When the race resumes: Will the economic engine have more cylinders than just tourism and building?

January 30, 2010 

Travel down Innovation Drive in Bluffton and you will hear bulldozers and dump trucks roaring and clanging away at the site of a planned 32,000-square-foot second building for CareCore National.

The company, whose 400 employees manage cost, quality and safety for national health insurance plans, is expanding after moving its corporate headquarters in 2007 from Wappingers Falls, N.Y., to the Buckwalter Place mixed-use development and technology park.

To many who seek to diversify the Lowcountry's economy, the construction noise -- and the 150 new CareCore employees it promises -- is the sound of much-needed progress.

For the most part, Beaufort and Jasper counties don't have much in the way of high-tech industry.

Rare exceptions include XRDi, a Beaufort firm that makes small engines for unmanned aerial vehicles, and Vetronix Research, a Hilton Head Island firm that designs and builds electronics used by the military.

The local economy long has been fueled by scenic beaches, rivers and estuaries and the visitors and homebuyers they attract. Tourism and real estate, plus the military presence in northern Beaufort County, have sustained the area for about a half century, local officials say.

Then came the recession.

Despite the pain it inflicted, the recession might have provided an opportunity to re-evaluate the area's economic direction, said Kim Statler, executive director of the Lowcountry Economic Network, a public-private organization that recruits new businesses to Beaufort and Jasper counties.

"It allowed us to stop and have a conversation," Statler said. "That's what we desperately needed."

Public officials and business leaders believe a more diverse economy would be less susceptible to the next downturn, Statler said.

What that diversity entails, however, is subject to debate. Which types of businesses do we want? Where should they be located? How do we attract them?

Network officials have some ideas. They have identified four business sectors they believe are well-suited for the area and can be compatible with the Lowcountry's sensitive environment:

• Aeronautics businesses, such as those related to the Joint Strike Fighter, the next-generation military jet, some of which are expected to be based at Marine Corps Air Station Beaufort.

• Knowledge-intensive businesses, such as medical researchers, technology developers and call centers.

• Green businesses, such as environmentally friendly construction and alternative energy.

• Logistics businesses, such as global shipping companies and others eager to be near ports in Savannah and Charleston and a planned port in Jasper County.

Luring such businesses is difficult, however, because other communities seek the same sectors.

In some cases, the edge comes from government incentives, Statler said. That's common practice elsewhere but has not been used extensively in Beaufort and Jasper counties.

"We're going to have to get out of this box that we know," Statler said.

HILTON HEAD ISLAND: A CASE STUDY

At least one Beaufort County town has begun to grapple with that realization.

During a speech last year, Hilton Head Island Mayor Tom Peeples said the town should pursue more high-tech businesses and corporate headquarters. In a subsequent interview, he joked Hilton Head has never made much other than "relaxation and good times."

The town then paid $15,000 to join the network, which can help market Hilton Head as a business destination, Statler said.

The topic of economic development dominated discussion during the Town Council's annual planning workshop in November.

Strategies included offering incentives to new businesses, buying land to partner with private interests, forming a redevelopment agency, hiring economic development staff and shifting marketing to recruit businesses, as well as tourists.

Those would mark significant changes for the town, which so concentrated on tourism that it developed a reputation for chasing away other types of business, officials said.

At least two town bodies also are debating many of the same issues.

One is a committee that is updating the town's state-mandated comprehensive plan, a vision for the next 20 years that includes a section on economic development.

The second is a task force Peeples recently formed to create a vision to guide the island.

All those efforts point toward a common goal of a more stable economy, but all participants don't seem to agree on how to proceed.

Even if the town can muster the political will to adopt a more aggressive philosophy on economic development, disagreement over which ventures to woo seem likely.

Tom Crews, chairman of the town's Comprehensive Plan Committee, said he isn't convinced all the businesses the Lowcountry Economic Network seeks would be a good fit on Hilton Head.

So what would Crews suggest?

A draft of the comprehensive plan recommends enticing businesses that capitalize on the island's ability to attract and retain visitors and retirees while maintaining a sense of heritage and an island "feel."

The draft suggests eschewing ventures -- such as industrial parks, outlet malls, large chain retailers and some electronic and software firms -- that aren't tied to that theme. Instead, the draft offers other ideas, such as drawing on the island's Gullah heritage or pitching the island as a hub of ecological practices and technology.

WHAT WORKS WHERE?

Similar debates have played out here before, perhaps most notably in the early 1970s, when a small cadre of island businesses, commercial fishermen and riled-up retirees fought off German chemical firm BASF's plan to build a $400 million plant on the banks of the Colleton River on Victoria Bluff near Bluffton. The site later became the Waddell Mariculture Center, a state-run research site for marine life.

Statler said residents need not worry about a BASF-style plant today because the region no longer has the will or sites necessary for heavy industrial development.

These days, however, another type of development occasionally draws ire: shopping centers.

Bluffton, Hardeeville and other local governments have permitted numerous commercial developments likely to produce primarily low-paying retail jobs that network officials say can't support a family. Some question whether it's wise for the region's municipalities to allow more such development when storefronts sit empty.

Meanwhile, state lawmakers are battling over a bill that would grant tax incentives for retail developments such as Okatie Crossings, a 280-acre, 1.5-million-square-foot shopping center planned to straddle Beaufort and Jasper counties. State Sen. Tom Davis, R-Beaufort, argues such incentives distort the free market and put government in the business of picking winners and losers.

Such developments also upset environmental advocates who want rapidly growing municipalities such as Bluffton to discourage car travel and lessen the impact of construction on nature.

Crews suggested each municipality decide for itself what types of businesses it wants.

"What will work for Hilton Head Island is perhaps something different from what works in Bluffton," he said.

STATLER: DIVERSIFICATION ESSENTIAL

Whatever the region's leaders decide, the recession has made it clear economic diversification is essential, Statler said.

Because industrial and commercial property is taxed at a higher rate than residential property, local municipalities can't sustain themselves without a greater percentage of the former, she said.

The old model worked well in recent years, in part because new development fees rolled in reliably to help government provide services, Statler said. With the recession, however, many of those fees have dried up.

Some municipalities, such as Beaufort, have compensated in the short term by trimming staff and outsourcing services, but that won't work in the long term, Statler said. Building a diverse economy is key, Statler said.

"We're going to have to do what the rest of the world has been doing for quite some time," she said.

WILL IT WORK?

What are our chances of succeeding?

Our advantages, network officials say, is the appeal of the Lowcountry's lifestyle and natural beauty, the same attributes that have drawn people for decades.

CareCore CEO Don Ryan, for example, liked visiting the area before he moved his business here, executive vice president Chris Long said.

CareCore also was attracted to South Carolina's lower tax rates and business-friendly reputation, Long said.

To emphasize the appeal of living and working here, the network's promotional materials show people typing on a laptop computer in front of a glowing beach-side sunset.

We also face considerable challenges, however.

The few local properties that might suit some prospective firms are often are too expensive, Statler said.

Another potential hurdle: Some corporate executives fear there won't be enough qualified workers.

CareCore's leaders once shared that concern, but they found it wasn't a problem, Long said.

The company encourages other businesses to make a similar leap, he added.

"We believe that in the future we will have a number of health care-related companies join us," he said.

The network can arrange incentive packages, as it did for CareCore, but the prospective business usually must pledge high-paying jobs to qualify.

WHAT WILL IT COST?

Ultimately, winning high-paying jobs requires the right combination of workforce, infrastructure and natural and cultural amenities, said Don Schunk, a research economist at Coastal Carolina University.

"Every local economy everywhere wants to diversify," Schunk said. "Charleston might be the most diverse economy in the state. Everyone else is looking to diversify in some way. It's tough to engineer that.

"Economic development is not easy -- trying to steer growth a certain way or attract certain industries. With a limited number of new businesses looking to go somewhere, how does your area compare with Myrtle Beach or Greenville?"

Economies diversify and shift naturally, Schunk said, but that change doesn't always arrive at a desired pace.

Theoretically, the market provides its own incentives and disincentives, Schunk said. Communities that keep tax and regulatory burdens low and evenly dispersed should attract business.

But when a sense of urgency pervades or there are one or two large prospects economic developers hope to land, targeted incentives and tax breaks become tempting. And once one community succumbs, those around it have little choice but to follow, Schunk said.

"You can talk about these issues within Hilton Head or Beaufort County and decide maybe we need to have a different approach to development," Schunk said. " ... But the problem is you're going to be competing with someone 50 miles away offering incentives. This whole idea of offering incentives, at the end of the day, it is not good and shouldn't be done. It wouldn't need to be done if it weren't for the fact other people already are doing it.

"If you don't play the game, you get left behind."

Editor Jeff Kidd contributed to this report.

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