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By Lisa Rayner
Tea
Party Publisher
The Swiss-based multinational corporation Nestlé S.A. has
blackmailed the City of Flagstaff into giving the
company 10 years worth of partial property tax
abatements in exchange for keeping and expanding its
Flagstaff Purina plant and warehouse.
In a May press release, the city
reported that, “Nestlé Purina PetCare Company, the
city of Flagstaff, and the Greater Flagstaff Economic
Council announce pending development agreement. The city
of Flagstaff and Nestlé Purina PetCare Company have
signed a letter of understanding that will not only help
secure NPPC's continuing operation in Flagstaff, but
will also result in a 100,000 square foot expansion of
their warehouse, and additional employment.”
Nestlé acquired Ralston Purina in December 2001 for $10.3
billion.
Bill Calloway, plant manager at the
Flagstaff Nestlé Purina petfood facility, was quoted in
the city’s press release, “As a Flagstaff resident,
I am proud of how quickly the city reacted to our
situation. Purina has been a good corporate citizen for
more than 25 years and I am pleased that as we continue
with the integration process initiated after our recent
merger with Nestlé, NPPC plans to be part of the
community for many years to come.
The additional jobs and expansion of our current
facility is evidence of Nestlé Purina PetCare Company's
commitment to Flagstaff."
The release explained, “As a
result of the merger, all of NPPC's production and
distribution facilities were examined for efficiency and
total cost of operation. Based on the outcome,
facilities would be targeted for expansion, a shifting
of business volumes and/or possible closure. The Greater
Flagstaff Economic Council alerted the city that as a
result of the merger, the Flagstaff facility was being
examined for its competitiveness.”
At
the time of the merger announcement, Nestlé denied
reports that it would lay off workers and close plants.
Company spokespeople said that Nestlé would make job
cuts only through “normal attrition reduced hiring and
voluntary separation packages.”
However,
Nestlé Purina PetCare Company has already begun
announcing plant closings and job cuts at former Ralston
Purina plants in the U.S. The Milwaukee Journal Sentinel
reported in April that, “Nestle Purina PetCare Co.
said it would lay off about 90 workers when it stops
making dry pet food Sept. 27 at its Jefferson (Wis.)
plant. … Nestle Purina also plans to stop dry food
production at a plant in St. Joseph, Mo. (120 workers),
and to close a plant in Arden Hills, Minn. Company
officials said they made the decision as part of an
effort to become more efficient and competitive.”
The Flagstaff plant, which has
operated in Flagstaff for more than 25 years, is located
near the Flagstaff Mall. The plant produces more than 40
types of dry pet food. It employs more than 150 people
with an annual $9 million payroll.
During a recent interview, Greater
Flagstaff Economic Council CEO Stephanie McKinney
emphasized the relatively high wages for Flagstaff that
are paid by the Purina plant. The average starting
salary for a production worker is $24,000, plus health,
401(k) retirement plans and other benefits. The average
salary for all production workers at the plant is
$31,000, and for maintenance workers, $38,000.
Coconino County’s average wage is
$8.59 per hour, McKinney said. That works out to $17,180
annually, assuming 40 hours per week and 50 weeks per
year.
The Flagstaff deal will substantially expand NPPC operations
in the city. The city press release said, “City staff
met with representatives from both the local facility
and NPPC's headquarters in St. Louis. A proposal was
developed that will result in an increase in total pet
food product distribution from Flagstaff along with the
construction of a $6 million addition to the existing
plant. … Nestlé Purina PetCare Company plans on
completing the warehouse addition to their existing
facility by the end of this year.
New employees are being recruited and some have
recently been hired.”
The warehouse addition will service Arizona, California and
part of Nevada.
The city is providing partial property tax abatement on the
new warehouse addition for an estimated 13 years
provided that NPPC maintains current production levels (165,661 tons per year). The abatement is a partial
exemption of the new warehouse addition from city
property taxes up to a total of $1.1 million. The city
estimates that at current property tax rates, the annual
property taxes on a 100,000-square foot warehouse is
approximately $143,000. The deal, which is legal under
Arizona’s Government
Property Lease Excise Tax statute, would reduce NPPC’s
tax by $83,000 per year, meaning the corporation will
pay only about $60,000 a year in property taxes on the
new warehouse. The city estimates that at that rate,
NPPC will save $1.1 million over 13 years.
The city will retain ownership of the land on which the
warehouse addition is to be built until the plant begins
paying the full property tax bill. In addition, the
plant and warehouse are being included in the East
Flagstaff Gateway Redevelopment area. The letter of
understanding signed by City Manager Dave Wilcox and
Plant Manager Bill Calloway refers to the possibility of
new sewer rates that may benefit Purina, as well as
planned road improvements near the plant, which, when
combined with the tax abatement, “provide more than $2
million in city assistance to Purina.”
If NPPC reneges on any portion of the deal, such as by
reducing production below the current level, the deal
would end. The plant would then be liable for all
property taxes from that point forward. However, the
plant would not have to repay the taxes it had avoided
up to that point. In addition, NPPC does not have to pay
the exempted taxes if the company decides to close the
Flagstaff plant or warehouse. The deal does not include
a commitment by NPPC to remain in Flagstaff.
GFEC’s McKinney said, “One of our concerns is that if
this plant closed, which could have been a reality,
we’d have a loss of $9 million in payroll in this
community. And if you look around, there’s not a lot
of manufacturing companies here that could absorb that
type of labor loss. Only 5 percent of our jobs in
Flagstaff are manufacturing. And in that 5 percent
number is W.L. Gore, which is our largest private
employer. So where would these people have gone? They
would’ve probably all become retail (employees).”
“Anytime that you look at megacompany mergers, it’s all
about reducing costs, added McKinney. And one of (Nestlé’s)
goals for this merger is to reduce their operating
expenses by a billion dollars a year globally. So when
you look at the Flagstaff plant, which is one of their
higher-cost plants, we’ve immediately got to be
concerned about their plant in Oklahoma.” McKinney
explained that Nestlés’ Oklahoma pet food plant has
lower operating costs, partly because the cost of living
in Oklahoma is only 80 percent of the national average.
Utility costs are also cheaper in Oklahoma.
McKinney, who works to attract new businesses to Flagstaff
and retain existing businesses,
said that the Flagstaff cost of living is 25 to
30 percent above the national average.
“It’s just hard in the marketplace around here,” said
McKinney, “You don’t want to be a loser.”
Top Flagstaff officials are unanimous in their approval of
the tax abatement deal.
Mayor Joe Donaldson stated in the city press release,
"The City of Flagstaff was alerted to a situation
that could have impacted a significant number of City
residents. In
the end, those jobs will be more secure, there will be
increased employment levels, and the community will
receive new property taxes.
This is a win-win situation for everyone
involved."
City Manager David Wilcox said, "This is another example
of the Community Development Department working with
GFEC and the private sector that resulted in substantial
benefits for our community."
Michael Kerski, Flagstaff’s redevelopment program manager
said in a May 19 Arizona Daily Sun article about the
agreement that this is the first time Flagstaff has made
a tax abatement deal. Kerski is hoping to make tax
abatements a regular strategy for economic development
in Flagstaff. Kerski told the Sun that the city of
Tempe, Kerski’s former employer, “aggressively”
uses tax abatements in redevelopment projects.
About two years ago, prior to Kerski’s being hired by the
city of Flagstaff, Wal-Mart had asked Flagstaff for
sales tax abatement in exchange for new building
infrastructure. The corporation wanted to build a
Wal-Mart Supercenter as part of Westcor’s Flagstaff
Mall expansion plans. The city turned down the abatement
request because it decided that it wasn’t a good deal
for Flagstaff.
A final Development Agreement between Flagstaff and Nestlé
Purina PetCare Company will be completed in the next
several months. The agreement will then go before the
City Council for approval.
A 500-lb. gorilla
Nestlé, number 59 on Fortune magazine’s Global 500 list of
the world’s largest corporations, is the world’s
largest food corporation, with more than $48.2 billion
in annual sales. Its products include dairy products,
coffee, breakfast cereals, infant foods, canned and
frozen foods, chocolate and pet foods.
One business journal reported at the time of the merger,
“Once a mammoth conglomerate with interests ranging
from pet food and grocery products to batteries and ice
hockey, Ralston Purina has undergone a gradual
dismantling since the late 80s. Merged with Nestle's
existing Friskies business as Nestle Purina Petcare, the
company is now neck-and-neck with Mars' Pedigree/KalKan
to be the world number
one maker of cat and dog food, with sales of $6.3
billion.”
Jack Nickerson, a professor at the University of Washington
Olin School of Business wrote about Nestlé just prior
to the approval of its merger with Purina: “It’ll be
like a 500-lb. gorilla,” said Nickerson. “They’ll
have 35 to 40 percent of the U.S. (petfood) market. … If
the two companies can convince anti-trust regulators to
look at subsets of pet food, as opposed to the whole
category, the deal should pass without too much
difficulty. This is likely to be a first test … on how
the new (Bush) administration will deal with the
business sector for the next four years."
The merger was opposed by the Consumer Federation of America,
the American Antitrust Institute, the National Grange (a
national farm organization), and Senator Patrick Leahy,
D-Vt., chairman of the Senate Judiciary Committee. The
groups expressed concerns that the merger raised serious
“monopsony” and monopoly issues. Monopsony is
similar to a monopoly, but it involves one company
dominating a buying (rather than selling) market for a
type of product.
Harvard Professor Einer Elhauge wrote in his National Grange
analysis of the Ralston-Purina—Nestlé merger that,
“Nestlé and Ralston-Purina are the principal buyers
of petfood grade poultry meal. … Thus while their
combined national market share for selling dry cat and
dog petfood combined appears to be about 50 percent,
their combined national market share for buying petfood
grade poultry meal is higher, probably around 60 percent
and possible as high as 70 percent. …
“Governmental guidelines recognize that monopsony power is
just as bad as monopoly power, and thus judge mergers
that create excess buyer market concentration under the
same rules as mergers that create excess seller market
concentration.”
The consumer and farm groups “told the Federal Trade
Commission that the merger is likely to lead to higher
prices for pet foods, cause prices for pet food
ingredients such as poultry meal to drop and cause a
loss of manufacturing jobs in the United States,” reported
the St. Louis Business Journal.
Competing pet food makers expressed concerns that the merged
company would control nearly 70 percent of the dry cat
food market — a near monopoly.
The Federal Trade Commission voted 4-0 to approve the deal,
with the requirement that Nestlé divest Ralston's Meow
Mix and Alley Cat brands.
Nestlé reports that the Ralston Purina acquisition has
boosted its 2002 first quarter sales by 10 percent. One
business report on the merger says that, “Nestlé
expects a positive influence on its top line growth and
profitability in the years to come.”
The St. Louis Business Journal reported last December that,
“While Ralston officers and directors, including (Ralston’s chairman
Bill) Stiritz and (Ralston’s CEO Patrick) McGinnis,
will reap more than $400 million of the proceeds (cash
from the merger purchase), the rest of the (Ralston)
shareholders are receiving a 34 percent premium over
Ralston's price the day before Nestlé and Ralston
unveiled the deal.”
Nestlé Purina PetCare Company itself is not a publicly
traded company. The Nestlé subsidiary has 15,000
employees worldwide, with 7,000 in North America.
Nestlé predicts that NPPC job cuts and plant closings will
provide an annual cost savings — to presumably be
converted to higher shareholder profits and executive
pay increases — of $260 million by 2003.
Professor Elhauge commented in his National Grange analysis,
“The merging parties are claiming one-time
efficiencies of $260 million. These do not appear to be
the sort of ‘extraordinary’ efficiencies necessary
to justify a merger that creates significant market
concentration.” Elhauge explained how the merged
company would be such a major buyer of poultry meal that
it could demand deep discounts on poultry meal, thus
unintentionally discouraging some farmers from raising
poultry. The eventual result could be reduced production
of poultry, and higher prices for all types of poultry
products. Even the price of chickens intended for human
consumption could go up, along with the prices of beef
and other meats competing for a place at the dinner
table. “If the merger produces a price change of as
little as 5 percent (in pet food grade poultry meal), it
will cost consumers $57 million a year,” wrote Elhauge.
“Further, … the merged firm intends to cut costs by
closing plants and reducing output. … The (federal)
Guidelines instead require efficiencies that allow the
merged firm to produce the same or greater
output/quality at lower cost.”
Corporate welfare squeezes cities
A growing number of regional, national and international
organizations, concerned about the recent gains in
corporate power, argue that increasing corporate
welfare, including tax abatement deals, by local and
national governments are not good for workers, cities or
the environment.
Loyola
Law School Professor Robert Benson has written an
article titled, “Getting business off the public dole:
State and local model laws to curb corporate welfare
abuse.” Benson notes, “Businesses are extorting
billions of dollars from state and local governments in
exchange for promises to create jobs. Not only are the
promises often broken, but the cost to the public
treasury is often much greater than any conceivable
benefit to the economy. State and local governments,
blackmailed by businesses threatening to move elsewhere,
are competing in a race to give away their tax bases.”
A Nov. 9, 1998 Time magazine cover series on corporate
welfare reported, “State and local governments now
give corporations money to move from one city to another
— even from one building to another — and tax
credits for hiring new employees. They supply funds to
train workers or pay part of their wages while they are
in training, and provide scientific and engineering
assistance to solve workplace technical problems. They
repave existing roads and build new ones. They lend
money at bargain-basement interest rates to erect plants
or buy equipment. They excuse corporations from paying
sales and property taxes and relieve them from taxes on
investment income.
“There are no reasonably accurate estimates on the amount
of money states shovel out. That's because few want you
to know.”
The Time series explained the great difficulty involved when
cities try to buck the trend: “What's a mayor to do? A
major employer wants to expand or build anew. Rather
than simply doing so, the corporation stirs up a bidding
war to see which city and state will pony up the most
cash, loans and tax breaks in the form of economic
incentives. If you're the mayor and the facility means
jobs and income for your town, do you play hardball and
risk losing the plant and the jobs? Or do you give in
and hand out tax money, only to face a never-ending
string of similar demands from others?
“Right now it's not much of a debate: The mayors cave.”
Professor
Benson writes that there are two problems with such
deals: “The first is that taxpayers are not getting
their dollar's worth in exchange for these breaks for
business. Jobs and boosts to the economy are promised,
but often not delivered. The second problem is that
local governments are raiding one another's territories.
Thus, even if one area does benefit by attracting a
company through tax incentives, its prosperity may come
at the expense of another area abandoned by the same
company.”
Benson’s solution to the municipal race to the bottom is
“state law(s) declaring incentive packages to be
illegal gifts of public property — unless justified by
a cost-benefit analysis showing a net return to the
people of the state.” He has drafted a “Model Act to
prevent luring business through illegal gifts of taxes
and other incentives.”
“Legal doctrine in every state has long held that
government gifts of public funds, property or credit are
illegal,” writes Benson. “The doctrine became vital
in the 19th century when robber barons controlled state
legislatures and began handing out state land, money and
credit to themselves, especially to their railroad
companies steaming across America. Most state
constitutions were strengthened specifically to prohibit
such abuses.
“The
prohibitions were taken pretty strictly until recent
years when a new breed of robber barons arose to seduce
and pillage local governments. At first the courts
resisted, striking down many schemes for public
financing of private benefits. Then the judges, too,
became pliant. Nowadays, they resort to legal fictions
to uphold the schemes. They will not second-guess the
legislature, they say. They will ‘presume’ that a
financing scheme has a legitimate public rather than
private purpose and, on the basis of the scantiest
evidence, that the public is getting its money's worth,
so there is no illegal gift. …
“The Model Act … does not outlaw all public incentive
schemes for business. It merely holds governments
accountable,” writes Benson.
Benson adds, “To address the second problem — local
governments raiding one another's companies — the
Model Act requires the analysis justifying incentives to
consider the citizens of the state as a whole in its
calculations of costs and benefits. …This goes beyond
current legal doctrine, which generally requires only
that local government agencies consider benefits to the
citizens within their own jurisdictions. Note that the
Act, however, does not reach rivalry between states.
Single states … would put themselves at a disadvantage
if they tried to do it alone. The interstate problem
must be handled by federal law, or regional interstate
compacts.”
The Time series concluded
that the solution is to have Congress levy a federal
excise tax on local corporate welfare incentives
“equal to the value of the economic incentives granted
to a company. … ‘You have to make the tax
confiscatory, a 100 percent tax, to take away the
incentive,’ says Arthur J. Rolnick, senior vice
president of the Federal Reserve Bank of Minneapolis,
Minn. ‘Then there's no reason for a company to come
knocking at your door.’”
Of course, even federal
rules that discourage corporate welfare are not enough.
In this age of corporate globalization, trade rules are
written to favor corporations seeking the lowest wages,
taxes and environmental, health and safety standards
around the world. Corporations now routinely threaten
U.S. cities and employees with closing plants and moving
to third world nations if their demands for wage and
regulatory concessions and municipal corporate welfare
opportunities are not met.
Through
the merger, NPPC acquired 26 Ralston-Purina plants, 13
of which were located outside the U.S. While NPPC tries
to hide these plant’s exact locations, Web research
indicates that the company has “assets” in Mexico,
Barbados, Bermuda, the Philippines, Guatemala and
Venezuela. Barbados and Bermuda are known for their
offshore banking and money laundering opportunities.
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Robert
W. Benson’s article, “Getting business off the
public dole: State and local model laws to curb
corporate welfare abuse” is online at http://heed.home.igc.org/publications/dole.html
The Time corporate welfare series is available at www.time.com/time/magazine/1998/dom/981109/cover1.html
National Grange analysis: www.nationalgrange.org/legislation/Nestle_Ralston.htm
Ever wonder how pet food is really made? The following link
has several articles on the unpleasant behind-the-scenes
world of commercial pet food manufacturing. Read how
euthanized pets, plastic-wrapped supermarket leftovers
and other “ingredients” end up in pet food. Take a
tour inside a rendering plant that turns dead animals
and fast food grease into poultry meal, meat meal, bone
meal and “yellow grease.”
www.siriusdog.com/pet_food.htm
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