When state dollars don’t pay dividends

12/08/2013 1:00 PM

12/08/2013 9:11 PM

The state of Florida gave Oshkosh Corp. more than $700,000 in tax breaks and cash incentives to move its ambulance production operation from Indiana and Michigan to southwest Florida in 2011.

But two years later, the company stopped building ambulances. More than 125 layoffs followed.

The Oshkosh case illustrates the risky game the state plays in picking which companies to assist and which companies to avoid in the name of economic development. Businesses that receive the coveted incentives aren’t always successful, and sometimes end up slashing jobs instead of creating them.

“This is an example of government attempting to pick winners and losers in the marketplace, and wrongly using incentives for economic development,” said Slade O’Brien, the Florida director of the right-leaning Americans for Prosperity.

State Department of Economic Opportunity spokeswoman Jessica Sims defended the deal, saying the state would “only be paying for the jobs that were created as outlined in the contract.”

Sims noted that Oshkosh had created 184 jobs -- and returned about $265,000 of its incentive money for not maintaining the positions.

Manatee County economic development chief Karen Stewart said the investment had helped the local economy.

“Those jobs were created and maintained in our community for several years,” Stewart said. “It wasn’t for the entire term of the incentive agreement, but it still made a difference.”

But for former employees like Kathleen Evans, the layoffs took a toll.

A former customer service manager, Evans spent six months looking for work before landing a job at Ameritex Fabric Systems in Bradenton. Her new salary is half of what it used to be, she said.

“Finding a new job was grueling for me,” said Evans, who had moved with the company from Indiana to Bradenton. “I had almost no contacts in Florida.”

Wisconsin-based Oshkosh Corp. is a large manufacturer of custom industrial trucks. Its product line includes heavy-duty garbage trucks, off-road tankers, guided-missile transporters and armored military vehicles.

Oshkosh acquired Medtec Ambulance Corp. in 2000.

At first, the company built its ambulances in Indiana and Michigan. But in 2011, Oshkosh consolidated Medtec with another of its subsidiaries: a fire-truck production outfit in Florida called Pierce Manufacturing.

The decision was driven partly by logistics, company spokesman John Daggett said. Pierce’s 40-acre campus in Bradenton had ample room for a second production line.

But economic development incentives played a role, too.

Oshkosh’s package included an up-front payment of $650,000 from a taxpayer-funded incentive known as the Quick Action Closing Fund, and an $82,500 tax refund, records show.

Manatee County also chipped in, awarding another $150,000 in cash and tax breaks, Stewart said.

In a 2011 press release, Oshkosh Executive Vice President Jim Johnson touted the “assistance” from state and local government.

“Relocation decisions are always difficult, but this will improve operational efficiencies, optimize manufacturing capacity, and allow us to be successful in today’s highly competitive markets,” Johnson said.

The company pursued an aggressive hiring plan. Some Medtec employees relocated from Indiana, but many of the new positions were filled from within the southwest Florida manufacturing ranks.

The average wage was $55,623, according to Manatee County records.

But signs of trouble quickly emerged.

Even as the economy rebounded, municipal governments scaled back their budgets for emergency vehicles. Changes to federal health insurance reimbursement rules also hurt Medtec’s bottom line, Daggett said.

“It became apparent that Medtec would not achieve profitability in a reasonable time frame, if at all,” he said. “As a result, a decision was made to exit the ambulance business and concentrate our efforts on our core strength, which is fire-apparatus manufacturing.”

The July 2012 announcement stunned Evans, the customer service manager.

“Sales were improving,” said Evans, one of the employees who had moved from Indiana. “It started out horrendous, but it was really looking up.”

The company initially forecasted 325 workers would lose their jobs, human resources director John Jordan said. But after closing open positions, only 129 layoffs took place.

Oshkosh returned $265,000 of its incentive money in October, according to the Department of Economic Opportunity.

The action wasn’t without precedent. At least 18 companies have had to return incentive money to the state for falling short of their job-creation targets, state records show.

In at least three cases, the state has been unable to recover its investment. That includes the highly embarrassing $20 million awarded to help lure the now bankrupt Digital Domain Media Group to St. Lucie County in 2009. The animation company was created by acclaimed Hollywood director James Cameron.

Several lawmakers have tried to rein in use of incentives, or at least provide more protection for taxpayers. Sen. Dorothy Hukill, R-Port Orange, pushed for new controls on cash incentives earlier this year, but the measure failed to find support in the Republican-dominated Legislature.

O’Brien, of Americans for Prosperity, would like to see the entire program overhauled.

“We should be creating a business climate that gives all businesses a chance to succeed, rather than allowing some bureaucrats or politically connected people to choose which businesses they think will succeed,” he said.

But Sims, the Department of Economic Opportunity spokeswoman, called economic development incentives among the state’s “most powerful tools … in stimulating and diversifying the economy, creating jobs and expanding businesses.”

“These incentives, as well as sound policies, sensible legislation, business-minded tax regulations, and other factors, have contributed to a steady decline in the unemployment rate and the creation of 365,500 new private sector jobs,” she said.

Despite the loss of the ambulance line, the Bradenton plant continues to build fire trucks.

On a recent morning, the campus buzzed with activity. Employees painted, buffed and polished a procession of ruby-red fire engines. A fire chief from Pleak, Texas inspected and test drove his department’s $264,000 custom-built truck.

Employees acknowledged that there was some extra space in the plant, now that the ambulance line was gone. But that aside, there was little evidence of the layoffs that occurred earlier this year.

Former employees, however, still feel the pain.

Johnny Diaz, who specialized in metal finishing, had to take a job as a janitor for IRISS, a local manufacturer of electrical safety products. Diaz was later promoted to a higher-paid position on the manufacturing line, but still makes less than he did building ambulances.

Wilfredo Rodriguez, a material planner, said he has applied for jobs from Miami to Orlando since being laid off on March 28.

“I get a lot of phone interviews and some in-person interviews,” he said. “So far, I haven’t gotten a snag.”

Rodriguez is considering going back to school for computer technology.

Peter Straw, executive director at Sarasota Manatee Area Manufacturers Association, acknowledged that the cuts had been painful, but said the local manufacturing community was rebounding.

Oshkosh, he said, had fallen victim to the “vagaries of the business cycle.”

“There was no way they could have avoided what happened to them,” Straw said. “It was unfortunate because they had just consolidated and brought that operation here. The circumstances being what they were, they couldn’t maintain it.”

Herald/Times staff writer Mary Ellen Klas contributed to this report.

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