Months of talks, negotiation preceded Ventana incentives - The Explorer: Pima Pinal

Months of talks, negotiation preceded Ventana incentives

E-mails show firm used other offers to leverage deal

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Posted: Tuesday, October 26, 2010 11:00 pm | Updated: 8:20 am, Thu Mar 24, 2011.

The incentives package state and local governments offered Ventana Medical Systems and its parent company Roche was the culmination of months of negotiations driven by an outside firm.

The company announced on Oct. 13 that it intends to expand its Oro Valley facility and bring as many as 500 new jobs. Officials said the expansion would involve a capital investment of more than $180 million.

A review of communications between town officials and a representative Ventana hired from Indiana-based Ginovus, a company that specializes in corporate expansion site selection and incentives procurement, reveals the competition the state faced and efforts made to provide more incentives.

A June 23 e-mail exchange between Tucson Regional Economic Opportunities representatives and Ginovus managing director Larry Gigerich made clear that Ventana wanted more financial incentives than Arizona governments had offered.

"As we stand now, Tucson and Arizona sit at a significant competitive disadvantage," Gigerich wrote. "Per our previous work for clients in support of projects in Arizona, we understand that the state has never been a big player in the incentives area, but for a project of this size, we are still not where we need to be."

Gigerich explained to TREO that Ventana could get better offers from Indiana, the other state vying for the company's expansion project. Indiana, Gigerich said, would provide the company tax-increment financing and property tax abatements.

"As an example, Indiana can provide three times the amount of state economic development incentives in support of the proposed project," Gigerich wrote. "This results in lower project and on-going operating costs as compared to Arizona."

TREO and Gigerich agreed to meet in Phoenix later that week. At that meeting, Gigerich said Pima County and Oro Valley would have to come with final incentive proposals for Ventana to consider.

"I need both local units of government to commit to a specific structure and dollar amount," Gigerich said.

In a later series of conversations, Gigerich told Oro Valley officials that Ventana was uncomfortable with details of the deal the town proposed.

In an effort to keep the negotiations secret, town officials never directly named Ventana and referred to the negotiations as "Project Launch." Referring to Ventana only as "our client," Gigerich said the company struggled with the terminology used to describe the infrastructure improvements the company would have to make, then turn over to the town.

"Our client is not comfortable with the Town having unilateral control over what the 'necessary infrastructure improvements' are for a project," Gigerich wrote.

In response, Oro Valley Town Manager Jerene Watson wrote that the town would specify "public" in relation to the infrastructure improvements.

Gigerich responded that Ventana would need additional assurances that it wouldn't be forced to build infrastructure that it would not benefit from.

"The agreement should provide that the decision as to what infrastructure will be constructed by the company be at a minimum, mutually agreed by the company and the Town," Gigerich wrote.

Watson responded the town had concerns of its own, primarily that public benefit needs to be present in any plan to offer incentives.

"However, what we must show is a public benefit whenever they (fees) are waived, so that is where the infrastructure discussion came into play as there is no question from outside watchdog groups that the public benefit exists when there are tangible parts of the project it ties to," Watson wrote on Sept. 21.

Town officials were cognizant of the restrictions a recent Arizona Supreme Court ruling in the Turken v. Gordon case placed on financial incentive deals.

Oro Valley Councilwoman Mary Snider said she's certain the deal would meet any legal conditions, particularly those defined in the Turken ruling that limits the types of incentives governments could offer private businesses.

"We are supremely confident that it meets all the legal requirements," Snider said.

Oro Valley Mayor Satish Hiremath said through his discussions he was able to get Ventana and its representatives to consider advantages other than the incentives the town could offer.

"I got them to focus again on the expedition of development," Hiremath said, citing the town's ability to fast-track projects and save companies on construction costs.

Asked if some companies would look at the incentive deal as evidence that bigger players can set the terms to benefit themselves while smaller companies have no leverage, Hiremath said it was possible.

"I'm sure some businesses would look at it that way," the mayor said. "But we're going to be very responsive to any development that comes here."

Hiremath said the expedited development review process would benefit all businesses in Oro Valley.

The total incentives package could reach $13 million in waived impact fees, property tax reclassifications and state support.

Arizona Department of Commerce Director Donald E. Cardon told Gigerich in a July 1 e-mail that the state would commit $3 million to Ventana and Roche.

In its agreement, Oro Valley said it would waive up to $1 million in development impact and other fees the company would normally pay. Ventana would later turn over to the town public infrastructure such as roads, sidewalks, pedestrian overpasses or tunnels, traffic signals, bus pullouts and environmental impact reports.

Snider said the town would be at a disadvantage if it didn't offer any incentives for large employers to relocate to Oro Valley.

"I think it's a result of the economy we're in and that we're in competition with other communities around the country," Snider said.

According to an analysis of likely fees Ventana would pay in connection with its expansion plans, town engineering staff estimated that impact fees, plan review costs and construction sales taxes would total more than $2.1 million. Under terms of the agreement, the town would forgive up $1 million of those costs.

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