McKesson Corp.'s regional hub in Las Colinas. File photo

Business

McKesson Missed Its Benchmarks and Never Received Incentives for Irving Move

Contrary to reports, the city of Irving never cut the pharma giant a check—and whether it ever will is anyone's guess.

In late November, the sixth-largest corporation in the United States, monstrous pharma distributor McKesson Corp., announced a plan to move its global headquarters from the expensive west coast to travel- and tax-friendly Irving. The news release said that by 2021, “most San Francisco Bay Area jobs” will end up here in DFW. Curiously, this being the Amazon era of corporate handout hooliganism, there weren’t any incentives tied to the deal. But perhaps there is more to that story.

Let’s rewind to 2016, and McKesson’s first foray into Dallas-Fort Worth. The company announced in March of that year that it was putting a regional hub in the old NEC Corp. building in Las Colinas, creating 975 jobs while consolidating another 900 from around the area. The total investment was to reach $157 million.

There were dollars tied to this one. At the state level, officials marked for McKesson $9.75 million from the Texas Enterprise Fund. Irving promised more than $2 million in tax breaks. As recently as when news of the headquarters relocation made the rounds, it was still believed that McKesson received those incentives.

But in fact the company hasn’t gotten a dime, and after some prodding, an Irving spokesperson admitted that the deal automatically terminated when McKesson failed to purchase required property for the hub—located at 6535 N. State Highway 161—by the end of 2016. That property was instead bought by Wiley Industries in 2016, and although McKesson eventually hit its minimum occupancy requirements for the space, that didn’t occur until March 1, 2017. That was after the January 1 deadline for the occupancy, according to city officials.

But that hasn’t kept McKesson from submitting yearly progress reports to Irving, which glimpse the company’s progress and might just give us a hint as to why the state hasn’t cut a check, either. City records show that McKesson failed to reach certain benchmarks denoted in the deal. Let’s have a look at some figures from a report submitted by McKesson early last year:

Requirement: Spend $23.1 million on construction by 12/31/17
Progress: Complete—$51.4 million spent

Requirement: Spend $3 million on furniture, fixtures, and equipment by 12/31/17
Progress: Complete—$12.6 million spent

Requirement: Average salary of $79,000
Progress: Complete—average salary of $89,000

Requirement: Have 1,594 people working at the property by 12/31/20
Progress: Incomplete—1,454 jobs, about 140 short

Requirement: Increase the property value by $42.2 million by 1/1/18
Progress: Failed—2017 property value showed an increase of $12.9 million

Of course, although it didn’t receive the money, McKesson went through with their headquarters announcement in November. Beth Bowman, head of the Irving Chamber of Commerce, says that was always the goal for Irving—even if it wasn’t a part of initial discussions with McKesson.

The remaining question seems to be whether any additional investment from McKesson might open the company back up to the possibility of the incentives tied to its original deal, even as both sides have been adamant that McKesson will not receive incentives to move its headquarters.

Nate Jensen, a UT Austin professor who specializes in this area, says it’s not out of the realm of possibility.

“What I have seen in many Texas Enterprise Fund contracts is that companies will amend their contracts to include jobs at other subsidiaries or other locations as part of their jobs and investment numbers,” says Jensen. “So it is plausible that this (headquarters) move, even though it is separate from the original investment, can be used by the company to comply with the original Texas Enterprise Fund agreement.”

There is reason to believe that the city of Irving is working on some sort of amendment or new agreement as well. The city appealed a piece of one of my open records requests partially on the grounds that it would hurt future talks, writing this: “Although the City has previously entered an agreement with this particular business prospect, and the records therefrom are public, the City is currently discussing a possible new agreement with the company.” Officials declined to elaborate.

“We’ve been impressed by the talented employees we’ve hired in Dallas and believe there’s potential for even more growth thanks to the deep talent pool and supportive government partners,” said Kristin Chasen, director of corporate PR for McKesson, in an email.

I have not seen the Texas Enterprise Fund agreement yet. Jensen says the job schedules often follow the ones put in place at the local level. When I talked to a gentleman in the governor’s office on Friday, he promised to put in a call asking the open records folks if they would expedite the process, assuming I put in the request for the contract right away. I held up my end of the deal and will update here as needed.

We are talking about a company that did $208 billion in revenue in fiscal 2018. You might be wondering why you’ve read so many words about a measly $12 million. Plenty of research shows incentives don’t swing companies much one way or the other. Greg LeRoy, executive director of corporate subsidy watchdog Good Jobs First, said that it didn’t appear incentives ever mattered much one way or the other to McKesson—that, as usual, “business basics rule.” If that’s the case, taxpayers seem to have dodged a bullet, at least for now.

Maybe the takeaway here is this: if you work at a giant corporation, the next time you’re contemplating whether you should ask for a 5 percent raise or 10 percent, go with the higher number. You know what, go 20 percent. Go 30. Ask for a rental house in Austin and a Tumi backpack. When your employers are swatting away $2 million like its loose change, you might as well pick some of it up.

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