About nine years
ago, word reached the small community of Jasper, Tennessee, that a vinyl-siding
manufacturer wanted to build a new plant just outside of town. The company,
Variform, was ready to invest $3.9 million in the plant and hire 60 new
workers. And it expected to expand in the future.
That news would have
been welcome in any small Appalachian town hurting, as Jasper was, from
job cuts in the coal and lumber industries. But Jasper could easily have
lost those new jobs. The problem? There wasn't enough water for fire protection
for the Variform plant.
"We could supply
our residential needs," explains James Carter, Jasper's superintendent
of public works. "But for industrial use, we just couldn't make it."
Fortunately, with
help from various sources, including the Appalachian Regional Commission
(ARC), Jasper was able to boost its water supply with a new 750,000-gallon
storage tank. In 1993, Variform opened its new plant, which now employs
240 workers. Since then other plants have moved into the area, creating
even more jobs.
Similar stories can be found across the Appalachian Region, according
to a recent study of ARC-supported infrastructure projects. Sponsored
by ARC and performed by a team from two firms—the Brandow Company
in Camp Hill, Pennsylvania, and the Economic Development Research Group
in Boston—the study concludes that relatively modest public investments
in basic infrastructure leverage private investments at an impressive
rate and help create jobs at bargain prices.
Foundation for the Future
Infrastructure can be hard to define, but you know it when you don't see it—that
is, you may not notice its presence, but you can't help noticing its absence
or inadequacy. A gush of clean water at the turn of a tap seems no big deal;
a sluggish, rusty dribble is annoying—and a deterrent to a company thinking
about locating in that community. When a plant is active and productive, who
notices a freshly paved access road leading to its loading docks? But who fails
to reflect that a bumpy, rutted access road warns of a business in trouble?
The fact is that infrastructure lays the foundation for economic development.
It's not an end in itself, but the payoff from other investments often depends
on it. Accordingly, the second of the five goals in the ARC strategic plan states:
"Appalachian communities will have the physical infrastructure necessary
for self-sustaining economic development and improved quality of life."
By far the most extensive ARC investment in Appalachia's infrastructure has
been the regionwide Appalachian Development Highway System (ADHS). Infrastructure
on a local scale, however, accounts for a substantial percentage of ARC's nonhighway
grant money. These investments, many of them small, have helped communities
install water and sewer lines, facilitate telecommunications use, and build
access roads (primarily to industrial parks).
Can the results of these investments be measured? The infrastructure study
attempted to do just that by analyzing job creation reported by the projects.
Looking at ARC-supported infrastructure investments at 87 economic development
projects around the Region, the analysts found that the investments had led
to the direct creation of almost 23,400 jobs at project sites. They also found
that almost as many jobs—20,954—were created indirectly at locations
near the actual project sites. And another 16,387 jobs expected to be lost were
reported saved by the ARC-funded projects.
The evaluators calculated the costs at $4,574 per job in total public funds
(for directly created jobs) and, since ARC typically put up about 25 percent
of the public dollars, only $1,222 per job in ARC funds. (Here, as elsewhere,
cost estimates are based on a statistical adjustment that avoids double-counting.)
The study examined four kinds of economic development projects: access roads,
industrial parks, business incubators, and water and sewer projects. The total
sample consisted of 99 projects selected by ARC as generally representative
of its infrastructure investments between 1990 and 1997. The final analysis
focused on 87 projects designed to promote economic growth, excluding 12 water
and sewer projects primarily serving residential users.
The projects covered all states of the Appalachian Region and counties in three
of the four designations used by ARC to categorize counties' economic standing
relative to national averages: distressed, transitional, and competitive. (Counties
in the fourth category, attainment, were not represented.) The sample reflected
a metropolitan/non-metropolitan county mix almost identical to that of the Region
and included both small and large investments.
The evaluators based their conclusion on analysis of quantitative data and
on interviews with local representatives at each site. Here are some of their
findings.
Access Roads
Access roads may be the least glamorous class of infrastructure investment,
but evaluators found that costs for jobs created by access road projects, measured
in total public dollars, were relatively low. If the ADHS highways are the transportation
arteries that bring traffic through underdeveloped areas, access roads are the
capillaries necessary for the health and growth of communities along the highways.
Typically the roads supported by ARC and other public agencies provide access
to industrial parks, rather than to single firms. The infrastructure study described
a number of successful projects, including:
- An access road to an industrial park in Clermont County, Ohio, that led
to other investments that created 300 jobs and retained 820 jobs at a cost
of $1,408 per job.
- An access road in Lee County, Mississippi, that contributed to the creation
of 600 jobs at an industrial park at a cost of $1,512 per job.
Industrial Parks
Industrial parks are a multifaceted form of infrastructure, providing as they
do the sites on which many different kinds of businesses develop. ARC funds
have been used for utility services, paving, construction of new buildings,
and rehabilitation of old ones.
The evaluators found that the industrial parks in their sample had somewhat
higher costs per new job than other kinds of investments, possibly because industrial
parks typically involve several different kinds of infrastructure investment.
In addition, several projects in the study sample were recently completed, so
all impacts might not have materialized at the time of the study. Measured by
private funds leveraged, however, this category suggested the most cost-effective
use of ARC funds and the second-most cost-effective use of total public funds.
Most industrial park projects in the study produced results exceeding expectations.
For example,
- In Lumpkin County, Georgia, an industrial park led to the creation of 600
new jobs, eight times the 75 jobs initially projected by project sponsors.
- An industrial park in Mercer County, West Virginia, has produced 220 jobs
to date, exceeding projections by almost 50 percent.
Business Incubators
Business incubators are a more specialized form of infrastructure than industrial
parks. They provide walls, utilities, network connections, and other services
for fledgling firms that, after testing their wings, move to other facilities
within a few years. Two of the incubators studied—the Hagerstown, Maryland,
Technical Innovation Center and the Birmingham, Alabama, Entrepreneurial Center—specialize
in providing technology-intensive support for firms.
Overall, evaluators found that business incubators were standouts in terms
of exceeding initial projections for job creation. The projects in the sample
created almost five new jobs for every one that their sponsors initially predicted.
This suggests how hard it is to project the success of new enterprises. In other
respects—cost per new job, for example—the incubator projects' scores
were similar to the average for all categories.
ARC supported 25 percent of the public cost of the projects studied. Two examples
suggest their potential:
- In Cortland, New York, an incubator has launched eight successful businesses
that provide a total of 260 jobs.
- In Erie County, Pennsylvania, the Uniflow incubator, which focuses on workforce
development, reported only 40 jobs created on-site but indicated that over
150 workers had been trained.
Water and Sewer Projects
Like roads, water and sewer projects are prototypical infrastructure investments.
Grants for these kinds of projects were the most common type of ARC infrastructure
investment during the period the evaluators studied. Thirty-nine nonresidential
water and sewer projects were included in the study and were found to have the
lowest cost per new job created of all the categories, both in ARC dollars and
in total public dollars.
Total public funds spent on this class of project also leveraged the highest
average private investment of any category, even after excluding from the analysis
one exceptionally large sewer project. (That project's impact would have made
already high averages appear misleadingly high.)
Even the more typical smaller projects led to many of the kinds of impacts
already described for Marion County, Tennessee. For example,
- In Winston County, Alabama, three furniture makers were limited in their
ability to expand because an inadequate water system limited their access
to fire insurance. Improvements to the water system enabled these firms to
grow from 175 to 600 employees.
- In Winston County, Mississippi, a manufacturer of white industrial gloves
had planned to relocate because old iron pipes were bleeding rust into the
local water supply, discoloring the company's product. Upgrading the water
system resulted in a total of 70 jobs retained or added.
Good Neighbors
As impressive as the evaluators' snapshots are, they may have captured only
some of the benefits of infrastructure investments, judging by a closer look
at Jasper, Tennessee's water project.
"We were a county in a lot of trouble," says Howell Moss, Marion
County executive. "This used to be a coal-mining community. We had the
logging business and an agriculture community. [By the 1990s] most of those
industries were going away."
In response to the prospect of attracting Variform's plant, town and county
leaders, helped by the Southeast Tennessee Development District (a local economic
development organization), put together a funding package sufficient to build
a 500,000-gallon tank on a hill overlooking the proposed plant site, about a
mile to the south of Jasper. The tank would be made of pre-stressed concrete.
A half-million gallons of water weighs well over 2,000 tons, and then there's
the weight of the concrete that holds it. Much of the cost of any simple structure
designed to support that kind of weight goes into its foundation. Aware of this,
project developers calculated that adding extra capacity to the tank itself
might add only modestly to the total project cost. So they asked for bids at
two capacity levels: 500,000 gallons and 750,000 gallons.
Their calculations proved right. The low bidder came in at $238,000 for the 500,000-gallon
tank and $37,000 for the tank expansion—a 50 percent increase in capacity
for a 15 percent increase in price.
It looked like a bargain, but there was no extra money in the budget, and Jasper's
resources were stretched thin. However, the town of Kimball, located a few miles
to the south, had an appreciable amount of land near Interstate 24 that could
be used as an industrial site if water were available. Jasper officials approached
their Kimball counterparts, who quickly agreed to put up the extra $37,000 in
return for access to the water in the new tank.
"Rock-Tenn [a manufacturer of packaging and paperboard products] wanted
to build on the Kimball site," says Jere N. Davis, Kimball's mayor, "but
I'd been told there wouldn't be enough water. Jasper, they're good neighbors
to us. It [the tank] enabled us to get that plant."
The tank, 50 feet in diameter and almost that high, now sits on a hill on the
edge of the two towns. The expected development has materialized, and more.
In addition to the Variform plant, with its 240 workers, the Rock-Tenn plant
employs 196.Another firm, Tennessee Galvanizing, had begun to move to the area
even before the tank was built, banking on a commitment that adequate water
would become available. It now employs 60 workers.
Other firms have since either moved into the area or are in the process of
doing so. They include Orion Food Systems, a food packager and distributor,
with 25 employees; and O'Neil Color and Compounding, a manufacturer of color
concentrates, with 68 employees. According to Marion County officials, Valmont
Industries, which makes metal utility structures and irrigation equipment, plans
to open a $10 million facility in October of this year. It's expected to employ
150 workers at start-up. Grandview Medical Center, a 50-bed hospital employing
275 people, is also connected to the same water line.
"We couldn't have gotten any of those places without that tank,"
says Bobby Brad Carter, who served as Marion County trustee for 36 years and
now is director of its chamber of commerce. "You've got to have sewer,
water, gas, or electricity, or [firms evaluating the area] don't even waste
the time of day with you."
Moss, the county executive, agrees: "Every bit of it goes back to the
infrastructure," he says. "Without the water you don't get anything."
Michael E. McGuire, ARC state alternate for Tennessee Governor Don Sundquist,
says that the Jasper water project illustrates two points on the value of infrastructure.
First, without infrastructure, other assets (a good location, a willing workforce,
proximity to markets) are likely to remain underexploited or perhaps be lost
altogether. By the same token, once you have infrastructure in place, you can
capitalize on unexpected opportunities.
Second, the benefits of infrastructure typically go beyond the first few users.
The "Variform tank" in fact serves a large number of firms (and some
residences as well).
"In the Appalachian counties of our state," says McGuire, "as
is true across the whole Region, we have many communities that still lack adequate
water and sewer systems, access roads to potential industrial parks, and other
basic facilities. Although different communities will have different needs at
various times, these things are fundamental. They're the most logical point
for public investments because they bring so much private investment in later."
Gene L. MacDonald, who for three decades served as president of the Ohio Mid-Eastern
Governments Association (a local development district), agrees with McGuire
and also urges taking the long look.
"It's like when you plant an oak tree," MacDonald says. "You
may not see its maturity. It'll grow for maybe 50 or 70 years. You put things
in the ground, and other things begin to happen."
Fred D. Baldwin is a freelance writer based in Carlisle, Pennsylvania.
Copies of Evaluation of the Appalchian Regional Commission's Infrastructure
and Public Works Program Projects are available from ARC's public affairs
office at (202) 884-7771 or at crea@arc.gov.
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