March 24, 2012

Was Apple serious about Phoenix-area site?

Apple Inc. has selected Austin over Phoenix for a major operations center, but it did spend about a year quietly scouting the Phoenix area, according to two leading Arizona economic-development officials.

The company selected six potential sites in metro Phoenix and especially favored three sites in Mesa, Gilbert and Chandler because they could be built on quickly, according to Barry Broome, president and CEO of the Greater Phoenix Economic Council, and Don Cardon, CEO of the Arizona Commerce Authority.

Without giving Arizonans much of a chance to present their case or to negotiate, the maker of iPhones, iPads and Mac computers settled on Austin for a $304 million Americas Operations Center that is expected to employ up to 3,600 workers in 10 years. It is projected to handle operations in areas such as accounting, human resources and finance for all of North, South and Latin America. The proposed campus eventually is expected to encompass 1 million square feet.

The Austin City Council on Thursday on a 6-0 vote approved $8.6 million in property-tax abatements for the company, on top of $21 million in state incentives already offered by Texas Gov. Rick Perry. During a public hearing, some speakers supported the action because of the jobs while others objected to giving incentives to such a rich company.

Cardon of the Arizona Commerce Authority said Wednesday that he was told by an Apple representative on March 8 that the Texas capital had been selected, pending confirmation of incentives from Austin and Travis County, Texas.

Apple's conversations in the Phoenix area have been shrouded in secrecy, raising lots of questions in the economic-development and political community. Among them:

Was Apple serious about considering the Phoenix area?

Were certain sites in the Phoenix area getting preferential treatment over others?

Did the organizations that took the lead, the commerce authority and GPEC, really do all they could to land the marquee company?

"We were probably behind the curve to begin with," Broome said, noting that Apple has a customer-service center with about 3,500 employees already in Austin. "No one will know the truth. But professionally speaking, we were probably the backup site if things did not go well in Texas and Austin."

Officials with the Cupertino, Calif.-based tech giant have not returned phone calls or e-mails from The Arizona Republic seeking comment. Arizona officials said company spokesmen offered only limited information to them as well.

In Austin, questions lingered, too, especially about whether Texas governments really needed to offer incentives. Apple is rolling in cash, and it may have intended to locate in Austin all along and perhaps was not serious about the Phoenix area, said Jon Roberts, an Austin economic-development consultant.

"Why is a company that is sitting on $1 billion getting incentives anyway? That is the talk," he said.

Despite their disappointment, Valley officials are thrilled that the Phoenix area apparently ranked at least second in the nation for a chance to land a world-famous company, saying that the experience offers an opportunity to learn how to swing harder next time.

Roberts said that attracting Apple helps Austin diversify its economy.

"Apple is the wealthiest company in the world right now. There is no stronger name-brand company that you can attract," he said.

Pike Powers, an Austin attorney involved in economic development, said Austin is the kind of place to which Apple employees would be drawn.

"I think we managed to build kind of an exciting, interesting, challenging, compelling place," he said. "And place matters, not that Phoenix is bad. ... But we have accomplished a special techie status or creative status or imagination-entrepreneur kind of zone in our city that is really pretty spectacular.

"It didn't happen overnight. We worked really hard."

1-hour pitch

As far as metro Phoenix was concerned, the Apple opportunity came -- and went -- fast. Cardon and Broome learned in December that the region was a finalist for an operation with a major company but wouldn't get details for about two months.

Economic-development experts say it is common for companies that are looking to locate or expand in an area to ask that their names not be disclosed. Property owners might raise prices if they know a Fortune 500 company is a potential customer. Competitors could be alerted.

And since Apple is a publicly traded company, it has to be sensitive to strict federal rules about disclosing matters that could affect its share prices, Broome said.

In early February, Broome got a call from an Apple representative saying the company was interested in Phoenix, and Broome called Cardon. They were asked to appear at Apple's global headquarters in Cupertino, Calif., in three business days, Feb. 7.

In Cupertino, they said they were given only one hour to make a presentation and had to sign standard confidentiality agreements promising not to reveal the name of the company or to disclose details.

A number of people were brought into discussions, including Gov. Jan Brewer, several Valley mayors, commerce authority and GPEC board members, and others.

Cardon and Broome said they were told they were competing with one other region. Documents submitted to Austin confirmed that the company was considering Phoenix as an alternative "given its supply and cost of labor as well as its proximity and ease of travel to and from Cupertino, CA."

The Arizona officials were led to believe Apple wanted to act fast. Cardon said they wanted a site that could become operational in the first quarter of 2013. Yet in Austin, the company is proposing to build up to 1 million square feet, starting with a Phase 1 of 200,000 square feet that could take several years, according to presentations at Austin City Council meetings.

Cardon said the company did not ask for any special incentives that any other company would not have received. He did offer access to the commerce authority's deal-closing fund, which is available to give companies special incentives that could "seal a deal."

Cardon and Broome said they really never were allowed to negotiate.

"This was programmed," Broome said. "This wasn't a big give-and-take."

Apple officials said they had narrowed their search down to six sites, and Cardon and Broome learned for sure only of the three: near Phoenix-Mesa Gateway Airport in Mesa; northeast of Lindsay Road and the Santan Freeway in Gilbert; and in the Continuum Science and Technology Park in the Price Corridor in Chandler.

Cardon said others might have been the Desert Ridge area in north Phoenix and near Tempe Town Lake.

Lots of frustration

The secrecy and speed with which the Apple discussions occurred created a lot of frustration, confusion and tension among business people and elected officials in the Phoenix area, particularly since Apple communicated directly with so few people. There have been no public hearings or presentations here as there have been in Austin.

Jerry Colangelo, co-chairman of the commerce authority, said while there are always issues that can be handled better, in this case that might not have mattered.

"They (Apple) pretty much knew what they wanted and where they wanted it, and the real question is, was it an even playing field to begin with? ... The efforts were extraordinary on our part," he said.

Candace Weist, president and CEO of West Valley National Bank, said, "I heard some stuff, and I don't know how accurate it is. But really and truly my feeling is they (Apple) weren't really ever planning on coming. They were going to go to Austin anyway."

Weist is a member of the boards for both the commerce authority and GPEC.

Mayors of Phoenix, Mesa, Chandler and Gilbert have said they never got a lot of detail about what Apple wanted and several expressed frustration at Apple, GPEC and the commerce authority.

Phoenix officials have complained that the southeast Valley was favored over a site on state trust land in northeast Phoenix near the Mayo Clinic and Musical Instrument Museum.

Phoenix Mayor Greg Stanton acknowledged that state trust land can take longer to be turned into commercial uses but said the city has managed that before, such as with a Sumitomo microchip plant brought there in 1997.

"I have the impression this company (Apple) was in a hurry. By the time I was involved, it was late in the game," he said.

Chandler Mayor Jay Tibshraeny, a former state lawmaker, was frustrated that his city did not get enough time to promote its Price Corridor, which is anchored by an Intel plant with more than 9,000 workers.

"We have done as much as we can. Since Commerce (Arizona Commerce Authority) is handling it, they have kept us at arm's length," he said.

In contrast, he said, the city was allowed to participate directly in negotiations for an Intel expansion that led to an announcement last year of a $5 billion expansion.

"I just really think at the state level they really need to take another run at Apple if they can, because the magnitude of a locate like that would be unbelievable for the Valley. It's like over 3,000 jobs in 10 years, and all the ancillary construction and business that would flock here. There is a great trickle-down effect," he said.

In response, Cardon and Broome said they were being as aggressive as they could. Cardon said he offered to fly back to Cupertino on Monday for further talks.

"We aggressively competed for the biggest prize. I am proud of what we did, and I wish it had a different outcome," said Cardon, who announced in January he is leaving the authority to return to private business as soon as a replacement is found.

Despite the frustration, several officials said Apple's consideration of the Phoenix area shows that the region can be competitive.

Broome pointed out that it was better to hear of Phoenix competing against Austin as a finalist instead of another city in that role, such as Denver vs. Austin.

"Everyone is disappointed when you have a chance for this type of excitement and it doesn't happen," he said.

Echoing others, Stanton said, "If we are not successful, we should use this as an example and kind of look at our systems and see where we can improve. We should always look for ways we can improve so we are the most competitive region on economic development."

Mesa Mayor Scott Smith said, "We are in the game, and when you are in the game, opportunities will continue to come, and you will get better at the game."

Phoenix vs. Austin

In this comparison of the Phoenix and Austin metro areas, the only indicator on which Phoenix comes out ahead is housing affordability.

Phoenix / Austin

2009 per capita income

$34,452 / $37,544

Bachelor's degree or more, 2010

27.2% / 39.4%

Job growth, January 2011-January 2012, preliminary

1.9% / 3.5%

Venture capital, first nine months, 2011

$173 million / $415 million

Per capita gross domestic product, 2010

$41,169 / $47,470

Housing affordability, 2011

86% / 74.3%

Sources: U.S. Bureau of Economic Analysis, U.S. Census Bureau, U.S. Bureau of Labor Statistics, National Venture Capital Association, National Association of Home Builders

Apple Inc.'s proposal

What: Americas Operations Center for North, South and Latin America to house accounting, human resources and finance.

Employees: 2,000 to 3,600 over seven to 10 years. About 1,100 could be contract or vendor employees. The average wage of the employees would be almost $64,000.

Footprint: Apple proposes to build a 200,000 square foot building initially and eventually another 800,000 square feet.

Source: Office of Economic Development, City of Austin

by Betty Beard - Mar. 23, 2012 12:02 AM The Republic |

Was Apple serious about Phoenix-area site?

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