A Spotlight Article by ATTOM Data Solutions
The Amazon HQ2 bidding war is so huge that hundreds of economic development offices have mailed in their proposals and plans (see the 20 finalists here). Yet Amazon is not the only corporate behemoth looking for a home.
There are other big organizations seeking new places to locate or expand and, while not as big as the Amazon project, these corporate ventures can substantially impact local communities, often with relatively little public cost.
The largest credit union in the world is Navy Federal, a financial colossus with seven million customers and $87 billion in assets. Headquartered outside Washington, D.C., Navy Fed is building an operations center on a 306-acre campus in Beulah, an unincorporated area minutes west of Pensacola, Florida. Within five years the center is expected to employ 10,000 local workers, making it one of the largest commercial development projects in the country.
In the 1700s Pensacola Bay was described as being “large enough to shelter all of the navies of Europe.” Today Pensacola is the site of a variety of Navy installations and home to the famous Blue Angels flying team. Pensacola would seem to be a natural fit for Navy Fed, but economic development projects don’t quite work that way. There has to be more, and “more” in this case means available land, low housing costs, and help from state and local governments.
In an economy where metro areas are fighting for jobs and dollars, the use of state and local incentives has been a winner in Florida.
In 2003 Navy Fed opened a Pensacola call center that could ultimately employ as many 500 people, itself a good economic development project. Fourteen years later Navy Federal has 6,200 people working at the Pensacola site and expects employment levels to nearly double by 2022. In the next five years, the annual payroll from Navy Federal’s Pensacola operations will likely reach $500 million and the direct economic benefit to the area is expected to be as much as $3.7 billion. The credit union’s total investment in its Heritage Oaks Campus — much of which will be retained as green space — will top $1 billion.
Along the way, there have been incentives — an estimated $30 million in total subsidies and assistance from state and local governments or about $3,000 per job. If this seems like a lot, consider that Wisconsin is paying $3 billion in incentives to land the Foxconn Technology Group, a Taiwanese manufacturing company that’s expected to ultimately bring as many as 13,000 jobs to the state. That works out to $230,769 for each new position.
Are incentives worth it? Is this a good use of public money?
The construction and employment associated with the Navy Fed project would be noticeable even in a major metro area but Pensacola is hardly that. The city is now home to about 54,000 individuals and it’s the heart of a metro area with roughly 486,000 people. The local population was up 1.6 percent in 2016, growth attributed in part to an expanding job base. Much of the economy is related to manufacturing, aviation, and cybersecurity according to the FloridaWest Economic Development Alliance. In addition, there is a substantial tourism business and more than 2 million people visit the area each year.
In the Pensacola area “there’s more new construction taking place now than at any time in modern history,” explains community leader Quint Studer, writing on Forbes.com. “From 2010 to 2016 alone, the assessed property value went from $675,000,000 to $850,000,000, which is up 25.9 percent – and that doesn’t include over $100,000,000 worth of construction that’s ongoing right now.”
Amazon says that for the HQ2 project it “will hire as many as fifty thousand (50,000) new full-time employees with an average annual total compensation exceeding one hundred thousand dollars ($100,000) over the next 10 to 15 years, following commencement of operations.” The typical Navy Fed package in Pensacola amounts to $49,000 in current salary and benefits. However — and this is crucial — like Amazon there’s no doubt that Navy Fed packages will also be much higher 10 or 15 years down the road.
For Navy Fed employees, homes in the Pensacola area are affordable, there’s no state income tax, and they’re minutes from the beach. The median home price in Escambia County, the central Pensacola county, was $145,000 in Q3 2017, up $14,000 (11 percent) from a year earlier, according to ATTOM Data Solutions. Since bottoming out in Q1 2014, median home prices in Escambia County have increased 61 percent — handily outpacing the 41 percent increase nationwide during the same time period.
In an economy where metropolitan areas are fighting for jobs and dollars the use of state and local incentives has been a winner for Florida. The plain lesson from the Navy Fed project is that it’s cheaper to spend $3,000 to create a new job than to cut back on economic development and face higher unemployment rates and falling home values.