Expert's Corner: How Much Do Manufacturers Value State Competitiveness?
September 18, 2012
Do competitiveness rankings of states' tax and spend policies influence manufacturers in determining where to locate or expand their operations? The answer is yes, writes GovPro.com's Michael Keating. You see them often: rankings of states based on best business tax climate "We don't typically get calls from C-Suite executives who say, 'I just was reading X magazine and saw that Y state was ranked in the Top 3 states to do business...do you think we should move there?'" Kathy Mussio, managing partner at Fair Haven, N.J.-based Atlas Insight, LLC "Manufacturers have a number of reasons that motivate them to look to relocate or expand; most of those reasons are internally business-driven and don't allow for a blank canvas of the world from which to draw," Mussio added. "That said, when you consistently see certain states at the top of the rankings, it does leave a [positive impression." Another consultant with an opinion on state competitiveness rankings is Mark M. Sweeney, senior principal at Greenville, S.C.-based McCallum Sweeney Consulting "Rankings are often noticed by company executives, and may add to an already existing consideration for a new location. However, sound location decisions are complex, and the influence of rankings tends to diminish as the decision process gets very involved," Sweeney noted. "It is important to be clear that a decision to expand or relocate will arise from a host of business factors (markets, competitors, etc.), and not from someone seeing a ranking." Sweeney offers the following advice to manufacturers and other companies: "Don't make a location decision based on a ranking! Hire a specialty location consultant to get you to the optimal location for your project, taking into account all the factors that need to go into such a decision." Government tax and spending policies do affect a manufacturer's fortunes, said Kim W. Beck, president and CEO of Napoleon, Ohio-based Automatic Feed Co. "In any discussion of tax reform, fiscal restraint must be part of the equation," Beck said. "The real problem is not a lack of revenue, but out-of-control spending." Beck told the committee that government spending has nearly doubled over the past 12 years, and revenues have not kept pace. He noted that "We cannot put people back to work and get this economy moving again if high taxes and other costs of doing business continue to sap manufacturers' ability to compete. What American small manufacturers need right now is tax relief and tax certainty." Beck urged Congress to extend the Bush tax cuts, the R&D tax credit, the 100-percent bonus depreciation and increased Section 179 expensing. Tax and government spending policies in states can motivate manufacturers to pull up stakes, according to Scott Drenkard, an economist at the Washington-based Tax Foundation "Undeniably, taxes and spending influence location decisions," King R. White, president of the Dallas, Texas-based Site Selection Group, LLC State tax incentives and abatement are important factors in domestic plant location and investment decisions, Walter Galvin, vice chairman of St. Louis, Mo.-based Emerson Electric Many factors go into a location decision, says McCallum Sweeney Consulting's Mark Sweeney. "For manufacturers, it starts with market access (inbound and outbound), appropriate site availability, infrastructure (transportation, energy, utility - all critical to manufacturers) and labor markets (re-emerging as a significant concern for companies)." Lisa Anderson, a senior supply chain and operations executive and founder and president of Claremont, Calif.-based LMA Consulting Group Anderson, whose firm serves as strategic operations experts for a variety of companies, noted that firms that relocate are often congregated around areas with significant tax benefits. "In today's new normal business environment, it is far more challenging to stand out in the crowd and grow business profitably. Thus, executives are negligent if they do not take all factors into consideration, including tax advantages and other policies that would impact manufacturers." Michael Keating is senior editor for Government Product News