Vernon Is Losing Its Competitive Edge, Say Businesses

City raises electricity rates, warehouse parcel tax, and places utility tax on the ballot.

By Elizabeth Hsing-Huei Chou, EGP Staff Writer

One called it a double cross. Another said they might as well move their business to Santa Fe Springs, another industrial city. And still another businessman said that instead of buying energy from Vernon, their company and that of several others are now entertaining the idea of switching to solar energy, or another form of alternative energy.

Many of the businesses that went to bat for the city when it was threatened with disincorporation were at Tuesday’s Vernon council meeting to express their displeasure at several major steps Vernon officials are taking to raise utility rates and taxes. The businesses included meat packers, a coffee roaster, cold storage companies, a uniform and linen supplier, chemical makers and a specialty gas producer.

“If we were your stockholders, we would fire you, “ said Doug Rawson, CEO of printing company Superior Lithographics.

For the second time since the city escaped disincorporation, the council has approved an electricity rate increase, this time by 17 percent, spread out over two years, with the first installment on July 1 at 7.9 percent. They also placed a new 11 percent utility user’s tax on a special September 18 election ballot to be decided by the city’s 70 or so registered voters. The existing parcel tax on warehousing businesses was also increased from 26 cents to 28 cents per 100 square feet.

Representatives from some of the city’s biggest companies showed up to detail the impacts of those increases. Gary Jamison, Vice President of Finance at Farmer John’s, a meat packing company, said they now have three options – to shift overnight production to other facilities around the country, discontinue products, or if all else fails, pass the costs onto customers.

“We will lose our point of difference, our ability to compete, and lose our customers” if we pass costs onto customers, not unlike what might happen to Vernon if it raises electricity rates or introduces new taxes on the city’s power users, said Jamison. He added that their company would shoulder as much as ten percent of the city’s proposed increases that are going toward the proposed $12 million needed to close the city’s budget deficit in the upcoming year.

Matt Wenzel of Ameri Pride Uniform Services said they experienced a belt-tightening situation four years ago, and addressed it by looking internally, and by becoming “very aggressive about what we do… in a different way.”

Officials at the meeting admitted that while they have been hit with costs related to requirements to switch to renewable energy, the need for the increases partially stems from mistakes made in the past. The city struck a bad deal when it entered into a natural gas agreement that has left them upside down on a bond debt, said Light and Power Director Carlos Fandino. They purchased natural gas when it was valued at $7.50, but natural gas is now only valued at $2.50.

“We understand that was a bad decision at the time,” he said. Fandino, who took over his post in 2010, added the admission is a little like “Monday morning quarterbacking,” since he was not involved when the decisions were made, but is now benefiting from hindsight. “Currently, we are looking at how we can restructure that [natural gas] contract,” he said.

When he took over, the department began “an immediate clean up,” getting rid of nine consultants and cutting their budget by “close to $3 million,” Fandino said.

A joint legislative audit report scheduled to be released next week could provide more information on Vernon’s financial situation, said City Administrator Mark Whitworth. In the meantime, City officials say they have taken exhaustive measures to stem the bleeding.

Officials promised they would be back with further proposals to cut the budget some more. As for the approved increases, they promised to work personally with the companies to come up with strategies for them to stay in the city.

Peter Corselli of U.S. Growers noted that while Vernon has been attacked for not having parks or libraries, at one time it could at least say it had jobs, and manufacturing ones at that.

“Vernon’s manufacturing base has been the envy of Los Angeles County,” he said, but those days are slipping away at an “alarming rate.”
“All the talk of keeping the city business friendly was nothing more than talk,” he said.

But it was not always that way, according to Corselli. When Southern California Edison raised electricity rates on Vernon back in 1937, the city’s founding father, John Leonis, was told by the utility, “The rates are the rates. Too bad.”

Leonis’ response: “You know that power plant we’ve been talking about? Put it in.”

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June 21, 2012  Copyright © 2012 Eastern Group Publications, Inc.

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