Taco Bell Says Decision to Stay in O.C. Doesn’t Rule Out a Move Later

Taco Bell Corp.’s decision to keep its headquarters and 1,000 jobs in California is only a temporary arrangement that gives the company more time to evaluate its expansion needs and assess whether California is truly becoming friendlier to business, its chairman said Tuesday.

John E. Martin, chief executive of the Mexican-style fast-food chain, did not rule out moving later to Texas or another state, declaring that the company will do whatever is “best or most practical.”

“My hope would be that we’ll be able to keep our core business here,” he said. “But if the climate in California were to go south from a business perspective, then we’d look at our other options.”

Martin’s comments came in his first interview since Taco Bell concluded a yearlong, nationwide search for a new headquarters site by declaring in June that it would stay in Irvine. The remarks signal that any prolonged celebration over the company’s decision may be premature.

The emergency “red team” of government and business leaders who worked to persuade Taco Bell to stay has acknowledged that the fight isn’t over. In a recent letter to Martin, team leader H. Fred Mickelson, a Southern California Edison executive, said that the team does not consider the company’s decision to be a “done deal.” Additional meetings with Taco Bell executives already have been scheduled, Mickelson said Tuesday.

The chain ended its nationwide search by signing a $41-million, 15-year lease at its current location that gives it options at each five-year interval to cancel the contract. That option, Martin said, gives the company the flexibility it wanted for its wait-and-see approach.

Taco Bell has become a symbol for business owners who believe California public officials have driven companies out of state by their hostile attitude. The company’s widely publicized search for a new home tested California’s will to change that perception.

“There has been a certain degree of arrogance in this state toward business,” Martin said. The attitude for 20 years has been that “business needed the state a heck of a lot more than the other way around, that business was lucky to have the state.”

But now legislators are recognizing that business carries an unfair burden, he said, and proposals such as a 6% tax credit for corporations building or expanding in California would help the state compete against aggressive, pro-business states such as Texas.

However, Martin said, many still oppose providing any help to business. “Old habits die hard,” he said.

What impressed Martin about Texas, Georgia and North Carolina--states that a group of executives visited during the search--was that their public officials appeared eager to work with companies to solve any problems that surface between government and industry. California, he said, is just getting to the point where officials are acknowledging that “maybe you aren’t just a nuisance.”

He credited Gov. Pete Wilson, Assembly Speaker Willie Brown, state Sen. Bill Lockyer (D-Hayward) and state Controller Gray Davis for leading efforts to make business more welcome in the state.

It was Brown’s 6% tax-credit bill that helped to turn Taco Bell, which had been offered a $10-million package of incentives from Texas, back toward California. The bill was defeated in committee but Lockyer expanded it and will try to get a version adopted soon. Martin said

“This isn’t a victory or a defeat for anyone,” Martin said. “This has been a business trying to make a business decision. We tried to balance all the factors. In the end, there still were pluses and minuses.”

Ultimately, he said, the state Legislature has to pass some meaningful tax relief and top public officials have to commit themselves working “on the same side of the fence” with business to solve their mutual problems and halt the flight of business to other states.

The company also had not decided what kind of headquarters structure it wanted. It had started the process of thinking about its space needs three years ago when it simply had Taco Bell outlets. But last year, as it secretly began its relocation search, it acquired Chevys, a Mexican-style, casual restaurant chain based in San Francisco.

The Chevys purchase, top executives realized, threw their headquarters plans into a quandary. The company already had five other lines of business, most of it centered on Taco Bell, but knew the company would develop other kinds of restaurants in the future.

Executives weren’t sure whether they wanted to consolidate operations under one roof or in nearby offices, or leave each division and subsidiary at its own headquarters.

“Where our corporate headquarters is located is part of how we do business, but it’s our business that drives what we do,” Martin said. So in the next few years, he said, the company will evaluate its needs and determine whether to consolidate.

Real estate developers in Orange County and in the Dallas-Fort Worth area certainly sensed that the company didn’t know what it wanted. Some griped that Taco Bell used the entire search process to help it figure out what it wanted, reviewing sites, rejecting them and reconsidering them again.

Martin would not talk about specific sites, negotiations or the lease, but he understood the frustrations of the developers because he and his executives were frustrated with the deals that kept coming their way. The deals didn’t meet their needs, but the company kept refining its needs. Still, he said, the company evaluated each proposal, as well as deals that builders resubmitted, but couldn’t wait much longer.

“We couldn’t hold the company hostage,” he said. Walking through the corporate offices or using the elevator, Martin said, he often ran into employees who would ask him whether the headquarters would be relocated.

“The thing that probably touched me the most were the people who described how much they loved working for Taco Bell and were afraid that if we moved they couldn’t move,” he said. “We needed to take the amount of time that was required to do the right thing, but on the other hand, putting our people through this was not something we enjoyed.”