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VOL. 125 | NO. 177 | Monday, September 13, 2010

The Law of Attraction

Tennessee is luring businesses from elsewhere, but is Memphis benefiting?

AISLING MAKI | Special to The Daily News

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“We’re not a heavily taxed state to begin with. A lot of states have an income tax, franchise tax, excise tax, property tax. They tax businesses a lot more. The overall tax burden and cost of doing business on a daily basis here makes it much more attractive over the long term.”

– Mark Herbison, Senior vice president of economic development, Greater Memphis Chamber

The state of Tennessee is basking in the glow of its growing reputation as a top destination for companies following a myriad of accolades for its favorable and welcoming business climate.

While Chief Executive magazine ranked the Volunteer State the nation’s third best for business, Southern Business & Development magazine named Tennessee its State of the Year.

Business Facilities magazine recently ranked Tennessee the No. 1 state for automotive manufacturing strength, No. 2 for economic growth potential and No. 5 for best business climate.

Other 2010 honors have included Area Development magazine's annual Golden Shovel award for the state with the most success in terms of job creation and economic impact, and a top five honor in Site Selection magazine's Governor's Cup for economic development.

While Memphis struggles to retain businesses, often losing companies to places across the state line such DeSoto County, the rest of the state is clearly thriving, thanks in part to the business-friendly atmosphere fostered by outgoing Gov. Phil Bredesen.

“Tennessee over the last eight years has done a really good job of analyzing the incentives being offered to companies that come to the state,” said Mark Herbison, senior vice president of economic development at the Greater Memphis Chamber. “They’ve done a good job of simplifying those incentives so companies are able to actually realize them.

“Before Bredesen got in office, it had been a long time since any incentives had been changed. We’d seen many of our neighboring states become much more competitive in regards to offering incentives to companies.”

In 2003, Bredesen, the former Nashville mayor first elected governor in 2002 and reelected in 2006, created the state’s first jobs cabinet to bring together various departments of state government with the common goal of creating quality jobs for Tennesseans.

Nissan employees pose for a photograph in front of the company's North American headquarters in Franklin, Tenn.
Photo: AP/Mark Humphrey

“Tennessee’s attractiveness for economic development has been enhanced over the last six or seven years by Gov. Bredesen’s jobs cabinet approach to bring all agencies and state government together to work as a team,” said Commissioner Matthew Kisber of Tennessee’s Dept. of Economic and Community Development. “In Tennessee, you have a team approach so that all the resources we have available throughout levels of government, as well as partners in the private sector, are working as one.”

Why Tennessee?

The last seven years have seen the creation of more than 50 corporate headquarters across the state, including The ServiceMaster Co. and International Paper in Memphis and Nissan North America in Franklin.

“Headquarters and back-office operations will continue to move here because of the low cost of doing business, our great work force and no state income tax,” said Kisber. “All the kinds of things that help that make those projects attractive are located in Tennessee.”

Tennessee Chamber of Commerce President Deb Woolley said the state also continues to attract manufacturers who produce everything from automobiles to chemicals to machinery, challenging the trend of manufacturing operations leaving the country.

“We focus on industries that have a future, that are going to be here for a while, which gives you the tax base for good schools, good public services and a stability in government and the economy that enhances the business climate,” Woolley said.

Those industries seem intent on beefing up the middle and eastern parts of the state while eschewing Memphis, as evidenced by a sampling of recent announcements.

Wacker Chemie, a Munich-based polysilicon manufacturer, has committed to investing $1 billion to build a plant that will produce chemicals used in solar panels, providing hundreds of well-paying jobs in Bradley County.

And Hemlock Semiconductor, which produces silicon for semiconductors and solar panels, is investing just over $1 billion for its new facility in Clarksville, which will provide hundreds more jobs there.

Dr. Rudolph Staudigl, president and CEO of Wacker Chemie AG of Munich, Germany, announces that theWacker Chemical Corp. will build a $1 billion facility in Cleveland, Tenn., during a news conference at the Dixon Center auditorium at Cleveland's Lee University.
Photo: AP/The Chattanooga Times Free Press, Dan Henry

In 2008, Bredesen established the Governor’s Task Force on Energy Policy, which sought to make Tennessee a leader in renewable energy sources and clean technology, sending a message to businesses that the state was serious about being a leader in the development of green power.

Tennessee’s penchant for attracting businesses with an emphasis on green power has merged with its penchant for attracting foreign automotive companies.

Nissan plans to manufacture advanced electric automobiles at its Smyrna plant, while Volkswagen is building what Forbes magazine has described as “one of the world’s cleanest automobile plants” in Chattanooga.

Kisber said he anticipates Tennessee will continue to attract automotive manufacturers and the smaller support enterprises – such as “Tier One” and “Tier Two” auto suppliers – that spring up in their midst.

The absence of union requirements has helped lure foreign automotive manufacturers to the Southeast in recent years. Many states, including Tennessee, have “right to work” laws, meaning employees decide for themselves to unionize.

“You're not obligated by law to have a union when you move your facility down here,” said Herbison. “We see most of the foreign automotive companies come into the South, pay their employees extremely well, give them really good benefits. You can come to Tennessee and have a union if you want, but it’s not required.”

Favorable business climate

Companies also are drawn to Tennessee because it’s one of only a handful of states that, in addition to being “right to work,” doesn’t have a state income tax. Businesses view the lack of a state income tax and state personal property tax as a big plus for the employees whom they target for relocation.

Terry Strange, HemlockSemiconductor Group site manager, thanks local officials in Clarksville, Tenn., who helped bring the plant to Clarksville.
Photo: AP/The Leaf Chronicle, Robert Smith

“We’re not a heavily taxed state to begin with,” said Herbison. “A lot of states have an income tax, franchise tax, excise tax, property tax. They tax businesses a lot more. The overall tax burden and cost of doing business on a daily basis here makes it much more attractive over the long term.”

Several years ago, the state legislature passed a bill that overhauled workers’ compensation and was considered another victory for improving the state’s business climate, something Kisber said “played a tremendous role in removing one of the largest obstacles to our business climate.”

Also adding to Tennessee’s commercial appeal is its transportation infrastructure and central location, just a day's drive from 75 percent of the country.

"There are a lot of inherent things that Tennessee has that make it competitive, like being centrally located right in the middle of the country's major population centers,” Herbison said. “Logistically, we're well-positioned to be able to distribute things. Memphis has FedEx and the logistics industry because of its central location, and that has driven a lot of business.”

If anything, Memphis’ transportation assets have been the city’s biggest advantage when attracting economic growth, as evidenced by Class I railroads expanding their presence here in addition to the already strong trucking and air cargo industries.

More than anything, however, business leaders from Memphis to Kingsport seem to agree that an enterprise-friendly state government has been the real driver in heating up Tennessee’s business climate.

And that support extends to smaller companies. At the last state legislative session in June, a bill sponsored by Lt. Gov. Ron Ramsey was passed, creating the Office of Small Business Advocate.

In July, Joshua Helton stepped into his new role as liaison between Tennessee’s government and its nearly half a million small businesses.

“There are really two core functions to this office,” said Helton. “One is to simply be a resource for information for people who are either starting a small business or who’ve already started a small business in Tennessee.

“The other primary function is to act as an informal mediator between small businesses and the government entities that regulate them. If a small business receives communication from any state agency or department and they either disagree or don’t understand it, they can contact me and we can help find a resolution.”

Future of state business

Business leaders seem to agree that Bredesen’s pro-business policies have played a key role in making Tennessee a desirable place to do business. In light of the upcoming November gubernatorial election in which Democrat Mike McWherter will square off against Republican Bill Haslam, business leaders also seem to agree that both candidates have made it clear that they intend to nurture and grow Tennessee’s business-friendly environment.

“The most exciting thing about our next governor, whether it’s McWherter or Haslam, is that both of them come from the business world,” said Woolley. “They both understand what it takes to have a business, grow a business, exist with a business, and they’re going to bring that to the table. Neither party is critical of what the state has done in the business world. I really think we’ll see a continuation of this being one of the best business climates in the country.”

Herbison said he can see either candidate “continuing to tweak the incentives, coming up with unique ways to recruit industry.”

One thing Kisber would like to see in the future is more emphasis on education to ensure the competitiveness of Tennessee’s workforce.

"The biggest challenge we face is ensuring that our education system for K through 12 is producing students with the skill sets needed for the jobs of tomorrow,” he said.

"So many of the jobs today are advanced manufacturing jobs that require higher levels of mathematics and science, which means you need to have the analytical and the communication tools to be able to comprehend, communicate and analyze. The follow-through by the next governor will be very important.”

Woolley considers the recessionary effects on state government with declined revenues and shortfalls, and low consumer confidence levels to be serious immediate challenges.

“Without consumer confidence, you can’t make it, you can’t sell it, and you can’t provide it,” she said.

The state’s unemployment rate continues to hover at around 10 percent, and while Woolley said companies are bouncing back, she said not all the jobs will return.

“We’re looking at a jobless recovery,” she said. “As companies come back, they’re not all going to hire. So, we need to put an emphasis on growing new jobs. We need to continue to attract new businesses.”

PROPERTY SALES 106 318 6,336
MORTGAGES 131 363 7,084
BUILDING PERMITS 178 482 13,795
BANKRUPTCIES 40 208 4,301