U.S. recruiters try to entice Calgary companies south of the border with free land, tax breaks

As Calgary businesses grapple with rising property taxes and economic anxiety, U.S. recruiters are trying to lure companies to cities south of the border with land and tax incentives.

An economic development official from Texas was recently in Calgary for a week, meeting with nine growing companies here in the hopes of convincing them to expand into Lubbock — a city located near a lucrative oil and gas play. 

Carolyn Rowley, the director of business recruitment for Lubbock Economic Development Alliance, says she met with companies in a range of industries from oil and gas to technology to pharmaceuticals.

"I had some very good conversations with companies that are considering expanding, that are in a growth phase," Rowley said. "We look at these types of conversations and meetings as long-term relationships. Most of those decisions are going to be made in 12, 24 months."

Canadian Bio-Systems, one of the Calgary businesses courted by Rowley's group, says it's "very seriously" considering the sales pitch and exploring the possibility of opening a new location in the northwest Texas city, home to 263,000 people.

Krisjan Jones, the company's operations director, says the pitch involved an offer of free land at a business park near rail access, an attractive feature for the agricultural company that favours using rail to import its raw materials and export its finished product.

"The land is free and you just need to build a facility, fill it with equipment, produce something and hire people," Jones said. "I have never heard of anything like that before, so that's obviously something that we're going to follow up on, because I don't think that's an opportunity that comes up too often."

'Smokestack chasing'

This competition for investment is an ingrained feature of building cities. It dates as far back as the post-Great Depression era, when communities engaged in "smokestack chasing," which involved promising tax breaks and free land to factory builders, says David Wachsmuth, the Canada research chair in urban governance at McGill University.

These days, the game is called local economic development. Calgary has its own agency, Calgary Economic Development, which aims to attract or retain close to 100 companies every year.

While land and financial incentives are still part of the pitch, there has been a shift to selling other features that make a city more liveable, including universities, culture and amenities.

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Attracting investment has traditionally been the goal of larger cities, but in recent decades, smaller communities have become more aggressive about courting businesses, even internationally, Wachsmuth says.

"The idea that you have a place in Texas coming up to Calgary, I think 30, 40 years ago, that would have been a very weird event. Now, I think that is increasingly common," Wachsmuth says. 

"The conditions of competition between cities have become more fierce…. It's a treadmill that gets faster and faster. The more that cities invest in attracting business, the more that their neighbours do the same, and then they have to do even more to stay ahead."

Suitor companies eye fall federal election

Rowley's Calgary trip was her first in Canada. She says Alberta's largest city and the west Texas region have a lot in common, including an agricultural industry, universities, technology firms and manufacturers. Lubbock is also close to the Permian Basin, the highest-producing oil play in the world.

The agency's brochure pitches a low cost of living, fewer regulations than other American cities and no corporate income tax.

"With a strong regional airport that provides a great asset to our community, [Lubbock has] just a diverse economy that doesn't rely on one specific commodity or industry," Rowley said. "It's a very stable economy and environment to be in."

Rowley plans to stay in touch with her Calgary contacts in the hopes of convincing them to invest in her Texas community. She's also keeping her eye on Canada's fall federal election, given that many Calgary companies she spoke with told her the outcome of the vote will play a role in their expansion decisions.

Some prospects told her, "We're going to wait to see what happens, and depending on what happens, it might curtail their expansion. It might push their expansion elsewhere [outside of Calgary]."

Jones, of Canadian Bio-Systems, says escalating taxes and regulations at his company's head office and production facility in Calgary, and its production site in Oshawa, Ont., have forced him to consider shifting investment to other cities, and possibly south of the border.

"What we're looking at is municipal, provincial and federal regulations and taxes that we've kind of been taking the brunt of, and it's just a constant escalation," he says.

Jones' company produces natural supplements designed to enhance the health and growth weight of commercial livestock as alternatives to traditional hormones and related products.

The company, he says, will likely always maintain a Canadian presence. Here, it has access to what he considers unique research and development grants in which Ottawa and industry fund projects, a model that has helped him develop products.

Still, he says he's received pitches from economic development officials in Nebraska, Ohio, Florida and Utah, offering Canadian Bio-Systems various incentives to expand into their communities. The courting typically happens at trade shows that Jones visits in the U.S. 

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Jones says Rowley's visit in July was different. It was the first time a recruiter had come to his office in Calgary.

Taxes, regulations, incentives and rail access are part of what's appealing in the Lubbock proposal, he says, but so is the community's location. Canadian Bio-Systems, which sells its products in more than a dozen countries, considers the U.S., Mexico and South America potential growth markets for new customers.

Lubbock could be the gateway.

"Once I do some analysis on freight rates from a spot like this to our other international markets, that's something I'd have to consider as well," Jones says.

For Canadian Bio-Systems, he says an expansion in Calgary is unlikely, given the city's challenges with business property taxes. In fact, he says his company routinely considers moving its head office outside of Calgary to another Canadian community.

Thousands of businesses outside of Calgary's core have been hit by property tax hikes to help fill a massive hole in city revenues left by vacant office towers downtown. In June, Calgary council cut $60 million in spending and dipped into a reserve fund to lower commercial property taxes.

But the property tax problem hasn't been enough to force Canadian Bio-Systems to leave. It also hasn't prevented Calgary from attracting foreign investment.

German chemical firm BASF Corp. plans to move its Canadian agricultural head office from Mississauga to Calgary this fall. Similarly, Parkland Fuel Corp. recently consolidated its Canadian operations in Calgary, thanks in part to an economic development fund.

U.S. video game developer New World Interactive LLC opened its latest Canadian studio in Calgary in June. 

President Keith Warner says Calgary embraced his company more than other suitor cities. It also offers a quality of life that closely parallels that of New World's headquarter city of Denver, Colo.

"Everything fit," he says. "My intention is to put Calgary on the map in a way that Vancouver, Montreal and Toronto are on the map [for gaming]."