A couple of weeks ago, the City of Newport News announced an economic development coup: Ferguson Enterprises, the nation’s largest distributor of plumbing supplies and one of the city’s largest home-grown companies, will locate an $82.8 million office project in City Center at Oyster Point.
The new campus will house 1,400 information-technology and administrative jobs, of which 1,000 will be relocated from local offices and 434 will be new hires. Salaries will start at $45,000 before benefits. The company, a $14 billion subsidiary of U.K.-based Wolseley plc, had considered sites in California, South Dakota, Nevada and Washington.
Snagging the investment took $15.6 million in state and local incentives. These include the donation of land valued at $3 million, $4.8 million in property tax rebates over the next decade, $2 million from the Commonwealth’s Opportunity Fund, a $2 million city match, $1 million to build a “skybridge” connection to a parking deck, and $700,000 in road improvements. It’s not clear from press reports where the rest of the local incentives are coming from, although they may be associated with construction of the parking deck.
Clearly, fear of losing jobs was a big motivator in granting the incentives. “A city like Newport News to lose 1,000 jobs would have been devastating,” said Governor Terry McAuliffe at the announcement. “I mean, I know the numbers — this was very competitive.”
Of course, those numbers are confidential, so there is no way the public can gauge the necessity of the incentives. As always, my concern is that a private company mau-maued the state and local government into giving subsidies by threatening to make its investment in another state.
Sometimes cost and labor considerations do make it a sound business decision to locate a major operations center elsewhere. But sometimes it doesn’t –sometimes there are advantages to locating important operational activities in proximity to the corporate headquarters — and the company is just using its leverage to extract tax concessions. Neither the governor’s press release nor the news reports give any indication of which was the case.
Ferguson CEO Frank Roach certainly didn’t sound like raw self interest came into play in the deal. “Ferguson is deeply rooted in the Commonwealth and we have been proud to call Virginia home for more than 60 years,” he said. “We are excited to further invest in the City of Newport News.”
Bacon’s bottom line: Yeah, right. Ferguson is so proud of its Virginia roots that it took $15 million in incentives to keep it here. As a subsidiary of a British company that doesn’t give two hoots about Newport News, such sentimental ties don’t carry much weight. Such rhetoric doesn’t sit well with me. Either it is insincere, or Ferguson wanted to stay in Newport News all along, which calls into question the need for subsidies.
Still, all things considered, the deal could have been worse. Yes, the city will be rebating $4.8 million in property tax rebates over ten years, but that’s only half the tax revenue generated by the property, so it still will gain from the deal to the tune of $480,000 per year. That will be almost enough to pay off its $2 million state match and $1 million for the skybridge within six years. The city also will build a parking deck, but that was part of the planned development of City Center anyway. As for the $700,000 in road improvements, they can be construed as routine public works.
What I like most about the project was barely alluded to in the official pronouncements: Ferguson will become an anchor tenant in City Center, a nucleus for re-developing a city comprised mainly of a run-down downtown adjoining a sea of suburban sprawl-style development. City Center, a project of the Norfolk-based Harvey Lindsay Commercial Real Estate, constitutes an effort to create walkable, mixed-use urbanism.
That’s exactly what Newport News needs to recruit young workers and retain the businesses that hire them. The city badly needs transformation. While the benefits of creating sustainable land use patterns may be hard to quantify, they are real.
(Hat tip: Paul Yoon.)There are currently no comments highlighted.