This year, state and cities across the U.S. will provide nearly $95 billion in incentives to entice companies to locate, expand or stay in their jurisdictions, according to a study by George Mason University.
When done correctly, such incentives can be a central part of a strategy to boost growth in targeted economic sectors and to address areas in which investment might otherwise not take place.
Perhaps because I’ve spent the better part of three decades working in economic development — including eight years as the State of Alabama’s chief economic development officer — I’ve witnessed, firsthand, how responsible incentives can transform a state’s economy.
But you need not take my word for it. Any number of studies show hard evidence that incentives can provide a solid return on a state’s investment.
Take South Carolina, as an example, where the state provided more than $100 million in incentives to locate the first BMW manufacturing facility outside of Germany. Twenty-five years later, the German motor company has invested $9 billion in the state, spurring the creation of tens of thousands of quality jobs.
There are plenty of other examples we could cite. Texas gave $1.8 billion to lure Samsung. North Carolina offered $890 million to Apple. Michigan gave Ford $884 million to build a battery plant.
Here in Alabama, a joint legislative study commission recommended, in December of last year, that the state expand its ability to provide incentive packages, using the Alabama Jobs Act, the Alabama Jobs Credit, and Alabama Investment Credit programs.
The reason is simple. According to figures from the Alabama Dept. of Commerce, since 2015 the state has attracted 217 projects to Alabama using the Jobs Act, creating 38,500 jobs in the process and attracting $22 billion in new investment. The department calculates the state realized a 77% return on investment in these projects on a 10-year basis.
Which brings me to the question: If Alabama and other growing states are (rightfully) willing to invest hundreds of millions to attract industrial investments that provide a significant number of jobs and a robust economic impact, why would we not make a one-time investment of a mere fraction of that amount to keep an institution with a proven track record of providing nearly $100 million financial and education impact every year.
I’m referring, of course, to Birmingham-Southern College, which is seeking $37.5 million in bridge funding from state, city and county sources to buy the time it needs to raise the remainder of a $200 million endowment fund and, thus, secure its financial future.
An endowment of that size will provide about 20% of the college’s annual operating costs, making it financially viable for the foreseeable future. So far, about $46 million of the endowment has been raised, putting BSC on track to reach 100% of its goal by May 2026. The bridge funding is needed to allow it to operate in the meantime.
A February 2023 study by respected economist Keivan Deravi, Ph.D., found that over the next decade Birmingham-Southern will have a direct economic impact of nearly one billion dollars ($972 million). All for a one-time investment by state and local government of $37.5 million.
That compares quite favorably with the return on investment the state realizes from even the best economic development project. And that’s before one takes into consideration the fact that the school’s 9,500+ graduates — who live in and provide civic leadership for every county in our state — are responsible for an additional value-added benefit of roughly $211 million each year.
All of that is a number-laden way of saying something that should be self-evident to decisionmakers: Saving Birmingham-Southern College will pay rich economic dividends.
For more than 100 years, BSC has been anchoring the West Birmingham neighborhoods of Bush Hills and College Hills, educating generations of professionals, training civic leaders who have served in every county and region of our state, and providing quality jobs for the community.
That why I believe the real question isn’t “Can we afford to save Birmingham-Southern?” but rather “Can we afford not to?”
Neal Wade is managing partner of the Advanced Economic Development Leadership Program. From 2003 until 2010, he served as director of the Alabama Development Office. He is a co-author of “Agents of Economic Development: An Essential Guide for Navigating Good, Bad & Uncertain Times.”
