OPINION: Pine Belt needs real – unsubsidized – growth

By DAVID GUSTAFSON,

In 1994, Mississippi Gov. Kirk Fordice came to Hattiesburg to announce a $70 million tax incentive package used to successfully convince Sunbeam, a Florida-based household appliance manufacturer, to build a 750,000-square-foot facility here in Hattiesburg.

The company pledged to invest $75 million of its own on the project. More than 1,000 jobs were promised.

It was an election year.

In two short years, business was booming. By the end of 1996, the Hattiesburg Sunbeam plant employed more than 1,100 workers. An expected 600 more positions were expected to be added by mid 1997.

But in the span of five short years, the tide turned and in December 2002, Sunbeam ceased most operations and in July 2003, they officially shuttered the plant and the final 265 local employees were out of work.

And the building sat empty.

In 2011, Mississippi Gov. Haley Barbour came to Hattiesburg to announce a $100 million deal to bring Stion, a California-based manufacturer of high-efficiency, low-cost thin film solar panels to town. In addition to tax incentives, the Mississippi Development Authority loaned the company $75 million.

The plan was to utilize about half of the former Sunbeam facility to house a 100-megawatt solar panel production facility.

The company pledged to invest $500 million to build the production line. More than 1,000 jobs would be created during the course of six short years.

It was an election year.

By 2015, it became clear those initial projections would not be met and the state agreed to only require $250 million of capital investment and the creation of 500 jobs by 2023.

Two years later, they officially shuttered the plant and the final 137 local employees were out of work and state and local governments were out $93 million.

And the building sat empty.

Earlier this week, Gov. Phil Bryant came to Hattiesburg and announced plans for Kohler, a Wisconsin-based company that manufactures – among other things – small engines, to expand its Hattiesburg operations to take over 300,000 square feet in the industrial park formerly occupied by Stion and before that, Sunbeam.

The company pledged to make a $20 million investment and promised to bring another 250 full-time jobs to the Pine Belt.

And guess what?

It’s an election year.

Terms of the tax incentive package to help convince Kohler to expand here this time around weren’t readily available, but when the company opened its Hattiesburg operation in 1996, a 20-year deal was struck worth tens of millions of dollars.

But confusion over what was included in the initial exemptions led city and county officials to deny Kohler’s tax exemptions on raw materials beginning in 2010.

Last year, a judge ruled the local officials were wrong for doing so and ordered the city and county to refund some $2 million in tax payments.

Along with this week’s announcement of Kohler’s expansion came news of a settlement on the disputed tax payments. As a result, Forrest County taxpayers are on the hook for paying back 75 percent of the monies over the next 10 years.

Overall, David Hogan, who serves as president of the Forrest County Board of Supervisors, believes Kohler has been good for the Pine Belt and other than that pesky lawsuit, we have no reason to believe otherwise.

But will they always be a good partner?

The truth of the matter is that no one can predict which types of businesses will succeed over the other. That’s what the free market and competition is designed to do. The problem comes when government subsidizes one business over another and loses taxpayer money along the way.

Take the often-volatile local food service industry and think for a moment about all the failed restaurants that have opened (and closed) in the Pine Belt in recent years.

Now think about all the successful Hattiesburg-based restaurant groups that have prospered – and not just the most obvious one that has quietly endured the ups and downs for more than 30 years and now employs more than 300 people

There’s also John Neal, who opened his second Hattiesburg-area Keg & Barrel location recently and plans are now in place to open a third location soon on the Gulf Coast. Each location employs about 70 people.

In 15 short years, Ron Savell’s locally-created Mugshots brand has exploded to include locations throughout the Gulf South and is showing no signs of slowing down. He employs hundreds of people.

The owners of Sully’s – now with locations in Hattiesburg and Petal – are also seeing success.

In an even shorter amount of time, Nelson Haskin Jr. has nearly singlehandedly proven that restaurants can not only exist – but thrive – in downtown Hattiesburg. Haskin has dozens, not hundreds, of employees, but like his counterparts he provides real, unsubsidized growth – the kind that won’t skip town when the subsidies run out.

Unfortunately, government employees don’t always have the proper skill set for assessing risk. Banks, investors and venture capital firms do.

So, should we give up on government attempts to encourage new business? No, although this would probably be better than our existing policy.

Instead of favoring one company over another, which can lay the groundwork for corruption, we need to have a comprehensive pro-employment incentive plan that favors all job creation equally.

A statewide job creation program should not favor mega-employers over the mom-and-pop firms. A job is a job is a job. By blowing our tax incentive wad on a few megadeals, we are failing to offer any incentive to the thousands of smaller firms throughout our state.

This is bad because it is actually the smaller firms that generate most of the job growth in Mississippi. The age of the mega-plant is dying. They almost always depend on massive government subsidies. Meanwhile, smaller firms are able to create real wealth in growth through the natural functioning of the free market.

To make matters worse, these subsidized companies are then able to steal the workers from unsubsidized, taxpaying companies, destroying their prospects for natural growth.

Mississippi has been in the top tier of states doling out money for megadeals based on the size of our tax base. What have we to show for it? According to state economist Darrin Webb, economic growth is 17 percent lower than the national average since the end of the Great Recession. That’s a lot of money down the drain – $13 billion to be exact.

All of this is caused by a fundamental lack of faith in the free market system to create jobs naturally without government intervention. Such lack of faith is completely unwarranted because, in fact, an unfettered free market has proven far more successful than governmental intervention. Yet we persist.

Meanwhile, these subsidies erode our tax base, preventing government from doing what it should do: provide proper infrastructures such as schools, roads, law enforcement and the like.

The solution is simply: State and local tax credits should be offered for all new job creation on an equal opportunity basis.

This capital distorting megadeal favoritism is killing our state and doing no long-term favors for our local economy.