Ready to Admit Failure
Facing up to Portland's lagging business growth
By Melody Finnemore
Rob Bernardi doesn’t fault
Portland’s city leaders for letting him move his business to Vancouver,
Wash., without so much as a phone call asking him to stay. After all,
says the president and chief operations officer of Kokusai Semiconductor
Equipment Corp., his company is relatively unknown despite its presence
in Northeast Portland for close to a decade.
“We only have 30 employees. We’re not a Nike or an Intel
or a Fred Meyer or anybody big like that. It’s possible nobody even
knew we left,” Bernardi says.
On the other hand, Bart Phillips, the president of the Columbia River
Economic Development Council (CREDC), called Bernardi several times and
mailed him more than enough material to convince him that a move to Vancouver
was in his company’s best interest. Bernardi had contacted Phillips
in late 2003 to gather information that would help him compare the cost
of doing business in both cities.
“We needed to double our physical space and our lease was ending.
We looked at eight properties on both sides of the river,” Bernardi
says. “We didn’t specifically say, ‘The heck with Portland.
We’re moving to Washington no matter what we find there.’”
What Bernardi found, however, was that Kokusai could save big bucks in
taxes and utilities. CREDC’s Phillips gladly provided information
that outlined the absence of corporate, inventory and income taxes in
Washington. Property taxes are lower than Oregon’s. Bernardi’s
due diligence also found electricity cost 7 percent less, there was a
32 percent savings in water fees, and sewer rates were 43 percent lower.
In addition to a lower cost of doing business, Bernardi says, Vancouver
offered a strong pool of potential high-tech employees.
“From a labor standpoint, I’ve got 8,800 potential candidates
to choose from. Some may argue that Oregon has just as many, or probably
more, but 16,000 of them work for Intel. We’re a great company,
but I don’t think I’m going to recruit many people away from
Intel,” he says.
The capper for Bernardi was that many of his employees live in Washington,
“That became a consideration pretty quickly because I could immediately
have 70 percent of my employees be very happy with the decision to move.
It would save them commute time and gas money as well as income taxes,”
Bernardi moved Kokusai Semiconductor to Vancouver in October 2004. He
credits Phillips and CREDC with making the decision an easy one by providing
all of the cost comparison and other information he needed.
“I’m assuming there’s an organization like that in
Portland, but I wasn’t aware of one,” Bernardi says. “I
realize I could have found the Bart equivalent in Portland and, to be
fair, I guess I should have. But, frankly, I don’t know how you
counter no corporate or income taxes. That’s pretty hard to beat.”
Low business costs—from taxes to utilities to housing—are
essential to a city’s success, and these days the markets that are
doing well are increasingly in smaller communities, says Joel Kotkin.
Kotkin compiles Inc. Magazine’s
annual list of “The Top U.S. Cities for Doing Business,” which
in 2005 ranked Reno and Boise as the top two cities, respectively. Medford
came in fifth on the list. Portland was 105th. In fact, after several
years as one of Inc.’s “cities
of the future,” Portland had the dubious honor of nabbing eighth
place on the magazine’s 2004 list of the worst cities to do business
because of “high costs and the anti-business mood.”
“I remember many years ago when Portland was doing better than
everywhere else, primarily because other cities were resource-oriented
and were really getting clobbered. That seems to have reversed itself,”
Kotkin says. “We’ve seen that a lot of smaller metro areas
are doing very well and are growing very quickly.
“As housing prices have grown and the political climate has changed,
a lot of people are moving to smaller cities that are perceived as more
business friendly and where labor is more available because housing is
more affordable,” he adds.
Vancouver’s ability to offer a lower cost of doing business attracted
Kuni Automotive Group. The company, which opened its first dealership
in Beaverton nearly 40 years ago, relocated its corporate headquarters
from Portland. As an S corporation, Kuni Automotive was required to pay
state income taxes on automobiles sold outside of Oregon. With 10 dealerships
in four states, the company’s savings since it moved to Vancouver
two years ago has been “significant,” says Greg Goodwin, chief
Kuni Automotive’s chief financial officer wrote several Oregon
leaders, including the governor’s office, about the company’s
decision to leave Portland. The response was less than overwhelming, Goodwin
“He received a phone call from Karen Minnis’ office, and
I don’t recall that it led to a substantive conversation or inquiry
of any kind,” he says, adding that former Mayor Vera Katz’s
response to news of Kuni’s departure was equally unsatisfying. “I
don’t remember her exact words, but it was to the effect that we
were making a mistake. That’s the extent of any comment or inquiry
that we received. I find that disappointing.
“There are a lot of Portland expats living in Vancouver, and I
think that points to a fundamental problem,” Goodwin adds.
Plenty of paper generated within the last couple of years bolsters the
argument that Portland is failing as a competitive place to do business:
• A 2004 Downtown Business Census conducted by the Portland Business
Alliance shows that downtown lost 4,272 workers between 2001 and 2004.
Although 235 new workers were added in 2004, the total number declined
from 86,769 in 2001 to 82,497 in 2004.
• The Oregon Employment Department’s latest unemployment figures
show that Portland is recovering from the recession slower than other
cities. According to the November 2005 report, the Portland metro area
is adding new jobs at a slower rate than Bend and Medford.
• The Cascade Policy Institute, a Portland think tank, issued a
report in November that states the Portland/Multnomah County Business
Income Tax prohibits the city’s economic growth. Author Steve Buckstein
says the perception that Portland is less business friendly than nearby
counties is fueled by its higher taxes and unemployment.
• The City Club of Portland launched its own study just last month
and will spend the next year exploring Portland’s strengths and
weaknesses as a place to do business. When it’s published in January
2007, the report will outline the factors that affect business decisions,
how they impact different types of businesses, and how local government
and communities should respond.
Despite the stack of reports and news clippings to the contrary, there
are many who dispute the assertion that Portland is hemorrhaging companies
or that it even has a reputation as an anti-business city.
“I think some of this is media that repeats something until it
becomes a perception on a national level,” says John Doussard, Mayor
Tom Potter’s communications director. “I read an article in
the paper that said 14 businesses left town, and it neglected to mention
the 81 businesses that started at the same time.”
Portland has leveraged $96 million in private investment during the first
six months of the current fiscal year, according to the Portland Development
Commission (PDC). Enterprise zone applications for that period represent
nearly $94 million in private capital investment. Recent successes include:
• YoCream International Inc., a Portland company founded in 1976,
plans to add 21,000 sq. ft. of space to its facility on Northeast Airport
• LaCrosse Footwear Inc. announced last fall that it will lease
a new 145,000-sq. ft. building on Northeast Airport Way for its corporate
headquarters and distribution center. LaCrosse plans to move into the
new space in June.
• Asterix Group, a small, women-owned creative services firm, expanded
its offices downtown last fall. PDC officials say they provided the company
with information about the apportionment of the business license fee and
business income tax, which ultimately saved the firm thousands of dollars.
• Other recent investments have been made by Oregon Steel Mills,
Inc., US Bakery/Franz Family Bakeries and TCI America, according to PDC.
Bob Alexander, PDC’s economic development director, says the agency
is exploring ways it can better communicate its business recruitment and
“We’re talking with private sector groups and other ambassador
groups about ways we can get the word out,” Alexander says. “It’s
almost that we have to get the word out locally about our competitiveness
as a national site. We’ve become our own worst enemy in creating
PDC has enlisted the help of the Portland Ambassadors, a coalition of
private industry leaders and public partners formed 20 years ago to support
the city’s business recruitment and retention efforts. Members of
the group often accompany PDC officials who meet with businesses, not
only those being courted to move to Portland but also companies already
located in the Rose City that have complaints. Many of the complaints,
Alexander says, are about the city’s business tax burden.
“Oregon is not a particularly high-tax state. It’s in the
mid-ranking compared to other similar areas,” he says. “While
it is an issue, it tends to be a localized issue within the region that
puts us at a competitive disadvantage.”
Plenty of business people would differ on the state’s relative
tax position. Rankings vary according to which burdens are being measured.
Since the passage of various property tax measures, the state has shifted
to greater dependence on fees and assessments rather than overt taxes.
Even Gov. Kulongoski acknowledged in a 2002 BNW
interview prior to his first gubernatorial campaign, “The problem
is that Oregon has moved to a system of fees and assessments.”
Alexander says PDC does its best to meet with business owners who have
expressed discontent with Portland and are considering moving their companies
elsewhere. Still, he agrees there is room for improvement.
“We’ve certainly looked at ways we can leverage the Portland
Ambassadors and other private business groups,” he says. “We’re
discussing with the brokerage companies ways we can find out about potential
losses earlier than we might otherwise.”
“One of the benefits of having closer communication is that it
helps dispel the perception that the city isn’t talking to businesses
or businesses aren’t talking to the city,” adds Anne Mangan,
PDC’s marketing coordinator. “We’re really trying to
make a stronger effort to communicate with the private sector so they
don’t feel disenfranchised.”
For some like Neal Arnston, president and chief executive officer of
Albina Fuel Co., it’s too little too late. In December, after 94
years on Northeast Broadway, the company moved to Vancouver.
“Portland’s business climate certainly played a part in that
decision because of the unwillingness of the city’s leadership to
deal with congestion,” Arnston says. “I think they’re
more concerned about the three or four percent of the population who ride
buses and light rail and live in Dignity Village. It’s a dismal
climate and the city government and Metro, collectively, are trying to
drive everybody off the streets and onto the train.”
Arnston says the company’s 100 employees were happy to make the
move since the lack of income tax in Washington meant a 9 percent pay
raise for each of them.
When the company announced its plans to leave Portland, just one city
official met with Arnston to talk with him about the decision. “The
only guy who cared was Jim Francesconi, and we know what happened to him,”
Doussard, Mayor Potter’s press aide, says the mayor had planned
a series of public work sessions to address Portland’s business
tax structure early this year. However, the work sessions were postponed
and have not yet been rescheduled.
Multnomah County Chair Diane Linn says she is disappointed by the Portland
City Council’s unwillingness to confront the issue more quickly.
“I do feel some frustration about that and I feel we’ve missed
some real opportunities because we didn’t move sooner or better,”
she says. “I’m convinced it harms our business environment.
I’m worried about the small and medium-sized businesses and about
businesses who pay more than their share. There are some real flaws in
how the Business Income Tax has evolved over the years. We’re the
only county in the state where companies have to pay for the pleasure
of doing business.”
Possible options for tax reform include increasing the amount of compensation
business owners can deduct from their taxes, Linn says. However, a proposal
by City Commissioner Sam Adams to do just that floundered before the rest
of the council. Linn says she hopes to find ways to reduce the county’s
reliance on the tax because it’s an erratic source of funding that
provides no certainty to the budget process.
“It’s a tough one because once you implement a tax of this
kind, it’s hard to dismantle it,” Linn says. “There’s
a growing reliance on the BIT and Business License Tax (BLT) for school
funding, and that’s going to become a real issue.”
Albina Fuel’s Arnston gives little credence to the notion of real
change within Portland’s business climate. For many company owners
like him, fundamental improvements should have occurred long ago.
“Don’t you think they ought to be doing something for the
business community before we decide to leave?” Arnston says.
The “Biggest Little City”…and
the best place to do business in the U.S.
Harry York admits that people questioned his decision to move to Reno,
Nev., just over a decade ago.
“When I moved here people said, ‘Why in the hell are you
moving to Reno?’” says York, chief executive officer of the
Reno-Sparks Chamber of Commerce. “We had this image as a place where
there was nothing but gaming and whorehouses, which wasn’t fair,
but that was people’s perception.”
Reno’s efforts to change that perception have paid off. It ranked
first on Inc. Magazine’s 2005 list
of “The Top U.S. Cities for Doing Business” because of its
low housing prices and business-friendly environment. A steady migration
of business owners, many of them from California, drove a 14.1 percent
increase in business service jobs and a 6.1 percent increase in financial
services jobs between 2001-05, according to the magazine.
Entrepreneur magazine ranked Reno as
the “Best Small City in America for Small Business” last year,
and Fortune magazine ranked it as one
of “America’s Top Three Booming Towns.” Both Time
and Forbes touted Reno for its quality
of life and business-friendly environment.
Chuck Alvey, chief executive officer of the Economic Development Authority
of Western Nevada, says Reno has focused on three strategies during the
last decade: improving recreational and community amenities, strengthening
its business climate, and building a citywide sense of self-esteem.
“When I first got here 15 years ago, people were friendly but seemed
kind of down on themselves as a city. There wasn’t a real sense
of community self-esteem,” Alvey says.
York adds that Reno was well known for its advantageous location and
strength as a hub for shipping and distribution because it has no inventory
tax. A major change within the last decade has been in Reno’s quality
Reno began marketing recreational opportunities such as a downtown waterway
for kayakers and rafters, a vibrant arts community and its recruitment
of national retailers such as Pottery Barn and Williams-Sonoma. City leaders
recognized that Reno’s school system, marked by a high student pregnancy
rate and a low number of teens going on to college, needed a major overhaul.
The quality of its housing and health care also improved significantly,
Reno’s efforts to improve its business climate included streamlining
its permitting process by establishing one-stop permit shops and making
sure each city within the metro area operates on a similar system to increase
efficiency. In addition, Reno privatized its workers’ compensation
system to control costs and extend reporting periods, Alvey says.
Reno recently launched Target 2010, a strategy designed to guide the
city as it faces booming population growth and a changing economy.
“We’re going to keep being competitive and recruiting new
business, but over time we’re hoping to do a lot more of the expansion
and location of startups so we have organic growth instead of poaching
from elsewhere,” Alvey says. “I don’t think that helps
the long-term growth of the economy.”
In marketing itself to companies, Reno offers some minor tax incentives
for companies that offer high-wage jobs. What makes it more attractive,
however, is that businesses don’t have to pay personal income, corporate
or inventory taxes, Alvey says.
“When we had exclusivity on gaming, that took care of our taxes.
In recent years we’ve had to adjust things, but there have been
limits on raising taxes,” he says.
While the increased competition for gaming has forced Reno to explore
other revenue sources, the city will continue to build on its reputation
as an affordable place to do business. “Having low taxes isn’t
a gift, it’s an investment,” Alvey says.
No small potatoes
It was a banner year for Boise, Idaho, when it came to national rankings
of the best American cities to do business. Idaho’s capital city
nabbed first place on Forbes’ 2005
list and second in Inc. Magazine’s
most recent ranking, proving the success of its strategy to capitalize
on its affordability, says Jeff Jones, Boise’s economic development
“Our target, contrary to popular belief, isn’t large corporations
with a lot of employees. Our target is smaller firms, 10 to 15 people,
in high-cost, West Coast cities,” he says. “These companies
rely on labor and if they are going to survive, their employees have to
be able to find affordable housing.”
Boise’s average home price is about $240,000, Jones says, noting
the ability to find a quality home in Boise for $200,000 gives it an advantage
over Oregon and California.
“That same house in Portland costs $306,000. When you’re
dealing with those kinds of dynamics, it makes it easy to be competitive
from a labor standpoint,” he says.
Low-cost utilities are another of Boise’s strengths, Jones says,
adding that a plentiful supply of hydro dams means Boise offers among
the lowest electric bills in the country. He also markets Boise’s
affordability when it comes to taxes.
“Companies are attracted to our ability to balance our sales tax,
income tax and corporate tax,” Jones says. “We refer to it
as the three-legged stool so that none of them are extremely burdensome.”
Boise is home to Fortune 500 giants such as Micron Technology Inc., Washington
Group International, Hewlett-Packard, J.R. Simplot Company, and Albertson’s.
Those companies have helped the city recruit others.
“That’s really where 80 percent to 90 percent of our growth
will come from. We have great companies, and they help us recruit new
ones,” Jones says.
Spin-offs and a cluster approach to economic development have strengthened
Boise’s competitiveness as a good place to do business, Jones says.
As part of its cluster strategy, Boise’s economic development department
recruits businesses based on a series of screens that begins with reviewing
a company’s employment base.
“Those that are losing employees I’m not interested in because
why waste time on a dead thing?” Jones says.
Payroll increases and a “locational quotient,” or labor availability
within specific sectors that match Boise’s strengths, make up the
second and third screens. Companies that pass the three screens are then
considered recruitment targets, Jones says.
“When it comes to industry recruitment, I’m going to go after
companies where I know I have a competitive advantage. You build on the
strengths you already have,” Jones says. “We do the same analysis
on our competitors. I’m sure they don’t appreciate it, but
all’s fair in love and war.”
E is for effort, enterprise and e-commerce
Once known more as a rural haven for retirees than a dynamic business
market, Medford has emerged as a hot spot for companies seeking an affordable
place to operate. The Southern Oregon city ranked fifth on Inc.
Magazine’s 2005 list of “The Top U.S. Cities for Doing
Among the city’s greatest strengths, economic development leaders
say, are its status as both an enterprise and electronic commerce zone.
Medford was one of four Oregon cities to be designated an e-commerce zone
in 2002 by the Oregon Economic and Community Development Department. The
designation, which allows Medford to offer income tax relief to businesses,
builds on the property tax breaks it has been able to include in its incentives
package as an enterprise zone.
“The benefit of those two programs is that they provide an incentive
to the business community—primarily manufacturing and distribution
companies—to do some expansion in exchange for a 10 percent increase
in employment,” says Gordon Safley, executive director of Southern
Oregon Regional Economic Development Inc., a private nonprofit established
to help companies in Jackson and Josephine counties create jobs.
“For large companies it can provide some significant earnings,
and for smaller companies it can help them grow and show them that they
are supported by a business-friendly community,” he adds.
Bill Hoke, Medford’s economic developer, says the city worked hard
to obtain the e-commerce zone because of its benefits to the business
“It took a great deal of community involvement. We are one of the
most active zones in the area, by far. I publicize it, and I encourage
its use in business retention and expansion efforts,” Hoke says.
“I think one of the secrets of our success is we use the tools we
have to the greatest benefit.”
In addition, Medford is bolstering its business-friendly image by implementing
changes to streamline its development review process.
“We frontload the process so all of the meetings are held early
on,” Hoke says. “I act as a point of contact so people can
deal with just one person, which is helpful, especially on large projects.
If there are questions, I find the answers, and if something needs to
be done, I chase it down. It gives people a degree of certainty and confidence
because they know I’m there to help.”
Collaboration among the city, county, utilities, local chambers of commerce,
the Southern Oregon Visitors Association, the state economic development
department, and private business owners has been crucial to Medford’s
success as well. A pro-business city council has been invaluable, Hoke
“I came in and started a program from scratch and the council has
given me 100 percent support in what I do to recruit and retain companies,”
he says. “One of the keys is to have council support. If you don’t
have that, it’s very difficult to do business.”