When State Farm Insurance announced last year that it planned to consolidate its Lincoln, Neb., and Woodbury, Minn., operations centers, both cities hoped to save the local jobs at stake by offering financial incentives to the company. Lincoln would eventually come out the winner, due in part to what city officials said was an “aggressive” package of enticements from both public and private sources.
Consolidations and incentives
Early next year, State Farm is expected to complete a “top-to-bottom” review of its operations centers in Columbia, Tulsa, Okla., and Monroe, La. In a series of meetings with Columbia business and political leaders in October, the company said that any consolidation resulting from the review would not be influenced by incentives, which according to Bernie Andrews, president of Columbia Regional Economic Development Inc., would likely not be forthcoming.
“Columbia has never really used any sort of incentives,” Andrews said. “They haven’t been necessary.”
Some experts say that, ultimately, State Farm’s decision will swing on which of the three cities can offer the greatest benefit to the company over the long-term. Jim Reeves of Site Selection magazine, which covers the factors that influence where businesses set up shop, says that companies are more interested in the overall cost of doing business.
“It’s absolutely critical,” said Reeves. Incentives, he said, are merely bonuses that cities use to make that cost “as attractive a number as possible.”
Operating at the lowest cost
Forbes magazine recently ranked Tulsa as having the lowest cost of doing business in the country. Based on reports from Economy.com, Columbia and Monroe were ranked 91st and 92nd, respectively. Corporate tax rates and energy costs are among the most important economic considerations for corporations, according to Forbes. Reeves said other local, non-cost factors also have an effect on the corporate bottom line.
“Things like unemployment and a strong labor force don’t directly have cost implications,” he said. “But they eventually make it cheaper for companies to attract new employees or entice current employees to relocate.”
State Farm’s Tulsa operations center employs 780 people and, like the Columbia and Monroe centers, is one of its major hubs for claims processing and accounting. Tulsa was hit particularly hard by the post-Sept. 11 economic downturn. Nearly 20,000 people lost their jobs between July 2001 and July 2003, according to the U.S. Department of Labor, and since March 2002, Tulsa has experienced the second highest job loss rate in the nation.
In early September, Tulsa voters approved a 1-cent tax increase that is expected to generate $885 million over the next 13 years for business incentives, education and community development. Since then, Tulsa has offered Boeing a $350 million incentive package, which includes interest-free loans, in a bid for the right to build the aircraft maker’s new 7E7 jet. The city has offered American Airlines a package worth $23 million in hopes that the carrier will keep and expand its presence in Tulsa. Community leaders also are considering how it might convince Citgo Petroleum Co. not to move its corporate headquarters to Houston.
Ron King, chairman of the Tulsa Metro Chamber of Commerce, said recently in a press release that, “from an economic development standpoint, Tulsa is telling the rest of the nation that we are here to do business and Tulsa is well-positioned to compete and deliver on our promises.”
Yet, State Farm may be a mere blip on the radar screen for Tulsa.
“This city does not want to see any companies leave,” said Dave Boden, former chairman of the Tulsa chamber, “but if you’re asking where its highest priorities are, I would not say they are with State Farm.”
Columbia on middle ground
Monroe, on the other hand, has much riding on State Farm’s consolidation plans. The insurer employs 1,150 at its Monroe operations center, which has a $50 million payroll and accounts for 2.5 percent of the local economy, according to Robert Eisenstadt, a University of Louisiana-Monroe economics professor. Like Tulsa, Monroe has also suffered from job losses. The Louisiana Labor Department reported last month that between September 2002 and September 2003, the Monroe area lost 1,600 non-farm jobs.
While no specific incentives have been offered, local organizations, including the Monroe Chamber of Commerce and the publicly funded Ouachita Economic Development Corporation have coordinated efforts to keep State Farm in Monroe. While the groups’ leaders would not discuss the details, Van Pardue, chairman of the Ouachita economic development group, told the Monroe News Star last month that the city is “not going to quietly let (State Farm) go.”
Columbia, for which State Farm is the 10th largest employer, finds itself somewhere in the middle between Tulsa and Monroe. It has a strong debt rating and, compared to Tulsa and Monroe, an extraordinarily low unemployment rate — just 1.8 percent. As for the all-important cost of doing business, Columbia’s is 8.6 percent below the national average, according to Forbes — comparable to Monroe, whose costs are 8.5 percent below the average.
Winners and losers
Andrews says that because Columbia “has always been a relatively inexpensive place in which to operate,” he expects the city will hold its own against Tulsa and Monroe. “Right now, we are trying to show State Farm the benefits of operating here and pointing out some of the services we can provide them,” Andrews said. “We want to show them how much they are valued in Columbia.”
That’s been the goal of many cities with a State Farm presence since 2001 when, in the wake of $5 billion in losses, the insurer launched a massive reorganization. The company’s cost-cutting measures have included early retirement packages for selected employees and shifting 17,000 salaried workers to hourly positions.
In March, the company announced a consolidation plan that, over the next several years, will result in the relocation of more than 1,500 jobs in 10 states. State Farm has already consolidated its 26 regional offices into 13 new “operating zones,” reduced its long-term care insurance offices to two and combined its customer-agent support operations to a single office.
Thomas Meedson, an insurance industry analyst with Conning Research, said that the cities that emerge from State Farm’s corporate shakeup would receive an influx of jobs and an economic shot in the arm. The losers will see the company’s presence significantly reduced or, worse, completely phased out.
“This is a very interesting situation,” says Meedson. “If you look at what State Farm has done in the past, you are definitely going to have some winners and some losers.”