June, 2000
  Incentives Deal of the Month
   from Site Selection's exclusive New Plant database

Pennsylvania's $55.5 in Incentives Seals the Deal
for Vanguard's 6,000-Employee Expansion

"It's a competitive world, and Delaware's not far down the road, to be honest," said John J. Brennan, chairman and chief executive officer of Vanguard Group (www.vanguard.com), the second-largest U.S. mutual fund firm. Right on both counts. And the world of business incentives is also a mighty competitive sphere.

In fact, Pennsylvania's US$55.5 million incentive package "tipped the balance" in Vanguard's decision to expand its world headquarters in Chester County, Brennan said.

Vanguard's plans call for building an office park on a 245-acre (98-ha.) tract near the Downingtown interchange of the Pennsylvania Turnpike in Uwchlan Township. Over the long term, the project could create 6,000 new jobs at Vanguard.

Huge Stakes for the Keystone State

Vanguard anticipates spending $500 million on the new project in Chester County. Pennsylvania's considerable incentives amount to almost 10 percent of that amount. For the state, though, the major investment will likely prove well worth it. Vanguard is a Pennsylvania-born company. What's more, it already had 8,200 of its worldwide work force of 10,200 based in Chester County. Losing that existing base, plus 6,000 new jobs, would've been an industrial-strength bitter pill, creating its own sort of Ruffed Grouse (the official state bird).

Vanguard apparently took a serious look at other headquarters location possibilities. Said Brennan, "Being prudent -- we view ourselves as prudent -- we looked at other states." Vanguard has U.S. offices in Charlotte, N.C., and in Scottsdale, Ariz. The company also has international offices in Melbourne, Australia, and Waterloo, Belgium.

Arizona and North Carolina were both given strong consideration, Vanguard and state officials jointly disclosed at the expansion's announcement. Delaware and New Jersey were also both part of Vanguard's headquarters location hunt.

Beating Delaware to the Deal

Among that group, Delaware seems to have been the strongest contender (as Brennan strongly intimated with the aforementioned comment, "Delaware's not far down the road"). In fact, the Chester County site that Vanguard picked was the very same property that Astra Zeneca took a flyer on last year, deciding instead to move its headquarters to Wilmington, Del. Astra Zeneca officials said the pharmaceutical firm decided on Delaware because the state offered tax breaks and 86 acres (34.4 ha.) of essentially free land.

This time out, Pennsylvania was apparently taking no chances on losing out to Delaware, an established haven for financial-services operations.

"We're competing with so many other places. The governor wanted to make sure this one didn't get away," said Steve Aaron, a spokesman for Pennsylvania Gov. Tom Ridge.

At the expansion announcement, Ridge commented, "The Vanguard Group manages billions of dollars in investments and has offices across the country and around the globe. Companies that size have choices. They can go anywhere in the world. But Vanguard didn't choose to expand someplace else -- they chose Pennsylvania."

Landing Pennsylvania's single-largest job-creation project in a quarter of century also gives Ridge high-profile political points at an advantageous time. The Pennsylvania governor is being prominently mentioned as a frontrunner to be Republican George W. Bush's vice presidential candidate in the upcoming U.S. presidential election.

$19 Million in Waived Sales Taxes
Biggest Part of the Vanguard Package

The deal came together after a year's worth of work by The Dept. of Community and Economic Development (www.dced.state.pa.us), Ridge said. The Vanguard package taps a host of state programs, including Opportunity Grants, Job Creation Tax Credits, Customized Job Training and Infrastructure Development funds.

Another part of the deal is a provision that allows for the waiver of state sales taxes on building materials. And the package also stipulates that the state Department of Transportation will expedite plans to improve state highways that impact the Vanguard expansion.

Already, analysts are dissecting the agreement. The general consensus seems to be that the $55.5 million package breaks down into:

  • $19 million in waived sales taxes on building materials;
  • $15 million in road improvements;
  • $12 million in Opportunity Grants
  • $4 million in job-creation tax credits;
  • $3 million in job-training programs; and
  • $2.5 million for infrastructure improvements at Vanguard's new facility.
In addition, the agreement provides for Vanguard to receive an additional $8 million in Opportunity Grants if it exceeds current growth projections for 6,000 jobs.

When Will the Jobs Materialize

The major rounded edge on this deal seems to revolve around exactly when Vanguard will add its new jobs. State officials said that the company might add 4,000 additional jobs in the three years following the initial expansion.

Vanguard's chairman and chief executive officer, on the other hand, continued to be refreshingly frank in his comments at the expansion's announcement. "If the market goes crazy, we grow faster," Brennan said. "If it doesn't, we grow more slowly."

A worst-case scenario might unfold with development of the new parcel delayed for years - even though some of the incentives hinge on Vanguard's new jobs being created within a five-year span.

On the other hand, if Vanguard decides to expand rapidly, the state seems to be looking at a pretty quick payback on its incentives investment. Officials say that the state expects $40 million in annual income tax revenues from the new Vanguard employees. Benjamin Franklin, a noted Pennsylvanian, might say of all this, "In this world nothing is certain but death and taxes."

But Franklin also observed, "No nation was ever ruined by trade."

For Pennsylvania and Ridge, Vantage is the huge slice of business expansion trade on which it's betting.



©2000 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.