PHIL HARDWICK — The value of corporate headquarters to communities

Phil Hardwick

Phil Hardwick

For many people, growing up in Jackson, Mississippi in the 1950’s and ’60’s meant banking at Deposit Guaranty, buying groceries at Jitney Jungle and shopping for clothing at McRae’s. Today, those homegrown local businesses are no longer wearing the same names as a result of being acquired by even bigger businesses. Not only did the names go away, but so did the corporate headquarters. Coveted by cities and states, corporations are now offered a variety of incentives to keep or move the headquarters. And it is no wonder. Corporate headquarters are valuable community assets.

The companies mentioned above were paragons of community involvement and leadership in the Jackson. When it was acquired by Profitts in 1994 McRae’s had 28 stores with combined annual sales of $419 million. The ownership change went through Saks Holdings, and ultimately McRae’s store turned into Belk’s stores. Jitney Jungle, whose owners were deeply involved in the community, was acquired by Winn-Dixie in 2000. The store on East Fortification Street in Jackson, still known to many Jacksonians as “Jitney 14,” remains open today as part of a relatively new local grocery chain called McDade’s, which also owns former Jitney stores on Duling Avenue in the Fondren area of Jackson and most recently the former Jitney which closed after Winn-Dixie’s departure on Ellis Avenue in Westland Plaza Shopping Center. Deposit Guaranty National Bank has evolved into Regions Bank after series of mergers and acquisitions.

So why are corporate headquarters so sought after by government leaders? The headquarters of a corporation typically employs the more highly-skilled and highest paid professionals than regional branches. That means those employees buy more expensive residences and spend more money in the community. Also, headquarters offices usually purchase more high end professional services, such as auditing, management consulting, banking and financial services. Consequently, there is a higher job creation multiplier of such jobs. Professionals also tend to be more involved in community development, philanthropy and arts and culture activities.

All across the country communities are doing everything they can to retain and recruit corporate headquarters. One of the more notable recent cases was in Florida after Office Depot and Office Max merged. The Office Depot headquarters was in Boca Raton, Florida; Office Max was in Naperville, Illinois. Officials in Illinois wanted the new headquarters in its state so much that its lawmakers considered a $53 million incentive package over 15 years based on Office Depot creating 200 jobs and retaining 2,050 workers. But that of course was contingent on the company spending $150 million in the state, potentially for a new headquarters. Florida would have none of it. After all, Office Depot pumps $123 million annually into the local economy and is one of the region’s few Fortune 500 companies. Plus, it had received incentives in 2006 when the company decided to keep its headquarters in Palm Beach County, where it employs 1,700. Office Depot is eligible for more than $2 million in job-creation incentives over 10 years and received $2.7 million in 2006 from the governor’s “quick action” fund to close deals. Palm Beach County’s 2006 deal also forgave $6.5 million in taxes over 10 years for the promise that the office-supply giant would stay in the county.

So which state won? Here’s the December 2013 statement by Gray Swoope, Florida Secretary of Commerce and CEO of Enterprise Florida Inc. and former executive director of the Mississippi Development Authority:

“We are thrilled that Office Depot has chosen to locate its global headquarters in Boca Raton and retain more than 2,000 jobs in Florida. We appreciate Office Depot’s continued confidence and commitment to the state and we look forward to working with them as they expand and create new jobs for Floridians.”

In Colorado, satellite-image company DigitalGlobe Inc. received an incentive package of up to $4.4 million to create 435 jobs and keep its headquarters in Colorado, according to a spokesman at the Colorado Office of Economic Development and International Trade. In Louisiana, the new CEO of Smoothie King, recently said the company intended to add 1,000 new domestic stores over the next five years and to keep the company in metro New Orleans, where it was founded 39 years ago. Louisiana will provide Smoothie King with a $2.4 million, performance-based grant payable over five years. Among other things, the money can also be used to offset flight differential costs for New Orleans versus other markets in the case the company needs to charter an alternate route for a flight. Now there’s a creative incentive.

The list of states and cities offering incentives goes on and will no doubt continue as companies realize that they can reduce their costs by pitting states against each other. States that are losing companies are spending big to keep companies. Illinois, for example, offered $272.7 million in incentives to 67 companies that had “invitations” from other states.

So let’s not be surprised if and when one of our favorite Mississippi corporations is acquired by another company in another state and is offered incentives to move. On the other hand, we should not be surprised when we do the same thing for a company in another state.

» Phil Hardwick is coordinator of capacity development at the John C. Stennis Institute of Government. Pease contact Hardwick at phil@philhardwick.com

[RSS Feed] [del.icio.us]



To sign up for Mississippi Business Daily Updates, click here.

POST A COMMENT

 

Top Posts & Pages