IBM: What's at stake if Vt.'s largest employer sells its Essex plant?

ESSEX JUNCTION — IBM, the largest single private employer in Vermont, is putting its semi-conductor business up for sale, according to reports in the financial press. Frank Cioffi, president of the Greater Burlington Industrial Corp. (GBIC), however, is hopeful that if the Essex facility is sold, it will remain open under new ownership.

The potential impact on the regional economy should IBM close would be enormous.

IBM employs roughly 4,000 people in Essex with an estimated payroll of $150 million to $200 million. Those employees reside in 190 towns, most in Chittenden, Franklin, Grand Isle and Lamoille counties but many also in Addison County.

GBIC estimates the company supports another 8,000 jobs indirectly and adds $1 billion annually to Vermont’s economy.

IBM and its employees purchase goods and services here in Vermont. “They eat in our restaurants. They go to our movies. They buy cars here. They buy houses,” said Ernie Pomerleau of Pomerleau Real Estate and a member of the GBIC board.

IBM itself pays more than $2.5 million in property taxes alone. The amount it pays in corporate taxes is not public information. The company’s employees are also paying income, property, meals, gas and sales taxes.

Examining the economic impact of IBM “has shown us the economic value of holding on to what you have,” said Cioffi.

IBM is a major user of electricity, gas, water and wastewater treatment. The Essex facility uses as much power in a year as the city of Burlington, said Cioffi. The company takes raw power directly from producers such as Hydro Quebec and upgrades it for industrial use. “They own a lot of electric infrastructure other companies would never own,” said Cioffi.

The presence of a large services user such as IBM can help reduce rates for other users. For example, IBM also uses 34 percent of the water filtered by the Chittenden Water District. “That’s helped keep rates down and quality up for other users,” said Cioffi. Without IBM’s usage, rates would increase 40 percent, by GBIC’s estimates.

IBM has its own wastewater treatment facility, which GBIC estimates is worth $200 million. The facility can treat 4.4 million gallons of industrial wastewater daily.

The Essex facility is known for its energy efficiency and IBM has used it as a model for reducing energy use in other locations. The company has even assisted other local organizations such as Vermont Technical College and the Howard Center in making energy efficiency improvements. The Howard Center saved $400,000 annually as a result, according to Cioffi.

IBM has loaned the technical expertise of its staff to numerous local organizations including the Solar Research Test Center, hospitals, colleges, the Vermont Air Guard and Cabot Cheese.

EXPORTING GOODS, IMPORTING MONEY

IBM, explained Cioffi, is the kind of company that provides the economic base for a region, not simply because of its size, but because of the type of work it does.

IBM brings money into Vermont and exports goods. The money IBM brings into the region, in turn, supports other businesses.

Seventy percent of Vermont’s international exports are from IBM, more than $2.8 billion in 2012.

The Essex facility makes microchips used in cell phones, tablets and other electronic devices. IBM has a second microchip facility in Fishkill, N.Y., and a research facility at the State University of New York Albany. Any sale of the Vermont facility would likely include those facilities as well.

Research and development staff at the Essex facility have helped make Vermont fourth in the number of patents per capita.

Each research and development position creates 13 additional jobs at the facility as the improvements they make are turned into new products, explained Cioffi.

Although the equipment in IBM Essex is a couple of generations old, that only limits the number of chips that can be produced at one time, not the design sophistication of the chips themselves, according to Cioffi.

That combined with the value of the Essex employees themselves, the facility’s energy efficiency and other assets, has Cioffi hopeful that any potential buyer would keep the facility open.

Nevertheless, he is pleased Gov. Peter Shumlin is seeking to create a $4.5 million Enterprise Incentive Fund that could be used to provide incentives to companies to open facilities in Vermont, expand existing facilities or simply remain in the state.

THE FUTURE

New York State attracted a $4.2 billion chip fabrication facility to Saratoga County with $1.8 billion in incentives, said Cioffi. That facility is owned by GlobalFoundries, one of the companies considering a purchase of IBM’s semi-conductor business.

New York offered GlobalFoundries a whole range of incentives from property tax abatement and tax credits to training programs to partnerships with higher education facilities. “We cannot match dollar for dollar with the state of New York,” said Cioffi.

But the proposed Enterprise Incentive Fund would be another tool for the governor to use when trying to attract or keep businesses in the state, Cioffi said.

Vermont currently has the Vermont Employment Growth Incentive program, known as VEGI, which is aimed at new or expanding employers. The incentives are based on the company expanding its payroll.

The state also needs programs aimed at retaining existing employers, especially in manufacturing, where employment is generally not expanding, suggested Cioffi.

He would also like to see the state create incentives for research and development, precisely because those positions create other jobs.

Incentives for businesses should be understood as investments, in Pomerleau’s view. “Some people in the Legislature might call it corporate welfare,” he said. “I call it an investment.”

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