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VOL. 125 | NO. 153 | Monday, August 9, 2010

The Hard Sell

Memphis and DeSoto County duke it out for jobs

By Andy Meek

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To understand how Northwest Mississippi’s small boomtowns like Olive Branch keep one-upping Memphis and reeling in jobs and taxpayers with the promise of greener pastures, an Internet video is one place to start.

It’s posted on the DeSoto County Economic Development Council’s website. And its opening frame gets right to the point.

It doesn’t win over the viewer with images of Hernando’s town square or wow business leaders with DeSoto County’s plentiful supply of land for everything from distribution centers to retail development.

In fact, one of the first shots of the nearly eight-minute video doesn’t depict anywhere in DeSoto County at all.

It’s a sweeping view of the Downtown Memphis skyline.

The advantage of DeSoto’s proximity to Memphis – without actually being part of Memphis – is touted frequently during the film. There are scenes of FedEx planes and references to the “convergence of air, water, rail and highway” found in Memphis.

“By locating in DeSoto County, businesses gain the advantages of Memphis’ transportation assets, while enjoying Northwest Mississippi’s tax advantages, skilled workforce and abundant land,” a narrator intones.

Some Mississippi officials aren’t that overt in their comments about DeSoto’s big city neighbor north of the state line. Gray Swoope, executive director of the Mississippi Development Authority, said his group concentrates on its own game plan and lets the chips fall where they may.

“We always sell to our strengths,” Swoope said. “I really don’t worry too much about what the competition is doing.”

Promised land

In Memphis, on the other hand, business and civic leaders have a keen interest in what the competition in Mississippi is doing. A recent week provided almost 1,000 fresh reasons for that interest. That’s the number of new jobs Olive Branch announced it’s creating with a trio of economic development projects.

The projects involve the creation of two new plants and a hospital facility. And some of that growth is coming at Memphis’ expense.

Hamilton Beach Brands Inc. announced late last month it’s moving a Memphis distribution center – and 125 jobs – to 1.2 million square feet in Olive Branch. Hamilton Beach makes and distributes small electric household appliances, as well as a variety of commercial products.

There could be even more Memphis businesses heading south. Pinnacle Airlines is considering an offer from Olive Branch backed with incentives from the state of Mississippi as it weighs a new location for its Memphis headquarters. Business and civic leaders in Memphis have mounted a full-court press in lobbying Pinnacle to keep its headquarters in the city – and, hopefully, move it into One Commerce Square at 40 S. Main St. Downtown.

The Center City Commission is developing a video presentation for Pinnacle comprised of testimonials from Downtown employees and stakeholders who can talk up the virtues of locating in the heart of the city. Within a day or so of word getting out about Mississippi’s overture to Pinnacle, conversations were held among an array of private sector leaders in Memphis including Tennessee Economic Development Commissioner Matt Kisber.

Memphis Mayor A C Wharton Jr. suggested federal incentives and participation from the state might be a requested part of the effort to keep Pinnacle here. That reaction is arguably a testament to the powerful lure of DeSoto.

“By locating in DeSoto County, businesses gain the advantages of Memphis’ transportation assets, while enjoying Northwest Mississippi’s tax advantages, skilled workforce and abundant land.”

– Desoto County Economic Development Council Promotional Video

“You’ve got a county and state that are very nimble in the way they work and understand the importance of jobs, especially in an economy like we’re in,” said Chuck Roberts, of the Southaven-based firm Chuck Roberts Commercial Real Estate.

Like the economic development version of an avalanche, the arrival of each new business, warehouse, distribution facility and resident feeds future growth. Another of the recent Olive Branch developments concerned Soladigm Inc., a green technology company from California’s Silicon Valley. It’s moving into the Olive Branch Industrial Park with a plant that employs more than 300 people.

Olive Branch mayor Sam Rikard, from left, Soladigm Inc. CEO Rao Mulpuri, Mississippi Gov. Haley Barbour and site selector Dennis Cuneo announce recently that the Milpitas, Calif.-based company Soladigm will open a manufacturing plant in Olive Branch.  Photo: Lance Murphey

“Because of Soladigm coming here, there’s now interest from other companies that might never have considered us before,” said Olive Branch Mayor Sam Rikard. “Because of that, other companies were probably opening up their atlases last week and putting us on their radar.”

A TV reporter asked Rikard after the recent flurry of news whether “there’s anything else” to announce soon. Rikard chuckled as he recalled the question.

“There’s always something else,” he said, a reply that may have sounded like a humorous quip but is actually a theme of economic development in Olive Branch – in much of DeSoto County, for that matter.

Survival of the fittest

Part of the secret lies in what officials describe as the coordination among economic development players in Mississippi – state, county and local. The fruits of that teamwork are increasingly presenting a tempting alternative to outside companies that zero in on the Memphis metro area.

Some of the Mississippi and DeSoto County incentives for new and expanding industry include state income tax credits for five years of 2.5 percent of payroll with the creation of 20 or more jobs and five-year state income tax credits of $1,000 for each new research and development job created.

Companies creating or relocating regional or national headquarters in Mississippi may be eligible for five-year state income tax credits of $1,000 for each new job created and full sales tax exemptions for direct purchases of construction material, machinery and equipment, according to the DeSoto County Economic Development Council.

One reason Memphis has trouble competing with those kinds of incentives is the nature of one of the city’s most prominent incentives – tax freezes. When a local entity like the Memphis and Shelby County Industrial Development Board freezes taxes on the value of a piece of land before it’s developed or redeveloped, the actual, full effect of the savings isn’t felt for years. It’s a necessary tool, but local economic development officials say the city needs to add to it to be successful.

Memphis’ competitors, in effect, are stepping into the breach with promises of “Here’s what we can do for you today.”

This is part of the reason Wharton quickly found himself operating as a veritable one-man chamber of commerce soon after settling in behind the big desk on the seventh floor of City Hall. Wharton had decided the city’s corporate community needed more tending to from its top political leadership.

It’s a Darwinian fight for survival among cities to attract and keep their businesses large and small, so the mayor almost immediately hit the road as Memphis’ new self-appointed salesman-in-chief.

Wharton set about to do what comes naturally to him. He mounted a charm offensive with the goal of luring new business investment to the city.

Earlier this year, the mayor accompanied a delegation from the Greater Memphis Chamber to New York City and met with Daisuke Koshima, the chairman and CEO of Sharp Electronics Corp. Sharp has a manufacturing facility in Memphis, and Wharton helped encourage the company to keep Memphis on its radar.

Wharton also spent time with officials from the Japan External Trade Organization, or JETRO, a group that promotes Japanese exports and fosters ties with trading partners. And Wharton met with billionaire entertainment mogul Robert Sillerman about Graceland and the surrounding commercial area on Elvis Presley Boulevard.

“Let’s just face it: in business affairs, protocol means a lot,” Wharton said. “You can have the best chamber, but still you have to have the top level political commitment. (Companies) don’t want to see it in the form of, ‘Our mayor wanted to be here, but he couldn’t. Here’s a little note he sent.’

“It’s so competitive out there, and they want people who can speak with finality.”

On the home front, Wharton said what he’s doing is akin to a partner rekindling the marriage flame with a spouse.

“We tend, with our existing employers – it's like a marriage, and it's gotten some age to it: ‘Oh, we’ve got them here. They’re not going anywhere.’ But there are people bringing them roses, perfume and sweet music every day.”

– AC Wharton, Memphis Mayor

“I don’t take roses home as often as I used to,” Wharton said. “But you’ve got to take something home. Don’t take anything for granted.

“We tend, with our existing employers – it’s like a marriage, and it’s gotten some age to it: ‘Oh, we’ve got them here. They’re not going anywhere.’ But there are people bringing them roses, perfume and sweet music every day.”

‘Open for business’

Upon recently learning that one of Memphis’ health care services companies, McKesson Corp., was pondering a relocation away from the city, Wharton paid its local executives a visit. And he encouraged the Memphis City Council to alter the structure of the city’s tax incentive program to pave the way for McKesson to stay.

A few months after that, in March, Wharton drew a crowd at Hernando’s Gale Center, where he addressed that town’s chamber of commerce. Memphis needs Hernando, Southaven and Olive Branch, Wharton told the group. And he hinted at a new era of regional cooperation.

Two months later, McKesson decided it needed Olive Branch – specifically, a package of incentives that made a relocation to the city too good to pass up.

Among the incentives, $4 million came from the Mississippi Development Authority via the Industry Incentive Financing Revolving Fund. Olive Branch and DeSoto County also chipped in several hundred thousand dollars to pay for infrastructure improvements.

“This brand new facility will allow us to more efficiently serve our growing customer needs with the most advanced material handling systems available and will be seen as a model for McKesson’s other distribution centers,” said John Figueroa, president of McKesson U.S. Pharmaceutical.

The loss still stung Wharton months later. He referenced it with frustration as Exhibit A several weeks ago in urging the Memphis City Council to approve the creation of a $5 million fund to help tilt the scales in Memphis’ favor during future deal-making.

“Right now, we’ve got one arrow in our quiver, and it’s PILOTs (payment-in-lieu-of-taxes),” Wharton said. “And when you really stop and think about how PILOTs work, you’re kind of giving with one hand and taking away with the other. It’s been my experience that if you offered a business help with their infrastructure, that they can walk right into a bank loan committee and say, ‘Here this is,’ as opposed to, ‘Well, they’re abating my taxes over 10 years. So over a 10-year period my expenses will be lowered by this.’

“The first one stands a better chance of getting financed. This is my way of saying, let’s kind of pull away from PILOTs.”

The council approved the creation of that $5 million economic development fund. One council member suggested to not do so would have been to aid the economic development of Olive Branch.

“The $5 million fund, I think, is a strong signal that Memphis is open for business,” said Arnold Perl, secretary and counsel of the Greater Memphis Chamber. “It establishes a platform for city government to be much more aggressive in competing for expansions and new business.”

It remains to be seen what the long-term results will be. But Wharton isn’t letting his foot off the gas pedal.

Pinnacle, for example, is currently in negotiations to move its headquarters to either Olive Branch, Downtown or somewhere else near the Memphis airport.

Wharton has Pinnacle’s board meeting in Memphis during the week of Aug. 9 on his schedule. His attendance, along with CCC representatives, is likely to include a pitch to the regional air carrier to keep its presence in Memphis. And it’s also likely to include the presentation from Wharton to Pinnacle executives of whatever proverbial “roses, perfume and sweet music” he can draw upon to convince the company to do so.

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