Home-Grown: The Key to the Economic Future
The echoes of “We Got Scott!” were still reverberating when we came to visit. And why not? Snaring the gigantic paper maker’s manufacturing plant, with its cutting edge technology, represents a sensational industrial recruitment hit for the region as it approaches the 21st century.
Here is a firm nationally admired for civic interest and an acceptable environmental performance. The Owensboro-Daviess County area gets a state of-the-art new factory, set to roll out a near recession-proof product—paper tissue. And then there are the jobs—500 to start with, at high wages, and maybe more later. “Scott will be here for a hundred years,” a bank president told us. “It’s a massive investment they can’t walk away from. In two years they’ll be closing other plants and bringing those jobs here, too.” Owensboro-Daviess County would be very foolish, though, to think other Scott deals are out there waiting to be tapped. The community lucked out this time; to anticipate a similar future “hit” would be foolish. Footloose factories are getting to be as rare as buffalo on the range.
The way American communities first attracted industries, through the 19th century and until World War II, was by sitting in the right place—on rivers or beside great harbors, on top of mother lodes of such natural resources as coal and gold. In the 1920s, industries started moving from the North to the South for cheap labor alone. Then came the post–World War II era of active “smokestack chasing,” as communities searched far and wide for factories, promised tax exemptions and low-interest bonds and sometimes outright grants to companies who’d succumb. Kentucky’s catch of the Toyota plant was a sensational “smokestack win.”
But the 1980s ushered in a dramatically different era. The number of potential catches kept growing smaller as more and more manufacturing facilities moved offshore. The Southern Growth Policies Board actually likened smokestack chasing to buffalo hunting—pursuing a constantly thinning herd.
Today most states and communities are pursuing a much more sophisticated strategy. States have set up venture capital funds and supported high-tech research laboratories tied to new industrial capacity. They’ve emphasized the training of a broadly capable work force.
Today education is a top economic development tool, as skills, not low wages, become the new magnet for growth. Smart states and localities now identify the encouragement of entrepreneurs and the growth of existing businesses as their most important economic development strategy. Indeed, the most dramatic growth of businesses in the Owensboro-Daviess County area itself has been in existing firms, manufacturing and service alike.
For some really significant numbers, take a look at the Owensboro-Daviess County Hospital, which has expanded its work force from 1,000 to 1,400 workers and today ranks as the county’s largest single employer. The Owensboro-Daviess County Hospital is, to be sure, a not-for-profit operation. But it is also a major business, grown from 50 doctors in 1969 to 150 today. It offers a carefully selected, profitable group of treatment technologies such as a cardiac catheterization unit and laser gall bladder treatment. On every front from open heart surgery to sophisticated cancer therapies, it’s become a prime regional center, drawing patients from considerable distances. And in a time when most U.S. county hospitals depend on property taxes to cover their growing deficits, here’s an institution that functions virtually free of local subsidy.
Or consider Terry Woodward’s WaxWorks record and video operation. Here’s an industry born and grown in Owensboro that expanded to $172 million in sales in 1990—the country’s fifth-largest video distributor. Terry Woodward, with his 145 music stores in 35 states, has kept his operation in downtown Owensboro, constantly outgrowing his space. Today he has 1,500 employees nationwide, 220 in Owensboro.
It would be silly to ignore opportunities for good buffalo hunts—especially when an unusually fat critter gets sighted. But most importantly, the city and county need to plunge into a day-in, day-out, year-in, year-out effort to strengthen and expand the base of the area’s existing firms, the industry and service partners already here. If job growth is the goal, then helping the Terry Woodwards, large or small, is a savvy strategy.
Looking at what’s already on the ground must include what’s growing out of it. Agriculture is a vitally important part of the local economy, but not taken seriously enough in many quarters. Tobacco, the area’s traditional crop, is still a massive business but may be imperiled more and more by health concerns. Canola, the new crop, is on the opposite edge—a low-fat oil with immense potential.
And there are lots of other potentials for a community that keeps its antenna up. Consider tomatoes. Owensboro’s Ragu plant needs them badly, but up to now has had to import all of them from points far distant. We wondered why a major local effort wasn’t under way to see that Daviess County—an ideal tomato-growing area—produces the fruit that this processor needs so badly. It did seem good news when word came recently of a state-of-the-art tomato processing plant and warehouse to be constructed near Friendly Village in Daviess County. But the plant would eventually want commitments for 3,000 acres of tomatoes each year—12 times what Daviess County farmers have been producing. Some major readjustments are obviously in order.
And the challenges go well beyond production of a single crop. Today’s agriculture is as much people operating computers and scientists working in laboratories as farmers plowing fields. With enough imagination, multiple new products and processes could be developed—right in Owensboro. Farm chiefs used to look for strong backs; now they want strong minds, too. “I need people with good math, biology, chemistry, microbiology backgrounds—and they’re hard to find here,” a leading local agribusiness leader told us. He made us wonder, in fact, why Owensboro Community College hadn’t begun a special effort in agribusiness-related biotechnology.
We believe Owensboro-Daviess County needs a new way to think about economic development in the 1990s.
First comes understanding how critical education is to any and all growth—a subject that’s already received intensive local attention, and for the right reasons. Without a trained and motivated work force, few other inducements the city and county have to offer are likely to cut much ice with prospective targets.
A second strategy must be protection of the region’s environment. What, after all, is more important than the health and quality of life of the people who live here? With sound education and a quality environment, we argue, job expansion—whether internal or through industrial recruitment—will come almost naturally.
We recommend an independent Committee for Safe Growth for Daviess County and the city. This would be a specially constituted group to advise the public on the critical issues—environmental issues, plus potential economic deals or opportunities—that face the region. Such a group would have no official power. But we believe it could empower the region’s people by obliging industry and government alike to share more critical decisions.
Let’s face it. Typically, massive economic deals, like the Scott agreement, get made behind closed doors, with the public knowing little if anything about what’s happening—even when vast sums of public money are getting committed. We think the public deserves to know more, and that progress wouldn’t get stopped in its tracks if that happened.
The rigor of environmental debate in Owensboro-Daviess County lags well behind that in most American communities. One has to assume it was corporate responsibility—not retreat under ferocious criticism—behind Scott Paper’s recent announcement that it would radically reduce the potentially dangerous emissions from its new plant by using new chemicals in the manufacturing process. Some credit belongs to local environmentalists who first raised the issue and to the Messenger-Inquirer for reporting and editorializing on the issue.
Yet it would be naive for Owensboro-Daviess County to believe that every corporate citizen will be as responsible, or indeed that some future generation of Scott executives might not chart a different course.
We’re aware that in a job-hungry area of massive power plants, huge aluminum factories, and strip mining, relatively few people have wanted to rock the boat. Yet there is also some history of environmental activism in Owensboro-Daviess County, exhibited perhaps most strongly a dozen years ago when three massive “synfuels” plants, intended to create synthetic fuel by coal liquification, were proposed for the Owensboro area. As Lee and Aloma Dew write in Owensboro: City on the Yellow Banks:
Owensboro became the center of a . . . battle over the environment and quality of life versus industry at any cost. It was a battle of esoteric arguments about clean air and water, floodplains and prime agricultural land, earthquake faults and cancer risks against the palpable promise of jobs and paychecks to a group of people frustrated by unemployment and underemployment.
As it turned out, the grand vision for synfuels collapsed on economic, not environmental, arguments. But the community had been awakened enough to reject the 1982 proposal for a hazardous waste treatment plant at the Owensboro Riverport. The safety of the technology was doubted; there was fear that Owensboro might get a name for drawing hazardous industry, driving away others.
But how, on any industry-related environmental question, does a community know how to make a judgment? How can people know if there is or isn’t a potential threat to their family’s health? How does the average citizen find out? Whom does he or she trust?
We believe the Owensboro-Daviess County area will be confronted with more and more debates of this type, related to new and existing industries, to business and government activity alike. We think it’s insufficient to rely, as some local officials are prepared to do, on Kentucky’s air and water quality regulations unless, of course, you believe government always stays clean itself, and of course makes the right decisions.)
Owensboro-Daviess County needs the capacity for thorough, independent analysis of all manner of environmental issues. There’s some promise in the new environmental organization—POLAR, or Protecting Our Lives and Resources. “Official” Owensboro’s reaction to POLAR has been cool, but we advise the community to think twice. Experience across the country teaches us that environmental groups don’t just fade away—they end up either screaming on the outside or talking at the table. We think the table makes more sense.
But environmental organizations, by their nature, are advocacy groups. What’s missing is an independent voice, backed up by solid research, that hears all sides.
Industry, let us note, needs this dialogue, too. Its operations require a clean environment; its executives and workers drink the same water, breathe the same air as everyone else in town. And who would want all those children—for whom everyone claims Owensboro-Daviess County is such a great place to grow up—to be exposed to environmental hazards that could distort their lives, even subject some to premature death?
The Safe Growth Committee would be a good arena in which these issues could get aired. In addition to industry representatives and environmentalists, it would have a majority composed of citizens with no special ax to grind. We think of college presidents, clergy, a barbecue waiter, a farmer, a retired professional, college faculty with expertise in the environment. To provide some independent research to the group, an interdisciplinary environmental task force could be formed at one of the local colleges, or perhaps cooperatively among them.
We’re aware that an environmental committee of sorts was formed, at Scott’s request, to funnel community concerns back to the corporation. The members were appointed by local officials and told to report to the local economic development director.
That may have been a useful gesture, but it shouldn’t depend on the goodwill or responsibility of any corporation. The process needs to be open, independent, the expected way of doing business in Owensboro-Daviess County.
Members of the Committee for Safe Growth might be appointed by the Daviess County judge-executive and the mayor of Owensboro. But multiple nominations should also be solicited from civic and business groups, urban and rural, across the region. And the appointments should be for enough years to give members time to learn and to speak independently. It’s important not to have an automatically harmonious group. All points of view need to be represented, so that the right questions get raised. That kind of process may be tougher, but in the end, the committee’s advisories will have far more credibility.
We can imagine such a committee attacked as a threat to industry and economic development. We believe quite the opposite—that it would promote sound economic development by raising legitimate issues. Conversely, when a scare is raised over some environmental issue and there’s no evidence it’s truly serious, the public ought to be given a reassuring advisory.
Ninety-nine percent of Owensboro-Daviess County residents endorsed the Scott deal in a poll in December 1990. The morale boost the big catch gave to the community was clearly enormous. But it was also a frightfully expensive agreement, all at taxpayers’ expense. The city and county agreed to come up with $4 million in job training money for Scott’s new workers. The firm was assured a $300 bonus for each worker it took on. The county said it would build and pay for a $3.5-million wastewater line from the new factory to the Ohio River. Free water lines would be constructed to the plant. The county would pay for any wetlands mitigation that might be needed. A series of industrial revenue bonds, locally and state-authorized, would provide Scott with well over $100 million in financing, the interest rate subsidized by the public.
The concession list leaves one almost breathless. The Messenger-Inquirer calculated the public cost at more than $300,000 per job—one of the most expensive deals, job for job, in American history.
But even if the public seems happy, one has to ask: should agreements of this magnitude, with such vast sums of public expenditures involved, be signed before the public knows the terms?
Kentuckians seem to hate taxes with a passion. The idea that some people might pay marginally higher taxes helped send the city-county merger referendum down to defeat last year. But the Scott deal obligated the city, and especially the county, to vast financial obligations, a massive hit on taxpayers’ pockets. And it all seemed to be accepted without a murmur.
What if a Committee on Safe Growth had been in existence and had a chance to take a look at the Scott agreement and evaluate it for the public before the official signing? Would it have made any difference? Would publicity have killed the deal and handed it to Indiana? Or would public attention have stiffened the back of the local negotiators, emboldened them to bargain from greater strength?
No one can answer for sure, but our guess is that a little sunlight on the negotiations would have won better terms for Owensboro-Daviess County and landed the Scott plant anyway.
Our suspicion, though we can’t prove it, is that Scott had already settled on Daviess County and was out to get it on the best terms it could. Owensboro’s problem—as in all such negotiations—is that it had to play a poker game in which the company could see all three hands—its own, Daviess County’s, and the Indiana competitors’. It sounds like a funny analogy, but under those rules, the house always wins. And this time it was the local taxpayers’ money on the gaming table.
We asked local political leaders if there was any price that would have been too high to offer Scott, if it had asked. We were shocked: they couldn’t think of a limit!
We asked them if the city and county could entertain another Scott-type proposal. Would there be enough funds in the public treasuries, anytime soon, for another corporate payment demand? We must report that the answers we got to our questions seemed quite evasive, even from officials with otherwise exemplary records. We suggest that unless the residents of Owensboro-Daviess County like the idea of writing blank checks, they ought to blow the whistle on indiscriminate buffalo hunting.
There is a possible antidote, and the idea hit us after Owensboro financial leaders provided us with one of their pet ideas—to establish a dedicated revenue source (perhaps a payroll tax of 0.25 percent or so). The sole use of the cash, they suggested, would be financing infrastructure or other inducements to draw new corporations.
But we saw the potential a lot differently. First, we recommend that any such tax fund should be capped at a reasonable level, thus providing a clear giveaway limit—a point beyond which the taxpayer’s wealth couldn’t be placed in private corporate hands. Secondly, we’d suggest that at least 50 percent of the proceeds from any such tax be dedicated to holding and strengthening existing businesses—a fund for the county and city’s own firms, to help them flourish and expand their work forces.
Leaders of existing firms told us they were pleased Scott had been recruited. But they felt the inducements offered the paper giant were discriminatory against the city’s and county’s own firms. We think they were right.
There’s one thorny problem in imposing a countywide occupational tax. At the last moment in the Scott negotiations, the company’s attorneys demanded that Daviess County agree not to adopt the same kind of payroll or occupational tax that’s been in effect in Owensboro (but not outlying portions of Daviess County) since 1960. It was as if Scott, getting ready to come to town and use the local schools and roads and facilities, not only asked megabucks to move in and build its plant, but freedom for its executives and workers to escape a fair share of area costs.
Was the tax concession truly critical to the Scott deal? Some insiders we talked with thought not, that Scott’s attorneys threw it in at the last minute and that county officials, paralyzed at the thought of losing the deal, crumbled. County officers even put it on paper: they’d plead with their successors not to pass such a tax.
It’s hard to imagine Scott would want to let anything get in the way of its extraordinarily positive image in Daviess County-Owensboro. Our suggestion would be that Scott’s senior executives, as an act of good corporate citizenship and commitment to a diversified, healthy regional economy, voluntarily relieve Daviess Fiscal Court from its pledge not to adopt the occupational tax. Then a countywide occupational tax for economic development could go into effect, creating not just a rush of goodwill but some dedicated dollars to build a strong and diversified future economy.