State funding for Howard expansion a bargain
By By Steve Swogetinsky / laurel leader-call editor
Aug. 13, 2002
My goodness, did we get a bargain with the economic development package for the expansion of Howard Industries.
For only $31.5 million, our community and our state will end up with a long-term annuity in terms of tax revenues.
Let's take a closer look at what this means: Howard Industries guarantees that it will create 2,000 new jobs.
If this were the only benefit received by the state of Mississippi, it would still be a good deal. If we divide that $31.5 million by the 2,000 new jobs created, the state has paid $15,750 per job.
What does the state get in return? Assuming the average pay of these new workers to be around $25,000 (low for technology jobs), state and local tax revenues should easily exceed $2,000 per year. This translates to a return on investment of over 12.5 percent annually.
This, alone, makes the deal fiscally sound for the state of Mississippi. But wait the deal keeps getting better.
Now for a quick lesson in local economic growth. When money is spent in a local economy, there is an economic fallout effect called an income multiplier. This multiplier estimates the additional income generated when earnings are spent and re-spent in the community.
If a person spends one dollar in a local store, the store owner takes a portion of that dollar to pay employees and then keeps a portion as profit. That money is re-spent in another store and the cycle repeats itself.
The more likely people are to spend money in a local economy, the higher the multiplier.
For most communities, this multiplier falls in the range of 1.5 to 2.5. In other words, every dollar spent locally has an actual impact of $1.50 to $2.50.
In addition to the income multiplier, there is another phenomenon called an employment multiplier.
As new money is spent in our local retail and service companies, these businesses will have to hire more people to meet the additional demand.
Additionally, new businesses will spring up in our community, providing us all with more local shopping and service options.
Employment multipliers usually fall within a range of 20 to 40 employees per million dollars of increased sales. With these things in mind, we can only imagine the ultimate economic impact of the Howard Industries expansion.
Fortunately, our state legislators realized the value of the incentive package and overwhelmingly voted for it. One of the few critics of the deal stated that he feared other companies would come to the Legislature to ask for the same kind of deal.
If other companies can produce this kind of positive economic impact, they should get the same deal.
My fear is that they do not go to our Legislature and, instead, go to another state.
Incentive packages like this are not corporate welfare they are community investments.
Hats off to the Legislature and to Howard Industries for believing in our community.
