Phil the Dealmaker: Volkswagen announcement is latest deal

Monday, July 21, 2008 at 3:29am
Gov. Phil Bredesen has become known for bringing big deals to Tennessee. File

Nashvillians know all about Phil Bredesen and big economic development deals.

The former Nashville mayor turned governor lists on his economic development resume the Dell facility, the Titans’ stadium on the East bank and Nissan’s sparkling new headquarters in Cool Springs.

Last week, that resume added another bullet point with the announcement of the soon-to-be-constructed Volkswagen plant in Chattanooga.

While the projects change, Bredesen has approached each deal the same.

During his tenure as mayor, and then in his time at the governor’s office, Bredesen has used a dealmaker’s mentality, Tennessee’s geographic and business climate advantages plus very competitive and at times controversial incentives to score large economic development coups, officials and observers say.

“Gov. Bredesen is very intelligent, very focused, and he’s a good dealmaker, whether it’s with the Titans or with the Nissan headquarters or with Volkswagen,” said Sen. Lamar Alexander (R-Tenn.) in an interview. “When he focuses on something, there’s a good chance it’s going to happen. And fortunately for Tennessee, he focused on those three big things and they all got done.”

Bredesen is also part of the club, a former chief executive officer himself who can sit across the dinner table with another CEO who knows that Bredesen has filled his shoes before. Bredesen wants that responsibility. His philosophy is that only the mayor or governor can have certain conversations.

Yet despite those accolades and attributes, Bredesen is often criticized for the incentives he’s offered, with many of these critics arguing that Bredesen gives away the store to nab the big deal.

Chattanooga Times-Free Press reports have detailed that Volkswagen’s incentives conservatively reach $400 million over 20 years when state and local incentives are combined. The Bredesen administration’s lack of details regarding the incentives in the deal concern Steve Gill, a conservative radio talk show host.

“The track record that Phil Bredesen has engaged in as mayor, whether it was getting out-negotiated by Michael Dell, by Bud Adams, when they’re not making the incentives known … is there any confidence that this is really a good deal when you look at the actual numbers?” Gill said of Volkswagen’s incentives.

In an interview with The City Paper, Bredesen says he has heard the criticism before, dating back first he says to an expansion of Opryland Hotel while mayor.

Like his intense focus on clinching the deal, Bredesen said he targets his incentives toward “stuff you really want” and doesn’t offer them broadly.

“I don’t know whether it’s fair that a Mercedes Benz cost $90,000, I just know if I want one that’s what I’ve got to pay,” Bredesen said. “So I look at this kind of stuff as look there are people all over the country who are willing to put X dollars on the table for a football team or X dollars on the table for an auto assembly plant or anything else like that.

“I try to do the numbers carefully and try to make sure we’re not doing something stupid, but in the end you’ve got to step up to the plate.”

Part of Bredesen’s strategy in recruiting businesses to Tennessee centers on not simply whether to offer incentives, but how to go about it.

Within Bredesen’s administration, the Department of Economic and Community Development, essentially the state’s sales team, works closely with the Department of Revenue, it’s tax team, to formulate incentives.

Each year during the legislative session, these two departments help craft an administration bill that on paper corrects “technical” portions of Tennessee’s tax code but is also not released until the last days of the session to provide the most marketable incentives to recruit businesses.

This legislative mechanism helped nab Nissan North America’s headquarters from Southern California with a nearly $200 million incentive package.

Bredesen said the Department of Revenue and ECD have created a “very potent vehicle” for recruiting businesses because the tax advisors can give business people a more accurate explanation of Tennessee taxes.

“The involvement of revenue, being able to give people clean answers on the front end to these questions, has been a huge benefit to the state of Tennessee,” Bredesen said. “What a number of these business people have told me is that the usual experience is that ECD promises the world and then revenue comes and takes it away in some way. So I think that combination is there.”

As a result of Tennessee’s Constitution, the state often uses the tax code to offer incentives compared to other states, which simply can write checks to companies using some of their tobacco settlement dollars or energy royalties, said ECD Commissioner Matt Kisber.

Tennessee’s Constitution forbids direct payments to companies as a form of consumer protection because of the railroad industry in post-Civil War days, Kisber said. Back then, railroads would often ask local governments for payments to run the main lines through their towns and then would not deliver on their promise.

“So the offering of tax credits is definitely an important part of the incentive packages,” Kisber said.

The revenue department has two full-time staffers permanently on loan to ECD, Kisber said, including one who reports directly to the commissioner of the Department of Revenue, Reagan Farr.

The main incentives Tennessee offers though, Kisber maintains, is through job training and infrastructure.

These incentives and Tennessee’s central geographic location have contributed to Tennessee having so much recent success in recruiting the auto industry that Bredesen is concerned about the state becoming too dependent on car manufacturers.

He references economically depressed Michigan and other “rust-belt” states that have seen car plants come and then go. The jobs of course go with them.

“You get to dependent on one business, it just flies in the face of good investment philosophy, which is diversify your investments,” Bredesen said.

The governor said another automotive assembly plant would be welcome, but three or four more may start to become a problem.

With Volkswagen’s arrival, Tennessee now has three with Saturn in Spring Hill and Nissan in Smyrna.

Sen. Alexander was governor when Tennessee landed its first automotive plant with Nissan’s arrival in the early 1980s. Saturn came a few years later during Alexander’s second term.

The state’s senior Senator has perhaps a broader vision than Bredesen on the “money magnet” auto industry’s future in Tennessee, saying he thinks Tennessee can be the No. 1 state in the nation.

That doesn’t have to come through auto assembly plants but could occur through a proliferation of suppliers to Tennessee facilities as well as those located in neighboring Southeastern states in which Tennessee competes, Alexander said.

“I believe there’s nothing quite like the auto industry,” Alexander said. “I mean after the assembly plants come, the white collar jobs in the Volkswagen case and in the Nissan headquarters case, then come more suppliers, and they spread out all over the state. It’s Tennessee’s future to have as its goal to be the No. 1 auto state in the country.”

Filed under: City News

10 Comments on this post:

By: idgaf on 12/31/69 at 6:00

Any idiot can get anything they want if they bid high enough (and not use their own money) and Brede$en proves that over and over and over again.How many losing deals is he going to try to put together and why aren't the details public?

By: pandabear on 12/31/69 at 6:00

I'd also like to know why the tobacco settlement money that is SUPPOSE to go for people with related health problems, is going for everything else.According to The Tennessean:"The $1.4 billion in tobacco settlement money that Tennessee has received since 2000 has gone into the general fund, paying for everything from state troopers’ salaries to computers in schools.None of that money has been earmarked for lung cancer research.""bunker, bunker..."

By: grandpajoe on 12/31/69 at 6:00

Look, if you all actually lived in areas that surrounded these plants you would realize just how beneficial they are to the local economy. For every new plant there are supply needs met by local companies and labor needs met my the local unemployed. Forget your moral objections, because plants like these are helping people feed their feelings.I applaud you Governor Bredesen.

By: MiltCapps on 12/31/69 at 6:00

This story is really good journalism.

By: airvols on 12/31/69 at 6:00

Bravo! To all the of our leaders who have the courage to take care of tomorrows jobs. Bravo,to Volkswagen for choosing Tennessee. Bravo, to the people of Tennessee who will have a place in tomorrows global economy.

By: dnewton on 12/31/69 at 6:00

Tennessee has been doing the same thing to attract manufacturing since about 1956. The only problem is that it stopped working in 1979. Since then, manufacturing employment has dropped every year. in 1998 the manufacturing employment in Tennessee was 515,406 and in 2006 it was 414,255 according to Bureau of Economic Analysis records. Loans, tax incentives training programs and even condemnation to provide nearly free land and infrastructure can not turn this around. The good jobs are also an incentive to eliminate those jobs through technology. The U.S. still makes between 21 and 22 percent of all world manufactured goods. We just do it with fewer people every year. from 1998 to 2006 manufacturing jobs in Tennessee decline by 101,151 jobs or about 2.77 percent per year. Paying $400 million for 2000 jobs is a questionable exercise on a lot of different levels. First of all, we lose more than six times that every year. Second is that the theory that that tax money can be recovered from the new manufacturing plant is highly questionable. According to BEA Records, the ratio of state and local taxes to personal income is about 8.5%. That means that the new plant would have to generate 4.7 billion dollars in paychecks for the state and local governments to recover that tax investment. With only 2000 workers, that would mean that each worker would have to make $2,352,941.12 before that investment could get back into the state and local coffers. If that sum is recovered over a 30 year period at an interest rate of 4.5%, which is about break even with respect to inflation, then the average yearly wage would have to be $144,450.69. That works out to $69.44 per hour. If VW had to pay $69 per hour, they might as well stay at home. The average job in Hamilton County is closer to $36,000 not $144,450.69. Also Hamilton County has produced more than 2000 jobs per year several years within the past ten years with no incentives at all. There is a theory that there are spin off jobs when people build sub-assemblies in other factories. This job multiplier effect is difficult to measure and difficult to prove when the number of manufacturing jobs declines. I would rather understand the process as using spare capacity in other manufacturing in the state like brakes, tail lights and drive train assemblies. The only advantage to the economy is the difference between the selling price and the cost of production. Another problem with the tax breaks is that most of the workers in the new plant will already have jobs and simply move up in income. The real benefit is the incremental increase in income. The old jobs were probably paying taxes to the state and local government. If excessive tax rebates are given, the other legitimate functions of the government suddenly have lost support. VW is here because of the decline of the American dollar. Let us not forget that they left Pennsylvania after only ten years. I hope that the state and the local governments will finally comply with the law and report the details of this legalized bribery to the state funding board within ten days. My congratulations goes to Governor Riley and Granholm who knew when to fold 'em and get out while the getting was good. They would have paid too much also though.

By: TITAN1 on 12/31/69 at 6:00

Good job, Phil Bredesen!

By: bfra on 12/31/69 at 6:00

Bredesen "thinks" he is doing such a good job, he is letting the taxpayers build him a monument, The Big overpriced (got to help his buddies)hole in the ground!

By: courier37027 on 12/31/69 at 6:00

Volkswagen, auto maker, burning fossil fuels...where is outrage from the left? Oh yeah, Phil is one of your own. If Bredesen's name had an (R) following it, there would be screams of environmental hate crimes against the governor.

By: annacrasto on 10/3/11 at 11:17

why dont you take Texas Car Insurance from it has some many many offers.