Site Selection Rankings Are Questionable Indicator of Success

Last week, Site Selection magazine ranked Michigan second among the states for the most new and expanded facilities in the country. The Michigan Economic Development Corporation — the state’s chief "jobs" department — quickly took the opportunity to publicize this year’s rank in a March 3 press release and in its "This Week @ MEDC" e-mail. Don Jakeway, president and CEO of the MEDC, yesterday told a state House committee that Site Selection magazine was "the Bible" among economic development officials.

But as good as second place in "the Bible" sounds, there are reasons to hesitate before declaring a victory for the state’s economy.

Site Selection magazine is a site-development, location and relocation periodical for real estate professionals and managers associated with site location decisions. One of its most prominent features is the annual "Governor’s Cup" award, given to the state with the highest number of new or expanded facilities in Site Selection’s database.

Michigan has won Site Selection’s Governor’s Cup five times since 1997. After last Thursday’s announcement that Michigan had placed second in the 2004 race, the MEDC’s press release quoted Gov. Jennifer Granholm saying that it "speaks directly to the effectiveness of our strategy for attracting new business and new jobs to the state."

This claim, however, should include some qualifications. Site Selection magazine, to its credit, does engage in some independent research, such as searching for new facilities and expansions using newspaper clippings and the online search tool Lexis Nexis, and it also works to confirm that new facility data sent from states qualify for entry in their database. But the magazine’s rankings are still "a function of what states report to us,"[1] as Site Selection Editor Mark Arend told me in January.

Because the magazine does rely in part on state reporting, motivation to gather data (or to win the award) may well affect a state’s rankings. If Kansas or Hawaii doesn’t dedicate staff to collecting and forwarding new-facility and facility-expansion data, its chances of winning the Governor’s Cup may fall.

Inversely, states that devote more resources to economic development functions are probably more focused on gathering data that help them win the award. In Michigan, according to a 2002 Detroit News article by James Higgins about the Governor’s Cup, "(MEDC) agents around the state are always on the lookout for new factory or office construction, much of which doesn’t report to the MEDC."[2]

Hence, even if the MEDC isn’t responsible for the new facility or expansion, its staff works hard to ensure the growth gets counted. By doing so, state officials probably increase the chances of winning the Cup, an award that has become very important to the MEDC. Higgins reports: "The Governor’s Cup has been the centerpiece of Michigan’s economic development pitch for four years. Millions are spent to advertise the award, and considerable more resources are invested by MEDC in preparing for the annual magazine contest."[3] In at least one year, several MEDC bonuses paid to high-ranking staff relied in part on Site Selection rankings.

It’s also worth remembering that Site Selection rankings provide only a limited picture of a state’s economy. Consider a study released in January by United Van Lines. The company’s residential moving figures showed Michigan to be a "high outbound" state — that is, one of only 11 states in the continental United States in 2004 where "55 percent or more of moves (were) coming out of a state."

Of course, United’s figures have limitations of their own, but the company’s executive vice president has noted that United’s study "has been shown to accurately reflect the general migration patterns in various regions of the country" and that the data have been used by "real estate firms, financial institutions and other observers of relocation trends." Ultimately, it is probably not a good sign that last year, according to the study, Michigan "reached its highest outbound level since 1982" — 60.9 percent.

Nor do Michigan’s broader economic statistics reinforce Michigan’s repeatedly high rankings in Site Selection magazine since 1997. According to federal figures, from December 1995[4] to December 2004, Michigan has ranked 50th among the states in percentage employment growth. From 1993 to 1997, Michigan’s percentage increase in per-capita gross state product was 18th in the United States, but from 1998 to 2003, it was 44th.

And in 2004, Michigan was one of only two states on net to lose jobs, and it was the only one to lose a significant number (46,500). Ironically, the other state to fade was Ohio, which lost 200 jobs after placing first in the 2003 Site Selection rankings. Thus, Ohio finds itself in the same position as Michigan in 2000, when the then-president and CEO of the MEDC commented about winning the 1999 Governor’s Cup: "The award is a great reminder of how far we’ve come. We’ve hit elite status among states. It is proof positive that Michigan’s stable economy isn’t a fluke." Michigan then entered a period of sustained economic weakness.

It’s probably not time to break out the bubbly on Michigan’s economic performance. After lagging well behind the surging national economy for several years, the state may begin to recover in coming months — but Site Selection magazine probably doesn’t tell us much either way.

Michael D. LaFaive is director of fiscal policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

[1] Telephone interview with Site Selection Magazine Editor Mark Arend by Michael D. LaFaive, Jan. 26, 2005.

[2] Higgins, James V. "We were robbed: Poor judging wasn’t limited to the Olympics," The Detroit News, Feb. 27, 2002: p. B1.

[3] Ibid.

[4] Michigan accelerated its "economic development" measures in 1995, the year the Michigan Economic Growth Authority was created and the Michigan Jobs Commission (now the MEDC) was elevated to "department" status.