Completion of massive construction projects can negatively impact local businesses

Dive Brief:

After construction of a $3 billion fertilizer plant in Iowa wrapped up last year, some businesses that reaped the benefits of a nearly five-year influx of thousands of construction workers are having to face business as usual once again, according to the Des Moines Register.
Some businesses where the Iowa Fertilizer Co. plant is located in Wever, Iowa, are still seeing increased activity from factory operations and are benefiting from the investments they were able to make when the cash was flowing, but neighboring towns are missing the once seemingly endless supply of workers in need of lodging, food and other services. The plant, which opened last year, saw 18 million construction hours worked since crews broke ground in 2012 and the employment of 3,500 workers at the peak of building.
The plant was the biggest economic development Iowa had seen, according to the Register, prompting both state and local governments to offer attractive incentive packages worth $109 million and $30 million, respectively. Iowa officials said while some businesses are feeling the pinch after crews completed construction on the plant, the area has seen economic growth that more than paid for the incentives. Many in those areas are now demanding that officials pursue other development opportunities in hopes of a new boom.

Dive Insight:

When states or local governments offer up large financial incentives in order to lure big companies and massive construction projects their way, there is almost always pushback on some front, and this is because some maintain the deals aren't as beneficial as they seem.

A recent report from the University of California, Los Angeles Institute for Research on Labor and Employment examined the 2015 distribution center deal home shopping channel QVC struck with the city of Ontario, California. The city is benefiting by being able to collect sales tax revenue from the items shipped from the new facility but agreed to return 55% of the total to QVC up to $500 million and 60% thereafter.

The city is also returning to QVC 60% of the sales tax on goods and equipment the company purchases. So while researchers found that, yes, Ontario benefits from the tax revenue it keeps, the city could have made a better deal with QVC that would have provided more long-term benefits to the community.

Many cities have thrown millions in incentives at Amazon – some billions – in hopes of winning the Internet retailing giant's $5 billion second North American headquarters, known as HQ2. New Jersey offered up the biggest incentive package of $7 billion, followed by Irvine, Calif., with $5 billion and $2 billion to $3 billion from Philadelphia. With such a huge investment, state and local governments are obviously looking at the project as a boon that will more than make up for tax breaks and other benefits to the company.

However, activists in Seattle, where Amazon's existing headquarters is located, said the winner of the new HQ2 could be looking at a spike in housing prices and a resulting increase in the homeless population, as well as traffic congestion and stress on transit systems.