In 2008, Volkswagen announced it was building a new plant in Chattanooga and the German automaker received an incentive package from the state of Tennessee of more than $550 million.

In the years since, the total incentives for VW have climbed to about $850 million.

Both those figures, until very recently, were state records.

“We agreed to give them the sun, the moon and the stars, when perhaps the sun and the moon would have been enough ….,” Helen Burns Sharp, founder of the citizens group Accountability for Taxpayer Money in Chattanooga, famously said of the deal.

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Volkswagen’s incentives no longer hold the state record.

The Tennessee legislature took care of that when it approved an $884 million spending package for Ford, which is locating its $5.6 billion electric truck and battery plant at the Megasite of West Tennessee in Haywood County.

Charles Wood, vice president of economic development at the Chattanooga Chamber of Commerce, looks at both the Volkswagen and Ford transactions and comes to the same conclusion:

You do what you have to do, realizing that securing the automaker is only the first chapter in an economic development story that potentially could have the heft of a Tolstoy novel.

It’s all relative

In fact, a 2008 study by the Center for Business and Economic Research at the University of Tennessee, projected Volkswagen’s location in Chattanooga to set off, at minimum, a 30-year winning streak (that was the length of the PILOTS accorded to VW as part of the deal).

The study’s summary: Volkswagen’s presence would be good for nearly $500 million in income each year, would create more than 11,000 jobs, and annually produce $55.7 million in state and local tax revenue.

When UT came back four years later and did another study of VW’s impact, it found the automaker’s influence was even stronger: responsible for more than $643 million in income each year and created 12,400 full-time equivalent jobs in Tennessee. State and local tax revenue was only slightly less than originally projected, at $53.5 million.

Wood stops short of saying any price to land VW ultimately would have been worth it.

“I’d say there’s probably a little more science to it than that,” he said. “But economic development is a strange blend between the science of economics and art of community building.

“I’m sure someone you met (Helen Burns Sharp) would say we overpaid. Looking back now, if we had paid an extra $50 million, would it have mattered? Probably not.

“The economic impact is so big, that number, as strange as it sounds, is relatively small.”

As for the Ford project, Wood believes legislators made the right call. The only call.

“You can’t get that project without the infrastructure for the site ($200 million before Ford even came long). So, whatever’s going to be spent on infrastructure is just a requirement. You have to look at that in a different way. That’s just investing in ourselves.

“Then you have tax credits, where a company is not paying taxes or not paying a portion of taxes, and I’d say this doesn’t matter if it’s a $50 million project or a $5 billion project; if that project doesn’t come to Tennessee, you don’t get that tax revenue anyway.

“You get a giant zero.”

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Different definitions of victory

A giant zero is exactly the figure that Ron Shultis, director of policy and research at the nonprofit Beacon Center of Tennessee, has in mind for every potential incentives package.

“We are consistently against these targeted subsidies where they give one company taxpayer money,” Shultis said. “Government has the job of creating an equal playing field and what it’s doing with these programs is picking winners and losers.”

How strongly does the Beacon Center feel about this? It produced a 2017 documentary about the incentives provided to IKEA to locate in Memphis: “Rigged: The Injustice of Corporate Welfare.”

And no small point, Shultis adds, is that the “winners” include all the involved politicians who benefit from “press clippings economics.”

David DeVaney, president of commercial real estate firm NAI Charter in Chattanooga, offers a different interpretation of winners and losers.

“You’re creating winners by providing really good jobs for families,” he said.

Job creation, of course, is community development’s holy grail.

It is also, according to Greg LeRoy, executive director of the Washington-based nonprofit Good Jobs First, a total fallacy.

In 2005, LeRoy wrote a book, “The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation.”

He says if he were to write another book today, it might start with this sentence: “Amazon is getting paid to execute its business plan.”

“The specifics vary,” with auto industry incentives, LeRoy said. “One size doesn’t fit all.”

However, LeRoy says one thing is consistent: It is assumed, incorrectly, that huge companies need massive tax breaks to even consider a potential location for a factory.

“The one number nobody wants to talk about is 1.8%,” LeRoy said. “If you look at the cost structure of the average American company, all the state and local taxes, when factored in, come to just 1.8%.

“Which means everything else is 98.2% — logistics, labor, energy….”

To the job creation point, retired General Motors engineering supervisor Chris Ziegler said when the Saturn plant opened in 1990 in Spring Hill, Tennessee, most of the employees were transfers from outside the area.

“To do more for the world than the world does for you. That is success.”

Henry Ford
Ford Motor Co. founder

“For a long time, most of the workforce came not from Spring Hill but the rest of GM,” Ziegler said. “There were jobs created with the infrastructure built around it. Is it worth all the incentives? I don’t know. But over the long haul, it paid off significantly.”

Helen Burns Sharp says she is glad Volkswagen is in Chattanooga. But she never has, and probably never will, stop questioning the scope of the spending package.

“An incentive was warranted here,” she said of getting VW to come to Chattanooga when Huntsville, Alabama, was a serious competitor for the plant. “And I’m sure a lot of places would like to have the Ford plant and you don’t want to risk losing it.

“Yet, at the same time, I think what we do is roll over and let them dictate terms. Nobody’s really negotiating for the public.

“And we just kind of gave away the farm — ‘Oh, you don’t want to pay stormwater fees, you don’t want any clawback language with teeth in it … that’s all right.’ ”

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Value of incentives less than certain

Sharp also says that when Chattanooga missed on landing Toyota in 2007, it created an urgency that likely drove up the price tag on the spending package for Volkswagen.

“There was an attitude, ‘We’re not going to lose this one.’ I think we did too much,” she said. “But I understand.”

Shultis, from the Beacon Center of Tennessee, is less forgiving: “Research continues to show these incentives don’t work, don’t matter.”

He points to a W.E. Upjohn Institute for Employment Research study of 34 incentive situations. In a paper published in 2018, the study’s authors arrived at this bottom line:

“Based on a review of 34 estimates of ‘but for’ percentages, from 30 different studies, this paper concludes that typical incentives probably tip somewhere between 2% and 25% of incented firms toward making a decision favoring the location providing the incentive. In other words, for at least 75 percent of incented firms, the firm would have made a similar decision location/expansion/retention decision without the incentive.”

In plain language, the best-case scenario is that incentives only play a significant role — only have a chance to be “worth it” —in one out of four cases.

Dennis Cuneo is a former senior vice president of site selection for Toyota Motor North America and was in that position in 2007 when Toyota picked Blue Springs, Mississippi, near Tupelo.

He rejects the notion that incentives are the prevailing determinant in where auto manufacturers choose to build.

“That’s way too simple,” Cuneo said. “For Toyota, in particular, incentives are not a driving factor.”

David Rumbarger, president and CEO of the Community Development Foundation in Tupelo, says the incentive package put together by the state and three neighboring counties was almost $300 million, but was essential just for any auto manufacturer to know they were serious, saying, “It gets us back to par.”

Meanwhile, the 35th annual Corporate Survey by Area Development, CEOs and site selectors in 2020 ranked state and local incentives only ninth among the top 10 site selection factors.

Availability of skilled labor ranked first on the list, followed by highway accessibility and energy availability and costs. Quality of life ranked fourth and labor costs fifth. Construction and occupancy costs were sixth, the corporate tax rate and tax exemptions were seventh and eighth respectively, then state and local incentives, and finally inbound/outbound shipping costs.

None of which means incentives are not a consideration

“It could make a difference if two sites are very close,” Cuneo said.

The survey’s list is perhaps deceiving, too, because several of the items could be bound together as part of a sweet spending package. LeRoy also says a lot of auto plants end up getting tax abatements not so easily tracked by the public.

One example, he says, is what was found in a United Auto Workers-commissioned study of the Nissan plant in Canton, Mississippi, near Jackson.

The published incentive tab was $295 million. The study, however, reported that “the real cost was four times that,” LeRoy said, because of local property tax breaks and employee personal income tax rebates that went to Nissan instead of into the state’s coffers.

“We know that’s one of the lures Mississippi (including businesses in DeSoto County) use against Tennessee,” he said, adding, “We think states have been overspending (for corporations).

“That’s the dark side of federalism.”

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Fourteen years later, a ‘bargain’

Rumbarger says that landing Toyota for the Tupelo region has been the “home run” that community leaders were seeking when they entered the auto manufacturers sweepstakes after watching their longtime furniture industry contract.

Still, there was stress early on. After Toyota announced in 2007 it was coming to nearby Blue Springs, there was an 18-month pause during the recession. Even so, Rumbarger says there is now no questioning the Japanese automaker’s impact.

In fact, the $298 million “all-in number” that was part of the deal, now looks pretty good. Especially considering the huge escalation in construction costs, which Rumbarger figures easily could be 30% higher.

“There’s a wealth being created in the community,” he said. “Not just the physical wealth of people being paid, but what they’ve been able to do with that wealth — educate their kids, buy a nicer house, whatever it is.

“Communities are better off today than they were before and have a future with that company, along with what that company brought to other companies in the area.

“Yeah, I think we got a bargain to be honest.”

Noting Toyota’s $290 million payroll in the early days, he said: “In wages alone, they paid it back in a year.

“You’re getting a return on day one back into the economy. If you look at a three- to five-year window, you probably have to question the ratio. But if you look at a longer window, 10-year plus, you can’t argue that it has changed the economy in this region significantly.

“All of the downtowns have been redone since Toyota came here. We spent $15 million on downtown Tupelo. So, when you say what’s the benefit, Toyota’s raised the level of money in the community.

“All three cities — New Albany, Tupelo, and Pontotoc — have all benefitted in some way. There’s 2,400 people (working at Toyota), plus all the suppliers.”

Jeffrey LaMarche, executive director of the GM plant in Spring Hill, says those who oppose corporate incentives are not acknowledging the obvious: competition for these companies can be fierce.

“I would say, if you take that philosophy, you’re going to watch everything be in Alabama, and Mississippi and South Carolina,” he said. “The reality is these companies all have somebody else they can go to besides the one they’re talking to.

“So, if you think the government is going to set a level playing field, do you think your neighbor is going to go by that level playing field? I don’t.”

LaMarche paused, added with a laugh, “Now, I can look at Ford and say, ‘Wow, $900 million.…’”

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Only the beginning

In 2014, Volkswagen announced plans to expand its Chattanooga plant and add 1,800 new employees. A 2015 impact study by UT’s Center for Business & Economic Research projected nearly 5,400 full-time equivalent jobs from the expansion, another $217 million in new income for the state, and a one-time total increase in tax revenues of $20.5 million.

In Spring Hill, General Motors recently has invested more than $2 billion to build EVs (electric vehicles).

Landing an automaker is just the turning of the ignition.

“For Toyota, it’s a critical factor to have room to expand,” Cuneo said. “Almost all Toyota plants eventually expand.”

So, an original agreement between an automaker and state and local leaders is just that: a starting point.

Which is why those in community development, while perhaps needing to draw several deep breaths when first offering a huge incentives package, take a long-term view.

“It’s a generational project,” said Charles Wood of the Chattanooga Chamber of Commerce.

“A lot of people rolled their eyes at the (incentives offered VW),” said David DeVaney, who is a commercial real estate developer in Chattanooga. “But you don’t want to lose.

“You bid to win.”

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Shine a light?

Shultis, from the Beacon Center, concedes that many people working at the Volkswagen plant in Chattanooga are in better, higher-paying, jobs than they would be otherwise.

That still doesn’t change his opinion about tax incentives, and he notes that the $850 million figure for VW is not all-inclusive.

“This just includes tax grants,” Shultis sad. “Because of Tennessee law, we can’t see how much a company receives in tax credits. The state gives out an average of $180 million in tax credits each year, but we don’t know who they’re going to.

“Certainly, people who receive jobs at these plants are better off than they were before. The question is, do you need to give the incentives in the first place?

“And like we’ve seen with the Volkswagen plant,” he said, “once you give one incentive, companies will leverage it to get continued incentives. General Motors has gotten multiple incentives in Spring Hill.”

In some cases, Shultis says, OEMs (original equipment manufacturers) play the same game as professional sports teams, who all over the country have demanded a new stadium or arena under threat of relocation.

“Down the road, companies will say if you don’t give us more, we’re going to leave,” Shultis said, “essentially holding governments and communities hostage.”

He adds that these companies also “self-report” job numbers, and “little is done to verify what they say.”

Even the very existence of incentives, Shultis says, is tantamount to an admission of a state’s and/or community’s shortcomings. Asked about Sharp’s analogy of having paid the sun, the moon and the stars for Volkswagen, when perhaps the sun and the moon might have been enough, he said:

“That’s even being generous. The best thing would be to try and create daylight for all businesses.

“Not just one.”

Placing the bet

“To do more for the world than the world does for you. That is success.”

Those are the words of Henry Ford, who in 1903 founded Ford Motor Co.

Here’s an updated twist on that sentiment: Ford’s $5.6 billion investment in building all-electric F-series trucks at Blue Oval City outside of Memphis, and the $884 million state-record spending package provided to the company, could turn out to be a spectacular quid pro quo.

Everybody wins.

Dennis Cuneo, a former site selector for Toyota, and today running his own consulting firm, DC Strategic Advisors LLC, says a major auto manufacturer opening a new plant, and the costs involved, is a well-calculated decision on both sides of the equation.

“Think about Henry Ford and the internal combustion engine and Detroit and now Tennessee is chosen for the electric vehicle product,” Cuneo said. “Now, Tennessee is the center of auto manufacturing in the U.S.

“This is Ford’s largest investment ever and they’ve been in a business for over 100 years.”

So, it’s historic.

And Ford is poised to do here what GM, Toyota and Volkswagen have all done, to one degree or another, in other parts of the Mid-South: provide an economic facelift.

“It transforms a community,” Cuneo said. “These manufacturing jobs pay a lot more than a call center.”

Said Charles Wood of the Chattanooga Chamber: “If you look at last census and where Memphis is, the city lost population over the last decade. The county was basically stagnant.

“West Tennessee, I have a feeling, is not dissimilar from that. This project has the potential to change that trajectory.”

And that, Wood says, is exactly what lawmakers had to be thinking when they signed off on the largest corporate spending package in Tennessee history.

No risk, no reward.

“If I’m a policymaker in Nashville,” Wood said, “there’s a question that has to be asked:

“If not this, what else you gonna do?”