A Louisiana economic development deal gone bad
Stixis CEO Rayudu Dhananjaya says Louisiana lacks the skilled workforce tech companies demand while state officials counter the company made too many unreasonable demands. (Courtesy Louisiana Technology Park)
Stixis, backed by a promised $115 million in state subsidies, was supposed to bring 900 tech jobs to Baton Rouge. Some three years later the company has 4 full-time employees. Figuring out what went wrong with this cheered economic development deal has left company and Louisiana officials playing the blame game.
Nearly three years ago, then-Gov. Bobby Jindal and a host of other state and local officials crowded into a room at the nondescript orange building on Florida Boulevard that hosts the Louisiana Technology Park. Sharing the stage with them were executives from Stixis Technologies, and together they made a big economic development announcement: jobs are coming to Baton Rouge.
Tech jobs, with high paying salaries, to be exact—and lots of them. Stixis, Jindal said at the time, would create 230 jobs by opening a software development center in the Tech Park—and that was the low estimate.
“Given how quickly their business is growing and how well they are doing, I think they’re going to create even more jobs here than what we’re announcing today,” the then-governor said that optimistic day. “Many more jobs than what we’re announcing today.”
Louisiana Economic Development, then run by Stephen Moret, agreed. The state was offering Stixis $115 million—more than three times what the state spent on veterans services that year—in subsidies over a decade; all the India-based firm had to do was meet the job numbers it was promising. That meant Stixis had to create 265 new jobs by this year, and more than 900 by 2019.
Today, Stixis has four full-time employees.
Rayudu Dhananjaya, CEO, says he has hired a dozen or so contractors in the interim, but the ramp up fell woefully short and eventually fizzled entirely. The company never received the millions in tax credits and rebates offered by LED, as they were contingent on the hundreds of new jobs, but he insists that was never the reason he opened the Baton Rouge branch in the first place. He’s still looking for workers, he adds.
Stixis blames the state’s lack of resources in finding talent through a workforce recruitment program. LED blames Stixis’ unreasonable demands. Higher education leaders say K-12 could do a better job training students in the basics of coding, and tech leaders simply say the pool of workers is too small.
So why did Stixis fail to create all the jobs that were promised? Why did it fail to create practically any jobs?
A unanimous answer is hard to come by—the state, other tech companies, Stixis, and education leaders all point in somewhat different directions. Stixis blames the state’s lack of resources in finding talent through a workforce recruitment program. LED blames Stixis’ unreasonable demands. Higher education leaders say K-12 could do a better job training students in the basics of coding, and tech leaders simply say the pool of workers is too small.
The massive gulf between Jindal’s lofty predictions in 2014 and Stixis’s reality today belies a city aiming to be a bustling smaller sibling to the likes of Austin or Denver, but with too few resources and without the cultural draw needed to lure millennials. Tech leaders say that has caused a deficit in the workers needed to foster tech companies like Stixis and IBM. Meanwhile, local colleges are not awarding enough computer science degrees.
“We’re getting there but not what we anticipated. We do have issues on the ramp up. There are limited resources in Baton Rouge,” Dhananjaya says. “Stixis is not a unique company; what we’re asking is simple skill sets.”
“LED can’t create jobs that are not here,” he adds.
LED argues Stixis is simply a company that couldn’t make it work.
Documents obtained through a public records request show LED sent Stixis hundreds of “qualified candidates” from job boards and targeted searches conducted through FastStart, a workforce training and recruitment program. Stixis says those candidates were not as qualified as the state says. LED worked for more than two years to find candidates for Stixis to hire until closing the program in June this year.
“There are limited resources in Baton Rouge. Stixis is not a unique company; what we’re asking is simple skill sets. LED can’t create jobs that are not here.”
—Rayudu Dhananjaya, CEO, Stixis
But despite Stixis falling virtually 100% short of its goals, the state agency in April of this year decided to offer the company another $5 million in incentives through the Quality Jobs Program—a tax break for new jobs created. The previous deal from the Jindal administration had already offered $3.5 million through that program. But by this point, having created virtually no jobs that would qualify, Stixis turned the new offer down.
“They ended up giving me the same incentive I had,” Dhananjaya says. “That doesn’t make sense.”
Because no tax dollars were at stake unless Stixis actually performed, Don Pierson, LED secretary, says he decided to offer the company another chance in an effort to help revive their job-creating effort. After all, Stixis has a “demonstrated track record,” he reasoned, and companies like IBM and General Informatics seem to perform well in the market.
But once negotiations began, Stixis began asking the state to purchase licenses for software and train people on how to work on specific types of software—a business the state has no interest getting into, Pierson says.
“There’s just a lot of competition in this sector for individuals with those skill sets,” he says. “There’s going to be some programs and business programs that fail to come to pass. They’ll struggle … It isn’t part of the business we like to dwell on.”
In 2011, LSU graduated just 41 computer science graduates at all levels. Southern University graduated 19, and Baton Rouge Community College graduated none.
“When we moved to Louisiana, the curriculum was so outdated. We’re talking about tech that’s evolving on a daily basis.”
—Dima Ghawi, IBM’s former talent development manager
When IBM expanded to Baton Rouge a few years ago, the company began working with LSU to update a curriculum that was not keeping up with an ever-changing field that often leaves certain programs obsolete after just a year or two.
“When we moved to Louisiana, the curriculum was so outdated,” says Dima Ghawi, IBM’s former talent development manager who left the company two years ago. “We’re talking about tech that’s evolving on a daily basis.”
Stixis seems to be highlighting Baton Rouge’s growing pains, Ghawi says: Yes, the city has attracted companies like IBM, and yes, it has grown and become a more desirable place to live in recent years. But ultimately, the city is still only aspiring to be “Silicon Bayou;” it is not there yet.
Educating a qualified workforce is only one part of the equation, says Kalliat Valsaraj, LSU vice president for research and economic development. And LSU is working on it—a new partnership with Lee Magnet High School should funnel more students into the field at LSU, and the university is working hard to hand out more computer science degrees.
But even if LSU graduates tech students, the competition Baton Rouge has in keeping them here is stiff.
“Is this community really considered a progressive community in terms of things we really need to attract millennials? Do we have the atmosphere?” he says. “I know that’s something we need to work on.”
The dilemma, as far as business leaders are concerned, is a catch 22—the city needs jobs to attract workers, but also needs workers to attract jobs. “It’s a ‘what comes first, the chicken or the egg?’ issue,” Baton Rouge Area Chamber President Adam Knapp says. Meanwhile, the city needs an ambitious marketing strategy if it is going to compete for young workers with established regional tech hubs with far more inherent social attraction.
BRAC’s strategic plan lays out the challenges and contradictions: the organization is aiming to diversify, which it cannot do without talent, which it cannot recruit without a better quality of life. It’s a slow-moving process—and an ambitious set of goals—but Knapp says BRAC is making headway.
In the meantime, a vital test of the tech industry’s health here is approaching. IBM must have created 800 new jobs by this year in order to meet its own agreement with LED. Last year the Baton Rouge center fell 67 jobs short of the 500 positions needed, but was able to roll some over from previous years. IBM did not respond to requests for comment, but the new report will likely be certified in the coming months, and will prove a bellwether for Baton Rouge’s ability to provide qualified workers, and tech companies’ ability to grow.
Stixis, however, has taken a step back.
“I don’t have the aspirations for building the 900 people, 500 people anymore,” Dhananjaya says. “I want to be very honest. I had those aspirations in the past, but (now) I am continuing to grow at a slow pace.”