How Can Vermont Compete With Bigger, Richer States to Keep and Attract Businesses?
Thursday, May 10, 2018
Posted by: Jeff Couture
Source: Burlington Free Press
Vermont never had a shot at being home to Nokian Tyres' new $360 million factory. That will be built in Dayton, Tennessee. Right after Nokian moves its North American headquarters from Colchester to Nashville.
The Finnish company, which invented the snow tire in 1934, announced its move to Tennessee from Vermont at the end of March, becoming the latest company to give in to the temptation of lower taxes, better incentives, a bigger workforce and a more advantageous geographical location than Vermont can offer.
"We were never on their radar for a manufacturing facility at all," said Frank Cioffi, president of the Greater Burlington Industrial Corporation.
Cioffi has spent 30 years working on how to get companies to come here, stay here and expand here. Tennessee, along with states like Ohio, New Mexico, Arizona and Texas, he said, are "basically buying jobs," making it hard for Vermont to compete.
Tennessee offered Nokian $28 million worth of infrastructure improvements to lure the company to tiny Dayton, population 7,248, in rural Rhea County, one of the state's "least economically advantaged communities," according to Bob Rolfe, Tennessee's commissioner of the Department of Economic and Community Development.
Rolfe has a $200 million budget to work with, including more than $100 million for cash incentives to recruit and/or retain "expanding companies."
"It's a lot of money," Rolfe concedes.
Joan Goldstein, Vermont's commissioner of the Department of Economic Development, said she has about $9 million to spend on incentives.
"That's a small budget compared to our compatriots across the land," Goldstein said.
Goldstein said her department is "very diligent" with taxpayer funds used for incentives and that the program is "very transparent."
"Our incentive is that you're authorized to earn incentives," she said. "No check gets cut until after they've proven job creation via the tax department."
Tennessee similarly requires proof for incentives tied to jobs. Both states also provide for clawing back incentives should something go awry.
"We've had a clawback or two recently," Rolfe said. "A company or two either sold or consolidated and left the state. It does happen, but not very often."
Rolfe added that there's more to Tennessee's appeal than cash incentives.
"We're in the fortunate position of being in the Southeast," he said. "From a logistics standpoint, we're within an 11-hour trucking commute of 60 percent of the population."
For manufacturers, one of the largest costs other than payroll and the cost of goods sold is transportation. Tennessee's location drives down transportation costs. Its cash incentives drive down building costs, and rewards companies for job creation.
"I don't honestly know how we compete on incentives," Cioffi said. "Vermont doesn't have the funds or scale to do it."
Goldstein believes where there's a will, there's a way. But she says there is "resistance" in the Vermont Legislature to spending money on incentive programs, and an emphasis on regulating growth.
"We're very careful, we don't want all this unrestrained development," she said. "The feeling you get when you read all the regulations is that we're worried about runaway growth, but we actually have the opposite worry — lack of growth."
Cioffi believes Vermont's best shot at meaningful economic development is to tie itself to the Boston area and the growth of the IT sector and financial services sector.
"With our proximity to Boston, companies there will look at expanding out," Cioffi said. "It will give places like Vermont, especially Burlington, a shot at being satellite locations."
Cioffi is arguing for a focus on the other end of the economic spectrum from large manufacturers like Nokian, such as technology startups like Dealer.com once was — perhaps Vermont's most shining example of success. Started in Burlington in 1998 by five co-founders, Dealer.com sold for nearly $1 billion in 2013 to Dealertrack, a New York company. Two years later, Dealertrack was purchased for $4 billion by Atlanta-based Cox Automotive.
Goldstein said her focus is on attracting Canadian companies, and especially Quebec companies, to cross the border and set up operations in Vermont. In the past year and a half, she said, three companies have opened up in the Northeast Kingdom, making composites, equipment for sawmills and brakes for wheelchairs.
The companies only created a handful of jobs for now, Goldstein said, but the potential is there to create many more in the future. She cites Peerless Clothing in St. Albans, which came to Vermont from Canada 20 years ago and kept "growing and growing" until today, when hundreds of people work there.
What's future Vermont?
How is Vermont doing at attracting and retaining young companies? Not that great, says Mike Lane, one of the co-founders of Dealer.com
Lane spent two years serving on the Vermont Workforce Development Board after leaving Dealer.com. He said it was revealing to him that when he asked state officials how many tech startups are in Vermont, they didn't know. Neither did they know how many CEOs of tech companies are in Vermont versus companies that have offices here and the CEOs live outside the state, Lane said.
"We know exactly how many farms there are in Vermont, but we don't know how many tech startups there are," Lane said. "We still don't know those answers. I don't want to trash farming in any way, but we are having struggles getting our heads around what we want to be as a state."
Gov. Phil Scott's administration did launch its Think VT! campaign last year to extol the virtues of the state and attract businesses and individuals to come here. The website (www.thinkvermont.com) includes job listings for those who might be lured to Vermont for the quality of life and "fun culture."
In November, Lane launched a new company called Fluency with three friends from his Dealer.com days — Scott Gale, Brian McVey and Eric Mayhew. The team is working out of the Vermont Center for Emerging Technologies on Main Street, writing code for their new product: a next generation advertising technology platform aimed at big ad agencies.
Lane said Vermont should be doing more work in the marketing world to make people aware that the state is a home for technologists. Mayhew worries that Vermont's lack of a reputation for tech startups will hurt Fluency when it comes time to recruit employees.
"Vermont is not necessarily known as a tech corridor, although there are great technologists here and great technology companies," Mayhew said. "It's not publicly recognized. It also takes a certain type of person who wants to live in Vermont. It's cold here."
Cold, and remote, Lane says, which makes some recruits nervous about moving here.
"People want to move here to Vermont, but what are they going to do if it doesn't work out?" he said. "There's not a lot of options."
David Bradbury, president of the Vermont Center for Emerging Technologies, said our challenges in Vermont "are not rocket science."
"We need housing stock and affordable housing," he said. "We need contemporary skilled labor. That means listening to what employers need and delivering it within 12 to 36 months."
Without the economies of scale other states enjoy on the costs of groceries, gas and electricity, Bradbury said, Vermont needs to figure out "creative ways to keep those within reason." He cites his own hometown of Stowe as one example of what he means.
"I belong to something called the Neighborhood Savings Group, in which a couple of women entrepreneurs in Stowe formed a purchasing group for propane and oil," Bradbury said.
Bradbury said the group saved him a dollar per gallon on propane this past winter.
"People and companies are fluid," he said. "What are we offering? We can't always rest on our quality of life as our default position, because 320 million other Americans say we're wrong because they choose not to be here."