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VOL. 127 | NO. 61 | Wednesday, March 28, 2012

McKesson VP: ‘Slow Walk’ Cost City $135M Plant

By Bill Dries

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Doug Pace, vice president of operations for McKesson Corp., came to East Memphis to talk about the quality of employees at the company’s Memphis redistribution center and how its new plant is coming along in Olive Branch.

But Pace’s remarks to the Memphis chapter of SIOR (Society of Industrial and Office Realtors) at the Crescent Center instead veered into why McKesson chose Olive Branch – not Memphis – for the $135 million facility, which represents the largest capital expenditure in the history of the San Francisco-based healthcare software, automation and services company.

He credited state government officials, including then-Tennessee Gov. Phil Bredesen, for being “aggressive” in their response to what amounted to a competition in 2009 on both sides of the state line.

“They knew their stuff and they put together a very aggressive model,” Pace said of Bredesen’s administration. “When it went to the city of Memphis, it went to a slow walk.”

He referred specifically to requirements to “be able to get over the hurdle” and win approval of a PILOT (payment-in-lieu-of-taxes) program – from the Memphis-Shelby County Industrial Development Board. That included a $45,000 diversity plan “that went on the shelf and we never used it.”

“When we were dealing with Mississippi, there was no such thing,” Pace said. “If you’re a small-business person in the city of Memphis, I don’t know how you do it.”

Pace said the city’s process not only lacked when compared with Olive Branch and Mississippi. He said the city’s process failed compared to numerous other cities the company has dealt with.

“It’s nowhere near as egregious as Memphis,” he said.

McKesson has offered all of the employees at the Memphis distribution center in Hickory Hill jobs at the Olive Branch plant and the company will pay what those employees have to pay in Mississippi’s state income tax “in perpetuity until they retire.” Those joining the company after the fall move to Olive Branch do not get the same offer.

The McKesson center in Olive Branch, next to the Olive Branch airport is nine buildings under one roof including office space.

The remarks are the first public statements the company has made. But McKesson’s displeasure with the process for applying for economic development incentives in Memphis was apparent behind the scenes.

When McKesson and Olive Branch leaders formally announced the future move to Olive Branch in May 2010, it was a major factor in Memphis Mayor A C Wharton Jr. and later Shelby County Mayor Mark Luttrell announcing an overhaul of the local economic development apparatus.

McKesson sought tax breaks and incentives for a project that wasn’t going to immediately expand its workforce of 813 in Memphis. Its application for a PILOT couldn’t “promise job growth in the near term” – one of the criteria.

With lots of cajoling and prompting from Wharton in particular, the IDB criteria was changed to make job retention a consideration when a company makes an investment in its facilities of at least $10 million.

Pace’s remarks indicate that by the time the criteria changed, McKesson was already finding conditions much more attractive across the state line.

The long-term result of the push by both mayors for a faster and more streamlined process was putting most of the separate incentive boards and other public-private players under EDGE – Economic Development Growth Engine.

PROPERTY SALES 69 119 21,696
MORTGAGES 64 113 16,530
BANKRUPTCIES 28 64 6,781