State officials, VW detail incentive package

Tab to lure German company to Chattanooga will top $500M

Email | Print By Christine Buttorff

State officials said today they will spend more than half a billion dollars in the deal that convinced Volkswagen to invest $1 billion on a car assembly plant in Chattanooga.

“This is the biggest project out there in 2008,” said Matt Kisber, commissioner of the Department of Economic and Community Development, who justified the $577 million incentive package for the German automaker by saying it will provide more than just jobs and tax revenue. “The world is seeing that ... one of the most respected companies in the world decided to plant their flag in the United States.”

In the arms race of corporate headquarters relocations and manufacturing investments, states are ever more willing to create complex incentive packages to lure companies. Tennessee's Volkswagen package uses local, state and federal dollars to build roads, provide job training and offer tax breaks.

Kisber said companies have to be willing to release the details of the packages so he said he could not say whether this was the biggest package the state has ever put together. The state invested $197 million to convince Nissan Americas to relocate its HQ to Cool Springs.

Over the next 30 years, the VW project is expected to boost state and local tax revenue by $1.4 billion and create more than 11,400 jobs once suppliers feeding the plant are included in the analysis.

University of Tennessee economist Bill Fox said that even more important for the state’s economy as a whole is the generation of nearly $12 billion in personal income growth over those 30 years.  

“For a one-time cost of about one dollar, the state will get back a dollar each year,” said Fox. “If you think of saving yourself, if you can save a dollar in some investment fund, and you earned a dollar next year and a dollar the year after that, that’d be an extraordinary rate of return.”

Volkswagen's plant is expected to begin cranking out sedans in early 2011.