Problems cloud S.J. deal to lure firm

By Scott Herhold

Mercury News

It was a beautiful morning Wednesday in Edenvale, a day that made you realize that February can be our best month. Certainly the politicians were in a festive mood: They were celebrating a publicly subsidized deal to bring Integrated Device Technology to San Jose.

San Jose Mayor Ron Gonzales noted with some pride that the city had the ``financial tools in its cabinet'' to bring companies like the semiconductor firm to this industrial area in its southeast corner.

When you opened that cabinet, however, you saw that the tool Gonzales described was double-edged -- which is to say it demands careful handling by a qualified adult.

Basically, the San Jose Redevelopment Agency is paying for jobs. For each of the 600 jobs that it expects IDT to place in Edenvale, it's paying $5,292. Total cost over 18 years: almost $3.2 million.

You can make a good case for that subsidy in terms of San Jose's fortunes. But you have to wonder what it means for the valley as a whole.

Now 25 years old, IDT wasn't lured from Portland or Seattle. It isn't a start-up with fresh venture money. It hails from a site off Central Expressway in Santa Clara, 15 miles away.

Who benefits?

From the perspective of the valley as a whole, the ceremony Wednesday outside IDT's flashy new glass-and-granite quarters -- the former home of Electroglas -- was a feast of well-behaved cannibals.

In fighting one another to lure companies, Silicon Valley cities are behaving much like valley landlords, dropping the rent to steal tenants from the apartment house across the street.

The companies benefit from this, just as tenants do. The difference is that there's a third party in this equation: the taxpayers, who provided the extra bucks to get the IDT deal done.

How is this done? The redevelopment agency is delivering the bulk of the subsidy by renting the IDT parking lot at night and on weekends. The agency is going to pay $60 a month per space to reserve the lot for public access on weeknights between 6 and 9 p.m. and on weekends between 8 a.m. and 3 p.m. Agency officials say this will help hikers and park users.

Now I've checked. And there is not a big parking problem in Edenvale. In fact, there's a parking lot across the street for at least 30 cars for the Coyote Creek Park, which has a trail.

Terms of engagement

Accept the deal for what it is: a subsidy. You can construct a persuasive rationale. Like many industrial areas, Edenvale suffered when the dot-com bubble burst. Ru Weerakoon, the agency's director of industrial development, says the area's vacancy rate is about 25 percent.

``This is going to be the catalyst,'' she told me. ``This is about generating jobs, and giving our residents economic opportunities.''

It's also about money. Weerakoon estimates the city will get about $120,000 a year in additional sales and business taxes, which goes a long way toward defraying the estimated $176,000 yearly subsidy.

But there are at least two problems with all this. The smaller one is that the IDT deal sets a benchmark for what San Jose is willing to do. If I'm running a business, I am going to want my parking lot rented. I want $5,292 per employee. (IDT spent $29 million to acquire the Electroglas campus.)

The bigger problem is that the deal doesn't do anything for the larger valley. We're giving a public subsidy to a company that's moving employees 15 miles down the freeway. You can understand San Jose's motivation. But in the long run, it amounts to publicly subsidized poaching. Will Morgan Hill grab the San Jose Giants next?

``In the last three years, there's been an ebb and flow among cities,'' says Ron Garratt, assistant city manager in Santa Clara, which tried hard to keep IDT. ``Unfortunately for the valley as a whole, it's a zero-sum game.''

This article can also be found on the San Jose Mercury News Website.

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Contact Scott Herhold by e-mail at sherhold@mercurynews.com or call (408) 920-5877.