Tennessee cities lead by example to encourage economic investment

TML Communications

When the Goodyear plant in Union City announced it was closing its doors in 2011, city officials not only had to face the loss of their community’s biggest employer but also the tax revenue brought in by the company.

Leaving approximately 1,900 people out of work, city and economic development officials realized they had to find something to fill the gap and create new industrial investment in their city. Lindsay Frilling, who serves as economic development director for the area’s joint economic development council and chief executive officer of the Obion County Chamber, said the plant closure changed the way Union City looked at encouraging investment in the city.

“The Goodyear closure was a lesson for us that we need to try our best to diversify our business base,” Frilling said. “Two of our largest employers now are in food processing. We have heavy manufacturing, we have light manufacturing and distribution. We have worked to try to diversify our businesses so if a specific industry is hit, we don’t feel it as much.”
To rebuild their local economy, Frilling said Union City had to start thinking about encouraging investment in a completely different way.

“We could have given up right then, but instead we all pulled together,” she said. “We pulled in the state of Tennessee, TVA and our local economic development folks to take steps toward recovery. We really stepped up our efforts and focused on educating elected officials and citizens about economic development. Taking small steps and making people understand what we need to do to get prepared for that next businesses was invaluable. Once we got that first business to move in, it started a snowball effect and we started to get more wins.”

Allen Borden, Tennessee Department of Economic and Community Development deputy commissioner of Business, Community and Rural Development, said the game of investment has changed dramatically in the past few decades alone.

“The main thing that has changed the entire game is globalization,” he said. “Nowadays, if you are not in the international game of economic development you’re not in the game at all. What we are trying to do is bring companies from around the world to Tennessee. Our cities are really competing within other communities within the Southeastern U.S.”
Like Union City, municipalities across Tennessee are rethinking ways to bring investment to their area and the state of Tennessee.

In the past five years, the corporate limits of cities across the state of Tennessee have welcomed 481 new businesses that participated in the state’s FastTrack grant program, approximately 86 percent of the total amount of businesses who participated in the program. Between 2012 and 2016, cities saw the smallest number of FastTrack investments in 2012 with 78 percent and the highest in 2015 with 91 percent.

Borden said municipalities that have successfully encouraged investment in their community have two major ingredients: a trained workforce and developed sites. Greenfield, brownfield redeveloped sites and existing buildings that fit a company’s criteria are often essential to recruitment.

“The fact of the matter is we don’t drive the projects; the projects drive us based on their criteria,” he said. “The more inventory of sites or buildings or both a community has, the bigger their chances are of landing a project. You have to invest in your inventory. The state can’t do it all, but we have programs that help communities like site development grants to develop the infrastructure and the property. The communities we see that are most successful have invested in their communities for a long time in terms of inventory and in terms of workforce.”

Frilling said one of the things Union City did after the loss of Goodyear was invest in a 548-acre industrial park known as the Northwest Tennessee Industrial Park. The city put millions into the park to bring a return on their investment.

“One of the things we’ve done is participate in the state of Tennessee’s site certification process. We were originally certified in 2013, which got us in that upper echelon in sites in the state,” she said. “The site is city-owned and had all of its phase I environmental and geotechnical studies done, which makes it ready for someone who wants to come in and build an industry. The site has water, wastewater, natural gas, and electricity that is ready to go.”

Spec buildings on the site brought in two new companies to the area, Frilling said.
“They built a building that sold in 2013 to MIA Seating,” she said. “A second spec building was constructed around 2016, which was sold to Greenfield Products. Building spec buildings and selling them as well as going through site certification has put the city in a good place for marketing. The city has put a lot of money and time into this park.”
Across the state in Bristol, ready sites have also proven to be a useful tool in encouraging investment and expansions. Tom Anderson, director of economic development for Bristol, said companies are looking for sites that already have amenities like water, sewer, electric, and even fiber optic internet service as well as state certification.

“Companies want to go from spending money to making money, and most municipalities are not in the real estate business, so if they buy a property they want it to develop it,” he said. “Anything you can do as a community to expedite that really works. You can’t just take someone out to a field that is for sale anymore. Just to be competitive you have to have a fully infrastructure site. We are creating a 36-acre PAD on a 50-acre site that can hold a 428,000-square-foot building in a publicly controlled industrial park.”

Zoning and building infrastructure can also help a city navigate what type of business will locate to the site, whether they want an area to develop industrially or as more of a retail center. Anderson said the Tennessee State Code provides a lot of tools Bristol has used to help guide its development.

We have legislation for retail and tourism development, which we took full advantage of to build the Pinnacle,” Anderson said. “That area is still out there and growing. We have an industrial development board that allows us to use PILOT programs. We work with housing and redevelopment authority to create redevelopment districts. We are progressive on our planning and zoning. Our permitting process is expedited through electronic filing. We basically are just working on previous comprehensive plans and our code efficacy is something we have developed over time. If you have a long term plan, you just have to stick to it and be committed to making it better.
Being ready to invest in multiple sites can also reap rewards.

“The places that are most successful will get a project and celebrate that,” Borden said. “Then the next week they are calling us up to come look at a new site they want to develop. A lot of this development is done through things like property tax increases or out of the general budgets of communities. The communities who can successfully handle the politics and have been educating their elected officials and residents tend to be successful.”

In recent years, incentives have also begun to play a bigger role in why businesses chose a city for their operations. Between 2011 and 2016, the state FastTrack grant programs invested $11.5 billion in businesses that located to or expanded within the corporate limits of cities. 2013 saw the largest amount of FastTrack investment in properties or companies located within city limits with more than $3.68 billion in investment.

Borden said the state provides three different types of Fast Track grants. The first is a grant for employee training while the second is an infrastructure grant. The third grant is the broadest of all the grants, which can help purchase land, construction buildings, retrofit buildings, finish spec buildings out, relocate equipment. Rather than distributed to the companies themselves, most of these grants flow through municipalities or their economic development and industrial development boards.

Borden said the state incentive packages are based on four criteria: the net number of new jobs the project is going to bring, the projected annual wage of those jobs versus the median wage rates of the municipalities and counties where the project will be located, the capital investment the company is going to make, and the location of the project.

Businesses located in lower tier or more economically distressed counties may qualify for larger incentive packages than those in Tier 1 counties.
In addition to state grants, he said the state works with locals on incentives like payment-in-lieu-of-taxes or PILOT programs

“These programs are certainly very important to the company, and local communities are a great help to us in closing the deal,” Borden said. “It is typically up to the community if they offer one of these programs and how much they offer. A community may not be in the position to offer a 100 percent PILOT for 20 years, which is the maximum you can do. Not too many communities do that as most communities have to get some tax revenue to effectively deliver services. Communities, no matter how small they are, can offer a PILOT as a good investment. It is something that can close the deal, and if you are getting any tax revenue at all from these projects, it is tax revenue you wouldn’t have had.”
Borden said the importance of grants, both state and local, depends on the project.

“Certain projects are very competitive, and these are companies that are looking to locate perhaps a project not only in Tennessee but may also be looking in some of our competition states,” he said. “In order to land these projects, you have to put together a competitive package. With that being said, we do not think that is the first or foremost thing we need when we are selling Tennessee. We sell Tennessee from a strategic standpoint first.”

Anderson said he thinks of grant programs as deal sweeteners rather than something that drives a project.

“They make the bottom line look a little nicer,” he said. “All things being equal, they can tip the scale in favor of your community. You are gaining something from these programs, and if you do nothing, nothing will happen. You have to look at it as just deferring your investment. We are still getting the full amount in 10 or 15 years, which is a blink of an eye for a city. You also have to consider that during this process you are seeing new employment, construction jobs, water being purchased, sewer systems being supported, and electrical being used. There is a ripple effect of an asset locating in a community.”

Anderson said he approaches a PILOT program as a negotiation rather than a blank check. Setting milestones for a company to complete as part of these grants can help better ensure a community’s return on investment.

“You have to do what’s best for your city, but at the same time you have to set the stage for development to happen and remove as many barriers as you can,” he said. “You don’t want to be irresponsible with taxpayer money, so you do the studies and have certain milestones that have to be hit.”

Frilling said her advice is never to bring up grants on the first meeting of a prospective company, rather focusing on community assets to make sure the company is a right fit first.
“You don’t want those programs and incentives to be the reason they choose your community, but they are a big part of the site selection process,” she said. “Most companies need that tax abatement on their real estate or personal property, especially in the first five years. Those are the years they are building their facility or getting equipment and building up their workforce. It helps them get to a positive return on investment quicker.”

Having city officials and a community that is open to development as well as willing to work with prospective companies is another reason why Tennessee cities have been successful with bringing new and expanding existing businesses in Tennessee.

Borden said most companies are looking for areas where city officials get along with each other and officials in neighboring communities and counties.
For Frilling, having everyone work together not only builds bonds on the local level but also shows companies that a municipality is ready to pull together and work with them.
“It always comes back to your people,” she said. “You built your relationships and you build your team. When you get your team in place, everything else falls into place. It really is a team environment, pulling together your water, wastewater, gas, electric, public works, and fire protection to get these sites certified. It’s a long, arduous process to get a site certified.”

Educating local officials and stakeholders is one way to promote that cooperation.
“I can’t speak highly enough about our city manager, Bill Sorah, who supports these efforts and works with the city staff and talking to the city council to make sure they understand and are well versed in these investments,” Anderson said. “They understand the big picture and that they are doing things for the greater good. It enables us to compete. You have to step up your game just to be competitive.”

Bristol works with organizations like the local electric utility, neighboring municipalities and regional development groups like Network Sullivan to be more competitive.
“We have a wonderful working relationship, especially with Kingsport,” he said. “We work well with Bristol, Va., as well. We partner with our other municipalities for our regional airport. We have worked in other aspects for our Tri-County Industrial Park that is now full. You build these relations and you trust each other. You have to shoot straight with each other and deliver on your promises.”

Building a relationship with the state can also be important.
“We get a lot of our prospects through the state of Tennessee,” Frilling said. “We slowly built up our relationship and reputation with the state so when they do bring prospects to us we can put on a nice visit. One of the companies that decided to come here and invest told us we really know how to recruit business, and they meant it in a sense of the team environment we have.”

Additionally, a community’s amenities can help push a project into a community’s favor.
“A big advantage we have in Tennessee are our lifestyles,” Borden said. “Anything a community can do to make their town look better or more livable like programs for kids and families when they aren’t working are great assets. Lifestyles and livability can sometimes sway a deal in a community’s direction. “
Both Anderson and Frilling said advantages their cities use include the availability of a good education both for K-12 and secondary education, local medical facilities, and being in a position to ship products out in a timely manner.

“If you don’t invest in yourself, why would someone else want to invest in your community?” Frilling said. “Union City, the city council and the citizens of Union City see that. They are very proactive and very open to business. You have to want business and want to grow. We really have great people with the vision to see we aren’t spending this time and money in vain. We are getting ourselves prepared. Those of us in the rural areas have to fight harder and be more prepared because of where we are.”

Additionally, knowing a community’s strengths and being able to play those strengths to a company’s needs is an important skill.
“Being able to listen to the needs of the client or prospective industry and tailor our offer or work toward them, to help overcome any obstacles they might have in coming to our area is essential,” Frilling said. “We’ve gone out and helped at job fairs or blind job fairs for potential companies. Workforce is the number one issue these days. Listening to their needs and trying to fulfill those needs is important. We sell ourselves regionally, especially being on the Kentucky border. We don’t have a big population like Memphis or Jackson, but we do have a good workforce that is willing to drive for a good job.”