States Targeting Logistics Hit the Bull's-Eye
How much do you know about state and local economic development policy? Here's a quiz.
Check which industry is most favored in terms of federal, state, and local tax incentives:
Industry A, where national employment has grown by 12 percent over the last five years, and will continue to accelerate with the globalization of the U.S. economy.
Industry B, where national employment shrunk by 18 percent over the last five years.
You may be startled by the correct answer. Economic development policies still favor Industry B—manufacturing—over Industry A—warehousing and storage, the heart of the logistics industry.
In most states, economic development is stuck in a manufacturing model, even though manufacturing now employs a smaller share of the national workforce than at any time since the Civil War. Federal law also focuses on manufacturing. Industrial revenue bonds, for example, are allowed for manufacturing uses but not for storage and warehousing.
Despite inattention at the state and federal level, astute communities now recognize the role that distribution and logistics operations can play in their economic health.
The Joplin, Mo., region is a prime example. Though the area suffered a retrenchment in manufacturing in the 1990s, Sunbeam and La-Z-Boy recently morphed their existing facilities into distribution space, saving hundreds of area jobs.
The region has reaped the economic development advantages of securing logistics operations. These include:
- Salaries that are 25 percent higher than the region's average wage.
- Opportunities for job growth to balance anticipated declines in the area's old-line manufacturing jobs.
- Insurance against manufacturing offshoring—the need for warehousing grows as the level of offshore production increases.
- The opportunity to attract new corporate citizens to its region. Almost 500 new warehousing and storage operations opened in the United States between 1999 and 2004, according to the U.S. Bureau of Labor Statistics.
The Joplin Area Chamber of Commerce and the Joplin Business & Industrial District have adopted logistics and warehousing as target industries for national promotion and development. Rob O'Brian, Chamber' president, led a statewide effort to create new incentive programs that appeal to logistics companies.
And in July, Governor Matt Blunt signed into law The Missouri Quality Jobs Act, which awards cash incentives to companies that create new jobs in the state.
States that haven't updated their incentive statutes are likely to have economic development programs that ignore distribution and warehousing, while states such as Texas and Missouri, which have made recent updates, typically make logistics projects eligible for incentives.
A significant operating cost differential exists in states that allow typical incentive programs such as income tax credits, property tax abatements, and sales tax exemptions for warehousing.
Due diligence in this area is essential. Logistics operators looking for new locations must determine which incentives apply to a particular project—often a complex process. In some cases, state law allows distribution operations to qualify for credits and exemptions, but leaves the ultimate decision of eligibility up to local officials.
When examining locations for new warehouses, check with the state and local economic development offices in the communities you are evaluating.
Because many states defer to the local community to determine who qualifies for incentives, progressive communities are beginning to adopt formal incentive policies. Ask for a copy of their guidelines and applications.
In an industry where pennies matter, it's crucial to check for available local and state tax incentives before choosing your next warehouse location.