The board overseeing the state’s flagship job-creation agency has quietly approved a $6 million tax credit for Ashley Furniture Industries with a condition allowing the company to eliminate half of its state workforce.
As approved by the Wisconsin Economic Development Corp. board, the award would allow the Arcadia-based global furniture maker to move ahead with a $35 million expansion of its headquarters and keep 1,924 jobs in the state.
But it wouldn’t require Ashley to create any new jobs, instead granting the company license to lay off half of its current 3,848 Wisconsin-based workers in exchange for an enterprise zone tax credit, one of the most valuable and coveted state subsidies.
The board’s decision has not been made public because a contract with the company has not been finalized. But in a statement Friday, in response to questions from the State Journal, Ashley Furniture confirmed it is seeking state subsidies that include terms allowing for job reductions.
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The company said it injected $394 million into the Wisconsin economy in 2013, including supporting 610 Wisconsin businesses.
“It is more expensive for Ashley to manufacture in Arcadia than it is to do so closer to its major markets,” the company said. “The loss of Ashley’s contributions to the regional economy of west-central Wisconsin would be catastrophic.”
WEDC spokesman Mark Maley said the agency doesn’t comment on pending or possible WEDC awards.
“Obviously, WEDC is very interested in working with one of the largest employers in northwestern Wisconsin to find ways to help ensure that the company can continue to flourish here in our state,” Maley said. “WEDC is committed to doing whatever it can to work with the company and preserve those jobs.”
Maley declined comment on whether WEDC had provided any other awards conditioned on retaining a percentage of jobs, as opposed to creating jobs.
Madison Region Economic Partnership president Paul Jadin, who was WEDC CEO from 2011 to late 2012, said he was not aware of any awards conditioned on less than 100 percent job retention, “but that doesn’t mean that circumstances such as Ashley has demonstrated wouldn’t warrant such a solution.”
The State Journal reviewed a copy of a WEDC staff memo and minutes of the board’s closed Jan. 30 meeting, where the tax credits were discussed and approved per WEDC policy. The newspaper agreed not to disclose the source of the documents in order to review them.
According to the memo to the WEDC board, which is led by Gov. Scott Walker, the company has indicated “that if the project is not undertaken it will either downsize or close the Arcadia manufacturing plant completely.”
The $6 million would pay for the relocation of Meyers Valley Creek, which flooded downtown Arcadia and the Ashley plant in 2010, allowing for a 480,000-square-foot expansion to reconfigure and change the layout of production lines.
The memo said the company would agree to retain 70 percent of its existing employee positions in 2014, 60 percent in 2015 and 50 percent in 2016-18. If it reduced its workforce by more, the state could reclaim the tax credits under what is known as a “clawback” provision.
“The company is very concerned with the job retention figure due to health care costs for its employees continuing to rise and the option for automation as a solution,” the memo said. “The company also stressed that it is committed to Wisconsin.”
About $1.76 million of the company’s $35 million investment would be for worker training, the memo said.
Walker and the board voted 9-2 with two members absent in favor of awarding the enterprise zone tax credits. The two Democrats on the board, Assembly Minority Leader Peter Barca, of Kenosha, and Sen. Julie Lassa, of Stevens Point, voted no.
Barca, who wished to make clear that he was not the source of the documents provided to the newspaper, declined to comment on what occurred in closed session but commented generally.
Asked whether WEDC should be awarding taxpayer funds in exchange for companies retaining only a percentage of their workforce, he said he has concerns “the goalposts keep getting moved.”
“It troubles me that we’re moving a considerable distance from what the main focus of what your job-creating agency should be — which is the creation of jobs,” Barca said.
Lassa also declined to comment, saying “as a board member it would not be appropriate for me to comment on information shared during a closed session.”
At an event Friday, Walker said he would not comment on the board’s action before an official agreement is reached.
“I, just as previous administrations, want to make sure they (Ashley) are here in Wisconsin and they’re growing,” the governor said. “My guess is a year from now, you’ll see Ashley in the state with a much higher volume of jobs than they have today.”
Paul Radspinner, CEO of Madison-based Flugen and a WEDC board member who supported the Ashley Furniture award, acknowledged it’s “very unusual” for WEDC to approve awards based on retaining a percentage of jobs and that “there would have to be mitigating circumstances” such as the potential impact on a local community.
“If there’s very clear-cut evidence that we can confirm that there’s going to be a huge job loss if we don’t provide assistance … I would certainly look at something like that,” Radspinner said. “But the very last thing we want is a race to the bottom.”
According to the WEDC memo, 56 percent of Ashley employees make less than $10.88 per hour, which is the wage standard WEDC uses when determining if a company is meeting job creation goals. Radspinner said the board was not happy with the wages. But he said the company deserves credit for its health insurance benefits, which the memo said cover 76 percent of an employees’ premiums.
Arcadia Mayor John Kimmel said losing Ashley would have statewide repercussions.
“They’re not going to invest tens of millions in the local economy to do anything other than stay and expand and be part of our community,” Kimmel said.
The $6 million in refundable credits would total more than the eight state awards Ashley Furniture has received since 1988 and two awards to the city of Arcadia. The most recent was a $675,000 award in 2013 for an $8 million expansion of the company’s Whitehall plant, which is expected to create 225 jobs over three years. So far the company has created 79 jobs and has received $256,706 from that tax credit, Maley said.
Enterprise zones are considered the best kind of state financial awards to companies because they can be applied to so many different types of economic activity, such as worker training and capital improvements, and can result in refundable credits, Jadin said.
The state caps the number of enterprise zones at 20, five of which must be in areas with populations under 30,000.
State law requires companies that receive awards conditioned on retaining jobs to make “a significant capital investment in property located in the zone.” The law does not set any limit for the retention percentage.
Arcadia filed an application for the creek project in March 2012 with the Wisconsin Department of Natural Resources and the U.S. Army Corps of Engineers. The DNR issued a permit in November 2012, but the federal permit was still under review when the city withdrew the application this past March. The city and Ashley are expected to file a new application, said Dan Baumann, DNR west-central director. And the company said it plans to use the $6 million in tax savings to pay the city for the creek project.
The company faced criticism for expanding its headquarters into a wetland in 2005. The project took more than a decade to obtain the required environmental approvals and resulted in the company spending $1 million to build nearby wetlands more than twice the size of the land it developed.
An Ashley Furniture spokeswoman told the State Journal in 2010 that if the permit had not been granted, the company would have moved its headquarters and about 2,000 jobs to another state.