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From Site Selection magazine, March 2011

Prudence in Abundance

Gov. Mitch Daniels may be Indiana’s leading asset.

Indiana Gov. Mitch Daniels
Indiana Gov. Mitch Daniels

Indiana knows how to get the most from what it has. A sampling:

In Tipton, Abound Solar will occupy a never-used facility built by automotive concern Getrag, and employ up to 850 in the manufacture of solar panels. In Muncie, the same town where Magna Powertrain is investing US$14 million and creating 50 jobs, Caterpillar subsidiary Progress Rail Services is creating up to 650 new jobs over the next two years in a new locomotive manufacturing facility located in a former ABB Power T&D facility that had been closed since 1998.

In Rockport, a $2.65-billion coal-to-gas power plant project years in the making is finally coming to life. In Lafayette, Evonik has taken over pharmaceutical ingredient production at a former Eli Lilly facility and entered into a new agreement to supply Lilly. A new plant from New Jersey's Munirè Furniture is coming to a renovated facility in Gas City. Cleveland-based Olympic Steel is investing $25 million in a new tempered steel plant at U.S. Steel's Gary Works.

And in the state which has the fewest state government employees per capita in the nation, Gov. Mitch Daniels once again has been recognized as one of the country's most fiscally responsible elected officials.

It's just one side of a leader who's emerged as a possible 2012 Republican Party presidential candidate. At press time, Daniels had not made a decision on running for the nation's highest office. But his speeches and performance have drawn praise in columns by opinion-shapers Kimberly Strassel and Peggy Noonan of The Wall Street Journal. And his laser focus on economic development has aided more than one decision by corporate site locators.

Asked how the state's fiscal integrity is translating into economic development success, he says, "Largely by widening the cost differential between us and other states, principally on taxes. We have done some things to reduce taxes, moved to the single factor tax on corporations and lowered property taxes rather significantly on businesses as well as homeowners."

Site Selection's Nov. 2010 business climate rankings ranked Indiana eighth in the nation. The Tax Foundation's 2010 Business Tax Climate Index for tax competitiveness ranked Indiana 10th. With only 2 percent of the U.S. population, the state single-handedly accounted for 10 percent of U.S. private-sector job growth between December 2009 and June 2010. All told, the state showed a net gain of 36,400 private-sector jobs in 2010.

Friendly Shores

Daniels says progress over the past couple of years has been mostly a case of "managing within our means." That's a phrase he has not tired of repeating during his two terms in office, and which has stood the state in good stead as dozens of other states have been forced to raise taxes, most recently and dramatically in neighboring Illinois earlier this year, which spurred an instant marketing blitz by Indiana, Wisconsin and other states eager to cash in on companies ready to leave the Land of Lincoln.

"They've raised the corporate income tax," says Indiana Secretary of Commerce Mitch Roob of the state's neighbor, "and there's a bipartisan effort in Indiana to lower the corporate income tax. Something will pass this year that will lower it over time."

At press time, a proposal that would cut that tax by 20 percent had moved out of committee to be considered by the full Indiana Senate.

"Each time analysts tote up the all-in cost of doing business, Indiana keeps progressing," says Daniels. "We're clearly the lowest cost environment anywhere in the Midwest or northeast right now. We'd rather have had a strong economy, but by managing our way through a lousy economy with some relative success, it's enhanced our business attractiveness."

Asked if the "on-shoring" or "re-shoring" of manufacturing is a real or hoped-for phenomenon, Daniels says, "It is real. It began with quality problems. The grass turned out not to be greener somewhere else. And more recently, the cost equation is also coming back into a more favorable form. We'd like to think some of that is due to our constant efforts to lower the cost of doing business in our state. The dollar has helped some."

Among companies that have recently closed operations in other countries and consolidated in Indiana are Swedish RV accessory maker Dometic in Elkhart; Canadian automotive component maker Windsor Machine Group in Princeton; and, most recently, U.K. industrial coatings maker Deloro Stellite, which in January announced it is transferring a production line from a facility in England to its location in Goshen, Ind., investing $5 million and adding up to 46 new jobs over the next two years to its current payroll of 60.

One factor that might enhance the Indiana business climate even more is a move to right-to-work status. The Indiana Chamber is behind efforts to push through legislation this year. But Daniels, while supportive of the cause, is more cautious on the timing.

"It's a very legitimate issue. We've learned that in many cases this is a stopper, or a filter. The Indiana experience of the past six years is that our success rate on competitions where we have an opportunity to bid is north of 90 percent. But we know that there are an additional maybe one-fourth of opportunities we never get a shot at, for this specific reason. So it's a legitimate question, but I've suggested it be more openly debated than it has been so far, and this year is not the time."

Asian Connection

Daniels may have logged more trade mission miles to Asia than any other sitting governor, having recently completed his sixth trip in fall 2010. He says two economic development deals have been signed as a result, with more to come. All of his trips have included Japan, but China has been on the itinerary more recently.

"My impression is that Chinese business now feels itself both financially and operationally ready to invest in a significant way in the United States, and I expect there to be a long and continuous string of that investment happening in Indiana. I said that I would travel to China as soon I was pretty sure they were prepared to invest here. They had a long interest in our technology.

"We may have been a year slow," he adds, "but I don't think we missed too many boats. I believe they've entered a 'go' mode."

One sector on the go in both China and Indiana is electric vehicles. Daniels says he introduced executives from growing Indiana firm Enerdel to leaders at Wangxiang, the leading auto parts supplier in China, after his first trip there.

"They just signed an agreement that I think is going to lead to American batteries being sold in China," says Daniels, who sees the potential of the sector coming to life in his state. "I think there's a real business there. Since Uncle Sam has decided to offer cheap money to it, I'm glad our companies capture some."

One of the fruits of his most recent Asia trade mission dropped from the vine in February, when Nanshan America Co. Ltd., a Chicago-based subsidiary of a parent company in China, announced it would invest $100 million in phase one of an aluminum extrusion plant in the Park 350 industrial park on the south side of Lafayette. Up to $1.3 million in tax credits will be offered by the Indiana Economic Development Corp., with another $7.6 million coming from local economic development organizations.

"We expect over 200 new jobs in the next two to three years," Nanshan America President Lijun Du said during an announcement at Purdue University, his alma mater. The executive met with Daniels in Shanghai last fall.

Add It Up

In his 2011 state of the state address, the governor mentioned other people he saw on that trip:

"I have seen the future competition, every time I go abroad in search of new jobs for our state, in the young people of Japan, Korea, Taiwan, China," he said. "Let me tell you — those kids are good. They ought to be. They are in school, not 180 days a year like here, but 210, 220, 230 days a year. By the end of high school, they have benefited from two or three years more education than Hoosier students. Along the way, they have taken harder classes. It won't be easy to win jobs away from them."

Roob expounds further on the differing education standards.

"The biggest difference I see is quantitative skill sets," he says, offering a quantitative comparison: "I'm sure there are more kids studying math in China right now at two in the morning than there are in America at two in the afternoon. In many respects I'm going to sell whatever the education system in Indiana makes. If we're producing really smart kids who have the necessary quantitative skills, then we're going to bring in higher value-added jobs. Of the jobs we recruited last year that paid over $25 an hour [$50,000 a year], every one of them required quantitative skills. That's not to say they didn't require leadership and decision making, but as a baseline, quantitative skill sets is an issue."

Daniels says in some instances, the quality of Indiana's educational system has cost the state jobs. It's one of the major motivators behind his push for reform.

"We've had companies simply note the still relatively low percentage of college graduates as a concern to them, and shy away from specific cities out of concern for the quality of K-12 education there for their families," he says. "I generally present this as more of a long-term issue. I believe we're getting the other essentials in great shape — all the elements that go into costs, all the elements that can slow a business down in its plants. We're putting in place a great infrastructure, and resources to keep energy available and affordable. One problem over time that could limit our long-term prospects is the quality of our education system."

Higher education is another matter.

"If you want to see what the 21st century should look like, visit West Lafayette and Lafayette, Indiana," says Roob. "It's truly a remarkable place, and what Purdue has done has just been tremendous. Part of that comes from their land grant history."

Roob, a Notre Dame graduate, says his alma mater, under the leadership of Father John Jenkins, the university president, has adopted a lot of the strategies that have worked at Purdue, "and unapologetically plagiarized" those efforts. "It's a work in progress, but they seem to be moving in the right direction," he says.

The City of South Bend just won the Gold Award from the National League of Cities for its participation in the formation of the Northeast Neighborhood Revitalization Organization — a partnership for mixed-use redevelopment between the city and the University of Notre Dame that includes condos, office space and a business incubator for nanotechnology discovery at the University of Notre Dame – Innovation Park.

The main campus of the University of Indiana in Bloomington, he says, is driven by a broader academic mission that has to incorporate multiple goals such as creation of intellectual property and subsequent companies. "The folks in Bloomington have gotten better at it," he says, "but their corporate priority is not necessarily single-minded."

Making Moves

Among areas Daniels is looking to reform is removal of the layers of local government, such as township bureaucracies, that can be redundant, wasteful and, most of all, sometimes stand in the way of a project.

"Township [government] is just one aspect of a local government picture here that is more layered and complicated than it needs to be," he says. "Sometimes businesses experience frustrations, and sometimes we share them."

Several new reform-minded governors, all Republicans, seem to be looking to a new model of economic development in their states that has a lot in common with what Daniels has accomplished in his. Asked if any of the new governors have sought out his guidance, he says, "Yes," even as those states hope to compete better with Indiana for job-creating projects.

"I know Wisconsin, Michigan and Ohio are planning to reshape their programs much the way we did six years ago, and I'd encourage them to do it," he says. "I've preached to our people from the fist day that we'll move at the speed of business, not the speed of government. Our state bureaucracy was notoriously slow about such things. Some of that was leadership. Some was the handicap of living in a government structure."

Calling parts of that structure "ossified," Daniels cites true stories of "other states coming to agreements with companies before the Indiana official got his travel voucher approved."

Helping business and individuals travel the state better has been one of Daniels' signal accomplishments in office, achieved primarily through his "Major Moves" campaign that featured the leasing of a major toll highway to the private sector. The deal touched off controversy when it was signed, but has triggered value ever since.

"We harvest almost $4 billion of trapped value from the Indiana toll road, and almost all of it is being reinvested in new public assets," says Daniels. "A little of it is still used to subsidize tolls. Some was shared with localities so they could make their own local investments."

The result is a construction boom that has been in effect for 10 years, he says, helped along in part by an algorithm state officials moved to in prioritizing projects that helped safety and helped economic development, established before the state "hit the jackpot" on the toll road transaction.

The projects include the Hoosier Heartland Corridor going east-west and connecting Lafayette to a number of towns that have suffered economically. That road eventually connects to I-69, and to another project that links to the Port of Toledo. (Ports of Indiana – Burns Harbor is seeing growth of its own, shipping 10 times the cargo in 2010 that it did the previous year, primarily because of large wind-energy shipments to wind farm projects in the Midwest.)

Cumulatively, the transportation projects help "lots of towns and cities that will be that much closer to suppliers, customers and markets," says Daniels. "As I traveled along that road last week, I met a lot of happy mayors who believe this is the single best thing that could happen to their towns. There are between 200 and 300 projects on that list that we're making happen because of that [toll road lease] transaction."

Making Your Dollar Go Further

Company leaders at Family Dollar Stores credited the transportation infrastructure as a major factor in deciding to build their 10th distribution facility in Ashley in northeast Indiana. The $70-million center will employ up to 350 people, and see as many as 250 trucks a day. Ashley, located 30 miles (48 km.) north of Fort Wayne in both Steuben and DeKalb counties, beat out Van Wert, Ohio, for the project.

Among the attractants were $2.1 million in tax credits, $200,000 in training grants from IEDC; $1.52 million in infrastructure improvements pledged by local governments, and 100 acres (41 hectares) of land sold indirectly for $2.4 million by Klink Trucking, located nearby. Klink itself is in hiring mode, as is fellow area employer TI Automotive. And the Greater Fort Wayne Business Weekly reports another distribution center is on the way, destined for a former Chemtura facility, located on I-69.

The state's focus on efficient processes has also helped Indiana in putting Recovery Act funds to work the fastest of any state, because, as Daniels says, "We really were shovel ready" and had a number of programs already in motion that could benefit immediately from the boost. "It was a tremendous advantage for us as a state and for those who build infrastructure to know with certainty that this program is going to happen because the money's in the bank. We're able to move so much more quickly. It's a predictable process, with a rolling plan every quarter, so those who might want to bid know for sure what's coming and can pick the projects."

In January, Daniels, Kentucky Gov. Steve Beshear and Louisville Mayor Greg Fischer announced plans to explore options that could reduce the cost of the $4-billion Ohio River Bridges Project by more than $500 million and still keep the entire two-bridge construction plan on track, while aiming to also keep the bridges toll free. And Daniels in spring 2010 ramped up the timetable for completion of I-69's extension between Indianapolis and Evansville, prompted by low construction bids.

"We are building at record rates while much of America has not been able to build at all. We're capturing terrific bargains and experiencing chronic under-runs," he says, with bids at every letting coming in at "25 to 40 percent below the engineering estimate, so the dollars are going further.

"It's been a good time," he says, "to be in high gear."

Story in Pictures

Gov. Daniels tours the Aisin Seiki showroom (below) after meeting with company executives in Japan.
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