enterprising states

creating jobs, economic development,

and prosperity in challenging times

a project of the U.s. chamber of commerce and the national chamber Foundation

tennesseeproFile

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Tennessee

Perhaps best known for its deep historic roots in country, bluegrass and Americana music, Tennessee’s broader economy brings a heavier edge: manufacturing, agribusiness, and transportation and warehousing. While the state is no stranger to the national trend of manufacturing restructuring, in just one year it has attracted more than $4 billion dollars in investments in automobile, solar cells and semiconductors, clean-tech, and other advanced materials sectors. These new projects are expected to create 3,000 new jobs in the state.

Tennessee’s job creation approach is founded on functional partnerships between local and state government officials, business leaders and economic development professionals, and between agencies within state government. A Jobs Cabinet consisting of commissioners from seven state departments, as well as representatives from higher education and business trade groups, ensures that Tennessee’s job creation efforts are innovative, customer-focused, and amenable to customization on a case-by-case basis.

The state’s livability is evidenced by its success in attracting new residents from the rest of the country in the last decade. Since 2001 Tennessee has ranked 11th in overall average yearly net migration from other states, and is one of only 11 other states to show positive net domestic migration for every single year over the same period. The result is a gain of more than 260,000 new residents. Americans are voting with their feet and they are choosing Tennessee.

What are Tennessee’s Growth sectors?While the headlines may tell of manufacturing job cutbacks and plant closures across the nation, the manufacturing economy employs more than 330,000 Tennesseans. Because of its high degree of export orientation, the manufacturing sector supports a total of 550,000 jobs and $27.5 billion in earnings in all sectors of the state economy.

While the state’s aggressive manufacturing and corporate headquarters-friendly tax incentives and plant site location programs have helped stimulate numerous large new manufacturing investments projected to create thousands of jobs, other specialized high-value manufacturing sectors

11,673 11,617

20,80923,925

41,944

55,804

44,867

28,467

20,605

2001 2002 2003 2004 2005 2006 2007 2008 2009

Tennesee Net Domestic Migration Gain from Other States, 2001-2009

Table 1: Growing Manufacturing Sectors, 2002-2009

Sector

New Jobs since 2002

Earnings per worker

Medical Equipment and Supplies 1,689 $81,661Other Concrete Product 945 $57,357Motor Vehicle Electrical and Electronic Equipment 749 $58,595Iron and Steel Mills and Ferroalloy 582 $67,474All Other Nonmetallic Mineral Product 577 $45,894Other Basic Inorganic Chemical 561 $94,644Fruit and Vegetable Canning, Pickling, and Drying 410 $66,294Semiconductor and Other Electronic Component 366 $61,757Starch and Vegetable Fats and Oils 358 $104,931Frozen Food 357 $59,916

Source: EMSI Complete Employment, Second Quarter 2010

Figure 1: Source: U.S. Census Population Estimates Program

have seen growth as well. The state is seeing strong growth in medical equipment and supplies, employment in various value-added agriculture sectors is increasing, and efforts to target silicon and glass production for solar power industries are paying off. The growing agribusiness sectors position the state well to offer an alternative for skilled production workers from other industries to transition

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into value-added food production. As the U.S. and world populations continue to grow, the demand for food is likely to increase and could provide stability for Tennessee’s technically inclined workforce. Since 2002 Tennessee’s job growth has been powered primarily by the specialized business services, finance, wholesale trade, and health care sectors.

Flexible, Bottom-up economic DevelopmentSuccessful economic development cannot occur without good decision making and sound planning at the local level. With this in mind, Tennessee has developed a local strategic planning support program to serve the state’s communities. The innovative Three-Star program puts each community through a detailed local strategic planning process moving toward a goal of program certification and reward incentives. More importantly, the community benefits from the consensus, new initiatives, and momentum generated by the process.

The program is based upon a detailed best policy framework, and each community is assigned a program officer as a guide. Each community completes a Five-Year Asset-Based Strategic Plan and must successfully put the plan into practice, meeting stated benchmarks along the way. Successful communities are rewarded with grants and other incentives towards local development.

Taxes anD ReGulaTionTennessee’s development strategy places a strong focus on minimizing barriers to business and maximizing potential for investment from overseas and from capital firms. Efforts are paying off as the state ranked number three overall in our Enterprising States Top Taxes and Regulation Performers list. The state scored in the top 25 in all six measurements of business climate and placed in the top ten in state and local business climate and overall cost of living.

“No Surprises” tax and regulatory policy in Tennessee consistently places the state in the top tier of low tax, efficiently regulated states. A hallmark of the state’s interaction with business is consistency of message and straightforward, understandable taxes and regulations that minimize uncertainty and offer no suprises. The Commissioners of Economic Development and Revenue work closely together to make this possible.

inFRasTRucTuRe anD

expoRTsGlobal Exports and Foreign Direct Investment have shown strong performance in Tennessee. The state has been highly successful in attracting the U.S. headquarters of companies from Japan and the manufacturing and distribution centers of European companies. Tennessee

Table 2: Fastest Growing High-Value Sectors, 2002-2009

Sector

New Jobs since 2002

Earnings per worker

Ambulatory Health Care Services 38,910 $72,329Professional, Scientific, and Technical Services 30,609 $59,994Hospitals 18,146 $58,268Securities, Commodity Contracts, and Other Financial Investments and Related Activities 9,610 $62,836Insurance Carriers and Related Activities 6,464 $61,516Wholesale Electronic Markets and Agents and Brokers 2,694 $80,023Management of Companies and Enterprises 2,491 $85,269Funds, Trusts, and Other Financial Vehicles 2,258 $78,558Credit Intermediation and Related Activities 2,153 $62,301Data Processing, Hosting and Related Services 1,873 $64,196Support Activities for Transportation 1,609 $55,408Construction of Buildings 1,261 $53,875Water Transportation 966 $81,698Support Activities for Mining 905 $65,793

Source: EMSI Complete Employment, Second Quarter 2010

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is an epicenter and a strong magnet for global logistics and distribution and a growing hub of just-in-time manufacturing located in proximity to the state’s unparalleled overnight delivery capacity thanks to the headquarters of FedEx and the world’s largest cargo airport in Memphis. Because of Tennessee’s central location and good road systems, 75% of consumers in the U.S. can be reached by ground within 24 hours.

The FastTrack Infrastructure Development Program (FIDP) assists companies in training new employees, supports communities in the development of public infrastructure, and helps companies cut through red tape that often hinders development to get the resources and the answers they need. FIDP funds are used for infrastructure improvements where there is a commitment by a private sector business to locate or expand in the state and to create or retain jobs for Tennesseans. FIDP partners with local communities and counties to provide infrastructure for job-creating companies quickly and efficiently.

The Tennessee Valley Authority also offers a well designed online database and visual mapping system of available development sites across the region. The system, located at TVASites.com, lists 1,900 buildings and properties allowing for easy searching of detailed property information combining property data with publicly available satellite imagery, street views, terrain, and local points of interests. It is an easily accessible way to connect entrepreneurs, expanding businesses, and site selectors with the region’s land owners and developers hoping to find tenants.

Tennessee placed in the top ten in the Enterprising States road quality measure. The state funds highway infrastructure on an actuarial basis and in 2009 the state legislature passed laws to create a new, separate highway fund and prohibit the transfer of funds from the state Department of Transportation to the general fund. During the same session, lawmakers also created the Tennessee Transportation State Infrastructure Bank Act, establishing a state infrastructure bank and authorizing the bank’s board to issue bonds to help finance construction and improvement projects. The state’s highway system is an important asset considering its central location to U.S. consumers, its high-quality waterway access in East Tennessee, and its high manufacturing output.

21st century infrastructureWhile it may be more than 300 miles by car from Memphis to the Oak Ridge National Laboratory (ORNL) in East Tennessee, the Memphis Coalition for Advanced Networking (MCAN) unveiled a 10 gigabit telecommunications connection between the Memphis research community and Oak Ridge and the national Internet2 research infrastructure. Using startup funds from the Tennessee Department of Economic and Community Development, MCAN is set up as an administrative non-profit entity to serve the research-oriented telecommunications needs of its members. Network planning, engineering, and consulting services are provided the University of Memphis, a member of MCAN, for its other members, including St. Jude Children’s Research Hospital, the University of Tennessee Health Science Center, the Memphis BioWorks Foundation, Oak Ridge National Laboratory, and the UT-Baptist Research Park.

Tennessee is home to Innovation Valley, one of the country’s largest data pipelines. This technology infrastructure provides state-of-the-art technological infrastructure and incubation to businesses statewide. Leading Fortune 500 companies such as FedEx and

pioneering the Megasite Model

The Tennessee Valley Authority (TVA) – an economic development agency covering Tennessee and parts of six other states – has added a strong set of capital investment and infrastructure development tools to the region. The TVA is credited with pioneering the concept of certified megasites for siting new large manufacturing operations, and the model is now being deployed in other regions.

Megasites are pre-certified as ready for large-scale manufacturing having already been subjected to rigorous due diligence to meet standards of size, availability for land purchase, easy utility access, and lack of easements or other land encumbrances. A megasite must be capable of attracting a high-impact project. Such a project represents a large investment, perhaps hundreds of millions of dollars, by a single user, and has the potential to create a network of suppliers and customers.

This pre-certification offers a significant advantage over other sites that may require months of preparation prior to construction. Since 2004, TVA has sold four of its seven megasites to host new large manufacturing operations, two in Tennessee. Dow Corning Corporation and Hemlock Semiconductor purchased the Clarksville-Montgomery County, Tennessee megasite to produce polycrystalline silicon with an estimated total investment of $1.2 billion. The Chattanooga megasite was purchased by Volkswagen, which is investing roughly $1 billion to build cars in the state.

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Dell along with institutions such as the SIM Center in Chattanooga, a national center for computational engineering, and the Oak Ridge National Laboratory, which houses the world’s fastest supercomputer for sciences, offer some of the most advanced technology applications in the world. ORNL is home to two of the most advanced neutron scattering scientific research facilities in the world – the High Flux Isotope Reactor (HFIR) and the Spallation Neutron Source (SNS) – drawing scientists from around the world to Tennessee.

Founded by local life sciences entrepreneurs and Noblegene Development, LLC, the Cool Springs Life Sciences Center (CSLSC) provides a world-class bioscience business environment focused on life sciences research, development, and manufacturing. Infrastructure is in place to provide state-of-the-art systems for redundant power, HVAC, IT systems, chemical waste handling, and much more. The infrastructure of this 15-acre campus is specifically designed to accommodate the unique needs of life science and biotechnology firms, particularly those engaged in biologics, pharmaceuticals, therapeutics, medical devices, and associated specialty manufacturing.

innovaTion anD

enTRepReneuRshipTennessee is home to innovators in health care research and delivery such as St. Jude Children’s Research Hospital in Memphis and Vanderbilt University Medical Center in Nashville. East Tennessee is home to 3,000 scientists and engineers and 4,600 total employees at Oak Ridge National Labs, a U.S. Department of Energy facility conducting basic and applied research to strengthen the nation’s leadership in key areas of science, increase the availability of clean energy, restore and protect the environment, and contribute to national security.

clean-tech and clean energy strategyIn March 2008 Governor Phil Bredesen signed an Executive Order establishing the Governor’s Task Force on Energy Policy. The task force is charged with helping Tennessee become a leader in energy efficiency and conservation, the use of alternative fuels and renewable energy, and in the development of clean-energy technology.

Recently, 42 Tennessee cities and counties were awarded around $3.8 million in Energy Efficiency and Conservation Block Grants (EECBG). This comes just months after another $9.2 million in EECBG grants were distributed to 100 Tennessee cities and counties. The grants enable

communities to implement cost-effective strategies to reduce total energy expenses and save taxpayer money through improved energy efficiency in buildings and transportation systems, creating new jobs in the process.

As part of a comprehensive energy strategy, Tennessee offers a Green Energy Tax Credit to certified green energy manufacturers and a Pollution Control Equipment Tax Credit for investments in equipment that reduces water or air pollution or eliminates hazardous wastes.

Tennessee small Business company investment credit act

TNInvestco is designed to develop entrepreneurial infrastructure across the state, to attract new capital to Tennessee, and to diversify the state’s economy and create jobs through the development of “innovation clusters” which result in new companies being spun off.

TNInvestco takes a unique approach to seeding small businesses with the capital needed to bring a new idea to the broader marketplace and create jobs in the process. TNInvestco has allocated $120 million dollars in tax credits to a cross-section of venture capital funds with broad experience in mentoring and developing new companies in Tennessee. Those VC funds then market the tax credits to insurance companies, who purchase the credits with capital reserves and the venture funds then use the capital to help Tennessee companies grow.

Recent investments by TNInvestco-backed funds include:

GOBA, LLC, a social media start-up created • to connect people in person through shared interests,Pathfinder Therapeutics, Inc., a pioneering • company in the field of Navigated Abdominal Surgery (NAS)New Day Pharmacy, an institutional pharmacy • with a novel approach to distributing medications to nursing homes.onFocus Healthcare, Inc., a leading provider • of web-based enterprise performance management solutions for the healthcare services marketplace; andTrakLok Corporation, developer of the GeoLok, • a locking system for containers that not only monitors the container’s location as it is transported, but also can refuse to open itself until the container has arrived safely at its intended destination.

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The Green Island Corridor Grant Program assists retail vehicle fuel stations and farm co-ops with the cost of converting or installing storage and fuel dispensing equipment for E85 ethanol and B20 biodiesel pumps. Low-interest loans are available to small businesses and local governments for energy efficiency improvements.

The state recently launched two new grant programs targeting the solar industry. The Solar Installation Grant Program will support the purchase and installation of small-scale solar generation systems. The new Solar Innovation Grant Program will support renewable energy, efficiency, and conservation by providing funds for technical assistance, equipment and process improvements, new products, and workforce development.

Tennessee’s clean-tech strategy fosters partnerships between scientific researchers and technology innovators to commercialize new products, processes and technologies. The University of Tennessee is collaborating with Oak Ridge National Laboratory and several business partners to research, develop, and demonstrate cellulosic ethanol as a fuel source and is now operating a pilot bio-refinery. The state has invested in a diverse portfolio of companies that are involved in alternative fuels, energy conservation, and electric and hybrid vehicles. The state is home to the world’s largest manufacturers of polycrystalline silicon, a critical component of computer chips and solar panels.

The Tennessee Solar Institute (TSI), a new initiative with the University of Tennessee (UT) and Oak Ridge National Laboratory, serves as a center for excellence to spur accelerated growth in Tennessee’s burgeoning solar industry and a crossroads for a wide range of solar-related

activities in the Volunteer State. Among other purposes, it brings scientists, engineers and technical experts, business leaders, policy makers, and industry workers together to help speed the deployment of solar photovoltaic (PV) technology. It is designed to be a home for regional and state initiatives that foster the creation of new businesses. By establishing strategic industry partnerships across the solar value chain, the Institute provides technical assistance and workforce development to solar industry firms, assists in technology commercialization, helps improve facilities and manufacturing processes, and undertakes other efforts to help grow the solar industry in Tennessee.

Growing the high-Tech WorkforceEfforts to stimulate research activity are beginning to pay dividends as the state has added 7,100 new jobs in science, technology, engineering, and mathematics (STEM) occupations, totaling 7.5% growth since 2002. Table 3 lists the industry sectors in the Tennessee economy adding STEM jobs the at the highest rate.

WoRkFoRce DevelopMenT

anD TRaininGTennessee offers a variety of workforce development and training assistance programs for state businesses:

FastTrack Job Training Assistance• , a program that helps companies develop customized, flexible training programs where costs are reimbursed to companies;

Table 3: Fastest Growing Sectors for STEM Occupations, 2002-2009

Sector

New STEM Jobs

Industry % Growth in STEM Jobs

Engineering Services 2,241 36%Computer Systems Design Services 1,908 58%Offices of All Other Miscellaneous Health Practitioners 1,010 65%Administrative Management and General Management Consulting Services 767 74%Data Processing, Hosting, and Related Services 633 61%Custom Computer Programming Services 534 12%Offices of Mental Health Practitioners (except Physicians) 455 52%Local government 406 9%Corporate, Subsidiary, and Regional Managing Offices 399 17%Software Publishers 320 70%Testing Laboratories 273 41%

Jobs listed are growth in STEM occupations only. Source: EMSI Complete Employment, Second Quarter 2010

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Job Based Training Reimbursement• , a program optimized for quick reimbursement of training costs; andTennesseeJob Skills• , a reimbursement program similar to FastTrack but focused on businesses and industries employing high-skill, high-wage workers in technology-focused sectors.

Tennessee’s workforce possesses high levels of manufacturing knowledge and technical skills (figure 2). As the industry mix in Tennessee and around the nation shifts, flexible local workforce training funds are critical to help displaced workers adjust their skills to fit new, growing industries. Focused and easily accessible training funds at the business-by-business level provided by states and local governments are critical to fill gaps left by federal workforce development programs.

1.07

1.01

1.01

1.00

0.98

0.98

1.03

1.00

1.00

0.99

0.99

Manufacturing Knowledge

Business Knowledge

Science Knowledge

Health Knowledge

Technical Knowledge

Liberal Arts Knowledge

Technical Skills

System Skills

Resource Management …

Social Skills

Basic Skills

Tennessee Workforce Knowledge and Skills Profile

National Average Level

Figure 2: Source: EMSI Complete Employment, Second Quarter 2010 Charted metric is a location quotient, the TN concentration of each

knowledge or skill elelment divided by the national concentration.