When online retail giant Amazon announced that it was looking for a home for a second headquarters that would bring 50,000 high-paying jobs, cities all over the nation — including Birmingham — mobilized to attract the latest holy grail of corporate prestige and new jobs.
In the end, the company decided to split the HQ2 project into parts, with half going to the Long Island City section of New York City and the other half to Arlington, Virginia. An additional “center of excellence” was located in Nashville with about 5,000 jobs. But metro Birmingham, which gained publicity with the giant Amazon shipping boxes it used in its promotion, didn’t come away empty-handed. A new distribution center employing at least 1,500 workers is being built at the western end of Bessemer.
The effort to attract Amazon was waged in public by both company and cities, an unusual approach. Amazon announced HQ2 in the news media and opened competition to any city. Most efforts to bring new employers to an area are much more subdued, partly to avoid tipping off other municipalities competing for a project.
David Carrington, the former Jefferson County commissioner who handled business and industrial development until his term ended last year, said the decision for Jefferson County to go after the Amazon project was a challenge.
“It was kind of a ‘whosoever will may come’,” Carrington said. “The decision to go after HQ2 was a tipping point. On paper, it was a reach. It was a very quick project and had a core of 15 to 20 people working on it. It was an out-of-the-box presentation (literally, featuring the giant Amazon shipping boxes) that we were told later precipitated their interest.”
In total, about $200,000 was spent on the drive to attract Amazon, plus incentives from the county, Bessemer city government and the state. Jefferson County kicked in $3.3 million, primarily for road improvements, while Bessemer agreed to cap permit and business license fees in exchange for meeting certain employment goals. The city will also make quarterly payments to Amazon to reimburse the company for part of its capital costs, again tied to employment levels. In return, metro Birmingham gets a company with instant brand recognition and a $40 million payroll.
While the Amazon HQ2 project was very public, Carrington and his successor, Steve Ammons, have a staffer labelled “confidential assistant” to usually keep such industry-recruiting information under wraps. “Most (companies) don’t want people knowing they are looking because they don’t want to get five RFPs (requests for proposals). Obviously, the community wants to keep it confidential because they don’t want, say, Greenville, S.C., to find out we’re in on a project,” Carrington said.
From Irondale to Gardendale, Hoover to Birmingham, incentives are deployed at the municipal level in a metropolitan area with three dozen cities, as well as by state and county governments in Alabama.
Irondale attracted car dealers to the area around Grants Mill Road and Interstate 459. That city lured Tom Williams Buick away from Birmingham in 2004 and got Alabama football coach Nick Sabin to move his Mercedes Benz dealership from Hoover with a $13 million incentive.
For Gardendale Mayor Stan Hogeland, attracting retail is important, but so are projects such as the new UAB Medical stand-alone emergency room that opened this year. Attracting some businesses is a quality-of-life issue that helps draw the other businesses his city wants to attract, he said. The city did not give UAB Medical an incentive package to locate there.
Birmingham gave incentives to Walmart in 2007 to build a new supercenter in the former Eastwood Mall space, which resulted in the company closing a smaller store in Irondale. An effort by Irondale to attract Trinity Hospital (the former Baptist Medical Center Montclair) to leave Birmingham for a new site at Grants Mill was topped by Birmingham, which made a counter-offer in 2008 that put Trinity into the unfinished HealthSouth hospital on U.S. 280 with $55 million in incentives. That facility is now known as Grandview Medical Center.
The city of Birmingham has offered a variety of incentive packages over the past few years, including packages focused on keeping existing businesses from moving elsewhere. That was the case with Shipt, the fast-growing grocery delivery company founded in Birmingham. The company was recently acquired by big-box retailer Target, headquartered in Minneapolis, and local officials feared the new parent company might move Shipt headquarters away from its birthplace.
“A group of us got together and said, ‘We don’t want to lose them … to Minneapolis or to Silicon Valley,’” Carrington said. That group included Shipt CEO Bill Smith and Josh Carpenter, who’s the director of Birmingham Mayor Randall Woodfin’s Office of Innovation and Economic Opportunity. With help from state officials, Birmingham offered Shipt $1.76 million in incentives. The company responded by not only staying, but also adding 881 jobs.
Since the beginning of 2018, Birmingham has also given incentive packages of $1 million or more to developers of the new Lakeview Green mixed-use facility, including a $1.5 million Birmingham Business Development loan; and to Marino’s Supermarket for the expansion of its store in Central Park, which is the only full-service grocer in the Five Points and Central Park neighborhoods. The closest other grocers are nearly two miles away in Ensley, where Marino’s original store is located, and in Berny Points. It’s part of a move by Birmingham to reduce the number of “food deserts” in the city.
Different Roles for Cities, Counties, State
In Alabama, cities and counties usually play different roles when it comes to economic development, though they often work with each other. Counties tend to focus more on industrial and distribution projects, while cities have more of an eye toward retail. That’s in large part because Alabama’s tax system makes cities greatly reliant on sales tax revenues that stores generate, while business and professional offices benefit the cities less in taxes but more in quality of life. They bring more workers into a city each day, who often spend part of their paychecks in stores and restaurants.
Carrington said the county stays totally away from giving incentives to retail stores. Additionally, companies seeking incentives must have minimums in terms of new employees and average wage levels. “We wouldn’t deal with anyone with less than 50 new jobs,” Carrington said, adding that proposals that would simply move jobs from one part of the county to another wouldn’t qualify, but those that add more jobs might.
Jefferson County operates its own industrial parks near Bessemer through a separate agency, which markets its sites to prospects. The county also gets leads from the Birmingham Business Alliance, which heads up development efforts for the seven-county region surrounding Birmingham, as well as the state government’s own industrial development agency. The state will offer incentives on the largest projects, such as the four automobile factories now operating or soon to open.
What Cities Offer Businesses
Incentives from municipalities can cover many areas. For instance, Amazon wanted to make sure its employees had access to public transportation, so it asked that a bus stop be installed at the building. In a bit of luck, MAX Transit already has a bus line that terminates at a nearby Walmart.
But most incentive packages include items that are fairly typical from project to project. Among them are:
- Rebates on sales taxes for retailers, such as giving back half of a city’s share of sales taxes collected in the first three years, often with a cap on the overall rebate.
- Partial rebates on property taxes for a certain number of years (taxes earmarked for schools cannot be included by state law).
- Rebates on construction permits and various other fees, plus some sales taxes on construction materials.
- Improvements to roads leading to the project, including turn lanes and/or traffic signals.
- Low-interest loans through special development organizations.
These incentives and several others have limits imposed by an amendment to the Alabama Constitution.
Often when cities offer incentives to retail projects, the benefits are geared more toward a developer than the individual retailers themselves. An example of that is the new Stadium Trace shopping center being built in Hoover at the Alabama 150 exit off I-459.
A Veteran Recruiter’s View
Greg Knighton was vice president of the Economic Development Partnership of Alabama, a non-profit group that was instrumental in bringing major employers such as Honda, Hyundai and Airbus to the state. He left the EDPA last year to become the city of Hoover’s first economic development director and now works with a variety of prospective companies interested in the city. As part of that, he’s trying to help Hoover diversify from being just a retail hub.
“Freight and logistics brokering is a growing sector, and a lot of that is concentrated in Hoover,” Knighton said. “That sector is projected to grow, and the pay is very good for those folks. We’re also a place for corporate headquarters and back-office operations. That’s an area where we spend a lot of time with our existing businesses, as well as recruiting more. But having that strong daytime population of people coming into the city … bolsters our retail as well.”
While Hoover is not known for its manufacturing base — the only factory in the city is Bud’s Best Cookies — it is attracting companies that make specialized products. According to a report by The Hoover Sun, the Hoover City Council approved tax breaks for an expansion by Bio Horizons Implant Systems, which makes dental implants and products that help regenerate bone and gum tissue. The expansion is adding 60 jobs to its headquarters in Riverchase.
When it comes to retail, Knighton has to make sure that a new business seeking incentives won’t hurt existing retailers in the same sector. “We don’t want to be cannibalizing what exists in the community already,” he said.
Incentives Can Be Risky
Incentives work both ways, however, and if a company doesn’t meet certain milestones such as employment levels, they may have to give some incentives back. “That’s called a clawback, and it’s one of the underreported stories in the Amazon case,” Carrington said.
“If (they) don’t achieve those within some negotiated timeframe, (they’ve) got to give us back some money. The companies don’t want that to happen, so they will actually rachet down their commitments. For example, Amazon’s clawback is based on 1,500 jobs (in about three years). But they think they will have 1,500 next year. What’s not getting reported is that they’re working two shifts a day, and they are planning 2,500 parking places. You don’t work two shifts and build 2,500 spaces for 1,500 people. I’m happy with the ROI (return on investment) at 1,500. … One year later, it was well worth the while. Five or 10 years later, it will be seen as a tipping point.”
Sometimes, incentive packages can totally backfire, however, and perhaps the biggest example is the Amazon HQ2 project. Not long after the selection was announced and the details of New York’s $3 billion incentive package were made public, activists and lawmakers raised a furious effort to derail the plan, arguing that the massive package was nothing more than corporate welfare for a huge company. Days later, Amazon walked back its decision, saying in a statement on the company media blog, “While polls show that 70% of New Yorkers support our plans and investment, a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project we and many others envisioned in Long Island City.”
Amazon has since shelved plans for the second part of HQ2 and is going ahead with the Arlington and Nashville locations.
Another example is the highly touted new American factory by Taiwan-based Foxconn, which manufactures numerous products for Apple. The move was widely publicized by President Donald Trump as a major victory for his efforts to get Asian companies to open operations in the U.S. More than $4 billion in incentives were given to Foxconn to build an LCD display factory south of Milwaukee, at which the company promised more than 13,000 jobs with wages of $28 an hour. But now the project appears to be much smaller than that, and Wisconsin state government may not see any significant return on its incentive package until 2040 at the earliest. Gov. Scott Walker, who played a large part in the negotiations, lost his re-election bid in 2018 due in part to the Foxconn situation.
The Poaching Problem
Competition for businesses is keen among Birmingham-area cities, and sometimes that becomes a problem, especially if it involves a company leaving one suburb for another. It’s been an issue that concerned Hogeland for some time, and as the president of the Jefferson County Mayors Association last year, it’s something he tried to squelch.
With help from Hoover Mayor Frank Brocato, Trussville Mayor Eddie Choat and others, Hogeland has tried to broker an anti-poaching agreement among cities.
“That evolved out of a regional cooperation movement,” Hogeland said in an interview with BirminghamWatch in December. “But the first thing you have to do is define poaching. If the business comes to you, rather than you trying to recruit them, that’s not poaching. It’s a sensitive subject.”
In April, after Hogeland’s term as association president had expired, a group of Jefferson County mayors signed a pact titled the Good Neighbor Pledge advocated by the Community Foundation of Greater Birmingham. Participating cities agreed not to poach businesses from each other. But Hogeland’s concerns about the definition of poaching were not addressed to his liking, which is why he did not sign on. Other mayors, including Jim Lowery of Fultondale and Charles Moore of Irondale, also opted out at the time. To this point, 23 mayors have signed.
The competition among Jefferson County cities was cited in a New York Times article about why Birmingham has fallen behind Nashville in recent years in growth. In the 1960s, the two cities were similar in size and demographics, but Nashville has grown dramatically since that time. The Times story cited the move to a metropolitan form of government for Nashville-Davidson County as one main reason for its growth, which eliminated competition among suburbs and allowed a focus on regional cooperation.
In Birmingham, existing businesses are reported to play cities against each other in trying to get the best incentive deal. In November, a member of the Hoover City Council said in a meeting that a local car dealer was threatening to move to Irondale because Hoover had turned down an incentive deal to cover a proposed expansion, the Hoover Sun reported. The dealer, Benton Nissan, said the next day that it had discussions with Irondale that came to nothing and that the company was planning to stay in Hoover.
Are Incentives Worth Their Cost?
Overarching all the incentives handed out by governments is one pressing question: Are they worth it? Put another way, are the cities, counties and states getting back more than they give away?
It’s a question that’s being increasingly posed, especially after the aborted Amazon HQ2 project in New York and the Foxconn reductions. Even those in the development business are questioning the results, including the quarterly trade publication Area Development, which published an editorial questioning how much effect incentives truly have on new projects. It’s from the same magazine that just named Alabama as one of six states to win its annual Golden Shovel award for attracting big projects and another award to the Toyota/Mazda plant near Huntsville.
The editorial cited a study by the Upjohn Institute for Employment Research, a Michigan think tank, which reported that only 20% of new projects came about because of incentives; the rest would have gone forward in any event. The report concludes that “in many cases they are excessively costly and may not have the promised effects,” adding that incentives are becoming less frequent and more and more targeted toward high-wage jobs.
In an op-ed piece for The New York Times in 2017, former Delaware Gov. Jack Markell advocated doing away with incentives altogether, even though he admitted that he “was as guilty as any elected official at playing this game” while in office. Markell said that the money should, instead, be directed toward infrastructure and education, but that the practice would likely continue because elected officials “otherwise would risk losing out on new jobs, the transfer of old ones elsewhere and the bad publicity that could come with abandoning efforts to entice or retain companies.”
Sam Prickett contributed to this report.
This story has been changed to remove Pinson Mayor Hoyt Sanders from the mayors who did not sign the Good Neighbor Pledge. He has since signed the pledge.