City of Tullahoma
ECONOMIC DEVELOPMENT
REVIEW
Prepared by: Don Darden, Municipal
Management Consultant, The University of
Tennessee Municipal Technical Advisory
Service
April 2004
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City of Tullahoma, Tennessee
Economic Development Review
Prepared by:
Don Darden
Municipal Management Consultant
The University of Tennessee (MTAS)
April 2003
Introduction
The City of Tullahoma is located halfway between Nashville and
Chattanooga eleven miles Southeast of Interstate Highway 24. The city has
a population of 17,994, according to the 2000 Census, and community
leaders are concerned that the city ‘s growth may have slowed. Average
annual employment in Coffee County is 23,839, of which 5,223 jobs are in
manufacturing. [Tennessee Department of Workforce Development, 2002
Covered Employment and Wages, 2002] Service jobs in Coffee County
outnumber manufacturing jobs by almost three to one, according to the
Department of Workforce Development. The largest area employer is the
contract agency for the Arnold Engineering Development Center, an Air
Force environmental and space testing center with over 2,100 service jobs.
Tullahoma has not escaped the outsourcing of manufacturing jobs, a
manufacturer of golf clubs is relocating to a foreign country. Worth, Inc.
manufactures sporting and athletic goods, and its long term future in
Tullahoma is uncertain. Carrier Air Conditioning, a Morrison, Tennessee
firm manufacturing air conditioning units in the area and employing 1,300
workers, has announced that it is transferring parts of its operation to two
other facility locations in the United States and anticipates that part of the
business may be relocated to Mexico. Other area firms have also closed and
relocated to Mexico or other foreign countries.
Loss of manufacturing jobs has created much concern on the part of
local officials who desire to take every reasonable step to recruit jobs and
maintain the current economic base. A joint industrial park is currently
under development in a cooperative effort by the cities of Manchester,
Tullahoma and Coffee County. Manchester is considering development of
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its own city industrial park, and Tullahoma is exploring the options for
developing a city industrial park near its municipal airport. With the shift
from manufacturing to services, the City of Tullahoma has requested that
MTAS review the city’s current economic development efforts and make
recommendations for improving the city’s economic base. Any review of
economic development activities must consider the structural change that is
taking place in Tennessee and the U.S. economy.
Structural Changes in the Economy.
Tennessee
From 1960 to 2000 the population of the State of Tennessee increased
by 59 percent. The University of Tennessee Center for Business and
Economic Research projects the State will add another 32 percent to its
population between 2000 and 2025.
In 1991 service jobs made up 78 percent of all Tennessee jobs. By
2003 service jobs made up 80.5 percent of jobs and are projected to increase
to 82.2 percent of all jobs by 2013. [Source: “An Economic Report to the
Governor of the State of Tennessee, January 2004, The University of
Tennessee Center for Business and Economic Research].
The Nashville Tennessean reported on January 23, 2004 (from
information released by the Tennessee Department of Labor and Workforce
Development) that for the year 2003 Tennessee’s economy lost 6,800
manufacturing jobs. There were also job loses in Information of 1,200,
Construction 4,600, and Trade, transportation and utilities, 500. As for
employment gains, 8,900 jobs were added in Educational and Health
Services, 500 in Financial activities, 3,100 in Government, 2,600 in Leisure
and hospitality, and 4,000 in Professional and business services. The net
change has been an increase of 6,000 jobs to Tennessee’s economy during
calendar year 2003. We see a lot of attention in the news media about the
loss of manufacturing jobs, and considerably less is said about replacing
manufacturing jobs with service jobs.
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United States
In the United States 90 percent of new jobs are in the service sector,
and within five years experts predict that 95 percent of new jobs will be in
services. Although there has been a decline in manufacturing jobs and an
increase in the service sector, there has been a net loss of over two million
jobs in the last three years. Table 1 shows the decline in manufacturing jobs
versus the increase in service jobs. It can be seen from Table 1 that
manufacturing jobs increased from 1960 to 1980 and have decreased from
slightly more than 18 million jobs in 1980 to about 14.5 million jobs in
calendar year 2003. Why are American firms outsourcing jobs? Labor costs
in India are one-tenth the wage rates in the United States. In China the
average wage is $.30 per hour. The minimum wage in Mexico is $4 per day,
and a good job pays $8 per day. Restrictive government regulations may
also be a factor. In a world economy American firms must produce their
products at the cheapest cost possible. As individuals we do no less when
we shop at Walmart and buy cheap products manufactured in China,
Pakistan, Mexico, India, and elsewhere.
This has enormous implications for any economic development
program. It literally means that economic developers must re-assess where
they will spend their time, and communities must evaluate the wisdom of
financial investments in industrial parks and infrastructure for a declining
manufacturing sector. Greater success is likely to result from promoting
jobs in the service sector, where growth is projected to occur.
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Table 1
JOBS IN THOUSANDS
SERVICE JOBS VS.
MANUFACTURING, UNITED STATES
120,000
100,000
80,000
Services
60,000
Mfg.
40,000
20,000
2003
2001
1995
1985
1975
1965
1955
0
YEAR
Source: U.S. Department of Labor, Bureau of Labor Statistics, April
2004
It is true that in many instances manufacturing jobs have been
replaced with lower paying service jobs. It does not, however, follow that
service jobs are simply lower paying jobs. Higher skilled service jobs pay as
high or higher than manufacturing jobs. If Tennesseans do not have job
skills for higher paying service jobs, they are likely to wind up in low paying
service jobs, and it is for this reason that the State of Tennessee should do
much more to invest in equipping its workforce with the skills necessary to
compete in the 21st Century.
A review of Table 1 further reveals that the service sector has
experienced a significant increase from 1955 to the year 2000. Since 2000
the number of service jobs have not increased. The economy began a down
turn in the year 2000, and in 2001 terrorist attacks on the World Trade
Center resulted in a trillion dollar loss to the national economy. Not
everyone agrees that the recession of 2001 was precipitated by terrorist
attacks, but it is evident that the 9/11 attacks represent more than a mere
bump in the road. Economists seem to believe that the economy is
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improving now. Tax cuts combined with low inflation and low interest rates
have helped to increase the number of jobs. It remains to be seen, however,
if service jobs will continue to increase in an improving economy. Some
economists are projecting a loss of over four million service jobs in the next
few years. Why would service jobs also be outsourced? India alone turns
out 67% more engineers and computer scientists annually than the United
States. It produces 50,000 certified accounts each year and some of
America’s largest firms are now using Indian accountants that are paid as
little as $300 per month.
Job Outlook
LWIA 6
The Tennessee Department of Labor and Workforce projects that over
the next six years, LWIA 6, consisting of Bedford, Coffee, Franklin,
Grundy, Lincoln, Moore, and Warren Counties will have 850 job openings
in occupations with a positive job outlook per year during the next six years.
Of these openings, 22 percent will require a Bachelor’s degree, or more plus
work; 27 percent will require specialized training; and 52 percent, or 440
jobs per year will require short term training. More than one-half of job
openings will be for relatively unskilled and low paying jobs. Further
analysis clearly shows that there is a positive correlation between education
or training and pay. Job openings (180) requiring a BA or better currently
average $47,408.34. Jobs requiring specialized training (230) pay, on the
average, $28,633.34 annually; and those jobs requiring little training (440)
average paying $20,247.83 per year. Table 2 below shows occupations,
training and average annual wage for occupations that are expected to
increase.
Table 2
Occupations With a Positive Job Outlook through 2010 in LWIA 6
Title
Average
Annual
Openings
Education
Training
Average Annual
Wage
Computer Software
Engineers
Surveyors
20
BA
$53,700
20
BA
$22,000
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Title
Average
Annual
Openings
Education
Training
Average Annual
Wage
Aerospace Engineers
Accountants & Audit.
Electrical Engineers
Information System
Managers
Preschool Teachers*
General & Oper.
Managers
Medical & Health
Service Managers
Administrative Services
Managers
Welders, Cutters,
Solderers, & Brazers
Registered Nurses
Electricians
Police Officers
LPN & Vocational
Nurses
Self-Enrichment
Education Teachers
Machinists
First Line Sup./Man.
of Retail Sales
Plumbers, Pipefitters,
& Steamfitters
Structural Iron and
Steelworkers
Carpenters
Cooks, Institution &
Cafeteria
Maint. & Repair
Maint. & Repair
Workers, Gen.
Legal Secretaries
20
10
10
10
BA
BA
BA
BA
$66,000
$42,300
$60,800
$51,700
10
BA
$15,100
40
BA
$53,600
10
BA
$46,100
10
BA
$38,800
30
20
20
20
PS
AA
LT
LT
$25,700
$40,100
$38,700
$25,300
20
PS
$29,500
10
20
RWE
LT
$27,600
$30,400
20
RWE
$27,600
10
LT
$34,100
10
10
LT
LT
$25,600
$25,900
10
LT
$14,400
10
10
LT
PS
$29,600
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Title
Average
Annual
Openings
Managers of
Office & Admin.
Support workers
10
Food Preparation&
Serving, Including
Fast Foods
80
Nursing Aides,
Orderlies & Att.
50
Cashiers
40
Retail Sales Per.
40
Truck Drivers
30
Customer Service
Rep.
20
Office Clerks
20
Painters, Const.
& Maint.
10
Const. Laborers
10
Ex. Sec. &Aas
10
General Sec.
10
Driver/Sales Worker
10
Bill&Acct. Collector
10
Receptionist & Info.
Clerks
10
Food Prep. Workers
10
Maids& House Keep.
10
Billing & Posting Clerks
& Machine Oper.
10
Shipping, Receiving,&
Traffic Clerks
10
Janitors & Cleaners,
Except Maids & House
Keeping
10
Stock Clerks & Order
Fillers
10
Social and Human
Service Assistants
10
Landscaping and
Education
Training
Average Annual
Wage
RWE
$27,900
ST
$13,200
ST
ST
ST
MT
$16,300
$14,000
$19,200
$36,700
ST
MT
$21,000
$23,200
MT
MT
MT
MT
ST
ST
$23,400
$20,500
$26,600
$20,700
$25,600
$25,200
ST
ST
ST
$17,800
$14,100
$13,600
ST
$22,900
ST
$23,800
ST
$17,300
ST
$17,100
MT
$21,000
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Title
Average
Annual
Openings
Education
Training
Average Annual
Wage
Groundskeeping
Teacher Assistants
10
10
ST
ST
$18,500
$14,000
Note: AA—Associate’s degree; PS—Postsecondary degree (less than AA,
LT—Long Term training of more than 12 months; RWE—Related work
experience; MT—Moderate training of less than 12 months.
Source: Tennessee Department of Labor and Workforce Investment, April
2004.
Today you can call your computer manufacturer about a software
problem, and a person from India may answer the call, although some
computer companies have had difficulty with call centers where the person
answering the call does not speak English fluently.
Bob Thibodeau, founder of Financial Systems Architects in 1998, was
driven out of business by lower-cost Indian competitors. More recently Mr.
Thibodeau founded White Label LLD to help U.S. technology companies
subcontract work to India. He estimates that Indian companies operate for
one-third of the cost of American companies. Thibodeau and other
executives say that the shift of U.S. technology jobs to low-wage countries
cannot be stopped and estimate that as many as 6 million U.S. jobs may be
sent to India, Ireland, Israel and other nations during the next decade by
companies in search of lower costs and a high technology English speaking
work force. [“Shift of technology jobs overseas shows no signs of slowing
in future,” The Nashville Tennessean, January 1, 2004]. We have seen a 23
percent reduction in manufacturing jobs during the past 25 years. From
1980—2000, service jobs in the United States increased from 66.3 million to
107.9 million, an increase of 63 percent. On an annual basis, this is 2.1
million service jobs per year, which means that the drain of service jobs to
other countries is likely to slow the growth of service jobs. The drain of 6
million service jobs would mean 600,000 fewer jobs each year, and this
alone would slow service job growth to 1.5 million per year. Even though
this is still an increase, it represents a reduction of 30 percent in the increase.
This migration of both manufacturing and high skill service jobs is likely to
accelerate in a free economy, and even though the American economy is
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much improved, job creation, which has traditionally followed economic
expansion, may well benefit third world countries. It is imperative that the
United States stops the brain drain. We need to equip our American work
force with a significant increase in engineers and computer scientists and
other high skill occupations. If we fail to meet this demand, it is obvious
that other countries are eager to do so and will be the long-term beneficiaries
Economic Development Organization
The City of Tullahoma contributes $87,000 annually to the Tullahoma
Industrial Board, which is the organization that the city relies on for
economic development. Other sources of revenue for the industrial board
include $7,500 from the Tullahoma Utilities Board and bond service fees for
industries financed with tax exempt bonds. The board’s current operating
budget is $165,000. Coffee County has recently terminated its funding for
the Tullahoma Industrial Board. It does not seem reasonable that the county
would eliminate such funding since the Tullahoma Industrial Board has
negotiated in lieu of tax payments payable to the county for several
industries over the years, and the board is not required to set up such
payments for the county. The area has made more than a reasonable effort
to attract industry in the past. Industrial buildings have been constructed,
leased, and some of these have closed, for one reason or another. Tullahoma
is a “Three Star” community. Promotional materials published by the
Tennessee Department of Economic and Community Development make the
point that “A Three Star Community demonstrates the highest level of
economic progress.” The city is to be commended for making the effort to
prepare for economic growth, but once the ingredients are there, it is
important to move forward with a plan of action. Local elected officials
believe that much more is needed to provide additional jobs in the city.
There are four economic development organizations in Coffee
County: the Manchester Industrial Board, the Tullahoma Industrial Board,
the Coffee County Industrial Board, and the county’s Joint Economic
Development Board (JEDB) mandated by Public Chapter 1101, the State’s
growth planning legislation. An effort is underway to consolidate the three
industrial boards into one joint industrial board consisting of 15 members, or
five members from each jurisdiction.
Although the purpose of joint economic development boards is to
foster communication, such boards also have broader authority to serve as
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full service economic development boards with all of the powers of an
industrial board. It is to these boards that the State is looking to for
consolidation of economic development functions. Joint economic
development boards have members with local political clout—city mayors,
county mayor, school superintendents, and utility managers, among other
community interests. Mayors and other elected officials may not serve on
industrial boards. The State may also look to joint economic development
boards as the agency to undertake strategic planning. MTAS has developed
a model charter for joint economic development boards.
Infrastructure
Infrastructure refers to public facilities and services necessary to
support economic development. Examples include water, sewer and
treatment, distribution, and collection capacities, gas, electric service,
streets, telecommunications capabilities, and the education system. A
review of the city’s infrastructure reveals that it has adequate infrastructure,
to support both manufacturing and service industries. Such facilities and
services include:
 Transportation. The city has good transportation access since it
is only 11 miles southwest of U.S. Interstate 24 and is connected
by a four lane divided highway (State Highway 55). Tullahoma
has a municipal airport to serve local and area industry. The City
of Tullahoma is 64 miles from a port facility in Nashville.
 Utilities. The city purchases water from the joint Duck River
Utility Commission, a treatment facility developed by Manchester
and Tullahoma with a capacity of 7.5 MGD and current usage is
2.65 MGD. The Tullahoma wastewater plant has a capacity of 8.0
MGD and treats 2.0 MGD. Clearly the city has sufficient water
and sewer facilities to support new industry.
 Electric and Gas Service. Electricity is supplied by the
Tullahoma Utility Board and gas by the Elk River Utility District.
These services are adequate to serve the city.
 Available Industrial Properties. A joint industrial park of 400
acres is available between Manchester and Tullahoma. There are
three vacant and available industrial buildings in Tullahoma
ranging from 32,000 sq. ft. to 282,097 sq. ft in size. There are also
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three smaller buildings with approximately 5,000 sq. ft. each
available. Coffee County has a 65,000 vacant speculative industry
building in the Interstate Industrial Park, and another 40,000 sq. ft.
speculative industry building is being developed for the joint
industrial park.
 Education/Work Force. Of critical importance to economic
development is a trained, or trainable workforce. A review of the
education system of Tullahoma reveals that the schools are very
good. Seventy-five percent of Tullahoma High School graduates
enroll in college. MTAS has reviewed test scores of the
Tullahoma school system, and the system’s test scores rank above
the average for both the State and United States. This information,
however, is not readily available on local websites.
Tennessee has a reputation as a low skill and low wage State,
and in fact, has used its low wage status as a recruiting tool in the
past. Today 40 percent of the population over 25 years of age does
not have a high school education. In Tennessee high schools
divide students into a college or technical track. Tennessee is
failing to provide adequate training for those individuals who
either plan a technical track or later wind up there as they seek a
job in business or industry. The State’s community colleges and
technology centers, with long waiting lists for training, are
experiencing reductions in public funding at a time when it is
critical to train the workforce. The Technology Center at
Shelbyville, for example, has facilities and instructors to train 345
students and yet the center has 721 people on a waiting list seeking
training. The center has been requested to reduce its budget by
$47,000, and Motlow State Community College, which also has a
very significant technology training role, has had to deal with
similar reductions in funding. The Technology Center at
Shelbyville has an overall job placement rate for its trainees of 99
percent.
Location Determinants
Generally recognized location determinants include transportation—
interstate highways, rail and port facilities, access roads and highways;
available and trained labor force; education; recreation; available industrial
sites and buildings; housing; and community livability are often mentioned
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as important factors for locating an industry. Today we could add
telecommunications, because it is increasingly important for cities to be
served by high speed Internet communications. Increasingly community
livability ranks high on the list of determinants. Most communities that are
competitive for industry have the basic requirements. Often the decision to
locate is based on cultural and recreational considerations that make a city a
desirable place for a manager and his family to live. If the city has good
schools, cultural amenities, and the type of recreation that families enjoy,
then sometimes the decision is made on these factors. This is not to say that
traditional infrastructure requirements are not important; however, it does
indicate that once the basic requirements are met quality of life
considerations may make the difference.
Tullahoma is a unique city in southern Middle Tennessee. Since the
startup of AEDC in 1951, the city has had scientists, engineers, managers,
and skilled craftsmen and their families from all across the country making
Tullahoma their home. In fact many of these individuals and families have
migrated from other countries. Assimilation of these highly educated and
skilled individuals into the city has changed Tullahoma forever.
 The city has a very good education system
 It is a regional shopping center, with retail sales in Coffee County
greater than sales in Bedford and Franklin Counties combined.
 It has restaurants that are normally found only in larger cities.
 It has well designed and conveniently located subdivisions with
housing available for any income level.
 It has a regional hospital facility that is normally found only in
larger cities.
 Recreation facilities and services provide opportunities for all age
groups, with two indoor community centers, outstanding facilities
and programs for swimming, football, baseball, track, soccer,
basketball, golf, softball, and other recreation activities, and the
city is centrally located between Woods Reservoir and two TVA
impoundments—Normandy and Tims Ford Lakes.
 Special events draw people from across the country. The
Staggerwing Museum is located in the city, and the city’s airport is
the scene of an outstanding annual air show.
 The city has a hands on science museum.
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 The Fine Arts Center and South Jackson Civic Center feature
music festivals, community theater, and art displays throughout
each year.
Accessibility
Today more than ever information is critical to economic
development. As we become more and more a service economy the ability
to process information at high speeds enables us to be a participants of the
information age. For many communities that are not right on an interstate
highway or located in a metropolis, their location may give residents a
feeling of remoteness. Any community in America that has high speed
Internet access should not consider itself remote.
Recommendations
The essential ingredients for a successful economic development
program are (1) a highly trained economic developer who is proficient in the
use of the Internet; (2) an organized economic development program; and
(3) adequate funding.
 The City of Tullahoma should maintain its city industrial
board and contribute financial resources to the Coffee County
Joint Economic Development Board, which should serve as the
consolidated industrial board. The city should insist that a
highly trained and experienced economic developer be
employed as the director of the joint board. A retired person
looking for part-time income is not likely to impact job creation in
the same was as a professional developer.
 Adequate funding is critical to job creation. Too many
communities spend too little for economic development
professionals and then are disappointed when miracles fail to
occur. Adequate funding is more than paying for a professional
developer and the support needed to carry out a good economic
development program—it also means providing the resources
necessary to meet the needs of existing as well as prospective
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businesses and industry. For economic development to be
successful, it has to be more than “spend a little and pray for a
miracle.” One way to adequately finance economic
development is to increase the local sales taxes. Cities and
counties are authorized to increase the local sales tax, by
referendum, up to 2.75%. Coffee County, including Manchester
and Tullahoma currently has a local sales tax rate of 2 percent that
is levied on single item purchases up to $1,600. Last year the State
increased this cap to $3,200 and levied a 2.75 percent sales tax rate
on single item purchases from $1,600 to $3,200. It is this 2.75
percent that the State erroneously returned to Tullahoma, and the
city is required to repay some $444,000. The next most likely
change in sales tax may well be for the State to take the .75 percent
that Coffee County has left on the table for single item purchases
up to $1,600. Should that occur, the .75 percent would then be
paid by Coffee County residents to help solve problems across the
State rather than locally. This concern has led Bedford, Warren,
and other Tennessee counties to increase the local sales tax rate to
2.75 percent to protect it as a local revenue source. A .25 percent
increase would add 12.5 percent to local sales taxes in Tullahoma.
It would be necessary to precede any proposed sales tax increase
with an education program.
 It is critical that the economic development program develop a
meaningful strategic plan with a clearly defined mission and
practical goals and objectives for developing job creating
strategies. The industrial board has a five year strategic plan that
may not be updated in view of the effort to develop a joint
industrial board.
 Maintenance of existing industry should be a high priority.
Eighty percent of new jobs are created by expansion of existing
industry. The economic developer must make it his/her business to
know what is happening in each industry. The city should be
willing to do the same things for existing industry as it does for
prospective industry.
 It is highly recommended that the City of Tullahoma place
greater emphasis on development of service industries.
Tennessee Department of Labor and Workforce Development
projects that within five years more than 80 percent of new jobs in
Local Work Force Investment Area (LWIA) 6 will be in the
service sector. Nationally the service sector is expected to reach
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90-95 percent within this same time frame. The City of Cookeville
is going after call centers and recently located a SunTrust Call
Center. Murfreesboro, Smyrna, LaVergne, and Rutherford County
are jointly sponsoring a Gateway and Destination Rutherford
County effort aimed at increasing commercial and residential
developments rather than traditional manufacturing.
 A marketing study should be prepared to target the types of
industries to recruit and develop strategies for inducing the
industries to locate in the local area. TVA has done a marketing
study that to a large degree forecasts, based on current trends, what
development is apt to occur. This could easily be fine tuned to
market Tullahoma to attract those industries that the city would
like to become a part of Tullahoma’s industrial community.
 As important as growth in the service sector is, the City of
Tullahoma should make every effort to see that its existing
manufacturing facilities—sites and buildings are fully utilized.
The Tullahoma Industrial Board has done an excellent job in
marketing its available buildings on the Internet.
 The City of Tullahoma should make every attempt to make
training for service industries more accessible to its people.
State elected officials should be strongly encouraged to appropriate
adequate funding to train the State’s work force. The State’s
commitment to training is inadequate. The technology center
facilities should be expanded to provide more space for training
and more money for training activities.
 A priority for Tullahoma should be to maintain and enhance
its role as a regional shopping center in Southern Middle
Tennessee. In the 1970’s, 80’s, and the early part of the 90’s,
Tullahoma was the place to go for shopping. Development of
Walmart superstores in Winchester, Fayetteville, Manchester, and
Shelbyville has, to a limited extent, diminished Tullahoma’s role
as a regional shopping center for lower priced products. Tullahoma
is still, however, a regional trade center, and the city must grow to
maintain and develop additional shopping facilities. Normally
individual business concerns conduct marketing studies to tell
them about shopper preferences. Tullahoma might consider
employing a qualified marketing firm to conduct a marketing study
for the Tullahoma area and then distribute it to current and
potential businesses.
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 The Tullahoma Municipal Airport has the potential to help
spur growth in Tullahoma.
o The annual air shows and museums are unique to
Tullahoma, and for that matter to other cities in Tennessee
and the Southeast. Tullahoma should explore every
opportunity to build on this uniqueness.
o The city should take great care to ensure that it does not
limit the potential of the airport by allowing development
that interferes with approaches to the airport.
 Test scores of Tullahoma schools, with the school system’s
analysis, should be on the local web site. Economic development
consultants really like this kind of information, and especially
when it makes comparisons with other systems.
 Tullahoma should be very careful in developing speculative
industry buildings for manufacturing, especially in view of
declining manufacturing. A speculative industry building serves
the purpose of allowing an industry to shorten the time required to
plan and construct a manufacturing facility. The city should
consider a virtual building concept to shorten the time required
for a firm to construct and startup a business operation without
laying out a large expenditure for a building that could sit empty
for several years. In a virtual building plans are drawn, permits are
obtained, and soil testing is completed. These requirements are
often very time consuming, and they can be accomplished in
advance so that the time required to actually construct a building is
shortened considerably. Plans, permits, and testing do not
represent large development expenses.