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San Diego’s business incentive program gives the city a handful of options to prop up some companies. So who gets what?
The city recently doled out some high-profile subsidies to a trio of San Diego companies – and it doesn’t want to stop there.
The city’s had a business incentive program on the books for more than two decades that provides everything from tax rebates and permit reimbursements to advice on city processes.
David Graham, the deputy chief operating officer who oversees economic development efforts, said Mayor Kevin Faulconer wants to ramp up such efforts.
“With the improving fiscal situation of the city, there now is the ability – and with the mayor’s direction – we can negotiate these deals,” Graham said. “There will be more opportunities and there are discussions with companies around doing these sorts of agreements when it comes to expansions.”
Here’s a guide to the city’s offerings and the rules tied to them.
The city’s not interested in sinking cash in every business in the city. It’s focused on investing in those that meet some key metrics.
They may supply lots of middle-wage jobs or be considered particularly crucial to local economy. Qualcomm, for example, employs thousands of middle- and high-wage workers and stimulates business at other local companies, so it’d be more likely to get a city incentive than a small neighborhood café. Losing it would sting.
Or perhaps a business is in a key sector or location that the city wants to cultivate. The city’s granted subsidies to craft breweries in Mira Mesa and biotech companies in La Jolla because it wants to brand itself as a hub for those industries.
Then there are the intangibles. No two incentive deals – or the companies that get them – are alike.
“Each situation is different so we need to treat each situation for what it is,” said Lydia Moreno, the city’s interim assistant economic development director.
But the city’s formal policy does offer some guidance. It says business incentives make sense when they meet at least one of these conditions:
• The company contributes significant tax hauls and/or jobs.
• The city incentive would help the city collect more taxes or other revenue, or at least keep things steady.
• The deal would encourage new business investments or other developments in older parts of the city.
• The incentive would essentially function as a counteroffer when other cities or states try to lure a company away.
• The incentive must be consistent with the city’s latest economic development blueprint. The strategy the City Council approved in June emphasized the importance of the city’s manufacturing and innovation, international trade, military and tourism sectors.
The city has several options when it wants to give a company a hand.
Deals that don’t involve taxpayer dollars are most common.
Those offerings include:
• Help secure city permits and signoffs, often for expansions or new buildings.
• Assistance with the review process as the city considers projects, which can include early reviews by city workers, to help companies avoid pitfalls.
• Expediting permits from the city’s development services department that allow the company to begin building more quickly.
Russ Gibbon, the city’s business development manager, said the city has hundreds of conversations about such incentives each year. Many companies simply receive advice. An estimated 15 to 20 inquiries result in major projects for the economic development team and related processes can carry on for years, he said.
In recent history, city economic development gurus said they have offered permitting assistance to companies as varied as Sector 9 Skateboards, Jensen Meat Company and Soitec, all of which work in manufacturing. Gibbon said he’s also worked closely with Ballast Point on multiple permitting issues and even a city rule change partly inspired by the company’s experience trying to build large tasting rooms and restaurants.
The city technically has two lower-level financial incentives to offer.
• One is a program that allows the city to reduce water and sewer charges for companies, which would be especially attractive to biotech companies that rely heavily on water. Graham said the city has stopped offering this option to companies due to changes in state law. The city’s now mulling whether it could resurrect the program to help manufacturing businesses that use lots of water.
• The city also has a program that allows it to rebate up to 25 percent of sales or use taxes a business pays to the city, or to credit up to 45 percent of that against city business license taxes or other fees.
What separates this incentive from others is that the city’s getting an upfront benefit from the deal. It’s essentially dividing up its winnings.
Cities are supposed to get a 1 percent cut of certain taxes reported to the state, but the money doesn’t always get doled out. Businesses receiving this incentive take extra steps so the city gets that cash. The city splits the difference with these companies, though the amount depends on the method the businesses use. Those that agree to let the city pull from it for future permits get more cash.
City officials said the benefit for businesses usually ranges from a few hundred to thousands of dollars each quarter and that 14 businesses have signed up for the program since 1996. Nine have received tax rebates.
Three city incentives must be vetted by the City Council before the city doles them out.
• Refunding taxes: First, there are those like the deal recently offered to biotech manufacturer Illumina where the city agrees to rebate all or some of the taxes the company is set to pay. Illumina’s deal involves a rebate of up to $1.5 million plus interest. Tech company LG MobileComm received a similar deal in 1997. The city pegged the latter deal on taxes paid on manufacturing equipment.
• Canceling out permitting costs: Craft brewers Ballast Point and AleSmith recently inked city deals expected to offset their spending on city permits and other fees associated with renovations and expansions in Miramar. Each will receive reimbursements of more than $150,000. Two other companies have taken advantage of such deals since the program was created: drug company Novartis and Idec Pharmaceuticals, which ultimately didn’t receive a subsidy.
• Investing in company expansions: The city can also provide bond financing to help support a company’s construction and upgrade costs, though it hasn’t opted to do so since 2007. The city’s most recent investments have gone to manufacturers Multiple Peptide Systems, Cantaré Artisan Foods and Figi Graphics but the program also provides options for nonprofits. Graham said the Salk Institute and health center La Maestra have received this perk.
This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, San Diego’s Business Exodus Is Really a People Exodus.