Off to a Slow Start : Lancaster, Palmdale Offer Big Incentives to Draw New Business, With Little Success
A year ago, city officials in Lancaster held a triumphant news conference to announce that ex-astronaut Gordon Cooper, enthused by a $300,000 gift from the city, was relocating his Van Nuys aviation business to the Antelope Valley, the first venture lured by a vigorous business recruitment program.
Last week, however, Cooper was still unable to get additional private financing he needed to fund the venture, so he could not even make lease payments on a never-used hangar in Lancaster. So Cooper and a few associates brought a moving van to a Lancaster airport to pack up and close the office.
The stalled venture illustrates the tough first year Lancaster and Palmdale have had with their joint program, billed as the first of its kind in California, to offer at least $2,000 in various incentives for each manufacturing or corporate job that qualifying companies bring to the area.
Since the incentive program began in April, 1993, few Southern California cities have been more aggressive in recruiting businesses than these two Antelope Valley communities. Thus far, the result has been a lot of interest--but the program has produced only about 35 new jobs.
“It’s a tough market. We’ve had a lot of people come and talk to us. But for a lot of different reasons, it didn’t happen,” said Lancaster redevelopment director Steve Dukett. Chief among them is the economic downturn that has continued to plague the region, Dukett said, noting that the program’s main targets are companies in the San Fernando Valley and nearby areas.
Over the past year, Dukett said the Lancaster City Council has approved only three incentive deals under the program. Two ventures, including Cooper’s, have stalled and the third has yet to open. Palmdale officials said they have attracted only two new businesses under the program--a machine shop and a small clothing importer--totaling about 35 jobs.
The largest letdown, meanwhile, still looms. Palmdale officials concede it’s increasingly unlikely they will succeed in landing computer-maker Packard Bell Electronics Inc., and its 1,350 local jobs, despite an incentive package worth more than $15 million.
The computer company, with headquarters in Westlake Village, also is mulling offers from Salt Lake City; Portland, Ore.; Long Beach, and other cities. Packard Bell was the fourth-largest PC maker in the United States last year. A spokesman said Packard Bell is in no rush to decide.
Still, the two high desert cities are renewing the $2,000-per-job incentive for a second year, and from now on both will offer employees of relocating companies 2.5% discounts on new home purchases and breaks on related services.
If nothing else, the incentive program at least seems to have put the two cities on the corporate map. “I think it’s gotten a lot of companies to look at the area that probably wouldn’t have in the past,” said Laurel Shockley, who runs the state Trade and Commerce Agency’s Los Angeles regional office.
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Financial incentives to attract businesses have become a common practice among California cities. But most such deals are negotiated individually, unlike the two cities’ flat policy of offered inducements. Other states also offer individual lucrative deals. But California officials said the state is legally forbidden from making such huge giveaways.
The $2,000-per-job incentive offered by the two Antelope Valley cities can come through the waiver of city impact or processing fees or land write-downs. Or, as in Cooper’s case, Lancaster gave him operating money equaling nearly five years in lease payments. The offer applies to companies that promise 25 or more new jobs for the area within two years.
“Any program takes six to eight months to be publicized and understood,” added Dolores Buddell-Teubner, Palmdale’s economic development coordinator. “We’re just getting to the point now where we’re beginning to see some results.”
In Lancaster, the results have hardly been what city officials expected. Their deal with astronaut Cooper’s Galaxy Group Inc., now based near Van Nuys Airport, was supposed to have been a flagship for other companies to follow. Cooper’s venture involved replacing piston engines in several popular models of twin-engine prop aircraft used by businesses with more efficient and powerful turbine models. For the firm’s 25 promised jobs, the city’s upfront $300,000 payment amounted to a $12,000-per-job subsidy.
Encino resident Cooper, who flew 22 orbits in his 1963 Mercury mission, last fall took a five-year sublease on a hangar and office at the small William J. Fox Airfield in Lancaster. But after a private financing deal fell apart, Galaxy Group stopped paying on the sublease at the end of last year.
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Last Thursday, under threat of eviction, Cooper hired a moving company to put his office furnishings there into storage. Cooper said he is trying to obtain about $1 million in new financing. Even with that, Cooper said it then would be several additional months before he could get certification for the project from the Federal Aviation Administration, the other critical element for his venture to proceed. In the meantime, his small business remains in Van Nuys.
Lancaster last month declared Galaxy in default of the agreement and demanded repayment of the $300,000, Dukett said. Cooper said he cannot repay the money unless he gets new financing. “Let’s just say we are extremely upset about this,” Dukett said, adding the city will now consider its legal options.
The city’s second relocation deal, a $225,000 subsidy for Burbank-based Visual Instrumentation Corp., a manufacturer of high-speed photographic equipment, also has stalled.
Only motor-home builder Rexhall Industries Inc., which received 10 acres of land worth $500,000, is still ready to relocate its 170 jobs from Santa Clarita to Lancaster. Rexhall needs room to expand, and plans to start construction soon on its larger Lancaster facility.
In Palmdale, city officials who have been pursuing Packard Bell since late last year are fuming because they have been unable to get a state enterprise zone designation. Without its tax breaks and other incentives, city officials said they have no chance of landing the company.
State-designated enterprise zones are supposed to target economically distressed areas, offering companies that operate there and hire underemployed residents a variety of state tax credits. For Packard Bell, Palmdale officials said, relocating to a state enterprise zone would yield a savings of about $1 million a year. “Packard Bell has clearly said, ‘If we can’t go in an enterprise zone in California, we’re out of here,’ ” said Al McCord, Palmdale’s deputy city administrator for economic development.
A bill to add new zones, giving Palmdale a chance, has been stalled in a state Assembly committee for months. Even if that bill is passed, any new designations probably would not occur before next March, state officials said.
Packard Bell officials have talked of wanting a 1-million-square-foot complex, much larger than their past facilities.
According to Buddell-Teubner, Palmdale’s offer includes 50 acres of land worth up to $7.5 million, a waiver of city fees valued at $1.5 million, $5 million in state worker training funds and the employee housing discounts. The proposal also includes low-interest financing assistance. Based on a 2,000-person work force, the subsidy exceeds $7,000 per employee.
Apart from the recession, several factors may have hurt the Antelope Valley’s job recruitment. Some corporate leaders still think of the region, 60 miles northeast of downtown L.A., as too remote and isolated, said Shockley of the state trade agency.
Shockley and PHH Fantus, a Chicago-based consulting firm hired by Palmdale and Lancaster last year, cited a lack of large industrial buildings in the region for companies to lease. The PHH Fantus report noted that the area has low land and housing prices and a trained work force. But that was offset by limited freeway and commercial-air access, low high school test scores and no four-year college.
Then there is plain competition. Last year, a subsidiary of Anheuser-Busch Cos. Inc., planning a $100-million can-manufacturing plant, looked at Lancaster, Palmdale and even the closed General Motors plant in Van Nuys among about 80 Southern California locations before deciding.
Their choice was the Mira Loma area of Riverside County, where county officials offered a tax rebate worth up to $4 million over 10 years for the plant. That is a subsidy of up to $30,000 for each of the plant’s 130 expected jobs.
“The victories are very few and far between,” said Tom Alfano, the state trade agency staff member who was involved in the search and was particularly impressed by Lancaster’s presentation. “Honestly, I think sometimes it’s a matter of time and luck.”
