Mr. Wiley listed various “critical success” factors for North Carolina’s adjustment to this “new regionalism.”  Primarily, there has been great emphasis placed on local, state, regional, national and international economic development partnerships.  Second, workforce and education partnerships have played an important role in continued economic development.  These give partnerships focus on pre-K and K-12 education, as well as community colleges.  Also, several focused-interest programs have been developed, which have led to continued success for the state.  For instance, the “State of Minds” initiative, which works to sustain a talented and educated workforce, has been pivotal in monitoring the ability of the public to fill existing jobs in the state.  In addition, there has been a concerted effort by the General Assembly and other local officials to promote solid infrastructure development and maintenance, which has become very important. 

As a result of these efforts, almost all of the 200,000 lost jobs in the state have been replaced, as well as generation of additional jobs.  The economy has become more diversified, and various economic sectors have been strengthened.  The state has seen strong in-migration, contributing to it becoming the 10^th most populous state in the United States.  Also, the state has been named to Site Selection’s “Top Business Climate” five of the past six years.

Mr. Wiley insisted that a unified vision has been an essential part of North Carolina’s move forward.  Adequate funding, specifically in the areas of education, workforce development, infrastructure, natural resources, and incentive packages for interested corporations, has contributed to the state’s recovery.  Funds have been contributed at all levels—state and local, public and private—and have been used to stimulate an environment where economic development can continue to rise. 

Mr. Wiley ended by emphasizing that the environment—the new global economy—must be acknowledged.  Cities, counties and states must work together in order to achieve the necessary clout for succeeding in the modern economy.  Competition is stiff, and working together for continued progress is imperative.

Second Plenary Session, October 27, 2007

Place-based Economic Development

Dr. Vaughan Grisham, Associate Professor of Sociology, The Center for the Study of Southern Culture at the University of Mississippi

Dr. Grisham began his presentation by stating that the most important aspect of economic development is looking for “extraordinary results in ordinary places.”  If communities work to create “breakthrough solutions” then economic development will happen, and those communities will move forward.  Dr. Grisham emphasized that one of the most important aspects of community development is “the passion to accomplish.”  There must be a sincere desire to see change happen, which is more important than having “the best idea.”  The reason for this dynamic is that the most important resource in communities is people. 

Secondly, communities must link people, businesses, and entrepreneurs to one another, so that the potential for ideas can flourish.  Further, in this connectedness there must be collaboration.  A cooperative agenda among government agencies—including city government, the local school system, the chamber of commerce, and so forth—is necessary for growth and maturation.  The community must move in one common direction. 

In addition to recognizing and utilizing the assets that exist within the community, the community must look externally for assets that are lacking.  If these assets are essential to progress, they must become part of the drive toward progress.  Also, communities must establish very specific, focused goals for themselves.  Whether reducing the drop-out rate in local high schools or revitalizing the downtown area, there should be a vivid articulation of what needs to be accomplished and how to go about accomplishing it.  A timetable for achieving these specific goals also is very important. 

Dr. Grisham then gave various examples of communities that have successfully established and accomplished such goals.  The first example involves Houston, Minnesota, a small community with a population of slightly more than 1,000.  A very simple goal of the community, which was experiencing significant job losses and a declining economy, was to ensure that every household possessed a computer and had access to the Internet.  They accomplished this goal that every household was connected to one another and to the rest of the world.  As a result, new businesses in this small town have been established and have thrived.  Houston has rebuilt its entire community around this one development.  Most importantly, it was a result of the focused efforts of the community as a whole that led to these results. 

A second example given by Dr. Grisham is that of Colquitt, Georgia, a small town of fewer than 2,000 people that also was suffering an economic depression.  Through conversation and planning, Colquitt found a way to market their “stories” to a larger audience.  The community collaborated on various folk stories about the town, hired an outside director-producer and screenwriter, and began putting on plays based on these stories.  The community began with a $2,500 budget, and now has amassed approximately $2.5 million in revenue as a result of these plays.  The money generated from these plays has been used to purchase every vacant building in the town of Colquitt.  In addition to a theater, they have built a bed-and-breakfast, a mini-mall, affordable housing projects, and a community center, all of which continue to contribute to the growth of the town’s economy.  Again, Dr. Grisham emphasized that the collaborative efforts of the town around this idea is what made it successful—the idea alone was not enough. 

The final example given by Dr. Grisham was of Tupelo, Mississippi.  Like Houston and Colquitt, Tupelo began addressing what was missing in their community, what was hindering economic development from happening.  One project was the construction and operation of a regional hospital.  This structure eventually evolved into the North Mississippi Medical Center, which is now the second largest employer in the state, employing more than 6,600 people.  This is an example of how meeting the need for more jobs in an area was coupled with the need for better health.  The extra money that was generated from projects was put back into the community, predominantly through the local school system.  The investment in education, in turn, stimulated an environment that attracts manufacturers—access to a skilled workforce.  In total, 52,000 jobs were created in Tupelo.  There has been no “urbanization” in Tupelo—they continue as local people addressing local problems. 

Dr. Grisham continued by emphasizing the importance of being realistic about potential resources.  If a small town realizes that they are not going to attract more factories, then they are forced to turn to other means.  Also, entrepreneurs in communities must work together, rather than compete with one another.  Dr. Grisham emphasized the need for legislative support of local community development projects as well.

Finally, Dr. Grisham articulated the urgency for communities to be willing to change.  There is a dire need for communities to adapt to the global environment.  Communities that can do this will not only survive, but thrive.  Those that refuse, or are focused on “going back” to the way things were, will not likely survive.  Any community can change; they simply must be willing to do so.

Comparative Data Reports Luncheon, October 27, 2007

I. Comparative Data Report on Medicaid

Shawn Hotstream, Louisiana Legislative Fiscal Office

According to the Comparative Data Report on Medicaid, total actual Medicaid payments, excluding administrative costs, for the 16 SLC states for federal fiscal year (FFY) 2005 were $98.8 billion, an increase of $6.5 billion, or approximately 7 percent, over the FFY 04 level of $92.3 billion.  This is the third consecutive year of single digit increases in total Medicaid spending.  During FFY05, the report indicated, the total number of Medicaid recipients in the 16 states was 21,040,633, compared to 15,272,382 recipients in FFY99, indicating a 5.5% annual increase.  Medicaid per capita spending in the 16 states has increased from $604 in FFY99 to $923 for FFY05.  Within the states, per capita spending per recipient ranged from $619 in Virginia to $1,353 in Tennessee.  Annual payments per recipient for the southern region have increased from $3,171 in FFY99 to $4,410 in FFY 05, an overall increase of 5.7 percent per year.  Payments per recipient for FFY05 range from $3,346 in Georgia to $6,412 in Maryland.

II. Comparative Revenues 2002 Through 2006 and Revenue Forecasts

Kim Arnall, Arkansas Bureau of Legislative Research

According to the report on Comparative Revenues, the SLC had the lowest total state taxation revenue average per capita and per $1,000 of personal income in comparison to other CSG regions in the United States in FY05-06.  Within the SLC, state per capita tax as a percentage of per capita income increased in 14 states, while South Carolina remained the same and Florida saw a decrease in FY06 over FY05.  In the national ranking of total state tax revenues, of the SLC states Maryland ranked the highest at 14 and Texas ranked the lowest at 49.  For nine SLC states, the best source of state revenue was Income Tax.  For the remaining seven states, it was Sales, Gross Receipts Tax.

III. 2007 K-12 Education Comparative Data Report

Hank Hagar, West Virginia Legislature

According to the 2007 K-12 Education Comparative Data Report, among the SLC states with regard to total expenditures, Texas reported the highest expenditures per pupil for K-12 education at $43,375,742,026, and West Virginia reported the lowest at $2,736,667,545.  In terms of the percentage of general revenue appropriated for K-12 education among the SLC states, Alabama reported the highest percentage of general revenue appropriated for K-12 education at 65.2 percent, and Tennessee reported the lowest at 17.7 percent.  In 2005/06, a review of the pupil-to-teacher ratios among the SLC states indicated that Kentucky’s and Tennessee’s 16.0:1 was the highest and that Virginia’s 12.6:1 was the lowest. 

IV. Adult Correctional Systems

Kristy F. Gray, Louisiana Legislative Fiscal Office

The 2007 report on Adult Correctional Systems noted that the inmate population housed in state correctional facilities in the SLC states increased by 10,504, or 1.8 percent from July 1, 2006 to July 1, 2007.  The rate of change varied widely among the states from a high of 16.2 percent increase in West Virginia to a 0.7 percent decrease in Missouri.  Between 1997 and 2007 the resident population of the 16 SCL states increased from 97.6 million to 113.5 million, a 16.2 percent increase.  During that same time period, the number of state inmates, including state inmates housed in local jails, increased by 19.5 percent from 495,318 to 641,337.  The incarceration rate in the SLC region, which is the number of inmates per 100,000 inhabitants, increased from 507.3 in 1997, to 565.1 in 2007 and was below the percentage increase in the U.S. incarceration rate, which increased from 445.6 in 1997, to 519.9 in 2007.  The SLC states’ incarceration rate remains above the U.S. rate in terms of inmates per 100,000 population.  On July 1, 2007, the inmate population exceeded or equaled the maximum design capacity of the state correctional facilities in eight of the 15 states reporting.  The percent capacity ranged from 92 percent in Georgia to 204 percent in Alabama, with the capacity for the region at 102 percent. 

Third Plenary Session, October 27, 2007

Financial and Tax Incentives and Ensuring Economic Impacts

M. Keivan Deravi, Ph.D., Professor of Economics, Auburn University at Montgomery School of Business, Alabama
Mary Ellen McClanahan, Director, Entrepreneur and Small Business Development Initiative, Georgia Department of Economic Development
Michael C. Neuman, Ph.D., Associate Professor, Department of Landscape Architecture and Urban Planning, Texas A&M University

I. Dr. Deravi’s Presentation

Dr. Deravi began his presentation by emphasizing the current strength of the Alabama economy.  This is due to various, recent changes brought about in the state.  First of all, during the late 1980s and early 1990s, state business leaders and public officials concluded that the state’s traditional selling points no longer were sufficient and that something different besides marketing a cheap, unskilled labor force (“marketing their poverty”) must be explored.  The state began focusing on larger projects, such as the Mercedes Benz acquisition in 1993.  The state offered $300 million in incentives to Mercedes, and the deal has created approximately 1,500 jobs for the state.  According to the Alabama Automobile Manufacturers Association, in 2005, Alabama’s automobile industry included: 263 plants; 44,835 employees (up 44 percent since 2003); indirect employment of 79,356; and a payroll of $4.8 billion.  Mercedes alone supplies 22,000 jobs. 

Initially, Dr. Deravi explained, the state was criticized for offering such extensive incentives to businesses, but it was necessary for the state to “do something dramatic.”  (The state defended itself by noting that incentives for coveted industries already were escalating rapidly throughout the country.  For instance, Tennessee offered $33 million to Toyota in 1980, creating 1,900 jobs for the state.  In 1985, Tennessee again offered $150 million to Saturn/GM, bringing 6,000 jobs to the state.  And in 1990, Indianapolis acquired a maintenance facility of United Airlines for $294 million, resulting in 6,300 jobs.)  Since that time, Alabama also has acquired facilities by Boeing, Toyota, Honda and Hyundai.

Although Alabama has limited resources, it has been successful in attracting significant new industries and, in doing so, has found ways to offer generous and imaginative incentive packages.  According to the Alabama Development Office, in 2006, a total of 568 companies located or expanded in the state, announcing 24,780 new jobs and more than $3.1 billion in capital investment. 

The most recent of these large acquisitions is an assembly plant owned by the German steelmaker ThyssenKrupp.  The ThyssenKrupp steel facility will be built in Mobile County, and has announced 2,700 new jobs.  The $3.7 billion processing facility is expected to be operational by 2010.  The plant’s assembly will require the help of 32,000 construction workers over the next two years.  The radius for steel delivery is approximately 400 to 500 miles, so the South, with its automotive plants, was an enticing area for the company.

Alabama offered $811 million in incentives to ThyssenKrupp, including $461 million in upfront payment, with $314 million going to the company in cash; $67 million going toward training of personnel; $45 million going toward land purchase; and $25 million for transportation and road building.  This is in addition to the estimated $115 million that the Alabama State Port Authority will spend to build a facility on Pinto Island.  The state also offered a corporate income tax credit that effectively frees the company from state income taxes for its first 30 years of operation.  In return, ThyssenKrupp has agreed to employ 2,000 people for two years, which they must do in order to receive the entire incentives package.

The “2003 Corporate Survey” in Area Development magazine, Dr. Deravi continued, says that the greatest influence on location of new businesses is state and local incentives, followed by labor costs and availability of skilled labor.  In 2000, Alabama did not place among the top 25 states on either Executive Survey or Expansion Projects rankings.  However, since 2002, Alabama has consistently ranked in the top 10 states on the business climate survey of corporate executives, and in the top 20 states of actual project locations.  Based on recent reports released by the Alabaman Department of Industrial Relations, 16 counties in Alabama are reporting unemployment rates that are lower than 3 percent.  Also, 52 counties are reported to have unemployment rates that are lower than 5 percent.

II. Ms. McClanahan’s Presentation

Ms. McClanahan spoke on Georgia’s Regional Entrepreneur and Small Business Program (ESB), currently operated by Georgia’s Economic Development Office and instituted by Governor Sunny Perdue.  The program was created in order to stimulate innovation across the state.  The ESB program is entirely voluntary, but currently there are 64 communities already designated in the program, and 75 more are in the process of joining.

The program, Ms. McClanahan explained, was designed to address various problems.  First of all, in response to the lack of access to capital in the state, ESB created a Loan Guarantee Program through the OneGA Authority, one-third of which goes to rural economic development.  A small portion also goes to small-business development.  Second, ESB seeks to address entrepreneur education through the development of programs that provide courses on specific aspects of being an entrepreneur.  ESB also seeks to tie in minority partnerships, with the goal of connecting various parts of communities.  Finally, ESB has initiated “cross training” and marketing for different divisions of the Economic Development Office. 

The impetus for this program is to ensure that businesses “have someone to go to.”  Since it is impossible for the Economic Development Office itself to meet the needs of the millions of businesses in the state, it is important to help communities construct an entrepreneur-friendly environment where businesses have their needs met. 

Ms. McClanahan, using the ESB economic development strategic plan as an example, explained what is necessary for creating an environment of positive economic development.  First, there must be a movement away from thinking “traditionally” about business, and to consider all of the available resources for entrepreneurs in the state.  The second step is to visit and seek input from entrepreneurs, and to build working relationships with them.  Third, it is important to establish leadership and support for the businesses involved, from elected officials, other entrepreneurs, small businesses, and other important players.  Fourth, it is important to increase community awareness.  Finally, connecting state and federal resources is imperative. 

Ms. McClanahan emphasized the need to make use of existing resources in the state.  She also maintained the importance of being up-front and honest with entrepreneurs, and prompting them to do the same.  It is important for all parties involved (entrepreneurs, small businesses, the community, the state, etc.) to be realistic about what’s possible, and what will be brought to the table by each participant.  Also, timelines and accountability are very important to these type initiatives. 

III. Dr. Neuman’s Presentation

Dr. Neuman began by emphasizing the importance of infrastructure to economic development.  Economic development, at any level, cannot happen without infrastructure.  One of the most important questions to ask is: Who plans for infrastructure?  Since infrastructure is not something that “happens on its own,” determining what steps need to be taken to develop and maintain infrastructure is imperative for states.  Infrastructure has a low profile—it is invisible—therefore it requires special attention.  Infrastructure only makes headlines when it fails, Dr. Neuman asserted. 

Lack of funding is one of the reasons infrastructure in the United States is in such bad shape, Dr. Neuman continued.  It is imperative for states to recognize the significant need for infrastructure funding before disaster happens.  Also, he continued, city, town and state governments get more value from their infrastructure when it is coordinated practically with broad goals and comprehensive planning, rather than as a reaction to disasters caused by failures in the system. 

Dr. Neuman gave an example of how investment in infrastructure can have innumerable positive results for a community.  In Barcelona, Spain, efforts to revitalize a run-down industrial district that housed an incinerator, sewage treatment plant, and power plant yielded convincing outcomes.  This area now has been converted into the world’s largest solar panel, an electricity co-generating plant, a sludge drying plant, and a city park.  This was possible through funding, smart planning and resolute implementation.

The answer to this great dilemma, Dr. Neuman explained, is a “lifecycle approach” to infrastructure planning and financing.  The methodology has the goal of supporting infrastructure in the long term.  The idea is to continually plan; design; operate and maintain; repair and rehabilitate; and assess infrastructure, and then calculate state, county, or local budgets accordingly.  This alleviates the common mistake of not having secure, stable funding specifically allocated toward infrastructure needs.  The point is to include the financing of infrastructure and its upkeep in the budge process. 

Breakout Sessions, October 28, 2007

            The breakout session allowed members to reflect on the information that was presented during the first three plenary sessions and to converse with one another about 1) what positive steps were being taken in their home states; 2) what unhelpful policies exist in their home states; and 3) what needs to be done, in the areas of human, financial, and physical infrastructure, to promote economic development.  Each group designated a representative to offer a report to the Conference.  Some of the suggestions included:

• Cooperation among state agencies;

• Planning: paying attention to the needs of the future while resisting the temptation to merely focus on the present;

• Identifying critical needs;

• Being savvy yet realistic about funding needs;

• Raising consciousness within communities;

• Examining the larger effects of developing technology;

• Education: aligning school systems with the workforce needs in the state;

• Workforce training; and

• Examining the advantages of public-private partnerships.

Closing Session, October 28, 2007

Making it Happen

The Honorable Phil Wilson, Secretary of State, Texas

Secretary Wilson began by describing the incentive package offered to Toyota by the state of Texas as an example of a state investing successfully in industry for economic development.  This package included financial incentives, promise of available workforce, and other benefits stemming from this particular location.  In total, this was an $800 million investment for the state, but it produced 2,000 jobs initially, and later another 2,000 jobs for suppliers. 

Secretary Wilson then described the Texas Enterprise Fund, which is a tool that is based on the strategic philosophy that the prospect of garnering future deals is contingent on how much planning (and saving) the state can do in the present.  Ideas that states might consider include the competitiveness of the deal—Are several other states competing aggressively for the same deal?  Also, whether or not the local community will be involved is another important question to ask.  If there is little local support, then the state will be forced to carry the bulk of the burden by itself.  A third factor to consider is whether or not the new jobs created by the deal will bring higher wages than the prevailing ones. 

In the last four years, Texas has spent about $10 billion in capital investment.  However, with every economic development agreement Texas enters, it requires a guarantee by the facility that a certain number of jobs will be created in a certain amount of time.  In addition, the state has a program that gives incentives to companies that can create and maintain a certain number of jobs over a decade.

Secretary Wilson ended by stating that the most significant challenge for government is preparing for failure.  It is important to take the risk, but in a competitive environment, failure is always a possibility.  It is important for officials to recognize this.  The fear of failure, and the public criticism that inevitably accompanies failure, cannot obscure the vast possibilities that exist for states, nor deter aggressive action that might actualize these possibilities for the good of the state. 

Southern Legislative 62^nd Annual Meeting

Oklahoma City, Oklahoma, July 11-15, 2008

The SLC will meet for its 62^nd Annual Meeting July 11-15 in Oklahoma City.  In keeping with the wishes of the SLC presiding officers, please note that meeting notification does not authorize travel.

SLC Staff Contact:   If you have any questions regarding this report or the 2007 SLC Fall Conference, please contact Jeremy Williams in our Atlanta office at 404/633-1866 or jlwilliams@csg.org.