CENTER FOR COMPUTATION & TECHNOLOGY

Two business lessons Louisiana should know by now are that economic development isn't cheap — and the rules can change overnight. Witness the summer of 2005. A year after Gov. Kathleen Blanco landed her first big business coup — a $100 million investment in Alexandria lured by $65 million in incentives — Union Tank Car had 235 skilled welders poised to build rail cars. Then came Hurricane Katrina. Lured by high-wage recovery work, the welders went south. “You could probably hear the collective gasp,” said Bruce Winslow, a Union Tank Car spokesman. “We all caught our breath to think we might have invested in this plant and it was all ready to go and there was nobody to come work at it.” In what Winslow calls a well-orchestrated scramble, the state Department of Labor helped woo nearly 1,000 people to a Union Tank Car job fair, hundreds of applicants were screened and the Louisiana Technical College's Alexandria campus quickly trained 200 welders from scratch. Today, Union Tank Car has hired 600 of its eventual target of 850 people and is “doing really well,” Winslow said. But stopgap solutions are not how any state wants to do business. Louisiana's skilled labor shortages existed before the 2005 hurricanes in a state where only 41 percent of the total population works, the nation's worst rate and 10 percentage points below the U.S. average. The storms compounded the problem. The state hasn't solved the fundamental flaws that dog its economic development on a daily basis. And the world knows it. When a respected think tank unveiled its 2007 economic report cards for the 50 states, Louisiana was largely flunking again: * An “F” for what it's like to live and work in the state. * A “C” and a surprising glimmer of hope for what it's like to own and operate a business in the state. * But another “F” for public and private investment aimed at lifting Louisiana's fortunes for future generations. Most maddening: The grades are worse than they were 20 years ago, when the Corporation for Enterprise Development began comparing states in its report cards. Louisiana's recent near-miss with ThyssenKrupp's $4 billion steel mill project illustrates the state's economic problems. ThyssenKrupp will build in Alabama despite a $1.6 billion Louisiana incentive package. That package was worth twice what Alabama offered. What's more, ThyssenKrupp revealed in June that operating the plant in Alabama will cost slightly more than it would have in St. James Parish. Yet as ThyssenKrupp vice chairman Peter Urban recently said, “That was countered by the way Alabama thinks about business.” So how does Louisiana think about business? “In the last 24 years, the fundamental, underlying philosophy of the Department of Economic Development has changed several times,” said Jim Clinton, executive director of the Southern Growth Policies Board, which advises Southern states. “That's not a criticism of any of those administrations, but it is hard to carry forward with any momentum when the philosophy continues to change and the goals continue to change.” Or, as former Gov. Buddy Roemer explains, successive governors must stand on their predecessors' shoulders and build stronger private-sector teamwork if Louisiana is to become a Top 10 state in which to live, work, visit and do business — all goals of the ambitious Vision 2020 master plan for economic development produced by Gov. Mike Foster's administration in 1999. “We can't go from 45th to first overnight, but for the next 10 years we need to say we're going to be the best and see how we like it,” Roemer said. Governors have long pursued economic goals, but none has harnessed the momentum needed to close the gap with other states. State Policy Reports, a Washington, D.C., publishing company, tracks the economic momentum of states by measuring changes in employment, personal income and population. In 2004, Louisiana's momentum lagged the national average by about a half-percentage point — good for 38th best. In 2006, following Katrina and Rita, that momentum plunged to more than 4 points below the average — the worst in the nation. Labor pains Louisiana's traditional lead performers — oil and gas exploration and petrochemical manufacturing — also represent its greatest vulnerabilities. In the early 1980s, the state's oil and gas industry employment peaked at 102,000. Today, the state Department of Labor reports jobs in that sector have been sliced in half, to 51,000. In the past decade, Louisiana's chemical industry jobs have dipped from 33,000 to 25,000. The Louisiana Chemical Association estimates those jobs pay $73,000 a year on average, with each chemical job creating five more jobs for builders and service industries. In Baton Rouge, ExxonMobil's oil refinery — the nation's second largest — a companion chemical plant and six other ExxonMobil facilities represent a microcosm of the high-wage, high-investment industry south Louisiana has long leaned upon. The refinery that once employed more than 8,000 workers by itself has evolved into a complex of eight facilities employing 3,400 direct ExxonMobil employees and another 1,800 contractors. Yet for even the most profitable of Fortune 500 companies, retaining a highly skilled Louisiana work force is a challenge. “The jobs done now compared to the jobs done 20 years ago are so different,” said ExxonMobil chemical plant manager Bryan Milton. “What we're seeing is the skill sets we need as we move into the future to keep ahead of that wave are very high-tech.” What's more, ExxonMobil could lose up to 35 percent of its Baton Rouge work force, or more than 1,000 people, through retirements in the next four years. Meanwhile, it's hiring technicians and professionals at a rate of only 75 to 100 annually, company officials said. The talent crisis isn't something spawned by Katrina and Rita, Milton said. “I think Louisiana needs to be clear that it's part of a global issue,” he said, noting such places as Dubai in the United Arab Emirates and Singapore offer rich incentives to lure technology firms to research parks. States or countries that win the work-force development battle are going to hold the advantage, he said. The labor shortage that existed before the hurricanes has in some sectors become much worse. When Turner Industries increased its work force by 3,000 after the 2005 hurricanes, it couldn't find all the skilled workers it needed in Louisiana. So the company enlisted the help of three international consultants who delivered 800 foreign workers, many of them Filipinos. “Initially, our experience has been very good,” said Mike Phelps, Turner's human resources manager. But guest workers will remain in tight supply unless Congress takes a dramatic turn with immigration legislation, which is widely considered dead until after the presidential election in 2008. Meanwhile, the Business Roundtable — a group of CEOs from the nation's biggest corporations — created a public-private partnership to bring 20,000 new construction workers to the Gulf Coast by 2009. The group claims to be on target to meet that goal. Even that boost won't be enough. The Louisiana Craft Workforce Development Board estimates the state will need 90,000 new construction workers in the next five years. And this summer, the Louisiana Recovery Authority will step in with yet another job program. The $38 million Recovery Workforce Training Program is aimed at producing 14,000 more workers in critical areas, such as 2,000 to ease a shipbuilding crunch and 3,000 maritime workers for piloting, loading and maintaining ships. The LRA funding ends in three years, but the agency hopes industry-training partnerships will last much longer. “We hope to provide the technical assistance so that these partnerships last after these dollars go away,” said Robin Keegan, the LRA's director of economic and work force development policy. The brain game High-tech knowledge increasingly will dominate the 21st-century economy, said Clinton, the Southern Growth board director who spent 30 years in Louisiana government and research roles before moving to North Carolina in 1999. “You simply can't move forward in the knowledge economy unless people know stuff,” Clinton said. Every link in Louisiana's education chain must get stronger, he said. Louisiana was late in establishing a cornerstone of every state's work force — the statewide community and technical college system. And Louisiana has fallen far behind many of its peers in venture capital investment. Such money is crucial to young companies, including those in the coveted high-tech sector. The MoneyTree Report by PriceWaterhouseCoopers lists just $12 million in venture capital deals for Louisiana in 2006 and early 2007. Georgia landed $457 million and North Carolina $770 million. After dabbling with institution-driven venture capital in the 1980s and 1990s, Louisiana launched an “angel investor” tax credit in 2005 designed to pump more private money into early-stage companies. The state also funded biotech centers that opened in Shreveport and Baton Rouge in 2005. Those “wet labs” are designed to incubate young companies that convert emerging university research into viable businesses. A third wet lab will open in New Orleans later this year, but Louisiana may be spreading limited resources too thinly for wet labs while neglecting other strengths, said LSU economist Jim Richardson. “We've been reluctant to make any pointed investments where we might get more return on our investment,” he said. “Pennington (Biomedical Research Center) is a perfect example of that.” The LSU system's nutrition and preventive-medicine center found itself turning away clinical trial work because it lacks adequate space. The Legislature this year responded to calls to better fund Pennington, approving $5 million for construction and a new stream of $3 million annually for operations. With a better research track record in place, Louisiana might have avoided a significant loss at ExxonMobil. The company in 2006 said it would transfer 65 scientists in its Process Research Laboratories division from Baton Rouge to a research campus in New Jersey. Another 110 Process Research Laboratories support staff in Baton Rouge are to be reassigned locally over two years. For ExxonMobil, the move represents a consolidation of resources in an ideal New Jersey setting. But for Baton Rouge, it means another brain drain and the loss of a group that has produced more than 4,000 patents since 1927. Today, Louisiana delivers about seven patents per 100,000 in population. Only five states scored worse in that measure. States with more Fortune 500 company headquarters pile up more patents, and Louisiana has just two such headquarters — The Shaw Group in Baton Rouge and Entergy in New Orleans. Most pre-eminent technology firms, the Googles and the Dells, tend to pop up in well-known technology corridors in places like California and Texas. Why should a technology entrepreneur launch in Louisiana? Charles D'Agostino, who has run LSU's Louisiana Business & Technology Center for two decades, says he regularly fields calls that offer hope. People who have left Louisiana but are looking to return home call more frequently these days seeking job and investment opportunities, he said. Initially they're willing to work here for less pay. “I think that we're doing the right things from an economic development perspective and with some of the tax credits and work-force training,” D'Agostino said. “If you're in Austin, Texas, or Palo Alto, California, and you want to hire somebody, you're probably not going to be able to compete with the big companies.” But in Baton Rouge, high-tech firms are getting “the top-notch people,” he said. “They can offer a good job, but they don't have to offer as much,” he added. “People are willing to take less because they want live here.” That's also the experience of Marcus Morton, chief executive of Ruston-based Network Foundation Technologies. He recently hired an out-of-state high-tech worker who gave up better pay elsewhere to come home. But to reverse the brain flow in a lasting way, Louisiana needs to dangle a more powerful carrot, Morton said. Luring dollars Morton's NFT firm, which he launched five years ago with Louisiana Tech computer science program Chairman Mike O'Neal, wants to revolutionize the delivery of Internet video. NFT has grown to 20 employees, won a National Science Foundation grant and drawn investment from inside and outside the state. But it could have drawn far more out-of-state capital, Morton said. Louisiana's angel investor tax credit allows investors to recoup 50 percent of their investment in emerging companies (spread over five years). But the law doesn't allow investors who have no corporate tax liability in the state to sell the credits to those who do — as can be done with film industry tax credits. Most out-of-state investors don't have a tax liability in Louisiana, so the credit is of no use to them. In essence, a huge window of opportunity to lure out-of-state investment is slammed shut, Morton said. Making other tax credits transferable may be harder politically now that prosecutors are probing allegations of favors traded by a former state employee for enhanced tax credits to a New Orleans film company. This past session, the Legislature did pass a bill allowing angel investor tax credits to be “refundable,” meaning investors can claim money beyond what they owe in taxes. But the credits still aren't marketable. “If those angel tax credits were marketable so that you could sell them, we would have a flood of money coming in here for startups,” Morton said. “We really need as a state to stop marketing so much for the mills and the plants and the chemical and the petrochemical companies. Those people are going to find us because of our extensive port system and our refinery capabilities and our oil and gas — that's going to happen on its own.” Newer technology startups should be the focus, he said. “These are industries that are not even here,” he said. “These are jobs that aren't here. They're higher-paying jobs and they don't hurt the environment.” Glimpsing the future Nearly four years ago, LSU recruited physicist Edward Seidel from Germany for his prowess in high-performance computing. A $25 million state commitment to information technology programs — one outcome of the Vision 2020 master plan — convinced Seidel to come. He subsequently helped draft a 10-year, $40 million proposal asking Louisiana's higher education Board of Regents for a high-speed computing link among a half-dozen Louisiana universities and two medical schools. That link, the Louisiana Optical Network Initiative, is nearly complete. “We were all stunned that the governor and the Board of Regents moved so quickly to back that and fund it,” said Seidel, speaking from an Innsbruck, Austria, conference where he spread news of Louisiana's computing ascendancy. “That really put the state on the map.” The destination, Seidel said, is a statewide university system that collaborates on research projects, applies supercomputing muscle to industry products and helps lead economic development. In May, the Board of Regents committed another $7 million to create the LONI Institute to recruit computational scientists, who in turn will build research teams. Academic research modeling black holes could be joined by such work as simulating wing performance for aerospace companies and lightning-fast methods of downloading digital films for the movie industry. Firms could study fluid flow for more efficient diapers and designs for better potato chips. “It runs the range from potato chips all the way through astrophysics, but the companies tend to not have as advanced facilities or research groups (as LONI will),” Seidel said. “We want to take that type of research capacity and apply that directly to practical problems. Ultimately, we hope this will lead to investment by more high-end companies in the state.” The LONI Institute is a way for universities to approach corporate research and development offices in a systematic way that no other state has achieved, Seidel said. Corporate R&D dollars typically go to individual campuses or regional research sites. Stop the whining As Louisiana continues to recover from the hurricanes and strives for a higher-tech future, its ability to close the gap with other states will be severely challenged. “I do think playing catch-up is very frustrating,” said Lillian “Beadsie” Woo, senior economist for the Corporation for Enterprise Development in Durham, N.C. “Elected officials think in elected term increments, and I really think economic development is a very long process. You have to think not in 2- or 4-year cycles but in 15- or 20-year cycles. So you have to have a courageous policy maker who's willing to say, ‘I will take that long view and I care less about my legacy than my community.'” And the leaders who come after that policy maker must carry forward the overall strategy, even if details shift slightly, Woo said. Roemer, now a banker in Baton Rouge, said he sees signs of the energy needed to lift Louisiana — despite the misery inflicted by the hurricanes and the acrimony over rebuilding. “There is a hunger,” he said. “It's like the storms have turned up all the nutrients in the water. I have never seen more entrepreneurs, more investors coming here from St. Louis and Chicago and Michigan and San Francisco and New York — and seizing the opportunities we have here.” But it's time to act, Roemer said. “Louisiana is caught between being a victim and being a performer,” he said. “We need to quit whining and start performing.”