Washington state officials, eyeing the rare opportunity to capture a big piece of a Fortune 500 corporation and to transform Clark County’s economy with one masterstroke, pursued a planned expansion by Nike Inc. with everything they had.
The officials were concerned that Nike, a company as politically shrewd as it is financially successful, was playing with them to win incentives in its home state of Oregon, according to documents obtained by The Columbian through a public records request. But they played to win anyway.
At stake was the potential to cement in Clark County a new strategic growth center planned by Nike that would funnel into the community a private capital investment of at least $190 million and more than 4,000 jobs over the next five years.
The documents reveal that the failed effort to persuade Nike to extend its Swoosh to Vancouver was far bigger and more complex than initially thought. Washington state government rolled out tax incentives and other funding avenues worth at least $18.6 million to Nike.
When incentives identified by the city of Vancouver are added, the total benefit floated to Nike came to as much as $32 million. And the state was prepared to come up with more, depending on how detailed the company would get about its planned business activities.
Another revelation: The state launched discussions with the city of Vancouver about putting local taxpayers on the hook to acquire the former Hewlett-Packard campus — now owned by the parent company of SEH America — and then lease the east Vancouver property to the apparel giant.
Those discussions came about because the state was aiming to lower Nike’s cost, by 50 percent, of getting hold of the former HP campus, which includes 735,000 square feet of space.
Further complicating the proposed real estate deal were internal political dynamics at SEH’s Japanese parent firm, Shin-Etsu, a global manufacturer of silicon wafers for the semiconductor industry.
The company didn’t want to enter into a traditional property negotiation with Nike, involving rounds of offers and counteroffers, records show. And it was divided over whether to sell the former HP property it purchased in 2009 for $55 million, in light of the possibility it would end up on the losing end of a deal. The property is currently valued at $46 million, according to county tax records.
Then-Democratic Gov. Chris Gregoire was undaunted by the thorny aspects of Project Impact — the code name attached to the initiative to recruit Nike.
With marketing materials extolling the virtues of Clark County in hand, she personally lobbied senior Nike officials in Portland. The two-term then-governor was gung-ho for the deal. “Let’s go!” she wrote in one memo.
Gregoire understood the high stakes. Set to leave office toward the end of 2012 — when the months-long Nike deal was intensifying with Oregon and Texas sites in the running — she wrote to Nike that she was prepared to work with Gov.-elect Jay Inslee and lawmakers who hold the state’s purse strings to find ways in 2013 to help secure the company’s planned expansion.
In an email to the Columbian last week, Jaime Smith, a spokeswoman for Inslee, said the Nike project came up in a briefing during the transition from Gregoire’s administration to Inslee’s but went no further than that.
Indeed, the state’s dogged pursuit of Nike — carried out in partnership primarily with the city of Vancouver and the Columbia River Economic Development Council — went no further than big plans, memos and high-level meetings. That’s because the effort ended in December, when Nike extracted a favorable long-term tax deal from Oregon that kept the company’s expansion in that state.
Yet, government and regional economic development leaders say they learned lessons from the experience that will inform future economic development policies and business recruitment efforts.
In an email to The Columbian in response to requests for comment on this story, Chad Eiken, director of the city of Vancouver’s Community and Economic Development Department, said the city remains bound by a nondisclosure agreement and “cannot provide details about any project incentives that were discussed.”
Nevertheless, he wrote: “While there is always a chance a company will not land in our community, the effort in responding to this company helped us refine our message, understand the range of incentives that might be available, and build stronger relationships with our partners in responding to these types of requests in the future.”
‘Center of Excellence’
The state viewed the Nike recruitment effort as being in the same league as its courting of Boeing Co., the aerospace behemoth, and of Microsoft Corp., the software giant. It was also held in the same breath as the state’s successful move to land a factory in Moses Lake to make carbon fibers for use in building a new line of electric cars by BMW. What follows is based on emails and other internal documents obtained through a public records request.
“Successfully recruiting this project has the potential to reshape the economy of Clark County with a new industry cluster to the area and reignite the local housing market, plus provide much needed employment,” Heidi Hughes, an aide to Gregoire, wrote to the governor on Aug. 7. “Clark County’s unemployment rate is 9.1 percent, higher (than) the state average of 8.2 percent.”
In fact, Nike was considering establishing a corporate “Center of Excellence” in Clark County, where it would invest at least $190 million in remodeling existing buildings, create 4,400 jobs over five years and where “all future meaningful growth” would be directed, “making this facility one of four strategic corporate locations around the world.”
Gregoire personally made the case to Nike officials, writing to them that the company “would be transformative for Southwest Washington and the state, much in the way Microsoft’s presence was largely responsible for the way the Redmond-Bellevue-Seattle corridor looks today.”
But hurdles stood in the way of all the blue-sky talk.
In an email to senior state officials, Daniel Malarkey, deputy director for the state Department of Commerce, boiled down Nike’s concerns in brutal fashion: What more could the state do to sweeten the pot? Could Gregoire help the company get control of the SEH America property?
And, Malarkey wrote, “Will (Nike’s) hip employees tolerate Vancouver WA.”
If the company was feeling little love for Vancouver, it certainly wanted plenty for itself.
Nike wanted “to feel a sense (of) robust excitement that they will be valued by the locals and the state,” Hughes wrote to Gregoire.
Some senior state officials had misgivings, citing Nike’s “squirrely” behavior in 2005, when, evidently, it got on the state’s radar in similar fashion.
But the state, just like the city of Vancouver and the Columbia River Economic Development Council, decided the potential upside was too great not to enter the latest dance with Nike.
This time, state officials found evidence the company might actually be serious.
Hughes wrote to Gregoire that “a few encouraging signs lead us to think that the company is not just ‘shopping around’ as it did in 2005.” Those included the fact that Nike leaders themselves — without the global site selector the company was using — had visited the SEH site “many times since January 2012 and have had architectural renderings drawn,” she wrote.
Nike also was “enticed by the fact that this would be a much faster process than permitting and new construction,” Hughes wrote, “plus existing entitlements would accommodate future growth on surrounding acreage.”
It all sounded promising on paper.
But state officials knew that securing a Nike expansion hinged on whether the SEH site could actually be placed in the hands of the apparel giant.And that would be no simple real estate transaction.
In a heavily redacted portion of state documents released to The Columbian, Hughes informed Gregoire about the complicated situation at SEH and its parent company.
SEH had bought the HP property “at the top of the market” and “the site could be worth as little as … today,” Hughes wrote in a memo.
Hughes went on: “there is a split as to whether to sell the (SEH) property — (unnamed) would sell it immediately, but (another unnamed) is personally invested in its acquisition, and a sale for less than (undisclosed amount) could mean the purchase of the property was his mistake.”
It was suggested that Gregoire, based on her personal relationships, could broker a deal based on the benefits it would bring to Southwest Washington, including the employment opportunities the sale would create.
State officials also considered the possibility that a government entity, perhaps the Port of Vancouver, could purchase the property and lease it to Nike “with financial incentives and an exit strategy,” according to Hughes.
But the Port of Vancouver balked at the idea.
The port “does not think it is politically feasible to subsidize the sale of a site to this company, especially if the structure is in part to provide an exit strategy,” Hughes wrote, “plus it does not have sufficient revenues to do so.”
State officials, working with the city of Vancouver, later would hatch another complex proposal, involving multiple local government entities, to publicly acquire the property and then lease it to Nike.
But first, a crucial meeting in Portland loomed.
‘Fully formed options’
On the morning of Friday, Nov. 2, Gregoire and top Nike officials, including Don Blair, the company’s chief financial officer, gathered inside a conference room near Portland International Airport. Gregoire’s aides and senior department leaders had armed her with plenty of ammunition to hit Nike’s moving target.
Her pitch included:
• At least $18.6 million in state incentives, including $16.8 million in sales and use tax deferral, a $1 million grant for infrastructure and bike lanes, and $500,000 from the governor’s strategic reserve fund. That was on top of an estimated $11 million to $14 million in incentives identified by the city of Vancouver, including a $6 million low-interest loan, $1.4 million for permit fee waivers and a $200,000 business license fee exemption for 10 years. Some incentives were contingent upon approval by the City Council and Clark County commissioners.
• Business-friendly actions the state took with its workers’ compensation system, including no insurance-rate increase for two years and no inflationary increase when wages rise. And improvements the state made to its unemployment insurance system, including a 42 percent decrease in the average unemployment tax rate in the past four years.
Gregoire trumpeted the state’s longtime selling points, too: no income tax and a business-and-occupation tax that “favors high-margin companies,” like Boeing and Microsoft. She pointed Nike officials to plans to rejuvenate Vancouver’s waterfront and the bistate plan to build the Columbia River Crossing — the Interstate 5 replacement bridge project that includes light rail.
And she highlighted other attractions, including Washington State University Vancouver, Clark College, the area’s nationally recognized public schools, and other natural and civic amenities.
After the meeting, senior state officials continued to strategize about how to meet Nike’s demands, as the company’s board had indicated it was nearing a decision point.
Nike still was holding critical information close to the vest. “We are still working on obtaining necessary information from the company to develop the most fully formed options possible for you to consider,” Hughes wrote to the governor on Nov. 9, five months after discussions had begun.
Nike’s interest in acquiring the SEH property, and of lowering its upfront costs, remained key issues.
To address them, state officials broached to Vancouver City Manager Eric Holmes the idea of the city either using its existing Public Development Authority or a newly created one to acquire the SEH site and then lease it to Nike. State officials indicated such a deal could decrease Nike’s cost of purchasing the site by 50 percent.
Under that plan — dubbed “Voluntary Tax-Increment Financing” — a Public Development Authority would issue bonds to borrow enough money to buy the SEH property.
The bonds would be repaid from Nike’s lease payments, coupled with increased property-tax revenues pledged by local governments, including the city, the Port of Vancouver and Clark County’s general and road funds.
The public records addressing the costs and terms of a public-finance strategy are heavily redacted. So, numbers aren’t available. In any case, the strategy would never get a full airing.
In December, Oregon Gov. John Kitzhaber called the state’s Legislature into a rushed special session to focus on a single piece of legislation, involving Nike.
The Oregon Legislature’s Dec. 14 approval of that legislation, which protects Nike from changes in the way Oregon calculates the company’s state income taxes for 30 years, gives Nike greater tax security as it plans a multimillion-dollar expansion. The deal commits Nike to completing a $150 million expansion in Oregon by the end of 2016 and hiring 500 new workers, who cannot be added by acquisition or merger with another company.
‘Building our toolbox’
State and local officials say their pursuit of Nike wasn’t a total loss. They say they’re girding for the next opportunity.
It’s important to understand that economic development is played differently in Washington and Oregon.
The two states interpret their respective constitutions differently, with Washington effectively barring direct financial support for corporations and Oregon willing to open that door.
It’s possible for Washington lawmakers to write a bill that reduces, say, the sales tax on manufacturing equipment to support a targeted industry. But, unlike Oregon, the state can’t write checks to corporations.
In an email to The Columbian, Penny Thomas, communications director for the Washington State Department of Commerce, said potential deals like Nike, involving thousands of jobs “with a high average wage,” don’t come up often.
“We look at everything in our toolkit that we can bring to bear and we do whatever we can to win,” Thomas said. “Oregon just came out on top this time around — they were able to persuade Nike to stay home.”
Alisa Pyszka, economic development division manager for the city of Vancouver, was involved in the city’s effort to grab a piece of Nike.
The Nike effort, had it been successful, “would have completely shifted the community landscape,” said Pyszka, who will leave Vancouver next month for a job at the regional economic development organization Greater Portland Inc. Even though the company didn’t come, “we all felt it was invaluable,” she said of the recruitment project.
She added, “We are building our toolbox for the next opportunity.”
Lisa Nisenfeld, president of the Vancouver-based Columbia River Economic Development Council — Clark County’s longtime promoter of jobs and recruiter of businesses — said the experience with Nike was “actually very helpful in letting us understand that we really are best suited to mid-size projects, and (that) we are especially interested in projects where the decision-maker is actually going to be part of the move here.”
When big corporations use global site selectors — as Nike did — the site selectors typically focus on “what kind of incentives can I get,” Nisenfeld said. “And we don’t compete well in that arena.
“We compete very well on our business climate, our tax situation, our schools, many things like that,” Nisenfeld added. “But if it’s about how much can I get upfront as an incentive to move here, the state of Washington doesn’t do that.”
Columbian Business Editor Gordon Oliver contributed to this story.