Arizona Tax Plan Could Cost S.D. Jobs
The governor of Arizona unveiled a massive package of tax incentives Wednesday to persuade Hughes Aircraft to move thousands of San Diego jobs to Tucson after the defense giant completes its purchase of General Dynamics’ missile business.
The tax incentives package would shower Hughes with corporate tax credits, tax incentives to buy capital equipment, and property- and sales-tax abatements--goodies that San Diego leaders say they are unable to match.
Dan Pegg, president of San Diego Economic Development Corp., described the incentives as the opening moves in an “incentives game” for thousands of aerospace jobs in Southern California thrown in limbo by the Hughes-General Dynamics deal.
It’s a game in which Arizona holds stronger cards, he said, because San Diego and California must abide by legal restrictions on tax breaks at the statewide and municipal levels.
Arizona Gov. Fife Symington also announced that he will call a special session of the Arizona Legislature to vote on the package, probably next month. Called the Arizona Defense Restructuring Program, the plan is designed to “enhance the competitiveness of Arizona’s defense contractors.” Symington said the plan has broad bipartisan support.
San Diego leaders, including Mayor Maureen O’Connor and Greater San Diego Chamber of Commerce President Lee Grissom, are seeking a meeting with Hughes officials to learn the company’s intentions and possibly to offer their own incentives.
In announcing its plan Monday to pay $450 million in stock for General Dynamics missile operation, Hughes said it would consolidate operations but has not decided where. The missile unit employs 4,500 workers in San Diego and 4,300 in Pomona.
At a Tucson press conference Wednesday, Symington said he had talked to unnamed executives at Hughes Aircraft who told him that Arizona “stood to gain” 1,000 to 4,000 jobs as a result of the Hughes’ acquisition. Symington said Hughes told him it will decide in 30 to 60 days where the consolidation is to take place.
Hughes’ 2.2-million-square-foot plant on Tucson’s outskirts, which will be half empty at the end of 1992, is the rumored site for a consolidation. In addition, Hughes’s missile systems group operates a 950,000-square-foot plant in Canoga Park that is used largely for design and research.
On Monday, a General Dynamics official said there was a “reasonable likelihood” that 2,000 General Dynamics Convair employees who work on the Tomahawk cruise missile would be moved out of San Diego in a consolidation. About 2,500 others would be terminated by August, 1993, when the advanced cruise missile program ends.
“We welcome this,” Ray Silvius, Hughes Aircraft director of corporate communications in Los Angeles, said about the Arizona incentives. “Any proposal like this will always be given serious consideration because it does make it easier for us to do business in states that provide benefits.”
James Marsh, director of the Arizona Department of Commerce, said his state’s incentive package had been in the works for two months, but that the Hughes proposal to buy General Dynamics missile unit had “taken it over the edge.”
The proposal would give any Arizona defense employer a $1,250-per-employee corporate tax credit for each employee brought to the state in a consolidation. Companies successfully converting from defense to commercial work would be given a tax credit of $2,500 for each employee whose job is converted.
Symington initiated work on the tax incentive plan in light of projections that Arizona will lose 17,000 of its 79,000 defense and military jobs between now and 1996, he said in a statement.
San Diego mayoral spokesman Paul Downey said he wasn’t surprised by the Arizona governor’s “aggressive” incentive plan because the state is “hurting worse than California is.” Although San Diego will do all it can to keep missile employees here, “it is not clear what if anything can be offered. . . . I’m not sure what is possible to put on the table,” Downey said.
Richard D. C. Wilden, project director for the Council on California Competitiveness, the committee chaired by Peter Ueberroth that submitted a list of recommendations last month to Gov. Pete Wilson on how the state can protect and attract jobs, said the city should act quickly with an incentives package of its own. Whatever the particulars, the package should be devised with the input of San Diego city, state and congressional representatives, he said.
“Companies that are tempted to move often stay if you can convince them the cost of the move exceeds the benefits they would get,” said Wilden, who is also a partner in Ueberroth’s Newport Beach-based Contrarian Group investment firm.
Wilden said the city of Orange this week was able to keep TRW’s 1,300-employee credit operation from moving out of state after the city and its elected state representatives jointly devised an incentives proposal of rent subsidies and other inducements.
