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

Jobs Retained, but No New Ones Created
$22.5 Million Incentive Package Helps Power
GM's New $501 Million Plant into Western New York

Aiming to get more agile, General Motors decided to stay put:

GM Powertrain ( has announced that its new US$501 million, 711,000-sq.-ft. (63,990-sq.-m.) "agile manufacturing" plant is headed to Tonawanda, N.Y. - where GM already employs 3,900 workers at the largest engine plant in the United States.

Analysts say that GM's investment will be the largest private-sector investment in Western New York since World War II. Announcing the project at the Republican National Convention in Philadelphia, Gov. George Pataki said the high-tech plant engine is part of the $2 billion-plus that transportation manufacturing firms have invested in Upstate New York during his administration.

"GM's decision sends a powerful message across the country that Western New York can compete for and win major economic development investments because of the sweeping changes we have made to our business climate," Pataki said. "It is also a major vote of confidence in the GM workers, who earned this victory with their hard work.

"Western New York's economy in 1999 grew at its fastest pace in more than 10 years," Pataki added. " . . . Following major investments by Adelphia and Southwest Air, GM's decision to grow in Tonawanda makes it clear that Western New York's comeback from the devastation of the early 1990s continues. . . . But we must keep that momentum going."

Keeping the area's momentum going, in fact, was a major factor behind a $22.5 million incentive package for GM.

Project Creates No New Jobs

Unlike other "Top Incentives Deals" reported here, this one has no one eye-popping job totals. In fact, it won't create any new jobs.

Instead, the project saved 600 jobs. Those 600 workers will move into the new GM plant when it comes online, which will be in early 2003, GM officials estimate.

GM officials haven't divulged which other sites were under consideration. Some local observers, however, have suppositioned that Indiana was the major final competitor.

Predictably, the project's lack of new jobs has triggered some criticism vis--vis the incentives. Project supporters have mounted a counter-argument: Losing the new plant's jobs, they say, would have left GM's Tonawanda operation behind the technological curve, perhaps imperiling the cluster's long-term viability. And the history of corporate migration has more than a few examples of state-of-the-art plants whose creation at brand-new sites ultimately signaled a major downturn for existing clusters.

Keeping GM in Tonawanda, the pro-incentive argument goes, also sends a strong recruiting message, one that Joel Giambra, County Executive of Erie County ( seemed to emphasize as the GM deal was announced.

"Today, GM is saying that Erie County's productivity and cooperative spirit are worth investing in," Giambra said. "I invite makers of everything from software to hardware to take note: Since Erie County makes sense -- dollars and cents -- for GM, Erie County will make sense for them, too."

Sounding a similar note, Tonawanda Supervisor Ronald Moline noted, "The General Motors engine plant has been a vital part of our industrial base for more than 50 years. Thousands of Western New Yorkers make their living in the town of Tonawanda at manufacturing jobs that pay a good wage. This expansion will add stability to our industrial base and to the lives of thousands of families."

Biggest Part of Incentives Is 20-Year
Payment-in-Lieu-of-Taxes Agreement

As for the incentives' dollars and cents, the biggest portion is in a 20-year payment-in-lieu-of-taxes agreement. GM's tax bill will be roughly 20 percent of its fully levy during the pact's first five years, and will gradually increase thereafter. During the agreement's final five years, GM will pay 50 percent of its full tax levy.

GM currently pays about $1.2 million in annual property taxes on its Tonawanda operation. Other parts of the incentive package include:

  • Training: GM is eligible to apply for as much $2 million in employee training funds from New York's Empire State Development Corp. (
  • Infrastructure improvements: The state will provide some $5.75 million in upgrading nearby roads and improving plant access. The Erie County Industrial Development Authority is also eligible to apply for $2.1 million in funding from the state Dept. of Transportation's Industrial Access program to construct a new access road. In addition, the state is providing $3.5 million to upgrade the water and wastewater facilities serving the plant area.
  • Power assistance: State incentives also include a 2,000-kw electricity allocation from the New York Power Authority (NYPA at The NYPA electricity will come from available "replacement power" specifically allocated to industries located within 30 miles (51 km.) of the Niagara Power Project in the city of Lewiston.

The Cooperation Factor

Cooperation was apparently another major factor in GM's decision.

Said Arvin Mueller, GM Powertrain Group vice president, "This decision reflects our commitment to the hourly and salaried work force and the continuing cooperation of UAW leaders, Gov. Pataki, Erie County Executive Giambra, Town Supervisor Ron Moline and other local officials. With their help, we have taken a major step forward to ensure the future of the Tonawanda plant and the preservation of the maximum number of job opportunities."

Commented Kevin Donovan, director of UAW Local 774, "We are excited about GM's decision to put the new engine at the Tonawanda plant. This new facility can become a high-tech showplace for union-management cooperation and the production of high-quality engines."

State and local economic development arms also worked closely to land GM, according to Empire State Development Chairman Charles A. Gargano.

"Despite unexpected obstacles early on, we were able to battle back and earn GM's confidence by taking a professional approach to the needs of the Tonawanda plant," Gargano said. "Empire State Development provided funding to the Erie County IDA to hire a major engineering firm to study the infrastructure needs of the local plant. Armed with the results of this study, we were able to show GM that Tonawanda could handle the new plant as well if not better than competing locations."

The Debate, as Usual, Continues

Still, all is not sweetness and light. The incentives debate continues, as chronicled by The Buffalo News (

"I think it's worth it," Gargano told The Buffalo News. "They're high-paying jobs, so the payback in taxes is relatively high."

"The difficulty with evaluating incentives is knowing what would have happened if you didn't offer them," said John Hood, president of the John Locke Foundation, a conservative North Carolina-based think tank.

Countered Ronald Coan, Erie County IDA executive director, "They were fully prepared to look at other communities if the front-runner faltered. But they didn't directly play one community off against the other."

The proof in the incentives pudding, as always, lies in the long term.

A study by the University of Kentucky's Gatton College of Business and Economics, for example, indicates that Kentucky's $147 million in incentives to land a Toyota plant in 1985 is earning the state a 36.8 percent annual return. And that return will continue through 2005, the study indicates.

However, considering how adversarial incentives are these days, some advocacy group is no doubt mounting another study to debunk that one.



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