Was the PGI deal a good one?

Special Report by Chris Graham
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How much did the economic-incentive package put together by the City of Waynesboro have to do with the ultimate decision of Polymer Group Inc. to expand its operations here and not in Mooresville, N.C.?

The first question that I posed to PGI spokesman Cliff Bridges was the generic, So, what was it about Waynesboro that led PGI to do its expansion here?

His answer: “First of all, we have some very nice incentives from various governments in Virginia, which obviously is an important consideration in making this kind of decision.”

It’s not putting words into Bridges’ mouth, then, to say, The incentives were pretty important, when the first thing he had to say about Waynesboro was that it had been able to put together in concert with the state a “very nice” incentive package.

 

Cost-benefit analysis

The question that we’ve been doggedly pursuing an answer to since the news that PGI will be investing $65 million into expanding its current operations in the industrial park in the West End: Are the city and the state going to get the bang for our bucks to justify the money that we’re committing here?

To answer that question, we have to first get a handle on what it is that we’re going to be spending. The state is kicking in $1.5 million toward the incentive package in the form of $750,000 grants from the Governor’s Opportunity Fund and the Virginia Investment Program. The city’s end of the deal is $550,000 in cash that will go toward infrastructure improvements at the site, a land donation of 15 acres in the industrial park that has an estimated dollar value of $600,000 and $1.75 million in abatement of local taxes over the next six years.

The city also secured access for PGI to a $17 million bond under the auspices of the American Recovery and Reinvestment Act that could save the manufacturer in the area of $200,000, according to one source, on the financing of the construction of the 90,000-square-foot addition to the existing 189,000-square-foot PGI facility on Shenandoah Village Drive.

All told, then, the package is worth an estimated $4.55 million to PGI.

So there’s your bottom-line cost. The benefits are harder to measure with any precision. This much we know for sure: PGI has said it will employ 41 people on the new line that is being added to its Waynesboro plant. The jobs will pay an average of $18 an hour, meaning the contribution to the Waynesboro economy in terms of payroll will be an estimated $1.5 million a year.

Now to the conjecture: City and state officials interviewed for this story passed on a claim from PGI that the additional jobs will add $4 million a year to the local economy. Another version of the claim has the plant already contributing $4 million a year to the local economy. We’ve not been able to independently verify either claim.

There is also an expected stimulus to the Waynesboro economy to come from the construction of the addition, but nobody from the city, the state or PGI was able to come up with an estimate on the dollar impact there.

The jobs created will undoubtedly outperform what is currently in the Waynesboro economy. The average wage for a job in Waynesboro as of the most recent figures from the Virginia Employment Commission is at $14.58 an hour. Jobs paying an average of $18 an hour outperform the average job in Waynesboro on order of 23.4 percent.

The number of jobs to be created by the PGI expansion, though, at 41, will mean that the better-than-average-paying jobs will have only a miniscule overall impact on the average wages citywide. In fact, the average hourly wage in Waynesboro will jump by only 1 cent per hour when the 41 jobs at an average wage of $18 an hour come online next year, to $14.59 an hour, according to our analysis.

Also hard to quantify is the psychic benefit of the good news that the Waynesboro economy, which has been hemorrhaging manufacturing jobs of late, is actually adding jobs back to the local workforce for a change, and that the City Council in Waynesboro, notorious for not being able to get anything of consequence done, was actually able to get something of consequence done.

“From a professional level, the people at the state, the people at PGI, have just been really good people to work with. But from a personal level, it just saddened me to walk through all the empty factories locally. To see this happen and to see that we’re still manufacturing things in Waynesboro, it’s a big deal for me,” said Assistant City Manager Jim Shaw, who served as the point man in City Hall on the deal.

“I think initially they were making the offer to Waynesboro out of courtesy to their current plant here. I don’t think anybody really took Waynesboro seriously. But kudos to this Council for stepping up to the plate, being aggressive. I’m sure that this is the most impressive package that any City Council has ever made for an expansion or new business in Waynesboro,” Mayor Tim Williams said.

“We know that across the nation there’s been a tremendous industrial downturn. We’ve got some existing industries and some vacant industrial buildings here. This sends a strong message that we will negotiate, that we want business here. We’ve got to be aggressive in the marketplace, and we’ve got to demonstrate that we want jobs here, that we want business here, and that we’re willing to drive the ball down the field to get it. This signals that Waynesboro is open for business,” City Councilwoman Lorie Smith said.

 

Did it matter one way or the other?

We all feel better having some good news to hang our hats on. And we have it straight from the PGI spokesman’s mouth that the incentives were important to getting the deal done. Case closed, then, end of story, right?

Maybe, maybe not.

“The difficult question to answer in a lot of these situations is whether or not the business would have undertaken such an expansion if it hadn’t had any help at all. And what we find in most cases is that the answer is yes,” said David Shreve, an economist with the Charlottesville-based Virginia Organizing Project. “They’re usually not stepping up to the plate to expand an existing business or build a new location unless the demand for their products and services did not necessitate such a move. So any kind of assistance that you find in these packages is after-the-fact assistance, a little bit of a candy coating for the business one way or another.”

I asked Bridges a followup to my initial question on what it was that Waynesboro did that landed this expansion product here. How important was the land grant that not only gives PGI what it needs to build the 90,000-square-foot addition to its current facility but also provides acreage for growth down the road?

“It was a very important part of the package, because obviously we’re in a very dynamic business, and we have to not only consider growth today, but we have to look to the future,” Bridges said.

We won’t know the specifics of what was being offered to PGI by Mooresville, N.C., but the people that I talked to for this story all told me that the location of the PGI plant in Mooresville was a hurdle in that PGI was essentially landlocked where it was. You have to assume, then, that all other things being equal Waynesboro had a huge built-in advantage in the form of the 15 acres surrounding the PGI facility in the industrial park in Waynesboro that we’re told Mooresville could never compete with.

A tip of the hat to PGI for getting from Waynesboro the land that it needed for its next planned expansion, additional land for what it might want to do in the future, and cash money from the city and state and tax abatements for six years out.

“There are so many things in today’s business environment that you have to consider. And certainly as you’re setting up an operation, the way an incentive is structured, it’s not just the amount of money, it’s the way an incentive is structured,” Bridges said. “This particular incentive package was an outstanding offer, and obviously when you have major capital expenses in setting up this kind of operation, it’s a business, anyone would look at what could offset or defray some of those initial expenses when you’re doing an expansion of this magnitude.”

 

Politics

At $4.55 million for 41 jobs, we’re paying $110,975 for the jobs created here by PGI. This with the aid of a Republican governor and Republican lieutenant governor who have tried in the not-too-distant past to score political points with attacks on the economic-stimulus efforts in Washington led by Democratic President Barack Obama and the Democratic-majority Congress that have come in at $100,000 per job created, and a Republican-leaning majority on the City Council that had similar philosophical misgivings on the stimulus until a few days ago.

“I was on that other side of the argument, too,” Mayor Williams admitted in an interview with me last week. “I was thinking, Just give everybody the $100,000. But I guess when you’re on the other side, and you see that you have to spend money to make money, and it’s long term, I look at that as, we just anchored, barring any unforeseen economic disasters, we just anchored PGI here for the long term.”

Partisan politics played a clear role notsomuch in the deal getting done but in the rollout of the PGI news. The story was leaked to the hard-right News Virginian the day before the announcement was to be made publicly by the McDonnell administration, and the story that appeared in the paper’s print edition the morning that the news was to be released praised the efforts of McDonnell, Bolling, Williams, Vice Mayor Frank Lucente and even former City Council member Reo Hatfield, to the noticeable exclusion of City Council members Smith and Nancy Dowdy, political independents whose approaches are more center-progressive.

A press release put out later on the day of the announcement by the City of Waynesboro included a curious nod to the efforts of Republican State Del. Steve Landes, another outspoken critic of federal stimulus efforts whose awkward quote in the city press release made it seem that whatever role that was played by Landes in the PGI deal was minor at best.

“Representatives from PGI and I had discussions prior to session, and I was happy to assist them through my contact with Gov. McDonnell and Lt. Gov. Bolling,” Landes was quoted in the city press release. “It is the initiative of the present administration and certainly a long-term goal of mine to increase economic development and grow the economy in Waynesboro and our region.”

 

Final judgment

The attempt to play partisan politics with this does bother me, but the execution to that end was so poor that it’s hard to get too riled up on that score, certainly not enough to throw the baby out with the bathwater in terms of the final result.

The number of jobs created, and the impact on the city economy, aren’t enough in and of themselves to justify the banner headlines in the local paper.

The benefit here comes in the intangibles. City Council spent the bulk of the first decade of the 21st century cutting taxes and city budgets to the bone with the rhetoric as its guide that what it was doing was making the city more attractive to business and industrial investment.

This move by this City Council signals that Waynesboro is finally ready to be a player in the economic-development game to the point of even being willing to overpay, and overpay dramatically, for the right to be a player in the game.

“Being able to talk about being successful in landing an industrial expansion in these unprecedented economic times, I think, is something that’s exceptional for Waynesboro. I think it speaks volumes to how important the Council thinks this expansion is and the fact that we are growing jobs here in Waynesboro, and that we’re growing good-paying industrial jobs,” Smith said.

“The models that we had discussed had this as a return on investment of less than 10 years. I look at less than 10 years investment into anchoring that plant, anchoring that company in Waynesboro, the security of those jobs, the additional jobs, it’s just worth it,” Williams said.

“We’ve got to start thinking bigger. We’ve got to start thinking more globally. If we’re going to get in the game, we’ve got to get in the game,” Williams said.


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