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April 2006 — Vol. 84, No. 3
COVER STORY
Making Connecticut magnetic
for businesses and jobs
What do companies look for in a business location? How
does Connecticut stack up? And what can the state do to increase its allure?
Related Article:
By Noreen S. Kirk
Freelance writer in Andover, Conn.
Like eager suitors competing for a debutante’s hand, states across
the nation are vying with one another to win the attention of companies
seeking places to do business.
Courting businesses didn’t used to be such a national pastime.
But now the economy is global. The world is wired. Work is knowledge-based.
In this environment, many businesses can choose to locate anywhere on
the planet that they please. When they do, they bring the jobs, income
and high quality of life states are eager to garner for their citizens.
So it’s no wonder that states are keen to attract, and retain,
that plum company. And they’d like to know the best way to do it.
Site-selection professionals, people who specialize in helping client
companies identify optimal locations for relocations or expansions, are
good sources of insight.
“There is tremendous curiosity at the state level regarding what
does or doesn’t make a state attractive,” says Kate McEnroe,
president of Atlanta-based site-selection firm Kate McEnroe Consulting.
Yet, she says, businesses’ decisions are often based on the merits
of individual communities rather than a state as a whole.
“If a state has an attractive business climate and a wide selection
of really attractive communities, that’s how a whole state gets
to have a good reputation,” McEnroe says.
In general, though, site-selection professionals agree on some basic
elements that make a location desirable.
People, product, processes
What site-selection firms look for in a location depends on the needs
of the client and the project. However, McEnroe says three main components
are always considered. First, the location must have a labor force that
matches the client’s needs in terms of the number of available workers
and their skills. Second, it must have the “product” the client
needs, such as an office or industrial building, certain transportation
resources, or a nearby university. The third major consideration is how
the state handles permitting and regulatory processes.
“A state as a whole can get a reputation one way or the other based
on both what the requirements are for regulations and permits and how
user-friendly the process is,” McEnroe says. “I don’t
mean that they let companies do whatever they want. I mean how streamlined
and easy to work through the process is, how long it takes, and how easy
it is to get to the right person.”
Scot Butcher, director of the Business Location Incentives and Site Selection
Practice of Boston-based BDO Siedman LLC, says most of his clients begin
with a general idea of where they want to be. If a client wants to be
in the Northeast, his firm will look at all the states in the region.
But the ultimate decision almost always comes down to “where the
labor force is and the quality and availability of real estate,”
he says.
“Proximity to the workforce is probably number one 90% of the time,”
says Butcher. “Labor is usually a company’s biggest cost.
If you have a hard time attracting labor, it’s that much more costly.”
Susan Arledge, president of Arledge Partners Real Estate Group in Dallas,
says most of her firm’s clients are looking for locations with large
population growth and a workforce tailored to their needs.
“Our job is to match communities with clients’ needs,”
Arledge says. A client may be looking for medically trained people or
those who can provide technical support for computer systems, for example.
Arledge’s firm develops demographic studies and labor profiles to
identify locations where a good percentage of the labor force has the
skills the client’s industry demands.
Dennis Donovan, principal in the corporate relocation consulting firm
of Wadley-Donovan-Gutshaw Consulting in Bridgewater, N.J., says his clients
are most interested in a state that has a culture of being fair to business.
By that he means “having a set of regulations that are no more stringent
than federal ones, where regulatory agencies are not getting all their
fees from penalties, and where the state is trying to work with business.”
Donovan says that, along with equitable taxes, a streamlined, easy-to-navigate
permitting process is very important.
“Not that you give up anything in the public good, but you take
unnecessary steps out of the process,” he says. “Businesses
today have to move lightning-quick.”
Incentives, that often-maligned instrument in the economic developer’s
tool kit, are often necessary, but not sufficient, to close a deal.
Arledge says, “Incentives are not a driver, but an eliminator.
All things being equal, they don’t drive the decision, but if one
community is not offering incentives, that could be what eliminates it.”
“Incentives do not make a bad deal good; they make a good deal
better,” says Butcher. Once he and his clients have identified a
potential geographic area, his firm focuses on identifying the state and
local incentives that are available. Even more challenging than identifying
and negotiating incentives, though, is actually securing them. Throughout
New England, Butcher says, securing the incentives that have been negotiated
often takes much too long, with the incentives schedule lagging well behind
the project schedule.
Quality of life, while important, isn’t as compelling a factor
as states might suppose, says Arledge, who is somewhat inured to the beauty
shots that locations often feature in their marketing materials.
“I never heard of a community that didn’t claim to have a
fabulous quality of life,” Arledge says. “Communities that
don’t have a credible quality of life don’t ever make the
short list. But our research goes much deeper than that.”
Connecticut pros and cons
The attributes site selectors mention as pluses for Connecticut are familiar
ones. They include a highly educated and skilled workforce, a good transportation
infrastructure (with the exception of I–95 in southwestern Connecticut),
good air service, proximity to Boston and New York, good telecommunications
infrastructure, and a very attractive quality of life.
Butcher notes that the “Knowledge Corridor,” an area running
along I–91 from Holyoke, Mass., to New Haven that has a high concentration
of colleges and universities, offers a special advantage because of the
number of graduates it produces each year. The availability of financial
services workers, driven by Hartford’s insurance tradition and Fairfield
County’s stock-market-related businesses, is also an asset.
But Connecticut, like most Northeast-ern states, is perceived as a relatively
expensive place to do business. Site selectors interviewed for this article
say the state has a high per capita tax burden, high cost of living, and
high energy costs and labor costs. The job market is seen as tighter than
in many areas. In the permitting and regulatory arena, Connecticut is
perceived as better than many places, but still not a model of efficiency.
Because of these shortcomings, the range of companies Connecticut is
likely to attract is smaller than it might otherwise be.
“Connecticut needs to be selective in who it tries to attract,”
says Donovan. “It will not have as many corporate prospects as Texas
might have, for example. You can do anything from low-end manufacturing
to corporate headquarters in Texas.”
The types of businesses Connecticut is most likely to attract and keep
are high-end, knowledge-intensive businesses. These include those involved
in aerospace, advanced materials, biotechnology and other high-tech fields,
plus insurance and other types of financial services.
McEnroe agrees that companies must have a compelling reason to choose
a high-cost state like Connecticut.
“It’s a trade-off between cost and the need to be proximate
to something — an existing employee base, a customer in the Connecticut
area, a big market like New York City or a university you have a connection
with,” she says. “Cost alone is not going to send you to Connecticut.”
But high costs can deter companies from expanding or relocating here.
Fifty-five percent of the business executives responding to a CBIA survey
last fall said if they were to expand or relocate, they would not do it
in Connecticut. They cited reducing workplace costs and lowering business
taxes as the top two things the state could do to encourage them to stay
here.
What the state should do
Connecticut needs to both better market its advantages and improve its
shortcomings if it wants to attract and retain businesses, say site selectors
and economists.
“We have professionals from Southeastern states calling on us every
day to give us more information on why our clients should locate in the
Southeast. That doesn’t happen in New England,” says Butcher.
Marketing on a regional basis is especially effective, site selection
consultants say. The Team New England and Knowledge Corridor efforts get
high marks for visibility and effectiveness, but Connecticut and its neighboring
states should do even more in this regard.
The state’s efforts should extend to retaining existing businesses,
as well.
“Most jobs come from businesses already in the area,” says
McEnroe, “and the easiest thing for them to do is stay where they
are. The number-one thing the state has to do is avoid doing anything
so annoying to business that companies just say, ‘I don’t
care how much of a pain it is to move; I’ve had it!’”
She points out that businesses are constantly being invited to relocate
to other states, so it’s important for Connecticut to reach out
to its existing businesses and “show them the love.”
Besides improving its marketing efforts, Donovan says the state needs
to “make genuine change in the business climate.” This would
involve tax reform, tort reform, reducing workers’ compensation
costs and speeding up the environmental permitting process.
Todd Martin, economic adviser to People’s Bank, and Nick Perna,
economic adviser to Webster Financial Corp., say the state must act decisively
right now to retain and attract businesses and fuel job growth. “We
are the only state in the country that hasn’t seen overall job growth
since 1989,” Martin says. “If we don’t address some
important issues — the high cost of living, transportation woes,
energy issues — the long-term viability of the state is clearly
threatened.”
He recommends improving the economic climate by changing the tax structure,
improving education, fostering innovation, and establishing closer collaboration
between the public, private and academic sectors. State lawmakers must
analyze the economic impact of proposed legislation. The Northeastern
states should stop competing with each other and, instead, band together
to compete against countries such as India and China, which will be our
country’s chief competitors over the next 20 to 30 years.
Perna says placing greater emphasis on education at all levels is critical
to put state students more on a par with students in other countries who
are currently outperforming U.S. students, especially in math and science.
Both economists say the public sector must achieve efficiencies and cost
savings similar to what the private sector has achieved in recent years.
They also agree that today’s economy demands that the state take
a more regional approach, both in recruiting businesses and finding less
costly ways to provide state and local services.
It’s time, Perna says, for Connecticut to launch initiatives to
reduce the cost of doing business and of living in Connecticut and to
better educate the workforce of tomorrow.
“To do this takes consensus and bold action,” Perna says.
“We may not have a perfect solution, but if we wait for a perfect
solution, we’re going to find ourselves waving to the Indians and
Chinese and everyone else as they get farther and farther ahead of us.”
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