Panel Looks at Impact of VWR Move, Misuse of Enterprise Zone

Teamsters Local 856 union members presented testimony at a hearing in Brisbane May 9 on the impacts of the planned move by the medical supply firm VWR from Brisbane to Visalia. The hearing—billed as “A Federal-State Inquiry Into Job Losses and Misdirected Tax Policy”—enabled workers at the Brisbane distribution center to make the case to state and federal officials that the state’s Enterprise Zone program subsidizes a race to the bottom.

VWR will receive annual sales tax breaks of $1.5 million from the state by relocating to Visalia’s Targeted Tax Area, part of the Enterprise Zone program, as well as tax credits of $37,000 for each employee hired there. The 160 Brisbane employees would lose their jobs and the City would lose half of its sales tax revenue—a reduction of over $2.15 million.

VWR was purchased by the private equity firm Madison Dearborn in 2007; part of their rationale for moving is that they have grown beyond the capacity of the Brisbane facility. John Thomas, who works in the receiving department at VWR, pointed out that

We made the company profitable so that Madison Dearborn could buy it. They tell us they’re prosperous and making money but we’re not part of that prosperity. They don’t want union workers. If I lose my job, I’ll be devastated. At 60 years old, I’m not in a position to be looking for a new job.

A panel consisting of Congresswoman Jackie Speier, State Treasurer Bill Lockyer, Assemblyman Jerry Hill, Brisbane Councilmember Clarke Conway, Senator Leland Yee’s aide Dan Leiberman, and San Mateo County Central Labor Council Executive Secretary-Treasurer Shelley Kessler heard comments from Teamsters representative John Becker, VWR employees Carlo Ricci, Donald Dugyawi and John Thomas, Brisbane City Manager Clay Holstine, Attorney Julian Gross, San Francisco State University labor studies director John Logan, Emily Sharpster from United Way of the Bay Area, Christine Cordero from the Center for Environmental Health, and the Labor Council’s Community Services Director Rayna Lehman.

Congresswoman Speier said use of the Enterprise Zone program by VWR was an example of a state law gone wrong. “It’s a job-destroying law and a taxpayer rip-off—robbing one community in order to enrich another in the same state.” The Enterprise Zone tax breaks were initially touted as a way to attract companies to California from other states. “This isn’t allowed at the federal level but state law allows for uprooting a company and jobs from one part of the state to another to get a tax break,” Speier said, adding that she was “deeply troubled” by it and that the state needs to address the problem.

Assemblymember Hill said that Van, Waters and Rogers had been in the community for 50 years.

It makes no sense and it’s outrageous for the company to move and cause job losses. State law should not allow this to happen.

Hill said he was working with the Teamsters and would introduce legislation to stop the misuse of the Enterprise Zones. [Hill introduced his bill May 13 and said that, “Companies should not be allowed to fire employees in one part of the state and hire new employees in another part and claim a tax credit.” A VWR spokesperson stated that the company would have moved to Visalia even without the tax credits, according to an article in the Bay Citizen. California Budget Project Executive Director Jean Ross pointed out that, “The best research shows that these types of tax subsidies generally go to businesses to do what they would have done anyhow.”]

Brisbane Councilmember Clarke Conway said that, “For a small community, losing a company like VWR will destroy us.” Sales taxes collected from VWR represent about half of Brisbane’s sales tax revenue, or 18.5 percent of its General Fund. The loss of over $2 million in revenue will force the city to lay off two-thirds of its police force and almost 90 percent of its fire department.

City Manager Holstine said that in the past, “We had a good relationship with VWR and they’ve been an important part of the community.” He said the city started hearing rumors about a move by the company but never heard directly from VWR management. Holstein said Brisbane made many attempts to contact VWR management to work with the company to stay in the city but VWR, “never responded. In 30 years in government, I’ve never had anyone absolutely refuse to talk,” Holstein said. Speier was also incredulous that the company had not communicated with Brisbane officials.

Holstine said he had spoken with the owner of the property VWR leases and heard that they plan to move by the end of this year. Some press reports say the move will happen in the spring of 2012. “We never received any confirmation from VWR,” Holstine reported.

Attorney Julian Gross said the relocation of VWR was troubling as a budget issue and a public policy issue not just because of its impacts on Brisbane but for some questionable aspects of the deal to bring the company to Visalia. He said that VWR made a deal with Visalia to act as a private developer to make improvements to public streets through a no-bid contract that will be paid by Visalia.

It’s privatization of a public works project and a direct subsidy to the company. It wasn’t done through the normal process of an open bid and prevailing wage requirements.

Speier responded that, “You are essentially saying that Visalia will rip off its taxpayers to break its code to make it look like VWR is paying for public improvements that they will get reimbursed for doing.” Gross said that seemed to be the case. He said VWR could receive a tax credit of $37,000 a year for five years for each worker they hire in Visalia.

It’s legal to fire a worker and even hire them back to get a tax break. It shows how badly drafted these subsidies are. It’s hard to see why taxpayers should subsidize an in-state relocation.

State Treasurer Lockyer, a former Attorney General and State Senator, said the state loses about $2 billion every year through subsidies and tax breaks in Enterprise Zones and there is continuous debate in the legislature about the program. Governor Brown wants to eliminate the program but Lockyer said it would be difficult to muster the two-thirds vote required to do so. He pointed out that the California Public Employee Retirement System (CalPERS) had invested in hedge funds including Madison Dearborn and that as a member of the CalPERS Board of Directors he and State Controller John Chiang were pushing to get CalPERS to scrutinize those investments. Speier said Madison Dearborn was looking at buying other companies like VWR that were taking advantage of public tax subsidies. “Hedge funds see it as a profitable model,” she said.

SFSU Labor Studies professor Logan said VWR had built its business in Brisbane because of a good business climate there, good employees, and a positive relationship with local government. Logan said the move would have “an enormous impact on the community” because of the loss of 180 jobs at VWR and another 260 in services and businesses that depend on the distribution center. According to Logan:

The way the relocation deal was done is disturbing. The lack of transparency and the misuse of tax benefit policies is very troubling. The lack of response from VWR and no consultation with the city and their employees is highly unusual. How can we get out of the recession? [if firms are able to pit communities against each other in a race to the bottom and game the system.] It concerns not just Brisbane but all taxpayers in the state.

Said Speier:

Isn’t it obvious that VWR isn’t calling the shots? It’s the hedge fund in Chicago that is taking advantage of the situation and making as much money as they can.

VWR reported $3.6 billion in sales last year.

VWR employee Donald Dugyawi said the company was destroying good jobs and that he would be facing foreclosure of his home if he lost his job. Dugyami asked for support of Governor Brown’s plan to abolish Enterprise Zones. Ending the Enterprise Zone tax breaks will not only prevent abuses like VWR’s relocation but could earn the state $343 million this fiscal year and $581 million in the next.

Teamsters union representative John Becker said the wages and benefits negotiated by the union allowed the workers to “retire with dignity and not have to work at Wal-Mart.” Becker said,

I have a problem with my tax dollars being used to cut jobs. CalPERS invests in Madison Dearborn, which is working against us, and VWR sells a lot of products to the UC system. Our tax dollars are being used against us.

Shelley Kessler, San Mateo Labor Council:

It’s outrageous to see workers and communities pitted against each other and lowering standards. We need people to be self-sufficient and be able to afford to live in the county.

Rep. Speier said that, “Madison Dearborn is not the type of hedge fund the state should be investing in.” She said CalPERS should divest from Madison Dearborn, noting that divestment was part of the campaign to end apartheid in South Africa, and that VWR’s relocation was a human rights violation. “They are probably doing it in other communities,” Speier said of the hedge fund managers. “I hope they will reconsider the move.” She said if they did not, “I’ll make it a living hell for them moving forward.”