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Uncertainty in Washington Discourages Hiring in TN: Hagerty

Economic and Community Development Commissioner Bill Hagerty says businesses are not adding employees because of uncertainty around federal regulations and taxes. Hagerty covered various topics including plans to alter the state’s tax incentive programs during an interview last week with TNReport.

Big businesses are hoarding cash that could be going toward hiring people, but Tennessee’s economic development chief says he isn’t about to tell them what to do with their money.

Commissioner Bill Hagerty would rather entice them to hire more people by remaking the landscape for capital investment. And he’d like to see Washington help make that happen.

He says the stack of money companies are putting aside, waiting out the uncertainty in the economy, is getting higher. Hagerty says he hasn’t fully analyzed the activity, but he sees companies engaging in stock buybacks to pad the cash on their balance sheets.

“Everybody at every turn is ratcheting down their cost structure,” Hagerty, who leads the state Economic and Community Development Department, told TNReport last week. “They’re taking employees out, not adding employees. They’re opting for capital expenditure because they know what that capital is going to cost them. And they don’t know what the employee is going to cost because of all the legislative uncertainty that’s not coming from us but coming from the feds.”

Nevertheless, the administration of Gov. Bill Haslam has a string of recent job creation successes it’s touting, although the state’s unemployment rate is 9.7 percent in the latest figures from August.

Hagerty covered various topics in an interview at his Tennessee Tower offices Friday, saying the administration wants more certainty in the state’s tax incentive programs, that border states like Kentucky and Virginia are giving companies rebates as an incentive to offset the presence of personal income taxes, that logistics is the most prominent cluster of businesses the state enjoys and that the state has actually helped in the transition of local planning.

And, for the record, Hagerty says he doesn’t know the details of what got from the state.

Hagerty said he has friends who ask him why he doesn’t tell companies to put their money to work by hiring more people. But he turned to ECD spokesman Clint Brewer, used him as a temporary example of a business executive, and said, “I would never go to Clint and say, ‘You should go hire somebody with your money.’ What Clint needs is the confidence that the customer is going to be there.

“What I would love to see is the end market improvement and the confidence that’s necessary to get that end market in place, so I could then encourage movement toward that market and the natural flow is to employ those people.”

Haslam frequently says the government can’t legislate jobs and that the private sector needs to see leadership from Washington.

“I don’t think he’s pointing at Washington expecting them to do something. I think he’s expecting them to stop doing something,” Hagerty said.

What should be stopped, Hagerty said, is uncertainty about the regulatory environment, the tax environment and the stability of the government’s own balance sheet. If all that uncertainty is stopped, business would get better, he believes.

“I fundamentally believe that,” Hagerty said. “In the meantime, our objective, even though we’re not happy with the overall rate of growth, is to get a disproportionate share of it, and to have this state well positioned when things do start to turn, that we get an increasingly disproportionate share of the growth and activity.”

Hagerty indicated the administration will seek legislation that will address the state’s incentive program for business, particularly in terms of tax credits. He offered an example.

“If a company commits to creating 1,000 jobs and we promised a stepped-up level of incentive, if they only get 950 jobs, our view is we ought to interpolate that to a point where it gets 95 percent of the benefit, as opposed to saying it’s in the commissioner’s discretion,” he said. Hagerty said there is too much discretion in the system now.

“What we’re trying to do is incrementally improve the tax credit structure that is already in place,” he said. “The objective is just to make things more clear.

“What we’re not doing is targeting some industry we’re going after to subsidize. We’re not going to be proposing funding one industry above another, or subsidizing one set of employees above another.”

That comment prompted a question about Amazon, which gained permission from former Gov. Phil Bredesen’s administration not to collect taxes on its online sales in Tennessee, in exchange for creating hundreds of jobs at new distribution sites. The deal has caused an uproar among bricks-and-mortar retailers and some lawmakers. Hagerty said he did not know details of the arrangement, because it’s out of his jurisdiction.

“That’s private taxpayer information, and it’s all being handled within the confines of the Revenue department,” he said. Hagerty said he simply presumes Bredesen officials operated squarely within the law. He said the issue itself is a “difficult situation” but that he can see the argument on both sides about collecting the tax.

Haslam and Hagerty have traveled the country extensively, in addition to holding meetings in the state, hoping to spur job expansion in Tennessee. It’s a highly competitive field. Tennessee has no personal income tax — a point they sell in those meetings — but Hagerty said states such as Kentucky and Virginia will charge a personal income tax to employees and turn around and offer rebates to the companies that employ them.

“I think it’s poor policy, but that tactic has been used by border states that have an income tax,” he said, adding that the Haslam administration has discussed such a strategy but rejected it “soundly.”

Haslam’s JOBS4TN plan identifies six major clusters of business in the state, including heavyweight industries like auto manufacturing and health care. But Hagerty said the industry that stands out in the big picture is logistics, which handles the flow of goods. And it’s not just about the obvious players, like FedEx in Memphis or trucking companies

He noted that the Alstom Power turbine manufacturer is in Chattanooga.

“Why are they there? Because they’ve got easy access to rail and water,” he said. “What they make is very big, very heavy and very expensive to ship.”

He pointed to Tennessee’s geographic advantage, where the state is within a day’s drive of a large part of the nation’s population. Hagerty refers to Lamar Alexander’s first pitch to Nissan for auto manufacturing, when the then-governor showed the Japanese a satellite picture of the United States at night and pointed out how Tennessee was in the middle of the lights in the photograph. The same advantage applies today, Hagerty said.

Hagerty noted, however, that while Tennessee had big hopes for auto suppliers to follow Volkswagen and its Chattanooga site, the movement of those suppliers into the state has been slower than anticipated, saying suppliers have to absorb excess capacity before relocating.

One big worry for Hagerty is when an existing plant does not stay updated, like what happened with the Goodyear tire plant in Union City that closed, costing 1,900 jobs.

“We are very upset about Goodyear,” Hagerty said. “We tried. I made calls, (Finance and Administration) Commissioner (Mark) Emkes made calls. The governor made calls. That situation is very devastating.”

That type of loss tends to dwarf announcements of far fewer new jobs in the state. But the Haslam team has announced a string of job developments in recent weeks, including 140 jobs by Mahle for automobile engine components in Hamblen County; 126 jobs by Quaprotek for metal parts in Lauderdale County; 100 jobs by Krueger air distribution products in Shelby County; 60 jobs by Marathon Heater in Haywood County; 175 jobs by Martinrea auto parts in Robertson County; and 250 jobs by ThyssenKrupp compacted graphite iron castings in McMinn County among others.

The Haslam team was criticized heavily this year when it cut the state’s role in providing local planning, saying those tasks should be handled at the local level. But Hagerty said the administration has gone through a thoughtful process of maneuvering the work back to the local areas, including providing funds to make the change work. The move took the state out of the middle of the process, he said.

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