Incentives Often Not The Deciding Factor In Business Moves

May 16, 2018

State lawmakers are mulling a budget for the next two years, looking for money to fund programs and services.  One fund they’re unlikely to raid is economic development, a category of state spending worth nearly $20 million. 

Last year, an international company with $90 billion in annual sales decided to move its U.S. headquarters from California to Arlington, Virginia.  That’s where Nestle found a building that had been vacant since it was finished in 2013.  And with all that office space, it made sense to move one of its subsidiaries, Gerber baby food, from New Jersey.

Gerber will bring 150 new jobs to the area, although some employees from New Jersey will likely come with the company.  “Nestle was really delighted last year with the proportion of folks that made the move from California to Northern Virginia," says Stephen Moret, President and CEO of the Virginia Economic Development Partnership.  "We would anticipate that with this move that they’ll get a significant number that will move down as well.”

Moret says the company came to Arlington for many reasons. “Some of the best public schools in America, access to one of the most diverse talent pools in the United States, wonderful higher education institutions, great domestic and international flight service.”

Credit MBandman / Creative Commons

Lower corporate taxes than in California or New Jersey might also have helped, not to mention proximity to the federal government, which makes policies of great importance to food processors like Nestle and Gerber. 

What was not on the list was state government incentives.  Roger Johnson, Economic Development Director for Albemarle County, was not surprised.  He cites a report from Area Development Magazine. “They do an annual survey about what’s most important in terms of companies picking site locations, and incentives does not make the top ten," Johnson says.  "It’s an educated workforce.  It’s availability of sites.  It’s distribution systems like roadways and ports, so somewhere way down the list is that determining factor.”

Nor do states lose new businesses because they refused to provide extra cash to sweeten the deal.  “The most common reason that Virginia loses a manufacturing project is that another state had a development ready site – prepared more quickly than Virginia has,” Stephen Moret admits.

Even so, Virginia offered the company more than $860,000 and the prospect of tax credits.  It’s the kind of deal that might have a Democrat like Delegate David Toscano protesting corporate welfare.  Instead, Toscano shrugs. “We’re always making those kind of enticements to people to move,” he says simply.

Virginia pays out nearly $20 million a year to lure new business from other states. Proponents of payments for economic development figure the Commonwealth will get its money back through state and local taxes and corporate philanthropy directed at local charities.