility. Pig iron is a raw material used in steel manufacturing.
"This facility would create hundreds of good jobs for American workers and demonstrate the effectiveness of new technology to protect the environment," said Nucor Chairman and CEO Daniel R. DiMicco. "At the same time, this project would help Nucor achieve our long-term goal of increasing control over our raw materials supply."
Jindal and Moret aim to change DiMicco's conditional tense by relieving tension in the state's conditions for doing business. Jindal spoke to Site Selection
in May just after landing in Arizona for Sen. John McCain's much-publicized "vice presidential barbecue." But if his administration's first few months in office – including two special legislative sessions – are any indication, Louisiana would not let him go without a fight.
Cash on the Barrelhead
Among the new administration's early accomplishments in the special sessions were elimination of a sales tax on investment in manufacturing machinery and equipment and another tax on corporate debt. Approximately $530 million was appropriated for infrastructure and transportation needs. Ethics reform and the elimination of sales tax on natural gas both were factors cited by Albemarle in its headquarters move announcement.
"We have considered combining our executive and administrative offices for some time, and evaluated several cities in the southeast," said Albemarle President and CEO Mark C. Rohr. "Ultimately, the combination of the new administration's ability to drive progressive initiatives for the state, our confidence in the direction of the City of Baton Rouge, and the close proximity to many of our key customers and suppliers, made it clear that Louisiana is the right choice for Albemarle."
The company also has indicated that it will look to Baton Rouge for future incremental expansion that may arise from acquisitions or consolidations. It will benefit from $4.2 million in relocation reimbursement from the state and city/parish – $1 million from the East Baton Rouge City-Parish government and $3.2 million from the Governor's Rapid Response Fund. Moret says that fund, currently funded at $10 million a year, will likely see its resources doubled.
Another $10-million economic development fund specifically targets infrastructure improvements.
But the fund generating debate in Baton Rouge this spring is the Louisiana Megaprojects fund (originally created to go after the ThyssenKrupp project), funding for which the Jindal administration wants to triple from its current $150 million.
"We believe having that on tap is critical for business recruitment," says Moret. "We propose taking it to $450 million because we have several projects in the pipeline. Nucor is at the top of that list, but they're not the only one."
Moret says one reason for the increase is the reassurance it sends to companies that the state can move quickly.
"Secondly, it's more fiscally responsible to have that money set aside for large projects," he says. "Then we don't have to call special sessions, and can plan appropriately for expenditures. The only thing in question is what the final number will be for the megafund balance. We'll need more than what's in there now just to do the Nucor deal."
Insights You'd Pay For
Moret's statement – and the administration's business climate actions thus far – hew to the McKinsey pledge to "tell the truth as we see it." He and Gov. Jindal also continue to embody another McKinsey precept – "put the client's interest ahead of our own" – when it comes to economic development.
"Often states say they have this megafund, and talk about what they've got, rather than what companies are looking for," says Jindal. Moret testifies that he seeks out not only gubernatorial approval, but Jindal's concrete ideas for structuring the deals themselves.
"He comes up with ideas that we did not think of at LED," says Moret, noting that the governor "basically closed the deal" with Albemarle. Nucor is another example.
"There were potential financial issues," attests Jindal, "but by being creative, we were able to work toward a package that is still within the state's spending and bonding parameters."
"If we win it, this will make it a better deal," says Moret of Jindal's suggestions. "There have been several where he has come up with something creative that has added value. He's extremely smart and articulate, funny and personable, all things that make him great in discussions with top prospects. We've had folks leaving talks very happy, with a confidence they didn't have before."
Jindal says any deal has to have objective, physical facts in its favor to work. Policy goals can contribute to factors such as a skilled work force. And then the intangibles come into play.
"Often we can find other company-wide policy goals, or connect them with other companies," says Jindal. There are cultural and international connections as well, he says, such as with a joint venture the state is aggressively pursuing.
Jindal says the two most important things he brings to the table are viewing things from the customer's perspective and, then, thinking about what else can be offered.
"At the end of negotiations, you're not going to anticipate every single factor in writing," he says. "You have to have a trust factor, so the executive knows, 'I'll be able to call the governor, the economic development secretary or the labor secretary.' We've worked very hard to convey that."
The administration's also working hard to connect to the state's roster of existing businesses, including a reconfiguration of LED that will feature a new position focused on retention of those companies.
The state is reaching out to them as investors, and also as cohorts in business attraction efforts.
"I talked to a CEO of a very significant FORTUNE 500 company, and he said it was the first time he'd ever talked to a governor," says Jindal. "I'm amazed at how many states don't focus on existing business. Louisiana has a significant industrial base, with significant spending going on. When we eliminated some taxes on utilities, it saved Dow Chemical almost $20 million. They were frustrated. It had a huge impact on incremental investments.
"It's the same story with International Paper, which has plants in Bastrop and Pineville – getting rid of some of these taxes on utilities was a very big help," says Jindal. "One of the plant managers in Bastrop told me their newest equipment was older than the oldest equipment at sites in other states. Many regional managers want to convince their corporate headquarters to expand at their sites, so they're happy to have an ally, and they've been very helpful in helping attract new businesses."
McKinsey, Part Two
Jindal's new deputy Moret did not have far to travel to accept his new post, as he served from 2004 to 2007 as president and CEO of the Baton Rouge Area Chamber. During that time, and continuing today, BRAC racked up its share of economic development honors, including being honored in May by economic development association C2ER for its research on transforming Louisiana State University into a premier research institution.
Moret says BRAC's achievements have come in part because of fundraising that grew from an original goal of up to $7 million to nearly $19 million, which enabled an expansion of staff and a commitment to attract national-caliber talent to all key positions.
"To their great credit, it was not me selling the board," says Moret. "It was them saying to me, 'Don't hold back.' "
One lesson Moret hopes to bring to the state level from his BRAC days is the importance of regional thinking.
"The toughest thing was getting the parishes on board," he says. "It was like a civil war." But they've come a long way. Moret mentions the recent announcement by Superior Homes
that it would invest $3 million and hire 150 at a new modular building manufacturing facility in East Feliciana. "A local economic developer, who once was critical of our efforts, said this was an example of what the partnership could do."
Big Plans Ahead
Among the new team efforts at LED is a newly formed economic competitiveness group that will focus on policy that influences tax structure, worker's compensation rates, energy and "all the things that go into defining an operating environment," Moret says. There also will be new strategies to go after sectors such as digital media, aerospace and biotech.
Moret says the administration's No 1 economic development priority going into the regular legislative session is work-force development reform. The pieces of the package include expansion of the community and technical college system, which he says has "heretofore not been fully developed"; a $10-million rapid response fund for urgent training needs; and a Louisiana Fast Start program modeled after the award-winning QuickStart program in Georgia. Other elements include a dual-enrollment program at the high-school level in order to cultivate alternative career pathways, and an increase in work-force participation, via recruitment of people who have left the state as well as marketing to the unemployed and under-employed.
All of the above, though, comes under the label of improved competitiveness. Which is a long way from having just a few years ago the worst-funded state flagship university, unorthodox business taxes and a national image of political corruption. Moret says some of those things now have been fixed, but there are still substantial improvements to be made.
"One thing that will be a defining characteristic of this administration is taking a balanced plan of attack," says Moret. "The role of economic development agencies is important, but at the end of the day, it's a small portion of the decision process for a company. The primary factors are proximity to suppliers and key customers; availability of work force, tax and regulatory environment, energy and worker's comp rates. Our efforts come into play either in highlighting assets companies might not have been aware of, or breaking the tie between two or more states in terms of the value proposition."
On the Nation and Abroad
Jindal admits his home state's economy is fairly strong even as others' suffer, with near-record low unemployment. "We're a bit off cycle from the rest of the country," he says, in part because of the state's energy-based economy, and in part because it remains a state in recovery mode.
He cites heightened foreign interest after hurricanes Katrina and Rita, with more visits from foreign dignitaries, including recent visits from officials from Spain, Mexico and Qatar. As for going out to see them, he says, "One thing I made clear is I'm willing to go anywhere and everywhere to attract business. But it has to have an organized purpose, and not be travel for the sake of traveling."
Jindal cites the state's longstanding ties with Central and Latin America, its ports and the global ties of the state's energy interests: "I especially think our ports and geographic location make us a prime candidate for growth with Latin America," he says.
Jindal's extensive resumé includes a two-year post with the U.S. Dept. of Health and Human Services during President George W. Bush's first term, serving as president of the Lousiana university system and twice being elected U.S. Congressman from Louisiana.
Asked for his views of the new "Invest in America" program from the U.S. Dept. of Commerce and whether the nation needs a full-scale incentives program like those found in other nations, he says, "Incentives are important, and the relationship is important, but the most important thing we can do to stimulate economic development is to improve conditions for growing the entire economy."
That means broad-based tax reductions, investing in our educational systems, more predictable and transparent regulatory policy and, perhaps most urgent, a national energy policy.
"Macro policy does a lot more good than targeted incentives," he says, though the latter have their place. "But as I talk to companies thinking about investing in America versus overseas, so often I hear that the cost of energy is so much cheaper overseas, or you can't find skilled workers here, or the regulatory process is unpredictable. We're blessed with natural resources, but what sets our economy apart is the rule of law, productive workers and stable policies, and I'd like to see our national policy leaders focus on those."
Back in the bayou, there's no doubt about the presence of that focus.
Louisiana companies and citizens hope it sticks.
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