Masters Theses

Date of Award

8-1997

Degree Type

Thesis

Degree Name

Master of Science

Major

Planning

Major Professor

George Bowen

Committee Members

David A. Patterson, James A. Spencer

Abstract

The United States has an economy which is very dynamic and fluid. Industries which were once concentrated in the big cities of the North have migrated throughout the country. This movement of industry continues today and it is stimulated by economic development agencies. Economic development organizations have the mission of attracting and selling their communities to companies which are expanding or relocating their operations.

There are two goals of economic development, the first is to create jobs in the community. The expansion of the job base will improve the personal financial status for the workers, improving their quality of life and introducing more commerce into the local economy. The second goal of economic development is to generate more tax revenue for local governments to use for vital services such as infrastructure maintenance and improvement, education, police, fire service and others. This revenue is created through property taxes, tax increment financing, re-payment provisions, etc. Additionally, many industries use an enormous amount of electricity, natural gas or water, generating income for local utility providers. Utility companies will use this revenue to improve and expand their services, thus providing another valuable service to the community.

The process of attracting a company into a community is a complex mixture of real estate development and salesmanship. In order to make a company want to locate their business in an area, the community must first have property to sell. Industrial property is the “hard” merchandise that the prospect is looking for. To stay competitive with other communities, this land must meet several criteria. There is basic criteria that all industrial land must meet such as transportation access, access to workers, a site which is flat and large enough to handle the development, etc. Another aspect of industrial property which is vital for development is the availability of the proper utilities which are necessary for the businesses operation.

When a business park (or any industrial property) is developed, prior planning should be done to target the type of business, which is most suitable for the property. Once they are identified, the proper utilities for that industry type are put in place on the site or close enough for easy linkage to the site, and this will help to ensure that the community is locating its industry in the correct location and that the company will be attracted to it. The process of identifying specific areas, which are most suitable for specific industries, leads to the creation of the development strategy. For example, if the community is in an urban area, they may see an opportunity to attract corporate headquarters facilities, so their strategy might be to develop upscale office parks with excellent visibility and communications infrastructure. A rural community might try to attract warehouse and distribution centers as part of their development strategy and place a park near a highway for easy truck access.

Once the community has developed a parcel of industrial land, it must sell the prospect the “soft” merchandise. The soft merchandise encompasses many tangible and intangible aspects of the community including leadership, quality of life, employment rates. education quality, political stability, financial stability and others. These criteria are very important in the decision making process of the company and can be difficult to sell (or to improve) if they are deficient. These aspects of community life should also be taken into account during the creation of the development strategy. For example, if a community has poor air quality because of its geographic location, they would not target industries that produce high volumes of air pollution.

A third aspect of site selection that has stimulated movement in industry is the granting of incentives. Today, incentives can take many forms such as tax relief, free or low cost land, money for training workers, money for infrastructure improvements and others. The advantage of having money to offer companies is that it can be used to make improvements that benefit the entire community, such as site improvements, apart from the goal of creating jobs. The disadvantage of incentives is that even if there are no physical improvements necessary for the site or training that needs to be done, every business now expects some free money. Recently, the State of Alabama gave the Mercedes Benz Corporation over $250 million dollars to locate an automobile manufacturing facility in Vance, a small city between Tuscaloosa and Birmingham. This landmark deal shows how quickly the costs of incentives can escalate when states are competing with one another for a prospect. Whether or not this huge investment will pay off for Alabama remains to be seen. The state’s motivation for such a bold move had as much to do with creating Jobs as it did with increasing the prestige of the state to large manufacturers. Economic developers and industry executives still use this deal as the focal point of debate over incentives and the lessons learned from it continue to influence both the public and private sides of industrial site selection.

This thesis is not a critique of the philosophy of granting incentives to businesses, it is a case study of a deal to bring a large manufacturing facility to Knox County, Tennessee. It will attempt to show the stages in which the deal progressed, and how the company. The Development Corporation of Knox County and the State of Tennessee eventually reached an agreement to build the plant. It will take into consideration all aspects of site selection and which aspects were the most important to the company and how they approached them. It will highlight the roles of all of the players involved and the organizations they worked for. Additionally, this study will outline the incentives that were offered to the company and the changes these incentives went through before the deal was finalized. The thesis presents a “snap shot in time” of economic development in Knox County and Tennessee.

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