Dec 17, 2012
Bill McMeekin
Bill McMeekin
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Incentives: ‘If You’re Not Being a Little Aggressive You Don’t Make the Cut’

Tennessee used $577 million in incentives to help land Volkswagen's assembly plant in Chattanooga.

The New York Times series on the use of government-backed incentives to attract corporate investment has sparked a lively debate on whether such policies are fair, fiscally prudent, consistently enforced and deliver on the promises that are made by the private-sector companies that, with increasing frequency, demand them from communities if they even want to be considered for a project.

During his term as Tennessee governor, Phil Bredesen was oversaw an economic development strategy that was aggressive in using incentives to help win projects. In an interview with the Nashville City Paper, the former governor noted the difficulty of landing projects without them:

“I’ve talked about this for probably a decade-and-a-half now to say if there were some understanding or constitutional prohibition or something like that nationwide that cities couldn’t do that or states couldn’t, that would be great, OK. In the meantime, there isn’t,” Bredesen said.

Tennessee ‘s package of tax breaks and other incentives totaling some $577 million were a key part of the strategy used to attract the massive Volkswagen project to Chattanooga, where the German automaker built its lone U.S. assembly operation, a project worth $2 billion and 2,000 direct jobs.

For Bredesen, using incentives to help cement that deal was easily justified by a strategy to land “anchor” projects with the critical mass not only to create large numbers of direct job, but also to draw large-scale investment and additional jobs from suppliers, logistics companies and other related business. Landing VW was expected to generate an additional 11,000 jobs in Tennessee connected to the automaker’s operation and boost incomes in the region by $512 million.

“Plus the fact that a Volkswagen has an impact in terms of the prestige of the city of Chattanooga, in this case, as a place to do business, somewhere that far outweighs the impact of five companies investing the same amount of money taken together or 10,” Bredesen said.

“The reality of the world is if you want to do these kinds of things, you got to talk about [tax breaks] and send those to the company,” he said. “The big companies have all got these relocation firms when they start. And, you know, Volkswagen started with, I don’t know, 25 sites or something like that, and if you’re not being a little aggressive with the incentives, you don’t make the cuts for the relocation. You never even get to see Volkswagen.”

How do you view the use of incentives? How does the prospect of additional investment factor into how your incentive packages are structured? When do incentives make sense and when don’t they? Share your thoughts.

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