Federal access likely biggest factor in Carrier deal
Carrier Corp.'s decision to keep hundreds of jobs in Indianapolis had more to do with access to the federal government than state incentives, sources familiar with the deal told IndyStar.
Carrier is maintaining its Indianapolis operations largely because of the business interests of its parent company, United Technologies Corp., said John Mutz, an Indiana Economic Development Corp. board member. The IEDC awards state incentives, primarily training grants and tax credits.
Mutz, who was briefed on the state's offer to Carrier, said United Technologies "wants to make sure they maintain a favorable relationship" with the incoming Trump administration.
"This is an enormous company with all kinds of subsidiaries that do government work, and I am sure they want to keep it," Mutz said.
What we know about Trump's Carrier visit
Mutz's comments shed the first light on Carrier's stunning agreement with President-elect Donald Trump to keep its Indianapolis plant open. Carrier and Trump on Tuesday confirmed a deal to save "close to 1,000 jobs" but did not say what Carrier would get in return. The agreement came nearly nine months after Carrier announced it would relocate 1,400 jobs to Mexico.
Trump and Pence are scheduled to hold an event at 2 p.m. Thursday at the Carrier plant in Indianapolis to announce the deal. The event is not open to the public.
Mutz declined to provide details about financial incentives but said Indiana's offer is in line with packages given to other companies. The incentives are outweighed by United Technologies' federal contracts, he said.
United Technologies receives about $5.6 billion a year in federal money, or about 10 percent of its overall revenue. That business gave the company motivation to smooth relations with Trump after he spent months criticizing the company on the campaign trail.
"Carrier wants to stay in good graces with the federal government," another source with knowledge of the negotiations said. "Finalizing this deal was a show of good faith."
The source said Vice President-elect Mike Pence, who is still governor of Indiana, and his state commerce secretary, Victor Smith, had been in discussions with Carrier for weeks. In what the source described as a "carrot and stick" approach, Trump entered the negotiations later to discuss the company's relationship with the federal government.
Establishing a good relationship with the Trump administration could benefit Carrier in ways that extend beyond its parent company's federal contracts.
For example, United Technologies could have a voice in policy debates about regulatory costs, Ball State University economist Michael Hicks said.
"The chance for Carrier (and their lawyers) to help craft a huge regulatory relief bill is worth every penny they might save over delaying the closure of this plant for a few years," he said in an email.
Hicks downplayed federal contract concerns, saying most Defense Department "contracts of consequence are negotiated and let years in advance, and it is hard to craft presidential involvement in them."
Mohan Tatikonda, an operations management professor for the Indiana University Kelley School of Business, agreed that influencing policy decisions had to be a top priority for United Technologies and Carrier.
"Being able to have a seat at the table regarding tax policy and potential regulatory reform or changes is quite valuable," he said. "UTC not only has federal government contracts, they also have exports — current and potential exports — that the federal government has a role in allowing or approving. The value of those exports being increased or decreased is quite significant, and that might have been at play as well."
Carrier in a statement hinted at economic policy changes that could come under the Trump administration.
"The incoming Trump-Pence administration has emphasized to us its commitment to support the business community and create an improved, more competitive U.S. business climate," the statement said. "The incentives offered by the state were an important consideration."
Pence made an unsuccessful attempt to convince Carrier to stay in March — before he joined Trump's presidential campaign. Since then, Trump and other politicians have blasted Carrier in speeches and interviews. Trump promised to convince Carrier to change its plan and threatened to punish it with a 35 percent tariff if it didn't.
Carrier workers react to Trump's jobs announcement with skepticism, excitement
“We had an election. That’s what changed," Mutz said. "Whether you like it or not, Donald Trump’s approach to this kind of stuff is much different than Barack Obama’s. The guy who wrote this book, 'The Art of the Deal,' says, 'I’m a better negotiator, and I’m going to lay down the law.'"
Mutz, a former lieutenant governor, described the state's incentive package to Carrier as similar to what the company has received in the past.
In 2013, well before Carrier's layoff announcement, the state approved $200,000 in grants for the company to train at least 500 employees. In exchange, Carrier agreed to retain 1,450 jobs and invest $16 million to add “next generation HVAC units” to its product line at its Indianapolis plant.
The state also approved an affiliated company, United Technologies Electronic Controls, or UTEC, for up to $300,000 in grants in 2015 to train at least 750 employees. In exchange, the company agreed to add 116 jobs, maintain 786 jobs and spend $3.4 million to add a product line at its Huntington plant.
United Technologies also had received grants in previous years.
After Carrier's outsourcing announcement in February and at the urging of Pence, the company refunded $380,000 in training grants to the state in April. The state also revoked the most recent $300,000 grant.
Carrier also repaid the city of Indianapolis $1.2 million for tax breaks it had received. The city, which has already received the money, has no plans to consider new incentives for Carrier, said Taylor Schaffer, a spokeswoman for Mayor Joe Hogsett.
"I think our focus will always be on new jobs for Indianapolis residents," Schaffer said.
Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.
Call IndyStar reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.