New Orleans lands a big corporate fish. Will others get away?

A major oil firm is returning, despite storm woes, but other companies remain undecided.

By , Staff writer of The Christian Science Monitor

The petrochemical industry, once the bedrock of the New Orleans economy, had long since shifted most operations to Houston, where firms found the political climate friendlier, the tax incentives more generous, and tourism less of a darling of public officials.

It came as a surprise, then, when Shell Exploration & Production Co. announced it would return its 1,000 workers to the hurricane-scrubbed city - especially because the company had toyed with the idea of leaving even before Katrina.

Delighted city officials, who've learned the hard way not to play favorites, hope Shell's move will encourage companies still on the fence to return as well. Several key employers remain in the "undecided" category, and they appear to be watching how well political leaders plan the rebuilding - and how secure the levees can make the city - before committing to New Orleans.

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So far, about 70 percent of the more than 80,000 regional businesses affected by hurricane Katrina are up and running again, according to Greater New Orleans Inc. Small businesses make up the bulk of those that are not.

The return of Shell's first 250 employees - to be celebrated Monday in Lafayette Square in a ceremony replete with Cajun food, speeches, and zydeco music - is a huge bright spot, say those with their finger on the pulse of the local economy.

"Shell's return ... is very, very significant," says Mark Drennen, president and CEO of Greater New Orleans Inc. "It has been a major corporate player in New Orleans historically, and its loss would not only have been a huge economic blow, it would have a been a very serious blow to our recovery efforts as well."

Among large manufacturing firms, Northrop Grumman and Lockheed Martin are back, along with a sizable share of their workforces. About 90 percent of the hotels have reopened. Most of the major law firms have also returned.

In the city's Central Business District, Hertz Investment Group has opened four office buildings - and all are more in demand than before Katrina. "We have been pleasantly surprised by how many of our tenants are back," says Gary Horwitz, chief operating officer of the Los Angeles-based firm. "The leasing activity is as strong as we've ever seen [in] the Class A office market in New Orleans."

But some companies that set up business elsewhere post-hurricane may have found that the grass really is greener there. Smoothie King, headquartered in nearby Kenner, La., has accelerated a planned move north because of Katrina. Entergy, another of New Orleans big employers and its only Fortune 500 company, temporarily moved its headquarters to Clinton, Miss., and last month told investors it is weighing a permanent move for at least some of its workers.

"If Entergy decides to go, that may be a significant offset to Shell's move," says Loren Scott, president of an economic forecasting firm in Baton Rouge, La.

Some suggest Shell's homecoming is a symbolic gesture meant to show that the company doesn't engage in opportunistic flight. For the city, though, its return is critical. "Shell was sort of a make-or-break firm for New Orleans," says Ed Glaeser, director of the Taubman Center for State and Local Government at Harvard University. "Without Shell, things were looking very, very dire indeed. They are still looking reasonably dire, but this is good news for the city."

At the moment, a major constraining factor on businesses' return - and local job growth - is housing. The 180,000 habitable homes in New Orleans just about equal the city's current population. "It's a capacity constraint," says Greg Rigamer, president of consultant GCR & Associates in New Orleans.

Some companies house workers in trailers on their properties. Others pay for them to commute the 80 miles from Baton Rouge.

"The longer it takes for rebuilding to get under way, the more difficult it will be to lure people back," says Ross DeVol, director of regional economics at the Milken Institute in Santa Monica, Calif. Each month rebuilding is postponed, 20,000 residents are lost, he estimates.

"You don't want to rush ahead and start rebuilding something that you will have to tear down," says Mr. DeVol, "but community leaders need to come to an agreement on the city's strategic redevelopment plan."

To encourage new growth, city officials are traveling the country, alerting companies to the new Gulf Opportunity Zone Act, which Congress passed to give businesses investment incentives. Companies investing in the hurricane-impacted areas, for example, are eligible to depreciate their investment by 50 percent in the first year, or are eligible for long-term financing through tax-exempt bonds.

"This is very attractive to companies with a tax liability," Donald Pierson, assistant secretary of the Louisiana Economic Development Department, said on a recent visit to New York. Already, his department has been approached by a number of development companies interested in investment in the Gulf Opportunity Zone.

One of those whom state officials have visited is Dean Taylor, president and CEO of the energy company Tidewater. The firm already brought 65 employees back to the city, but it hasn't decided whether its corporate headquarters will remain there.

After spending five months in Houston, he has found the city to be open, generous, and "a tremendous business environment. And ultimately what we get paid to do is what's best for our shareholders."

Staff writer Ron Scherer contributed to this report from New York.

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