Bill Silverfarb/Daily Journal
Right: Employees impacted by the move of a Brisbane company attended a federal-state inquiry into job losses and misdirected tax policy held by U.S. Rep. Jackie Speier yesterday. Top left: VWR employee John Thomas has not been offered to relocate when the company moves sometime in 2012. Bottom left: VWR was given a 'thumbs down' by union representatives yesterday for its plan to relocate jobs to Visalia.
Brisbane is about to be crippled by the move of one of its major tax contributors as VWR International prepares to move its massive medical supply distribution center to the city of Visalia.
VWR, owned by private equity firm Madison Dearborn Partners, is ditching the Bay Area to relocate to an industrial park in Tulare County that offers special tax breaks through the state.
U.S. Rep. Jackie Speier, D-San Mateo, calls the move a hedge fund scheme by Madison Dearborn to maximize profits in the near term.
The move will cost Brisbane roughly $2.1 million a year and reduce its general fund budget by more than 18 percent, said City Manager Clay Holstein.
VWR supplies the city with about 50 percent of its sales tax revenue, Holstein said. Brisbane has made numerous attempts to reach out to the company to negotiate with it to stay in the city but the company has been completely unresponsive, Holstein said.
"In 30 years in government, I’ve never had anyone absolutely refuse to talk,” Holstein said.
The lost revenue would reduce Brisbane’s police force by 67 percent and its fire department by 88 percent, Holstein said.
Brisbane Councilman Clarke Conway said the state’s "dysfunctional law” will cripple the city.
"This will destroy our community and decimate our services,” Conway said at a federal-state inquiry into job losses and misdirected tax policy yesterday held by Speier and state Treasurer Bill Lockyer at Brisbane City Hall. "What can we do to stop this?”
The enterprise zone tax breaks are intended to lure companies from out of state to California.
"This is an example of state law run amok,” Speier said. "It is a job-destroying law. It is a taxpayer ripoff that is robbing one community in order to enrich another in the same state.”
Currently, Assemblyman Jerry Hill, D-San Mateo, is crafting legislation to close what he calls a "loophole” in state law to prevent cities from luring companies away from other cities in the state by offering tax incentives.
"It is a crazy law that does not make sense,” Hill said.
VWR has already broken ground on a 500,000-square-foot distribution center in Visalia scheduled to open sometime in 2012. The company reports annual sales in the billions and supplies Genentech, the University of California and other companies with medical supplies.
VWR stands to gain $1.5 million a year in sales tax breaks through the state by relocating to Visalia’s enterprise zone and would be entitled to tax credits of $37,000 for each employee hired locally.
So far, none of VWR’s local employees, more than 160, have been offered the opportunity to relocate to Visalia, said John Thomas, a employee at VWR for more than 15 years.
"They don’t want to take union employees,” Thomas said. "We helped build this company to success.”
An exact date of the Brisbane closing has yet to be determined, however the second quarter in 2012 has been targeted, VWR spokeswoman Valerie Collado replied to the Daily Journal by email yesterday.
"Impacted associates were provided almost two years notice to ensure they can plan the next steps in their lives,” according to Collado’s email.
VWR employees asked for transfer rights but were rejected, said John Carlo Ricci, a foreman at the company who has worked there for 15 years.
In the long term, the move to Visalia will save the company millions annually in reduced wages and benefits, said John Logan, director of labor studies at San Francisco State University, who testified at yesterday’s hearing.
But VWR said it must make the move because it has outgrown the Brisbane facility.
"The current Brisbane facility is beyond capacity and is no longer capable of handling VWR’s growing business needs. VWR explored the option of transitioning to a larger facility in the Bay Area but determined Visalia to be the best location to meet the needs of clients,” according to Collado’s email to the Daily Journal.
Tulare County’s current unemployment rate is currently at about 17.7 percent, well above the state average.
The Tulare Targeted Tax Area is one of the state’s 53 enterprise zones that Gov. Jerry Brown has proposed eliminating to help trim the state’s $26 billion deficit.
To eliminate the zones, however, would take a two-thirds vote by the Legislature, an unlikely scenario, Lockyer said yesterday. The tax zones cost the state roughly $2 billion a year in revenue, he said.
The move is not simply a free-market move by the company, said public policy attorney Julian Gross.
"It is subsidized activity at the cost of state taxpayers,” Gross said at yesterday’s hearing. "The state should not subsidize in-state relocations.”
VWR also intends to close a smaller distribution warehouse in San Dimas, near San Diego.
VWR has purchased land in Visalia, instead of leasing space in Brisbane, allowing the company the future flexibility of expansion if needed at a later date, according to Collado’s email.
Ironically, the state invests heavily in VWR’s parent company, Madison Dearborn Partners. Since 1999, the California Public Employees’ Retirement System has invested more than $610 million with Madison Dearborn, Lockyer said.
CalPERS manages pension and health benefits for more than 1.6 million state public employees.
"Madison Dearborn is not the type of hedge fund the state should be investing in. If they are doing it here, they are doing it elsewhere,” Speier said. "I’m hoping the company will reconsider the move. [If they do not] I’m going to make it living hell for the company moving forward.”
VWR contends, however, the move is not based on obtaining tax credits.
"We are continuing to assess the availability of certain tax incentives. However, we do not anticipate benefiting from any hiring or employment incentives or credits at this time, and the possibility of obtaining such credits did not impact our decision to build in Visalia,” Collado wrote in the email.
Bill Silverfarb can be reached by email: email@example.com or by phone: (650) 344-5200 ext. 106.