Minnesota's Ford "focus"by Jeff Horwich, Minnesota Public Radio
When Ford Motor Company spared its St. Paul truck plant from a first round of closings, Governor Tim Pawlenty said the state would spend whatever it takes to help Ford keep the plant open. Ford plans to announce shutdowns at two more U.S. assembly plants by the end of the year. While developers envision various futures for the Ford site in St. Paul, state officials remain focused on just one: making cars.
St. Paul, Minn. — It's not just tradition or sentimentality; there is something special about jobs making cars and trucks. The jobs pay well, with strong health benefits and pensions. They also tend to spark more jobs nearby, from parts suppliers to food vendors at the plant.
The result is that auto manufacturing has the highest so-called "multiplier effect" of any major industry. The "multiplier" is a figure economists use to express the impact of a job on the broader economy.
Though some experts have suggested a multiplier as high as nine for the St. Paul plant, Minnesota officials prefer a more conservative figure of five -- that is, for every dollar paid to a Ford worker, spinoff effects benefit the local economy to the tune of $5.
So, let's do the math. With 1,800 manufacturing workers at Ford, each making approximately 56-thousand dollars a year -- times five -- that's more than half a billion dollars a year in economic activity. The number grows when you figure in another 100 white collar jobs at the plant.
This helps explain why the state's top economic researcher, Bob Isaacson, is not in a position to consider alternatives for the Ford site. Not yet.
"This is a top-use, high-end payroll generation factory," Isaacson says. "It's wonderful for the state, the city and region. You're never going to duplicate the kind of economic impact that we're having there now with this facility."
While St. Paul workers are unlikely to keep making the foundering Ford Ranger pickup, state officials say keeping some sort of auto assembly line here is their "Job One."
Isaacson's personal hunch is that Ford must see something in the state's pitch to focus on alternative fuel vehicles, or it would never have spared plant -- one of Ford's oldest and smallest -- in January.
Others are more free to imagine the possibilities for this prime 122-acre site in St. Paul's Highland Park neighborhood.
"From a development perspective, it's just a great piece of ground," says Jim Stolpestad, the CEO of Exeter Realty, which owns the Highland Crossing retail development next door. "It's wonderfully located right in the center of the metropolitan area, overlooking a major river, with upscale residential neighborhoods around it."
Stolpestad says there are two potential complications for redeveloping the plant: the amount of industrial cleanup the site might need, and the amount of time Ford takes to sell off the property -- if it doesn't develop the land itself. But Stolpestad expects the site will be put to use as soon as developers can get their hands on it, yielding some combination of homes, retail, and office space.
In other words, it's quite likely many people will go to work where Ford workers once did. "Replacing 2,000 jobs won't be a problem at all," he says. "It's just a matter of the wage levels of those new jobs."
And those multipliers. For argument's sake, suppose the Ford manufacturing jobs were replaced by twice as many jobs in retail. An average retail job in St. Paul pays about $23,400 a year.
The multiplier -- the expanded impact of a retail job on the local economy -- is 1.5, less than a third of the auto jobs at the Ford plant. So all those retail jobs add up to an economic impact of $126 million a year.
In other words, half as many workers making trucks pump four times as much into the economy.
Stolpestad and others say whatever development springs up on the site, the property tax bill would far exceed what Ford pays now. That's a silver lining for the city of St. Paul, which would get much of the extra money. But these tax figures are in the single millions of dollars -- tiny compared with the impact, in this scenario, of losing Ford plant jobs.
Theoretically, once you calculate the economic impact of the Ford plant and this possible replacement, you can figure out how much the state might spend to keep the plant and still have the overall economy come out ahead. In our simplified scenario the number is about $375 million: the difference between the economic impact of Ford jobs and retail jobs.
In reality, of course, there is no such number, because no one knows what alternative development might appear on the land.
But state officials can look to the recent history of states striking deals with Ford to guess how much they might end up paying.
Researcher Bob Isaacson says a median government incentive package has included about $100 million of loans and tax breaks: a figure officials believe would still leave the Minnesota economy plenty of bang for the buck.
State discussions with Ford have not gotten to specific numbers. But Isaacson says Minnesota does not have a history of throwing money where it is not confident of the payoff.
"Minnesota's been very strategic in all its incentive programs," he says. "We've never been a high player in incentives, and when we do offer them there's been a high degree of due diligence."
While state officials are justifiably single-minded about the Ford site, others argue we'd all be better off if the state left the situation alone.
Art Rolnick, research director at the Federal Reserve Bank of Minneapolis, says whatever Minnesota pays to keep the plant, it will be jacked up by a bidding war with other states trying to throw money at Ford to keep their plants open.
And Rolnick says while multiplier analysis and other economic measures are useful, they can ignore more subtle trends. He can imagine a scenario where leaving the market alone and letting the plant close would mean an economic boost over the long-term.
"It may be that from the market point of view, the best use is retail," Rolnick says. "That could generate more people living in the area, more revenues for schools -- more sustainable long-term progress than you would get out of a Ford plant."
Rolnick would rather Minnesota and other states focus on their own budgets and take a conservative approach when considering whether to meddle with the private market.
"How do you measure the benefits when you start giving tax breaks or outright cash subsidies to companies like this? Is there enough public revenue to make up for the subsidy you're giving? Those are not easy questions to answer," says Rolnick. "I can tell you generally speaking the record on this is not very good. "
Rolnick points to the current and controversial example of Northwest Airlines. Minnesota lawmakers voted to bail out a troubled Northwest in 1991, with a total incentive package of $800 million. Now years later, Northwest is in bankruptcy and has cut its workforce dramatically.
Others argue Northwest has generated substantial economic value since 1991. A state study in 1998 estimated having the Northwest hub and headquarters here pumped $2.7 billion annually into the Minnesota economy.
But as the state now considers an incentive package for another major company in financial difficulty, critics like Rolnick hope the reversal of fortunes at Northwest resonates with economic officials.
State researcher Bob Isaacson points out some differences. We're talking about a much smaller investment in the case of Ford, he says, with a strategy attached to it -- possibly a plan to build alternative fuel vehicles with a direct link to Minnesota's ethanol expertise. And while Ford may be troubled, the auto industry is far more stable than airlines are. As Isaacson puts it, Ford isn't going anywhere.
Still, he agrees you can't predict the future, for Ford or that potentially vacant chunk of land in St. Paul. Which makes this whole process, by nature, a gamble -- albeit a calculated one.
- Morning Edition, 03/01/2006, 7:45 a.m.