During its foray into competition for a German steel mill, Louisiana found out the hard way that the high bid doesn't guarantee a payoff.

Despite offering ThyssenKrupp AG an incentive package valued at $1.97 billion, the German conglomerate opted May 11 for a site near Mobile, Ala., for its $3.7 billion steel mill. The project is expected to create 2,700 jobs.

Associated Press

A file photo of a steel worker in front of furnace at ThyssenKrupp steel plant in Germany.

The state of Alabama offered a package valued at $811 million.

Like the murky world of economic development itself, pinpointing why ThyssenKrupp chose Alabama over Louisiana is not clear cut. Company officials wouldn't discuss it in detail, though Gov. Kathleen Blanco said one stumbling block was Louisiana's higher power costs.

At the same time, Alabama overcame what was widely considered Louisiana's main advantage -- the Mississippi River -- by agreeing to construct a $115 million port that would allow ThyssenKrupp to move steel slabs made in Brazil from ships docking in Mobile to barges that will take them up the Tombigbee River to the new plant.

Blanco said Louisiana has other prospects interested in the St. James Parish site pitched to the steelmaker. The state also is hawking a site in northeast Louisiana for a possible vehicle plant.

Now is the time for Louisiana to take a close look at long-standing factors that can be dealmakers or dealbreakers, experts say, including quality of schools, its highways and other infrastructure, workforce training and even its civil law system.

"You have got to take care of the fundamentals," said Dan Gropper, economics professor at Auburn University in Alabama. "You have got to get rid of the tort problems that plague some of our states. You have to have a reasonable tax system. If there's the reality, or sometimes even the perception, that things are not all together straight, then that hurts your industrial development."

Louisiana's prospects weren't helped by the fact Alabama was already ahead in industrial recruitment, attracting Mercedes Benz in 1993, and following with Boeing, Toyota, Hyundai and the European Aeronautic Defence & Space Co.

Neal Wade, executive director of the Alabama Development Office, said industrial recruitment is a learn-as-you-go process.

"We cut our teeth on Mercedes. We were essentially in the same place in 1993 that you are now," Wade said. "We often say that Mercedes was our economic tipping point. It just opened international doors that have never really been opened in Alabama before."

Wade considered the competition with Louisiana stiff and Alabama's problem with shipping the steel slabs daunting -- and potentially fatal.

"Once we got over the logistics issues, it kept us in the game," Wade said.

Although the competition was widely portrayed as a bidding war, Wade said Alabama "never looked at competing with Louisiana as the issue. We didn't go down that road."

"We deal with a mega-project like this by dealing directly with a company's issues as they are raised," he said. "We really, as a team, focused on what we needed to do to solve whatever issues and problems were raised by the company and present a solution that was good for the company and the taxpayers of the state."

Dan Juneau, president of the Louisiana Association of Business and Industry, said Louisiana's bid was hurt by noncompetitive power prices. Alabama generates much of its power with coal -- a cheaper fuel source than natural gas, which has risen sharply in price and dominates Louisiana electricity generation.

"It was a problem before this," Juneau said. "There have been plants in the (Mississippi) river corridor that expanded elsewhere. They cited utility costs."

Juneau said direct comparisons of the dollar value of the two offers were difficult, since the Louisiana site would have been more expensive to develop, requiring costly pilings.

LABI plans to push for a revision of Louisiana's worker training system, perhaps in a model adopted by Texas, which revamped its state labor department into a decentralized work force development agency with 28 local boards.

"That state does a fantastic job of going out and finding every dollar available to plot into workforce development," Juneau said.

Loren Scott, economics professor emeritus at Louisiana State University, said the Legislature, dealing with the luxury of a $2 billion state surplus, needs to take a close look at education funding, highways and other long-term issues that affect industry-hunting.

"They're not going to come here if they can't transport goods or find qualified workers," Scott said. "If your people can't read and write, and if your people can't pass drug tests, it goes for naught."

Greg LeRoy, head of the Washington-based Good Jobs First and critic of economic incentive programs in his book "The Great American Jobs Scam," said one-shot industry hunting often diverts attention -- and public money -- away from long-term problems in a state, including preserving existing jobs.

"Betting on one business is risky," LeRoy said. "The best way to invest your money is to use it to benefit all employees. So, if a plant moves to Mexico or closes, you can take your displaced workers and place them with another employer."

LeRoy said unlimited bidding for projects could lead a state to actually lose money on a deal -- and adversely affect existing jobs. In the weeks before ThyssenKrupp's decision was announced, Louisiana Economic Development Secretary Michael Olivier said he believed the state had bid as much as it could.

"Every state has their break-even point," LeRoy said. "At a point where a state, being as honest as it can with itself, is going to lose money, that's when you throw in your cards."

Richard Ault, associate economics professor at Auburn who has studied his state's economic incentives, said it is "extraordinarily difficult to say how much these industries are worth to a state" because of the combination of increased employment and the potential that incentives will cost the state too much.

"It's such an ambiguous thing," Ault said. "When you get into a competitive bidding situation with other states, quite often the politicians find it in their best interest to land a big fish and enhance their re-election chances."

After 12 years of Gov. Edwin Edwards, who spent most of his fourth, scandal-plagued term focused on casino gambling, and Gov. Mike Foster, who gained a reputation as hesitant to jump into the industrial-hunting foray, Blanco has put Louisiana on the credibility list, Juneau said.

Wade said he doubted Blanco's status as a lame-duck governor would affect Louisiana's economic development efforts. The administration of Alabama Gov. Bob Riley has been in office for 4 1/2 years, only a fraction of the time of that state's push for industry.

"We're building off what a lot of people did before this," Wade said.

Juneau said he hopes Blanco's term and the two previous terms of Foster have helped quell Louisiana's long-standing image as a corrupt state.

"Is there still that perception out there? Yes, it is. I think from a corruption standpoint, things have gotten better over the last decade," Juneau said. "But whether that story has gotten out to the nation, I don't know, because of that past perception."

LeRoy said that in high-stakes negotiations, Louisiana needs to face the possibility that it -- like any other state -- can be used by a company merely to boost the ante.

"We think in many cases companies have made up their minds based upon business basics like proximity to their customers, raw materials and cheaper electricity that a steel plant needs, but needs a straw man to extract subsidies from a place it wants to go," LeRoy said.

"At the end of the day, taxpayers and journalists are not allowed to peer into that black box known as the corporate board room."

(Copyright 2007 by The Associated Press. All Rights Reserved.)