Genentech’s Actions Show The Downside of High Tech Companies as Well As State Lawmakers’ Concessions

prop-24Davis has often lamented the fact that Dixon, rather than Davis, got Genetech’s expansion.  In 2008, Genentech, a company based in South Francisco, decided to put a 140,000 square foot research facility in close proximity to UC Davis.  But instead of building it in Davis, they built it in Dixon.

At the time, the facility was expected to house 120 employees starting in 2010 and expand to 160 employees in 2016.  This was before the collapse of the economy in September 2008, and the plans have since been dropped (perhaps demonstrating the problematic nature of any investment by a large company).

But at the time it was a sore spot for many who advocated using existing business park land, such as that at Cannery Park, to house such future business endeavors.

“Davis has dropped the ball when it comes to economic development and high-tech industry,” Councilmember Sue Greenwald told the Enterprise back in 2009. “Dixon has the new Genentech research facility, Woodland’s developing an incubator business and Davis is turning its only industrially zoned land into housing.”

This should be read as a cautionary note, rather than a criticism of local public officials attempting to bring in new high tech business.  However, we need to recognize that there is a downside to companies like Genentech. 

One of the big problems facing California is a lack of revenue at the state level and a lack of fairness in the corporate tax structure.  During the last two budget sessions in 2008 and 2009, in order to get a balanced budget, the Republican minority was able to exact corporate tax loopholes that allowed businesses to lower their state tax liability.

Proposition 24 would have repealed those tax loopholes.  Proponents called it the “Tax Fairness Act” that would have repealed corporate tax breaks while opponents called it the “Jobs Tax” that would cost businesses billions of dollars.

Explains the San Francisco Chronicle Politics Blog, “The tax break in question is the single sales factor. Prior to the change, the state determined income tax owed by businesses based on three factors — the value of a businesses’ properties in the state, the payroll in California and the amount of sales done here.

“Under the single sales factor approved by lawmakers, businesses can base that calculation solely on the portion of their national sales that take place in California. That change will save businesses more than $650 million per year by 2012, according to the Legislative Analyst’s Office.”

They continue, “Put another way, that means passing Prop. 24 would have kept more than $650 million in the state’s general fund from the eliminating of the single sales factor alone. Along with the other tax breaks targeted by Prop. 24, that number would have risen to $1.3 billion, according to the legislative analyst.”

Who was one of the single largest opponents of the measure which was rejected by 58% of voters?  Genentech.  Genentech spent over $1.6 million to defeat the measure.

They argued that losing the tax breaks would cause job losses in California.

The voters bought into the argument, but the punch line came this week.

Genentech just announced that they will have their cake and eat it at the same time, because they got Proposition 24 defeated and still announced that they are laying off more than 800 workers in California – the bulk of them at the South San Francisco facility but many in Vacaville as well.

Robin Snyder, spokesperson for Genentech, sent out a blast saying, “The job reductions announced this week come in response to a challenging business environment for the biopharmaceutical industry, combined with recent setbacks in the late-stage pipeline. We continue to hire and to make significant research investments in California that we hope will lead to breakthrough treatments for cancer and other serious diseases.”

She continues, “We believe the enactment of smart tax policy by the state legislature and the rejection of Prop. 24 by the state’s voters will help ensure expansion and growth for Genentech in California in the years to come.”

Indeed.

Jean Ross of the California Budget Project is not buying it.  She is calling it “payoffs for layoffs,” after a Massachusetts lawmakers’ term, in which Raytheon, a backer of their tax policy, announced major job reductions in the state.

She writes, The firm is presumably one of the handful  of companies that will enjoy tax cuts in the tens of millions of dollars each year from Proposition 24’s defeat.”

She continues, “Company officials no doubt knew of the potential layoffs when they stumped the state arguing against Proposition 24­, implying that rejection of the measure would keep jobs in California. As it turns out, California may face the worst of both worlds: loss of jobs and loss of over a billion dollars a year in tax revenues that could have gone to support schools, health care, and other public structures essential to the state’s future.”

The punch line is that Genentech can advocate for the tax loopholes AND cut jobs.  We have bought into the argument that somehow these measures will save jobs, but there is little evidence of that in practice.  Genentech was actually following the same mode of operations in California as Raytheon was in Massachusets.

Part of the problem is that we give away the store, with no assurances from business that they will keep jobs and expand jobs in the state. 

Writes Jean Ross, “As the law now stands, Genentech can qualify for the tax break and eliminate the jobs of ­California workers because the lawmakers who drafted the state’s law gave large and extraordinarily profitable corporations a “no strings attached” tax break: firms are not required to add jobs in California or even maintain current employment to qualify for a substantial reduction in their tax bill to the state.”

She continues, “Genentech’s announcement offers an important lesson for those who support corporate tax breaks in the name of jobs.”

Indeed, and the entire tale is cautionary for Davis as it rightly embarks on attracting high tech business.  Had we gotten the Genentech deal we would have a big empty facility right now.  And we would have brought in a business that was antagonistic, just as Target is, to Davis’ community values.

If we are going to do this with full support, we have to choose wisely and act cautiously.

And our lawmakers need to grow some backbones and stop giving away the store to businesses, under the guise of saving jobs.  Very few businesses would benefit from the tax break, but we now we are going to have to cut additional money from schools and other needy programs, while Genentech is not expanding their operations but laying off additional workers.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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20 Comments

  1. davisite2

    “Genentechs web sight, has a job announcement for a social scientist”

    ….and the CIA hires psychologists as expert consultants for their torture programs.

  2. E Roberts Musser

    dmg: “And we would have brought in a business that was antagonistic, just as Target is, to Davis’ community values.”

    How is Target “antagonistic to Davis’ community values”? What does Target have to do w Genentech?

    dmg: “And our lawmakers need to grow some backbones and stop giving away the store to businesses, under the guise of saving jobs.”

    Lawmakers did not vote against Prop 24, the voters did.

    dmg: “The punch line is that Genentech can advocate for the tax loopholes AND cut jobs. We have bought into the argument that somehow these measures will save jobs, but there is little evidence of that in practice. Genentech was actually following the same mode of operations in California as Raytheon was in Massachusets.”

    So how do you propose we encourage business to stay in CA?

  3. Justin Kudo

    I have to agree, the snipe about Target was really unnecessary. Some of us like Target here and believe it’s rather synergistic to the needs of the community. In fact, I’d argue that the vast majority of Davis thinks target has a good role in the community. It passed its Measure J vote, showing majority support, and you know most of the students (who barely vote) would have supported it. Saying something supported by the majority of a community is antagonistic to that community doesn’t make much sense to me.

    Elaine: David’s comment about lawmakers growing a backbone was likely not directed at Prop 24, but rather directed at the tax breaks that it would have repealed. In that sense, I’d tend to agree, though I’d say those breaks were a product of a broken budget system.

  4. David M. Greenwald

    I just don’t agree that Target fits with our community values especially during a time when we are trying to reduce our carbon footprint and become more sustainable and it was a major of focus of city policy along with high tech business, hence the reference.

  5. E Roberts Musser

    dmg: “I just don’t agree that Target fits with our community values …”

    OUR community values or YOUR community values. There is a difference…

    Secondly, you have not answered my question about how you would bring business to CA…

  6. E Roberts Musser

    From chiefexecutive.net:
    “In Chief Executive’s annual survey of best and worst states for business, conducted in late January of this year, 651 CEOs across the U.S. again gave Texas top honors, closely followed by North Carolina, Tennessee and Virginia. They gave the booby prize for worst state to California, with New York, Michigan, New Jersey and Massachusetts filling out the bottom five-a line-up virtually unchanged from last year. Florida and Georgia each dropped three places in the ranking, but remain in the top 10. Utah jumped six positions this year to sneak into the top 10 at No. 9.

    The business leaders were asked to draw upon their direct experience to rate each state in three general categories: taxation and regulation, quality of workforce and living environment. Within each category respondents graded states in five subcategories, as well as ranking each in terms of its importance to the respondent and how individual states measure up (Click here to see How CEOs Grade the States chart).

    For example, Texas fares competitively with Nevada and Delaware in terms of taxation and regulatory environment, but scored best overall, in no small measure because of the perception that its government’s attitude to business is ideal. Runner-up North Carolina edged Texas slightly in its living environment, but scored somewhat below the Lone Star state in terms of government attitude to business and work ethic, which is a sine qua non for the business leaders. (Click here to see the chart) After employee work ethic, CEOs most highly prize lower tax rates and perceived attitudes toward business, followed by living environment considerations, such as real estate costs and education.

    “Texas is pro-business with reasonable regulations,” one CEO respondent remarked, “while California is anti-business with anti-business regulations.” Another commented, “California is terrible. Even when we’ve paid their high taxes in full, they still treat every conversation as adversarial. It’s the most difficult state in the nation. We have actually walked away from business rather than deal with the government in Sacramento.”

  7. E Roberts Musser

    I think this statement from the article is very telling:

    “Even when we’ve paid their high taxes in full, they still treat every conversation as adversarial. It’s the most difficult state in the nation. We have actually walked away from business rather than deal with the government in Sacramento.”

    The extreme left has so demonized business, that unless the business is politically correct, it is not welcome in CA. CA has shot itself in the foot…

  8. JayTee

    There are a lot of people living pretty close to Target, and while I’m sure some of them were of the “don’t build it here” mindset I’d be willing to bet that more of them are glad now that it’s there. Don’t you think that if someone were close enough to walk or bike to target, that would be preferable to driving across the Mace overpass or taking Mace around to Covell to go to one Nugget or the other? Surely that has a positive impact on whatever *foot print* Target makes.

  9. Briankenyon

    Or, if you were interested in quality produce picked on local farms and shipped directly (no middlemen) to a family owned and operated business: you could have saved yourself a trip to Nugget and walked to Ikeda’s Fruit Stand across the street from Target, and still going strong!

  10. Don Shor

    I’m glad the CEO’s like Texas. I don’t know if their workers do.

    The poverty rate for Texas [2007] was 16.5%
    California: 12.7%.

    In 2007, Texas ranked ninth in its poverty rate for the elderly;
    it ranked forty-ninth in the percentage of its adult population with a high school diploma; and
    it ranked first, at 24.4 %, in the percent of its populace with no health insurance.

    In 2005, of the thousands of counties in the entire United States, the two absolutely poorest (with populations in excess of 250,000) in terms of median household income … were both along the Texas-Mexico border – Cameron County and Hidalgo County.

    2003: the hourly median wage in Texas … was 88% of the national average.

    Since 1979, the US average low-wage worker saw wages increase by 6.9% (adjusted for inflation), but the Texas worker’s wages increased 1.0%.

    http://texaspolitics.laits.utexas.edu/12_2_0.html

  11. Ryan Kelly

    To compete with Texas, we would have to have way fewer jobs connected with home building, increase sales taxes and lower income tax (so that taxes are paid by the consumer, not corporations who are making money), have fewer employees represented by unions, lower the minimum wage, cut funding to schools and allow test scores to drop and more students to fail, get rid of propositions and have fewer people involved in the state budget process, drill off the coast of California, tolerate a greater number of people living in poverty (including elderly). We could do all that.

  12. Rifkin

    Don, all of those numbers you quote about Texas are simply reflections of Texas demographics, due to a slavery legacy in East Texas and the Mexican nature of South Texas going back hundreds of years.

    In the last 25-30 years, California has had a large increase in poverty and a big fall in our relative educational performance, mostly reflecting demographic change.

    Neither has much to do with tax policies or redistribution of income, etc.

  13. Mr.Toad

    “I just don’t agree that Target fits with our community values especially during a time when we are trying to reduce our carbon footprint and become more sustainable and it was a major of focus of city policy along with high tech business, hence the reference. “

    The Davis target reduced my carbon footprint. Fewer trips to the Woodland Target.

    Genentech has become a less friendly corporate citizen since being taken over by Roche. The real loss for Davis was when Genentech built its production plant in Vacaville instead of in Davis in the 90’s.

  14. E Roberts Musser

    From http://www.blogs.forbes.com:
    “Texas’ trajectory, however, looks quite the opposite. California was recently ranked by Chief Executive magazine as having the worst business climate in the nation, while Texas’ was considered the best. Both Democrats and Republicans in the Lone State State generally embrace the gospel of economic growth and limited public sector expenditure. The defeated Democratic candidate for governor, the brainy former Houston Mayor Bill White, enjoyed robust business support and was widely considered more competent than the easily re-elected incumbent Rick Perry, who sometimes sounds more like a neo-Confederate crank than a serious leader.

    To be sure, Texas has its problems: a growing budget deficit, the need to expand infrastructure to service its rapid population growth and the presence of a large contingent of undereducated and uninsured poor people. But even conceding these problems, the growing chasm between the two megastates is evident in the economic and demographic numbers. Over the past decade nearly 1.5 million more people left California than stayed; only New York State lost more. In contrast, Texas gained over 800,000 new migrants. In California, foreign immigration–the one bright spot in its demography–has slowed, while that to Texas has increased markedly over the decade.

    A vast difference in economic performance is driving the demographic shifts. Since 1998, California’s economy has not produced a single new net job, notes economist John Husing. Public employment has swelled, but private jobs have declined. Critically, as Texas grew its middle-income jobs by 16%, one of the highest rates in the nation, California, at 2.1% growth, ranked near the bottom. In the year ending September, Texas accounted for roughly half of all the new jobs created in the country.
    Even more revealing is California’s diminishing preeminence in high-tech and science-based (or STEM–Science, Technology, Engineering and Mathematics) jobs. Over the past decade California’s supposed bulwark grew a mere 2%–less than half the national rate. In contrast, Texas’ tech-related employment surged 14%. Since 2002 the Lone Star state added 80,000 STEM jobs; California, a mere 17,000…”

  15. Sue Greenwald

    [quote]In Chief Executive’s annual survey of best and worst states for business, conducted in late January of this year, 651 CEOs across the U.S. again gave Texas top honors, closely followed by North Carolina, Tennessee and Virginia. They gave the booby prize for worst state to California, with New York, Michigan, New Jersey and Massachusetts filling out the bottom five-a line-up virtually unchanged from last year. Florida and Georgia each dropped three places in the ranking, but remain in the top 10. Utah jumped six positions this year to sneak into the top 10 at No. 9. — E. Roberts Musser[/quote]The “booby prize” states of California, New York, New Jersey and Massachussetts pretty much monopolize high-tech industry in the country. Would you rather live in a state with high-tech industry or in a state praised by CEO’s?

  16. E Roberts Musser

    Sue Greenwald: “The “booby prize” states of California, New York, New Jersey and Massachussetts pretty much monopolize high-tech industry in the country. Would you rather live in a state with high-tech industry or in a state praised by CEO’s?”

    Apparently Texas is doing far better than CA in the area of high-tech. From http://www.blogs.forbes.com:
    “Even more revealing is California’s diminishing preeminence in high-tech and science-based (or STEM–Science, Technology, Engineering and Mathematics) jobs. Over the past decade California’s supposed bulwark grew a mere 2%–less than half the national rate. In contrast, Texas’ tech-related employment surged 14%. Since 2002 the Lone Star state added 80,000 STEM jobs; California, a mere 17,000…””

  17. E Roberts Musser

    I would also add CA, NY, NJ and MA are all very liberal states – and the ultra liberal mantra these days is to trash business… well if you start decreasing the number of public employees as a cost cutting measure to help with the state’s budget crisis, you need private business to hire those out of work public employees…

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