July 22 2014 04:53 PM

Digging into the DNA of a company deal

Faulconer DNA
Photo illustration by John R. Lamb

"Without a sense of place, the work is often reduced to a cry of voices in empty rooms, a literature of the self, at its best poetic music, at its worst a thin gruel of the ego."

—William Kennedy

With the constant drumbeat foretelling California's imminent demise emanating from the U-T San Diego editorial pages every time a San Diego company even glances at another state, it's understandable why Mayor Kevin Faulconer was smiling last week.

There he was, clasping meat hooks with the CEO of Illumina—the San Diego-based genome-cracking-device-manufacturing firm that MIT recently dubbed the "smartest company in the world"—over a less-than-sexy 10-year, $1.5-million tax-rebate deal that the mayor hopes will keep the company's growth local for years to come.

"This is a perfect example of how San Diego can support middle class jobs while also encouraging economic growth," the mayor said in a written statement. "This agreement keeps hundreds of high wage jobs in San Diego, ensures city residents benefit from over a million dollars in annual sales tax revenue, and strengthens our region's leadership in biotechnology."

After the San Diego City Council unanimously gushed its approval Monday, Faulconer hit the airwaves again, boasting in a KUSI interview that San Diego had successfully fended off Illumina suitors from "other cities across the country."

Media reports on the "historic" deal—as Council President Todd Gloria described it—suggested that the cities most aggressively seeking favor with Illumina's allure were Poway and Memphis.

This was news to some pretty smart folks in Poway and Memphis.

"That really surprises me, because we've never been in contact with the company," Poway Mayor Don Higginson told Spin. "I checked with our economic-development director, and he said we were never approached by them."

Higginson acknowledged that Illumina may simply have had real-estate brokers poring over industrial-park possibilities in his city, but he also knows that Poway is frequently used as the tip of a local company's spear when it threatens to relocate.

"Yeah, we're not into that ballgame," Higginson said. "We're big on business attraction and retention, but we don't try to cherry pick folks from other cities. In fact, if some other municipality is working really hard with a business to keep them on site, we'll support them 100 percent."

A city staff report to the City Council downplayed Poway's threat. "Poway was not reportedly offering financial incentives, but real estate costs are substantially lower, and many San Diego-based companies have relocated operations to, or expanded in Poway," the executive summary stated. 

"I wouldn't say real-estate costs are substantially lower," countered Jay Virata, Poway's economic-development director. "That's a real head-scratcher. In reality, we and San Diego are part of the same market."

The bigger mystery is what, exactly, Memphis offered. Mark Cafferty, president and CEO of the San Diego Regional Economic Development Corp.—a key organizational player in reaching the Illumina agreement—described the offer as "a money and land deal" worth somewhere between $15 million and $20 million, roughly 10 times San Diego's pitch.

"People say, 'Ah, well, they're a $20-billion company. Why would that even matter?" Cafferty told Spin. "It does matter when you're doing a $50-million project, and coming right out of the ground you can save $15 million to $20 million-plus on that project."

The city staff report noted that "Illumina claimed that it had been offered financial incentives to move at least some of its manufacturing operations to Memphis" but did not offer details, which are often cloaked in secrecy.

Reid Dulberger, head of economic development for the Memphis area, told Spin he was "unfamiliar" with such an offer. Asked if it was in the ballpark, he would only add, "There is no ballpark."

Similarly, representatives of the Memphis Chamber of Commerce and Mayor's office could not attest to awareness of any courtship involving Illumina. Some in Memphis suggested checking in with their neighbors just to the south in DeSoto County, Mississippi, a five-minute drive from Memphis International Airport.

Spin reached out to the DeSoto County Economic Development Council—known for its aggressive push to draw companies to the Memphis area that boasts the headquarters of shipping giant FedEx—but there was no response by press time.

For Spin, this raises the proverbial question of San Diego's view of itself. Going forward, will city leaders throw a bone to every company that mentions Texas or some other far-off land of fiscal opportunity?

With similar tax-incentive deals offered recently to local craft brewers Ballast Point and AleSmith to stay put, is this the wave of the future? The mayor's folks told the City Council Monday that no other similar deals are in the pipeline.

Cafferty said he understands the potential precedent, and he argued that's the value of his organization moving forward—to vet those daily laments he hears from business folk over the cruelty of California governance and wondering if business paradise lies elsewhere.

"I think it comes down to a company like Illumina seeing that the city was willing to try at all," Cafferty said. "They already knew that San Diego was going to be a better place from a talent perspective. They're trying to show shareholders why it makes sense to stay in San Diego. Sometime soon, I have to figure out how to quantify talent, because talent is worth tens of millions of dollars."

As Cafferty noted, Irwin Jacobs came to San Diego to teach and ended up creating the city's most-recognized company, Qualcomm.

Where Cafferty won't go, like U-T San Diego editorials will, is somehow pitting the needs of an Illumina that promises to keep some 300 employees here against the plight of the many San Diegans who'll never map a genome but just hope to scrape by.

"Yeah, to me that's not the point," Cafferty said. "We're not looking at this like one versus the other."

For Spin, the day can't come soon enough when San Diego can tell local businesses eyeing other supposed fertile plains: "Fine. Go. Enjoy the two months of pleasant weather in [fill in the blank]."

Got a tip? Send it to johnl@sdcitybeat.com or follow John R. Lamb on Twitter @johnrlamb.


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