Visalia considers breaking away from the EDC of Tulare County
City provides more than half of Economic Development Corporation’s public funding and discussion could ripple throughout its members
By Reggie Ellis @Reggie_SGN
VISALIA – Economic development is an essential part of every municipality’s plan to attract new businesses that bring with them new tax revenue, higher property values and bigger payrolls with more dollars being reinvested into the city. But how much should a city spend on it? What is the rate of return on investment? And should cities do the work in-house or contract with an outside organization?
At its Aug. 21 meeting, the Visalia City Council considered all of these questions when it came time to make its annual payment to and renew its membership in the Tulare County Economic Development Corporation (TC-EDC). Instead, the City decided to withhold its payment but continue negotiations with the marketing organization tasked with attracting prospective employers to relocate to Tulare County. In doing so, it left its membership status in the hands of the TC-EDC to kick them out, or use the next 90 days to come to an agreement on a lower payment for reduced services.
But the City almost decided to break ties with the organization completely.
Devon Jones, economic development manager for Visalia, said he believed the City could partner in-house staff with other organizations to provide a comparable service for just $65,000. Jones said about 23% of leads on businesses looking to relocate come from the Governor’s Office of Business and Economic Development on a list that the City already receives.
According to its own activity report, Visalia has spent $671,186 over the last four years. During that time, the TC-EDC assisted with 95 prospects of which 10 resulted in visits to Visalia for site tours of qualified sites and just two ultimately located in Visalia creating a total of 20 jobs.
Just this past week, Jones said the City received four leads on businesses, one which came from the State, one that contacted him directly, one from a broker and one from the EDC.
“Our potential sources for prospective leads would be different, but we would be achieving the same goal but the means would be different,” Jones said.
Jones also pointed out that the City’s economic development strategy is not based solely on business attraction efforts but rather consists of a strong focus on business expansion and retention of existing companies, which drive the vast majority of net job creation in a community. Partners for business expansion and retention efforts include the City and a variety of local business groups including the Visalia Economic Development Corporation (VEDC), Chambers of Commerce, and agencies such as the Workforce Investment Board and local education and training providers.
City Manager Mike Olmos said the City identified the EDC as an area where it can make cuts to free up revenue in anticipation of skyrocketing pension costs. The City’s payments into the California Public Employee Retirement System (CalPERS) will increase from $13.13 million this fiscal year to $20.13 million by 2022. That will increase the portion paid out by the City’s general fund from $9.52 million this year to $14.51 million in 2022. The Council also re-assured the public throughout several hearings that it would not use Measure N tax revenue to fund employee retirements.
“We have reviewed every position, dropped some and lowered some and we have identified the TC-EDC as a place where we could achieve savings to deal with that issue,” Olmos said.
Olmos did concede that the EDC had already lowered Visalia’s contribution from $165,000 to $112,000 but Olmos was hoping to lower that to $65,000 by only paying for the services the City wants the most after the County of Tulare, the largest government agency in the county, only agreed to contribute $10,000. He said the City could subscribe to a different GIS (geographic information systems) based real estate database, provide its own demographic and labor data analysis and work directly with brokers to identify and attract new companies. “We are at a crossroads,” Olmos said.
An Established Development
TC-EDC director Paul Saldana clarified that the $112,000 was non-negotiable and was based on the minimum level of funding to keep the organization operating toward its primary mission statement. In an interview after the meeting, Saldana said the TC-EDC offers unique skills in marketing Tulare County communities to businesses and has received nationwide recognition for its effectiveness and efficiency. He said TC-EDC is among the top 1% of EDC’s nationwide and earned the designation of an accredited economic development corporation because it has provided results, which recently included the location of Green Power motors in Porterville and Faraday Futures in Hanford. Furthermore, Saldana said the organization has been able to be effective on a budget of 80 cents per capita, much lower than the national average of $3.30 per capita.
“It’s not about how many proposals we build, we measure success in how many opportunities the EDC can offer,” Saldana said.
TC-EDC board member Craig Vejvoda, a financial advisor with Principal Financial, said his organization has brought 30,000 jobs to Tulare County, including 5,500 in Visalia and another 20,000 to the rest of the county, many of whom live in Visalia and commute to other cities. “A job in Tulare County is a good thing and all roads lead through Visalia,” he said. “We hope the City of Visalia will grab an oar and continue to row the boat together.”
Vejvoda likened economic development to a touchdown in football. “When someone scores a touchdown and spikes the ball they had 10 other players on the field at that time so a lot of players could take the credit. Success has many parents.”
Other Cities Are Leaving
Visalia pays half of the public funding contributed to the EDC annually, a formula that takes into account a five-year average of sales tax, property tax values and population numbers that took effect in 2015.
TC-EDC Chairman George Vazquez, a branch manager for Bank of the Sierra in Exeter, said TC-EDC’s board has already agreed to take out $100,000 from its reserve fund to lower the contribution needed from each city as they face budget shortfalls. Vazquez said the cities of Lindsay and were happy to renew their contributions. Woodlake City Councilwoman Frances Ortiz even described the TC-EDC as a family of cities working together to contribute to the success of the entire family.
But two cities have already said they will not contribute to the EDC this year. The City of Farmersville opted out of its contribution for this year and will not receive services but will retain its membership in the TC-EDC until 2018-19. TC-EDC has allowed each member city to forego payments and services for one year but retain their membership status. The City of Exeter took advantage of the one-year exemption last year but then officially exited the organization this year in the hopes of using its $8,400 payment to help close a $300,000 deficit in its budget for fiscal year 2017-18.
Saldana said Exeter’s decision comes just two years after TC-EDC played a key role in helping Svenhard’s factory relocate from Oakland to Exeter. Saldana also noted that the EDC relocated their offices to the city to help gain exposure for the City and smaller communities nearby. He added that he has spent time trying to find buyers or tenants for the old Rite-Aid. Thus far they have attempted to identify retail businesses, which he claims is not necessarily what the EDC does. Instead they normally try to draw in more industrial businesses.
Phil Cox was on the Board of Supervisors when it decided to withdraw from the EDC in 2014. He said the County’s decision to pull out of the EDC had nothing to do with the cost of the service, but rather the effectiveness of it. He also said the City’s PERS issues and the EDC were two separate issues, and that he was only considering the cost of marketing services for the city and not pension funding.
“I don’t want to veil that decision around that one thing,” Cox said.
Visalia itself has left the EDC before, handling its own economic development from 1994-1996. Mayor Pro-Tem Bob Link said whatever Visalia decides could set a precedence for other cities to follow as Tulare, Porterville and Dinuba are all looking at dramatic increases in PERS payments going forward.
Councilmember Greg Collins said the TC-EDC plays a vital role is identifying companies looking to possibly relocate to Visalia, but all of the “heavy lifting” is done by city staff. After the initial response to leads and setting up site tours and introductory meetings, Collins said city staff to schedule meetings with representatives of City departments, assist with information gathering, incentive negotiation (if applicable), walk prospects through the entitlement process, coordinate utility and workforce partners, etc.
Mayor Warren Gubler, who is also Visalia’s representative on the TC-EDC board, said the TC-EDC played a vital role in trying to bring a Nordstrom’s fulfillment warehouse for online orders to Visalia. He said the TC-EDC also dipped into its reserves, comprised mostly of money that did not come from public sources, to try and meet its members halfway during difficult times.
“Visalia will expend some or all of that money by doing it ourselves and reinventing the wheel,” Gubler said. “Visalia can be stronger at the very least continue for another year.”
Unable to table the item due to a Sept. 1 deadline, Councilmember Steve Nelson motioned to stay in the TC-EDC for 90 days but withhold payment as the city manager continues discussions with TC-EDC staff on what services the city would like to continue and at what cost. The motion passed 4-1 with Councilman Cox voting against it.
“I’d rather stay in [the TC-EDC] but I’m not going to pay for 110 channels of TV and only use four of them,” he said.
Olmos said the three months would give the County CAO and city managers time to identify a more suitable fee structure and review of the services provided to determine which are essential.
“If I’m here I’ll recommend that we take those [non-essential] services out,” said Olmos, who will be retiring in the next year.