incentives – Page 2 – The OM Blog by Heizer, Render, & Munson

OM in the News: Let the Bidding Begin

If I were teaching class this week, I would start by asking my students how many would like to get a job at Amazon when they graduate. This is because, as The New York Times headline (Sept. 8, 2017) says: “Let the Bidding Begin.” Wanted by Amazon for its second headquarters: A place with a million people, a diverse population, good schools and malleable lawmakers. Room to accommodate up to 50,000 high-paid workers.

Amazon has laid out in meticulous detail what it is looking for, even acknowledging that new laws may be required to get the high level of incentives necessary to hold the company’s attention. “This is the trophy deal of the decade,” said one industry expert.

Amazon’s detailed wish list for its new project, which it is calling HQ2, also includes on-site access to mass transit, a commute of 45 minutes or less to an international airport and easy access to a major highway. It wants excellent fiber optic internet connections, strong cellular phone service, traffic congestion figures, lists of universities, statistics on the qualifications of local workers, and recreational opportunities.

Political leaders in cities around the U.S wasted no time saying how badly they want Amazon to join them. Amazon has already been a beneficiary of generous public subsidies as part of its expansion of its warehouse network. It has received public subsidies totaling at least $613 million for 40 of the 77 warehouses it built from 2005 to 2014. Additional subsidies for Amazon data centers were about $147 million.

The average incentive package from a state usually adds up to 2-3% of wages, although recently there have been a spate of megadeals, like the $3 billion state tax credits that Wisconsin offered Taiwan’s Foxconn. Such outsize offers could end up being a “winner’s curse,” where the costs outweigh the benefits. Such gifts may not even be what is crucial. In G.E.’s recent HQ move to Boston, tax incentives were far from the most significant selling point.

Classroom discussion questions:
1. Why is this the location “deal of the decade?”

2. What do you think are the most important location factors Amazon should consider?

OM in the News: The Incentives Needed to Land an Auto Factory

Toyota and Mazda’s CEOs make the announcement

Toyota and Mazda’s recent announcement that they have joined together to develop a $1.6 billion factory in the U.S. set off cheers among auto-parts manufacturers and other businesses. But officials in the states and cities that are in hot pursuit of the 1,000 acre plant are holding off on celebrating until the venture makes the critical decision of where to locate the facility and 4,000 jobs. The shortlist includes: Alabama, Florida, Kentucky, Illinois, Indiana, Iowa, Michigan, Mississippi, N. Carolina, S. Carolina and Texas.

Foreign automobile manufacturers have been making cars in the U.S. for more than 30 years, writes The Wall Street Journal (Aug.9, 2017). The southeast has become the preferred location for many because of the business-friendly labor laws of many of the region’s states. Suppliers set up facilities near some of the region’s early plants, like the BMW factory in S. Carolina. “The assembly operations are saying we want suppliers close by,” said a site location expert. “When Toyota comes into a market, they’ll already be there.”

The Toyota-Mazda venture is likely to make its decision in part based on labor force and government incentives. Over the years, state and local governments have provided foreign auto makers a wide range of tax breaks, free land, infrastructure, training programs and other inducements that can be worth hundreds of millions of dollars. Toyota and Mazda are hoping to open the new plant, which will have an estimated production capacity of 300,000 units, in 2021.

Classroom discussion questions:
1. What incentives are usually offered auto manufacturers?

2. List the many factors that auto manufacturers consider in their location decisions.

OM in the News: Foxconn’s U.S. Factory Plans

Foxconn makes iPhones and other gadgets for Apple

Foxconn, which helped turn China into the center of electronics manufacturing, just announced it will build a $10 billion plant in Wisconsin to make display panels used in TVs and other products. This marks the first major U.S. investment for Foxconn, the world’s largest contract manufacturer of electronics and the maker of iPhones.

“Foxconn,” writes The Wall Street Journal (July 27, 2017), “is betting the U.S. can rebuild an electronics supply chain that largely shifted to China and other lower-cost Asian countries in recent decades.” The factory is expected to employ 3,000 people initially and as many as 13,000 people eventually. The state is providing Foxconn with a $3 billion, 15-year incentive package of tax credits.

In addition to the factory workers, it is estimated that the plant will create 22,000 indirect jobs and another 10,000 construction jobs– and draw as many as 150 supporting suppliers to Wisconsin and nearby states. The average salaries for the 13,000 jobs at the factory would be $53,000 annually, plus benefits.

The 20-million-sq.-ft. campus will primarily produce high-resolution liquid-crystal displays, known as 8K resolution LCD, used in smartphones and car dashboards, in addition to TVs. Many TVs currently sold in the U.S. are assembled in Mexico, so it is possible that the displays made in Wisconsin could be shipped across the border to be installed in TVs that are later shipped back to the U.S. for sale.

Classroom discussion questions:

Why is Foxconn entering the U.S?
What are the benefits and risks to Wisconsin?

OM in the News: Location Decisions and Incentives

When Elyria Mayor Holly Brinda learned that Riddell Inc. was looking to leave this small Ohio city, she came up with a $14 million package of tax incentives and offered to lease land to the company for $1 a year. It wasn’t enough. Riddell, which makes the football helmets used by NFL and college players, decided to move its 320 employees just over 2 miles down the road to a neighboring town, which offered its own bundle of incentives and lower corporate and individual income-tax rates.

“These days, the competition often isn’t Mexico, China or some other country promising cheap wages and low taxes,” writes The Wall Street Journal (March 17, 2017). In many cases, towns like Elyria are vying with cities that aren’t very far away. The race to woo companies has intensified as state and local governments struggle with a slow economic recovery, sluggish new business formation and job losses resulting from automation. Many older industrial cities see tax incentives as one of the few levers they can pull.

Economic-development tax incentives more than tripled over the past 25 years, offsetting about 30% of the taxes the companies receiving incentives would have otherwise paid in 2015, compared with about 9% offset in 1990. By 2015, the total annual cost of these incentives was $45 billion. Incentives climbed after the financial crisis, but their growth slowed in 2016 as some state and local governments began re-examining the effectiveness of the programs. Critics say tax incentives do little to spur job creation or economic growth.

Here in Florida, the legislature just approved legislation to eliminate the state’s main provider of tax incentives and other development assistance. Florida has attractions such as a good climate and no income tax, said a politician, and would be better off focusing on other forms of economic development, such as education and infrastructure.

Classroom discussion questions:

What are the pluses and minuses of tax incentives?
Did Florida make a good decision?

OM in the News: China’s Secret Incentives to Land iPhone Manufacturing

The Chinese government is also spending over $10 billion to build an airport just a few miles from the iPhone factory. — The Chinese government is also spending $10 billion to build an airport near the iPhone factory

OM in the News: GE Decamps Connecticut After 42 Years

I n selecting Boston as its new home base, General Electric will join dozens of corporate giants forsaking the suburbs for urban centers, writes The Wall Street Journal (Jan. 14, 2016). The trend is accelerating, due to employers’ thirst for the kind of educated, technologically-savvy workers who are clustering in cities such as Chicago, San Francisco, and Seattle. Ire over Connecticut’s corporate taxes was a driver of GE’s relocation plans, but the realities of the labor market may have made such a change inevitable, especially given that the conglomerate is trying to pivot from being a maker of industrial products to a greater focus on software innovation. That shift requires access to a workforce with new and rapidly evolving skills who tend to gravitate toward urban areas.

Massachusetts had offered incentives worth up to $145 million to the conglomerate. GE, which since 1974 has been based in Fairfield, Conn., promised to bring about 800 jobs to Boston. The Massachusetts incentives include $25 million in city property tax breaks and $120 million in state spending on infrastructure, such as new roads and parking facilities.

The move comes amid a broader effort by GE to cut corporate costs and streamline operations for what it portrays as a new industrial era that will revolve around software innovation as much as bended metal–one that will make it a priority to attract the talented workers who prefer to live and work in cities. Several states, including Georgia, Rhode Island and Texas, worked to attract GE.

Boston boasts several world class universities, which could deliver GE a ready supply of employees as a firm that can compete in a knowledge economy. Its dense labor market also gives workers confidence that their skills will be in demand if they choose to leave one employer or if they are laid off.

Classroom discussion questions:

Evaluate the incentives offered by Massachusetts.
Are the actual number of jobs significant?

OM in the News: A New Concept–The “Firm 40” Workweek

Employees at United Shore stream out at closing time

At exactly 6 p.m. on any given weekday, the exodus begins at United Shore Financial Services in Troy, Mich. By 6:05, the parking lot of the mortgage lender is pretty much empty. United Shore is among a group of small firms trying a radical management idea notable for just how un-radical it is: a 40-hour workweek, writes The Wall Street Journal (Oct.14, 2015). Leaders say the “firm 40” makes employees more efficient by forcing them to focus on work while they are in the office—and unplug fully when they leave.

United Shore’s CEO demands his 1,350 employees work hard—he likes to remind staffers that 5:55 p.m. on a Friday is no different from 10:55 a.m. on a Tuesday—taking no breaks for Facebook or online shopping. But once the day is done, employees are off duty until the next morning. A finite workday feels increasingly rare for many U.S. workers, for whom the lines between work and home have blurred in recent years. The “work-life integration” policies touted by some companies enable people to head out early for personal needs, so long as they monitor emails late into the night.

“Workers need time to recover from work,” says a Stanford U. prof. whose research found that employees who put in too many hours in a week or work too many days in a row become less productive over time, with output per hour falling as workers put in more than 48 hours during a given week. People say they are working longer these days, but the truth is murky. A recent survey found that about half of managers said they work more than 40 hours a week, and 39% reported that their hours have increased in the past 5 years. Professionals tend to remember their most hectic weeks as typical. “We all think we’re working around the clock,” adds one time-study expert.

Classroom discussion questions:

Why do so many managers think they are working long hours?
What happens in a manufacturing facility when workers have consistent overtime?

OM in the News: Airbus Lands in Alabama

The 1st A321 being inspected in the new plant in Mobile

Mardi Gras came early this year to Mobile, Ala., writes The New York Times (Sept. 20, 2015). Following a jazz band, a float bearing waving dignitaries and sequined musicians, was a column of flatbed trucks, laden with sections of fuselage, wings and tail components of an A321 jet that had just made the 3-week Atlantic crossing from an Airbus factory in Germany. They were on their way to a new Airbus assembly plant — its first civilian factory in the U.S. “I think Santa Claus has been here, and he’s left us an airplane,” said Mobile’s mayor.

The $600 million plant, on 116 acres, is the culmination of a courtship ritual, one of many playing out across the country as communities vie for attention and investment from foreign companies. Like many states and cities, Alabama and Mobile sweetened the deal for Airbus with generous tax breaks and other financial incentives. For Mobile, a city of 200,000, the prospect of 4,000 jobs with Airbus and its suppliers proved especially attractive. Unemployment there hovers at 8%, well above the national average.

Airbus’s foray into the U.S. forms part of a longer-term strategy. The company still lags far behind its rival, Boeing, in the U.S. market. As Japanese automakers did a generation ago, Airbus hopes that by producing aircraft that are “made in America,” it will be able to weaken Boeing’s advantage.

Airbus had eyed Mobile for years. The city’s deepwater port could accommodate ships carrying large structural parts from Europe. Freight trains run nearby, and the site, which is equipped with two long runways, is already home to small aviation maintenance companies and parts suppliers. Locating in Mobile would create a natural hedge against exchange-rate swings between the euro and the dollar and reduce some of the cost of transporting the $16.5 billion in components that Airbus buys from American aerospace suppliers each year. Labor costs were also substantially lower compared with Europe, and Alabama has a right-to-work law, which prevents unions from requiring workers to pay union dues.

Classroom discussion questions:

Why Mobile?
What are the disadvantages of opening a plant outside of Europe?

OM in the News: Chinese Manufacturers Head for South Carolina

Ni Meijuan (center) at Keer's S.C. factory — Ni Meijuan (center) at Keer’s S.C. factory

Twenty-five years ago, Ni Meijuan earned $19 a month working the spinning machines at a vast textile factory in China. Now at the Keer Group’s cotton mill in South Carolina, Ni is training American workers to do the job she used to do. “They’re quick learners,” she said. “But they have to learn to be quicker.”

Once the epitome of cheap mass manufacturing, textile producers from formerly low-cost nations are starting to set up shop in America, reports The New York Times (Aug. 3, 2015). It is part of a blurring between high- and low-cost manufacturing nations that few would have predicted a decade ago. Textile production in China is becoming increasingly unprofitable after years of rising wages, higher energy bills, and mounting logistical costs.

At the same time, manufacturing costs in the United States are becoming more competitive. In S.C., Keer has found residents desperate for work, as well as access to cheap and abundant land and energy and heavily subsidized cotton. Politicians have raced to ply Keer with grants and tax breaks to bring back manufacturing jobs once thought to be lost forever. “The reasons for Keer coming here? Incentives, land, the environment, the workers,” said Keer’s chairman. “Everybody believed that China would always be cheaper,” said a partner at Boston Consulting. “But things are changing even faster than anyone imagined.” In the U.S., manufacturing wages have risen less than 30% since 2004, to $22.32 an hour. Yarn production costs in China are now 30% higher than in the U.S.

From 2000 to 2014, Chinese companies invested $46 billion on new projects in the U.S., with the Carolinas home to at least 20 Chinese manufacturers. Shrinking manufacturing jobs have spurred a willingness in places like S.C. to work for lower pay, making them increasingly attractive production bases. Global manufacturers have also been drawn to right-to-work states, where there is little unionization.

Classroom discussion questions:

1. Why are Chinese textile manufacturers attracted to the U.S.?

2. Why S.C.?

OM in the News: The Changing Employee Incentive Systems

Most employees at Squaremouth, a software company in St. Petersburg, Fla., receive a small annual raise, but they're also treated to perks like the new Apple Watch Sport. — Most employees at Squaremouth, a software company in St. Petersburg, Fla., receive a small annual raise, but they’re also treated to perks like the new Apple Watch Sport.

“Yacht-size bonuses for Wall Street big shots and employee-of-the-month plaques for supermarket standouts are nothing new, but companies’ continued efforts to keep costs down have pushed employers to increasingly turn to one-off bonuses and nonmonetary rewards at the expense of annual pay raises,” writes The New York Times (May 26, 2015). The share of payroll budgets devoted to straight salary increases sank to a low of 1.8% in the depths of the recession, from a high of 10% in 1981–and has rebounded only to 2.9% in 2014. Short-term rewards and bonuses — known as variable compensation — accounted for an average of 3.9% of payrolls in 1988. Last year, it hit a record 12.7%.

The shift in compensation that favors one-shot-only rewards over incremental increases in salary that compound over time also appears to be playing a significant role in wage stagnation. It took off after the economy went into a nose-dive in 2001, but is expected to continue even as the unemployment rate drops and the labor market tightens. Employers like one-shots precisely because they are temporary. They save money over the long run because they don’t lock in raises, giving managers greater control over budgets.

“I personally love suddenly finding an unexpectedly large sum added to a month’s pay,” said one Michigan doctor. “It probably wouldn’t seem nearly as thrilling if it were just spread out across salary payments each month.” While a few more dollars in each paycheck may lack that Christmas-morning feeling, a raise is the gift that keeps on giving. The benefits of wage increases are compounded each year, with every future raise building on the back of the one before it. In the days when bosses handed out holiday hams or turkeys, employees would often walk to the top of the building and drop them off to show their displeasure. Their message: cash preferred.

This is a topic (seen in Chapter 10 on page 403, “Motivation and Incentive Systems”) about which your students will all have opinions.

Classroom discussion questions:
1. What are the benefits and downsides to the one-off bonus from the corporate perspective?

2. From the employee perspective?

OM in the News: And the Winner of Volvo’s New $500 Million Plant is— S. Carolina

A Volvo plant in China. The automaker is hoping to increase its American sales volume, which fell 8% last year.

Volvo just announced that it will build a $500 million factory near Charleston, South Carolina, making it the first time a Chinese-owned automaker will have an auto assembly plant in the U.S. The company said that the plant — its first in the U.S. since entering the market 60 years ago — would eventually employ 4,000 and will open in 2018. The factory will initially be capable of making 100,000 vehicles a year.

Volvo already operates two plants in Europe and two in China. It is hoping to increase its American sales volume. Globally, the company is growing, up 9% last year to nearly 470,000 vehicles — helped by surging demand in China.

Volvo will receive about $200 million in combined incentives, reports The New York Times (May 12, 2015). That includes $120 million in economic development bonds, $30 million in state grants and an additional $50 million of incentives from a state-owned utility company. The firm said it chose the S. Carolina site for its proximity to seaports and the quality of autoworkers and facilities in the region. “One of the main criteria for us was infrastructure,” said the CEO. “South Carolina has people who know the industry, can work in the factory, and who understand our business.” He added that the company was looking long-term at its first production on American soil. “A commitment like this you don’t make for 10 or 15 years,” he said. “It’s designed for decades.”

Volvo’s announcement is the latest in a series of production expansions by foreign automakers in the U.S. In July, VW announced it would spend $600 million to expand its plant in Chattanooga.

Classroom discussion questions:

1. How do these incentives compare to prior offers to automakers?

2. Why is Volvo opening the U.S. plant in S. Carolina?

Guest Post: My North Carolina View of Incentives

Our Guest Post today comes from Coleman Rich, at Elon University, in North Carolina. Coleman is Chair of the Department of Marketing and Entrepreneurship and Senior Lecturer in Operations and Supply Chain Management

Being a Textile Management grad from North Carolina State U., I have seen that incentives played an important role in NC to secure the textile trades from the North. Many towns would pool their money to help secure a mill which would move individuals closer to town and give workers a steady wage. The mills provided housing and staples for their employees.

Fast forward to 2 decades ago. North Carolina was in the running for the Mercedes plant. The Governor met with the Mercedes representatives at Alamance Community College near I-40/85 to discuss incentives for the plant. There was a 1,000 acre site with rail, and Duke Energy would run the power to the plant. The Governor offered over $100 million. But the Germans went to Alabama. We can only imagine how different this area would be if Mercedes had chosen this site.

That one plant created an entire industry cluster in the Alabama and Mississippi area. Since Mercedes announced the Alabama plant in 1993, Honda, Toyota, Hyundai

Dell's 2012 closing of this manufacturing plant put more than 900 people out of work. — Dell’s 2012 closing of this manufacturing plant put more than 900 people out of work.

and Kia also opened factories in that region. I believe incentives rarely work, but you have to “pay to play.” As a state, I would be willing to offer incentives to a large manufacturing company because I believe there is more economic value in supply chain companies locating in close proximity to the manufacturer. Alabama’s network of auto suppliers now tops 130 companies.

Here is a mistake the State made with Dell in Kernersville, NC. Virginia and NC were both bidding for the Dell plant. Virginia offered incentives in the $30-37 million range. Local and state incentives from NC were about $242 million. But the Dell plant closed after 5 years. Why did NC offer more than Virginia in incentives for the Dell plant? After all, as technology was changing and consumers moving toward laptops, this plant was making desktops. Also Dell began to change its business model to compete with HP. Maybe the economic models that the state of NC uses also need to consider product life cycle of the product that will be made in the plant.

But if it wasn’t for incentives, NC would not have been shaped by the tobacco, energy (Duke Power), furniture and textile industries. Those industries could have moved further south to SC and Georgia. As I teach Chapter 8 in the Heizer/Render text, I share all of these points with my class.

OM in the News: Are Location Incentives Worth the Cost?

Jay and I were just discussing the OM in Action box in Chapter 8 (Location Strategies) called “How Alabama Won the Auto Industry.” We are working on the 12th edition (due out Jan.1, 2016) and debating the value of the $253 million in incentives that brought Mercedes to Alabama. The recent article in The Wall Street Journal (March 13, 2015), called “Corporate Giveaways Are Not a Good Deal for North Carolina” helped enlighten our debate. For years, N.C., like many states, has had a system under which the governor can dangle tax breaks and grants to companies considering relocating to the state. As the pot of money available for these corporate incentives is about to run dry, the governor is urging state legislators to sign a bill for more funding.

The bill would increase the amount available to award this year by $15 million. If that sum sounds relatively modest, consider 2 points. First, each new grant can last up to 12 years, meaning the extra $15 million could increase the program’s payout by $180 million. Second, N.C. has already issued more than 200 grants since 2002 that will deprive state coffers of an estimated $157 million in the next 2 budget years alone. Outstanding liabilities for corporate incentives–$1 billion!

Proponents argue that other states are playing the incentives game, and businesses expect to trade tax cuts for jobs. That claim deserves a closer look. A recent report summarized the results of 55 peer-reviewed articles on the impact of targeted tax incentives, and the results are not encouraging. More than 70% of the studies found that incentives either did not substantially contribute to economic performance or produced mixed results. As an example, in 2011, $20 million of state money helped lure Chiquita Brands from Cincinnati to Charlotte. But after a recent buyout, Chiquita plans to close the headquarters, and community leaders are now working to recover as much money as possible.

There are other steps lawmakers can take that are much more likely to boost the economy: Ensure the delivery of high-quality services such as schools and roads while lowering costs, flattening taxes and repealing unnecessary regulations.

Classroom discussion questions:

1. Argue the pros and cons of such incentives.

2. Discuss the OM in Action box on Mercedes on page 331.

OM in the News: Mercedes Heads South

Mercedes is moving down south, writes The Wall Street Journal (Jan. 7, 2015), uprooting its USA’s headquarters from its longtime perch in New Jersey with plans to relocate it to an Atlanta suburb. Wooed by lower costs, proximity to a Mercedes-Benz factory, and government incentives, the car maker turned down a significant incentive package from New Jersey to keep its U.S. headquarters in Montvale, where it had been running operations since 1972. Mercedes is joining several other auto makers to have moved operations and corporate headquarters to the South to take advantage of low union membership in right-to-work states, low corporate taxes, and easy access to well-maintained highways, rail lines, ports and airports.

“We think the infrastructure in the States has changed,” said CEO Dieter Zetsche. “The South is much more relevant than it used to be.” A site selection consultant added that New Jersey has the country’s most appealing incentives policy, but it was outweighed by the cost-savings and convenience of moving to the U.S. South. He said that the move would reduce Mercedes’ costs, including real estate, energy and property taxes, by about 20%.

Mercedes has a plant in Alabama, which builds about half the vehicles it sells in the U.S. and is expected to reach an annual output of 300,000 vehicles next year. Last April, Toyota said it would relocate its U.S. operations to a new campus in Plano, Texas. South Korea’s Kia Motors opened a plant near Columbus, Ga. in 2010. A year later, Volkswagen opened a plant in Chattanooga, Tenn. Other operations include BMW’s plant in South Carolina and Hyundai Motor’s plant in Alabama.

Mercedes’ decision to move as many as 1,000 jobs from the state is another body blow for New Jersey’s labor markets. Recently billboards pleaded “Bergen County (hearts) Mercedes-Benz #Please stay.”

Classroom discussion questions:

1. Why are location decisions such as this so important to the state and to the company?

2. Why did Mercedes decide to relocate?

OM in the News: Iowa–Home of Corn and Facebook

Facebook's servers require only 75 employees in this massive facility — Facebook’s servers require only 75 employees in this massive facility

Among the big draws in Altoona, Iowa, population 15,000, are Adventureland, a Bass Pro Shop, and the Prairie Meadows casino. “And now,” says The Wall Street Journal (Nov. 15-16, 2014), “it has Facebook’s new data center.” The social network just opened the $300 million facility, a move that highlights the intense competition and lavish tax breaks available from small communities looking for technology bragging rights. Nearly 3 times the size of the city’s sole Wal-Mart, Facebook’s warehouselike structure is packed with refrigerator-sized stacks of computer servers and thick coils of cables. The Altoona facility was built on millions of dollars of tax breaks and about 18 months of negotiation.

Facebook isn’t Iowa’s first high-tech catch. Microsoft is spending $2 billion on a data center nearby in Des Moines. Google is expanding a facility in Council Bluffs.

States and cities long have vied against each other to lure factories, sports teams and corporate headquarters. Iowa, the county’s largest producer of corn and soybeans, is among more U.S. states rolling out a green carpet for those farming bits and bytes. Officials say data centers broaden their tax base, create well-paying technical and construction jobs and confer bragging rights that will lure companies with bigger hiring plans. They also contribute to the local economy without stressing infrastructure such as roads and sewage plants.

But it remains an open question whether the cost of these facilities in tax breaks and services works out in their favor. Altoona provided Facebook a 20-year exemption on paying property taxes, and Iowa agreed to $18 million in sales-tax refunds or investment-tax credits through 2023. Facebook pledged to spend at least $300 million on the project and create jobs paying $23.12 an hour. “For the tax breaks they often receive, the centers produce few jobs or spinoff benefits,” said an Iowa State U. prof. Tech companies aren’t looking for incentives alone. Availability and pricing of electricity, which can exceed 2/3 of the cost to run a data center, are among the most important factors.

Classroom discussion questions:

1. Are these unusual incentives?

2. What are the risks to each side–Altoona and Facebook?