Metro Phoenix’s job market attracts many call centers, back offices, restaurants, retailers and trades industries, but it has struggled to gain a sizable portfolio of large corporate headquarters or national brands that are found in A-list markets such as Los Angeles and New York.
So when Gov. Doug Ducey announced Apple Inc.’s global command center in Mesa earlier this month, it was coined as a huge win for Arizona and proof the state can compete in the big leagues.
“In all, it means a $2 billion investment with a 30 year commitment to the state of Arizona,” Ducey said during a press conference on Feb. 2.
Apple’s arrival in Arizona has been more than three years in the making.
It dates back to when Apple executives toured the Valley for locations to build its next big campus and create more than 3,000 jobs. But the Cupertino, Calif.-based company ultimately chose Austin, Texas, in early 2012, an outcome some say might have been different had Arizona been more aggressive with offering incentives.
But Arizona got a second chance the next year when Apple purchased the failed First Solar plant in east Mesa for sapphire glass manufacturing.
At the time, Apple promised to create about 700 jobs, far fewer than the thousands of jobs the company was bringing to Texas.
Still, Apple scored at least the same amount of incentives and tax breaks in Arizona as it did in Texas: roughly $35 million.
But things fell apart just 11 months later.
Apple’s contractor working out of the Mesa plant, GT Advanced Technologies Inc., went bankrupt in October, laid off hundreds of workers and wound down manufacturing operations.
The bankruptcy left Apple’s future in Arizona hanging in limbo for several months.
But that uncertainty changed course over Super Bowl weekend, when about eight Apple executives flew out to meet with Ducey and other local officials to discuss their new idea for the Mesa facility — a global command center — and renegotiate incentives.
State Sen. Bob Worsley, who sponsored legislation last year that helped secure some of Apple’s tax breaks, took part in one of those meetings.
He said the command center will act like “traffic control” headquarters for Apple’s network of data centers around the world.
“Email or downloading a movie on iTunes, any application at all, Siri, anytime that happens, it goes into the cloud and the cloud will be managed by this Mesa facility in the world,” Worsley said.
During those meetings, Apple executives revealed the command center wouldn’t need as much manpower as it did as a manufacturing site. Therefore only 150 jobs would be created, not 700 as before.
Worsley said that’s partly why Apple agreed not to accept a $10 million grant from the Arizona Commerce Authority’s $25 million deal-closing fund, which had been initially promised as part of its incentive package.
But the rest of the incentives should remain intact.
Currently, state lawmakers are considering new legislation that would allow Apple’s “international operations center,” as the proposal calls it, to take advantage of the same tax breaks that were approved last year for manufacturers, but designed specifically for Apple’s then-manufacturing facility.
The current proposal would line up at least $28 million in income and sales tax breaks for Apple, according to the proposed legislation and estimates by the Joint Legislative Budget Committee.
That’s on top of the roughly $1 million per year Apple has already saved in property taxes this year and last year because the Mesa facility is located within a Foreign Trade Subzone, according to calculations by KJZZ based on formulas and property information from the Maricopa County Assessor’s and Treasurer’s offices.
Businesses located within Foreign Trade Subzones and Zones, which are federally designated geographic areas, are exempt from various customs duties and taxes.
FTZ businesses enjoy an additional perk in Arizona that’s not offered in other states: lower property taxes. Apple and other Arizona FTZ businesses pay a 5 percent property tax rate versus the normal commercial rate of around 18.5 percent.
As a global command center, however, Apple’s facility would technically lose its FTZ status because it would no longer be involved in manufacturing and distribution activities as is required, said Bill Jabjiniak, Mesa’s economic development director.
But Apple is trying to prevent that from happening.
Jabjiniak said the tech giant is currently working with U.S. Customs and Border Protection, which supervises FTZs, to see how it can maintain its FTZ status.
“They will be importing parts and exporting parts,” said Jabjiniak, who did not provide further details.
It’s difficult to know exactly how much Arizona’s tax breaks will actually save Apple over the years.
Apple’s property tax savings will vary year-over-year as tax rates fluctuate and the Mesa facility’s property value increases as it’s built out.
The company’s sales tax savings on its utility bills will also vary, and likely decrease, as it becomes more reliant on its future renewable energy facility, which must be erected in order to claim the $25 million income tax credit.
What is clear, however, is the state’s general fund won’t be impacted just by Apple.
This fiscal year, for example, the state is losing an estimated $18 million as a result of other manufacturers that also qualify for sales tax exemptions on energy use that were designed for Apple last year, according to a JLBC’s fiscal note.
But local economist Elliott Pollack, CEO of Elliott D. Pollack & Co. in Scottsdale, said there are pros and cons.
“These 150 jobs are way above average; these are very high-paying jobs. So that’s good news,” Pollack said.
From an economic development standpoint, he said it’s also good to have an international brand such as Apple here.
But one of the downsides, Pollack said, is that a global command center will have fewer growth opportunities and less of an impact on the local economy than it would have as a manufacturing site.
Still, he said it’s important to keep things in perspective.
“No one facility is going to change things in one direction dramatically,” Pollack said. “Everything’s at the margins. So if you have 150 jobs margin, that’s a help. Is a big deal? No. Can you turn it into a big deal over time? If you can get enough of them. But no one company is going to dramatically change the direction of one economy. All this shows is that you’re able to do it.”
Worsley said incentives were also necessary because Apple was considering another state for its command center.
But unlike in past negotiations, Arizona wasn’t trying to get Apple here this time; it was trying to keep Apple here.
That’s because Apple is the outright owner of the Mesa facility, which the company could have sold, but the pool of potential buyers is small for a 1.3 million-square-foot industrial plant.
“They look like you’re paying a company to do something it was doing anyway, or planning to do anyway. That would be the opposite of incentive,” said Greg LeRoy, the executive director of Good Jobs First, a Washington D.C., policy group that tracks and analyzes government incentives.
According to LeRoy’s organization, incentives are doled out in the name of economic development, but are sometimes abused by wealthy, out-of-state companies as a way to get extra perks for what they would have done anyway.
That money, according to the organization, would be far better off spent on improving public goods such as infrastructure, transportation and education, which are the primary components of a location that companies look for.
“[Apple's] using the possibility of a competing location as a way to up the ante with Arizona,” LeRoy said. “And it would hardly be the first time that happened.”
But Pollack said incentives are just part of the game these days.
“It’s a poker game,” Pollack said. “And I think that they did what they thought was necessary and that the price was reasonable relative to what they were getting. Is it a perfect world? Boy, no, not a chance. And will we know for sure? Yeah, over time we’ll know for sure. But immediately, no.”
