Voters may have final say on VW incentives
Published 12:00 am Sunday, June 29, 2008
MONTGOMERY – If Volkswagen picks Alabama for an assembly plant, voters statewide will likely get to decide if they want to seal the deal, possibly by tapping into a state savings account.
Alabama is in a contest with Tennessee and Michigan for the plant and its 2,000 jobs. It is offering incentives, which have not been disclosed but could be more than $200 million, to lure the German automaker.
If Alabama wins, voters going to the polls on Nov. 4 to elect a president and other officials may also get to give a thumbs up or down on how best to pay for the incentives.
State Finance Director Jim Main favors paying for them with a one-time withdrawal from the Alabama Trust Fund. That’s the state’s savings account for royalties from natural gas wells drilled in state-owned waters along the Alabama coast, and it now holds $3.2 billion.
Pulling out that money would require statewide approval of an amendment to the constitution.
Main said the trust fund option would prevent the state from going further into debt with a bond issue and would only make a small dent in the trust fund.
“I view it as a savings account. If there is an opportunity for the state of Alabama, you ought to use the savings account,” Main said in an interview.
Another option, which would also require the approval of voters, would involve increasing the state’s bond-issuing authority and allocating part of the state’s natural gas royalties to pay for the bonds.
Main said that would be a permanent diversion of royalties that he would prefer not to do.
The other options involve bond issues that would be paid for by both the state education and General Fund budgets or just the General Fund budget. Those two options would not require a statewide referendum, but would use up money that otherwise could go to the daily operations of state government and public schools, which already are tightening belts due to slow revenue growth.
Alabama’s top industrial recruiter, Neal Wade, is optimistic that any constitutional amendment put on the November ballot will win overwhelming approval, as one did in 2007 to finance incentives for other industries.
“If you have an opportunity to bring in one of the world’s major auto manufacturers to your state and what’s been reported as 2,000 jobs for the state, I believe this state î as has always been the case î will go for it,” said Wade, director of the Alabama Development Office.
Volkswagen is planning to announce in mid-July if it will go ahead with plans for an American assembly plant and, if so, where it will be. The competition is between a site in Alabama near Athens, one in Tennessee near Chattanooga, and one in south-central Michigan.
Alabama voters went to the polls in June 2007 to approve a constitutional amendment expanding the state’s bond capacity in order to issue bonds for industrial recruitment. The measure passed with 80 percent of the vote.
But Main said the expansion has been nearly used up with the recent recruitment of the ThyssenKrupp steel mill near Mobile, the National Industries rail car plant near Tuscumbia, and some smaller projects.
Alabama already has three major foreign automotive assembly plants. Mercedes-Benz arrived first, building sports utility vehicles at Vance in west Alabama. Honda Motor Co. followed, producing minivans and SUVs in Lincoln in east Alabama. Then came Hyundai Motor Co., making the Sonata passenger car and Santa Fe SUV in Montgomery in south Alabama.
Wade points out that getting Volkswagen in north Alabama would create a geographic diamond î one that he says would have plenty of economic sparkle.
But getting an auto assembly plant requires much money from the state, as well as from the county and city where the plant is built. Hyundai, the last auto plant built in Alabama, required a $253 million incentive package from the state in 2002. Not all of that was in cash up front. Some of the costs were spread out over several years.
Neal said the state’s upfront money on each assembly plant was probably less than $100 million, but each project agreement is different.
Alabama officials have pledged not to talk about the negotiations with Volkswagen, but will talk about what Alabama would need to do if it lands a big î but unspecified î industrial project this summer.
If Alabama wins the competition, the Legislature will likely be called into special session in late July to approve an incentive package, Main said.
He said the incentive package is likely to include a constitutional amendment, providing funds for the incentives, and it would need the approval of Alabama voters in a statewide referendum.
Constitutional amendments must be approved by the Legislature at least 90 days before they go on the ballot. A special session that ended during the first few days of August would give state officials enough time to get the constitutional amendment on the general election ballot on Nov. 4 and not have to spend $3 million for a special election later in the year, Main said.
State Treasurer Kay Ivey, who serves as secretary of the Alabama Trust Fund, said she hasn’t discussed the funding options with Main, but state officials ought to look at a long-term approach to funding industrial incentives because there will be other big projects in the future.
“I can’t go along with every time we have an opportunity, we have a knee-jerk reaction,” she said.
Wade said he’s leaving it to Main to recommend how to finance a big project.
“I catch them and he cleans them,” Wade said.