BayBio Gene Acres Conference Presentation

1. Finance & Incentive Vehicles to
Fund Growth
Presented By
Mike Ammann, President Solano EDC

2. Quick Facts
• Cetus, World’s first biotech
company was founded in
Emeryville in 1971
• Genentech opened its doors in
South San Francisco 32 years ago,
in 1976
• Over $6 billion in payroll
• 90,000 employees
• Average wage: $68,000
• Estimated 6,000 new jobs created
in the past twelve months
• Average time for FDA approval of
a new drug: 14 years
• Average cost for development of
a new drug: $800 million

3. NCAL Bio Cluster – World’s Largest
BayBio Corridor World’s
Largest Cluster
• capitalization: $144 billion
• 95 publicly traded
companies
• 1377 companies
• 408 marketed products
• 492 products in Phase II&
Phase III clinical trials

4. Product Pipeline Comparison
Products in Phase II &
Phase III clinical trials
• Northern California 492
• New Jersey 445
• Massachusetts 287
• Southern California 235

5. Plan Your Work & Work Your Plan
• Process begins with project outline including:
• Don’t puff up these numbers – Remember “Claw backs”
Project capital investment
• Job creation over specific period of time
• Develop a Team & provide relevant company
information
• Ask for & get confidentiality Negotiate before you buy
property or sign a lease
• Public purpose – “But for” clauses
– Project Mercury Example

6. Key Considerations
• Labor force talent decision
– Hire locally, attract, retain & scale
– Trades – union & open/merit
shop
– Education support system
• High School – science, math &
biotech programs
• Community college – specialized
training & certification
• Financial decisions
– Land = One time cost that
appreciates in value
– Facility = Ability to quickly
construct & operate quietly
– Transportation access &
distribution

7. Incentives Negotiation Steps
• ID Eligible Grants, Credits & Incentives
• Develop Plan & Time Schedule to Secure
Package
• Develop Compelling Story
– Internal alignments & commitments
– Externally Public Relations
• Follow Through
– Build community support & meet your obligations

8. Who’s Who in
Economic Development?
• State & Local
– CABIS
• Labor (EDD) & BTH
– CALED
• Local government, non‐
profit private, WIB &
chambers of commerce
– Utility Companies (PG&E)
• Others
– International real estate
brokers, site consultants &
corporate real estate
managers

9. State Assistance
• CalBIS provides no‐fee site selection
services to employers, corporate real
estate executives, and site location
consultants who are considering
California for new business
investment.
• A wide array of consultation services
are offered, including:
Financial assistance and loan programs
Military and defense reuse zones Dave Freitas
Labor availability and education CalBIS Manager
information
State and local permit assistance Dave.Freitas@labor.ca.gov
Transportation and infrastructure
information http://www.labor.ca.gov/calBIS/
Information on tax credits and other
incentive programs http://www.calbusiness.ca.gov/cedpeybreyb
Economic and demographic data .asp
Business advocacy

10. Solano EDC
• Free confidential advice
• Centralized coordinated
info resource
• Introduction to info &
political sources
• In some cases – your
local project advocate
• Your long term
community link

11. Industry Association Assistance
• International & National
– BIO
• Regional
– BayBio
• Site Selection Network
– Location Management
Service
– Other Support Groups
• Bay Area Council
• CoreNet Global – NCAL
Chapter

12. What Makes Location?
• A cluster of biotechnology
– Available talent, scalable labor forces, available infrastructure, service firms &
a clear development path for on‐time delivery of a fully operational facility
that puts product into the marketplace.
• Communities with staff that have successful grown biotech
– Not want bee's communities who may or may not get the job done
• Remember – your job is on the line with your site recommendation

13. Talent – Job #1
• ISPE January CEO Night included Rob Carter, site head for Novartis
Biopharmaceutical Ops in Vacaville (Ex‐LA).
• Of particular note was his admiration of the “depth & breadth” of
talent present in the Bay Area to draw from.
• Novartis recent hiring program was totally Internet‐based & all hires
were from the Bay Area with no relocations from outside the area
Source: ISPE SF Chapter News Letter Volume 15 number 5

14. Incentives Make
Only “Marginal Difference”
• Incentives are NOT the
driving force in selecting
a location & should NOT
determine the ultimate
decision.
• A great incentive
package can NOT
transform a poor site
into a winning location.

15. Net Operating Loss Carryover
• California tax law allows businesses that
experience a loss for the year to carry this loss
forward to the next year in order to offset
income in the following years.
• New businesses can carry over 100 percent of
their losses for 10 years if the loss is in their
first year of operation.
http://www.ftb.ca.gov/forms/05_forms/05_3805qins.pdf

16. What is California's Research &
Development (R&D) Credit?
• The California R&D Credit reduces income or
franchise tax.
• You qualify for the credit if you paid or incurred
qualified research expenses while conducting
qualified research in California.
• You receive 15 percent of the excess of current
year research expenditures over a computed base
amount (minimum of 50 percent of current year
research expenses).
• You claim the credit on the return for the taxable
year you incurred the qualified expenses.

17. What are Tax/Financial Incentives?
• Some incentives are statutory while others are
discretionary – Know the difference when
negotiating
• Every state & most municipalities offer tax or
financial incentives to attract businesses that
make capital investments or create jobs or both.
• Incentive packages typically consist of primarily
state incentives with local support in the form of
tax abatements, permit fee reduction & priority of
entitlements.

18. Statutory Tax Incentives
• Statutory tax incentives include
• income and franchise tax credits such as job tax credits,
investment tax credits (MIC)
• apportionment factor adjustments and tax‐base modifications
• and incentives for locating in targeted economic development low
income or blighted areas.
• Statutory incentives are available to
• all companies that meet the qualifications
• engage in qualified activity
• and creates the job or payroll qualifications.
• Incentive requirements, which might relate to
• minimum job creation or capital investments are enacted by state
legislatures and vary accordingly

19. Discretionary Incentives
• Discretionary tax incentives are awarded on a case‐
by‐case basis to entice particularly desirable
employers to locate, relocate or expand in the area.
• Examples include state tax credits, enterprise zone
benefits, & property tax abatements
– Other discretionary incentives may include:
• Sales & use tax exemptions, budgeted infrastructure
improvements, human resource needs such as relocation
assistance, specialized training (ETP) or fast
track/permitting coordination

20. State Enterprise Zones & LAMBRA
• Up to 100% Net Operating Loss (NOL) carry‐forward. NOL may be
carried forward 15 years.
• Firms can earn $31,544 or more in state tax credits for each qualified
employee hired up to $2 million per year with a few provisions.
• Corporations can earn sales tax credits on purchases of $20 million per
year of qualified machinery and machinery parts. Up‐front expensing
of certain depreciable property, up to $40,000 annually.
• Unused tax credits can be applied to future tax years, stretching out
the benefit of the initial investment.
• LAMBRA communities also have community incentives as a part of the
business attraction package. Each community is marketing military
base existing buildings & property to attract expanding or locate new
businesses. The incentives may include the use of machinery, tools, or
office equipment left behind by the military.
– More information: http://www.hcd.ca.gov/fa/cdbg/ez/lambra/

21. Industrial Development Bonds (IDB’S)
• Sample Small Mfg Project Comparison:

22. Employment Training Panel (ETP)
• ETP prioritizes small businesses and employers in
high unemployment areas of the State.
• Since its inception in 1983, the ETP program has
provided over $1 billion to train more than 660,000
workers in over 60,000 California companies.
• Employer funded skills up‐grade or tech skills training
program
• Incentive to upgrade existing skills or scale up new
technical labor force
• http://www.etp.ca.gov/docs/flowchart.pdf

23. PG&E’S Energy Management
• An Energy Analysis – also referred to as an
“energy audit”
• Energy Efficiency Rebates PG&E offers rebates
for hundreds of energy‐efficient technologies in
multiple categories
• Customized Energy Efficiency/Demand Response
Incentive Application
• New Construction Design Assistance & Cash
Incentives
• Energy Management Education & Training

24. Energy Design Resources (EDR)
• is a collection of energy design tools &
resources funded by the rate payers of
California
– Administered by the major utilities in California.
• EDR resources for laboratories include
– design guides & case studies to assisting the
design of energy efficient labs.
• www.energydesignresources.com/category/h
ospitals‐labs

25. Additional Resources on Energy Efficiency
for Labs & Clean rooms
• Labs21 is a voluntary program sponsored by the
U.S. Environmental Protection Agency and the
U.S. Department of Energy.
– The goal of the program is to improve the energy
efficiency of labs in the U.S.
– Labs21 has developed a "tool kit" to provide design
guides, case studies, energy benchmarking
information, and other tools for optimizing energy
efficiency in labs.
• www.labs21century.gov

26. Local Incentives ‐ Fairfield
The City of Fairfield s has a pro‐business attitude that includes:
• assist firms in securing all necessary city development approvals
• assist in the issuance of Industrial Development Bonds for manufacturing
companies by facilitating meetings, assisting with preparation of the
program application, and expediting all necessary public hearings for the
issuance of the Bonds
• consider annual rebate of property taxes within Redevelopment Project
Areas
• Revolving Loan Fund, which offers long‐term 4‐7% fixed‐rate financing
• deferred the payment of water connection fees and AB1600 fees until a
certificate of occupancy is issued for a facility
• assist with the State Employment Training Panel (ETP)
• Workforce Investment Board (WIB) and local Employment Development
Department
• (MCC) that provides tax credits to first‐time homebuyer
• Mortgage Credit Certificate Program designed to assist low‐income first‐
time homebuyers

27. Local Incentives ‐ Vacaville
• Property Tax Rebate ‐ Redevelopment Agency
• Sales and Use Tax Rebate
• Water Connection Fee Reduction
• Prepayment of Sewer Connection Fee
• Defer Collection of Development Impact Fees Until Occupancy
• Financing of Development Impact Fees
• Underwriting Water Rates
• Reservation of Water and Sewer Capacity
• Water Availability not to impose rationing or restrictions on water usage
• Traffic option to reserve roadway capacity
• Approvals provide expedited processing of all applications for subsequent
approvals.

28. Finally ‐ Claw backs
• What if your project fails or doesn’t meet
expectations?
– Your Key reason for tracking incentives, reporting &
keeping your part of the location bargain
– Mostly “Claw backs or Paybacks” are found at the state
level but could be part of the local agreement
– Incentives given in the public interest of job creation &
would not happen “but for”
– Generally tied to investment & job creation at certain wage
levels or targeted unemployed

29. Questions?