Big local news this week is State Farm’s announcement that it plans to end some 600 jobs in Frederick and exit the 400,000 square foot, 100 acre office complex in the north of the City. The Frederick office is one of eleven State Farm offices being closed over the next four years, affecting a total of 4200 employees.
State Farm is the largest car insurance company nationwide, and it is in some trouble. Its underwriting losses for the year 2016 were $7 billion, up from $4.4 billion in 2015. The property insurance, life insurance and its banking and mutual funds are profitable. Overall the group’s profit dropped heavily in 2016 going from down from 2015’s $6.2 billion to $400m. This in a year of decent economic growth, record car sales and increased vehicle-miles travelled!
The company’s announcement says it will consolidate its workforce in its major offices in Atlanta, Dallas and Phoenix as well as in its headquarters offices in Bloomington IL. I knew nothing of Bloomington IL. Turns out it is small Plains city about midway between Chicago and St Louis. Bloomington has a population of 76,000, very close to that of Frederick.
The purpose of the closures is to gain efficiencies, the company said — to lower costs relative to revenues.
The car insurance industry as a whole has its profits under pressure, and State Farm has been losing market share to GEICO and Allstate. Bloomberg says the recent increase in automobile crashes, a reversal of many years of improved safety, has hit all insurers.
My personal experience, as a patron for many years of State Farm for property and auto policies, may be part of a bigger problem. I found the company increasingly uncompetitive in its rates and dogmatic about loading me up with insurance I didn’t want. I dumped them for a more competitive insurer offering a leaner policy.
The ‘livingstingy’ bloggist wrote recently: “I have had a relationship with State Farm for over two decades now, and it is rapidly coming to a close. And I have purchased or looked at nearly all of their products in their lineup. My basic reaction, long-term, was not positive. Over time, the company has changed – and not for the better…. Their response to risk was to stop insuring, which to me, seemed odd. If there is a new risk out there, quantify it, and then adjust your premiums. You make money selling policies, not in avoiding risk…There are some real, systemic, problems at State Farm, and these go beyond folks who complain that they don’t get a free car when they total their clapped-out econo-box.”
NerdWallet recently ranked State Farm policies 19th in overall value out of 21 leading insurers.
The company’s ethical reputation suffered about a decade ago after it became entangled in a bunch of law suits and investigations culminating in a lobbyist’s conviction for offering bribes to two judges in separate civil cases in the south. The lobbyist Richard Scruggs spent six years in federal prison after his conviction in 2008.
Job losses “a blow”
The Frederick News-Post quoted Richard Griffin the City’s director of economic development to the effect that “it is a blow” to lose State Farm but other companies — like Bechtel — have left and “we’ve absorbed those loses and brought in new employers.”
He’s mostly right there. Though it will be tough on many of the 600 people now at State Farm-Frederick it isn’t clear that the State Farm closure is “a blow” to the local economy. The jobs of a financially troubled company like State Farm are not worth clinging to. A job in a business loosing money is an unproductive job, by definition, since it is costing more than the value it is creating. From a community viewpoint it deserves to be let go. Also 406,000 empty square feet of modern workspace is a new asset that should attract a more productive business. Or businesses.
But the cases of State Farm and Bechtel illustrate the nonsense in the pitch that the
building itself generates jobs — as in the claim that the downtown hotel and conference center will “create 280 jobs” (see pro-hotel poster from City DED nearby.) If the City DED had been around when the State Farm building was planned no doubt the Richard Griffin of the day would have told everyone it would “create 600 jobs.”
It isn’t the building that creates the jobs, it’s the business in them.
The building can be empty and add to blight rather than jobs, unless the building supports a viable business. The viable business depends on customers or patrons prepared to pay enough collectively in room fees and event rentals (in the case of a DH&CC) or sufficient in insurance premiums (in the case of State Farm) or in engineering fees (in the case of Bechtel) to make a viable business there. The building is one small part of creating jobs which depend mostly on the competence of those who hire staff and run the business making use of the building. Another major factor is the local environment for business — the quality of people available here, and how well local government performs, and the resulting costs of operating here versus other locations. Bechtel and State Farm both got the buildings built that they needed. But well within the life of their buildings they are leaving and taking most of the jobs with them.
Note too the reference by Griffin to how “we… have brought in new employers.” If by ‘we’ he means Frederick as a community and as a local economy, fair enough. But if he subtly means we, the City department of economic development then he’s making the claim that somehow his little bunch of City staff salesmen are needed to get new employers.
There’s nothing the DED can do that the private sector and existing permitting staff can’t do better. Real estate brokers and attorneys have deeper local knowledge of land and buildings. The City engineering and planning departments know utility availability and zoning and permitting backwards. And the County Chamber of Commerce and Downtown Partnership can publicize Frederick and welcome prospects.
Let’s be clear: the City DED is a waste of taxpayer-$s.