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Original article URL: http://bridgemi.com/2016/05/dow-chemical-being-courted-by-other-states/
18 May 2016
Numerous states are aggressively courting Dow Chemical Co. to move jobs out of its Midland birthplace – and business leaders are increasingly concerned that Michigan does not have the tools to fight back.
In recent weeks, Dow management has quietly acknowledged to Michigan business leaders that the company is fielding significant incentive offers to move jobs to other states, according to business leaders who spoke to Bridge Magazine on condition of anonymity.
“Other states are courting Dow and putting in offers,” one executive told Bridge. “I am sure that the business community in Midland is very concerned – as they should be.”
Late Tuesday, Dow spokeswoman Rachelle Schikorra downplayed what she referred to as rumors about jobs moving out of Michigan five months after the company announced it would be merging with DuPont.
“Dow has repeatedly expressed its commitment to the community of Midland,” Schikorra told Bridge and Crain’s Detroit Business. “The new materials science headquarters will remain in Midland. We’re building a new corporate center. You can see our commitment in steel in the ground.”
It is unclear how much of Dow’s Midland workforce might be affected if some part of its operations move out of state. About 1,160 people work in Dow headquarters, which Schikorra said Dow is committed to keeping in Midland. But more than 5,000 people work directly for Dow in numerous facilities in the area, many in high-paying jobs.
Schikorra was less committal about the ultimate disposition of those jobs. “Our Michigan operations are assets that align with different operations (of the merged Dow and DuPont),” Schikorra said. “There are changes going on in Dow and the impact of those changes remain to be seen.”
A major relocation of Dow jobs would almost certainly also impact other Midland companies that provide services to Dow.
The move of a sizable portion of Dow’s workforce would be devastating to Midland, where the international chemical company has been based since its founding nearly 120 years ago. Dow is far and away the largest employer in Midland, providing paychecks to 5,087 people in a city of 42,000.
An additional 1,422 work for Dow Corning Corp., a joint venture between Dow and Corning, N.Y.-based glassmaker Corning Inc. that Dow plans to assume full ownership of later this year. Dow Corning makes silicone products and other silicon-based technologies.
Loss of Dow jobs would would also be a blow to Gov. Rick Snyder, whose administration has made a strategic decision to cut economic incentives designed to keep and attract businesses, contending that government is ill-equipped to decide which companies should receive state support.
Doug Rothwell, chairman of the Michigan Economic Development Corp., the state’s quasi-governmental organization charged with attracting and keeping business, declined to address growing speculation that other states are competing for Dow’s Michigan workforce at a time when Dow is in the midst of a $130 billion merger with Wilmington, Del.-based DuPont.
“Dow is an iconic company for Michigan,” said Rothwell, who is also president and CEO of Business Leaders for Michigan, the state’s business roundtable. “We need to do everything we can so Dow sees Michigan as a great place to invest for years to come. We have to do whatever we can to make this work.”
Rothwell and other leaders have expressed concern about the state’s approach to competing for companies, a concern that extends beyond Dow.
Rothwell oversees the state’s jobs attraction strategy as chairman of the MEDC board. His concern is that Michigan has disinvested in the types of incentives that could help it compete with other states, such as Texas.
A spokesman for Snyder said Tuesday that the governor does not believe the loss of incentives has hurt the state’s position when it comes to business attraction.
“You can’t put all your eggs in one basket,” said Snyder spokesman Ari Adler, who noted that he has not heard about other states trying to lure Dow. “You can’t insist that if you have the best cash incentives in the world that that will attract companies.”
Adler added, “You have to look at everything in your entire package when you’re to sell your state to a company.”
A message left for MEDC CEO Steve Arwood on Tuesday was not immediately returned.
Economic development agencies in numerous other states would not confirm a Dow courtship.
Dow is in the midst of finalizing its merger with Wilmington, Del.-based DuPont, with the deal expected to be completed in late 2016. The new company will be called DowDuPont. It plans to then split into three separate companies, with headquarters for two of them in Wilmington and one in Midland, the companies said in December. However, the three-way split also creates opportunities for states to lure operations of the spinoff companies.
The merger announcement was big news, producing anxiety in Michigan and Delaware. Within weeks, DuPont revealed it would be cutting 1,700 U.S. jobs and more overseas.
Dow officials, meanwhile, told Midland leaders at the time the community had nothing to fear from the merger. And the current courtship of Dow doesn’t necessarily mean one of Michigan’s largest companies will abandon Midland.
The three companies that will result when the merger and spinoff process is complete will focus on materials science, agriculture and specialty products. Midland is slated to be the headquarters for the material science company, which will retain the Dow name. The company is also constructing a 150,000-square-foot building at its Midland headquarters campus, which will house 600 employees when finished.
Andrew Liveris, Dow’s chairman and CEO, affirmed the chemical manufacturer’s commitment to its hometown as recently as May 12 during a shareholders meeting.
“(W)e will create a new material sciences company with $51 billion in revenue, a company powered by innovation and integration. A company more focused on key markets than ever before,” Liveris said, according to a transcript of an annual stockholders’ meeting filed with the U.S. Securities and Exchange Commission.
“That company will be the new Dow, your new Dow generation 6.0, if you will,” he added, “headquartered right here in Midland in that new building that’s rising into the skyline just a short distance away.”
The possibility that Dow might be swayed to transfer jobs from Michigan has rattled leaders in the business community, with some saying they are increasingly concerned that Michigan does not leverage the type of robust business attraction incentives to battle aggressive, business-friendly states such as Texas.
In addition to jobs in Midland, Dow employs about 900 workers in other Michigan communities, and more than 24,000 nationwide. The company serves a number of industries, including agriculture, automotive, consumer goods and packaging.
Most of those jobs are high-paying and considered to be among the highly skilled, knowledge-based positions some economists say Michigan needs to attract. For example, Dow employs more than 440 scientists and engineers working on research and development in Midland. The average salary among chemistry industry workers in Michigan is $80,500, according to Dow.
Midland is the definition of a company town, with the Dow name appearing on everything from the public library to a minor league baseball stadium. Several foundations with Dow roots provide funding for public service efforts in the area.
After the merger was announced in December, company officials gave Midland leaders reason to believe there would be no negative impact on the community.
“Dow’s going to be here,” Jim Fitterling, vice chairman and chief operating officer of Dow, told the Midland Daily News. “We’ve always been here and we’re committed to the community, so there shouldn’t be any questions on anybody’s minds about our commitment to be here.”
State Rep. Gary Glenn, R-Midland, told The Detroit News in December that Dow officials had assured him the “new materials division that will be headquartered in Midland will be larger than Dow Chemical is now, so the potential for job creation in the region is significant.”
Snyder expressed similar optimism in a statement released to media in December, saying “there are numerous advantages for the company to continue having a strong presence in Michigan. We’ll work with leaders to emphasize the value of Michigan’s many resources, especially its skilled people, to support its efforts in our state.”
More recently, Midland city leaders told Bridge and Crain’s Detroit Business they were not worried about the possibility that Dow might leave the city. Leaders of Midland Tomorrow, Midland County’s economic development agency, said Tuesday they were not aware of any speculation surrounding Dow.
State Sen. Jim Stamas, R-Midland, said Tuesday that he, too, had not heard any rumblings about other states courting Midland’s Dow facilities. Stamas said he is confident Dow will remain in Michigan.
“Dow’s been very clear that Midland is the home of Dow Chemical, and they’ve made that statement multiple times,” Stamas said.
While declining to discuss Dow specifically, Rothwell does raise red flags, generally, about what he deems to be Michigan’s limited toolset to compete with other state’s economic development incentives.
Texas, for example, promotes itself as “Wide Open for Business,” and as of 2012, had the most generous business incentives in the nation.
Dow employs 7,000 people in Freeport, Texas alone, which is one of six cities with Dow facilities in the state.
Tracye McDaniel, president and CEO of TexasOne, the economic development arm for the state, declined comment this week.
“Texas believes it is up to companies to comment on site location decisions that may or may not be in the works,” McDaniel said in an email response to Bridge sent via Development Counselors International in New York. TexasOne is listed on that company’s website as a client of DCI in the area of “site selection relationship building.”
Louisiana has a booming chemical industry, which may be attractive to Dow since it currently employs about 6,000 in the state. Louisiana’s economic development office did not return inquiries.
Indianapolis is home to Dow Agrisciences, which employs 1,400. Abby Gras, director of communications for the Indiana Economic Development Corp., said she was unfamiliar with any negotiations with Dow to move facilities to Indiana, but that “our negotiations with companies are confidential until a finalized commitment from the company has been reached.”
Snyder has opposed tax incentives for business, saying government should not be in the business of “picking winners and losers.”
In a 2011 interview, Snyder said, “One of the problems with the tax credit world is that you’re picking winners and losers, and government is not really competent to do that. I was a venture capitalist. I know how hard it is to pick winners and losers, let alone [saying] government can do it.”
Michigan used to offer tax credits to keep and attract companies, through a program started under Gov. John Engler and expanded under Gov. Jennifer Granholm called the Michigan Economic Growth Authority. But most of the jobs promised by the tax credits never materialized, and Snyder eliminated the program.
According to Rothwell, (who serves as a director and steering committee member for The Center for Michigan, which includes Bridge Magazine) the Snyder administration believes the MEGA tax credit system “created a real fiscal hole for the state and needed to be scaled back.” But, he added, “Reform is one thing, but elimination is another.”
As a result, “you don’t know what you’re not going to get,” Rothwell said. “We have not landed any of the major job creation projects in America for years.”
The state remains on the hook for more than $9 billion in outstanding MEGA credits, which exert negative pressure on the budget as companies redeem them. State treasury administrators said Tuesday during a state revenue estimating conference in Lansing that refunds are forecast to crest this fiscal year – including $600 million in MEGA credits and another $200 million in credits to battery manufacturers – before beginning to ebb.
The MEDC also has fallen on hard times, and saw its budget cut by 27 percent this year. The cuts are the result of both legislative budget cuts and a loss of tribal casino revenue. That affects available staffing for such services as business attraction.
Perhaps Michigan went too far with some of Granholm’s incentive strategies, Rothwell acknowledged.
“But now perhaps we’ve gone too far in the opposite direction,” he said. “Michigan is one of only two states with a corporate income tax that does not offer job creation and research and development tax credits. We are outspent by our competing states by up to seven-to-one on these incentive programs.”
One point of comparison is the incentive package put together in Delaware to secure two of the three headquarters for the new DowDuPont.
According to the Wilmington, Delaware News Journal, Delaware offered a strategic fund grant worth $9.6 million over five years and a variety of tax credits to land the agriculture business headquarters of the new company. That included passing the Delaware Competes Act, which changes how companies based in Delaware are taxed, and a research and development tax credit.
Rothwell pointed, particularly, to states like South Carolina and Texas which are heavily focused on attracting jobs from elsewhere.
“They are very business-friendly states,” Rothwell said, noting that Michigan ranks 36th in the nation in per capita income – a significant hurdle to future economic growth in the state.
“For us to be a top job state, we’ve got to do better than other states, and that’s why to use incentives,” Rothwell said. “Michigan right now looks at incentives as a cost rather than an investment. That’s the reason a lot of states use tax credits – because they can be performance-based. Tax credits are still state of the art.”
Instead of tax credits, the MEDC now has a very limited tool set to retain or attract major employers and facilities, Rothwell said. The MEDC can offer cash incentives, though those are best designed to support small and medium-sized operations, not major global companies like Dow. Or, Michigan can legislate “one-off” incentive packages as done last year for the multi-billion-dollar Switch data center in Grand Rapids.
But according to Adler, the governor believes Michigan is competitive now, particularly given recent growth in private sector job creation and the decline in unemployment.
More than just incentives, Michigan can offer companies access to talent and an attractive quality of life, Adler said. That’s why Snyder has focused on building the state’s skilled trades workforce.
“Having the talent pool of well-trained employees as a resource,” he said, “that’s what we’re trying to do.”