• WisBusiness

Monday, November 9, 2009

Mercury Marine incentives in line with what others offer to win, keep jobs


By Tom Still
Now that the Doyle administration has revealed the costs of keeping Mercury Marine in Fond du Lac, a predictable "Was it worth it?" reaction is rippling through the public, press and policymakers.

Judged by recent incentives paid or announced by other states to retain or lure major businesses, the answer appears to be "yes." In fact, Wisconsin may have kept Mercury Marine in the state at a "cost-per-job" that falls somewhere on the lower end of the national incentives scale.

The fight to keep Mercury Marine Inc. from moving its Fond du Lac operations to Oklahoma could cost Wisconsin taxpayers $70 million in public assistance to the outboard-engine maker, Doyle said last week. That's in addition to a $50 million loan funded by a half-cent Fond du Lac County sales tax and $3 million from the city of Fond du Lac.

In return, Mercury Marine is expected to retain or create up to 2,700 jobs in the Fox Valley, where it is one of the largest employers. About 400 of those jobs will come from the company shutting down a plant in Stillwater, Okla. If the company retains or creates the full estimate of 2,700 jobs, and all of the state and local incentives kick in, that's about $45,500 per job. A back-of-the-envelope estimate suggests 2,700 workers paid at $45,000 per year are worth $120 million per year in gross pay alone. That buys a lot of houses, groceries, electricity, health care, gasoline and all the other things that make a local economy click.

It also generates a lot of state and local tax revenue, which is how those governments recover their investments over time.

How does the Mercury Marine incentives package stack up to other recent deals?

* When IBM decided to open a technology delivery service center in Dubuque, Iowa, a stone's throw from Wisconsin, the cost per job created was about $40,700. That's based on the reported public-private incentive package of $53 million and 1,300 jobs, which is the predicted total when the center is fully operational in June 2010.

* In early June, GE Healthcare announced it will open a new digital mammography production facility in New York. The 230,000-square-foot facility will add 150 manufacturing jobs with an annual payroll of $10 million. Investment in the facility totals more than $165 million, including a capital grant of $10 million from New York state, according to the company. That's about $66,000 per job.

* In mid-2008, IBM announced it would invest up to $1.5 billion to expand and upgrade its facilities in New York, creating 1,000 jobs and retaining 1,400 more. The reported state and local incentive package was $140 million, or roughly $58,300 per job.

* The Mercury Marine incentives look like a bargain when stacked against the state, local and private package assembled in the attempt to keep General Motors in Janesville. That $195 million package, which included $115 million from the state, would have created between 1,200 and 1,500 jobs. Using the higher jobs estimate, that's an average of $130,000 per job -- or three times the Mercury Marine cost per job.

The cost-per-job equation is only one way to calculate the value of incentives, of course, with total investment by the company being another measure. Total investment takes into account capital expenditures and secondary jobs, such as construction, that are also valuable. But when unemployment is hovering around 10 percent, direct jobs and payroll are what most people understand and value.

To be sure, there's a philosophical argument against states engaging in an endless War of Incentives. In a perfect world, competition over job creation wouldn't involve state and local tax credits, land discounts and the like. But the world is far from perfect and the marketplace is brutally efficient, which means states must compete or risk losing jobs and companies they already have without gaining anything new.

Wisconsin's conservative public psyche may find incentive packages like the Mercury Marine deal troubling. It would be much more worrisome, however, if Wisconsin continued to stand idly by while other states and nations played an aggressive incentives game. Not all incentive packages are worth the cost, but the smart deals pay for themselves over time.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.

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Comments: 3

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