Incentive deal stands as Ohio's largest
The state would recoup its investment within a decade through income tax receipts from Lordstown GM employees, the director said.
By DAVID SKOLNICK
VINDICATOR POLITICS WRITER
LORDSTOWN -- The $63 million incentive package given by the state to General Motors to build its new small-car line in Lordstown is the largest ever given by the state to a company, said Bruce Johnson, Ohio Department of Development director.
In an interview with The Vindicator, Johnson said the state looks at the incentive package as an investment in Ohio's economic future.
If the GM Lordstown operation employs 3,000 people who make an average of at least $50,000 a year, Johnson said the state would receive about $6.75 million a year in income tax from those employees. Thus, the state would recoup its investment in less than a decade, he said.
Even though the state is in the middle of a financial crisis, the investment at Lordstown is a necessity to keep Ohio's economy moving forward, Johnson said.
"Here's the critical question: Do you believe that the investment [by GM] wouldn't have been made without the state support?" Johnson said.
"We weren't willing to go there and test that. We're in a competitive situation with other states. Companies like GM have options."
GM plans to invest $550 million at its Lordstown operation, including adding 140,000 square feet to the assembly plant, retooling the general assembly area, building a paint shop, buying new equipment and refurbishing the fabricating plant.
The state incentive package for GM includes $37 million in machinery and equipment investment tax credits, a $20 million business development grant for on-site infrastructure assistance, a $4.5 million Ohio Investment in Training Program grant, and a $1.5 million low-interest loan to Trumbull County for waterline improvements.
The $20 million business development grant is the first given by the state to a company under that program, Johnson said.
GM was looking for more than the $63 million the state offered but was very reasonable in its negotiations, Johnson said.
"There's no limit to the amount of assistance companies will take," he said. "This company understood that the state was being aggressive with the package it was offering. They weren't greedy about it. They were persistent, but they understood when we said, 'Look, guys, this is all we can do.'
"You don't tell a big company like GM that we are not friendly to their investment, and we don't want to participate. This way we win on this deal [by] assuming our investment was necessary."
The $63 million package to GM is comparable to one the state is offering Ford -- and which Ford has not yet accepted -- to keep its plant in Avon Lake, Johnson said. The GM package exceeds what the state gave Chrysler-Jeep to keep its plant in Toledo, he said.
There was a higher financial figure for the Jeep project, "but most of the money was spent on infrastructure improvements in the local community and didn't go directly to the company," Johnson said.
"Chrysler asked us to put everything remotely related to the project into the figure. GM wanted to talk about direct support and not go back five years and re-create everything. It depends how you spin it."
But if other state-funded improvements near the Lordstown plant, such as Ohio Turnpike interstate exits, were included, the GM package would be about the same deal as that given to Jeep, he said.
The state wanted to do everything it could to keep GM in Lordstown, Johnson said.
"The Lordstown plant is the cornerstone building block of the Valley's economy," he said. The local economy "doesn't collapse without it. It just means, here's a foundation. It's extreme pressure on the local economy if this cornerstone falls. When you couple that with the $550 million investment being made, it begs for a lot of state involvement."
Also, the new car line could attract other businesses to the Mahoning Valley, Johnson said.
"Automaker jobs are extremely valuable because it is supply-based, and there is potential for new suppliers to come to the area," he said.
GM plans to phase out the Chevrolet Cavalier and the Pontiac Sunfire produced at the Lordstown facility in 2004 and replace it with a new line of small cars produced at the plant.
In a commitment letter to the state, GM promises to retain at least 2,600 jobs at the assembly plant for seven years after the newly refurbished facility starts making 2005 model cars.
The plant currently employs 4,500 workers. The company wants to reduce employment through attrition, and not layoffs, according to a spokeswoman for the governor.