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State, city foresaw $93M for Nike deal

Officials projected a possible $61M land buy, $32M in tax breaks

By Aaron Corvin, Columbian Port & Economy Reporter
Published: May 27, 2013, 5:00pm

In their effort to grab a piece of Nike Inc. for Clark County, it’s no secret that state, regional and local economic development officials considered putting taxpayers on the hook to help acquire a hot — but complicated — property and then lease it to the Fortune 500 apparel giant.

But exactly how much was the former Hewlett-Packard campus, now owned by the parent company of SEH America, going for?

The answer: $60 million, according to a fresh batch of public records obtained by The Columbian from state government officials. That’s $5 million more than the $55 million SEH’s Japanese parent firm, Shin-Etsu, paid for the property at 18110 S.E. 34th St. in 2009. And it’s $14 million more than the site’s current valuation of $46 million, according to county tax records.

The new bundle of public records also reveal details about just how close Vancouver got to winning Nike’s promise of more than 4,000 jobs over five years and a private capital investment of at least $190 million.

But one longshot plan of the monthslong, failed Nike recruitment effort — known as Project Impact — was to lessen the upfront cost to Nike of getting hold of the SEH site. That plan hinged on cobbling together different pots of public money to finance the acquisition of the property, which includes 735,000 square feet of space.

Under that plan, officials would have borrowed $54.45 million, used a $6 million community block grant and tapped $750,000 of former Gov. Chris Gregoire’s strategic reserve fund for a total of $61.2 million. That would have covered the $60 million purchase price, and the $1.2 million cost of issuing the $54.45 million bond.

Suffice it to say, the real estate proposal never got far. In December, Nike extracted a favorable long-term tax deal from the Oregon Legislature that kept the company’s expansion in that state.

And the proposal to publicly finance the real estate transaction was unique and would not have been easy to pull off, according to Chad Eiken, director of the city of Vancouver’s Community and Economic Development Department. It would have required approvals by the elected leaders of local governments, including the Vancouver City Council and Clark County commissioners.

Eiken said public financing of a real estate deal is a rare model that would be used again only under special circumstances, when a project would potentially have as big an impact on the local economy as Nike.

“It was an extraordinary effort to attract this particular company,” he said, “one that maybe comes along once in a lifetime.”

‘Many additional layers’

That rare model is called “Voluntary Tax-Increment Financing.”

State officials broached it to Vancouver City Manager Eric Holmes as Nike was nearing a decision point late last year.

Why they brought it up was complicated.

Shin-Etsu, a global manufacturer of silicon wafers for the semiconductor industry, didn’t want to enter into a traditional round of property negotiations with Nike. And its executives were divided over whether to sell the former HP property, in light of the possibility it would end up on the losing end of a deal.

Meanwhile, Nike wanted to lower its upfront costs in getting hold of the SEH property. It was concerned about the risks in leasing or owning the site. The company also thought about having an exit strategy in case things didn’t work out. Plus, Nike viewed Oregon and Austin, Texas, more favorably than Vancouver, records show.

To make the SEH site more palatable for Nike, state officials suggested the city of Vancouver either use its existing Public Development Authority or create a new one to acquire the property and 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 — “Voluntary Tax-Increment Financing” — a PDA would issue a $54.45 million bond to cover the bulk of the purchase price. The bond 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.

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Here are highlights of how the deal would have worked:

• Washington would have negotiated the sale of the SEH site for $60 million.

• Vancouver would have established a PDA to own the SEH property and lease it to Nike, a plan that had the “same basic legal and lease structure as Safeco Field,” the baseball stadium of the Seattle Mariners.

• Local governments, including the city, Port of Vancouver and Clark County, would have pledged $1.3 million in annual property-tax revenue to help pay off the $54.45 million bond issue. That revenue, plus Nike’s $1.65 million annual lease payment, would have paid $2.96 million on the bond.

Eiken, the Vancouver official, emphasized that elected leaders would have had to sign off on the plan. But the voluntary tax-increment financing idea — and its vehicle, a PDA — never made it to the desks of elected officials.

Plus tax breaks

In addition to the idea of publicly financing the land deal, state and city officials identified as much as $32 million in tax incentives to offer Nike.

Most of those incentives would have required approval by elected leaders, too.

“There were so many additional layers of approval that were needed,” Eiken said. “It’s a pretty unique and perhaps difficult-to-pull-off scenario.”

‘Winner on … costs’

One obvious reason Nike chose to stay in Oregon, rather than extend its Swoosh to Vancouver, is because of the Oregon Legislature’s favorable action in a rushed special session called by Oregon Gov. John Kitzhaber. The legislation protects Nike from changes in the way Oregon calculates the company’s state income taxes for 30 years, giving the company 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.

Nike had other reasons to say no to Vancouver, public records show.

As Oregon moved to mollify Nike, Alisa Pyszka, then the city of Vancouver’s economic development division manager, sent a Dec. 10 email to state, regional and local economic development officials signaling that Vancouver was officially out of the running.

By that time, Vancouver was No. 3, behind sites in Oregon and Texas.

“Vancouver was the winner on overall costs and timing … and went to (Nike’s) executive committee with a higher ranking than the No. 3 ranking it ultimately received,” Pyszka wrote. “The main driver for (Nike’s) decision was an 1) (human resources) decision and 2) an exit strategy.”

The human resources decision stemmed from the fact that “a large contingency of (Nike) execs want to stay where they are,” according to Pyszka. As to the exit strategy, “owning such a large site comes with risk,” Pyszka wrote. “If (Nike) must make a future relocation or downsize, they view the Austin (Texas) market as more advantageous for a sale than the Vancouver market.”

Pyszka ended her email on a hopeful note: “It has been a great experience working with all of you on this,” she wrote. “I know we developed better insights into our process and ability to provide some local incentives, which is a significant step forward.”

Aaron Corvin: http://twitter.com/col_econ; http://on.fb.me/AaronCorvin; 360-735-4518; aaron.corvin@columbian.com.

Columbian Port & Economy Reporter