As two recent economic efforts illustrate, some job-creating projects require large public subsidies, and others do not.
The public agencies running a former military base in San Bernardino and a reserve base in Moreno Valley waged a campaign involving millions of dollars in public subsidies in an effort to attract a DHL cargo sorting and shipping hub. March Air Reserve Base in Moreno Valley won the competition in December.
Meanwhile, the City of Emeryville will see a major expansion of Pixar Animation Studios' two-year-old campus with no direct public financial involvement at all.
Pixar appears to have struck a video gold mine with animated movies such as “Toy Story,” “Finding Nemo,” and “The Incredibles.” The company completed a 215,000-square-foot headquarters in Emeryville in 2002, and had planned to add another 200,000 square feet on the 16-acre campus at some point. But the company found it needed to accommodate faster growth, so it asked to modify a development agreement with the city. In May 2004, the City Council approved the changes, which permit Pixar to add 533,000 square feet in three buildings, plus a six-level parking garage, on a campus totaling 21 acres. The growth would occur in three phases over as long as 18 years. With the facility expansion, Pixar would grow from about 700 workers to roughly 2,000.
Project opponents forced a referendum on the development agreement, general plan amendment, bicycle plan amendment and rezoning for the project. But in last November's election, more than 70% of voters backed the project.
During the last decade, Emeryville has transformed itself from a rusty manufacturing town into a modern commerce center largely through the use of redevelopment, plowing millions of dollars into infrastructure and environmental remediation (see CP&DR Deals, October 1998). So what did it take to lure Steve Jobs's movie studio from nearby Point Richmond - and to keep the studio growing in Emeryville? Not that much.
“It wasn't like they needed financial assistance,” said Patrick O'Keeffe, Emeryville's director of economic development and housing. “They really only needed entitlement assistance. We just needed to make it happen.”
The Pixar site had been a Del Monte cannery. During the 1990s, the city signed a development agreement with Kaiser Permanente for a new hospital on the site, but the deal fell apart. When Pixar showed interest, the city facilitated the deal between the movie studio and Del Monte, which parted with the land inexpensively, O'Keeffe said. The city and Pixar signed a development agreement in 1998.
The proposed expansion proved more involved. The most controversial aspect was the city's agreement to sell an undeveloped right-of-way to accommodate the expansion. Pixar agreed to relocate the bike path planned for right-of-way with a 40-foot-wide bicycle/pedestrian path and linear park along the eastern boundary of the campus. Also, because Pixar purchased a site where a redevelopment agency-subsidized housing project was planned, Pixar paid the $860,000 subsidy back to the city.
In fact, Pixar is paying a great deal to public agencies, including development impact and school fees of about $2.5 million and a $1.5 million “capital improvement and services fee” in three installments. Once Pixar's campus is complete, the city expects to receive about $3 million a year in revenue, largely in the form of redevelopment property tax increment, according to O'Keeffe.
During public hearings and the referendum campaign, project opponents complained that the city should get more concessions from Pixar. They suggested that because Pixar had already invested tens of millions of dollars in the first phase of the Emeryville campus, Pixar could not leave. Opponents sought additional Pixar funds for traffic mitigation, affordable housing, child care facilities and job training. The $1.5 million capital improvement and services fee can go toward those items, O'Keeffe said.
Pixar offers just the sort of jobs most communities covet: high-paying, tech-oriented and nonpolluting. So far, there has not been much spin-off, although a small computer training school has opened in Emeryville, and it is growing quickly, O'Keeffe said.
While Emeryville paid virtually nothing for hundreds of highly desirable jobs, the scene in the housing-rich Inland Empire is different. German cargo company DHL chose March Air Reserve Base for a new cargo hub. March beat out airports in San Bernardino and Ontario for the DHL hub, which will initially employ about 250 people.
March's victory did not come cheaply, though. Under the deal approved in mid-December, the March Joint Powers Authority will issue up to $35 million in bonds to fund construction of a 380,000-square-foot cargo facility for DHL. March GlobalPort, the airport's private developer, will lease the facility to DHL for about 6 cents per square foot, which is about 10% of the market rate. Additionally, March will waive landing fees for the first six flights a day for three years, and reduce fuel loading fees for three years. DHL said it initially plans to have about eight flights and 18 truck deliveries daily at the facility.
Although Ontario International Airport expressed interest, Ontario already has a UPS hub, so the fight for DHL was largely seen as one between San Bernardino International Airport and March. Both communities lost thousands of jobs during the base closures of the 1990s.
San Bernardino (the former Norton Air Force Base) offered significant incentives. But San Bernardino could not match March's reduced airport operations cost. Because DHL would be the only user of San Bernardino's airport facilities, which are idle, the cargo company would have to pay all airport infrastructure maintenance costs. Because March still serves as a military reserve base, the federal government will share the cost of running the airport.
Officials at both San Bernardino and March see the DHL hub not only as an employment center, but as a magnet to attract other businesses to the immediate area.
However, residents of Riverside's Orangecrest area, which is about two miles from March, filed a lawsuit in November over the cargo hub project. The project opponents contend that the environmental impact report did not adequately analyze impacts on noise, air pollution and water supplies. They also complain that the deal with DHL violates a nighttime flight curfew. Furthermore, they say the incentives provided to DHL amount to a federal subsidy of a private company.
DHL, which purchased Airborne Express last year, has only about 6% of the $50 billion parcel shipping market in the U.S. But DHL has announced a $1.2 billion expansion, and has already chosen to place sorting hubs in Phoenix, Salt Lake City, Denver, Baton Rouge, Memphis, Minneapolis and Erie, Pennsylvania.
