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Wednesday, August 18, 2010

Taxpayers shell out millions to keep Vestas in Portland

City and state leaders are vigorously patting themselves on the back today upon the news that Danish wind energy equipment maker Vestas is keeping its American headquarters in Portland. The company's not heading to the city's doomed SoWhat District as once promised -- it's moving to the former Meier & Frank "depot" in the Pearl District instead. But at least it's not leaving for Denver, as Portland officials had feared.

According to Portland's often-fact-challenged mayor, the decision means that the city will "retain 400 living wage jobs, put 450 construction workers back to work and pave the way for 100 to 200 new jobs in the next five years." Perhaps. And if so, good.

But the jobs don't come for free. There will be plenty of state and local tax money sloshing around as part of the deal. Jim Redden of the Tribune describes at least some of it:

The company will receive $1.25 million in state tax credits and $1 million from the state’s strategic fund for the project, on the condition that it add at least 100 new workers to its existing 400 employees during the next five years.

The Portland Development Commission will also give the company a 15-year, interest-free loan of $8.105 million for the project.

The benefit of that interest-free loan is huge. Our amateur calculations conclude that at 4% market interest, that's the equivalent of handing Vestas a check for about $2.1 million up front. And so the state and local handout described by Redden comes to around $4.35 million. If Portland gets 100 new jobs out of it, that's $43,500 per job. There may be more taxpayer subsidies as well -- one suspects that at the very least, some sort of property tax giveaway on the property is in the works.

Nor are the new jobs a sure thing. Vestas has been losing money hand over fist lately, its stock price dropped around 20% today, and it's talking about laying off 600 people at its home base in Denmark. But it's going to expand its staff in Portland? We'll see.

Meanwhile, the Usual Suspects from the Portland development gang will be there with their hands out. From the City Hall press release: "The building renovation team is led by Gerding Edlen Development, Inc., in association with GBD Architects, Glumac, KPFF, HHPR, Peter Meijer Architects, Skanska and Ankrom Moisan Architects." Of course, the building will be LEED-platinum, eco-roofed, solar-arrayed, and so on; employees will eat only sprouts grown on the premises and drink out of rain barrels.

The building was reportedly purchased by Gerding Edlen in October 2007 for $15 million. Given the city's track record, one has to wonder whether there will be some sort of land transfer deal whereby Edlen will make a profit on the property despite the real estate downturn over the last three years. It's the Portland way.

In any event, it's a relief that Portland's not losing another business. But the new worry is how much we're all going to pay to keep it here, and whether it is really going to expand as the bureaucrats are predicting amidst the popping of champagne corks today.

Comments (15)

Keep in mind, the whole Vestas business model is built on Tax write offs and such to build the windmills that make no economic sense at all.

So if a business is totally supported by taxpayers including their real estate, does that mean they are Government employees?

Always lots of promises and commitments with big bags of cash to provide window dressing. SamRand and their ilk have no business sense other than to give away other people's money. No expectation that any word in the press release has an ounce of truth, short or long term on Vestas part, other than their buddies will be paid off. What a bunch of losers we are to put up with this.

City is once again doing what it does best, spending other peoples money.

Tilting at windmills

I object to the entire idea of having to bribe businesses...with HUGE cash payouts...to locate in the US. Rather, they should be heavily sanctioned for NOT locating in the US, and/or Oregon.

As much as I think job creation is good, it seems hard to justify if Gerding Edlen is the main beneficiary. As usual.

This whole urban renewal thing has got to be a big scam which may one day blow up on every Portland city property owner. The Oregonian reported today the PDC stands to lose some $700k on a property under development in which the developer has gone bankrupt. There are no doubt many other such cases. Vestas probably has taken in over tens of millions of dollars in state tax credit subsidies, and its products receive another 20 percent federal credit, or about 1.8 cents per Kwh produced. The job retention is overstated because these tax revenue losses are offset by taxes on others who in turn have less to spend on other economic endeavors, causing job losses in these other economic endeavors.

Pin heads like Multnomah County Commissioner Cogen can't seem to get it through their fuzzy math brains the secondary job losses created by tax subsidies directed towards fleeting green jobs. What's worse most of these subsidies go to foreign firms, or for imported goods. The chineese sell most of the solar panels being subsidized by our inept state and local leaders.

Rather, they should be heavily sanctioned for NOT locating in the US, and/or Oregon.

You mean, like TriMet, giving money hand over foot to companies like Siemens (manufacturers of the light rail vehicles and based in Germany), Evarz Steel (manufacturers of most of the rail used for light rail construction, based in Russia) and New Flyer (primary bus supplier, based in Canada)?

Portland seems to have a lot of heavy trucks used in the water, sewer and parks departments, but I don't see very many Freightliners (at least their U.S. headquarters and a (former) manufacturing plant is here in Portland). I do see lots of Volvos and Kenworths, though.

I find it ironic that Vestas says that they are proud to be located in a city that is so supportive of "green power" when nearly 60% of our power supply is coal and natural gas; while close to 90% of Seattle's power is truly renewable.

OK, tax subsidies to keep Vestas alive. Then they get more tax subsidies to move into this building.

On top of this, we give them money on the promise they'll hire 100 people. Of course, we won't ever audit it.

This has FAIL writ large upon it.

Can you say corporate welfare.... I knew you could..... Go by pork barrels....

Sorry had to take off my socks to do the math.

For 100 new jobs:
$2.25M tax breaks = $22,500/job up front
$8.105M at 5% = $405,000/yr in interest = $4,050/newjob/yr for 10 years.

God, is it that hard to attract employers here?

I had to laugh how Sam Babbitt bloviating about how retaining Vestas makes Portland the Capitol of Sustainability.

If you do a little traveling or reading about other cities, you get the same story, the same claim. Then if you do a little research you discover that many sustainable magazines, newsletters, organizations rank other cities above Portland.

Site Solutions mag ranks San Francisco Bay area ahead of Portland and Denver. Houston, in many publications, is ranked at or near the top, and people I know there claim they are the Leader.

Denver has initiatives like Greenprint Denver, Alliance for Sustainable Colorado, Sustainable Development Initiative, the National Renewable Energy Lab and more. They claim to be the leader. And more importantly, they have the manufacturing arm of Vestas with a lot more high paying jobs than Portland.

Another interesting fact is that Canada, Brazil, China are ranked the highest in sustainability. The US is far down the list.

I think we need to declare a Sustainable War and have it out with all these cities claiming they are THE LEADER, THE CAPITOL. And I want Commander Sam to lead the charge. Bloviating is a dangerous weapon, and we'd probably win.

Not a sophisticated comment, but I'm just happy I'll get to look out my window and not see an abandoned warehouse anymore.

Just one more reason to end permanently public-private partnerships.

IRS Notice 2009-50 seems to require that in order to qualify for the Recovery Zone Facility bonds ($31 mil) the property had to be "constructed, reconstructed, renovated, or acquired by purchase (as defined in § 179(d)(2)) by the taxpayer after the date on which the designation of the recovery zone took effect "

The recovery zone was designated by the city in February 2010. Ordinance 183653.

The property was purchased in February 2007.

What did I miss?

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