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From Site Selection magazine, January 2012

With the Squeeze

Government cutbacks spur site selectors to seek locations
with strong balance sheets.


new era of fiscal austerity — from the federal level on down — is prompting site selection consultants to steer an increasing number of projects toward destinations that have their financial houses in order.

That was the consensus of the Site Selectors Forum at the Mid-America Economic Development Council's annual Competitiveness Conference in Chicago last month.

"There is more focus on states with strong balance sheets," said Joe Pilewski of Duff & Phelps.

"Our clients are starting to qualify states' fiscal stability when considering where to locate a corporate facility project," said Brent Pollina of Pollina Corporate Real Estate. "This is new on the radar in the last two years."

As a result, states with solid financial reserves and a strong credit rating are gaining in favor with site selectors. According to a survey of the 12 site consultants who participated in the Dec. 5 panel, Indiana has the best business climate in the Midwest, followed by North Dakota, Nebraska and Iowa.

The best business climates are determined by a number of factors, but mostly for having the ability to attract talent and business, according to the consultants. This attraction comes from being a friendly business environment, having quality educational systems, and providing reasonable tax rates and a solid labor force.

A particular location is first graded on indirect incentives, such as site control and site suitability, according to the survey. If the site ranks highly on indirect incentives, site selectors then begin to focus on the direct incentives, such as taxes, work force, supply chain and transportation. If a site doesn't have the indirect incentives, that site poses a risk to site selectors since the site's attributes haven't been thoroughly identified.

"Shovel-ready or certified sites are important to us," said Deane Foote of Foote Consulting Group. "Right now, everyone is looking for deals. They start with buildings and work their way down."

Companies are also looking for customized incentives packages, the consultants said, with two-thirds of them saying it is very important for a host location to have the ability to craft a custom deal for their client.

"I think incentives will become more customized in the future," said Pilewski.

"You will see more incentives that are performance based," said Paul Hampton of Newmark Knight Frank.

What's not changing is the importance of right-to-work status. "If you are not a right-to-work state, you need to demonstrate other trade-offs," said Bob Ady of Ady International.

Business climate leader Indiana, however, doesn't have it … at least, not yet. Not long after the discussion in Chicago, Indiana Gov. Mitch Daniels, who has wrestled with the issue during his tenure as governor, said he would back right-to-work legislation during his final legislative session as governor in 2012.

"After a year of study and reflection, I have come to agree that it is time for Indiana to join the 22 states which have enacted right-to-work laws," Daniels said on Dec. 15.

What They're Thinking

Bob Ady says regulatory climate is another issue: "Over-regulation makes life more complicated, risky and time-consuming for our corporate clients."

The consultants provided their input on this and other topics to the 166 attendees at the MAEDC conference. Prior to the forum, the consultants responded to a survey on a variety of issues. Here are some of the principal findings:

  • About 40 percent of the respondents say they work primarily with economic development contacts at the regional level when pursuing a site selection project, while roughly the same percentage say they work primarily with contacts at the local level.
  • All of the consultants say that a state's business climate is either "very important" or "somewhat important" when a company is first evaluating potential locations for a corporate facility project.
  • When doing research on an economic development agency's website, consultants say the following information is most important: contact information, infrastructure data, listing of available buildings and sites, and data on incentives.

In a separate research project, Site Selection Magazine surveyed its national database of site consulting firms and found the following:

  • Texas, Alabama and Mississippi rank as the three best states in the U.S., in order, for incentives for business and industry.
  • China and the U.S. are the top two countries for incentives, followed by a three-way tie for third between Canada, India and Ireland.
  • Labor, location, logistics, incentives and transportation rank, in order, as the five most important site selection factors.
  • The three overall best business climates in the world, in order, are the U.S., China and Canada.
  • The two top regions in the U.S. for overall business climate are the Dallas-Forth Worth metroplex and the Southeast.
  • Fifty-seven percent of consultants say that they provide consulting services for both corporate end users and economic development organizations.
  • Most national consultants agree that community proposals for corporate facility projects frequently lack the following: creativity in addressing costs realistically; flexibility in program design; infrastructure improvements design and funding; specific industry and project information; and an understanding of the project at hand.

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