Incentives Deal of the Month
from Site Selection's exclusive New Plant database
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RJR Gets $126M More
North Carolina's $36M Incentives Injection
$300M Vaccine Plant
by JACK LYNE, Site Selection Executive Editor of Interactive Publishing
DURHAM, N.C. Bolstered by a strong shot of new state incentives, Merck & Co. (www.merck.com) is bringing a new US$300-million plant to North Carolina. The pharmaceutical giant will build the 250,000-sq.-ft. (22,500-sq.-m.) vaccine plant in Durham, N.C. The operation will employ up to 300 workers, with annual salaries averaging between $55,000 and $60,000, according to state officials.
"This project is going to be the one that sets North Carolina apart in biotech and represents the jobs of the future," said Gov. Mike Easley (D).
North Carolina's Legislature made a singular setting-apart effort for Merck. Easley in December convened lawmakers into a special session focused exclusively on incentives. The governor called the session after Merck had narrowed its search to Durham and the Atlanta metro.
"The clock is ticking on several high-impact economic development projects," Easley said of the session. "Immediate action is needed on specific issues."
Several unnamed firms, Easley continued, were "in current discussions" with the state about locating "large-scale projects in North Carolina." Those companies, he explained, had "indicated [that incentives] are necessary to make their decisions before the General Assembly regularly convenes on May 10, 2004. . . . Delay at this point could risk jobs for our state."
Easley: Incentives for Site Acquisition,North Carolina lawmakers didn't delay. They hammered out a $36-million package for Merck, as well as hefty subsidies for in-state tobacco companies.
Preparation 'Virtually a Competitive Necessity'
"Our people in North Carolina are hurting, and we need to do all we can to bring in jobs," Rep. Bill Owens (D) said during session debate.
Most of Merck's incentives will come from the newly created Job Growth and Infrastructure Act (JGIA). The Legislature passed the JGIA at 1 a.m. on Dec. 10, the House voting 76-18, the Senate 31-4.
The new law will provide Merck with up to $24 million to buy and prepare a 256-acre (102-hectare) site. Those resources will come from the JGIA's new Site Infrastructure Development Fund, created to buy and develop industrial sites for "major pharmaceutical and bio-processing facilities." To tap the "restricted reserve fund," projects must involve a capital investment of at least $100 million and create at least 100 new jobs. The fund will be administered by the state Department of Commerce (www.nccommerce.com) and overseen by a five-member committee (whose members haven't yet been named).
The JGIA's site acquisition and preparation incentives, said Easley, "give North Carolina the ability to participate and provide the same type of incentives you hear about from Alabama and South Carolina. The benefit of shovel-ready sites is not only common, but it's virtually a competitive necessity."
In addition, the new JGIA fund provides pharmaceutical and bio-processing projects with sales-tax rebates on construction materials used to build North Carolina plants that have a value of $100 million or more. That provision will provide Merck with an estimated $4.7-million rebate.
The rest of Merck's incentives will come from a $3.7-million, 10-year state cash grant and from various existing tax breaks.
State Biotech Push Includes Full-The Merck facility will be built in Treyburn Corporate Park at Durham's northern edge. The plant will produce two vaccines, one for chickenpox, the other for measles, mumps and rubella.
Page Recruiting Ad in Boston Paper
Merck reportedly looked at more than 100 sites in 16 states, according to officials with the Greater Durham Chamber of Commerce (www.durhamchamber.org).
Despite state officials' celebratory mood, Merck has been mum to date about the new facility. A spokesman at the company's headquarters in Whitehouse Station, N.J., allowed that the company had, indeed, selected the Durham County site. A formal project announcement, he explained, will be forthcoming "in the near future" after incentives are formally awarded.
Merck's award is a sure thing. And those successful subsidies mark a victory in North Carolina's unusually aggressive push to bulk up its biotech sector.
In fact, the North Carolina Biosciences Organization (NCBIO) in early December ran a full-page recruiting ad in The Boston Globe. Headlined "An Open Letter to Massachusetts Biotechnology Companies," the ad was signed by NCBIO Executive Director Samuel Taylor. Taylor in the ad's text mentioned efforts in Massachusetts to lower drug prices, including Boston's plan to let city employees buy prescription drugs imported from Canada.
"It doesn't have to be that way," he wrote. "In North Carolina, we've been blessed with government leaders who are embracing biotechnology and the companies that are pioneering it. Far from tearing down our industry, our leaders are investing in it.
"You might want to look south when next you plan for future growth," Taylor noted." Come on down, the business climate is fine."
The Tar Heel State isn't the first to make such a bold raid on Boston, home of the world's largest biotech cluster. Pennsylvania has run a similar ad in The Globe, and Maryland has broadcast radio recruiting pitches.
But the Bay State is fighting back. It's now mounting a $1-million advertising campaign, "Massachusetts, It's All Here." Those ads tout the advantages of clustering all corporate operations - headquarters, manufacturing and R&D - at a single location.
Big Tobacco BucksMeanwhile, back in North Carolina, the special session also created tobacco-industry incentives.
Lawmakers added a 13-year extension to the state's cigarette export tax credit, which was set to expire in 2004. The extension's obvious major target is Winston-Salem-based R.J. Reynolds Tobacco Co. (RJR at www.rjrt.com), which is assimilating operations with rival Brown & Williamson (B&W at www.brownandwilliamson.com). RJR and B&W, trying to cope with discount brands and product lawsuits, announced in October of 2003 that they were merging U.S. operations in a new entity, Reynolds America. The merger will close some of B&W's operations in Georgia and Kentucky, relocating 800 to 1,000 jobs to a still-undetermined existing operation.
That gob of jobs is the raison d'etre for the tax-credit extension, which will save RJR $126 million over 13 years. In addition, North Carolina lawmakers created a separate tax credit for tobacco firms adding at least 800 state jobs by the end of 2004.
The tobacco-industry subsidies made the Tar Heel State the odds-on favorite to get Reynolds America's relocated jobs.
Governor Cites No. 1 Site Selection RankingBut the incentives didn't come without controversy.
Some critics noted that RJR in 2003 laid off 1,700 North Carolina employees. In addition, the tax-credit extension will reward tobacco concerns that don't add in-state jobs. Phillip Morris will receive an estimated $78 million from the extension, while Lorillard Tobacco will receive $2.6 million.
Bill Cobey, one of six candidates for the Republican gubernatorial nomination, labeled the incentives "ludicrous. . . . What about those companies that have been located in North Carolina all along? They have been struggling to get by, while others have closed their doors altogether."
"Consideration of other issues must wait for a more appropriate time," Easley noted in calling the special session.
The governor also cited North Carolina's recent No. 1 finish in Site Selection's business climate rankings. (For more details, see "North Carolina's Three-Peat Sets Benchmark" from our November 2003 issue.)
"This incentives package ensures we will win more jobs for North Carolina," Easley said. "The overwhelming bipartisan support for this legislation shows our commitment to job growth and demonstrates why we are No. 1 in the nation for business climate."
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