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Value of incentives questioned

LONG BEACH — The decision of Oreck Corp. to leave Long Beach after having received a large amount in incentives has some Harrison County officials questioning whether the county has received the raw end of the deal.

Beat Three Supervisor Marlin Ladner, who represents the area, said he feels the company was deceptive in assuring him two weeks before the closing announcement that the company was not planning to leave. Ladner said he didn’t think it was a coincidence that the company was leaving before its 10-year exemption on county taxes expires.

Ladner said he sometimes feels “it’s a one-way street with these companies.” When the 10 years are close to being up and the company would go on the tax rolls, they pick up and move.
Connie Rockco, president of the Harrison County Board of Supervisors, also expressed disappointment with Oreck’s decision stating, “When is enough enough for corporate America?” Rockco said since the hurricane, everyone has been burdened by a higher cost of living.

In addition to the tax exemptions, Oreck was given 14 acres of land at the industrial park and was sold land on other occasions at a discounted price of $3,000 to $6,000 per acre for industrial park property. The company also received a $416,000 Community Development Block Grant. And, Oreck received a 20-year loan of $3 million at 2.5% interest to finance part of the cost of the $12-million manufacturing facility, and still owes $1.65 million. According to the Mississippi Development Authority, under the terms of the loan from the state, Oreck has to pay back the note in full if employment in Long Beach falls below 200.

Henry “Tut” Kinney of Pass Christian, who is a commissioner with the Harrison County Development Commission (HCDC), has questioned whether there is proof the state, county and public benefit from incentives such as those given Oreck.

“The payback that government has to get back from these incentives is enormous given the time value of money,” Kinney said. “I think we have seen statewide the folly of these incentives, for example, the meat packing plant. I believe recent analysis of the Nissan plant has questioned the value of the incentives. When I say the value of the incentives, it is the hard economic numbers that are used to justify the incentives. For instance, if you give someone $100 million worth of incentives, your payback has to start at the minute those incentives are given because you have the time value of money involved. So the first year, in order for your incentives to be worth something, the payback has to be immediate and substantial to amortize those amounts.”

Kinney said he has never seen an analysis that shows that Oreck’s incentives were justified even while the plant was operational.

“It certainly appears to me from what I know superficially about it now, you aren’t going to get your money’s worth,” Kinney said. “I think the lesson we should learn from all of these failures is that we must have very real and hard detailed analysis to justify any incentives.

“The other thing we have to understand is in some instances we are giving incentives to people to compete with existing businesses. The most glaring example, which I call the poster child of terrible incentives, is when the development commission gave a beer distributor in Gulfport incentives to move from one part of town to another part of town. Not only that, once the Budweiser guy saw the Miller guy did it, the Budweiser guy did the same thing. So you doubled up. Beer distributors can’t move to Connecticut.”

Kinney said the fundamental flaw with incentives is the government really has no role in business because by the very nature of incentives, you are playing favorites. For example, a paving company in Gulfport recently came to the development commission requesting some property at a reduced price.

“Some people seemed to be somewhat amenable to it,” Kinney said. “But I asked, ‘How many competing paving companies are there in the county?’ There are six. Incentives are just a feel good proposition. You feel like you are doing something, but you are hocking the future. It just doesn’t make any sense to do it.”

Kinney said another important part of the analysis is what role do incentives play in the decision about whether a company locates or relocates? His thesis is that the incentives are really not the most relevant factor when someone decides to locate a business.

“It stands to reason it should not be,” he said. “There are a lot of other intrinsic elements a prospect analyzes before making a decision to move. The incentives are probably way down in the list of factors. A lot of decisions are made on the basis of geography, the quality of the workforce, taxes, labor laws and climate. All of those factors, I believe, will come before incentives. I’m afraid what happens is that people make a decision and then twist the arm of the local government once they have made up their mind.

“At some point we should say, ‘I’m not willing to gamble the public’s money that they will or will not come here.’ We should have enough confidence in who we are and how we run our government that people want to come here. I live in Mississippi by choice, and I love it. I don’t want to live anywhere else but where I live. I have enough confidence in where I live, and think others should, too. There are some very large employers who have relocated to Harrison County post-Katrina without a dime in incentives.”

Another point Kinney makes is that taxes go to fund basic services. If a company doesn’t have to pay taxes (except school taxes, which are not exempt), other taxpayers have to fund that company’s share of services.

“I think the debate about incentives has to be open and reasonable instead of just acting like it is the right thing to do,” Kinney said. “We have to be willing to look at it critically.”

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

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