Thursday, March 29, 2012

Lessons Learned from McKesson’s Move from Memphis to Mississippi

By Matt Tarleton, Project Manager.

I am guilty of having an abnormal affinity for alliteration (see what I did there?), so let me apologize for the blog title in advance.

A few weeks ago, I wrote about Brunswick County, North Carolina and the heartbreak associated with finishing runner-up for two 1,400+ job projects. One of those projects, a Continental Tire facility, ultimately went to South Carolina due to the state’s unwillingness to grant comparable incentives. The second, a Caterpillar manufacturing plant, went to Athens, Georgia, as a result of proximity to Savannah’s deep water port, where further deepening will accommodate the larger post-Panamax cargo ships. While there are certainly other factors at play that contributed to the decisions of each prospect, these were the issues of greatest influence when it came down to deciding between the two sites (or at least that’s what executives have communicated). These were relatively large issues in the scheme of site selection – a roughly $35 million deviation in upfront cash incentives and a major infrastructure asset in the depth of a port’s channel. But as many practitioners know, the loss of a prospective company – or the loss of an existing business – can often come down to less concrete issues and seemingly smaller issues. While every loss is no doubt a painful reminder that somehow and somewhere, a community was able to demonstrate e that it was more competitive or more attractive to a certain business than you were, these losses can be valuable learning experiences if you can get honest feedback from the company.

This week an executive from McKesson shed light on a cumbersome process in Memphis-Shelby County, Tennessee that contributed greatly to the loss of roughly 800 jobs to Olive Branch, Mississippi in 2010. The Memphis Daily News reported this week that an executive from McKesson indicated that the inability of McKesson to qualify for a payment-in-lieu-of tax (PILOT) benefit for an investment that would not produce immediate job creation, as well as the requirement to produce a “diversity plan,” resulted in Memphis’ loss of a new logistics and supply chain headquarters to Olive Branch, Mississippi (just on the other side of the state line from Memphis). The PILOT program allows the Memphis-Shelby County Industrial Development Board (IDB) to take title to the property associated with the project, lease that property to the company/applicant, and receive payments-in-lieu of ad valorem taxes on the property, with payments typically set to a level that is some percentage of the taxes that would otherwise be due on the property prior to improvements. In addition to a variety of other criteria that must be met in order to be eligible for PILOT benefits, the IDB requires that each applicant develop a diversity plan demonstrating that a sufficient percentage of expenditures on labor, construction, professional services, etc. will support minority-owned enterprises, women-owned enterprises, local small business, and individuals seeking employment through area career centers.

This particular executive from McKesson was not exactly bashful in his comments this week regarding this process that took place in 2009 and 2010. Thankfully the leadership in Memphis-Shelby County spoke with representatives from McKesson shortly after losing the expansion project and immediately responded with changes to its PILOT program to better support retention of existing businesses. The new criteria allowed existing companies making a significant investment in property ($10 million or above) and employing at least 100 individuals in Memphis-Shelby County to be eligible for the PILOT incentive regardless of potential future job creation. McKesson would have qualified under this new criterion. But it was not just the lack of eligibility that frustrated McKesson; it was the process of navigating the eligibility criteria and attempting to communicate the value of its investment to the IDB in order to preserve jobs in Memphis that was described as “slow walk.” And although it was a tough loss for Memphis, the leadership listened and responded. Good coaches and players know that you can’t win them all. But they also know that you can learn from your mistakes through self-evaluation and attempt to correct those mistakes so you are in a better position to win the next time. Economic development practitioners should take a page form the Memphis playbook and do the same.