EZ Policy Blog

Apparently, the Enterprise Zone was not enough for this business:

When a company decides to leave town, community leaders sometimes try to downplay the impact. But Affymetrix Inc. has been too important to the area’s biotech industry for that.

The company confirmed Friday that it’s closing its 9-year-old factory in West Sacramento next spring and will transfer most of its functions to its plant in Singapore.

About 100 jobs will be affected, although some employees will likely find work elsewhere at Affymetrix, said spokesman Andrew Noble from the company’s headquarters in Santa Clara.

Area officials were candid about the significance of the loss. They called Affymetrix a major employer and pioneer in the region’s biotech business.

“Affymetrix was … one of the early companies in the life sciences area,” said J.D. Stack, chief executive of the Sacramento Area Regional Technology Alliance. “Kind of an iconic company in the Sacramento area. It really hurts to lose them.”

Last year I wrote about electric car manufacturer Tesla Motors‘ decision to locate its new facility in Albuquerque instead of the Pittsburg Enterprise Zone.

Today Motor Trend reports that Tesla has been wooed back to the Golden State:

Like a major-league baseball team threatening to leave for a new city out West unless its rundown, depressed hometown builds a shiny new stadium, “zero-emissions” carmaker Tesla Motors was looking to move its fledgling electric auto manufacturing to New Mexico. California has come through with the equivalent of Baltimore’s Camden Yards. It will waive the sales tax for Tesla’s investment in business equipment, resulting in “millions of dollars in savings,” governor Arnold Schwarzenegger announced Monday. “If they choose to build their factory in an enterprise zone, they’ll save millions more,” he says.

The Governor made a presentation at Tesla, here is the full video of the event and press release. Of particular interest is the description of this brand new tax incentive in California:

Last Wednesday, CAEATFA [California Alternative Energy and Advanced Transportation Financing Authority] approved a new program that exempts new ZEV [Zero Emissions Vehicles] manufacturers from paying sales and use tax on the purchase of manufacturing equipment to encourage ZEV manufacturing in California. For Tesla, these incentives will mean millions of dollars in savings when the company invests in building their new plant in California. And if they choose a city that is in an Enterprise Zone, they will save millions more. Tesla will also be eligible for at least $1 million in Employment Training Panel Workforce Development Funds to train employees.

Gov. Schwarzenegger at Tesla Motors from Max Shenker on Vimeo.


It’s nice to hear the Governor promote the Enterprise Zone specifically. And another nugget from the speech transcript:

Now, last year it looked like Tesla Motors would build its electric cars in New Mexico. Now, you have to understand, I myself bought one of the first Tesla cars and so for me to see this company build a manufacturing plant in New Mexico drove me absolutely insane. But, the fact of the matter is my good friend, Bill Richardson, offered better incentives than we could offer here in California and so, therefore, they were thinking about going with a plan through New Mexico.

So, we left no stone unturned and we started going to work and thinking and thinking, what can we do, what other incentives can we offer?… And we were sitting down and we came up with all kinds of great ideas for business incentives to attract companies like Tesla that make zero-emission vehicles here in California, because we both want these cutting edge companies not just to start here in California, do research and development in California, but actually manufacture here in California.

The Los Angeles Times tells the story of a local textile company that was considering a move to Las Vegas:

Sometimes, what happens in Vegas can stay in Los Angeles.

Or, more specifically, in a vacant industrial building in Sylmar. That will be the new home of a 25-year-old Calabasas business named Drapes 4 Show Inc., which has made linens for Air Force One, swanky hotels, exclusive celebrity weddings and Hollywood movie sets.

The company had been leaving for Las Vegas, where many of its products are used, because it couldn’t find a suitable site for growth. Everything the company looked at in Los Angeles and Orange counties was too small, too expensive or too far from its workers.

But the company that was founded in a schoolteacher’s garage had learned that it pays to look for expert help when problems arise. This time, it came from a $900,000 grant and loan package from the Community Redevelopment Agency of Los Angeles, approved by the City Council last week.

It’s interesting that the topic of Enterprise Zones is not raised - parts of the Sylmar area are within the new Los Angeles EZ.

From the Desert Dispatch:

BARSTOW — A relatively new manufacturing facility is leaving Barstow, taking with it the jobs of several residents.

Ecolite Concrete decided to move to Moreno Valley and into a 81,000 square foot facility — nearly four times larger than its Barstow site on State Street. Ecolite representatives did not respond to calls seeking comment, but workers were removing office furniture and supplies at the facility on Wednesday.

Ryan Travis, commercial associate with Colliers International BradCo, which rents out the building, said that Ecolite’s departure was unexpected.

“I don’t think they were planning to leave Barstow,” he said.

…

The city’s economic development director Ron Rector said that he thinks the company’s Army contract ended. He said he doubts Barstow’s economy will be overly impacted.

“I don’t think it will have any effect,” he sad “Businesses are always coming and going; it’s my job to make sure there’s more coming than going.”

Rector said that the company had planned to expand its Barstow operations and employ as many as 45 workers. He said he wasn’t sure how many people Ecolite employs in Barstow but said only five or six would likely lose their jobs.

Rector said that the city had spoken with Ecolite officials to consider moving to the city’s Enterprise Zone, where they would be eligible for tax benefits but the company declined. The city is working with the business community and developers to fill the soon to be vacant space, Rector said.

There are a pair of stories out today about new communities’ interest in applying for an Enterprise Zone designation. The Desert Sun reports that the Riverside County Board of Supervisors has approved an application that would include the Western Coachella Valley:

“We really need all the help we can to get some economic action out there,” said county Supervisor Marion Ashley, who represents the city. “And particularly Desert Hot Springs needs it.”

The Coachella Valley already has an enterprise zone that has created 12,000 new jobs since 2000 from parts of Coachella into Indio and Thousand Palms. The proposed western Coachella Valley enterprise zone would include parts of Cathedral City and Desert Hot Springs.

“There is no guarantee that every single application will be granted,” said Tom Freeman, spokesman for the county’s economic development department. “We will not be the sole applicant for the new designation.”

The Chico Enterprise-Record, however, describes a much more nuanced issue involving a proposed Regional Enterprise Zone application for the counties of Glenn and Colusa. The Glenn County Board of Supervisors is struggling with the need for an economic development program such as the Enterprise Zone on the one hand, but their inability to come up with the liquid cash resources needed to operate a zone:

WILLOWS — It was one of those good news-bad news scenarios: an idea that could boost Glenn County’s economy, but faced the age-old question, “where’s the money to pay?”

The Board of Supervisors Tuesday heard a proposal to join Colusa County and the cities of Colusa and Williams to apply for a regional enterprise zone designation.

The idea hatched publicly Oct. 25 at a joint-governments meeting between Glenn county and city officials.

County Administrative Officer David Shoemaker Tuesday asked the supervisors to designate a county representative and identify funding solutions; authorize the board chairman to write a letter committing to the county’s participation, if approved; and refer the proposal to the block-grant reuse committee for action.

But while the supervisors agreed the county needs to improve its economy, the main obstacle the proposal faced was the county’s current financial status.

As Supervisor Keith Hansen put it, “we’re saying there is no General Fund money.”

Under the proposal, the costs of hiring a professional to complete the zone application would be split six ways between the two counties and four cities, assuming Orland and Willows are willing to participate. Shoemaker estimated the county share at between $22,000 and $44,000 for that cost.

But the county would also have to come up with $32,000 to $49,000 each year for operation and maintenance of the zone, again depending on the cities’ participation.

The county would also have to enter into a contract with Colusa County and the cities to protect its interest in the zone.

Shoemaker said the county could possibly apply for a community development block grant for the cost of applying for the zone, a possibility later confirmed by Planning Director Dan Obermeyer.

It’s the long-term obligation that is a problem. Not only doesn’t the county have money, but the governor is talking about state budget reductions, and both factors weighed heavily on the supervisors.

Supervisor John Amaro said he didn’t see how the county can go forward and wouldn’t enter into any kind of commitment without first knowing there would be funding.

Supervisor Tracey Quarne said he didn’t want to move ahead until the cities have indicated a solid interest.

“We don’t have any money,” Quarne said. “I can’t see committing to a collaboration if we don’t know if Willows and Orland are on board.”

“The General Fund is fragile,” said Supervisor Mike Murray, a self-described fiscal conservative. “I would not support anything from the General Fund … it’s a math problem.”

But Supervisor Tom McGowan asked, “How do you harvest if you don’t plant seeds?”

McGowan said the county hasn’t done anything “proactive” on economic development. He is the one who initially advocated for the proposal at the joint meeting, and urged the county and cities then to commit to the idea.

“Momentum is growing a little bit … we do have a good chance of being awarded one of these enterprise zones,” McGowan said.

Amaro disagreed that the county isn’t doing anything to improve economically, and reiterated his position that the county can’t commit at this time.

“I think it’s a great project …” Amaro said. “We can’t afford it.”

As discussion wound to an end, Finance Director Don Santoro reminded the board the governor has ordered a 10-percent spending reduction by all state agencies that could affect county programs in the future — a possibility he cautioned the board to think about when looking at ongoing projects.

No decisions were made, although Shoemaker was directed to find out more about the cities’ interest. The board may revisit the proposal at the first meeting in December.

If they are serious, they’ll have to make a decision before December - the applications are due November 16th.

The Long Beach Press-Telegram today highlights an ongoing challenge zones face, the difficulty of attracting participation from small business:

LONG BEACH - The city’s enterprise zone seems to be a success in just about all areas, expect one - not too many businesses seem to know about it.
…
Now, the goal is to let more businesses know about it, said chamber [of commerce] chairman Matthew Kinley, who fought to retain the zone. The chamber recently conducted one of its monthly small business caravans, sending chamber members and a city council member to a district to talk about small business issues.

“We went on our small business caravan with (Councilwoman) Rae Gabelich and visited four small businesses and two restaurants,” Kinley said. “None of them were aware of the enterprise zone, even though three out of four of them were eligible for it.”

The Appeal-Democrat in Yuba reports on the closure of a claims center and the hope that the Yuba-Sutter Enterprise Zone will be able to save the day:

Marysville and Yuba County officials hope incentives from the Yuba-Sutter Enterprise Zone will soften the blow when workers at a Medicare claims center lose their jobs in June.

Officials at the Centers for Medicare and Medicaid Services gave notice to 220 employees at Marysville’s NHIC One-Step Center on J Street last week that the contract keeping them afloat will not be renewed.

There is a very interesting article in today’s Los Angeles Times about the state of manufacturing jobs in Southern California. There seems to be a delicate balance between the general difficulties of doing business in California and the numerous benefits. On the one hand, the business owner profiled explains:

“Some of the smartest people in the world live here, and if I was to move the company outside of California I would lose some of those good, qualified people that I might not be able to find” elsewhere, Loyd said.

Another lure is California’s harbors, which make it easy to ship products to his company’s increasingly international customer base, Loyd said.

Yet at the same time:

But even companies that are loyal to California are frustrated by what they see as excessive regulation and a less-than-friendly attitude toward business.

The result in some cases is that companies maintain their headquarters and a core of high-end jobs in the Southland but move lower-level operations out of state.

Virco Manufacturing Corp., which makes children’s furniture, is based in Torrance but creates most of its new jobs at its Arkansas facility, where regulation is much lighter and energy costs are four times lower, said Robert Virtue, Virco’s president.

“The overregulation is a real deterrent to growth,” Virtue said. “Many of the jobs we’re adding are in Arkansas because the business climate there is good.”

Very often, the decision seems to transcend the bottom line:

“If I was a bean counter and I was in a publicly traded company, I probably would have gone,” said Loyd, the company’s president. “But being a family-owned business and privately held and having [community] values intact were the reasons we’re still here.”

The Sacramento Bee provides an update on the status of the Hershey plant in Oakdale, within the Stanislaus Enterprise Zone:

Hershey is shutting the plant, along with several others in the United States and Canada, as part of a restructuring that will move some candy production to a new plant in Monterrey, Mexico.

The Oakdale plant, which opened in 1965, employed 575 people when the closure was announced in April. The first round of layoffs was in July, displacing 168 workers. Another 294 were designated for layoffs effective today, but many of them have left already, a union official said.

Some of the candy-making equipment is being dismantled and shipped to Mexico, leaving a partially vacant site for potential buyers to tour.

Hershey is seeking $18.5 million for the property, according to a listing by CB Richard Ellis. The 85-acre site has 615,000 square feet of floor space across six buildings, plus ample utilities and rail access.

Oakdale City Manager Steve Hallam said he has not heard anything about a new tenant. Stanislaus County Assessor Doug Harms, whose office will reassess the property eventually, said he has heard nothing.

Previous Hershey posts here and here.

In our “when the Enterprise Zone is not enough” category, the Los Angeles Times reports today:

Interstate Bakeries Corp. said today its Wonder bread brand would disappear from Southern California grocery stores after it shuts down bread baking operations in the region Oct. 29.

Kansas City, Mo.-based Interstate said it planned to close all four of its Southland bread bakeries, located in Glendale, Pomona, San Diego and in Los Angeles southeast of USC. The company will also close 17 distribution centers and 16 outlet stores.

In all, about 1,300 jobs will be eliminated.

Interstate, which has been operating under Chapter 11 bankruptcy protection for almost three years, said its bread operations in Southern California were losing money and blamed high labor costs.

I posted a story in March about the possible closure of the the Hershey plant in Oakdale, CA. Well, apparently the follow up is not good news. The Modesto Bee reported yesterday that the Hershey Company announced this past Monday that the plant will indeed close next January. The closure will result in the loss of 575 jobs (and the loss of chocolate aroma).

Now some area residents are considering a boycott:

Deborah Weaver and Racheal Jackson both looked as if they’d had a bite of bitter chocolate as they discussed Hershey.”Reese’s Peanut Butter Cups are my favorite, but I’m seriously considering telling everyone I know to stop buying Hershey,” said Jackson, 19. “I don’t see the point of what they’re doing.”

Inc. Magazine has released its annual lists of the top cities in which to do business. There is a top twenty list for large, midsize and small sized cities.

In the large city category (employment base of 450,000 and more), two California cities make the list: the Riverside-San Bernardino-Ontario area at number 5, and Sacramento at number 15. Both of these areas are homes to Enterprise Zones.

In the midsize category (employment base of 150,000 to 449,000) there is only one representative from California: Bakersfield at number 11. Bakersfield was home to an Enterprise until last year when it expired.

No California cities made it into the top twenty small cities (employment base of under 150,000).

The Modesto Bee reports on The Hershey Corporation’s new plans for a manufacturing plant in Mexico and the potential repercussions on their U.S. operations including California. Once again, the Enterprise Zone is mentioned as a major attraction:

“Food processing companies want to be within close proximity to the source so your products are as fresh as possible,” said Jan Ennenga, executive director of the Manufacturing Council of the Central Valley. But there are concerns that the cost of doing business in California may outweigh the benefits of being in the heart of agriculture land. Improved logistics in recent years means Hershey could be cost-effective in shipping almonds or dairy products from the valley to Mexico, Boyd said.”The proximity to raw materials is trumped by lower labor costs and lower raw material costs, principally sugar,” said Boyd, adding that the efficiency of the Oakdale plant is likely being taken “under serious consideration” by Hershey executives…. Modesto Irrigation District provides “affordable, business-friendly energy” rates, Ennenga said, and clean water. Oakdale also is within the boundaries of Stanislaus County’s enterprise zone, which gives companies tax breaks.

However, she said, global competition can prove to be a much stronger influence than those factors when companies must cut costs.

From The Arizona Republic, “Gore to Expand to Phoenix:”

Walt Plosila, a Battelle Technology Partnership Practice vice president who monitors Arizona’s bioscience effort, said Gore’s expansion could help Arizona attract other medical-device employers. The Valley’s largest such employer is Medtronic in Tempe.”It is good news they are expanding in Phoenix and not somewhere else in the country,” Plosila said. “It suggests they find Arizona a conducive place to grow and develop a medical-device company.”

Plosila expects Arizona and other states will attempt to recruit such companies from California, where high taxes, housing and other costs have made it difficult for employers to recruit out-of-state workers.

“The one hot prospect everybody is drooling over is how to go after the California medical-device business,” Plosila said. “Those firms are getting more and more frustrated with the cost of doing business.”

Back in November I posted an article from the Silicon Valley/San Jose Business Journal about electric-car maker Tesla Motors’ search for a site to build their new 300 employee factory. Many different states were trying to entice the company and California was offering its Enterprise Zones as a major incentive. There was a particularly bitter line that I highlighted at the end of that article:

Because the company is based in Silicon Valley, has support from some wealthy technology investors and makes an expensive product, some in Sacramento think the company should just reach deeper in its own pockets to find that $15 million.

Well, today the Contra Costa Times reports that Tesla chose Albuquerque, NM over semi-finalist Pittsburg, CA:

Hoping to entice electric-car maker Tesla Motors to make Pittsburg the site of its first U.S. auto assembly plant, city officials assembled an offer for the startup larger than any pieced together there before. But the package wasn’t enough to keep Tesla from choosing to head to New Mexico instead….Tesla’s vice president of marketing, Darryl Siry, said Albuquerque’s edge over Pittsburg can be explained in three key reasons: It’s considered the No. 1 city in the country for business; it’s a better location for a supply base; and the prevailing wage need not be as high compared with the Bay Area for workers to earn a good living.

Related: The Buck Stops Here

A Birds-Eye frozen food factory is closing in the Watsonville Enterprise Zone, the area will lose 550 jobs according to this article in the San Jose Mercury News:

The company threw a goodbye party for the workers Dec. 8. Salsa music from a hired band pulsated through the drab industrial park, as a local Mexican eatery catered a final dinner. Decorations and poinsettias were handed out to workers, still wearing the blue smocks and green hard hats of their shifts.Workers at the Birds Eye factory in Watsonville earn $10 to $22 an hour — roughly 10 times more than those doing comparable work in Mexico and Central America. The average employee has worked at the plant for 16 years.

In the Silicon Valley/San Jose Business Journal there is a potentially tragic story about Tesla Motors, Inc. They are interested in building a new $100 million, 300 employee factory in the Central Valley, but the offers from Arizona and North Carolina are “far more enticing — roughly $15 million at the front end — than anything the state of California has come up with.”

North Carolina and Arizona have offered deals that would allow Tesla to cut more than $15 million from the startup costs for the new plant.California can offer $20 million in tax credits per year on certain machinery, says Janet Houston, spokesperson for the California Department of Housing and Community Development. In addition, the state has offered tax credits of up to $30,000 on each employee, if Tesla locates in an Enterprise Zone of which there are several in the Central Valley. What Tesla is asking for would come closer to $80,000 per employee, an unlikely proposition.

“Given the state’s structural deficit, the governor has focused his efforts on balancing the budget without raising taxes and expanding health care for uninsured children,” says Mr. Ng.

Because the company is based in Silicon Valley, has support from some wealthy technology investors and makes an expensive product, some in Sacramento think the company should just reach deeper in its own pockets to find that $15 million.

That last line is especially precious.