Wednesday, January 10, 2018

Discovery move is all about why Knoxville beats MoCo in business climate

Discovery Communications is moving from Silver Spring to New York City because it is a content company? Not quite. Unless you believe they film their Shark Week programs in giant water tanks on the seventh floor of their Silver Spring headquarters - as many embarrassed Montgomery County elected officials apparently do. Put aside the spin in Discovery's press release, and carefully study their public statements to media yesterday, and you'll find the real story here is A) why Knoxville has a better business climate than Montgomery County, and B) the big Discovery "move" may actually be a big layoff of extraneous workers, as the company merges with Scripps.

The County's spin, of course, is that there "was nothing Montgomery County could do to retain Discovery." Discovery is a content company! They need to be near other content and advertising companies in New York! Aren't taxes terrible in New York City? Isn't the cost of living even higher in New York City?

Ah - but there's the key point. Discovery's move isn't about New York in the end. Analyze Discovery's public statements, and you find there's no certainty as to how many jobs are going to New York City. Some key high-level positions had already been moved to Discovery's current New York base of operations. Some positions at Scripps in Knoxville will also be moved to New York in 2019.

Scripps already has over 1000 employees in Knoxville doing a lot of the business and administrative jobs that many Discovery employees are doing now in Silver Spring. Again, read Discovery's statements carefully - they don't mention x-number of jobs moving from Silver Spring to Knoxville (or to New York). It could be that Montgomery County not only suffers the shame of losing one of its few Fortune 500 companies, but almost certainly also winds up with hundreds of unemployed Discovery workers as a result. Knoxville will gain all of the jobs Discovery needs from Silver Spring, but not likely all 1300.

Knoxville has everything Montgomery County's elected officials keep telling us we don't need - lower taxes, suburban living, and highway infrastructure. Discovery's press release noted "infrastructure" as a key reason they chose Knoxville. It's very easy to see why:
Discovery's new HQ in
Knoxville is right at an
interchange with I-40
The new Discovery campus in Knoxville is right on Interstate 40, a major cross-country route from California to North Carolina. In fact, they've got an on-ramp right next to them.
Discovery's new Knoxville HQ
is only 18 minutes by car from
the airport
Discovery's future Knoxville campus is also only 18 minutes by car from McGhee-Tyson Airport. Try getting to an airport in 18 minutes from Montgomery County (Hint: You can't).


Tennessee has no income tax. Property taxes are about half of what they are in Montgomery County, even on a million-dollar home. The Volunteer State's sales tax rate is 7%. There is no estate tax, and after a recent change in Tennessee's tax law, the "Hall Tax" on interest and dividend income is being phased out by 2021. The latter change is simply the capstone on why Tennessee's tax structure is so business (and worker) friendly. Robin Ficker was absolutely correct yesterday when he cited taxes as a factor in the Discovery move.

When you consider that neither Discovery, nor New York Gov. Andrew Cuomo, cited any specific number of jobs moving to New York yesterday, the picture becomes more clear. Some key positions may well move to New York, and Cuomo and Mayor Bill Blasio can celebrate winning the "global headquarters."

But Discovery is the real winner here. By moving the real nuts-and-bolts of their company to Knoxville, they and their employees (however many actually get moved) will both save bigly on their annual tax bills. Significant layoffs that would have been bad publicity for the company in Silver Spring now get hidden and deodorized by a "big move" and merger.

Montgomery County, as usual, is the real loser. Not only has no major corporation relocated its headquarters here in twenty years, but now we've lost one of the few Fortune 500 companies we had.  We've lost the taxes Discovery and many of their employees paid.

This is a major financial blow to Silver Spring, as well. Residential buildings continue to replace workplaces in downtown Silver Spring at a rapid pace. There are now fewer workers eating lunch at restaurants as a result. Residents of new apartment buildings in Silver Spring are dining out for lunch in downtown Washington, Tysons, and other growing job centers in Northern Virginia. Turning the Discovery HQ into an apartment building won't help matters.
Discovery's new low-rise,
suburban office park campus
in Knoxville (Google Maps)
If you look at the new Discovery national headquarters campus in Knoxville, it's just that - a suburban office park campus. Nearby are roads and commercial strips that look like Rockville or Gaithersburg. Much like Apple, Google and other successful corporations, Discovery has traded urban for suburban.
It looks more like Rock Spring
than downtown Bethesda -
adjacent water bodies included
Just beyond either side of the suburban commercial area where Discovery will be are single-family home neighborhoods along tree-lined streets. Sure, certain companies are willing to take a financial hit to be "downtown" on a transit station. Discovery obviously isn't one of them, and neither is Apple or Google. Montgomery County's office parks aren't the problem - it's our anti-business County Council, taxes and gridlocked transportation system that are the problems.
Single-family homes on
tree-lined streets near the
new Discovery HQ in
Knoxville (Google Maps)

Montgomery County can lower its taxes. After throwing record amounts of money at Montgomery County Public Schools in recent years, and the results only getting worse by the year, we know spending money is not the solution to the decline in our public schools. Wasteful spending was epitomized last year by the Council spending over $20000 on a security camera system I was able to find for less than $1000 online - including installation. Imagine how many other un-itemized expenditures like this one there are in the operating and capital budgets, and the potential for cuts becomes crystal clear.

Attempts to blame Gov. Larry Hogan for the Discovery debacle only open the door to blaming our County Council for the loss. "The first County Council to lose a Fortune 500" certainly has a nice ring to it. When apologists say, "We were going to lose Discovery no matter what the incentive package was," they are actually correct. Without a business-friendly tax system, without a new Potomac River crossing to provide an 18-minute trip to the airport, without a functioning and complete master plan highway system, and without elected officials who understand international business in the 21st century, Montgomery County is always going to be the loser.

16 comments:

  1. They tried the "tax" friendly deal in Kansas, Nebraska, and Oklahoma. Worked out so well the schools are in session 4 and in some places 3 days a week. Layoffs for teachers, firefighters and other public safety workers. Services in Kansas got so bad the legislature to raise takes again.

    Business do not want to move to a state with crappy schools and piss poor services. Tennessee schools rank toward the bottom of the barrel while Maryland schools are often in the top 10.

    I suggest if you want to have lower taxes you move out of state where the education system churns out uneducated kids who won't be able to compete in the job market.

    Why don't you write of a list of services you are willing to give up for your lower taxes? Roads? Libraries? Fire and rescue? Police? Schools?

    You should make up your mind. Is this a slanted political blog or a restaurant blog? Stick to restaurants.

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  2. Good analysis, Robert. The truth hurts.

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  3. Good analysis. But, the real story will be who moves into the office building that Discovery is leaving behind. This might actually be an opportunity for Silver Spring to attract a new company to the area, or perhaps see Discovery's soon to be former headquarters become the property of GSA... bringing federal workers... which is something preferable to no company tenant at all.

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  4. Are you daft? To anyone without an agenda it's perfectly clear that neither MoCo nor the state had any way to keep this from happening; it has nothing to do with he 'business climate'. Key execs already live in NYC, and a major acquisition already has substantial infrastructure where wages are lower than DC. This has nothing to do with taxes, the county council, or the governor. Get a grip.

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  5. I agree with Anonymous , Jan 10, 9:48 AM. According to Niche.com, Montgomery County is the #1 school district in the US. Knoxville is #16. But that's just schools. If you want to compare Knox County vs. Montgomery County, you'd have to rate all the services provided in each. Lower taxes alone is not a good way of measuring attractiveness of a place.

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    1. Niche.com's information must be out of date. MCPS has been in decline since 2010. The achievement gap has worsened, not improved. The kids couldn't pass the exams. Instead of solving the problem, they just got rid of the exams! I don't see any difference between the education one can find in Loudoun County vs. Montgomery County. I'm sure parents who do their homework can find a fine school in Knoxville.

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    2. Ah, the old "I don't agree with your source so it must be wrong" argument. Got it.

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    3. No, the facts about the MCPS decline negate the opinion of your source.

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  6. Regardless of what Discovery's motivations were for moving, that fact is there are not many other big corporations anchored in MoCo. In business friendly counties where there is a diversified business base, this would not be as big a shock but here in good old backwards MoCo we're left wondering how on earth we can possibly fill this vacancy. I know! Maybe we can use the empty space to house struggling illegals, what do you say MoCo Council?

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  7. We don't have to go to the extreme of underfunded education in Kansas but let's look at our neighbor to the south. VA seems to be getting all kinds of business opportunities yet also has some top notch schools. I don't think education and business climate have to be mutually exclusive.

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  8. Mr. Dyer, at least I named my source. You can't just say Niche.com is no good and make it go away. What are your sources?

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    Replies
    1. 1:26: Niche scores combine U.S. Department of Education data with a lot of fuzzy "self-reported" sources of information.

      In contrast, I am using the actual data and test results from MCPS. It's so bad, that MCPS now can't break out white student scores and black student scores, instead lumping groups together to make it appear the achievement gap is smaller than it actually is. Sad!

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  9. MoCoPS still has exams, Dyer, you moron.

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    Replies
    1. Please educate yourself before calling someone a moron:

      https://www.washingtonpost.com/local/education/one-of-nations-largest-school-districts-ditches-high-school-final-exams/2015/09/08/49cf5810-561e-11e5-b8c9-944725fcd3b9_story.html?utm_term=.21e19139fb8d

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    2. MoCoPS STILL HAS EXAMS, moron.

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    3. 7:54: I just linked to the article about how they got rid of final exams, and you call me a "moron." Read the article, dumbass.

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