Bulletin E-Edition:
Despite growth, some are worried about challenges for manufacturing
By Anna Sowa / The Bulletin
Published: October 07. 2007 4:00AM PSTJoseph Bartels,
CEO of Redmond-based Lancair, is one business owner who is unsure about the future of his company in Central Oregon. “My concern is that I don’t see Oregon going out of its way to keep people.”
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Joseph Bartels, CEO of Redmond kit plane maker Lancair International Inc., says he’d be sad to leave Central Oregon’s clear, blue skies. Bartels, like all so-called “amenity migrants,” loves the quality of life the High Desert affords him. But as a business owner, he said, he may not be able to afford the region’s land prices and cost of living for his employees.
“I’m worried that one day somebody is going to end up offering me so much money (to relocate the company) that I would be an absolute fool not to take it,” Bartels said last week, acknowledging that a town in Colorado is courting his company. “I love Oregon, but am discouraged that no economic-retention organization has been sufficient enough to … keep organizations like Lancair here.”
Economic developers say manufacturing businesses are important to the region’s economic health, as they typically bring jobs with competitive pay. While many manufacturers are thriving in Central Oregon, some, like Lancair, worry about their future.
In Bend, a limited supply of industrial land has pushed prices to some of the highest in the state, prompting some manufacturers to shuffle around the High Desert to find more affordable regions to grow. Additionally, Bend’s cost of living strains the work force, pushing many employyees to commute from cheaper cities and making labor costs rise for the employer.
The key to absorbing any job losses in a changing economy, officials say, is attracting a larger diversity of industries — and pointing out that Central Oregon remains cheaper to manufacture in than other Northwest regions.
A piece of the pie
Manufacturing’s contribution to the economy is reflected in state and national numbers.
In Deschutes County, the average pay for an employee of a private firm made $33,329 in 2006, according to the Oregon Employment Department.
Manufacturing workers made $37,949 that year.
In gross domestic product, Deschutes County’s manufacturing sector grew 51.5 percent between 2001 and 2005, according to the most recent data from the U.S. Bureau of Economic Analysis.
Comparatively, the county’s total GDP grew 33.2 percent during that time.
Manufacturing made up 8.8 percent of the county’s total GDP growth in 2005.
Lancair comprises a piece of that manufacturing pie, employing 65 people who make airplane parts, with which customers build their own aircraft.
Lance Neibauer, of Tumalo, founded the company in the mid-1990s and also founded FAA-certified aircraft manufacturer Columbia Aircraft Manufacturing Corp. Neibauer sold Lancair to Bartels in 2003 and split from Columbia in 2006.
Columbia is one of the area’s top employers, with roughly 400 workers, and last month announced it was planning to sell to Wichita, Kan.-based Cessna Aircraft Co., the world’s largest maker of general aviation airplanes. Columbia also announced it was filing for Chapter 11 bankruptcy protection.
The announcement worries regional leaders, who fear a larger company could move Columbia out of Central Oregon. Cessna must win a bankruptcy auction to buy Columbia against other bidders, but has said it would keep the company in Bend.
At Lancair, Bartels says he has no serious plans to leave Redmond, but he has entertained numerous offers from economic-development officials in other states serving up cheaper industrial land, tax breaks and other cash incentives.
“My concern is that I don’t see Oregon going out of its way to keep people,” he said.
He would like to see employee training programs for the manufacturing and technology sectors, more land zoned for industrial uses and affordable housing options for workers.
Compass Commercial Real Estate Services data suggest that Bend and Redmond have more industrial space available than last year, but the vacancy rate is still very low. Compass Commercial’s second quarter 2007 newsletter shows that Bend’s industrial building vacancy rate increased to 7 percent in the second quarter, up from 2.9 percent at that time last year. The increase is due to a number of factors, says broker Darren Powderly, who said new industrial construction is adding to the supply and existing businesses are not expanding as fast as new space is being created.
“We were at absolutely anemic levels last year,” Powderly said. “Now, at least we’re returning to normalcy, but we’re still at very restricted levels.”
High industrial lease costs are one reason businesses may not be expanding, Powderly said. The average cost of built-out industrial space in Bend ranges from 50 cents per square foot to 70 cents per square foot, not including operating expenses. Comparatively, Redmond space costs an average of 40 cents to 60 cents per square foot.
Bend’s industrial space is at about a two-year supply, Powderly said. Bend needs more raw industrial land to attract new manufacturers and help existing businesses grow, he said. Oregon law mandates a 20-year supply of industrial land be kept available for future economic growth, Powderly noted.
“Juniper Ridge is basically our only hope for that,” he said of the city-owned land on Bend’s north end. “In my opinion, we can’t wait for that any longer.”
Priced out
Bend’s industrial land prices already are forcing out some manufacturers.
After 25 years, Bend Tarp & Liner moved its 16-person manufacturing plant from Bend to Prineville in July. The pool liner and tarp manufacturer could not afford to expand its facilities in Bend, said Chief Financial Officer Steve Caldwell. And with its employment expected to grow 25 percent in the new space, Caldwell says Prineville offers more affordable housing options for workers.
Ron Cook, president of Ameritech Machine Manufacturing Inc., is preparing to move his Bend business to Redmond, where he says industrial land prices are half of Bend’s.
“It truly is, in my opinion, expensive beyond belief,” he said. “We couldn’t grow (in Bend).”
His seven-year-old company already has outgrown its Bend location, which doesn’t have desk room for all 25 employees. Cook expects his business will grow to more than 40 people by the end of its first year in Redmond, adding both welders and office staff for the maker or steel parts for the steel processing industry.
Roger Lee, executive director of Economic Development for Central Oregon, admits other areas of the country have more attractive incentives for certain industries than Central Oregon. For example, parts of the Midwest offer breaks on property taxes and other cash incentives for businesses in the aerospace industry, he said. Oregon’s incentives are primarily geared toward attracting tech companies, Lee said, and any change to that must come at the state level.
Bend’s industrial land may be pricey, he said, but the region still is more affordable than larger metropolitan areas, notably California. For example, the region’s employment costs, workers’ compensation rates, and sales and property taxes are lower than some neighboring states.
Juniper Ridge could help, too, Lee said, hoping it offers much-needed industrial land and a campus to train high-tech workers.
“It would be nice to have more than one place to locate a company,” Lee said. “(Companies) like multiple options.”
Doing fine
Lee is quick to identify companies that have thrived in Central Oregon. He mentioned Breedlove Guitar, which is planning to move its guitar-making facility to NorthWest Crossing from Tumalo; Microsemi, the Southern California-based semiconductor wafer manufacturer that acquired Bend’s Advanced Power Technology last year and which remains in Bend; and GL Suite, a Bend software company that designs regulatory programs for government agencies around the globe.
GL Suite is a 10-year-old company that moved to Bend nine years ago from Lake Oswego. President Bill Moseley said Bend appealed to him because it seemed like a good place to raise his young family. All he needed was air transportation, which Redmond Airport provided, and networking infrastructure through a high-speed Internet connection.
Now, Moseley needs affordable housing for his workers. His 42-person business would need 18 more employees to meet its present demand and will need up to 100 by the end of the year, he said.
“High housing prices mean pressure on wages,” he said. The base salary at GL Suite is $39,000 per year, he added, excluding benefits.
Moseley is generally able to find the qualified workers he needs, but says the labor force is becoming tighter.
Labor and housing woes considered, Moseley said, two things would prompt him to leave Bend:
•If housing prices start accelerating like they did in 2005 and 2006, he would open a satellite facility outside the region and gradually move his company there.
•If the community doesn’t attract more talented workers to fit his needs, he might open a new facility elsewhere, while keeping the Bend location open.
For Central Oregon to attract more tech manufacturing companies, Moseley says, the region needs to establish and nurture a tech cluster.
“Industries grow in clusters,” he said. “If you get a couple airplane manufacturers in a particular area, they sprout suppliers that service them and employees come and become interchangeable … it’s the same thing in software.”
EDCO and the Software Association of Oregon are the best candidates to unite all the tech companies and workers, he said, although the software association only recently came to Central Oregon.
A cluster of established tech groups would exchange ideas, skills and work off each other’s success, Moseley said. And that would encourage startup companies.
“I think if we can get the central cluster done, we can help some of those startups out,” he said. “The longer we wait to do these things, the further we put off success.”
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