HEADLINE: CITIES PAY PRICE TO ENTICE BUSINESS
BYLINE: Eric Young and Tony Bizjak, Bee Staff Writers
It was $ 70,000 of public money into private pockets.
Officials in cash-strapped
rehire a parks employee or a probation officer this year. Instead, county
supervisors decided to pay that amount annually for the next nine years to Bank
of America to keep it from moving 1,150 loan processing jobs out of
essentially making a decision they considered smart -- the equivalent of one
county job sacrificed to help save many more private-sector jobs.
Meanwhile, city of
million in necessary sewer improvements. Yet the city two years ago loaned $ 26
million to Packard Bell to lure the electronics company, and several thousand
What's at play? Big-dollar competition among cities and counties for jobs.
"You need economic growth to sustain a community," said City Manager Bill
Edgar in explaining the city's wooing of Packard Bell. "If you don't move
forward, you slide back."
To avoid sliding back in the recessionary 1990s, local governments are
tossing money and other incentives to big companies as a bounty to get them to
choose one locale over another, or keep them from leaving town.
Across the Sacramento area, a Who's Who of major employers has received
taxpayer money and other incentives in recent years:
* Earlier this month, Folsom outbid an Oregon city for a new Kikkoman Foods
Inc. production plant, offering several million dollars of tax rebates to the
* The city, the county, the Sacramento Municipal Utility District and federal
government combined to offer $19 million in incentives to Blue Diamond last
* Pacific Bell recently received $ 1 million in fee deferrals and property
tax rebates from the county to help build a new facility.
* City officials offered $14 million in incentives, including parking spaces
and land for $1, to Hilton Hotels for a convention hotel downtown before that
deal fell through three weeks ago. One possible reason, insiders say: Investors
didn't think the city was offering enough.
Government accommodations to private businesses are not new. In one form or
another, the practice has gone on for years. But business incentives have gained
increasing attention as technology allows businesses to be more mobile, and as
dollar amounts climb.
Proponents argue that financial incentives are necessary for survival in
today's cutthroat climate, where big businesses can and do move their operations
from county to county or out of state. "The bottom line," said Paul Hahn of the county
economic development department, "is we're competing with other counties. We could
say, "No, we're not going to compete,' but that is potentially throwing in the towel." Hahn
is one of many officials who contend that spending money now will strengthen the tax
base, save jobs and boost development.
But according to critic Carl Rist from the Corporation for Enterprise
Development, a Washington, D.C.-based public policy institute studying these
public-private partnerships, the practice shows how companies play on
politicians' fears of job loss to the detriment of local coffers. He called it a
zero-sum game in which jobs aren't created, merely shuffled from place to place
as businesses seek the best deal.
"I don't think there is any reason taxpayers should be footing the bill,"
said Jim Hastings, a neighborhood activist who was a candidate for
mayor this year. The money being spent on companies "was intended to do
infrastructure and pay for police and fire and to help pave roads."
But the issue is complex enough that even
advocate said he's torn.
"In the best world, you would attract businesses without . . . having to cut
deals to bring people here or bring jobs here," said Jonathan Coupal, president
of the Sacramento County Taxpayers League. But a community doesn't want "to lose
a major taxpayer for the sake of ideology," he said. "The reality is if other
people are playing the game and you don't get on the field you're out of luck."
Still, some local governments won't play the big-stakes game. The city of
not offer financial incentives or subsidies to lure businesses, even though it has embarked
on a campaign to attract more companies."I've never felt comfortable saying, "We'll pay
you to come to our city,' " said City Manager Carlos Urrutia. Instead, the city defers
fees and speeds permits.
But jurisdictions that will offer money are not in short supply.
A few months ago, Campbell Soup Co. came to
saying it would keep its food-processing plant at
concessions. At the time,
many local officials to fear it would shut the
County supervisors approved a deal whose major element gives Campbell Soup a
refund on property taxes based on the amount of investment the company makes in
plant improvement. That will equal about $ 500,000 this year.
Financial incentives are not given out willy-nilly, officials say.
Both the city and county have policies outlining which companies qualify.
For example, the county will provide up to $ 2,000 per job to businesses with at
least 50 full-time employees with average annual salaries of $25,000. The
city's policy is similar. Bill Farley, economic development manager for the city,
said his office has rejected several overtures by representatives of local companies
in recent years, judging them attempts to get unwarranted handouts.
However, the controversial decision last year by several local agencies to
give $ 19 million, including federal money, to help subsidize factory upgrades
at the Blue Diamond Growers' 86-year-old midtown facility was based on a city
analysis that showed it would make economic sense for Blue Diamond to move.
"It is clear their labor costs could be reduced dramatically if they moved
to a rural area," Farley said. "So there was a competitive disadvantage to
Monetary incentives may play a major or minor role in a deal, depending on a
company's needs. Kikkoman Foods Inc. is an example. When the international
company chose Folsom over Corvallis, Ore., on Dec. 11 as the site for a $ 40 million
production plant, Folsom's incentive package of up to $ 4.2 million in tax
rebates, plus electricity and job-training subsidies, evened the financial deal
between the two cities.
Land costs in Corvallis were far cheaper than in Folsom, but Corvallis
offered only a $500,000 Oregon state grant to help prepare the infrastructure
for the plant, allowing Folsom to stay in the game, said Milton Neshek, general
counsel and secretary for Kikkoman in Wisconsin.
For Pacific Bell, a $ 1 million deal with
have played such a critical role. The money helped the communications giant
build a new office in
without any incentives?
"I don't know. It's hard to say," said company spokesman Dave Miller. "I
think it was important for (the county) to say, "Yes, we're excited about the
prospect of having you here.' The interest they showed played an important
Doling public money to sometimes-volatile private businesses can create the
risk of financial catastrophe with tax money.
The city of
million budget for reconstructing the Oakland-Alameda County Coliseum to lure
the Raiders football team from
the local general fund.
Mayor Joe Serna Jr., who is pushing to get a major-league baseball team in
that might end up stealing money from the city's general bank account. "I don't
want baseball that bad," he said. Meantime, city officials are expecting Sacramento
Kings basketball team owner Jim Thomas to suggest a public-private proposal on
developing land next to Arco Arena. And the city of
Packard Bell, which has had its ups and downs, continues local operations for
another decade, or the city will face loss of part of its $ 26 million loan.
How did we get here?
For one, the "footloose nature" of business, said economics professor Ernest
legislators on how to structure competitive incentive deals. "Businesses are
more able to move from one location to another and that is due to technology."
Recession in the 1990s and the more restrictive financing also seem to have
pushed local politicians into deals to keep their cities or counties moving
forward, economic development officials say.
City officials admit they feel that pressure. They recently spent $80
million expanding the
without enough downtown hotel rooms to fill the center so it can pay its
bills. No company in the private sector seems willing to build a downtown hotel,
so the city is dangling tax rebates, free land and parking to sweeten the pot.
Sacramento County Supervisor Roger Dickinson supported some recent deals, but
admits he is not comfortable with the public-private partnership trend. It would be
better in the long run if government re-examined its income sources, rather than
showing favor to select businesses, he said. But he said that he felt pressure to
keep the area strong economically when voting on recent packages.
"I think critics have to be prepared for the question of "Why did you let
Campbell Soup leave?' or "Why didn't you do something for Blue Diamond?' " he
GRAPHIC: PUBLIC-PRIVATE PARTNERSHIPS
Local governments increasingly are offering financial incentives to lure large
companies as well as to keep major local employers from leaving.
Such public-private partnerships are sometimes controversial, and usually
complicated. Here is an overview of some key recent incentive deals in the
COMPANY: Blue Diamond Growers
DEAL DATE: May 1995
OVERVIEW: The City Council sought to keep the world's largest almond processor
and long-time employer in
PUBLIC ENTITIES: City of Sacramento, Sacramento Housing and Redevelopment
Agency, federal Housing and Urban Development agency
DEAL POINTS: City and SHRA grants totalling $ 3.5 million, a SHRA loan of $ 6
million for equipment and infrastructure, $ 9.5 million in federal loans and
grants, including community development block grants
GOVERNMENT INVESTMENT: $19 million
BENEFITS: City retains a company with 1,000 employees and $32 million payroll.
COST: Obtaining the community development block grants required the city and
SHRA to borrow against future CDBG entitlements, meaning some future CDBG money
will be tied up in repayment over 10 to 15 years.
COMPANY: Campbell Soup Co.
DEAL DATE: October 1996
OVERVIEW: After more than two years of inaction, county officials concluded a
deal designed to keep the food processing plant at
the immediate future" in return for the agreement.
DEAL POINTS: Reimbursement of tax increment money based on the amount of
investment Campbell Soup makes in its facility, equalling about $ 500,000 this
year. An exemption of locally imposed groundwater extraction fees or regulation.
State retraining grants of approximately $2,500 per worker. Tax credits against
state corporation taxes, water service charged at reduced rates and accelerated
permitting on all construction on the
GOVERNMENT INVESTMENT: At least $500,000 and could increase depending on
area, meaning the company will continue to produce tax money that can be used
for housing and other redevelopment projects.
COST: Most tax increment money will be directed to the Campbell Soup facility,
not toward fixing sidewalks, rehabilitating housing, and doing curb and gutter
improvements in the neighborhood surrounding Campbell Soup.
COMPANY: Bank of America
DEAL DATE: October 1996
OVERVIEW: Bank of America reportedly was considering an offer from
move a Rancho Cordova-based loan processing operation there.
officials countered with a series of concessions, keeping B of A here.
DEAL POINTS: Bank of America can defer paying most construction related fees,
interest free, on a new building, equalling $617,000. Over nine years,
normally would pay the county in utility, sales, property and other miscellaneous taxes.
A state grant of up to $ 1.5 million for employee training and electrical rate discounts
totalling $ 900,000 from SMUD. The bank forfeits some or all of the benefits if it does
not maintain a work force of more than 1,150 people for a decade.
GOVERNMENT INVESTMENT: Approximately $ 3 million
COST: Deferring tax money from the county's general fund, which pays for such
services as law enforcement.
PACKARD BELL ELECTRONICS
DEAL DATE: December, 1994.
OVERVIEW: City lures Packard Bell from
its main manufacturing plant to vacant Army Depot site.
PUBLIC ENTITIES: City of Sacramento
DEAL POINTS: $ 17 million loan for site improvements; up to $ 9 million loan for
moving expenses. Packard Bell corporate headquarters and senior managers must
relocate to Army Depot. Packard Bell gets state income tax credits for hiring
people off of welfare. City could recall some loan money if Packard Bell
employment at site drops below 1,500 during 1997 through 1999. Packard Bell
allowed to take ownership of site in2005 for $ 7 million.
GOVERNMENT INVESTMENT: $26 million, all of which will be reimbursed by 2005.
3,000 and 5,000.
COST: By borrowing the money to loan to Packard Bell, city limits it future
borrowing ability to capital improvements until debt is paid off.
DEAL DATE: December, 1996
OVERVIEW: Folsom outbids
PUBLIC ENTITIES: City of Folsom, state Trade and Commerce Agency, Sacramento
Municipal Utilities District, Sacramento Area Commerce and Trade Organization.
DEAL POINTS: Folsom is offering what will amount to between $ 2.8 million and $ 4.2
million in property tax rebates over the next 15 years. SMUD is offering a
"new jobs incentive rate" saving it 6.5% on rates over five years. The state is
offering $ 50,000 in employment training assistence.
GOVERNMENT INVESTMENT: Between $ 3 million and $ 4.5 million.
BENEFITS: Brings in an internationally recognized brand name to town. Boosts
investment in Folsom redevelopment. Expected trickle-down effects to other
COST: Folsom forgoes additional property tax income from that 50-acre site,
but only if another company would have agreed to locate on the site without a
1. What are the benefits and the costs of using taxpayer money to subsidize private business? Who gets the benefits and who pays the costs? Why do cities and states engage in this practice? What could be done to prevent this sort of competition among cities and states or to make sure that the subsidies actually serve the public good? (Hint: An insight on this topic should incorporate, at the very least, the the other assigned readings that relate to this topic question.)