Dale Fowler: Caterpillar incentives are good investments

Aug. 24, 2010 at 3:24 a.m.

Thanks, Victoria, for the overwhelmingly positive response regarding the announcement that Caterpillar, the world's largest manufacturer of construction equipment, will be locating right here in Victoria.

Caterpillar plans to invest millions of dollars in our community and create more than 500 new jobs.

During the due diligence part of our negotiation with Caterpillar, the Victoria Economic Development Corporation commissioned an economic impact analysis based on the project's parameters. The very conservative analysis performed by Impact DataSource of Austin indicates the 500-plus Caterpillar jobs will spin off more than 500 additional jobs in all other sectors of the local economy. That means you will not have to actually work for Caterpillar to be a beneficiary of their new jobs.

Additionally, the impact study indicates substantial revenues will be generated for all taxing authorities, including the ones participating in the tax incentives that helped Caterpillar choose Victoria. These revenues will be generated by property taxes paid on new homes and new businesses as well as those paid by Caterpillar over time. Substantial revenue will also be generated by sales tax collected through people spending the money generated by their new jobs.

I concluded my last column with a commitment to discuss the role of financial incentives in economic development - or the practice of using financial inducements to attract a company to a specific region.

As I wrote that column, I hoped to use the Caterpillar project as my example.

Numerous Victoria Advocate articles already discussed the specific incentives we offered for this project so I won't detail them again; this is more of a philosophical discussion.

I am aware there are those who believe companies will automatically locate in a community because it has lower taxes, is just the right location or has the perfect transportation opportunities and on and on.

In an ideal world, companies would simply find the best possible match for their project and locate there.

In the real world of economic development, there are no perfect sites that possess all the right attributes; there are always going to be tradeoffs. In the real world, there are always multiple locations that work equally well for a company and that is when a community's willingness to invest in the project can make the difference.

Oh, yes, I said invest. You see, we tell all our clients that our community wants to partner with them to build a successful business venture, and this partnership usually indicates some level of investment from all those involved. With wise investments come good returns on that investment.

The impact study I mentioned earlier indicates our community's investment in the Caterpillar project should have close to a 16 percent rate of return during the next 15 years. That is assuming Caterpillar only does the minimum of what was discussed and never upgrades facilities or grows new businesses.

As Ray Perryman, a Texas economist, says, the company has a responsibility to their shareholders to make good financial decisions - and we have an obligation to invest wisely for the benefit of Victoria's taxpayers.

Incentives will never make a bad site good, but they can make a good site the winner.

D. Dale Fowler is president of the Victoria Economic Development Corp.



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