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Bentley Proposes New Game Plan on Incentives

Alabama economic developers huddle in January to get caution on auto competition, exuberance on aviation and new game plan from the governor.

Every aspect of Alabama’s economy, from aircraft to film, came under scrutiny at the EDAA winter meeting in January. RSA head David Bronner (left) presented his view of how global and domestic factors affect Alabama.

Every aspect of Alabama’s economy, from aircraft to film, came under scrutiny at the EDAA winter meeting in January. RSA head David Bronner (left) presented his view of how global and domestic factors affect Alabama.

A new tax credit for job creation is the centerpiece of Gov. Robert Bentley’s proposed fix of Alabama’s dwindling fund for economic development incentives, the governor revealed in January, speaking at the winter conference of the Economic Development Association of Alabama.

“We’re looking at productivity rather than borrowing as a way to finance our incentive packages,” Bentley told the gathering.

The Accelerate Alabama Jobs Incentives Package, which is to be part of the upcoming legislative agenda, would provide a new credit for job creation, while reducing the state’s reliance on debt to fund incentives, said Bentley.

Secretary of Commerce Greg Canfield said the job credit is a centerpiece of the Accelerate Alabama Jobs Incentive Package. It would “allow a company making a new investment in the state to collect a cash rebate of 3 percent of the previous year’s gross payroll. Rebates would end after 10 years,” according to a Commerce Department statement.

Canfield calls this a “pay-as-you-go” approach, since revenue generated during the construction phase would flow into the state funds before incentives are paid out.

Bentley and Canfield said the new tax credit would not cut revenue going to the Education Trust Fund.

“It is not going to do anything to hurt education,” Bentley told the Associated Press.

Henry Mabry, executive director of Alabama Education Association, told the AP he would have to study the proposal in more detail to determine if it threatens education funding. 

In our January issue, Mabry told Business Alabama one of the biggest goals of the AEA in the March legislative session would be to protect against “syphoning off” education funds for economic development.

Bronner on the Basics

David Bronner, head of the Retirement Systems of Alabama, also addressed the EDAA gathering, giving a wide-ranging assessment of global and domestic economic influences. “The Retirement Systems is invested in 24 different countries in the world,” he said. With this type of investment in a rolling economy, he gives attention to global concerns in population centers such as China and India as well as the value of Russia’s ruble. As he focuses domestically, Bronner said he looks to two industries – housing and automotive. 

“That’s what dictates a lot of our economy in this country,” he said. “The list of companies affected by housing is huge.” 

He adds, “Our deficit now is the lowest since 2007. We’re back down to numbers that I would call reasonable.” But he said, “I do have a concern with housing.” The number of first-time homebuyers is the lowest in 30 years because younger Americans can’t afford a starter home. “The only thing that can get them strong is employment,” Bronner said. 

Aviation High Point

When the production of large commercial aircraft begins in Mobile later this year, the Airbus final assembly plant will be serving a market calling for more than 31,000 new passenger and freight aircraft over the next two decades. “We are looking forward to an extremely robust market in the next 20 years,” said Guy Hicks, senior vice president of government relations for Airbus Group Inc. Based on Airbus’s global market forecast, the demand represents $4.6 trillion of potential business, he said.

Hicks refers to the A320 aircraft that are to be built in Mobile as “our bread and butter.” Airbus has “sold more of these than any in the history of Airbus,” he said. The aircraft manufacturer is in the process of introducing the A320neo (new engine option), a fuel-efficient enhancement to the single-aisle aircraft family, and Mobile will see production of those as well. 

Construction began in 2013 on the final assembly plant at the city’s Brookley Aeroplex. Aircraft assembly begins this year. “We expect first delivery next year,” Hicks said. “We’re shooting for no later than the second quarter.” Airbus projects 40 to 50 deliveries by 2018. 

The A320 is currently manufactured at three locations in the world. Mobile will be the fourth for Airbus and the first production facility in the U.S. Hicks said the total impact on the state’s economy will be $409 million additional output for the GDP. Suppliers will add even more. 

“We don’t build airplanes in a vacuum,” Hicks notes. He encourages companies to look for ways to do business not only with Airbus but also with its suppliers. “Last year, we bought $16 billion in goods and services,” he added. 

Support from the state’s economic development officials is significant to Airbus’ enthusiasm for its new location. “We recognize all of Alabama is invested in what we’re doing here,” Hicks said.

Automotive More Competitive

The automotive manufacturing industry continues to make a large impact on the state’s economy. According to the Alabama Department of Commerce, Alabama automakers produced 915,000 vehicles in 2013 and shipped $6.5 billion in automobiles to 99 countries.

For a national perspective, Bernard Swiecki, senior project manager for the Michigan-based Center for Automotive Research, said the auto industry in the United States supports more than 7 million private-sector jobs with about $500 billion in annual compensation. Sweicki said the first order of business for his research group in 2015 is a Mexico competitive analysis, and he hopes to get Alabama companies involved. 

“North American investments are showing the rise of Mexico as a competitor for automotive manufacturing in the United States,” he said. Automotive investments in 2014 totaled $10.5 billion in the United States, $7 billion in Mexico and $0.8 billion in Canada. 

Scenes from the Soft Side

The release of the movie “Selma,” which filmed scenes in downtown Montgomery near the Capitol and at the Edmund Pettus Bridge in Selma, also brings attention to the economic value of film production in the state. Legislation signed into law in 2009 and implemented in 2010 authorizes the Alabama Film Office to award up to $20 million each year in incentives to
production companies that produce projects in Alabama. 

These incentives include rebates of a percentage of production expenditures and exemptions on certain state sales, use and lodging taxes for qualified projects. “We feel the film incentives we offer are very fair to the taxpayers of Alabama and to the production companies,” said Tommy Fell, location coordinator for the Alabama Film Office. Over the past four years, $128.9 million was spent on production budgets in Alabama. “It is worth noting that $42.7 million of the $128.9 million was brought here by in-state film producers,” Fell said.

Attention from the movie “Selma” will also bring more tourists to the state, adds Lee Sentell, director of the Tourism Department. In addition to national screenings of the Academy Award-nominated movie, a 30-second trailer promoting tourism in Alabama was shown at the London screening of the film in January. His office is also bringing tour and travel representatives to see the historic filming locations in Selma and Montgomery. 

Tourism creates a significant economic impact. Currently, 150,000 people work in the hospitality industry, and the tourism and hospitality industry has grown by 70 percent in the last 12 years. “Last year, 75 million visitors came to Alabama. They spent over $11 billion,” Sentell said.

Minnie Lamberth and Robert Fouts are freelancers for Business Alabama. Both are based in Montgomery.

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