While the economic morass commands the headlines, there is a bright spot in San Jose. Specifically, south San Jose, in Edenvale.
Last week, I attended a ribbon-cutting for CTS Electronics Manufacturing Services. They are an outsourced manufacturing company for companies that design electronic equipment like networking equipment. CTS competes against large multinational companies like Flextronics and Sanmina.
Much of this manufacturing has gone overseas for lower labor and material costs. However, due to the increase in the price of oil, the shipping and logistics costs have made it more sensible to build here vs. China for some companies. Plus, their customers do not have to travel around the globe to visit their outsourced manufacturing facilities—and especially for medical devices, the USA still has better quality.
CTS moved from Santa Clara to San Jose. CTS has 376 employees at their new facility, with 25 open positions. I asked the person in charge of the new facility where most of the employees of CTS lived. His answer was that most of the people live in south San Jose.
Great! Fewer San Jose residents driving North.
There was some assistance provided from the Redevelopment Agency (RDA) that will allow CTS to receive up to $500,000 towards the purchasing of manufacturing equipment. Also, the City of San Jose’s Office of Economic Development is pursuing funding on behalf of CTS from the State of California Employment Training Panel for up to $100,000, to help train new workers.
I wondered about the $500,000 from RDA for equipment in proportion to their total spend on equipment.
On a touring the manufacturing floor, I saw seven production lines. Each production line makes a specific product for its customer, and each line requires $1 million in manufacturing equipment—therefore $7 million in manufacturing equipment. Plus there is room to expand for another three lines. In addition they spent $3 million in tenant improvements on the new facility.
Just next door to CTS was the new Snap-On Diagnostics building. They recently moved from Senter Road in San Jose to South San Jose with more than 100 employees. And, on the other side of CTS is NDS Surgical, a medical device company that moved from Morgan Hill with almost 200 employees.
Incidentally, both Snap-On Diagnostics and NDS Surgical use local outsourced manufacturing in San Jose and Fremont. Also both Snap-On and NDS Surgical generate sales tax since their products are physical objects.
Economic development needs to be the key focus of the Redevelopment Agency with each company and building receiving appropriate time and consideration so that they can provide jobs, grow and in some cases, provide taxes to the City.
It’s good to see jobs coming back, but it’s a little bit better to see a variety of jobs now here. We don’t have to be merely the brains who design, but also the brains who build.
I’m not sure I understand. Did CTS say they wouldn’t move to San Jose unless the City paid them $500,000? San Jose is so undesirable that we must bribe companies to come here?
As a taxpayer, it seems to me that I’m always paying people to come to San Jose.
As my costs add up it makes me wonder if it’s worth it for me to stay here. How about if the City of San Jose pays ME some money in exchange for my promise NOT to move to Santa Clara?
Does the City of San Jose value regular people or just persuasive MBA types?
PO,
Nice post. A key area that seems to be moving fast here in the valley in regards to Venture Investment is Solar and renewable energy.
Solar will end up having more value to our community than the BioTech. Both Solars potential job creation and product time to market move faster than BioTech.
Keep the mayor and council moving on Solar and renewable energy!
But are these jobs green?
It’s very important that we have green jobs because global warming.. er what’s that.. green jobs are little more than manual day laborer work? but.. aw rats.
Nevermind.
#2
Hi John,
Yes up to $500,000 from RDA for manufacturing equipment only was used as a way to induce CTS to south San Jose. As noted they have $7 million in manufacturing equipment possibly growing to $10 million.
South San Jose has been much tougher to locate companies then North San Jose. However most people in San Jose commute North for jobs therefore we are trying to locate jobs where people live in San Jose. NDS Surgical that moved from Morgan Hill to South San Jose did not have any assistance from RDA.
Another way to look at is $500,000 equals 376 jobs in south San Jose, a building that was vacant now filled and that building now have a higher assessed value with tenant improvements and millions of dollars of manufacturing equipment. Also many of those 376 employees have shorter commutes and they may also buy lunch or gas locally.
During the boom times in south San JoseI remember ONI, Clearlogic, Jetstream, Allegro Networks and others that are now out of business with vacant buildings so we are trying to rebuild the job base and tax base.
#3
Nanosolar, Stion and Solopower have also located to South San Jose in the past 12 months. As far as Solar vs. Biotech, no judgement from me other then the more the merrier.
John#2: We paid millionaire Swig to build the Fairmont here; we paid Adobe to locate here (land for $1.00/year); we paid to move House of Pizza to make room for the McEnery Center; we paid $1million for that stupid tile thingie at the entrance to McEnery, which will now just be torn down when the center expands; we paid Robert Graham $500k to give us a plastic turd, that DeCinzo in his most recent cartoon so aptly placed under the Sforza Horse in front of the Tech; we paid P.F. Chang’s & McCormick & Scmick’s and The Grill to open up here (but we didn’t pay Original Joe’s or Eulipia or many other locals to stay here); and the list goes on and on and on.
Yup, we just have to pay people to come here. It’s pathetic, yet it still keeps happening.
I like your idea—let’s all threaten to move to Santa Clara or Mt. View, or Sunnyvale if we don’t get a subsidy.
#9
Hello John,
The $500,000 instead could have paved a half mile of road out of the 2300 miles we have within in our city boundary.
I agree with you that subsidies/assistance are not ideal however companies have choices where they locate and each city/region tries to induce economic development. The goal should be to make it easier to open a business in San Jose then anywhere else, therefore no subsidy.
With more companies in south San Jose there will be more synergy and ideally more will locate there.
John #9:
Infrastructure is indeed a significant part of what makes a great city, but so is a robust economy, low jobless rate, good sustainable wage-earning jobs and a diverse and cutting edge business community portfolio to help pay for those infrastrucutre developments. (empty buildings and the jobless poor pay little to nothing in taxes)
Tax incentives to Corporate America may be the easy whipping target these days, but removing passionate blindness and “evil corporation” dogma from the equation, they make sense. Tax incentives exist in the tax code as a way to incent or encourage behavior (in this case, job/tax base creation) that otherwise would not occur. If you think fixing roads, building parks and supporting more fire and police would have been enough to bring CTS to Edenvale, I commend you and ask you how the fairies and pretty rainbows are doing in your pollyanish world.
You ask the city why they felt it neccessary to give CTS $500,000 to come to San Jose? I would instead ask CTS why $500,000 was deemed enough for them to decide to come here…
Pierluigi,
I appreciate your thorough response.
Though I understand your facts and figures I still have a philosophical disagreement with this sort of enticement tactic.
I don’t know much about CTS but I now know this; They’re a company that doesn’t have a problem with holding their hand out and taking something for nothing. In people I see this as a character flaw. The same applies to companies.
I’m tired of seeing San Jose go out of it’s way, at great cost, to attract the sort of businesses and people that are preconditioned to believe that they have some sort of a claim on public assistance. When the City has a selection process that, by definition guarantees that we will get that type of company and person, then I think it’s time to question the wisdom of that process.
If the City took all the money that it throws at companies, begging them to locate here and instead used it to create a world class City infrastructure and top notch City services- in other words did it’s job, then companies would come here of their own volition and they’d feel lucky to get whatever side of town we wanted them to get.
Create a great city. Everything else will fall into place.
Some of recent city tax subsidy deals with businesses are ok but San Jose has wasted many millions on downtown economic development with little or no new jobs, taxes or anything to public or city
It is shameful embaressment that San Jose has worst city services in Silicon Valley
Council does not fund city services or infrastructure while millions in taxes are given to political insiders, lobbyists, ex City Hall staffers and elected officials and campaign contributors
What we’re learning, slowly, is that payroll is only part of the cost of running a business. How much operating cost are you willing to sustain to make sure the Chinese aren’t running your manufacturing floor after hours and competing with you on the gray market, reverse engineering your machinery and your business model, and selling your scraps to a third party?
Pierluigi,
$500K for Mexican Heritage Plaza would have been better…just kidding.
Add $250 million convention center spending to $4-5 billion already spend on clean but heavily tax subsidized economic wasteland that is downtown San Jose
Do math – No increase in property taxes – government building,. So Sales Taxes $2.5 million year and Transient Occupancy Tax will take 50 -70 years to pay back $250 million