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VOL. 124 | NO. 244 | Monday, December 14, 2009

Mega Bucks

West Tennessee's quest for an industrial megasite – and all that comes with it

By Bill Dries

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Bird's Eye View

An aerial view of the Haywood County megasite shows the rail and road access to the 3,836-acre site. The land has already been acquired by the state. Infrastructure costs and plans are still being worked out by the Bredesen administration. -- PHOTO COURTESY OF HAYWOOD COUNTY GOVERNMENT

Ten years ago, Jim Ewing and Jim Bruce wrote a piece for Site Selection, a trade magazine for people in the business of consulting on the best locations to build industrial plants. It was called “The Approaching Industrial Land Shortfall.”

Ewing was director of industrial development for the state of Georgia. Bruce was principal of an Atlanta office of business consulting firm Fluor Daniels.

“Much of the U.S. is running out of attractive, properly prepared industrial land,” they began. “Companies are frustrated and hurt when their facility expansion projects find only unsuitable properties, poorly or incompletely planned industrial parks and other dead ends. Some sites represented as industrial property fairly scream that they are leftover parcels, passed over during the community’s earlier stages of development.”

In the article, Bruce and Ewing called for regional industrial parks.

“Regional park development requires putting aside local competition and working to spread the benefits of new investment, jobs, markets and tax revenues across a multi-jurisdictional region,” they wrote. “Some smaller rural communities may not yet have financial resources to develop a fully serviced industrial park.”

A year or so later, the idea of industrial sites with the necessary roads, sewers, water and utilities began to be called “megasites.”

Tennessee has two megasites that have been sold. One is the Volkswagen plant in Chattanooga and the other is the Hemlock Semiconductor plant in Clarksville, which is co-owned by Hemlock and Dow Corning Corp.

With megasites in two of the state’s three grand divisions, attention has now shifted to a third megasite in West Tennessee’s Haywood County.

Emphasis: here, now

Unlike the other two megasites in Clarksville and Chattanooga that now have corporate committments, the Haywood County megasite is in a much more rural area.

By The Numbers

The Haywood County megasite is 3,836 acres with 1,780 acres as the core site.

The promise of a $1 billion plant in rural West Tennessee is the most visible symbol of Gov. Phil Bredesen’s pledge to dedicate his second term of office, which runs through 2010, to the economic transformation of the state’s rural communities. He’s already delivered three $1 billion industrial plants to the state in a year’s time. That includes the Wacker Chemie chemical plant in Cleveland, Tenn.

Haywood County Mayor Franklin Smith isn’t shy about saying his area would change dramatically if the 3,836-acre site becomes home to a corporate tenant or owner.

“Hopefully for the better. It won’t be the same as it once was,” Smith told The Memphis News. “Hopefully, we’ll create lots of jobs, not only for people in Haywood County, but for people all over West Tennessee.”

The plant would be built on a core site of 1,780 acres. The remaining 2,056 acres would be for a rail corridor into the plant, new roads into the site and for buffer zones and other environmental steps that would have to be taken to meet state and federal environmental regulations.

Haywood County is a unique blend of agriculture, history and ecosystem. Its history is the one element that doesn’t seem to change.

“People in agriculture will tell you that it’s not labor intensive like it used to be,” Smith said of the county’s cotton economy. “There’s no labor in agriculture anymore. While agriculture is still important to our economy, we’ve got to have some job creation. … Our unemployment rate is bumping 19 percent.

"Everybody around us is in double digits. We’ve just got to do something to create jobs.”

Haywood County includes the Hatchie National Wildlife Refuge, an 11,556-acre swamp habitat for migrating birds and other wildlife.

The refuge, established in 1964, is four miles south of Brownsville. It’s used not only by hunters, but by those who fish, boat and people interested in observing wildlife. Most of the refuge is in the floodplain of the Hatchie River, which is the last unchannelized river in the Lower Mississippi River Valley, meaning its course has not been manipulated intentionally.

Wetlands are an environmental consideration for any large development near a river. The wetlands in the refuge still work on natural and normal wetland cycles that flood 9,400 acres of bottomland that is a hardwood forest. Change the landscape with an industrial plant or even with existing cotton farming practices and managers of the refuge have said there are and will be changes in the refuge.

State officials are adamant it won’t be damaged.

“Let me assure you, all state environmental laws have been followed in the development of this site,” said State Economic Development Commissioner Matt Kisber at a critical September hearing before the Tennessee Building Commission, the group of elected and appointed leaders who approve financing for such projects.

A site in Haywood County north of I-40 is where Gov. Phil Bredesen envisions a megasite with a solar power plant housed on part of 1,720 acres of farmland. The solar array initially would generate 5 megawatts of power. -- PHOTO BY LANCE MURPHEY

“No issues have been raised that cannot be mitigated or avoided with standard practices used in the construction industry. As someone who grew up in West Tennessee … the last thing any of us want to see is the degradation of the Hatchie River Wildlife Refuge. If I didn’t think that could be avoided, I wouldn’t be here before you today.”

Voices of dissent

The hearing at which the $40 million in state funding and financing for the acquisition of the megasite land was approved included many opponents and critics.

The opposition included several residents of Fredonia, a historically black farming community of 200-300 people whose homes border the site and also straddle the Haywood-Fayette county line. They argued they should have been approached about selling their property.

“We’re not here about jobs. We’re here about legality,” said Gary Bullwinkel, who rallied the Fredonia residents and helped arrange for them to come to Nashville. “That $40 million, the moment that you pass it – the property values in Fredonia go down. … That money is going to be discriminatory.”

The megasite boundary goes right up to Fredonia Road, with the Fredonia community on the other side.

To counter criticism, Smith also attended some of the meetings Bullwinkel organized in the community. He claims Bullwinkel has been exaggerating the impact. Smith took a group of 50 Fredonia residents by bus to the Saturn auto plant site in Spring Hill, Tenn., to counter claims that Saturn came to that area with smoke stacks and a lot of pollution.

Fredonia is south of the megasite. Black farmers bought and owned land there before and after the Civil War and through Reconstruction, weathering the Jim Crow era as well as the Great Depression that followed.

“We’ll do everything we can to buffer Fredonia so they don’t suffer from what goes on the megasite. It will not cross Fredonia Road,” Smith said. “Hopefully, we won’t have any impact on the Fredonia community, except there will be traffic there. But it won’t be on Fredonia Road. It will be on roads into the site and it will be (on) new roads.”

Smith said state planners initially talked about the possibility of closing Fredonia Road.

“I told them that wasn’t an option,” he said. “If we build the (railroad) across Fredonia Road, we’ll bridge over it. We’re not going to close any roads. We’re going to try to be good neighbors.”

He also said there will not be any four-laning of Thorpe Drive, whose residents include some of the most vocal opponents. The road is a mile south of the plant's core site.

“If you’re a mile away, you won’t be harmed,” Smith said.

By The Numbers

$40 million in state funding and bond financing has been approved for the Haywood County megasite.

The state put up $262 million in bonds to finance the VW plant in Chattanooga and Hemlock Semiconductor facility in Clarksville – $170 million for VW and $92 million for Hemlock. That was buying the land as well as paying for the infrastructure, such as roads and sewers and water connections.

The use of state bond debt is a first for Tennessee.

In the worst national economic recession since the Depression, some state officials thought hard about the precedent, even if they agreed with Bredesen’s decision not to tap a $750 million state reserve fund.

The move to bonds also came during a turbulent and sudden transition in Nashville, as Republicans retained their majority in the state Senate but then surprised even themselves in the 2006 elections by becoming the majority in the state House.

The new Republican legislative leadership selected David Lillard, then a Shelby County commissioner, as the new state treasurer. A fan of pay-as-you go projects and a stickler for details – especially fiscal details – he found reason to pause as he assumed his duties over the unprecedented use of bonds for economic development.

“There’s a point where debt service will become, if not a burden, then certainly a noticeable item in your overall expenditures,” Lillard said earlier this month. “And Tennessee has a long history of being a pay-as-you-go state. I guess (former) Gov. (Ned) McWherter was probably the No. 1 champion of pay as you go.

“To me, as treasurer, that’s one of the reasons that we’re better off today in Tennessee than a lot of our brother and sister states are. We have less of a debt burden than many other states do.”

Other political leaders who remained in Memphis had another reaction to the bond financing.

'Stay the course'

Then-Shelby County Mayor A C Wharton Jr. learned of the state’s unprecedented move to bond financing during a meeting at The Regional Medical Center at Memphis, with then-recently selected State House Speaker Kent Williams. State House Democratic Caucus leader Mike Turner of Davidson County wanted the Memphis group to help persuade Lillard to overcome some of his reservations about going bond.

“If we cannot bond these things, we’re going to finance it, because in this tough economy cash is king,” Turner told the group during the sitdown in a wood-paneled conference room at the hospital. “If we cannot bond these things, we’re going to have to pay our obligations to those plants out of TennCare reserves, out of our other reserves. And that could affect the funding for your projects.”

Wharton said he was surprised by the bond option.

“I’m glad to hear that. … We’ve never gotten that in West Tennessee,” he told Turner.

By The Numbers

Unlike the megasites in Clarksville and Chattanooga, the Haywood County site is near the Hatchie National Wildlife Refuge, 11,556 acres.

After the meeting, Wharton told The Memphis News, “I find it kind of odd that we’ve seen fit to discuss it in terms of bringing in massive economic development for other sections of the state. Why can’t we do this here?”


Solar Farm's Piece of Haywood Megasite

The other part of the Haywood County megasite is a solar “farm” and visitors center to showcase solar technology.
Gov. Phil Bredesen said he hopes the showcase will be a precursor to a solar energy industry he wants to kick-start with $62.5 million in federal stimulus funding spread across the state. The solar farm and center are a separate transaction from the Haywood County megasite land purchases and development.
The 200 acres of land for the array of solar panels would be bought with $2.12 million in federal money passed through the Tennessee Economic Development Department. That comes to $10,600 an acre.
The federal money comes from escrow funds that were part of a settlement in a court case involving oil wells and violations of federal environmental regulations. Tennessee officials got a confirmation letter from the federal Department of Energy on Dec. 2, confirming the money is committed for the state to buy the acreage for the solar farm.
Up to 50 acres of the land would be bought by the University of Tennessee and then leased to Genera Energy LLC, a for-profit limited liability company, at $1 a year for 40 years.
Genera was formed in 2008 by the UT Research Foundation to work with private companies. Genera is specifically working with DuPont to build a pilot ethanol biorefinery. It’s entry into the West Tennessee project was a well-kept secret until details of Genera were revealed at the October meeting of the Tennessee Building Commission.
Ecological assessments on the land have been completed. Twenty of the 200 acres would be transferred to the state Department of Transportation for a welcome center as well as construction of traffic interchanges into the rest of the site.
The production goal for the solar farm is 5 megawatts a year, with the Tennessee Valley Authority agreeing to buy 800 kilowatt hours generated at the farm annually.

There were already plans for Haywood County, which the year before won crucial certification of the megasite by McCallum Sweeney Consulting.

The Greenville, S.C., firm’s stamp of approval isn’t a national standard. But it is a key factor in being taken seriously by a company that wants to spend a billion dollars building a plant.

The megasites are being developed in Tennessee and other Southern states with the idea of becoming home to a string of auto plants. Tennessee in particular had a couple of success stories in the 1980s during that round of auto industry expansion plans. The Saturn plant was built in Spring Hill, and Smyrna became home to a Nissan plant.

Bruce, who worked on the Chattanooga megasite and now heads his own Atlanta company, Bruce Facility Planning Consultants, acknowledges it might be difficult to see how that will work.

General Motors bought Saturn, which went out of business this year, when a plan by racing and car sales magnate Roger Penske to buy the GM division fell through. On the other hand, Nissan plans to build new electric cars at Smyrna.

“Nobody is forecasting any new, major, full-fledged automotive assembly plants anytime in the near future,” Bruce said. “So communities might feel they’re sitting on something that’s out of alignment with the marketplace. And it is. You’ve got to be prepared to stay the course for a while.”

Preparing for the end of the recession is the gospel of economic development in Tennessee and elsewhere.

Bruce argues it's more than an article of faith when it comes to manufacturing jobs.

That sector of the U.S. economy took a big hit from about 2000 to 2005.

“That was a time when a lot of jobs got outsourced to China. That was the time when there were a lot of industrial plants that kind of came to an end of their effective life and their owners chose not to reinvest,” Bruce said. “In the time since 2005 … things actually pretty well stabilized. We didn’t start to grow again in the manufacturing sector. But we did pretty much stem the loss of jobs in the manufacturing sector. I think that was very significant.”

The job count and forecasts are more than the subject of speculation for Bruce. They are a daily part of a job that involves lots of travel, knowing what sites won’t work with just a few questions, and sometimes consigning years of effort by a community to the scrap heap.

“We looked at all the things that a car company is typically going to look for: the labor force, the logistical conditions, the permitting status, air quality, things like that,” he said by phone from Detroit. “There are also some large parcels of property which probably should not have been put together with anybody’s expectations too high.

"Simply having a thousand acres of dirt doesn’t make it a competitive piece of property.”

And there’s an art to the dance between local leaders and the site consultants.

Shoot for the moon

Larry Griffin, the mayor of neighboring Crockett County, knows it well.

His community put together a megasite proposal in hopes of winning the Toyota plant that instead went to the Tupelo, Miss., area. Griffin and the community had more going for them than more than a thousand acres of dirt. The site had access, and he was told by some involved in the search that Crockett County ranked third.

The effort began three years ago. There were options on the 1,750 acres Griffin and others worked to assemble. They’ve just recently let them run out.

“It’s very intense. You just about have to have the moon and the stars and the sun to come out on top. It’s very competitive,” Griffin told The Memphis News. “We made a valiant effort for a county our size. … We’re just about 14,300 people. We gave it the best shot we possibly could.”

Griffin also had assurances from the state that it would come up with the money if Crockett County landed the Toyota plant.

The state role in Haywood County has been different.

“We were told that if the project came, it would not go away,” Griffin recalled of meetings with state leaders in Nashville. “But we didn’t have the luxury that Haywood County has of having that money provided to buy that land. That kind of hurt us.

"But we did have options in 1,700 acres. … We felt good about that. But the competition – they already had everything in place.”

Meanwhile, Haywood County was emerging as the West Tennessee site that would get state bond money to buy the land in advance.

But unlike Chattanooga and Clarksville, it wouldn’t get the bond financing for infrastructure. Bredesen could address state funding for that early next year in his final budget proposal to the Tennessee Legislature.

The Crockett County megasite is still on the Tennessee Valley Authority Web site. The TVA helps market the sites in its multistate region as part of its economic development mission. Utility providers in other parts of the country also perform the same mission in their service areas.

Griffin said he still gets a few nibbles.

“We’re always getting a little hit on something. But the problem is they’ll contact you and they want a response within 24 to 48 hours,” he said. “Sometimes that’s difficult to do. I think that’s a test just to see how ready you are.”

The announcement of a Toyota plant in the Tupelo area was followed by construction that was soon halted as Toyota froze its plans.

The uncertainty fueled critics of the Haywood County effort, such as Nick Crafton, an engineering consultant at a Memphis firm who lives in Haywood County.

Crafton was complimentary of the “mega recipe” used by the state, especially in Chattanooga.

“But, alas, even with the best recipes, there are no guarantees,” he told the State Building Commission in September as he talked about the Tupelo project. “Mississippi’s future taxpayers are currently on the hook for $235 million with zero jobs for right now.”

It had been nine months since Toyota suspended work on the Tupelo site. Crafton charged that Tennessee economic development officials were straying from the formula and moving too fast with land acquisition and the commitment of state dollars as well as debt, “changing the ingredients, changing the order in a desperate attempt to save a five-year stale sales pitch.”

Lillard insists the process has been consistent, above board and by the numbers, as well as a judgment call and political.

“I support the megasite. I’ve said that repeatedly,” Lillard said. “One of the arguments was, we already had developments in Chattanooga and that area down there – significant ones … and then we already had it in Clarksville. So, the western grand division, it was their time to have a major economic development. The politics of it becomes a part of that.”

Earlier this month, Toyota announced it was resuming construction work near Tupelo as well as at other plants in China.

To Bruce, that is confirmation of his belief that demand for cars in the U.S. market and in others where industrialization is new will create a need for car plants.

“I am very comfortable that there will be a number of new automotive plants developed in the United States – probably not within the next couple of years,” he said. “I think it’s very likely that they are going to be developing another set of plants. So these will be coming and they will come to communities that are prepared for them. But it’s just something where it has to be looked at very seriously.”

Bruce also insists the hundreds of millions of dollars states like Tennessee are investing in such competition are countered by large amounts of money the companies are investing.

“The real estate part of it is really small,” he said. “You’re going to be spending much more money on things like hiring and training your staff. The cost of buying the site relative to all of these other investments is really pretty low.

“They are much more concerned about the ability to get people who are going to be good, professional, motivated, good work ethic, (and are) willing to be trained.

"You’re going to be paying these people, if it’s an automotive plant, probably $25 an hour for 2,000 hours a year for 30 or 40 years. You have a couple of thousand people doing that, and that adds up to a lot more than the cost of the land in a big hurry.”

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