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Wadley-Donovan Group Economic Development Action Plan |
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EXECUTIVE SUMMARY: LOCATIONAL AUDIT AND BUSINESS RECRUITMENT STRATEGY FOR THE CHATTANOOGA AREA
Prepared for:
CHATTANOOGA AREA CHAMBER OF COMMERCE
OCTOBER 15, 2002
Prepared by:
The WADLEY-DONOVAN GROUP
A Division of Grubb & Ellis
735.225.0433
EXECUTIVE SUMMARY
The Wadley-Donovan Group (WDG) was commissioned by the Chattanooga Area Chamber of Commerce (The Chamber) to create an economic development action plan for the City of Chattanooga and Hamilton County. This plan is to be based upon WDG’s synthesis of the output from recent assessment and target industry studies completed by other consulting firms within the context of its own research and experience in corporate location and economic development consulting. The plan is to recommend a clear course of action for the area to follow in its economic development for the next three to five years, including the best industries to target. The plan also is to include an assessment of the area’s assets and challenges, as they affect economic development.
WDG began its assignment by reviewing requested background data supplied by the Chamber. WDG then visited the city and county to tour the Enterprise South Industrial Park, have an orientation meeting with the Chamber staff, and conduct face-to-face interviews with representative employers and non-employers (such as utility representatives, educators and elected officials). Over 50 individuals were interviewed as part of this process. WDG followed this visit with telephone interviews, research of secondary resource material, and a review of the previously generated reports. The results of WDG’s analysis are summarized in this executive report, beginning with a synopsis of the area’s locational assets and challenges, and concluding with a list of recommended actions.
Findings
Chattanooga and Hamilton County are at pivotal points in their development. After a period of contained growth, developments are emerging that can reposition the area to meet the demands of the future and emerge as a dynamic, growing, economically strong Southeastern location. Opportunities include a range of diversified business activities including sophisticated office, manufacturing, and distribution operations. Chattanooga’s quality of life, operating environment, location, and infrastructure, meanwhile, offer advantages for mobile entrepreneurs.
The area has a number of key assets.
• The Chattanooga MSA is a mid-sized community that is large enough to support a diversified economy with a strong base of support services. The current population of the metro area is 468,000.
• The City of Chattanooga and Hamilton County offer a positive environment for private sector investment and growth. The city and county provide this nurturing environment through a well developed, cooperative, collaborative, pro-business culture. The city and county benefit from a mayor who has an entrepreneurial and private sector background, and a dedicated, forward-thinking county executive. The city and county are very supportive of economic development. Examples include the joint ownership and development of the new Enterprise South Industrial Park and the city’s actions to locate a new computational engineering research center at the University of Tennessee-Chattanooga.
• The development of Enterprise South Industrial Park will have 940 acres of available land for industrial use.
• There is availability of low cost, broadband telecommunications service through the city-owned fiber ring, MetroNet.
• Excellent telecommunications infrastructure, including POPs for AT&T, Sprint, MCI, and Qwest. Digital switching is available.
• Excellent north/south and east/west access via three Interstates. Atlanta, Nashville, Birmingham, Montgomery, Lexington (KY), Louisville (KY), Memphis, Charlotte, Cincinnati, Huntsville, Knoxville, Raleigh, New Orleans, and St. Louis are within one day’s travel from Chattanooga. Barge service and rail service through CSX and Norfolk-Southern are also available.
• Chattanooga is within a two-hour drive to Oak Ridge National Laboratory and its supercomputer. Broadband access is available to this site from Chattanooga. Chattanooga is strategically located between Oak Ridge and Atlanta.
• Commercial air service to five hubs via multiple carriers.
• A local campus of the University of Tennessee (UTC) with colleges of business administration, and engineering and computer science. Undergraduate and graduate degrees are offered. The recent development of UTC’s Center for Computational Engineering is a significant advancement. It will offer research and instructional activities. The Center will offer the first doctoral program at the Chattanooga UTC campus. Top faculty have been recruited to the new facility.
• A community college (Chattanooga State Technical Community College) offering programs in engineering technologies, industrial technology, math, and science.
• A base of manufacturing and office employers, including headquarters and insurance operations.
• An excellent history of cooperation between local employers, UTC, and Chattanooga State.
• The presence of six other four-year colleges and universities in the area.
• The area has strong water, sewer, electric, and natural gas reserves and capacity. There is abundant water that requires minimal filtration. The area is one of few areas that can supply the water needs of a large user. Electric power is purchased from the Tennessee Valley Authority and distributed by the city.
• A well educated population. The percentage of residents with a college degree matches the national average, while the percentage of residents with some post-secondary education (including a two-year degree) exceeds the national average. These two sectors are the main personnel recruiting targets of companies.
• A highly rated quality of life that includes outdoor recreation, culture (including the performing arts), easy access to Atlanta and Nashville, a below average cost of living, and quality medical services.
• Entry-level clerical, administrative, and call center talent that can be recruited from the local labor force.
• The workforce has strong computer skills, according to local employers.
• Below average wage costs.
• U.S. Environmental Protection Agency attainment status for air emissions.
• An exciting, attractive downtown with expanding residential, entertainment, and cultural opportunities.
• Easy commuting from all areas of the city.
• Excellent community incentives.
• Minimal natural disaster risk.
• One-stop shopping for permitting.
• A new Business Information Center at the Chamber to aid site selection efforts by companies and consultants.
• A Chamber of Commerce that has re-energized its economic development effort, including a business attraction program.
While Chattanooga’s strengths outweigh its weaknesses, there are some challenges the city and county must address if the area is to meet its potential for development. The area’s principal challenges include the following issues.
• The area has a neutral image that hurts recruiting of needed specialized engineering, professional, and managerial talent. In some quarters, such as Atlanta, Chattanooga suffers even a bit of a negative image as a second-choice location, while the area still has an image as a union town among many manufacturers.
• Finding suitable jobs for professional and executive “trailing” spouses is a challenge.
• The population growth of Hamilton County and the MSA is slower than the nation, state, and MSA. Between 1990 and 2000, the county grew 7.8%, compared to the 10.9% gain nationwide. The city grew only 1.8%. The metro counties surrounding the county have had significantly higher growth rates. Population forecasts show a slowing down for the county and city versus the nation between 2001 and 2006.
• Development in Chattanooga as a regional and national insurance center is a possibility, but training programs in insurance are not being fully implemented because of cost.
• The area has had an historic shortage of sites, which has been a major contributor to the city’s and county’s slow growth in new operations.
• Letters from the Tennessee Department of Environment and Conservation (TDEC) and the U.S. Environmental Protection Agency (EPA) are needed stating that the groundwater contamination affecting the Enterprise South Industrial Park is below their minimum acceptable thresholds. According to discussions with city officials, a two-year state monitoring program has just concluded, showing that the levels of identified groundwater contaminants are below the TDEC and EPA minimum thresholds of concern, based on risk values derived for this site. These monitored contaminants are the only ones affecting the industrial park.
• The area’s terrain restricts where development can occur.
• Public education in the area has a poor image, despite recent improvements. The county public school system needs to prove, document, and market its successes.
• Office activity is being channeled to the downtown, making the area noncompetitive to other areas in the Southeast with suburban sites. Quality suburban sites are needed for administrative and other corporate support services. Suburban sites are strongly preferred for these activities and for many technology-focused, mid-to-large sized operations, primarily because of a campus environment and parking demands.
• The area is not known as a technology center, which will hinder its ability to recruit technology-focused activities.
• The area’s air service and cost are neutral when compared to other similar sized metro areas. The area’s favorable access to Atlanta and Nashville encourage some residents to drive to those locations for more available and cheaper flights.
• Like areas all across the country, vocational-tech programs are becoming weaker due to limited interest by students and a lack of understanding by students and parents regarding career opportunities and earning potential.
• Greater use of apprenticeship programs is needed to allow increase in entry-level manufacturing jobs. Cooperation between industry and schools is necessary.
• City sales taxes are high (9.25%).
• A high crime rate is reported for the city and county.
Conclusions
In balance, the county’s assets and challenges show an area with significant advantages for attracting new and expanding industry and for developing its own “homegrown” industries. The area offers a quality, high-value opportunity for selected office, manufacturing, and distribution operations. The area’s advantages far outweigh the area’s disadvantages. However, these disadvantages could be strong enough to restrict meaningful development in the area.
The Chattanooga area is at a critical point of transition in which it must move from its past as a heavy manufacturing center to one that is more attuned to the regional, national and global economy if it is to flourish. Positive changes have begun and are strengthening. However, progress will take time and must begin with some basic, but preparative steps. These steps include building from the area’s strengths and remediating its weaknesses.
Focused efforts that need to be taken by the city, county and Chamber of Commerce to meet these goals are outlined below.
• A major effort is needed to project a positive image of the area. This effort needs to show the area’s business, living, and tourist-related advantages. This message needs to be addressed to a broad geographic and industry audience. Tourism needs to be linked to this effort.
• A strong area marketing and business attraction effort is needed. This should be focused under one agency. The Chamber is the best agency for this effort. City and county economic development programs are necessary as support to the Chamber’s efforts, as an interface between the Chamber and local government, and for business retention efforts. Entrepreneurial development efforts are needed under the joint effort of the Chamber, the University of Tennessee-Chattanooga, the city, and the county.
• The area needs to be marketed as a metro area. This will require an effort by the Chamber, working together with local economic development agencies in Tennessee and Georgia (Dade, Walker, and Catoosa Counties), and the state economic development agencies from Tennessee and Georgia. The joint efforts of other bi-state economic development programs should be studied for applicable models, such as the Kansas City Area Development Council.
• The Enterprise South Industrial Park ground water contamination questions need immediate resolution through certification from national and state environmental regulatory agencies.
• Additional sites beyond the Enterprise South Industrial Park are needed to give prospects a choice. Suburban office parks and technology parks should be considered.
• The area’s economic development program should focus on diversified development, including office, manufacturing, and distribution operations. Efforts should also be directed at growing locally spawned companies, encouraging the growth to existing operations, and attracting new operations (i.e., gardening, cultivating, and hunting/gathering).
• Shell office, distribution and manufacturing facilities are needed that meet local and regional market requirements.
• Sales and property tax exemptions are needed on machinery and equipment and on computer/telecommunications equipment.
• Continued attention on the public schools is necessary, since the quality of schools is a major factor for successfully recruiting managers, professionals, technicians, and mobile entrepreneurs to the area.
• Continued emphasis is needed on developing venture capital and redevelopment zones (such as current downtown initiatives).
The area should encourage development that builds on existing strengths and under-utilized assets. Technologically sophisticated office operations are a natural target, building on the existing base of office employers and headquarters in the area. There is also an existing base of large manufacturers, which provides a skilled labor force. Chattanooga’s location and transportation infrastructure make it a prime candidate for distribution operations, although the limited availability of sites and buildings may be one obstacle to developing this target. Finally, Chattanooga’s proximity to Atlanta will appeal to mobile entrepreneurs who are attracted to areas with a high quality of life, university presence, and moderate cost of living.
Recommendations for action
Chattanooga needs to focus on several fundamental issues of economic transition as well as important preparative steps before it can realize its potential as a dynamic, regional economic center. The recommendations below provide the steps to meet this challenge.
1.The Wadley-Donovan Group recommends the following five targets for the area’s initial economic development cultivation and hunting/gathering efforts. These targets will lay the foundation for future technology focused growth and offer the best shot at short term recruiting success:
• Mobile entrepreneurs
• Manufacturing
–Food processing (confectionery and baked goods, beverages, and snack foods)
–Plastics (auto, construction, and packaging products)
• High end office (information processing, IT-intensive activities, mission-critical operations, administrative/finance centers, shared service centers, portfolio management operations)
• Distribution centers
2.Targets that are recommended for longer term consideration and will expand the area’s technology base and diversify the economy are:
• Medical equipment manufacturing
• Advanced materials
• Fabricated metal products
• Industrial machinery
3.It is recommended that the Chamber be the primary economic development agency responsible for recruiting business to the area. It is further recommended that a regional program be put into place that includes a national marketing campaign.
4.A metro-wide statistical database is urged for the metro area, following the International Economic Development Council (IEDC) guidelines.
5.The Chamber, city, and county should emphasize economic development in all business sectors. It is recommended that this effort be accomplished through business attraction, business expansion, and entrepreneurial development programs. These programs should be done in conjunction with a strong image-building and tourism campaign. General image enhancement will be important in marketing the area to the rest of the world. The area’s lower labor costs should not be touted too strongly as an asset, as the area should not position itself as a low cost location, but rather as an environment for sophisticated, profitable office and manufacturing operations. The message must be stated and supported that Chattanooga is an excellent location for business that offers a more profitable operating environment than other metro areas offering Chattanooga’s amenities – an excellent quality of life, low cost of living, and a quality labor force.
6.Expanded marketing is urged to attract more mid-sized office operations, particularly in the insurance industry sector and skilled manufacturing sector. The area is urged to position itself as a regional, then national, insurance center, building upon its existing industry base. Expanded general and high-level courses related to both the insurance industry (property/casualty and life/health) are urged for consideration at Chattanooga State and UTC. It is urged that the current actuarial studies and risk management program at UTC be expanded at state expense (with some private sector contributions, if possible), and that efforts be made to focus a new UT insurance program at the UTC campus. It is urged that UT strive to have one of the best actuarial science programs in the nation at UTC. Chattanooga State is urged to have general insurance courses aimed at administrative and support personnel. Together UT and Chattanooga State can contribute to make Chattanooga the insurance center of the Southeast. It is further urged that the State of Tennessee consider lowering its premium taxes to match those states with the lowest rates. The state is congratulated for removing insurance companies from excise and franchise tax liability effective December 15, 2002. However, an incentives program is urged for consideration that is equivalent to the Jobs Tax Credit program for franchise and excise taxpayers.
7.Chattanooga State Technical Community College and University of Tennessee-Chattanooga will be critical to future development efforts. Therefore, they are urged to continue to expand program offerings specifically in the areas of engineering, computer science, finance, marketing, insurance, and multi-media. The new engineering, computer science, and mathematics facility on the UTC campus likely will generate new interest locally, statewide, and regionally in the programs offered at UTC.
8.Chattanooga State is urged to expand its machine trades and construction trades programs by working more closely with existing area industry for program development and attraction of more students to these programs.
9.Historically, Chattanooga has had a shortage of properties available for development. The development of Enterprise South Industrial Park is a major step towards alleviating real estate pressures. However, additional site development is recommended in order for companies to have a choice in locations when looking at the area.
10.The open questions to the water contamination issue at the Enterprise South Industrial Park must be resolved, and proof of EPA compliance is strongly recommended.
11.Manufacturing, distribution, and office shell building programs are urged for companies looking at the area that have an accelerated start-up schedule and need a facility quickly. The size of these buildings should be based upon a full real estate analysis.
12.Redevelopment space and venture capital efforts are urged to continue and expand. UTC should be a major player in the advancement of the redevelopment space and in the extension of spin-offs from its engineering and new computational engineering programs.
13.Examples of positive union relations and the low level of union penetration should be documented (especially among operations that moved to the area within the past five years).
14.Sales and property tax exemptions by the state legislature are recommended on machinery and equipment and computer/telecom equipment.
15.The reputation of the area’s public schools is weak, impacting relocation and population growth. Continued emphasis should be placed on improving the image of the county school district and documenting its successes.
16.It is recommended that efforts be expanded to improve the image of vocational-technical education for students who are not college bound. Concerted efforts need to be made to attract students into these programs. Continued emphasis should be placed on Hamilton County’s school-to-career strategies, particularly in the manufacturing/construction/transportation cluster. Aggressive guidance counseling among students not college bound should be started in the middle-school years.
17.It is urged that manufacturing and office co-ops and internships with local educators and businesses be expanded and emphasized, including summer programs. Recruiting companies to sponsor co-op and internship programs should be a priority.
18.The Chamber’s web page should be covering the issues that are most important to mobile entrepreneurs: quality of life (focusing on healthcare and outdoor recreational opportunities), public and private K-12 education, university resources and access, telecommunications infrastructure, access to small and modestly priced office space, spousal employment opportunities, and geographic location, such as access to Atlanta and Nashville.
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