VENTURA COUNTY REPORT: The Giveaway Game : Cities Offer Tax Breaks to Lure and Keep Firms : Economy: Officials say incentives are needed to reverse an exodus by companies.
From Moorpark to Ventura, government officials are playing a high-stakes poker game using multimillion-dollar tax breaks, fee waivers and other lucrative incentives to keep business from moving and to entice out-of-area companies to relocate within their communities.
All parties at the table say these incentives are needed to reverse a disturbing exodus of companies and the tax money and jobs they take with them. Other cities from California to Colorado are offering sweetheart deals, enticing businesses in Ventura County to move.
“Other cities outside California publish their financial incentives. Some give away land,” said Tim Grant, a senior associate in the Ventura office of CB Commercial, the nation’s largest commercial real estate agency. “That’s tough competition.”
In just the last month, two major deals were announced in Ventura and Moorpark, while a third company wooed by incentives opened its doors in Oxnard. Those three incentive-driven deals could add 3,000 jobs and pour millions of dollars into the local economy.
Between 1992 and 1994, Ventura County lost 3,000 jobs, including the 500 that Abex Aerospace took when it left Oxnard for Michigan and the 400 jobs that vanished when Ohmeda Medical Devices moved from Oxnard to Singapore. Dozens of smaller companies also moved from the county.
UC Santa Barbara economist Mark Schniepp said that many of the departures were prompted by Ventura County’s expensive and often Byzantine process for approving building projects. It is simply easier and cheaper to do business in other states, Schniepp concluded in a recent survey of 15 Western cities in and out of California.
“We’ve cut our costs in half--and that includes shipping expense,” said Roger Schultz, sales manager of RMB Products, which moved its plastics manufacturing plant from Simi Valley to Colorado Springs two years ago.
RMB officials said they were unaware of any county or city efforts to retain business, while government officials said that they did not learn of RMB’s plan to move until it was too late. Consequently, no incentives were offered to keep the company and its 50 employees in the county.
Diane Grover, a project manager in Southern California Edison’s business retention group, said that such incentives can be made available. But critics call the lucrative incentives poor public policy and claim that such “gifts” of taxpayer dollars foster an unhealthy competition among neighboring cities. They wonder if the incentives are worth it.
Take the planned Buenaventura Mall expansion in Ventura, for example. In this case, Ventura called Oxnard’s hand and won the pot.
Two weeks ago, the Ventura City Council unveiled a 20-year, $25-million deal of tax rebates and fee waivers with the mall owners. Ventura City Manager Donna Landeros said the arrangement was needed to protect the city’s sales tax base. Without the deal, Landeros said, several large retailers would have moved to Oxnard, which had started to entice them with various incentives, including sales tax rebates. None of the Buenaventura Mall tenants, however, took Oxnard’s bait.
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The Buenaventura Mall pours $1 million a year into Ventura’s coffers. With the expansion, that figure will surely increase with the planned move of Robinsons-May from Oxnard to Ventura when the renovation is completed by the end of 1997. But for the first 20 years of the expanded shopping center’s life, the mall’s owners will receive 70% of any additional sales tax generated, which is expected to total $20 million by 2017.
Another $3 million in Ventura city fees was waived, while $2.3 million in fees will not have to be paid for five years, after which the owners can make installment payments.
But city officials said the deal is well worth it.
Another 980 jobs are expected to be added to the 1,400 at the mall once it expands from 850,000 to 1.2 million square feet. Meanwhile, the mall’s owners have agreed to lend the city $5 million to pay for street improvements around the shopping center.
Along with the added sales tax, the expanded mall could mean an additional $500,000 annually in property tax collections as it grows. City officials would use those extra tax dollars to pave streets, keep police on patrol and pay firefighters.
“The fiscal crisis in California has made tax dollars extremely important,” said Walter Kieser of Berkeley, an economic adviser hired by Ventura to examine its mall deal.
But the critics contend that such lucrative incentives--especially the sales tax rebates--hurt cities in the long run. Oxnard officials these days lament several deals they cut with developers, including those who built the 250-room Radisson Suite Hotel on West Vineyard Avenue. The city is forced to make $1 million in bond payments each year because the developer of that project went bankrupt.
“It’s a destructive game to get into,” said William Fulton, editor of the California Planning and Development Report in Ventura, a monthly newsletter. “Once you begin playing this game, everybody realizes you can shake down government.”
The K mart on South Victoria Avenue in Ventura has asked for an annual rebate of up to $1.5 million in the additional sales taxes it would generate if it is allowed to build a bigger store across the street. The 10 auto dealers in town are looking for a similar revenue-sharing arrangement. In Oxnard, dealers in the auto mall get 50% of the city’s share of the sales tax.
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Fulton said he would rather see the money for incentives spent directly on long-term municipal projects like road improvements, airports and universities.
“Improve the quality of life and companies will settle here on their own,” he said.
Thousand Oaks City Manager Grant Brimhall said that he has a “philosophical concern” about rebating sales taxes and ignoring certain fees. Not a single business--not the automobile dealers nor the tenants at The Oaks mall--receives any fee waivers or sales tax deals in Thousand Oaks, Brimhall said.
“We’ve had those requests in the past from some major firms,” Brimhall said. “And I’ve asked them if their mothers knew they were here asking for a government handout.”
Instead, Brimhall said, Thousand Oaks concentrates on improving its streets, sewer system and other infrastructure and is able to compete for business by offering a high quality of life: low crime, good schools and an educated labor pool.
More than $13 million in sales taxes poured into the city treasury last year. Thousand Oaks receives the most sales tax revenue of any city in the county, and more businesses are moving in than are moving out, Brimhall said.
But the economic climate in Ventura County has changed, incentives proponents counter. Most cities can no longer use Thousand Oaks’ strategy to woo businesses.
“We haven’t built a new office building [in Ventura County] in the last three or four years,” said Grant of CB Commercial. Competition from out of state is fierce, and Ventura County needs to compete with its own incentives, he said.
Mesa, Ariz., for instance, heavily courted Special Devices Inc., which was planning to move from its base from Newhall in Los Angeles County. Mesa offered the manufacturer of air-bag detonators many inducements, such as cheaper city fees and a quicker permit process.
“One thing we definitely have over California is that it takes too long to get things done” in the Golden State, said Harold Stewart, Mesa’s economic development director.
Mesa officials put together a moving package that would have saved Special Devices $10 million over the cost of relocating to Moorpark, officials said. The package included less expensive land, lower building fees and half the property taxes of the Moorpark deal.
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Attempting to counter such largess, government workers throughout Ventura County are devising even more attractive incentive packages designed to keep executives from moving their companies or expanding elsewhere.
Last month, a nearly $6-million package arranged by a coterie of state, county and city government officials was sweet enough to persuade Special Devices to give up Mesa and instead move to Moorpark.
That deal was brokered by a so-called red team, made up of nearly two dozen state, county and city officials, along with people from Southern California Edison.
The red team, led by Edison’s Grover, is unapologetic about the incentive package.
The members think that this and similar deals will spur economic growth in Ventura County. Special Devices executives, for instance, have said they will add as many as 800 jobs in Moorpark, for a total payroll of 1,300 people.
Local government officials hope this deal is a harbinger of better economic times in the county.
Another example: GTE opened its customer-contact center May 24. The telecommunications giant plans to transfer 700 workers and add another 200 jobs. Spokesman Mike Murray said fee waivers were a “critical factor” in the company’s choice of Oxnard. He declined to reveal the exact amount in eliminated fees.
Meanwhile, Simi Valley and the county are reportedly courting Princess Cruise Lines to move its Los Angeles headquarters and 1,000 administrative employees here, though company officials declined to comment on their plans.
“That rumor’s been out there for a while,” said Julie Benson, spokeswoman for Princess Cruises.
And Ruth Schepler, Ventura County’s business ombudsman, said that a Canadian company with 200 workers is considering moving to the county.
But for Ronan Engineering, all of this governmental courting and deal-making seems wrong.
The mid-size Woodland Hills company intends to move its 250 employees to Thousand Oaks by next year. A maker of high-tech industrial monitoring equipment, it plans to pay every fee the city, the county and the state charge, which will total at least $250,000. It has received no special relocation incentives.
Douglas Hewitson, the company’s chief financial officer, said Ronan chose Thousand Oaks for all the reasons Brimhall listed. Still, after the Special Devices deal was announced, Hewitson wrote Moorpark officials a letter asking for the same deal while approaching Thousand Oaks’ Brimhall for a similar financial break.
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“We would have been fiduciarily irresponsible to do otherwise,” Hewitson said. Both cities declined to offer Ronan any incentives.
“Spending oodles of money to recruit business is wrong,” Hewitson said. “I think it’s a bad precedent. The money is better spent on a stable, long-term approach.”
Ventura City Councilman Gary Tuttle said he agrees with that philosophy--in principle.
“I think what government is doing is giving away a lot of taxpayers’ money to get a lot of low-paying jobs,” he said. Tuttle had said he will oppose the proposed $1.5-million K mart incentive deal if asked to vote on it.
But with all of that said, Tuttle voted to approve the Buenaventura Mall deal. It was a 6-0 vote in favor, with Mayor Tom Buford abstaining.
“This is a very, very dangerous agreement to enter into,” Tuttle said. “This was a tough decision, but I didn’t want to go down in history as the guy who killed the mall.”
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Incentives for Business
Hoping to stem an exodus of businesses leaving the area, government leaders have recently begun to offer financial incentives to entice local companies to expand or to lure new firms to Ventura County. Without such deals, several businesses have already pulled up stakes.
GAINS
Business: Buenaventura Mall, Ventura Shopping center expanding from 825,000 square feet to 1.2 million square feet. Adding two anchor stores. Current workers, potential workers: 1,400/2,380 Loser: Oxnard Incentives: $25 million in sales tax rebates, fee waivers and deferrals over 20 years.
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Business: Special Devices Inc., Moorpark Maker of small explosive devices used to inflate automobile air bags. Moving plant from Newhall. Current workers, potential workers: 500/1,300 Loser: Mesa, Ariz. Incentives: $2.9 million in fee waivers, tax breaks, roadwork and design changes.
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Business: GTE, Oxnard Customer service center. Consolidated nine locations. Current workers, potential workers: 700/900 Loser: San Bernardino County Incentives: Unspecified fee waivers and deferrals. Good deal on property.
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Business: Wal-Mart, Oxnard Discount retailer. Current workers, potential workers: 900 Loser: Ventura Incentives: $2.5 million sales tax rebates and fee waivers. *
Business: Ronan Engineering, Thousand Oaks Aerospace engineering. Current workers, potential workers: 250 Loser: Woodland Hills Incentives: No deals. Officials cited quality of life for the move.
LOSSES
Business: Patagonia, Reno, Nev. Clothing manufacturer. Moved production division. Workers: 60 Loser: Ventura Reason for leaving: Cheaper production operations; cost of living lower.
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Business: Wangtek, Ohio Computer software maker. Workers: 140 Loser: Simi Valley Reason for leaving: Cheaper production costs.
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Business: Ohmeda, Singapore Maker of blood pressure monitoring instruments. Workers: 410 Loser: Oxnard Reason for leaving: Cheaper production costs.
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Business: Abex Aerospace, Michigan Airplane maker. Workers: 500 Reason for leaving: Oxnard Incentives: Cutbacks, consolidation.*
Business: RMB Products, Colorado Plastics manufacturer. Workers: 50 Loser: Simi Valley Incentives: Cheaper production costs.
Source: California Trade and Commerce Agency
