Wal-Mart's Incentives Gaffe Almost Kills $50 Million Virginia Deal It certainly wasn't the biggest incentive deal in recent memory. But it certainly had the potential to be a disastrous object lesson, site selection-style, in that hoary old adage: "Loose lips sink ships." In this case, the loose lips were, surprisingly, those of Wal-Mart (www.walmart.com). And what they almost sank was the company's plans for a US$50 million import distribution center in Virginia, near the line between James City County and the city of Newport News. The 1 million-sq.-ft. (90,000-sq.-m.) facility will employ 400. The James City County site bested Georgia for the facility, according to Wal-Mart officials. But before all was (prematurely) said and (finally) done things got pretty squirrelly with this deal, particularly when it came to incentives.
For more than a year, officials from James City County (www.james-city.va.us/ecodev/frame_ed.htm), the Virginia Economic Development Partnership (www.yesvirginia.org) and the Peninsula Alliance for Economic Development (www.paed.org) had been working together quietly in wooing Wal-Mart, according to officials close to the projects. Things were going exceedingly well. Then came the gaffe. Normally, deals are blow by overly elated local officials who prematurely crow to the press about landing a project. Not this time. Normally a deft public relations performer, Wal-Mart made a major slipup on this one. Wal-Mart officials now concede that the company sent out a mid-March press release announcing the Virginia deal. Amazingly, they explained that they didn't mean to send out the Virginia project announcement. Instead, Wal-Mart officials said, the company intended to send out the announcement of its new food distribution center in Louisiana.
That blunder left precariously twisting in the wind the Wal-Mart location incentives that had been a key part in hammering the deal together. Part of the incentives that Wal-Mart was scheduled to receive stemmed from the import center's 200-acre (80-ha.) site in Green Mount Industrial Park. That location is part of the 2,400-acre (960-ha.) James River Enterprise Zone. By virtue of its Enterprise Zone location, Wal-Mart, county officials explained, will receive some $950,000 in grants from James City County over the next six years, provided it meets agreed-upon goals in areas such as property taxes generated, hiring of nearby residents and pay levels. What Wal-Mart's press release put in peril was another major slice of incentives: the $700,000 grant schedule to come from the Virginia Governor's Opportunity Fund. The eight-year-old Governor's Opportunity Fund is specifically designed to help close deals. And, the program logic goes, if a company decides to move to Virginia before the Governor's Fund incentives are publicly pledged, then that company has demonstrated that it doesn't need the incentive money to make the move. What that means in practice is that Virginia's governor must publicly announce the granting of the opportunity funds. To make matters worse, Wal-Mart's press release not only had preempted the governor's announcement. It also didn't include the capital investment and job creation information that are required for granting the incentives. (In addition, the Wal-Mart release included incorrect information that the Virginia distribution center would create 230 jobs, which is actually only the first phase of the project that company officials had outlined).
By now, local and regional officials were justifiably on edge. With good reason. As the legislation for the Governor's Opportunity Fund is written, Wal-Mart had violated the guidelines. Now, Gov. Jim Gilmore could declare the project a non-qualifier for the incentives and withdraw them. And Gilmore had previously questioned other projects that didn't conform to the proper process (although he hadn't nixed the incentives for those other projects). One area official anonymously said he hoped the governor "isn't going to play hard ball on this thing." Ultimately, Gilmore decided to let the deal stand. Doing otherwise would've punished the local officials and their representatives - who, after all, had been exemplary in maintaining ironclad secrecy about the deal. In fact, Wal-Mart officials cited the cooperation between local, regional and state economic development agencies as a major factor in making the location project work. As of this writing, no one involved in the deal had publicly made it clear whether Wal-Mart was fully apprised of the requirements for the governor-designated incentives. Neither had anyone stated whether, if Wal-Mart was fully apprised of the requirements, whether it fully understood them. Perhaps (and not unreasonably) this project has reached the no-talk-is-good-talk stage.
Meanwhile, as the area's collective blood pressure subsides, the project is moving apace. Wal-Mart officials said that construction of the center will start in April, and the facility should open in November or December. Some 230 jobs will be created in the project's first phase, according to Wal-Mart officials. Another 170 more workers will be hired when the center expands to 2 million sq. ft. (180,000-sq.-m.) in 2001, they said. The total value of the incentives for the project hasn't been disclosed. The incentives will, however, include improvements along the Route 60 corridor near the Wal-Mart center site. Improvements will certainly be needed. Wal-Mart distribution trucks are expected to make 150 trips a day in and out of the new Virginia center, according to company officials. The baffling press release came from the office of Wal-Mart spokesperson John Bisio, as Bisio acknowledged. Said Bisio, "I don't believe this miscommunication ever put this project was in jeopardy." Don't tell that to the people in James City County. And don't expect a firm as usually savvy as Wal-Mart to repeat this sort of site selection miscommunication, which provided its own sort of anti-incentive.
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