Speedy Recovery For Columbus

Although the Columbus area economy will be in recession through mid-2009, the downturn is mild, and the recovery will be vigorous.

The expansion at Fort Benning is the main factor underpinning my optimism; but I am counting on the new Kia plant and its suppliers to provide a boost to the regional economy. Additionally, home prices are holding up better here than in much of the nation, and the Valley Partnership reported 12 expansions or project announcements in 2008.

Collectively, those 12 projects are expected to generate nearly 2,000 jobs. That’s more than 200 jobs higher than the average of the last 20 years.

The $1.2 billion Kia auto assembly plant is expected to employ between 2,500 and 2,800 workers, many of whom will live or shop in the Columbus region, and the multiplier effects will be unusually large.

A simulation based on the most conservative estimate of job numbers shows an employment impact of 13,700 jobs in Georgia. That implies that each job at the Kia plant will support 4.5 jobs outside the plant. Thus far, major suppliers alone have announced 3,700 jobs at sites in Georgia, well above the estimates made at the time of the initial announcement.

Of course, the local economic impacts associated with the Kia plant will not be large until late 2009 or 2010. Until the plant is actually up and running, spending is mostly related to engineering, planning, site preparation and construction.

When the plant and its local suppliers begin actual production, the amount of money pumped directly into the regional economy via permanent payrolls and contracts with local firms will rise dramatically.

Some continue to question whether or not Georgia overpaid for the Kia plant, but I believe we struck a great deal. The total cost of the incentives will be about $400 million, or about $160,000 per job at the plant itself.

At the time the deal was closed, Kia had narrowed its choice to either Georgia or Mississippi. Mississippi’s top offer was $760 million in state and local incentives, or about $300,000 per job. In July, Tennessee landed a VW plant with an incentive package of $577 million for some 2,000 jobs, or $290,000 per job. These two offers are higher than the $180,000 per job incentive package that landed a Toyota Plant near Tupelo, Miss., in 2008. It’s clear that Georgia beat the going rate.

Another way to look at it is to examine how long it will take for the incremental tax revenues attributable to the Kia plant to offset the tax breaks and other incentives that were granted – the payback period.

I ran a simulation based on 2,500 jobs. The result was a net tax impact of $110 million per year. So, based on an incentive package of $399 million, it will take only three years and eight months for the net increase in state and local government revenues to “pay” for the incentives granted. That’s a short payback period. We got a good deal.

Now, let’s look at growth stemming from the 2005 Base Realignment and Closure Commission (BRAC) decisions affecting Fort Benning. The military sector’s expanding economic impact is the key reason I expect vigorous economic growth in Columbus late in 2009.

According to the U.S. Army, the number of military personnel, civilians and contractors working at the base will grow by about 11,000. The multiplier effects associated with spending by people who land these new jobs should create at least 6,000 more jobs in the off-base economy. So over the next four years, Fort Benning’s growth will generate 17,000 jobs.

Columbus has yet to feel very much of the economic impact of the planned expansions at Fort Benning. The big economic push associated with the growth will not really begin until late 2009 or early 2010.

The acceleration will occur as the armor school begins to pre-position and moves in; but the move will not be completed until September 2011. The multiplier effects associated with this growth probably will not peak until mid-2012; so, the major push to the region’s economy will take place between late 2009 and mid-2012.

Categories: Economic Development Features, Features