Between
a budget crisis and an uncooperative General
Assembly, Gov. Mark R. Warner hasn’t had much to
cheer about the last few months. But he was all
smiles March 4 when he announced some very good
news: the decision of Philip Morris USA to relocate
its corporate headquarters to Richmond.
Warner
had known Philip Morris CEO Szymanczyk back when the
two had served together on the board of the Virginia
Foundation for Independent Colleges. Last year, the
governor spotted an opportunity to approach
Szymanczyk when New York Mayor Michael
Bloomberg jacked up cigarette taxes in the Big Apple
and began pushing
for draconian restrictions on smoking in public
places. Warner
inquired
whether the Philip Morris executive would consider
moving the division to Virginia.
Virginia
has been courting Philip Morris USA for years:
Economic developers have long pitched Philip Morris
on the idea of moving the headquarters to the same
city as its major manufacturing operations. But New York
was home to the parent company, Altria, as well as
the advertising gurus in
Madison Ave.
As owner of some of the most valuable consumer
brands in the United
States,
Philip Morris had good reason to stay close to the
world’s largest pool of marketing/branding talent.
This
time around, Philip Morris was receptive to the
Virginia sales pitch. Philip
Morris has studiously avoided blaming Bloomberg for
the decision to leave New York – perhaps for fear of
inspiring and even harsher crackdown – but it’s
hard to imagine that Szymanczyk felt welcome in a
city that, for all intents and purposes, was trying
put him out of business.
Once
Warner
succeeded in opening up talks,
Virginia’s
economic development team followed up aggressively.
Michael Schewel, secretary of commerce and trade,
the Virginia Economic Development Partnership, the
Greater Richmond Partnership, the Greater Richmond
Chamber of Commerce and the University
of Richmond
all played key roles in persuading Philip Morris to
make the switch.
In
the end, Philip Morris calculated it could cut its
costs by $60 million a year in lower rents, lower
salaries, lower taxes and efficiencies gained by
locating in the same city as its main operating
unit. The move is expected to bring 682 positions
and $83 million in payroll to the
Richmond
area – an average salary of $122,000, or more than
twice the region’s average household income. State
income taxes alone should amount to $4.5 million
annually. The company also announced a $300 million
investment in its cigarette manufacturing facility,
which should yield more than $8 million annually in
property taxes and machine-and-tool taxes for the
city of Richmond.
Some
$28 million in state incentives helped offset the
expected $120 million in relocation costs. Warner
approved a $3 million grant from the Governor’s
Opportunity Fund to assist the
Richmond
region with the project. Philip Morris also
qualifies for a $25 million performance-based grant
from the Virginia Investment Partnership program.
That grant, payable over five years, begins in the
sixth year after the investment is completed and
promised jobs are delivered. Philip Morris property
in the city of Richmond
and Henrico
County
also will qualify for enterprise-zone tax credits
against state income taxes. The net present
value of the cash incentives is $19.4 million;
the 20-year net present value of revenue to the
Commonwealth is $54.6 million.
There
could be more positive ripples to come from the
Philip Morris USA move. The company spends vast sums
on advertising and marketing. Indeed, the parent
company, which also owns Miller Beer and Kraft
Foods, was the nation’s second largest advertiser,
spending $2.6 billion on advertising nationally in
2000, according to Ad
Age magazine. With cigarette marketing functions
moving to
Richmond,
there may be an opportunity to bring some of those
ad dollars to Richmond,
either by persuading New
York
agencies to set up satellite offices here or by
shifting some of the business to the Martin
Agency,
Richmond’s
largest ad shop.
On
the downside, the Philip Morris news generated
negative reaction among Richmond-area smoking foes.
The move could reinforce the city’s identity as Tobacco
Town:
still fighting the civil war, and still smoking
cigarettes.
One
way to combat that image, as I argued two weeks ago
(see Safer
Cigarettes, March 3, 2003) would be to launch a “safe cigarette”
initiative. Virginia could seek to become a center
of R&D probing the relationship between
cigarette smoking and cancer with the goal of
developing new technologies and processes to
mitigate the risks of smoking – in effect, to help
develop “safer” (or less dangerous) cigarettes.
Research innovations potentially would reduce health hazards for 1.2
billion cigarette smokers around the world, most of
whom smoke harsh lung-busters manufactured by
foreign cigarette companies. As a bonus, researching
the connections between cigarette smoke, immunology,
human genetics and cancer could provide a big boost
to the Richmond
region’s aspiring biotech sector.
It’s
not often that Virginia
attracts the headquarters of a $24.8 billion (2001
revenues) business into the state. Gov. Warner, the
state economic development team, and local economic
developers all should be congratulated on their
coup. But economic development is a game with no
time outs, no end, and no final score. We’ve got
the “big mo.” Now let’s build on it.
--
March
17, 2003
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