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	Why Your City Needs to Implement the Swiss Cheese Avoidance Act by Robert Dunne With A View From the Sky, Once-Thriving Industrial Centers Now Look Like Swiss Cheese And It's Coming Soon To An Aging City Near You I was on final for runway 14 at Youngstown, Ohio and I could see that the once busy airport looked like a ghost town with the exception of a few military trainers. I could also see the hulking, rusted steel remains of what once represented the pinnacle of American manufacturing might. Not long ago, these sprawling corporate campuses and their imposing steel facilities were the world's model of technology and innovation and Ohio was the #2 manufacturing state in the country. Now, all I can see are the holes in their roofs where the weather, the years and the environment have eaten away the steel structure. From the sky, it looks like random slices of swiss cheese that have been left to rot. These current and former Superfund sites truly resemble what we envision upon hearing the term. But no one is rushing to clean up the remains of America's weakened manufacturing muscle. It may be ironic that twisted steel structures are all that remain from our once bustling steel industry but I can't help but feel the "joke" has been on all of us involved in manufacturing. And worse, I can't help but feel the same joke is still being told as you read this. Is this to be the fate of the entire American automotive industry? Mining and metals? Plastic molding? Are we to be legislated out of existence like the coal industry, regulated out of existence to guarantee a safe workplace or merely left to suffer a slow, painful death? It is easy to rage against the federal government, the bailouts and the executive bonuses but the economic distortions caused by government intervention have been troubling our companies for decades. Only now we may have finally crossed the tipping point where our manufacturing sector can no longer bear the burden of funding state, local and federal governments and still be economically viable. The cost is too great and it is being borne by too few. Consider that in 1998, according to the Bureau of Labor Statistics, manufacturing employment was 17.6 million. By 2003 it had declined more than 20% to 14.6 million when a mere six percent of America's 290 million workers were involved in manufacturing. Growing up in the late 1950's and 1960's, it seemed to me that almost everyone's father, brother and uncle worked in manufacturing. Everyone seemed proud to produce something useful, tangible and lasting. We aspired to join their ranks. But anyone who has recently filled positions for machine operators, product engineers and others knows that the pool of talented, skilled and industrious applicants has been dwindling for some time. In fact, this situation had been advancing long before credit default swaps became part of our lexicon and it turns out that our state and local governments bear as much of the responsibility as the federal government. On Carpet Baggers and Turf Wars Many of our government's architects throughout history understood the importance of manufacturing as the backbone of our economy and as a key element in our national security. Remember the military industrial complex? The same may be said for agriculture. But from the industrial revolution through the 20th century, the dramatic generation of wealth and the rise of the overall standard of living can be attributed to manufacturing and its partner, technology. The growth of company towns and their impact on the wealth of their citizens and local officials created what may be termed an unholy alliance leading to a mixture of taxpayer funded subsidies and government contract work designed to offset a variety of business taxes. No matter how far the scale seemed to tilt against manufacturing in terms of taxation, labor relations, regulation and other costs, their dedicated people continued to produce - until mayors and councilmen of other cities and towns cast their envious eyes across the river, so to speak. "If only these companies would move to our town," they pondered. As transportation became more streamlined and rural areas grew into suburbia, businesses owners realized they were less restricted by geography and topography in their site selection. And there was an incentive to follow their workers as they moved to the suburbs. But this incentive paled in comparison to the generous incentives a mayor or governor could dream up to attract a blue chip organization. Compare crumbling buildings in tight, urban locations to wide open expanses of farmland inviting build-to-suit, state-of-the-art facilities. Or compare the burden of paying increasing city taxes year after year to enjoying year after year without paying any state or local taxes at all. The concept of luring businesses from one area to another flourished. Today, decades later, an entire industry of relocation and site selection professionals works solely to induce businesses to flee their homes and setup shop in other locations. State and local governments establish offices of economic development, growth councils and departments of commerce to actively identify target companies and craft custom solutions to make a move irresistible. The number and scale of these incentives has become alarming, with many tailored specifically to lure manufacturers to greener pastures. Consider these creative enticements as published in the 192-page Business Facilities 2009 Site Seekers' Guide: Arizona Trade Adjustment Assistance Program provides grants tailored to the specific needs of manufacturers that have experienced declines in sales and employment Oregon Investment Advantage provides a 10-year tax holiday on all income/excise taxes Connecticut Manufacturing Machinery and Equipment Local Property Tax Abatement is a 100%, five-year abatement of local property tax on new manufacturing machinery and equipment Louisiana Industrial Tax Exemption Property Tax Abatement provides abatement for materials used in manufacturing for up to 10 years Michigan Tax-Free Renaissance Zones eliminate nearly all state and local taxes for businesses moving into such a zone With such a smorgasbord of savings on taxes, relocation costs and machinery and equipment, an executive who fails to entertain the idea of a relocation is probably doing a disservice to the company and its shareholders. A new facility designed from scratch with a customized layout is an inherently more energy-efficient and productive than an old building in the city that's ready for a costly new roof and requires expensive pollution control systems to meet EPA regulations. This carpet bagging system where cities and states are pitted against each other to host a seemingly shrinking pool of large employers has turned businesses into the same type of free agents that sports fans decry, the superstar who signs a big contract and leaves after three years only to crisscross the country in search of the largest financial package. Local ties established by generations of family-owned companies are severed amid a shower of offers from infrastructure improvements, low or no interest loans and tax abatements to free employee training and retraining and even outright cash grants. Unfortunately, when weighing the pluses and minuses of a relocation, the value of community ties and a loyal, trained workforce typically fail to tip the scales against the sheen of a new home that comes with substantial cost savings. If the new city is willing to help fund the purchase of new, more efficient and productive machinery that requires less workers and if it is willing to pay to train the new but smaller workforce then the scales tilt firmly against loyalty, goodwill and other less tangible qualities. And with today's modern transportation system, the idea that vendors need to be located down the block or around the corner has simply ceased to be an issue. In fact, they no longer need to be in the same country. Executives know they can always threaten to take their jobs overseas to secure an even sweeter deal. There is added pressure to offer these incentives as no politician can expect to win reelection when a major company leaves town for foreign shores. First Come, Last Served Consider the bidding war that ignites every time a major company releases news that it is investigating the construction of a new plant in the United States. The more excitement the company can generate, the greater the incentives to be offered. Yet there seems to be so little excitement over boosting the fortunes of existing businesses. Surely, the companies that helped forge the very character of a city or town over generations, the companies whose names top the little league fields, enjoy the same incentives to stay as other companies are offered to arrive? In a perverse twist thanks to this government intervention, several states actually shun manufacturers by favoring other businesses. "Targeted" incentives devised to attract clean, green industries, for example, are even more valuable to government officials today than manufacturing may have ever been. From the Business Facilities guide: The Iowa Information Technology Joint Venture Fund provides financial awards to information technology companies Nevada's Renewable and Energy Storage Abatements provide sales/use tax, and real and personal property tax abatements for companies in the production of energy from wind, solar and other renewable sources The New Jersey Edison Innovation Fund seeks to grow technology and life sciences businesses by offering an integrated set of resources combining multiple economic development organizations The Delaware New Economy Jobs Program rebates up to 65% on withholding taxes for R & D and financial services firms This isn't to state that retention is completely ignored. States such as Illinois and Indiana that have been struggling with job losses for years have boosted retention incentives as well and are trying to be as creative as possible in hopes of keeping the remaining companies viable - or at least local. When we invested in new machinery that would have increased our power consumption, a power company offered a 20% match of the projected cost increase as an established local company. Had we been moving in from outside the city however, we could have benefitted from upgrades to the building at no charge and low interest loans to finance the entire project. Many communities share this short-sighted perspective since they can already count the existing company on their tax rolls. But I have also witnessed situations where companies have been completely denied any benefits while their competitors were being actively recruited by their own cities and economic development agencies. For most rotational molders, however - even those that have served as pillars of their communities - any support beyond the efforts of the local chamber of commerce is a rare oddity. Leveling the Playing Field This warped system that has evolved uses taxpayer funded incentives to reward carpet bagging executives at the expense of the very companies and people our elected representatives should be trying to retain. Too many times corporations have moved to new locations and failed to operate successfully even while enjoying hefty tax abatements and low interest loans. Too many times I have seen a thriving new business come into a community with the promise to create permanent jobs only to live off the incentives and then move elsewhere with nary a concern for repaying the aid or for the good people that were laid off. The present system not only allows this type of activity but also promotes this shameful and predictable practice. It wastes taxpayer dollars and diverts them away from truly supporting the community to actions that adversely affect the community. There needs to be a plan that coordinates federal, state and local resources that not only recruits new businesses to the country but more importantly rewards the established manufacturers that have supported their communities and paid taxes for decades. Replacing or integrating with the patchwork of existing, localized programs, this plan needs to address the legacy costs borne by long-standing manufacturers to ensure the playing field for these incentives is more level. This plan would reward businesses with promised financial incentives once the jobs have been created rather than in advance for jobs that may never be created. The actual jobs created or retained would be documented and audited by an independent third party to be sure our taxes are being used wisely and effectively. In addition, costs that increase over time such as property taxes, infrastructure upgrades for regulatory compliance and other costs of doing business, need to be addressed for existing businesses. Then existing businesses may be in a more likely position to reap benefits that compare with those being offered to incoming businesses. I would typically proclaim the importance of states' rights in developing programs that promote a business-friendly climate. But in this case, the right of each state to compete against the other is hurting all of us and draining the strength of our economy. We need coordinated action rather than acting against each other. That this injustice has been happening for years does not mean it needs to continue. Rather, it means we've allowed it to happen for too long. That many cities would allow a rotational molder to leave town rather than provide the same support it would to a company relocating from overseas leaves me without words, but I have seen it happen on several occasions. Whatever argument they might offer to support the current system is simply full of holes - like swiss cheese. If you have comments or questions, I would love to hear from you. Send comments to Bob Dunne at rdunne1@usa.net or see www.Rotomolding.com/bobdunne.shtml. Meese Orbitron Dunne Co. is the first rotomolder in North America to invest in the Leonardo system. Its parent company, Tingue, Saddle Brook, New Jersey, has a history of bold moves since 1902 that include pioneering the use of plastics for rotomolding laundry handling products.