Mon, Aug 11, 2014

On the Move: Updates in Business Incentives

In this edition of On the Move, the Duff & Phelps quarterly newsletter focused on current events in the Site Selection and Business Incentives Industry, we will explore the importance of labor to site selection and highlight two very different approaches to labor-related training incentives.

Some of the most overlooked and underutilized business incentives are state-sanctioned workforce training programs. These types of programs are typically administered through cash grants, rebates, tax credits or in-kind services and can be extended through the life of the economic development project, as long as companies continue to retain, hire, promote and enhance the skills of their employees. Workforce training incentives are popular programs with most state leadership because they benefit more than just the company creating or retaining jobs. Workforce improvement is a facet of economic development that results in a more talented labor pool, higher wages, increased economic activity and more career advancement opportunities for qualified candidates.

States prefer workforce training incentives because they know that more of the economic impact will occur locally. Instead of discretionary incentives that apply to a company’s tax liability, a workforce training incentive helps companies offset the high costs of readying their employees and helps communities improve the quality of their workforce. The skills and knowledge acquired by an employee in the job training process have intrinsic value, reflected in the employee’s new level of experience. Theoretically, more experience helps an employee earn more over his or her lifetime, which is spent on various goods and services in the community, driving economic activity and augmenting tax revenue.

Public-Private Industry Partnerships

Since the 1960s, there has been a steady decline in manufacturing employment as these jobs moved outside of the U.S. However, with the resurgence in domestic manufacturing and continued high-tech dominance, the U.S. is poised for economic and job growth. With that growth, there will be a need for specifically trained, skilled workers. It is expected that in the coming years at least a third and perhaps closer to one-half of all U.S. jobs will require more than a high school education but not necessarily a college degree, and most will require some type of technical or practical training.

Industry partnerships are one strategy that states have used to fight unemployment and avoid a shrinking labor force participation rate (the proportion of the population age 16 and over who are unemployed or looking for jobs). In this scenario, states partner directly with businesses, colleges and/or state agencies to create training programs for skills that employers need.

At least 17 state legislatures passed laws regarding workforce development last year. Maryland, Colorado, Pennsylvania, Washington and Wisconsin have all established public-private industry partnerships. Maryland’s program, Employment Advancement Right Now (EARN), trains unemployed workers for specific jobs that employers are trying to fill while also teaching skills that will help them in the future. EARN might train welders for a current bridge project while preparing those same welders for new jobs assembling turbines in future offshore wind farms. Employers are now coming to the EARN program, telling them specifically what they need. Wisconsin’s Fast Forward program will give up to $15 million in grants to employer-led training programs to train unemployed and underemployed workers.

Other states like Connecticut, New Jersey, and Virginia are pursuing different strategies to boost workforce participation; including passing laws aimed at helping U.S. veterans find employment. Connecticut has invested $10 million over two years into its Subsidized Training and Employment Program (Step Up) which provides tax credits and wage subsidies to employers who hire U.S. Veterans. New Jersey’s Helmets to Hardhats program helps U.S. veterans find and train for construction jobs. Indiana passed the Jobs for Hoosiers program, requiring applicants for unemployment benefits to visit the WorkOne office in the fourth week. They also work with new or expanding companies to train and advance workers’ skills.

Despite the success of the aforementioned programs, most states don’t put money into workforce development and state workforce programs tend to come and go with the election of a new governor. The majority of states rely on funding from the U.S. Department of Labor to help the unemployed, but the Labor Department’s employment and training budget has been cut back year after year. State incentive programs are time sensitive and this is why it is very important for companies to take advantage of these programs while they last.

In recognition of the importance of workforce training incentives to a company’s success and bottom line, we have selected two state-level programs that highlight different approaches to the same goal: helping companies find and train the best talent. Louisiana, claiming the best state workforce development program in the country, is a private sector-modeled program called FastStart, whereas Tennessee claims flexible and easily-customized direct cash grant and reimbursement models through their FastTrack program. As two of the most competitive states for job training funding, Louisiana and Tennessee both feature speed as program characteristics. Where the programs begin to differ is in how the funds are allocated and how companies can recognize benefits.

Key Louisiana Training Incentive Programs

Many factors can increase a state’s attractiveness as a potential business site, but they always need to consider sustaining long-term success as a site-location destination. They must also respond effectively to the numerous factors that affect economic performance, create healthy business climates for the long run, and support local companies in improving their competitiveness with domestic and international rivals. Louisiana is one state that has done just that. Six years ago, Louisiana was still recovering from Hurricanes Katrina and Rita and had one of the nation’s highest poverty rates. Businesses were skeptical about moving there because of a lack of skilled workers. As a solution, Louisiana created FastStart, a job-training program that would prepare a workforce for companies that settled in the state free of charge. FastStart provides customized employee recruitment, screening, training development and training delivery for eligible, new or expanding companies. Since its founding, FastStart has been recognized by numerous organizations as one of the best job training programs in the country.

Louisiana drew from the experiences of neighboring states Alabama and Georgia for its FastStart program, but they also looked for ways to improve it. For example, FastStart became part of the Louisiana Department of Economic Development in order to give the program more flexibility in meeting the needs of its customers. Louisiana now has a constant flow of workers being trained and companies -especially manufacturers- have been able to benefit from their sizeable available workforce.

The FastStart program pairs its training team with a company’s subject matter experts to learn the company’s distinct processes and culture. The FastStart team includes dozens of experienced professionals from a wide range of businesses. Their experience includes:

  • 2D/3D Graphics DevelopmentCurriculum Design
  • Instructional Design
  • Leadership Instruction
  • Organization Development
  • Photography
  • Project Management
  • Recruitment and Selection Tactics
  • Social Media Campaign Implementation
  • Technical Instruction
  • Videography
  • Web Design

After determining the competencies and abilities that will make the most successful employee, the FastStart team then employs traditional and innovative methods to recruit qualified candidates to match the company’s necessary requirements. Technical, team-based and soft-skills training programs are strategically sequenced to orient new team members into a company’s organization. FastStart’s goal is to ensure high-quality, flexible workers are prepared on day one and beyond, resulting in a faster start and a better bottom line.

Louisiana’s training investment doesn’t stop at the FastStart program. The state is making strategic investments in higher education to meet the future needs of industry. In fact, most of Louisiana’s research universities have institutes, programs of study and/or centers specializing in manufacturing focus areas. In addition, Louisiana is investing in community and technical schools to ensure the development of highly skilled workers statewide. In 2013 alone, they authorized $250 million in workforce-related projects. The FastStart program and other innovative economic policies put forth by Governor Bobby Jindal and the state legislature have led to a resurgence of capital investment, new direct and indirect jobs, and hundreds of millions of dollars in new sales for Louisiana small businesses. With a business-friendly environment including generous tax credits, and a cooperative commitment to growing, attracting and retaining industry, Louisiana will continue to see private-sector job growth, an unemployment rate well below that of the national average, and record levels of business investment and job creation.

Key Tennessee Training Incentive Programs:

Companies choose to locate in Tennessee for a number of reasons including: a pro-business environment, ideal central location, and an advanced transportation and logistics system. Tennessee is a right-to-work state, has no personal income tax or state property tax, and enjoys the second-lowest cost of living in the United States. Tennessee is also known for manufacturing - employing almost a third more manufacturing jobs than the national average. In addition to these attributes, Tennessee also offers multiple training program incentives including their FastTrack Job Training Assistance Program, Job Based Training Reimbursement, Tennessee Job Skills, Applicant Recruitment and Screening, and Launch Tennessee.

The FastTrack Job Training Assistance Program (FJTAP) incentive is available to new and expanding industry. The FastTrack staff works with a company to develop a customizable and flexible training plan including the number of people to be hired, types of skills required, and types of training needed. Companies track the costs associated with implementation of the training program and submit to the state for reimbursement. Traditional training and reimbursement may include:

  • Classroom instruction
  • On-the-job training
  • Vendor training from the actual manufacturer of a piece of industrial equipment
  • System support for certain types of plant-wide or company-wide applications
  • Development and coordination of instructional materials and training programs
  • Travel related to training

The Tennessee Job Skills (TJS) program is similar to FJTAP, but focuses on employers and industries with high-skill, high-wage jobs in emerging, high-demand and technology focused sectors of the economy. Training staff work with companies to develop a unique, flexible training plan that meets the company’s initial training needs and will then follow up post-implementation to ensure the program is meeting the company’s needs. Companies track costs associated with the plan and apply to the state for reimbursement.

A particularly attractive feature of both the FJTAP and TJS programs is the reimbursement option.  To be reimbursed for their training, companies merely submit their employee roster at the 90-day and 180-day marks. If the employees have been employed at each milestone, the state reimburses 50% (90-day) and 100% (180-day) of the agreed upon budget.

In order to qualify, companies must work with the Tennessee Department of Economic and Community Development (TNECD) to reach a contractual agreement that determines cost-per-job and the total commitment of jobs. Once agreed upon with TNECD, companies can seek reimbursement of 50% of the cost-per-job within the first 90 days after the job is created and maintained. A company must agree to provide documentation, including the number of jobs created. If the total commitment of jobs is reached, companies may seek the entire training reimbursement allocation through Job Based Training. Multi-year contracts between a company and TNECD can be reached to accommodate multi-year job creation projects.

To support the manufacturing sector, Tennessee has a state-of-the-art training facility in Kingsport called the Regional Center for Advanced Manufacturing that helps create a pipeline of well-prepared applicants for manufacturing positions. This is a primary reason why automotive giants Nissan, Volkswagen, and General Motors all have major production hubs in Tennessee. In fiscal year 2012-2013, 44 automotive projects created 6,662 new jobs in Tennessee and investments totaled nearly $1.1 billion.

In conclusion, understanding the importance of location to a company and its ability to source talent and grow revenue will remain a top driver in a company’s success. With innovative incentive programs and low business tax burdens, states like Louisiana and Tennessee will remain top contenders in the increasingly competitive site selection process.

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