Economic Development: Pulling the Right Strings
It’s one thing for politicians to say they support transportation and logistics investment, but it’s another thing for them to take action. Here are five states and government leaders going above and beyond to influence economic growth.
Watching Brad Little engage with local business owners is edifying. He’s amiable but direct, accommodating to questions and succinct in his answers. These are the kind of attributes you might expect from a cowboy—which he is. Little is a third-generation Idahoan and rancher by trade.
He’s also Idaho’s Lieutenant Governor, and chairman of Governor Butch Otter’s task force on modernizing transportation funding. His experience and demeanor serve him and Idaho businesses well. It’s also a telling representation of how the state values economic development.
Idaho isn’t alone. Many other states go above and beyond to support transportation and logistics infrastructure development and legislation that facilitate business retention, investment, and expansion. While partisan politics, demographics, and geography can typecast and divide, leadership and vision have a way of elevating some above the rest. Here are five outstanding examples.
Utah Connects The Dots
Utah is arguably the most topographically and economically diverse land-locked state in the country. From the verdant mountains of the Wasatch Range that frame Salt Lake City, to the interior’s barren Canyonlands, to the fast-growing and consuming communities sprouting up along its southwest I-15 corridor, Utah’s economic development potential is boundless. Tourism, renewable energy, aerospace and defense, and IT are all areas of strength.
With such a varied economic landscape, the state’s greatest challenge is coordinating among different public and private sector interests. The state is unique in that regard. In 2005, then-Governor Jon Huntsman Jr. pulled economic development into his office.
“It was a strategic decision that played out well,” says Spencer Eccles, executive director, Governor’s Office of Economic Development (GOED). “We were the first executive branch office of economic development. Since then, several other states have moved in that direction.”
Coordinating economic development efforts under the executive branch has its privileges. Whether on a business card or car, the Governor’s seal carries influence.
“We have the power to convene. When we call a meeting, it’s the same as the Governor calling a meeting,” Eccles explains. “If we can get people to the table, we can act on what Governor Gary Herbert talked about in his inaugural address: ‘Unprecedented partnerships are essential, because we are facing unprecedented challenges.’ All we have to do is connect the dots.”
When GOED pulls industry together with local and state government agencies, good things happen. For example, it has a composites working group that was formed out of seven strategic industrial clusters in the state that were deemed important based on various core competencies. This includes corporate juggernauts the likes of Boeing, ITT, and ATK.
“We’ve been working with these companies to build relationships between themselves as competitors, as well as with us,” Eccles notes. “We asked them what other companies we should recruit to the state.”
One example is Janicki Industries, a Seattle-based, family-owned composite tooling supplier for the aerospace, marine, and transportation industries, which was identified as a potential target. GOED made contact with the company and pitched its value proposition. Janicki is now building a 100,000-square-foot precision composites manufacturing facility in Layton, Utah, near Hill Air Force Base.
The Janicki example demonstrates Utah’s strategic approach to recruiting companies that are complementary to specific clusters. And GOED has the clout to get businesses to come together and help expand the pie for the benefit of everyone.
In another instance, GOED played host to a Fortune 100 company that was on a 48-hour flyover and had interest in a parcel of land partly owned by Utah’s Department of Transportation (UDOT). The prospect also had questions about highway infrastructure. UDOT’s executive director, John Nord, was on a business trip to the U.S. East Coast. After a phone call and a red-eye flight back to Utah, he was waiting with maps early the next morning. GOED got its quarry, and 2,200 new jobs.
The company’s search committee was impressed. “They said, ‘Do you know how long it would have taken us to set up a meeting with the head of the DOT in our own state?'” recalls Michael Sullivan, GOED’s communications director.
While GOED has the elective ability to effect collaboration, it also relies on the Economic Development Corporation of Utah (EDCUtah), a public-private enterprise, to assist in bringing business to the state. “EDCUtah does a lot of the recruitment footwork,” says Eccles. “We may originate a lead, but EDCUtah will qualify it.”
GOED has also endeavored to drive further collaboration internally by reorganizing operations and breaking down silos.
“We recently participated in a trade mission to Chile, working with international and rural development agencies,” says Eccles. “One rural Utah company produces heavy machinery for mining. It specializes in small gauge manufacturing, which works very well for smaller, family-owned Chilean mine operations.”
Not surprisingly, GOED was able to connect the dots.
Wisconsin: Freight Fits the Bill
Wisconsin is famous for many traditions, such as brewing, cheese curds, and Green Bay Packers football. But Governor Scott Walker’s progressive transportation initiatives are also attracting attention.
“Governor Walker consistently promotes Wisconsin as open for business,” says Steven Krieser, executive assistant and third-in-command of the Wisconsin Department of Transportation (WisDOT). Krieser helps shape policies and oversee legislative and communication activities.
“Shortly after he took office, Governor Walker asked us to identify areas where we could harmonize our freight movement regulations with those of neighboring states, eliminate permits that no longer made sense, and streamline operations,” Krieser notes.
WisDOT analyzed the wide array of permits it manages, and came up with a package of legislations it calls the Freight Friendly Wisconsin Initiative. At the same time, Governor Walker directed the DOT to reach out across modes to manufacturers and shippers, and organize a freight summit to share ideas and concerns.
“In fall 2011, we hosted our first Freight Summit in Appleton,” says Krieser. “Shippers, manufacturers, growers, and parties across all modes witnessed Governor Walker signing the first nine bills that had passed the legislature.”
One bill that passed—2011 Wisconsin Act 53—featured an overhaul of the state’s restrictions on trucks transporting poles, pipes, and girders; rules that dated back to the earliest days of the motor carrier permitting process. Whenever a utility or contractor moved that type of freight through Wisconsin, the DOT required a permit for shipments in excess of 40 feet. The new bill replaced the existing law with a contemporary 65-foot-limit for a single vehicle without a permit, and 120 feet for a two-vehicle combination.
“Licensing and permitting systems are in place to regulate conduct and enforce reasonable restrictions to ensure the rights of other highway users,” explains Krieser. “In this case, there was no reason to continue with the permits.”
Similarly, 2011 Wisconsin Act 55, which relates to permits for overweight vehicles, takes advantage of a federal exemption for 90,000-pound loads (six axles) on interstate highways for sealed containers originating or terminating at a global destination. Shippers now benefit from extra weight allowances when moving freight through Wisconsin’s ports or across the Canadian border.
Lawmakers also focused on facilitating seasonal and regulatory constraints that impact the agriculture and dairy industries—two foremost economic drivers in the state. Under Wisconsin law, farmers who remove crops from the field during fall harvest have a grace period to run 15 percent over typical maximum weight limits to take product to processing facilities. 2011 Wisconsin Act 52 extended the back end of that window from Nov. 30 to Dec. 31.
The impetus for many of these changes evolved as discussions among motor freight carriers, shippers, the DOT, and the Governor’s office turned into working groups. Because industry is not necessarily in the business of following administrative decisions and rule changes, Krieser expects the now-annual Freight Summit to play a major role in bringing the public and private sectors together to share new ideas and concerns.
“We don’t see Freight Friendly Wisconsin as an endpoint,” notes Krieser. “These bills were low-hanging fruit, and they were out of sync with the way business is moving today. Our goal is to continually evaluate our regulations and recommend to the legislature changes that facilitate the flow of freight, while understanding the science behind road weights and infrastructure limitations.”
Iowa: Giving Suppliers a Break
When legislation and supply chain meet in the news, it is often a matter of cause and effect—and it is not always positive. Michigan businesses learned this the hard way in 2007, when state legislators passed a six-percent sales tax on warehousing and logistics services. At the time, the state had the highest unemployment rate in the country. Wisdom eventually prevailed and the bill was repealed.
More recently, the Iowa House of Representatives’ 83-14 vote in favor of HF 2471 in April 2012 turned heads—in a good way. The legislation, colloquially termed the “supply chain bill,” allows certain companies to deduct earnings when calculating their state tax burdens. To qualify, businesses must employ at least 50 people at a facility in Iowa or demonstrate that at least 10 percent of total payroll is located in state; and sell at least 10 percent of their products to larger Iowa-based companies that export the majority of their products out of state. In effect, it is a tax break for suppliers.
“At nearly $20 billion per year, manufacturing is the largest segment of Iowa’s gross domestic product,” says John R. Gilliland, senior vice president, government relations, Iowa Association of Business and Industry. “Not only is Iowa home to a number of large anchor manufacturers, but smaller suppliers are visible across Iowa and across the country.
“There are some great examples of how an anchor manufacturer can draw in its supply chain, as agricultural producer Cargill has done in Eddyville, Iowa,” he adds. “This legislation is designed to incent more suppliers to come to Iowa to be closer to their customers.”
The crux of the issue is that Iowa has a high corporate tax exposure. Iowa’s single-factor, non-unitary tax is based only on the percentage of total sales income within the state. So an Iowa manufacturer selling all its products outside the state would pay no Iowa corporate income tax.
“The problem is, many Iowa companies supply manufacturers, many of whom sell most—if not all—of their products in state,” explains Mark Lofgren (R-Muscatine), Iowa state representative and sponsor of the bill. “Consequently, they have to pay very high corporate state income taxes.”
This provides less incentive for smaller suppliers to locate closer to major customers such as John Deere and Cargill. It also prevents Iowa from attracting and growing cluster development, an increasingly important economic development strategy.
Governor Terry Branstad and the Iowa Economic Development Authority raised the issue, and Rep. Lofgren brought it home to the House with HF 2471.
“The bill’s purpose is encouraging suppliers to locate in Iowa near anchor manufacturers,” Lofgren explains. “This will help small companies; reduce lead time to manufacturers; lower costs to customers; assist local communities; and bring jobs to Iowa.”
Lofgren acknowledges the bill isn’t a silver-bullet solution, but sees it as one step toward creating a more accommodating environment for smaller businesses in Iowa.
While members of the Republican-controlled House voted overwhelmingly in favor of HF 2471, Lofgren is cautiously optimistic about its chances of passing the state Senate, where Democrats hold the majority. He doesn’t believe they are as enthusiastic about the bill, and other competing economic development legislations—an employee stock ownership plan, for example—may take priority.
Still, a great deal of bi-partisan agreement in the House led to the lopsided vote, Lofgren says. He hopes this bill, and future efforts, set a precedent for how businesses perceive Iowa.
“HF 2471 is another way to capture the attention of prospective companies,” Lofgren says. “It will get them to look at other areas where Iowa excels.”
Idaho: Gem of the West
Q&A with Lieutenant Governor Brad Little
Q: In terms of proximity to demand, and transportation network density, Idaho faces logistics challenges. How does the state compensate for these shortcomings to attract business development?
A: Idaho’s people and business community pride themselves on turning challenges into opportunities. Tremendous ingenuity and creativity exist throughout the state. Idaho ranks first in the country for patents per capita, and the talent of its workforce, combined with the natural resources within the state’s geography, lead to strengths in a variety of sectors including agriculture, mining, forestry, and one of our emerging clusters: recreational technology.
Idaho is an outdoor laboratory for companies that manufacture and test outdoor equipment and apparel, optics, guns, ammunition, and knives. Some specific examples of successful companies in this cluster include PNW Arms, which relocated to Potlatch because we are a gun-friendly state; PEET Dryer, which manufactures and ships products from St. Maries to international markets around the world; and Buck Knives, which relocated from California to take advantage of Idaho’s business-friendly climate and low business costs.
Q: What are Idaho’s transportation strengths?
A: While Idaho does experience some geographic challenges with regard to transportation, we also have unique capabilities that enable us to effectively and efficiently transport goods throughout the Northwest and to Asia markets.
For example, the Port of Lewiston—Idaho’s inland seaport—is a tremendous asset for companies using the Columbia-Snake River system to access the Pacific Ocean. From a policy perspective, the state has also embraced the development of intermodal hubs that link road, rail, air, and river resources to move goods produced in the state to domestic and international markets.
In addition, the Magic Valley region has guaranteed overnight delivery options in the West because of its proximity to Boise and Salt Lake City, making it an exceptional location for companies that have robust shipping needs.
Q: Idaho ranks high in export growth. What is the state doing to facilitate international trade?
A: One simple way for Idaho to support economic growth in its own backyard is to encourage companies to look beyond domestic markets for their customer base. Idaho maintains trade offices in China, Taiwan, and Mexico—which are three of the top export markets for Idaho goods and services. Our international trade managers have represented the state for a combined total of 57 years, which highlights the state’s commitment to these markets and the relationships that have developed over time with key business and government partners.
We continually cultivate these partnerships through trade missions, reverse missions, and cultural exchanges that give us the opportunity to meet face-to-face to open the door for export opportunities.
For example, in fall 2011, I led a trade mission to Mexico and Brazil with 13 Idaho companies that were seeking the state’s support to create or expand export opportunities. Governor Butch Otter just returned from a mission to China where he was accompanied by 14 companies that understood the advantage of partnering with the state to explore one of the fastest growing economies in the world.
Q: What differentiates Idaho from neighboring states?
A: For product distribution, Idaho’s strategic location in the western United States, along with the second-lowest business costs in the West, make the state attractive to companies looking to expand or relocate.
This year, Governor Otter and the legislature let the nation know the state is serious about supporting employers’ growth by lowering income tax rates for businesses big and small at a time when most states are raising taxes to make up for overwhelming budget shortfalls.
Idaho’s reputation as a business-friendly state continues to grow as companies in a number of industries are discovering for themselves why a stable government, low operating costs, a skilled labor force, accessibility to government leaders, and support from state agencies and local economic development organizations brings more to their bottom line.
Virginia is For Movers
Q&A with Governor Bob McDonnell
Q: Transportation funding and strategy is a hot topic for the federal government. For states, it has become a competitive differentiator. How is Virginia supporting infrastructure investment?
A: First, Virginia acknowledges that ongoing investment in transportation infrastructure is necessary to sustain the Commonwealth’s growth.
Second, Virginia’s leadership recognizes that in the current economic environment, the state cannot improve its transportation infrastructure without the help of the private sector. It isn’t financially possible.
Third, the state has prioritized transportation projects based on need and long-term value to the public, industry, and our economy. This is a comprehensive approach that examines road, rail, and maritime projects.
The Commonwealth has broken new ground on the use of public-private partnerships to build critical transportation infrastructure. Its most recent development is a contract with Elizabeth River Crossings, the consortium that will build a new $2.2-billion Midtown Tunnel to connect the cities of Norfolk and Portsmouth.
Moreover, in 2011, we created the Virginia Transportation Infrastructure Bank (VTIB), a special non-reverting, revolving loan fund that is a sub-fund of the Transportation Trust Fund. The bank’s purpose is providing low-interest loans to localities, certain private entities, and other eligible borrowers so they can fast-track high-priority projects.
The overarching intent is to alleviate, in part, a critical need for additional funding sources to finance the Commonwealth’s current and future needs for road and highway design and construction. This also includes toll facilities, mass transit, freight, passenger and commuter rail, ports and airports, and other transportation facilities.
On the railroad side, Governor Warner’s Rail Enhancement Fund was created in 2005 as the first dedicated revenue stream for rail infrastructure investment in Virginia’s history. The fund supports passenger and freight rail transportation improvements throughout Virginia, requiring matching funds from railroad companies.
We have also been debating the creation of an economic development zone along Virginia 460, while bringing that highway up to Interstate standards. This project would drive development along that corridor, provide drivers with a second east-west route to I-95, and pay for the road improvements with a toll.
Q: In the private sector, transportation and logistics has a growing presence in the C-level suite. To what extent does transportation have a voice within Virginia’s executive branch?
A: Transportation and logistics historically has had a voice in Virginia government, and it is an important one. Two names come to mind: Norfolk Southern’s Vice President of Business Development Dr. Robert Martinez, who in 1994 took over as secretary of the Virginia Department of Transportation (VDOT); and current VDOT Secretary Sean T. Connaughton, who came to Virginia after serving as administrator of the U.S. Maritime Administration (MARAD).
Martinez pushed to amend transportation law to allow for privately funded roads. His focus was to build road projects without increasing taxes, while making it easier for private investors to put up money for road projects. Investors, in return, were allowed to make a profit on tolls they charged.
At MARAD, one of Connaughton’s focus points was laying the foundation for a marine highway system. In Virginia, he has executed that plan by fostering development of the 64 Express barge service. This service connects the container cargo terminals in the Hampton Roads Harbor with the Port of Richmond.
As a result of that work, the 64 Express has removed thousands of truck trips from Interstates 64 and 95, thereby decreasing congestion, reducing emissions along that corridor, and adding new value to the Port of Richmond—which all but closed as a result of the recession and the loss of a key customer prior to Virginia Port Authority’s involvement. Currently, that barge service operates twice weekly and will soon run three days a week.
Q: How does Virginia foster collaboration between private and public sectors with regard to legislation and business development?
A: The state’s leadership tries to bring as many parties to the table as possible when the planning process begins. Unilateral action, we believe, is a thing of the past.
The Commonwealth is home to nearly one dozen Fortune 500 companies, a massive federal government presence, significant operations from both of the East’s Class I railroads, and two direct gateways to the global market—Dulles International Airport and the Port of Virginia.
In this economic climate, we have to look at projects in their entirety, measure long-term economic benefits and returns on investment, and identify the upfront and prolonged costs.
Q: How is Virginia leveraging import and export trade, and transportation and logistics activity, to help reinvent rural parts of the state that have been negatively impacted by manufacturing and agriculture degradation?
A: Agriculture is still the state’s largest industry, and the Port of Virginia provides farmers in Virginia (and the port’s larger market area) a means by which they can move their products around the globe. Providing farmers with a conduit to world markets has been critical to their industry’s stability. Still, agriculture is continually challenged, and it is our position that we can create or replace some jobs in rural areas by leveraging growth at the Port of Virginia.
Virginia’s port, with its modern facilities, the deepest shipping channels on the U.S. East Coast, and a geographic position that puts it within one day’s drive of two-thirds of the nation’s population, is an asset without parallel. Moreover, it reaches all corners of the Commonwealth. Industries tied to cargo coming in and out of the Port of Virginia employ more than 345,000 people—one out of every nine resident jobs—according to a study conducted by the College of William and Mary.
We believe our port can serve as a bulwark against job loss in the state’s rural areas, as well as those areas that have a large military population, which is traditionally transient and constantly shifting its force size.
Many jobs have been created in the past decade with the growth of 200-plus warehousing and distribution centers that have come to Virginia. In 2011, 29 companies—leasing or building a total of 7.8 million square feet—announced new operations in the state, and chose to locate here as a result of the Port of Virginia. Those announcements equate to a total investment of more than $700 million, and will create nearly 4,700 jobs.
Warehousing and distribution is a “clean” industry because there are no effluent, smokestacks, or dangerous byproducts of operation. Jobs are year-round, and range from forklift drivers on the floor to inventory, logistics, and supply chain managers who coordinate truck arrival and disbursement.
Additionally, when these industries are clustered in parks, then coupled with road, rail, and port access, they become selling points to lure like-minded businesses and users. The port, the state’s positive business atmosphere, and an understanding of the stop-loss issue at the local level will combine to expand port-related jobs across the Commonwealth.
Keeping the Dots Connected
Utah is a transportation oasis that criss-crosses the Rockies and joins north and south. Four major Interstates—I-15, I-80, I-70, and I-84—connect through the state. Union Pacific is the rail freight operator of choice, with more than 1,400 miles of track, and Delta operates its western hub at Salt Lake City International Airport.
But Utah’s most interesting distinction is its broadband infrastructure, which has built up along its well-traveled transportation corridors, explains Michael Sullivan, communications director, Governor’s Office of Economic Development. “Our broadband infrastructure is the fastest in the West, and second in the United States to New York City,” he says.
Enforcing its reputation for “connectedness,” Utah’s IT competencies have created one of the most intelligent highway systems in the country. Utah Department of Transportation (UDOT) has been equipping all major road systems in the state with fiber-optic cables that send information to a sophisticated computerized system. The system allows UDOT to monitor and manage traffic flow and communicate information in real time.
WisDOT Keeps Shortlines on Track
In addition to legislative changes, the Wisconsin Department of Transportation (WisDOT) is also exploring ways to provide better services—from locating transload facilities to buying and renovating outdated rail track—to coordinate intermodal freight movement.
“Over the past several years, we have been actively acquiring rail lines that are important to manufacturers and mining operations, but have become financially impractical for shortline railroads,” explains Steven Krieser, executive assistant, WisDOT. “We rehab those tracks, then lease them back to the rail operators.”
It’s a win-win situation for small railroads that don’t have the capital resources to invest in and maintain infrastructure, and local manufacturing and mining interests that depend on rail access to remain viable.
A relatively new natural resource that is in hot demand is also adding to the growing need for rail services.
“Wisconsin’s geology is favorable to the formation of frac sand, which is used in oil and mining processes,” Krieser says. “We have enormous reserves here, so it’s a growing industry. Frac sand is also very heavy per volume, so rail is the ideal way to transport large shipments.”