By: Nate Rae, The Tennessean
Gov. Bill Haslam's administration has touted its ability to give taxpayers more bang for their buck when it comes to economic development by leveraging increasingly smaller grants for projects that promise more jobs than deals under previous governors.
But the administration deviated from that pattern when it doled out $30 million to Eastman Chemical Co. in May.
Eastman has promised to pump $1.6 billion of its own money into renovating and expanding its facility in Kingsport, where the publicly traded company has operated since 1920. The chemical manufacturing company is the largest employer in northeast Tennessee and one of the largest in the entire state.
But Project Inspire, as it has been dubbed by company executives and public officials, comes with relatively few predicted new jobs considering the state's investment. Eastman has promised 300 new jobs, which comes out to $100,000 in taxpayer incentives per anticipated job.
During his first two years in office, the Haslam administration has spent an average of $3,104 in incentives per new job, a statistic the Department of Economic and Community Development has highlighted in its annual reports as evidence the program is being run more efficiently than in the past.
Click here for an interactive overview of the top economic incentives during Haslam administration
ECD spokesman Clint Brewer acknowledged that Commissioner Bill Hagerty used the incentives-per-job metric to track how efficiently the department is operating. But Brewer said the Eastman package compared favorably to other incentive deals when considering the state's relatively small contribution to the overall project. The $30 million in taxpayer funds amounts to just 1.9 percent of the overall $1.6 billion project, and by that measure Brewer said taxpayers are still getting high value for their investment in Project Inspire.
Eastman Chemical employs 6,750 workers in Tennessee, plus 2,500 contract workers and has 6,200 retirees drawing pension and retirement benefits. The company, which has deep political connections, has flexed its muscle by spending significantly on state legislative campaigns in recent election cycles. It also employs Tom Ingram's firm, The First Group, to represent its interests in Washington, D.C.
Ingram helped Haslam with his 2010 election campaign and has been personally paid by Haslam to advise him while he was governor. Last week, Haslam said he is putting Ingram back on his campaign payroll after complaints that Ingram lobbied other state officials at the same time he worked as his personal adviser.
State Rep. Gloria Johnson, D-Knoxville, expressed concern about the incentive package given to Eastman and said the deal warranted review in the legislature to make sure the company is held accountable for the jobs it promised.
"When I think about $100,000 tax commitment per promised job, I wonder if a family of four living on $50,000 a year thinks that's a fair and effective use of our tax dollars?" Johnson said. "More likely, that working family looks at a $30 million deal and sees it as a confirmation that the party in charge is putting profits for big special interests ahead of people who work for a living."
Whispers of a possible move
Miles Burdine, president and CEO of the Kingsport Chamber of Commerce, said it is difficult for someone who doesn't live in the region to appreciate Eastman's importance to the community.
"The significance of Eastman, not only from the employment base they have, but how good of a corporate citizen they are, should not be overlooked," Burdine said.
As is often the case in economic development packages, there were whispers of Eastman looking to move some of its operation outside Tennessee. State Rep. Tony Shipley, R-Kingsport, said he heard other states were trying to woo Eastman. Shipley said even losing a fraction of the workforce, or missing out on the 300 new jobs, would have seriously hurt the community.
When the incentive deal was announced last month, Haslam told local media that he didn't want to be the governor when Eastman decided to expand somewhere else.
Asked whether moving facets of its operation out of Kingsport was an option, Eastman spokeswoman Kristin Sturgill said "it always makes sense to consider options before making a large investment."
Kasia Tarczynska, who works as a research analyst for Washington, D.C.-based economic incentive watchdog group Good Jobs First, said rumors of a company leaving town frequently coincide with taxpayer-funded subsidies.
Tarczynska said Eastman's nearly 100 years in East Tennessee, plus a $1.31 billion expansion project that was completed there in 2011, made the company an unlikely candidate to relocate.
Eastman got incentives in grants and tax breaks for that expansion, too, under Gov. Phil Bredesen's administration, which a company executive at the time valued at about $100 million over 10 years.
Tarczynska pointed out that manufacturing operations are especially difficult to relocate.
"That's a lot of money for one job," she said of the $100,000 per anticipated job. "I think localities and the state should ask themselves how much are they willing to spend on one job if the price tag is really high."
Angelos Angelou, principal executive officer and chief strategist at Angelou Economics, an Austin, Texas, consulting firm for economic development, said the $30 million public sector investment was actually a fraction of what Eastman could have garnered from another state government.
He said chemical manufacturing projects are typically more capital-intensive than labor-intensive, meaning the investment is more in machinery and infrastructure than people and jobs. Angelou said in his opinion such a project has a more positive impact on a community than one that invests less capital but brings more jobs.
"Incentives from an economic development perspective are sort of a necessary evil," Angelou said.
"Thirty-million dollars on a $1.6 billion investment is not at all a high level of incentives. It would be considered the low end. At that level of investment, you would probably have gotten incentives in the level of about $100 million-plus if Eastman Chemical were to make this a competitive project and solicit proposals from other parts of the country."
Smaller incentives under Haslam
Brewer said the package offered to Eastman compared favorably when held against some of the notable deals offered under the Bredesen administration. In 2008, the state offered $256 million toward a $1 billion project that lured Volkswagen to Tennessee, which comes out to taxpayers footing 25.7 percent of the bill. Also in 2008, the state promised $107 million for the $1.2 billion Hemlock Semiconductor project in Clarksville, which came out to 8.9 percent of the entire project.
According to job data provided by ECD, the Haslam administration spent $172 million on 380 economic development deals during the first two years of the administration. It is anticipated those deals will bring 55,455 new jobs.
The $3,104 average per job before the Eastman project compares with $5,586 per job during the Bredesen administration, according to ECD.
Brewer said Eastman's political ties played no role in the department offering the economic incentive package.
Ingram, who did not respond to a request for comment, is not personally registered to lobby for Eastman at the federal level, but another lobbyist in The First Group, Bernard Toon, has been registered since 2011.
At the state level, Eastman employes Charles Poe, whose wife, Alexia Poe, is a senior aide to Haslam, as its lobbyist.
In 2012, Eastman's political action committee spent $62,500 on state races, and on Jan. 2 of this year, the PAC gave $21,400 to Haslam's campaign fund.
"Tom Ingram's group is the federal lobbying firm for Eastman, not the state lobbyist, so he had no role in this whatsoever," Brewer said. "Charles Poe has been with Eastman, my understanding, for 11 years so his time pre-dates this administration.
"He actually worked on the last project with Eastman in 2007 so he worked with the prior administration. He had no more or less access than any government relations professional representing a company the size of Eastman would have."
The ECD package offered to Eastman includes a $15 million capital project grant, a $10 million appropriation for the Regional Center for Advanced Manufacturing and a $5 million FastTrak grant.