How business works the system
Office Depot benefits by making threats to leave and promising new jobs. The catch: The company was just moving from one Florida city to another.
By SYDNEY P. FREEDBERG
Published January 27, 2007
When Office Depot broke ground on a new headquarters complex in November, outgoing Gov. Jeb Bush issued a press release praising the company for creating hundreds of jobs.
"While this fine global corporate headquarters would be welcomed anywhere, I am distinctly proud Office Depot chose South Florida to foster its future success," Bush declared.
Office Depot, a Fortune 500 firm with $14.3-billion in revenues, expected to spend $210-million on construction and equipment and expand by 430 jobs, his press release said.
What it did not say was perhaps more noteworthy, however:
- Office Depot was moving less than 5 miles, from Delray Beach to Boca Raton.
- Florida and Palm Beach County had promised a $15-million incentive package to help pay for the expansion.
- A real estate firm run by Bush's former business partner, Armando Codina, stands to benefit. That firm is part owner of the land, and it will develop the 28-acre corporate campus and lease it to Office Depot.
- Office Depot threatened to move its headquarters with 1,750 jobs out of Florida if it didn't get incentives. Yet evidence suggests the company might have chosen Boca Raton anyway.
- While Office Depot was promising to create headquarters jobs, it eliminated 350 jobs elsewhere in the county. And this month it announced that 75 headquarters jobs will be cut.
"How the heck can they tell the government they're going to develop new jobs when they're throwing... us out?" said Tom Friedman, a Boca Raton resident dismissed by Office Depot on Nov. 17, three days before the governor's announcement.
"I'm saying to myself, 'This is a joke,' " Friedman said. "The more I thought about it, the angrier I got, as a taxpayer and an employee."
Office Depot could be Exhibit A for some of the flaws in Florida's incentives policies.
Since the mid 1990s, state and local governments in Florida have showered hundreds of millions of dollars a year in tax breaks, cash and other incentives on a select few companies that promise to create or retain jobs here.
Sometimes the new jobs don't materialize or stay for long, however. Some firms getting incentives pay so little that some of their new employees qualify for government health care. Some firms add jobs in one Florida city while laying off workers in another. And some probably would have boosted employment without incentives.
The people involved in business recruiting say Florida needs incentives to compete with other states. And business executives who aggressively seek incentives say they would be remiss not to pursue every possible advantage.
"With the dramatic increase in construction costs (in Florida), we had to look at all our options and see what's best for our shareholders," said James Grady, Office Depot's senior vice president of finance. "That did include looking at (a possible move to) other states."
But some government officials worry about what Delray Beach Mayor Jeff Perlman calls "the slippery slope" of incentives.
"There's an incentive right now for companies to threaten to bolt," knowing that they might "get a big check from the government," said Perlman, who is losing Office Depot to a neighbor.
Planning to move
Founded in 1986, Office Depot quickly outgrew its quarters in Boca Raton and moved to nearby Delray Beach five years later. By 1995, it was the nation's No. 1 office supply supermarket, with more than 1,600 employees at headquarters.
Several years ago, the company began planning to move its headquarters back to Boca Raton. Its first plan - a $100-million facility on 23 acres it bought there -was canceled in October 2004.
Less than a year later, the company was eyeing Boca Raton again.
This time, the site was less than 5 miles from its current headquarters and less than 3 miles from a call center where it soon would lay off about 350 workers, including 65-year-old Tom Friedman.
This time, the estimated cost of the new hub was $210-million. And this time, the developer would be a firm run by Codina, Bush's former business partner.
Office Depot wanted to build the headquarters on 28 acres of a 54-acre business park. Codina Group of Coral Gables, now part of Jacksonville-based Flagler Development Group, owns 20 percent of the park; the giant pension fund TIAA-CREF owns the rest.
In March 2006, TIAA-CREF filed plans for the site with the city of Boca Raton. Office Depot's proposed headquarters would include three five-story buildings connected by glass-enclosed bridges. Flagler/Codina would oversee design and development of the campus and, jointly with the pension fund, lease it to Office Depot.
Office Depot, which hopes to move next year, declined to disclose terms of its agreement with Flagler/Codina.
Last year's rental rate for top-notch office space in Boca Raton averaged about $30 per square foot, according to a report by the real estate firm Cushman & Wakefield. Thus, the value of a lease that large could be as high as $18-million the first year, though the rental rate likely would be significantly lower because landlords typically provide incentives and concessions to long-term tenants.
Codina, a longtime friend of former President George Bush, hired Jeb Bush in the early 1980s to sell and lease real estate and ultimately renamed his business Codina Bush. Codina gave Jeb Bush, with no personal investment, 40 percent of the real estate company's profits plus chances to invest in other ventures.
After Jeb Bush became governor in 1999, Codina said, he was careful not to use his connections with Bush on personal or business matters.
Still, the two men remained close. Gov. Bush appointed Codina to the board of trustees of Florida International University. (On Codina's gubernatorial appointments application, he listed Bush as a reference.) And the developer told a South Florida business magazine last February that he regards Bush as a son.
As governor, Bush was chairman of Enterprise Florida, the nonprofit organization that recommends state incentives. Many incentive projects are approved and overseen by the governor's Office of Tourism, Trade and Economic Development.
During Bush's tenure, Codina-run businesses stood to gain from state decisions to offer incentives to several companies, including Kraft Foods, Burger King and Office Depot. But a Codina spokesman said the firm is unaware of any incentives those clients received.
"I have never spoken to Jeb about Office Depot, Burger King or any of these matters," Codina said in an interview. He said he does not believe he should be deprived of earning a living because his friend was governor. "As far as I'm concerned, this (Office Depot) is not a political decision."
Alia Faraj, Bush's spokeswoman, said Bush did not talk to Codina about incentives for Office Depot. Nor did the former governor see a need to recuse himself from handling Office Depot or any other incentive matter.
"There is no provision in state ethics laws that would require him to do so based on a previous business relationship," Faraj said. She discounted any suggestion that the men's relationship could have tilted any incentive decision in favor of a Codina client.
"I take offense to your inference, which is altogether improper," Faraj said.
Office Depot quietly negotiated with Flagler/Codina while working to get incentives.
In April, a month after plans were filed with Boca Raton, the company said it wanted to keep its headquarters (with 1,750 jobs) in Florida but its decision hinged on incentives.
Within several weeks, it began seeking expedited building permits, a property tax exemption, tax refunds, a cash grant, training aid and road improvement funds.
There was one hitch. Incentives aren't meant for companies moving just down the road. In fact, some cities and counties have informal agreements against raiding each other's jobs.
Office Depot portrayed the issue differently: It was not one Florida city against another. It was Florida against other states.
The company asked for assistance from Ernst & Young, the tax and accounting firm that also helps companies win incentives.
Verdenia Baker, Palm Beach County's deputy administrator, said the Ernst representative told her that Office Depot had "potential offers" for its headquarters from four states - Georgia, North Carolina, South Carolina and Tennessee - worth as much as $58-million.
But the company didn't provide details, Baker said.
Lisa Nason, a spokeswoman for the governor's trade office, said the state required proof that Office Depot was serious about moving its headquarters. But the information proving that other states made offers is confidential, she said.
If Office Depot was close to a deal with another state, it escaped the attention of newspapers and real estate trade publications, however.
In Georgia, Bert Brantley, a spokesman for the state Department of Economic Development, said his agency provided general information about incentives to Office Depot's consultant but "never got to what we considered the negotiating phase."
Kinglsey Brock, director of recruitment for the Tennessee Department of Economic & Community Development, said he was unaware of any incentive offer to Office Depot.
"If there was such an offer, it must have been through the top management and kept close to the vest," he said.
Spokesmen for North Carolina and South Carolina declined to comment.
Was Office Depot merely using other states as leverage to get incentives from Florida?
Absolutely not, the company said.
"We had several very generous offers from other states," spokesman Brian Levine said. He would not provide details.
New jobs, new layoffs
In July, Palm Beach County commissioners "conceptually approved" a $6.5-million property tax exemption for the new headquarters over 10 years. The state later pledged as much as $8.65-million in additional incentives over eight years.
In exchange, Office Depot agreed to retain 1,750 headquarters jobs and add 580 new ones there. Later, the 580 became 430.
And the 1,750 jobs at headquarters slipped to 1,700. (In 2004 and 2005, Office Depot's headquarters head count was put at between 2,000 and 2,780 by South Florida newspapers and a business group.)
In September, a month before the state offered incentives for the new headquarters, Office Depot said it would cut 250 jobs at the nearby call center. That brought the total for the year to about 350.
Among the dismissed workers was Friedman, who earned about $42,000 a year managing business accounts.
When he read that Office Depot planned 580 "new jobs" at headquarters averaging $76,792, he didn't believe it. Friedman and two former employees sued Office Depot, claiming they were shortchanged on overtime pay. Office Depot denies the claims.
It says it didn't count Friedman and his laid-off colleagues when it applied for incentives because those employees were not part of corporate headquarters.
"Apples and oranges," Levine said.
The company also says it encouraged dismissed employees to continue working for the chain in other positions.
Still, some county officials were miffed that Office Depot didn't mention its job-cutting plans.
They say their tax breaks won't start until Office Depot occupies the new building. And state officials caution that the company won't get tax breaks unless it produces new jobs.
In Delray Beach, Mayor Perlman looks on the bright side.
"Moving a couple of miles up the street .... If you're going to lose a company, that's the way to do it," he said, adding that Office Depot employees who live in Delray Beach won't have to move.
It also frees up about 40 acres for redevelopment.
Office Depot sold the old headquarters campus last month to a real estate partnership for $80-million.
And last week the company that promised 430 new jobs at headquarters confirmed that it will cut 75 headquarters jobs by March.
Times researcher Carolyn Edds contributed to this report.
Office Depot Inc.
Size: Florida's fourth-largest company (behind Tech Data, AutoNation and Publix*). No. 154 on Fortune 500 (U.S.).
Number of Florida employees: about 6,000 (includes part-time employees and full-time contract employees).
Worldwide employees: about 47,000 (almost half part-time).
Stores in Florida: 119.
Stores in U.S. and Canada: 1,121.
Cash and donations for Hurricane Katrina relief: $18-million.
Support for three South Florida universities in 2006: $3.5-million.
Palm Beach County property taxes in 2000-2006: $5.1-million.
*ranked by revenues