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NEW YORK (AP) — Companies stopped paying dividends and stockpiled cash during the Great Recession, and shareholders didn’t complain. Now they want a reward for their patience.
American companies are holding $1.9 trillion in cash, a record. The large businesses that make up the Standard & Poor’s 500 index, all of which answer to public shareholders, have $940 billion on hand — $300 billion of it accumulated since late 2008, says Howard Silverblatt, senior index analyst at S&P.
Shareholders want the companies to start putting that cash to use. The most pressure is coming from activist investors, who buy stakes in companies and then try to influence management to make certain changes that they say are in shareholders’ interest.
“We’ve been in bunker mentality for too long,” says Eric Jackson, who runs the hedge fund Ironfire Capital. He predicts that activist shareholders are about to become “a lot noisier.”
The loudest investors are finally being heard. Companies are letting go of some cash:
— Since the start of this year, 116 companies in the S&P 500 have raised their dividend, up from 78 a year ago. Overall, S&P 500 companies have paid out $16.6 billion more this year in dividends than last year.
— Companies are buying back more of their own stock. Kohl’s, Conoco and Intel all recently announced buyback plans recently. Stock buybacks by S&P 500 companies increased to a record $86.4 billion in the final quarter of 2010, the latest data available. That was 81 percent more than the same period the year before. Investors like buybacks because they tend to push up a stock’s price since earnings are divided among fewer shares.
— Companies are doing bigger deals than they did a year ago. Global mergers and acquisitions were valued at $755 billion for the first three months of the year, 24 percent more than the same period last year, according to financial data-tracker Dealogic. The number of deals declined slightly, to 9,568 this year from 9,825 in early 2010.
Large investors want higher dividends because it means more cash in their pockets to make other investments. Individual investors, especially retirees who depend on dividends for a big part of their income, want more cash to live on.
With acquisitions, investors hope the deals will eventually lead to higher corporate profits.
Investors also don’t want companies to let cash sit in the bank since interest rates are nearly zero, which means the money isn’t earning much.
“The best use of cash is to deploy it,” says Bill Miller, chairman and chief investment officer of mutual fund giant Legg Mason Capital Management. “If companies could maintain profitability and generate cash two years ago … then they don’t need that kind of cash on their books today.”
What has happened over the past few months at Family Dollar illustrates the tension between companies and investors.
Hedge fund Trian Fund Management disclosed last July that it had bought a 6.6 percent stake in Family Dollar. Trian is run by activist investor Nelson Peltz, who is known for making big investments and then forcing change at companies.
When the investment was announced, Trian said it would work with Family Dollar to boost sales and open new stores, and that it had ideas on how the retailer could use its cash. At the time, the dollar-store chain’s cash balance ran about $503 million, a record high.
By September, Family Dollar had announced plans to spend $750 million, including some cash and some new debt, to buy back its stock. In January, Family Dollar increased its quarterly dividend by 2.5 cents, to 18 cents a share.
Family Dollar says it worked with Trian to boost shareholder value. “They shared their ideas and we listened,” spokesman Josh Braverman says. He also noted that some of what Trian wanted, including the buybacks and more rapid expansion, was in the works before Trian invested.
But Trian still wasn’t satisfied. It made a $7 billion, all-cash, hostile bid for control of Family Dollar on Feb. 15 and announced it had raised its stake in Family Dollar to 7.9 percent, making it the largest shareholder.
Family Dollar rejected the bid in early March, saying it undervalued the business, and adopted a defense strategy to discourage unsolicited offers. Trian responded by sending a letter to Family Dollar’s board saying that the company had “embarked on a path of poor corporate governance.”
Trian didn’t respond to a request for additional comment. It has already seen the value of its investment rise. Since it disclosed its investment in July, Family Dollar stock has gained about 26 percent, to about $52.
Fights like this are likely to be more common this year if companies don’t accelerate their use of cash.
“Activists are interested in getting an outcome, but most do not need to storm the castle to get it,” says David Rosewater, a partner at the law firm Schulte Roth & Zabel who advises companies and investors on shareholder activism.
Shareholder Joseph Stilwell, who mostly invests in community banks through his investment firm Stilwell Group, has spent the last few months meeting with corporate managers privately to discuss what he’d like to see done with the money. Those discussions usually happen in winter, well ahead of annual shareholder meetings that typically take place in the spring. That’s when investors elect the board and vote on other proposals.
If he doesn’t see a resolution to his liking, he says he might seek a board seat, or as a last resort, file a lawsuit. In the past, he has filed lawsuits to have directors removed from boards for breaching their responsibility to shareholders.
Some companies recognize that shareholders are focused on their ballooning cash balances. Kohl’s, the discount department store chain, had a record $2.3 billion in cash on its books at the end of its fiscal year in January. The company recently announced plans for its first dividend, with a payout of 25 cents a quarter. The company also said it would more than triple its stock buyback program to $3.5 billion.
“We have had a very strong, consistent performance, and we wanted to make sure to give back to our shareholders,” Kohl’s CEO Kevin Mansell tells The Associated Press.
General Electric, with a cash balance of about $20 billion for its industrial businesses spree. In the past five months, it has announced acquisitions worth more than $11 billion, mostly in its energy business. One of the biggest bids came this week — a $3.2 billion deal for a French power conversion company.
Overall, GE has almost $80 billion in cash. The financial parts of its businesses, like lending arm GE Capital, are required to keep more resources on hand.
GE has also raised its quarterly dividend twice in the last seven months, first from 10 cents to 12 cents a share and then from 12 to 14. For the year, that means it would pay out 56 cents a share.
Two years ago, GE’s dividend was more than twice that — $1.24 a year. Like many companies, it has a long way to go before it starts rewarding shareholders as well as it did before the Great Recession.]]>
The world’s largest fertilizer producer wants to locate a rail transfer center in Hammond at the Gibson Yard, which could kick off more development and job creation there, Hammond Mayor Thomas McDermott Jr. said.
City officials have talked about a “multimillion dollar investment” north of Summer Street for some time. But McDermott confirmed for the first time this week that PotashCorp, of Saskatoon, Canada, is the interested party.
The fertilizer maker is working with Indiana Harbor Belt Railroad on what would be an $80 million project at the Gibson Yard, the mayor said.
“It is a major, major investment that we are talking about at that location,” McDermott said.
In addition, Indiana Harbor Belt Railroad has told the city two other companies are interested in locating there if the deal is finalized, said Phil Taillon, Hammond director of planning and development. Total investment by companies at the site eventually could reach $200 million.
Taillon said negotiations still are under way on incentives, but the deal could be complete within six months. The most likely incentive is creation of a tax increment financing district, where the company would make payments in place of property taxes that would be used to improve infrastructure at the site, he said.
Taillon said it would be the company’s largest transfer facility in North America.
“As much as they want to be in Hammond, we want them to be in Hammond,” McDermott said. “But we will not give away the store.”
Indiana Harbor Belt now is spending about $800,000 to clear and level 90 acres of land south of its tracks between Columbia Avenue and Indianapolis Boulevard’s Nine Span Bridge, said Jim Sheppard, Indiana Harbor Belt senior director of commercial operations.
Sheppard said the work is not for any specific tenant but is being done in anticipation of future opportunities.
“It’s a big piece of land in this area, and we just want to be ready whatever opportunities come down the road,” Sheppard said.
PotashCorp Public Affairs Director Bill Johnson confirmed Gibson Yard is one of a number of sites the company has looked at in the Midwest for its new operation. He said no agreement has been signed for the site and any work being done there now is not being done at Potash’s direction.
McDermott said only about five to 10 people would be employed by PotashCorp at its operation. But railroads estimate the project would create up to 70 additional jobs on railroads that would be shipping PotashCorp product, he said. The building of the facility would create 225 construction jobs.
The biggest job creation actually would come when other companies follow PotashCorp to the site with associated operations, McDermott said.
The area between Summer Street and the Gibson Yard is one of the most blighted in the city, Taillon said. It contains many old factory buildings, including the abandoned Gladden paint factory. PotashCorp is interested in a site off Hump Road, which sits about halfway between Columbia Avenue and Indianapolis Boulevard, he said.
State plans for building a new Nine Span Bridge call for a bridge of the same height and length as the present one, meaning it will not interfere with any future projects at Gibson Yard, INDOT spokesman Jim Pinkerton said. Some earlier plans had called for the bridge to be shortened, potentially restricting activity at the yard.
PotashCorp employs 5,486 worldwide and is the world’s leading producer of potash, a key ingredient in agricultural fertilizers. It has operations in seven countries around the globe.
Indiana Harbor Belt Railroad is the largest switch carrier in the United States, providing all Class I railroads and others in the Chicago area with connections to one another and to key customers.]]>
Hoosier homeowners still are feeling the sting of the recession as property values are sticking in the doldrums after hitting peaks in recent years.
But after taking a slight dip during the recession, agricultural land values are continuing to rise and have doubled their average from a decade ago.
Industry observers are carefully analyzing whether a bubble burst is possible with farmland values akin to what brought the real estate market to its knees, triggering the global financial meltdown.
Last month, the U.S. Department of Agriculture forecast a 6.8 percent rise in the farm sector’s net worth in 2011, largely because of an increase in real estate values. Helping to boost projections for land, the agency expects net farm income nationally to jump nearly 20 percent to $94.7 billion in 2011 despite an increase in production expenses.
According to Brent Gloy, director of Purdue University’s Commercial Agriculture Center, the value of average quality land in Indiana is approaching $4,500 an acre, up from less than $1,000 an acre in 1987. Growing world incomes, increased use of food crops for biofuels, low interest rates and a weaker U.S. dollar have helped push crop prices and land values higher, Gloy said in a Federal Deposit Insurance Corp. presentation earlier this month.
Despite concerns about a bubble burst, Gloy said he didn’t think land values are dramatically inflated, although there is a great deal of uncertainty about future levels because of the complex global agricultural picture.
Fred Martin, associate broker at Indiana Location, Realtors in Kouts, said farmland prices depend on many other factors including the amount of farmable land on a property, land features, cost of production and past product yields. One of the problems he sees in Northwest Indiana is that people who are trying to sell are having a hard time finding buyers willing to pay their asking price.
“Land prices are getting to the point where I don’t personally think I’d want to buy any more ground at these levels,” said Morgan Township farmer Tim Stoner. “These are levels that if we lost 30 to 40 percent of the value of these commodities for any substantial period of time, it would be very difficult for cash flow.”
Farmers have benefited from higher levels of agricultural production and exports in recent years, which are helping raise land values. About 26 percent of the country’s soybean acres went to China in 2010, compared to 12 percent five years earlier, Gloy said in his report.
Susie Hayden, who farms about 4,000 acres of land in Eagle Creek Township with her family, said she hasn’t seen much land changing hands since the recession and crash of the real estate market. Prior to the real estate collapse in the mid-2000s, farmers were more frequently competing with residential or commercial real estate developers who sought to develop agricultural land.
“I think if corn prices stay up, you might see some farmers buying land if it’s available,” Hayden said.
The run-up in prices is affecting groups of farmers differently, said Wayne Belden, regional manager with the Indiana Farm Bureau. For a young farmer, it may be difficult to procure land because of the high costs needed to buy it, but for older, well-established farms, the land is a stable investment.
Stoner suggested that instead of thinking price increases are bad, people need to understand that real estate valuations follow regular ebbs and flows. In the early to mid-1980s, farmers carried heavy debt loads as they borrowed against equity held in equipment or land.
When commodity prices dropped and interest rates “exploded,” he said many farmers weren’t able to service their debt and eventually lost their livelihoods. He said the good news now is that the capital positions many farmers have are a lot stronger than in any other time in history.
Now, Stoner said many farmers are working to build their capital positions and create a safety net when commodity prices start to erode, “which will happen.”]]>
The first patient treated in Franciscan St. Anthony Health-Crown Point’s new Neonatal Intensive Care Unit has gone home with a basketful of gifts and well wishes.
Avery Petersen, daughter of Lauren and David Petersen, of Valparaiso, was born at Franciscan St. Anthony on March 6 and was brought to the neonatal unit on March 7, its first day of operation. She was born at 34 weeks, six days; was 18 inches in length and weighed five pounds, 11 ounces, according to her mother. Avery has a brother, Elliott, aged 3 ½.
Jillian Hanger, unit manager, presented the family with a gift basket on behalf of the staff on March 18, the day before the infant went home. Among its contents were developmental toys, books, sun screen, a blanket, a sleep-sack and a wrist rattle.
Besides nursing staff, also on hand to bid farewell were Dr. Sudish Chandra, neonatal unit medical director, and Dr. Rashmi Aggarwal, a neonatal physician.
Asked why the parents chose Franciscan St. Anthony Health for their child’s birth, Lauren Petersen said, “We’ve heard nothing but good things about St. Anthony from friends and others.’’
Construction of the 12-bed neonatal unit, located in the hospital’s seventh-floor obstetrics unit, called The Birth Place, began in October and was completed in February. Its $2.5 million cost was funded by the Franciscan St. Anthony Capital Campaign, which also financed construction of a new complex at 1121 S. Indiana Ave. to house St. Clare Health Clinic and the Prenatal Assistance Program, which opened in May. Both programs provide free services for underinsured and uninsured area residents.
For more information on the neonatal unit, call (219) 681-6863.]]>
Tourism chiefs across the region are touting initiatives to rebuild after the recession devastated overall hotel revenues and lowered occupancy rates, with some recovery seen last year.
Some are building on existing programs to lure visitors, one is lucky enough to have an expanded convention center, while one is calling for a “game-changer” for the region.
“We need a demand generator,” said Speros Batistatos, CEO of the South Shore Convention & Visitors Authority, based in Lake County. “We need something that will bring people here and move occupancy up.”
That something is a 75,000- to 100,000-square-foot multi-use facility capable of hosting conventions, trade shows and sporting events, Batistatos said. A local sales tax on food and beverages at restaurants and bars is his favored means of paying for it.
Batistatos has pushed for building such a facility before. He now is making the rounds of chambers of commerce and community groups in a renewed push, saying it may be the only thing that can save tourism in Northwest Indiana from falling off a cliff.
“Everyone has to understand the dire condition the industry is in right now, because we are asking them to pay a tax and that’s no small thing,” Batistatos said.
Particularly alarming for all three counties was a sharp drop in visitors coming for youth sporting events, which declined to just 26,852 in 2010 from 70,733 the year before, according to the authority’s count. In 2009 those 70,733 visitors generated an estimated $3.6 million in total economic impact.
Lake County occupancy rates recovered modestly last year, averaging 58 percent for the year, according to Smith Travel Research’s Trend Report. But that is off from a 64 percent occupancy rate just a few years ago.
Total hotel revenue in Northwest Indiana dropped to $86.1 million in 2009, a 14.9 percent decline from the previous year’s figure of $101.1 million, according to the trend report. Last year, hotels started to recover, with $90.1 million in revenue.
But Batistatos said those figures showing a slight recovery mask a steep falling off in the three critical categories of corporate travel, motor coach tours and youth sports.
Indiana Dunes Tourism, based in Porter County, also is looking for ways to build momentum coming out of the recession, said Executive Director Lorelei Weimer. The agency is expanding its Internet, social media and branding reach to generate more revenue from the county’s No. 1 attraction.
“The Indiana Dunes is clearly the driver,” Weimer said. “It’s what puts us on the map. It’s what’s getting visitors to our door.”
The Indiana Dunes National Lakeshore set a record for visitors last year, with 2,165,605 people coming to the National Park in 2010, an 11.8 percent increase over 2009.
Indiana Dunes Tourism is focusing on programs that will get more of those visitors to venture to all of the communities south of the park and stay in the region longer, Weimer said.
The agency already has “hit a home run” with the creation of its Beyond the Beach Discovery Trail, which guides visitors to attractions throughout the region, she said.
This year, the agency is focusing on creating unique brands for each community in the county.
“What we are saying is we have the product, but we have to do a better job of packaging it,” she said.
In what was a year of modest recovery for most of the hotel industry locally and nationwide, occupancy rates at Porter County hotels actually fell to 51 percent last year from 52 percent in 2009, according to the Smith Travel Research’s Trend Report. However, the opening of two new hotels in Porter County boosted the supply of rooms by 9.2 percent, and overall room revenue was up 4.7 percent.
The opening of the 272-room Blue Chip Casino hotel and the Super Boats Great Lakes Grand Prix event in August have been two of the biggest developments in LaPorte County tourism in recent years, according to Jack Arnett, executive director of the LaPorte County Convention & Visitors Bureau.
The hotel has a 20,000-square-foot Stardust Events Center and other meeting spaces that have opened up new opportunities for attracting conventions, Arnett said.
“It has changed our whole marketing approach,” Arnett said. “We are reaching into venues we didn’t reach into before. It’s all new to us, but it’s a good thing.”
The Super Boats Great Lakes Grand Prix, featuring massive powerboats racing off Michigan City, is now in its third year and draws about 100,000 people to the lakefront. The tourism bureau is looking to grow the event’s estimated $6 million economic impact.
Hotel occupancy rates ticked up slightly in LaPorte County in 2010 to 46 percent, after two years of decline, according to Smith Travel Research’s Trend Report. The addition of the 272 rooms at Blue Chip appear to have been part of the reason for the drop in 2009, increasing the supply of hotel rooms in the county by 19.2 percent.
Room revenue and room demand were up 5.3 percent and 6.9 percent, respectively, in LaPorte County in 2010, after moving up 12.1 percent and 9.5, respectively, the year before, according the trend report.
The south suburbs
The Chicago Southland Convention & Visitors Bureau is counting on venues such as the Tinley Park Convention Center and Toyota Park, a 22,000-seat sports arena and concert venue, to continue the recovery that began last year, said bureau CEO Jim Garrett.
Right now, the convention center is creating the most excitement because of the $21.4 million expansion project that has added 58,000 square feet of contiguous meeting space with 1,500 parking spaces available outside.
“We feel it will give us an important leg up,” Garrett said. “It’s designed and built so it can hold 65 percent to 70 percent of all trade shows in the country.”
Working together, working apart
As Batistatos builds his case for a major convention/sports complex in Lake County that would be on a par with Illinois facilities, he also emphasizes his board of directors remains firmly committed to seeking a merger with the Porter and LaPorte county visitors bureaus. That is something those two tourist agencies always have resisted.
“We need game-changers. We need investment,” Batistatos said.
Weimer said the board of directors of Indiana Dunes Tourism firmly believes in regionalism but remains opposed to what she termed a “hostile takeover” by Lake County.
She pointed out Indiana Dunes Tourism already is a member of the Northern Indiana Tourism Development Commission, a cooperative spanning seven northern Indiana counties.
Arnett in LaPorte County also pointed out his tourism bureau is a member of the seven-county development commission, which allows members to share financial resources and marketing efforts.
“We are in it because we want to be in it,” he said. “We are not being forced into it.”
Batistatos maintains the recent recession has created the “perfect storm,” battering tourism across all three counties.
Batistatos said it doesn’t look like the region will be getting lost visitors back, in large part because it lacks a suitable facility for many youth sporting events. He pointed out that nine Amateur Athletic Union basketball tournaments organized by Gary-based Baylor Basketball will be going to the Hidden Cove Sportsplex in Bourbonnais, Ill., this year and two others to other cities.
The authority estimates the region will miss out on 26,250 visitors who would generate $1.26 million in total economic impact because the tournaments are not being held here.
Read more at nwi.com.]]>
Bankers and merchants, pillars of the business world and frequent allies, are embroiled in a bitter lobbying battle over something Americans do 38 billion times a year — swipe their debit cards. Both sides vigorously claim to speak for consumers.
At stake is $16 billion annually that the Federal Reserve says stores pay to banks and credit card companies when customers use the cards — fees the Fed has proposed cutting.
Cut the fees, banks say, and they’ll have to abandon free checking and boost other charges to consumers to recover lost revenue. Merchants say lower fees would help them drop their prices and expand their businesses.
Currently, the fees typically range between 1 and 2 percent of each purchase, averaging 44 cents. The Fed has proposed capping that at 12 cents, though smaller banks could charge more. Bankers want lawmakers to delay the change in hopes that it will eventually be killed or toned down.
Patrick Lewis and Charles Garlock are foot soldiers in this fight’s opposing infantries.
Each side is dispatching planeloads of hometown business people like them, along with armies of lobbyists and mountains of letters and e-mails to Washington. Some 4,000 local credit union officers swamped the Capitol last week, and around 300 merchants are buttonholing lawmakers this week. Unless Congress delays the deadline, the Federal Reserve must issue a final rule by April 21, to take effect three months later.
Lewis, a partner in 13 Oasis Stop ‘N Go convenience stores in southern Idaho, was visiting Idaho lawmakers on Thursday urging them to back the Fed proposal. He said the $275,000 he pays yearly in debit card fees trails only payroll and his properties’ mortgages and rents.
“I don’t think her boss is necessarily on our side,” he said spending a half hour with an aide to Rep. Mike Simpson, R-Idaho. “But maybe if we provide enough information it will change.”
Garlock, president of the Rock Valley Federal Credit Union in Loves Park, Ill., said he would lose $150,000 to $175,000 annually if the Fed’s proposed cut in fees is adopted, about one third of his credit union’s net annual income.
“The little guys will be hit the worst. I can’t sustain it,” he said during his lobbying visit last week.
Though bankers are outspending their rivals on lobbying and campaign contributions and seem to have gained momentum, merchants so far have the upper hand. The bankers are trying to get Congress to undo legislation it passed just last year, a tall order on any subject.
Banks and merchants are often allied on such issues as taxes and regulation, but the debit card battle has driven them apart, each accusing the other of trying to pocket unjustified profits in what has become an emotional fight.
“Take a white kitten and put it out, and they will find ways to say how evil it is,” Lyle Beckwith, lobbyist for the National Association of Convenience Stores, said of the bankers.
“This is as close to a pitchfork and torch issue as I’ve seen from our guys,” said Jason Kratovil, lobbyist for the Independent Community Bankers Association.
Debit cards are now the most common way besides cash that consumers make purchases, according to the Federal Reserve. Though the transaction takes just a few moments, it is enabled by a vast behind-the-scenes system for preventing fraud and storing data.
When a customer swipes a debit card, it is tapping directly into their bank account to make a purchase. The debit card network, the customer’s bank and the merchant’s bank quickly exchange information and approve — or disapprove — the transaction, though the actual payment of money can take a day or two.
The battle is being waged with petitions, in newspaper and Internet ads and on the airwaves.
A coalition of banks and credit card companies has run a TV spot in Washington, D.C., in which a mom unloading groceries says Congress gave retailers a huge gift by allowing the fee to be curtailed. She asks, “I wonder who’s left holding the bag.”
Firing back in one response, Montana retailers have aired a radio ad aimed at Sen. Jon Tester, D-Mont., a critic of the rules, accusing him of “standing with Wall Street” against the state’s small businesses.
The financial system overhaul law that Congress and President Barack Obama enacted last summer ordered the Federal Reserve to curb the so-called interchange fees but left specifics to the central bank. That subjected the Fed to lobbying that included over 8,000 letters and nearly three dozen meetings with industry officials — mostly from banks and credit card companies.
Since the Fed’s public comment deadline passed last month, the focus has shifted to Congress, where foes of the plan are expected to soon introduce legislation to delay it.
Unlike most issues in Congress, the dispute divided Democrats and Republicans internally since the industry groups each say its own side would help consumers and the other’s would hurt them.
“This is why members hate voting on something like this. There’s only downside,” said Jaret Seiberg, a policy analyst at the financial firm MF Global.
Measured by sheer financial might, bankers have a clear edge.
Commercial banks, credit unions, and Visa and MasterCard — who run the biggest debit card networks — spent a combined $75 million lobbying on all issues in Washington last year, nearly double the retail industry’s $40 million, according to the nonpartisan Center for Responsive Politics, which tracks such spending. The American Bankers Association, JPMorgan Chase, CVS Caremark Corp. and Wal-Mart Stores Inc. are among the biggest spenders.
Overall, financial firms outspent the merchants by about the same margin on contributions to candidates during the 2009-2010 congressional campaign, $12 million to $6 million.
Yet the bankers face the steeper climb. Not only are they trying to get Congress to reverse itself, they still bear ill will from their part in the nation’s financial crisis and the bailouts that followed.
“To pass something you have to clear quite a few hurdles,” said Doug Kantor, an attorney for the Merchants Payments Coalition, representing retailers. “It only takes missing one of those hurdles to derail an effort.”
Even should the bankers prevail in the GOP-run House, they’d still have to contend with Sen. Richard Durbin, D-Ill. He got the changes included in the financial overhaul bill on a 64-33 vote and remains a tenacious advocate of the lower fees.
Should a new vote occur, Durbin is sure to use Senate procedures that would let him win with just 41 of the Senate’s 100 votes. His job as the Senate’s No. 2 Democratic leader means Democratic senators considering reversing their vote from last year would have to think twice.
“We face a challenge in this area, but we continue to push,” said Ken Clayton, the American Bankers Association’s chief counsel.
The bankers have made progress.
Six senators who backed Durbin last year are no longer in Congress. And Sens. Kay Hagan, D-N.C., Michael Bennet, D-Colo., and Mike Crapo, R-Idaho — who all backed Durbin last year — have expressed worries that an exemption the Fed proposed letting smaller banks continue charging higher fees will not work. Members of both parties on the House Financial Services Committee and Senate Banking Committee have also voiced concern.
Fed Chairman Ben Bernanke has given the banks more ammunition. He has told lawmakers that the exemption for smaller banks might not work and said uncertainty over that and other issues — such as whether to include banks’ costs for covering debit card fraud in setting the fee — means the Fed might not complete the rule by April 21.]]>
YOUNGSTOWN, Ohio | Convincing people this city is open for business has been a battle during the last several decades.
The economic effect of the decline in manufacturing jobs since the 1970s has rolled through the area, accelerating a decline in industry-dependent businesses and those relying on workers’ incomes.
Investing in declining urban areas can be a tough sell, despite a glut of available real estate and a labor pool clamoring for opportunities.
But in the last few years, the city and region have been able to secure major job commitments from a steel company, a call center operator, a software developer and other employers.
Walter Good, of the Youngstown/Warren Regional Chamber of Commerce, said the upswing in prospects began with the realization the area had to be less reliant on steel as the breadwinner. It didn’t mean the city had to abandon its iron-forged roots. But business leaders had to look forward and see that Youngstown needed to be better positioned for success, Good said.
“We never want to be in the position again of relying on one industry or a couple industries like we were,” said Good, vice president of economic development, retention and expansion for the chamber.
Elected Youngstown’s mayor in 2005 and re-elected in 2009, Jay Williams said the city had to create a hospitable environment to attract the private sector. Williams, who previously worked in banking and later in community development, said strategies included reconciling wide gaps between the public and private sectors and reducing government bureaucracy.
Resolving these issues has spurred economic development in the region, helping the Youngstown area secure deals and gain attention in the state and nationally, Good said.
Rankings from national publications can be a double-edged sword. Late last year, Forbes ranked Youngstown No. 4 on best places to find a job this winter. However, earlier this year, the city landed at No. 18 among 200 of America’s Most Miserable Cities.
Another statistic that rankles officials is Youngstown’s 12.5 percent unemployment rate in January compared to the 10.1 percent Ohio average.
Tweaking the approach
Hunter Morrison, director of community planning and strategic partnerships for Youngstown State University, said cities often can go wrong in thinking a large industry can be replaced in one fell swoop. Youngstown had to learn the hard way there are no magic elixirs for losing your largest employers in several decades.
“The silver bullets don’t work,” Morrison said. “You cannot replace the big box that was the steel mills with another big box that’s a convention center, a casino, whatever … and expect that that’s going to restart your economy.
“And it’s very tempting, particularly for public officials desperate to make some statement or some progress, to fall in love with these big-box ideas — most of which don’t work or when they do get built, they’re very expensive and they have limited impact on the rest of your economy.”
However, the chamber’s Good said the announcements by firms such as V&M Star LP, which will employ 350 at a new seamless pipe-rolling mill in Youngstown, have helped the city retain its presence in the metals industry. The city also may have opportunities to market the area to businesses seeking to capitalize on investments in nearby natural gas exploration efforts.
“We all know that Job One today is job creation,” Good said. “And the team is in place … that we can mobilize very, very quickly to attract and support a project.”
Good said Youngstown markets itself as being strategically located less than a two-hour drive from Cleveland and Pittsburgh, but also only eight hours away by car from Chicago and New York. As a result, the chamber representing Mahoning and Trumbull counties is focused on attracting distribution and logistics and advanced manufacturing firms, he said. Mayor Williams said Mahoning Valley’s decision to stop competing directly with larger nearby metropolitan markets spurred progress.
“Several years ago, we realized it’s useless to compete head to head with Pittsburgh and Cleveland,” Williams said. “It’s not going to happen.”
The Mahoning Valley had to find its niche. Williams said Youngstown can offer a high quality of life, a lower cost for businesses, less bureaucracy compared to the larger areas and less traffic congestion. And instead of competing directly with “iconic American cities,” Williams said people started thinking about how to market the combined strengths of the northeast Ohio region and western Pennsylvania.
Good said Youngstown is part of “Team NEO,” a concept developed in 2002 to develop an economic development agenda for northeast Ohio’s 16 counties that are home to Cleveland, Akron and Canton.
Becoming a hub for innovation
Youngstown Business Incubator CEO Jim Cossler adopted the moniker “chief evangelist” for promoting the innovation of incubator businesses and developments in the city.
Cossler said he faces some detractors who think the incubator hasn’t been effective at launching software companies, for instance, because it has created only 320 jobs downtown in 11 years. But he expects incubator employment will double by mid-2012 because of the solid foundation built for operations and continued improvement in the companies’ performance.
When the incubator opened in 1995, officials at the time weren’t concerned with the type of businesses wanting to locate at the facility, said Cossler, who joined the organization in 1997. But Cossler said the one-size-fits-all approach didn’t work, and the group was in jeopardy of losing its state funding.
Through a state initiative adopted about 10 years ago, the incubator was required to focus on working with companies developing proprietary technology and that have a likelihood of producing a significant amount of new jobs. As a result, the incubator’s strategy is to grow software firms that develop applications or technology to sell to other businesses.
“Software companies are manufacturers,” Cossler said, affirming these firms can succeed in an area built by manufacturing. “They’re taking raw materials, bits of code, combining it together – lines of code – and pushing out the door a value-added product. There’s not a lot of difference between the steelmaking process and software-creation process.”
He declined to reveal specific sales and revenue figures for incubator businesses but said eight software companies with physical offices at the incubator did $65 million in global software sales in 2010.
‘Turning’ the tide
Mike Broderick, CEO and co-founder of Youngstown-based Turning Technologies, has been with the incubator for its entire 10 years of operation. Broderick said his firm received a chilly reception from entities outside the incubator, as they doubted a software firm could become viable.
Now many business leaders mention Broderick’s company among the city’s gems. In the atrium of an incubator building occupied by Turning Technologies, standing shelves are decorated with awards touting achievements from regional business groups and Inc. magazine.
“Ten years ago, there was still a lot of gloom and doom and negative outlook in the area,” Broderick said. “There’s still some today, but an awful lot less than 10 years ago.”
Turning Technologies produces software and hand-held devices used in school classrooms and business boardrooms in testing or audience engagement. Without revealing revenue figures, Broderick said the company is profitable and has sold its products and services in more than 90 countries.
“Turning (Technologies) as a company isn’t going to save Youngstown, Ohio, that’s for sure, from the economic condition of the past,” Broderick said. “However, if we’ve done anything, we’ve shown, yes, it can be done. And the hope for Youngstown and for the further development of downtown and the rest of the area is the multiplication of what we’ve done.”
Being born in the 1980s, Youngstown resident Jacob Harver missed the days of a bustling central business district.
Harver, 28, said he’s nostalgic for the stories he has heard and was motivated to open a business that reflects the character of the community. Harver opened the Lemon Grove cafe in August 2009, a swanky venue with an eclectic mix of art from college students on the walls and energetic bands playing music during lunch or for evening concerts.
Harver said his 30-employee small business produces value that can’t be tracked in data.
“It’s more than just a business, it’s a community movement of sorts,” Harver said. “… Our goal was to show you can not only have a business in downtown Youngstown, but you can build up the community.”
Connecting the dots
Cossler, the business incubator CEO, said he was part of an effort to reach out to the city’s diaspora to help bring people back to the area. He said the Youngstown Business Incubator has been able to develop a network of people who can vet companies in their early stages and determine whether a firm is commercially viable.
Making connections is what helped bring software company employee John Slanina to Youngstown in 2010.
While living in the Netherlands, Slanina created his “I Will Shout Youngstown” blog in 2006 to spread positive messages about his hometown and connect with other Youngstown natives abroad.
“You can’t operate as an island in a global environment,” said Slanina, 33. “Companies don’t know when they’ve tripped from Gary into another community. As much as we think that sometimes this is a small place, Youngstown has a global brand.”
Turning Technologies’ Broderick said Youngstown’s evolution has resulted in a more business-friendly environment than in the past.
“If I need something, I know I can pick up the phone, and our mayor is going to answer and take my call and do anything he can to help facilitate,” Broderick said. “I can say the same thing for our congressman and local politicians.”
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City of Gary employee Antoine Brown worries about the American Dream becoming unattainable for many families.
Brown said he and other workers struggle to avoid thinking about not receiving a pay raise in five years and how budget cuts could further reduce salaries and personnel.
But Brown is one of the lucky ones. He’s still employed.
Brown and thousands of other workers in recent weeks have filled the Indiana Statehouse to voice their frustrations about conditions for the country’s middle class and legislation they say is aimed at attacking their livelihoods.
In response to the legislation, unions for public employees, construction trades and manufacturing workers are coordinating fights to galvanize labor in different states in a manner some historians say harkens back to the early 20th century.
“We’re actually in a war right now,” said Brown, a driver for the Gary Recycling Department and member of International Brotherhood of Teamsters Local 142. “It’s a war with the working man versus big business, and unions are in the middle since they represent the working man.”
A ‘tough period’
Labor historian Ruth Needleman said the protests in Indianapolis, Madison, Wis., and Columbus, Ohio, are borne of fear and discontent. She said people see their economic situations as fragile while businesses continue to receive government subsidies and companies continue to invest money overseas.
Teamsters President James Hoffa said the recession has hurt millions of workers and many have yet to fully recover financially and emotionally from job and income losses. But the “machete attacks” on workers’ rights are part of a coordinated strategy to reduce the influence of unions, Hoffa said. Although the labor movement is going through a “tough period,” he said unions are becoming closer and less concerned about self-interest.
Since the recession ended in June 2009, the nation’s unemployment rate has fallen less than 1 percent, but the Dow Jones industrial average and S&P 500 index have had gains of more 40 percent. The rate of underemployment in Indiana and nationwide also is falling, but about 17.4 percent of the Hoosier labor force is without work, has stopped looking for work or is employed part time for economic reasons.
“Unions have been making concessions since the ’80s,” said Needleman, who is director of the Working Class Studies program at Calumet College of St. Joseph and professor emeritus of labor studies at Indiana University Northwest. “All these concessions pushed more money to the top and that money doesn’t get reinvested anywhere in this country. That is a fundamental problem.
“What has happened is that working people, not just union activists, are understanding that if they do not raise their voice politically, they will lose their voice economically … and then they’ll lose their voice politically.”
Making their voices heard
Union leaders say the voice of the labor movement continues to be strong, despite membership being on the decline for years. Indiana ranks No. 25 among states with 10.9 percent of employees in the state belonging to unions, according to data from the Bureau of Labor Statistics. Ten years ago, 15 percent of workers in the state were unionized. Likewise, the nation’s union membership rate has fallen to 11.9 percent in 2010 from about 20 percent in the early 1980s.
Don Lutes, Griffith resident and Inland Steel retiree, said a person would be hard-pressed to find a worker at his former union hall, United Steelworkers Local 1010, who doesn’t believe leaders are working in their best interest. He said unions are important to help people remain politically informed and fight for fairness in the workplace.
House Democrats in Indiana and Wisconsin became darlings and demons among workers for leaving their respective states to halt votes on legislation they didn’t support. Attendees of rallies at the Indiana Statehouse lauded the actions Democrats took and in both states described the Republican Party as not being attentive to issues of workers.
Eric Holcomb, chairman of the Indiana Republican Party, counters that controversial legislation, namely the right-to-work bill, is off the table and now members of the General Assembly can focus on issues of immediate concern to Hoosier families.
“All Republican leaders in the Statehouse are all focused on an ambitious agenda to balance our budget, improve our education system and continue to make Indiana a great place to create and grow jobs,” Holcomb said.
Randy Palmateer, business manager for the Northwestern Indiana Building and Construction Trades Council, said any effort to improve conditions for workers has to begin locally. He said regional leaders, regardless of their political affiliation, should develop a framework to increase employment.
“The region needs to put aside the petty politics and come together for the families of Northwest Indiana to create jobs,” Palmateer said.]]>
Developments in far off lands could have a big impact on everyone’s drive to work in Northwest Indiana, with the number of freight trains lumbering through the region expected to double by 2035.
That is because a historic shift in shipping patterns has the potential to hit the East Coast with an “Asian tsunami” of seaborne freight over the next two decades, according to freight experts. Much of that freight will make its way to Chicago and the Midwest via a 15-mile-wide rail corridor in Northwest Indiana.
Developments in far off lands could have a big impact on everyone’s drive to work in Northwest Indiana, with the number of freight trains lumbering through the region expected to double by 2035.
That is because a historic shift in shipping patterns has the potential to hit the East Coast with an “Asian tsunami” of seaborne freight over the next two decades, according to freight experts. Much of that freight will make its way to Chicago and the Midwest via a 15-mile-wide rail corridor in Northwest Indiana.
“There is a re-emergence of the Midwest as the new discretionary cargo hub for this recovery,” said John Vickerman, an international freight consultant. “It leads me to believe the Midwest and Chicago will be the new epicenter of operations for logistics.”
An enlarged Panama Canal, overburdened West Coast ports and renewed interest in the Suez Canal for shipping goods from Asia will drive seaborne cargo to the East Coast and then the Midwest via rail, Vickerman told business leaders and state officials last fall at the Indiana Logistics Summit in Indianapolis.
A ‘freak of geography’
Virtually all rail freight coming from the East Coast must squeeze into Chicago through a Northwest Indiana rail corridor containing six mainline tracks, myriad rail connections and more than 864 at-grade highway crossings.
“Northwest Indiana is a freak of geography, where everything gets squeezed into a narrow corridor, and that makes the community impact so much greater,” said professor Joseph Schwieterman, of DePaul University’s Chaddick Institute for Metropolitan Development.
The greater Chicago region, including its south suburbs, is also in for a big increase in train traffic in the next two decades, according to several national studies. But trains make their way into the city along a 150-mile arc running from Waukegan in the north to Crete in the south. In the south, only Joliet comes close to having the same type of rail congestion as Northwest Indiana.
Half a decade ago, the Chicago region came up with the $3 billion Chicago Region Environmental And Transportation Efficiency Program, or CREATE, for dealing with rail congestion.
But Northwest Indiana has no overall plan for dealing with its coming deluge of freight trains.
Northwest Indiana’s only stab at dealing with rail-crossing issues on a regional basis was the Four Cities Consortium formed by Whiting, Hammond, East Chicago and Gary more than a decade ago. That plan fell apart three years ago due to political infighting.
“I hope that plan is not entirely dead,” said Northwestern Indiana Regional Planning Commission Executive Director John Swanson. “I hope local communities can agree with railroads to move some of these projects forward.”
The Four Cities plan would have shifted much of the train traffic on Lake County’s far northern end to two lines known as the Porter Branch and the High Line. The Porter branch would have been used to carry trains south from the Hohman Avenue overpass in downtown Hammond to the High Line in Gary. The High Line has numerous viaducts that carry the tracks over Gary city streets. The move would have eliminated 38 at-grade rail crossings.
A Dec. 15 gathering of railroad representatives, transportation planners and economic developers at a freight summit at NIRPC identified grade-crossing improvements as the No. 1 priority for the region when it comes to dealing with increased freight traffic.
Improving at-grade crossings and, wherever possible, eliminating them would help speed rail freight and vehicle traffic, Swanson said. It also would improve air quality, as long lines of cars and trucks waiting at crossings are a leading source of air pollution.
And paramount for both railroads and residents is the increased safety that comes with crossing improvements, Swanson said. Highway-rail crossing accidents have claimed 39 lives in the past 10 years in Lake and Porter counties, according to Federal Railroad Administration data.
Who will take the lead?
Participants at the NIRPC rail summit criticized the current community-by-community approach to building vehicle overpasses at rail crossings, saying projects of that scale should be coordinated on a regional basis.
But, so far, there is no consensus on who should lead the charge.
NIRPC, the Northwest Indiana Forum, the Northwest Indiana Regional Development Authority and the newly created Northwest Indiana Economic Development District all get mention. But there are no volunteers to spearhead the effort.
“At least we are thinking about it again, and we are talking about it again,” RDA Chairman Leigh Morris said.
Several studies have forecast large increases in U.S. freight rail traffic in coming decades, with the most detailed information for Northwest Indiana contained in a National Rail Freight Infrastructure Capacity and Investment Study done for the Association of American Railroads in 2007.
That report shows the rail system in Northwest Indiana already ranks among the worst 4 percent in the nation when it comes to rail congestion.
Experts such as Schwieterman and Vickerman, who is based in Williamsburg, Va., say communities not ready to deal with the big increases in rail traffic to come will be left behind.
“We can’t just allow the current system to just keep increasing volumes and think it will take care of itself,” Vickerman said.
A global effect
By 2014, the Panama Canal will have completed a $5.25 billion expansion. The project could double total cargo going through the canal and triple the number of shipping containers, according to a number of estimates.
The expansion is expected to greatly increase the amount of Asian cargo unloaded at East Coast and Gulf Coast U.S. ports. Much of that cargo unloaded in Norfolk, Va., Savannah, Ga., and other ports is expected to make its way to the Midwest by train via Northwest Indiana.
Also re-balancing world trade will be a shift in Asian manufacturing from China to Southeast Asia and India, according to Vickerman. That shift will make the Suez Canal competitive with trans-Pacific shipments for getting Asian goods to the United States.
Railroads such as CSX and Norfolk Southern Corp. already have spent hundreds of millions of dollars preparing for the shift.
Norfolk Southern has invested $140 million on its recently completed Heartland Corridor from Norfolk, Va., to Chicago via two mainline tracks passing through Northwest Indiana.
CSX is spending $300 million on its National Gateway project to increase capacity from East Coast ports to Chicago, again via two mainline tracks in Northwest Indiana.
Chicago’s CREATE program never gathered all the funding it needs, but last year it received a big boost from the Obama administration’s stimulus program, and some projects are getting under way. CREATE aims to build 25 rail/highway grade separations, mainly car overpasses. Other projects include rail-over-rail grade separations, state-of-the-art signal systems and other items.
So far in Northwest Indiana, with its municipality-by-municipality approach, only three vehicle overpasses at railroad crossings appear to have a prayer of becoming reality any time soon.
The coming surge in rail freight could throw cold water on the region’s plans to diversify its economy through lakefront development and other projects, according to transportation planners at the Dec. 15 NIRPC freight summit.
“It seems that we really have to prepare ourselves for something that will really explode in the next 20 years or so,” NIRPC Deputy Director Steve Strains said.
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