Fiscal Impact Analysis Creates a Win-Win for Projects and Communities (cont.)

The case of Decoma International

In October of 2002, Decoma International, Inc. announced plans to invest $85 million initially (and $140 million over the life of the project) in a new, 300,000-square-foot automotive fascia manufacturing facility in Carrollton. The project, the largest in the state that year, had considered locations in communities throughout the southeastern United States and was highly competitive.

The company chose to locate in Carrollton despite the fact that the dollar value of incentive packages offered by competing communities was greater than that proposed by Carroll Tomorrow, the state, city and county. According to Robert Brownlee, president of fascia operations for Decoma International, the company’s decision was based on the county’s ability to meet Decoma’s extremely tight time schedule and a high comfort level with community’s ability to fulfill its commitments, beyond market forces.

The final incentive package included a $2 million OneGeorgia Authority grant for site improvements and infrastructure; QuickStart training; additional public infrastructure improvements by the city and county; fee waivers; a performance-based ground lease; and city, county, and state ad valorem tax abatements totaling $1.5 million over a 10-year period.

Even with these generous incentives, fiscal impact analysis of the project and deal structure showed over $2.5 million net present value (NPV) to the affected local governments (county, city and school system). During the process, the Carroll Tomorrow team evaluated nearly 20 ‘what if ’ scenarios, which included many different incentive packages. That process helped to refine a win-win deal for the community and the company.

During the last stages of negotiation, the company asked the community to match a competitor’s offer that included abatement of school taxes. Although it is the community’s policy not to abate school taxes, Carroll Tomorrow was able to use fiscal impact analysis to present a rational financial explanation as to why school taxes could not be included as part of the package. The analysis presented to company leaders showed that school tax abatement would drop the NPV to just over $200,000. Most importantly, it removed all the value of the project to the school system; analysis showed a negative NPV of almost $134,000 for schools.

In other words, the community’s ability to educate its children, the children of employees, and the company’s future workforce would be negatively impacted by school tax abatements. The company understood and no longer sought school tax abatements. In addition, the knowledge that the community evaluated its economic development deals in this manner gave the company confidence that local governments would have the financial strength to both meet its commitments in the short-term and service the company in the long-term.

In addition to providing for a better deal and creating company confidence in the community, the analysis also helped when it came time for the deal to become public and be approved by local governments. A recruitment deal in the community negotiated prior to the advent of Carroll Tomorrow had included an incentive package of almost $12 million, for which the promised 900 jobs materialized into only about 200. This experience had left the public and elected officials wary of large incentive packages. Now, the combination of fiscal impact analysis and recapture provisions eased discomfort and suspicion about the deal, and local newspapers that had been critical of previous economic development projects praised the effort.

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