- Fewer service companies have benefited than their counterparts in the product sector. Although far more of them will soon be expanding to new locations, not nearly as many have ever received incentives.
- Also facing long odds are businesses considering new operations in California or New York—cited as the states with the least- flexible or competitive incentive programs.
Involvement with Incentives
In total, only 24 percent of “Trendsetter” CEOs have ever received one or more location incentives for their company. Among these:
- 13 percent obtained state tax incentives, including seven percent that gained a break on real estate taxes; five percent, corporate income and franchise taxes; two percent, sales and use taxes; and one percent, personal income taxes. Other tax breaks were mentioned by four percent. Overall, product sector businesses were more likely to have benefited from state tax breaks: 17 percent, versus 10 percent for service businesses.
- 10 percent gained local government tax incentives, including six percent that obtained a concession on real estate taxes; three percent, personal property taxes; two percent, sales taxes; two percent, corporate income taxes; and two percent, other tax deals. Again, product sector businesses were more likely to have benefited: 14 percent, versus seven percent for service businesses.
- 12 percent received non-tax incentives from states and communities, mostly in the form of grants for employee recruitment and training, seven percent; low-interest and gap financing, three percent; discretionary grants, two percent; infrastructure improvements, two percent; utility rate reductions, one percent; reimbursements of relocation costs, one percent; and all other incentives, three percent. In this instance, product (12 percent) and service (13 percent) businesses were equally likely to have benefited.
In total, over half of those that have received incentives--13 percent--report that these breaks played an important role in their location decisions.
But, amazingly few—only six percent—have ever been in a position of having to choose among attractive packages offered by competing states or municipalities.
“Since these fast-growth companies are legitimate contributors to the tax base and economic vitality of the cities and states where they operate, it’s reasonable to believe they would be actively courted by economic development officials across the country,” said Steve Hamm, managing partner of middle market advisory services for PricewaterhouseCoopers. “But apparently in the big dance, three in four end up as wallflowers.”
One-Third of Fast-Growth Companies Currently Eyeing Expansion
Despite our limp economy, 34 percent of “Trendsetter” companies expect to expand their operations to other U.S. locations over the next 12 to 24 months. Of these, most (77 percent) are planning to put down roots in new states where they currently have no business interests.
More service, than product sector businesses are entertaining this thought--40 percent, versus 27 percent. And more service businesses will be setting up operations in entirely new states--80percent, versus 69 percent.
Those planning expansion average $31 million in annual revenues, and are expecting growth of 16.3 percent in calendar 2002--52 percent more than those staying home. And, they have the potential to become important economic engines. Over the next 12 months:
- Many more of those expanding are planning to make major new investments of capital--57 percent versus 29 percent, respectively. And, these investments represent 11.6 percent of their revenue.
- Also, more of them are planning new hiring--82 percent versus 57 percent—with the average expanding company expecting to beef up its work force by 12.1 percent.
“Significantly more service, than product sector companies are looking to expand, but product companies have a better track record for getting the incentives,” said Hamm. “One has to wonder if state and local government officials lean toward product businesses because with their hard assets, they appear more anchored than service companies.”
Factors in the Location Decision
Among those expanding, clearly the most important factors in location decisions are labor availability and productivity (cited by 60 percent) and favorable operating costs (58 percent). And, to a lesser degree, “Trendsetter” companies are motivated by: following customer or client opportunities (38 percent), transportation access (35 percent), physical viability of the site (33 percent), and infrastructure capacity (31 percent).
“One would imagine that state and local officials would collaborate on proposals positioning their targeted location as flush with attractive assets for growth companies--with a page of prospective sweeteners featured at the end,” noted Hamm. “But often these location initiatives fall victim to timing issues. Businesses planning expansion would be wise to let state and local officials know of their interest well in advance, and set aside more planning time to allow for proper negotiations.”
Best and Worst States
From the experience of the 24 percent of “Trendsetter” CEOs who have received incentive packages, the states most willing to negotiate were:
| (1) |
Virginia |
13%
|
(9) | Kentucky |
5%
|
| (2) |
Texas |
12%
|
Michigan |
5%
|
|
| Alabama |
12%
|
New Jersey |
5%
|
||
| (4) | South Carolina |
10%
|
New York |
5%
|
|
| (5) | North Carolina |
9%
|
(13) | Arizona |
4%
|
| (6) | Georgia |
7%
|
Delaware |
4%
|
|
| Nevada |
7%
|
Mississippi |
4%
|
||
| (8) | Florida |
6%
|
Nebraska |
4%
|
|
| Pennsylvania |
4%
|
||||
| Tennessee |
4%
|
||||
| |
West Virginia |
4%
|
In contrast, the states with the least-flexible or competitive incentive programs-- according to the 16 percent of “Trendsetter” CEOs who would discuss--were California (42 percent]) and New York (21 percent), followed by New Jersey (nine percent), Connecticut, Illinois, and Texas (five percent each).
“The fact that some states appear on both the ‘best’ and ‘worst’ lists suggests that individual officials can make a big difference in how a deal is perceived. This may be a situation where more experience or training in negotiating skills can have considerable positive impact,” said Hamm.
PricewaterhouseCoopers’ “Trendsetter Barometer” is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
PricewaterhouseCoopers (www.pwcglobal.com) is the world's largest professional services organization. Drawing on the knowledge and skills of more than 150,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance in an Internet-enabled world. PricewaterhouseCoopers refers to the member firms of the worldwide PricewaterhouseCoopers organization.
If you have a question about this “Trendsetter Barometer” survey, please contact Pete Collins, survey director and publisher, at 646-394-4496 or e-mail to: pete.collins@us.pwcglobal.com
For more information about Barometer surveys, including recent economic trend data and topical issues, please visit our web site: www.barometersurveys.com
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