Lockheed Martin’s $1.6 billion bond request to the Development Authority of Cobb County last month was unprecedented — the largest ever considered by the authority.
The ask is also “the first of its kind” in Cobb, said Development Authority Executive Director Nelson Geter, in that the authority doesn’t yet know how much financing it might ultimately give the aerospace giant.
Previous bond requests from companies expanding in or moving to the county have been for a one-time project. HD Supply, for example, the commercial distribution spinoff of Home Depot, received $85 million in bonds in 2016 for a new Cumberland headquarters.
Lockheed’s request is instead open-ended. Rod McLean, who heads the firm’s Marietta plant, said the ask would help Lockheed compete for an array of potential government contracts over the next 20 years. Lockheed expects to spend between $400 million and $2 billion to update its plant, depending on how many of those contracts it secures.
What those projects might be is “classified” as of now, McLean said. Issuance of the bonds would be contingent on Lockheed earning those contracts, and the firm says the public financing would lower costs on future bids it submits.
“These incentives make our operations more affordable, enabling us to be more cost competitive on future generational programs,” said Lockheed spokesperson Rob Fuller.
With those contracts, according to documents submitted to the authority, could come an additional 500 to 3,000 jobs on top of the roughly 5,000 workers already employed at Lockheed Marietta.
“With the support of this committee here, we’ll be able to — it’ll allow us to be more competitive, to reduce the cost of those programs that we’re pursuing,” McLean told Development Authority board members in July.
One of the chief advantages for Lockheed is the more favorable interest rates it’ll receive on the bonds, as opposed to going through a conventional bank, according to Usha Rackliffe, a professor at Emory University’s Goizueta Business School who specializes in public finance.
“Any time there’s a revenue stream behind it — there’s a dedicated revenue stream that is going to pay for the bond — obviously, the risk level can go down a bit. So you can get a better interest rate,” Rackliffe said.
There’s also the tax breaks that Lockheed will receive from the authority and the Cobb Board of Tax Assessors. Any abatements start simultaneously with the project for a 10-year term, with 100% of property improvements abated in the first year, before being gradually reduced in 10% increments over the following decade.
In Lockheed’s case, the total amount of abatements remains to be determined.
‘Jewel in the crown’
For investors, Rackliffe said the bond offering will be particularly attractive because of the government contracts backing them up. While there’s still a risk involved — if Lockheed were to somehow go belly-up, the investors would be the ones on the hook — federal contracts are a highly reliable source of income.
“That raises the certainty that they’re going to be generating money off of this investment … That’s more of a sure thing, as opposed to a company that relies on the general public to buy its product,” she said.
At its July meeting, the authority approved an “inducement resolution” for Lockheed’s request — a formal indication that the authority is interested in approving the bonds. That vote carried 4-1, with most board members enthusiastic about the prospect of growing the plant.
“They should be doing that (seeking the bonds), because they are going up against some pretty heavy competition, as they always have,” said board member Donna Rowe. “But if they don’t do this, my opinion is they’re going to be not able to make bids even on some of the future projects that the Defense Department or anyone else would want.”
Should the bonds be approved, the authority itself would receive a fee of 0.125% — or up to $2 million. That fee would go back into the authority’s general fund, according to Geter, which is a financially self-supporting entity.
Rackliffe says she sees another perk for the authority: burnishing its reputation.
“I can see why (the deal) would be a jewel in the crown … a feather in your cap. If you can do this well and help them, that’s an amazing thing, and it sends a good signal to other companies that the Development Authority’s there, they’re open for business, the community is ready — it sends all the right signals,” she said.
Though public financing of private investment has a long history in Cobb, opposition to the practice — from criticism of the taxpayer subsidies provided for the construction of Truist Park, to multiple legal challenges of bond issuances filed by east Cobb activist Larry Savage — also has a storied tradition.
Authority board member J.C. Bradbury, a Kennesaw State University professor who was the lone vote against the resolution advancing Lockheed’s request, argued giving incentives to companies already in Cobb is antithetical to the Development Authority’s mission of attracting new business.
“There have been plenty of incentives that have been given over the years. We have dedicated airspace and facilities that allow (Lockheed) to thrive here,” he said.
Among Lockheed’s recent government incentives is Georgia’s passage and signing of Senate Bill 6, which allows the firm to claim up to $100 million in state tax credits if it spends up to $800 million in new investment.
“It’s not my job to make Lockheed a more profitable company. That’s not the job of Cobb taxpayers. That’s not a good public policy reason to do something. And you might say, ‘Oh, but then there’ll be jobs here.’ We’re at the lowest unemployment we’ve had in how many years?” Bradbury added. “… If our taxes are so high that these companies don’t want to come here, or don’t want to stay here, that’s a question for the Cobb Board of Commissioners, not a question for the Development Authority.”
Rackliffe took a different tack to the same question.
“I think generally you do have to have incentives. This is the lay of the land. I’m not saying it’s right, I’m not saying it’s wrong, I’m telling you — it’s the lay of the land. All state governments, local governments want business in the backyard … There will always be naysayers, but you have to be realistic, you have to be practical,” she said. “You have to recognize this is what it takes. It’s a cost of attracting business.”