With Washington shifting gears from stimulus to cutbacks, pressures are increasing on state governments to take economic recovery into their own hands — and Gov. Bill Haslam is traveling Tennessee to try to convince voters that he’s on the case.
The governor has assumed a dual role — part cheerleader and part reassuring family member — as he touts his administration’s efforts to attract jobs. But he cautions that the road to recovery is long.
Since Haslam took office in January, about 9,500 new jobs have been created in Tennessee, either through the expansion of existing businesses or via new companies locating in the state, according to figures the state Department of Economic and Community Development provided to The City Paper.
But the unemployment rate remains at a stubborn 9.8 percent statewide — 8.5 percent in Davidson County. To the state Department of Labor and Workforce Development, companies have reported laying off 6,886 workers in the past six months, with the biggest loss coming with the shutdown of Union City’s Goodyear Tire and Rubber plant, where 1,900 were furloughed. And those are just some of the layoffs. Only large companies of 100 or more employees are required to make a report when workers are let go.
More than 260,000 unemployment benefit claims have been filed in Tennessee so far this year —down 38 percent from the recession year of 2009 but still only 2.3 percent fewer than last year.
Blaming a lack of business and consumer confidence caused by this summer’s political chaos in Washington, Haslam predicts no better than 3 percent economic growth for the state for the next two years. But he points out Tennessee has the second-best debt per capita and the third-lowest tax burden in the country.
“As a state, we start from a real position of strength — low debt, low tax,” he said during one stop.
Together with Economic and Community Development Commissioner Bill Hagerty, the governor is meeting with business and community leaders to detail his restructuring of the state’s job recruitment efforts. He’s opening nine “jobs base camps” across Tennessee as part of a new focus on regional economic development. Haslam’s plan puts priorities on six sectors with potential for quick growth: automotive, chemicals and plastics, transportation/logistics, business services, health care and advanced manufacturing and energy technologies.
“These are six primary industries where you will see our department heavily focused,” Hagerty said. “Tennessee is open for business to everybody. We are happy to welcome any industry that’s here to expand and grow. But we found that these particular industries are ones where we enjoy a unique competitive advantage.”
Economic development officials are conducting a comprehensive analysis of business regulations. In a report to Haslam due by the end of October, the officials plan to recommend eliminating the rules that they deem to be unduly burdensome.
“We obviously have a stewardship responsibility in terms of issues around safety and health and long-term issues around the environment,” Haslam told business executives during a roundtable discussion in Hendersonville. “But we also want to make certain that what we’re doing is not tying you up unnecessarily in a way that prevents you from creating jobs.”
In addition, Haslam cites his new tort reform law as a key step in establishing a predictable climate for business growth. The law adopted in the last legislative session imposes a $750,000 cap on most so-called noneconomic damages — such as physical and emotional pain and suffering, mental anguish, emotional distress, loss of companionship, humiliation and loss of enjoyment of life.
“Obviously, we’re in a very difficult economic environment. I don’t think any of us are kidding ourselves to think that we’re all the way out of the woods when it comes to the economy. But are there hopeful signs around Tennessee? You bet,” Haslam told reporters at a stop in Morristown, citing the “spirit of the workforce” in the state.
“I actually do think the issue right now in our country is businesses and individuals having the confidence to invest. I don’t think that confidence is here, mainly because of a lot of uncertainty coming out of Washington,” the governor added, straying a bit from his usually upbeat talking points. “Until that changes, I don’t think you’re going to see things turning around.”
With state revenues not expected to return to pre-recession levels until 2014 at the earliest, Haslam already has signaled his administration will be less likely to try to entice new businesses to Tennessee with lavish economic incentive packages.
During this year’s session, legislative leaders only reluctantly went along with what amounted to a $90 million gift to Electrolux to build a 1,200-worker appliance plant in Memphis. That agreement was made by Haslam’s predecessor, Phil Bredesen.
Another Bredesen deal — giving Amazon.com carte blanche not to collect Tennessee sales taxes from its customers in return for building a couple of distribution centers in southeast Tennessee — has drawn even more scrutiny and criticism in the legislature. Amazon since has announced it’s opening another distribution center, this one in Lebanon, and Haslam is trying to work out a new agreement in which the Internet retailer would start collecting the tax at some point in the future.
The administration is developing what officials call a matrix to help judge whether to give tax breaks or other state investments to companies thinking of creating jobs in Tennessee.
“It’s the dollars they invest. It’s the number of jobs. It’s the average wage of those jobs,” Haslam said. “Right now, our rural areas are struggling. You might look at doing something in a rural county with 18 percent unemployment that you might not do in a county with 5 percent unemployment.”
Any help the state government might give is about to become even harder to deliver. Washington is planning trillions of dollars in cuts in the coming years, and two-fifths of the $30 billion state budget is funded by the federal government.
In July, in the midst of the debt ceiling negotiations in Washington, Moody’s Investors Service placed Tennessee and four other states on review for possible downgrading of their AAA credit ratings because of their overreliance on federal revenue.
All states face these new fiscal constraints, and many are in worse shape than Tennessee. Without the money to attract new businesses in traditional ways like public spending on infrastructure improvements, state governments have dreamed up a slew of ideas to help.
Among the new programs from a summary by the National Conference of State Legislatures:
• Alabama established a mortgage guarantee fund with $6 million from state oil and gas royalties. Trying to boost the state’s housing market, the fund will reimburse investors suffering foreclosure losses on loans.
• Florida is loaning money — up to $250,000 at 2 percent interest — to small businesses to expand through capital purchases, worker training and new hires.
• Colorado is providing tax credits for job creation and encouraging private lending to small businesses. Public funding in the loan program is expected to leverage more than $50 million in private financing.
• Hawaii transferred money from environmental cleanup to economic development.
Haslam refused to even consider any such stimulus programs this year, insisting that the state can’t create jobs through legislation. That prompted Democrats to accuse Haslam of failing to do enough to help the economy.
Haslam dismisses the criticism as politically motivated, noting, “My response is really that I don’t think we can create jobs by legislative work or we would do that.”
But House Minority Leader Craig Fitzhugh of Ripley said it’s the Republicans who are playing politics, tossing Democratic ideas into the trash heap rather than giving their opponents credit for thinking outside the box. Democrats introduced a dozen bills, all of which died in committee.
Their proposals included a $2,000 tax credit to small businesses for each job created, a six-month sales tax holiday for small businesses, a 5 percent business tax credit for purchases of Tennessee-produced goods and tax credits for companies relocating to or expanding in high unemployment areas.
Other Democratic bills would have given preference to Tennessee contractors for all state bidding projects and exempted certain small businesses from filing fees for new companies.
Democrats have appointed a nine-member task force to come up with new ideas for the next session. To drum up publicity and hear from business leaders, they are going on a tour of the state next month, Fitzhugh said.
“We had some pretty good bills last year for some economic development and job creation, and we just didn’t get anywhere with any of them, nowhere. I mean, not even out of the starting block,” Fitzhugh said.
“We plan on trying to do some of those again. Certainly, we need to leave no stone unturned to try to get jobs. Some of these things probably won’t be successful, but you don’t know until you try. You can make a bunch of little investments, and they end up having a combined success. It’s worth using some of the best practices of other states to try to move forward instead of just hoarding your cash.”
Republicans were too busy pushing their right-wing social causes to pay much attention to the economy in the past session, Fitzhugh said.
“The new majority had their own agenda. That took precedence over more business-minded job-creation efforts,” he said.
Like all politicians who ran for office during the recession, Haslam won election by promising to create jobs, and he obviously realizes his public approval will depend in large part on how he performs on the economy. Not surprisingly, Haslam conveys a sense of urgency during his business roundtable discussions.
“We’re looking for honest answers here,” he said in Hendersonville.
Those leaders complained about a variety of federal regulations and the cost of workers’ compensation insurance.
“It’s hard enough to beat the Chinese,” one told the governor. “We don’t need to beat ourselves.”
Factory managers said young people are coming unprepared to their plant floors. High schools are putting too much emphasis on going to college at the expense of teaching manufacturing skills, said Mike Incorvaia, president of Novita Technologies, an auto supply company.
“The younger people, frankly, come into a factory environment with almost a sense of failure,” he said.
“Not all kids are destined to be college students,” agreed Tim Altizer of Aladdin Temp-Rite. “An apprenticeship program is something we need to focus on. These kids come out with a high school degree and they have no idea.”
But Servpro Industries CEO Sue Steen said she needs more workers with college degrees in advanced information technology.
“We have a significant need for IT folks,” she told Haslam. “We’re developing new software and new applications, and we have a very tough time attracting advanced developers.”
Another executive said the problem with Tennessee’s education system is that businesses are meddling too much and making too many demands.
All of which was enough to make the governor’s head spin. “Fair point,’” he said more than a few times as executives pressed their conflicting opinions. In fact, Tennessee needs both more college graduates and more factory-trained workers.
“We need to find the right balance. That’s the challenge,” Haslam said.
Asked by a reporter what he would tell Tennessee’s jobless, Haslam responded simply: “We understand how painful that is. A lot of folks have been unemployed for a long time. We really are doing everything we can in Tennessee to create jobs here.”