After several headquarters losses, Colorado Labors to Boost its Corporate Clout
Thursday, July 29, 2010
After several headquarters losses, Colorado labors to boost its corporate clout
By Andy Vuong
The Denver Post
Posted: 07/25/2010 01:00:00 AM MDTUpdated: 07/25/2010 09:43:04 AM MDT
To compete with other states for top employers, Colorado needs to establish a long-term economic development plan, bolster private-sector involvement and overcome a factious political environment to deliver the message that it welcomes growth, according to business leaders interviewed by The Denver Post.
The drumbeat of high-profile corporate headquarters defections has executives and economic development officials questioning the system Colorado has in place to attract and retain jobs, expansions and relocations.
In addition to the long-standing view that Colorado is hamstrung by a meager war chest of incentives, the state lacks a clear and sustained brand identity in the corporate world, like Indiana with manufacturing and Oregon with activewear.
And Colorado's business climate is afflicted with concerns over anti-business ballot measures that seemingly show up every election cycle and the elimination of several tax breaks this past legislative session that could cost companies tens of millions of dollars annually.
"We as a state need to do a far better job of communicating the message that we're open for business, that this is a pro-business state," said Ken Tuchman, chairman and chief executive of Douglas County-based TeleTech, a high-tech outsourcing firm that employs 43,000 worldwide.
Since December 2003, when the Metro Denver Economic Development Corp. was formed, Colorado has posted a seasonally adjusted net gain of 52,000 jobs, according to the U.S. Bureau of Labor Statistics. Indiana and Georgia, states that local officials say have attractive economic development models, actually shed 96,000 and 37,000 jobs, respectively, since then.
But the recent or pending headquarters departures of Coors, Frontier Airlines, Qwest and First Data represent thousands of lost jobs, millions of dollars in lost philanthropic contributions and a battered image that could take years to repair.
The loss of those companies came at about the same time as the Great Recession hit the state hard. On a percentage basis since September 2008, Colorado has shed more jobs than the country as a whole — 6 percent compared with 4 percent, according to the Bureau of Labor Statistics.
Nonprofits such as the Denver Center for the Performing Arts have already felt the crunch in fundraising.
"Over the last year or two, attendance has been holding up really pretty well," said Dan Ritchie, chairman of the DCPA. "Our problems are the large contributions, which come from the larger corporations and businesses."
Tough losses at the top
Colorado's corporate heft has dropped, its Fortune 500 base dwindling from 12 firms in 2007 to eight after factoring in the pending departure of Qwest and arrival of kidney-care provider DaVita. Two companies fell off the list because of lower revenues.
Coors merged with Milwaukee-based Miller Brewing and moved to Chicago. Qwest agreed to sell out to a company with deep roots in Louisiana. Frontier, not a Fortune 500 firm but one of the state's most visible companies, was acquired out of bankruptcy by Indianapolis-based Republic Airways.
First Data bolted to Atlanta because it is considered a hub for the electronic-payment industry and provides quicker flight access to Europe.
"It's just a variety of reasons," said Preston Gibson, president of the Jefferson Economic Council. "I wish I could say there's one thing that we're doing wrong that we need to correct so we could stop this bleeding."
First, Colorado needs a sustainable, long-term economic development plan, one that identifies the state's key attributes and sells them to business, Gibson said.
"The legislature needs a vision for this state — develop a vision as to where we want to be in 25 years," he said.
For example, Tuchman said, Colorado should capitalize on its reputation as one of the healthiest states in the nation to attract the headquarters of companies such as Nike and REI.
"It just seems like that's a no-brainer that we need to also be focusing on the companies that are focused on outdoor recreation," Tuchman said.
Colorado's focus changes from one administration to the next, with former Republican Gov. Bill Owens zeroing in on high tech and current Democratic Gov. Bill Ritter spotlighting a "New Energy Economy."
While direction falls on state leadership, Tuchman said top executives should take the initiative to help grow the business community.
"The business leaders of Colorado can't just depend upon government to attract business but instead need to consciously get together and need to organize in a way that will allow us to efficiently go out and work our relationships and assist government in attracting business to Colorado," he said.
That dovetails into another shortcoming of Colorado's economic development structure — private-sector commitment.
Locals point to the likes of Indiana and Georgia that lean on industry executives to help shape state-level economic development agendas and close expansion or relocation deals.
"A couple of other states have shown true vision in terms of how they're approaching economic development," said Wendy Mitchell, president of the Aurora Economic Development Council. "There's an opportunity to look at things differently."
Finding and keeping
The Colorado Office of Economic Development and International Trade has an annual budget of about $40 million to cover six divisions, including business development, finance and tourism.
The office has a nine-member board of industry executives, called the Economic Development Commission, that falls under the finance division. The commission's primary purpose is to review incentives packages, not shape the office's agenda. It has a budget of about $1 million for operating costs and incentives.
"Other states do a better job of having the private sector involved in (economic development) efforts," said Ray Pittman, president of Denver-based Pittman Development Group, a development consultant to firms such as International Speedway Corp. "The best sales pitch on why you should come to Colorado . . . is probably going to come from the CEO of a successful company who's already doing business here."
The marketing of Colorado to out-of-state businesses is primarily left to the Metro Denver Economic Development Corp., an affiliate of the Denver Metro Chamber of Commerce.
Metro Denver EDC executive vice president Tom Clark describes the privately funded group as the nucleus of the Front Range's economic development system. It counts 70 counties, cities and development organizations as members, including the state economic development office.
"We're the central office," he said. "The central office's job is to accumulate as much energy, i.e. money, do marketing and public relations, drive deals in and farm those out."
That gives Clark a marquee role in Colorado economic development, but he can't cut any incentives deals. In Indiana and Georgia, the state's lead salespeople are also the dealmakers.
Don Marostica, Colorado's economic development chief, said he doesn't want to focus on marketing.
"You go out and spend all of that money on marketing and recruiting and all that, and in the end, we have to do that . . . but that's not where I want to concentrate my time," he said.
Marostica wants to focus on retaining existing businesses and helping them grow.
"I want to make sure the companies we have, we're taking care of — that we know six months before that Qwest is talking about merging so we can be figuring out how do we keep them here," Marostica said. "We didn't know it."
To do that, he said, the state has to gain trust from its hometown companies.
Despite the string of major headquarters losses, Clark said Colorado is doing well on economic development, pointing to wins such as DaVita's relocation to Denver and reports ranking Colorado among the nation's leaders in business climate and economic strength.
Colorado ranked No. 3 on CNBC's list of America's Top States for Business, which highlighted the state's quality of life, business friendliness and workforce.
"Every state is losing because we're all losing jobs," Clark said. "Colorado is positioned in a much better place than lots of folks."
Other wins for Colorado include major expansions from wind-turbine manufacturer Vestas and ConocoPhillips, which is building a research and development center in Louisville. In addition to DaVita, the state has attracted the headquarters of dozens of smaller firms, such as RePower USA.
"Since 2003, we've had 43 headquarters moved to Colorado," said Kelly Brough, president of the Denver chamber. "The reality is, that's pretty hard to counter."
Colorado's business climate, though well-regarded in reports such as CNBC's, is often stained by anti-business ballot measures and tax policies.
Ritchie of the DCPA thinks that's a key role in Colorado's corporate losses.
"It has to be a matter of cost and taxes," Ritchie said of the recent departures. "Businesses tend to be very pragmatic."
This past legislative session, lawmakers eliminated several long-standing tax breaks and credits, including an exemption that covered downloaded software. November poses another threat to business in the form of three ballot measures that would slash billions in state and local taxes and restrict government borrowing.
In 2001, Colorado lost out on Boeing's headquarters after Illinois and Chicago reportedly offered up $63 million in tax breaks and other incentives. Colorado's package was worth up to $28 million.
Last year, Republic Airways chose Milwaukee for an expansion after receiving $27 million in incentives compared with about $17 million from Denver and Colorado. The decision led to the relocation of about 200 Denver jobs to Milwaukee.
"State governments across the country have used the economic downturn to retool and boost their economic development efforts to focus on growth areas," said AT&T's Colorado president, Bill Soards. "A state so rich in technology, human resources, capital and innovation can't continue to rely so heavily on our mountains or climate to drive growth."
Economic development officials say quality of life is a factor in luring students and workers to the state, which in turn attract companies.
"We don't have the money to compete with a lot of these states like Texas, Nevada, Michigan, Tennessee, etc.," Marostica said. "We're not going to recruit big headquarters companies. If they want to come, they're going to come."
In 2005, Indiana established the public-private Indiana Economic Development Corp. to replace its Department of Commerce. Armed with an annual budget of $37 million to focus solely on retaining, growing and attracting business, the IEDC operates like a business.
"We can move quickly," said Indiana businessman Mickey Maurer, who served as the IEDC's first president. "We didn't have bureaucratic red tape. I could speak for the state like a normal president or CEO of a business."
Deals under $3 million can be cut on the spot. Larger deals go to a board consisting of 11 business executives and chaired by the governor.
Indiana hasn't gained or lost any Fortune 500 companies in the past three years. It picked up the remains of Frontier through Republic's acquisition. In 2006, the state landed manufacturing plants from Toyota, Honda and Rolls-Royce projected to create more than 3,600 jobs.
When Longmont-based Abound Solar announced plans this month to create 1,500 manufacturing jobs, the company said 1,200 of those would land in Indiana. The state offered the company nearly $12 million in tax incentives.
Georgia has landed the headquarters of two Fortune 500 companies in the past two years, First Data and NCR. Another recent relocation, Asbury Automotive, was on the Fortune 500 list in 2009.
Georgia hasn't won them all. In 2004, it failed to lure Kmart's headquarters. Last year, Swedish-based Husqvarna moved its North American headquarters from Augusta, Ga., to Charlotte, N.C.
Georgia's marketing and business attraction and retention efforts are led by the state Department of Economic Development. Businesspeople from various regions across the state sit on the department's board. The state and private industry equally fund Georgia Allies, a $1 million-a-year partnership that markets the state at trade shows and conventions.
Colorado Senate President Brandon Shaffer, D-Longmont, said legislators are responsible for developing a long-term job creation and economic growth plan, but it has to be a bipartisan effort with help from the business community. He said that hasn't been done because sometimes "we end up talking more politics than policy."
"We've got to realize that it's not a partisan issue," Shaffer said. "It's an issue that impacts the entire state."
Andy Vuong: 303-954-1209, email@example.com or twitter.com/andyvuong