The Big Boost

The city gives away $3.5 million to lure a company that raked in $1.6 billion last quarter

Those cheering the $3.5 million tax break for Novartis--and pleased that Assistant City Manager Karen Thoreson didn't oversell the county's position--should hold their applause.

Thoreson, orchestrating the deal and the City Council's July 8 vote to provide incentives to the immensely successful global drug and nutrition company, said only that County Administrator Chuck Huckelberry sent a memo stating the county would not oppose the property tax abatement.

She hardly captured Huckelberry's message.

"Because the negative property tax revenue impacts of such an arrangement are the most significant to Pima County, I would recommend that the Board of Supervisors oppose any future extension of this program to any other employer in Pima County," Huckelberry said in a June 22 letter to Kendall Bert, director of city economic development.

The maneuver to exempt the prospective Novartis site, the modern building that Slim-Fast abandoned after it also received hefty tax breaks from the city, has Novartis purchasing buildings and property for $50 million, then flipping the property to the city, which will then hand it over to government-supported Tucson Regional Economic Opportunities.

Huckelberry noted the distribution formula of the property taxes, set by the state Legislature when it granted such property shifts under economic development, "imposes a substantial penalty on Pima County when this lease excise tax option" is done by the city. "Therefore, we cannot support continued use of such as an economic development tool."

Huckelberry was pointed in an interview, saying: "Never again."

That is understandable, even during this era of overplayed talk of regional cooperation, and as Mike Hein, once groomed to succeed Huckelberry, is midway through his first year (midway through his first year) as city manager. Hein, as a deputy county manager, also was the architect for Tucson Regional Economic Opportunities, which took over for the moribund Greater Tucson Economic Council.

The deal abates property taxes for Novartis, except for taxes on equipment. And the company will make payments to governments and schools in lieu of taxes.

Still, the county will lose $1.8 million in property tax revenue under the deal Bert and Thoreson delivered to the City Council under a secret, months-long game called "Project Whistle." Pima Community College will lose between $250,000 and $350,000. The city will lose only $18,000 a year over 10 years.

The figures come from a review by Bruce Basemann, a respected county financial analyst and a strikingly apolitical former deputy county assessor.

Without the tax breaks, the county would collect $9.1 million in taxes on the property, buildings and equipment over 10 years. That will drop to $7.3 million under the taxes Novartis will pay on its equipment and under an in-lieu scheme.

Vail School District, the fast-growing system that once fretted over the sharp reduction in IBM operations and the transfer of its building to a University of Arizona-led organization, will gain. Under the city-Novartis deal, it will receive between $440,000 and $480,000 more than it would have under regular tax schedules through 2015, the county study shows.

Novartis has until July 28 to close on the former Slim-Fast plant and property, 8755 S. Rita Road. The building is across Rita Road from the former IBM plant, now the UA's Science and Tech Park. Novartis, a maker of leading cancer drugs, is based in Basel, Switzerland. It plans to produce its Boost nutritional drink at the Rita Road facility. Boost, which sells for between $8.29 and $8.99 a six-pack, is used to supplement the diet of those who are ill and those who have trouble eating.

Novartis will use 350,000 gallons of Tucson drinking water each day. And waste will substantially increase the load on the county, which operates the region's sewer system. Cost for treatment from the facility will increase from $60,000 a year to $30,000 a month, or $360,000 a year, according to county reports.

The city's financial gift to Novartis comes as the company posted a 9 percent increase in profits for the quarter. Net profit was $1.65 billion for the quarter, according to financial reports posted, including in the Arizona Daily Star, late last week. Earnings per share rose 11 percent.

Novartis' financial strength also was illuminated by a company official's comments that were included in an exhaustive study of the company's controversial $25 million research agreement with the University of California-Berkeley Department of Plant and Microbial Biology in 1998.

The study, conducted by researchers from Michigan State University, was designed to assess points of the agreement and whether it is proper for public, land-grant universities to accept such cash research grants from corporations when the advances of the research inure to the benefit of the company.

"One representative of the company remarked that the agreement was 'definitely not on the radar screen of the shareholders' and most of their customers would not have heard of it, because it was such a small amount of money," the report noted.

The 188-page report from the Michigan State study of the Novartis-Cal deal is posted online. It concluded that neither the worst fears of the deal--that Novartis would exert dominant control over an entire Cal department--nor the best hopes--that important discoveries would emerge--were materialized.

But the study concluded the five-year deal, even at $25 million, was not worth the controversy that erupted over it.

Critics complained about how the deal was constructed and said it had not been an open process. They also expressed fears that Novartis would have had claim to lucrative new finds in plant science. The arrangement and surrounding controversy became material for a March 2000 Atlantic Monthly article titled "The Kept University."

The loudest byproduct, however, was the subplot of an academic dispute at Cal that included the denial of tenure to Assistant Professor Ignacio Chapela, who had been a strident critic of the university's deal with Novartis.

Even the Michigan State study noted that tenure controversy and said there was "little doubt" that the Novartis deal was part of the Chapela matter.

Councilman Steve Leal, the southside Ward 5 Democrat who is seeking a fifth term, joined the 6-1 vote to support the Novartis tax break despite his questions about commitments to workers and the company's interest in genetics. Only westside Democrat Jose Ibarra voted against the Novartis tax breaks.

Now Leal, who grew up down the road from Berkeley in Oakland, is expressing remorse, chiefly because of the company's financial strength and the totality of the Berkeley research deal.

Comments (0)

Add a comment

Add a Comment

Tucson Weekly

Best of Tucson Weekly

Tucson Weekly