Avago looks for millions in tax breaks

FORT COLLINS — Avago Technologies may expand its manufacturing operations in Fort Collins this year instead of overseas if elected leaders sign off on a tax-incentive package.

“I think, if the request is granted, that we’re leaning toward keeping things in Colorado as opposed to offshore,´ said Steve Sharp, Avago’s manager of corporate marketing and communications.

Avago, a spinoff of Agilent Technologies headquartered in San Jose, maintains a semiconductor manufacturing facility on 4380 Ziegler Road and is considering the expansion in unused space within the facility. The city of Fort Collins will offer Avago approximately $4.9 million in tax breaks, and it’s suggesting Larimer County offer a separate $1 million tax break to entice the company.

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The expansion would add another 136 jobs on top of the nearly 700 employees already here. That would make the Fort Collins site the largest of the company’s four locations in terms of headcount.

Its Fort Collins site already is the largest site in terms of square footage. Avago also operates in Singapore and Malaysia.

The new jobs would include everything from senior-level engineering to mid-level technicians, not to mention the construction jobs that the expansion would create.

The publicly traded company hopes to decide how to proceed this summer after local governments choose whether to grant the company the tax breaks. The Fort Collins City Council is expected to consider the tax breaks at its meeting July 17.

Avago would like to keep its manufacturing operations Fort Collins, where it employs a great deal of its engineers, Sharp said. But the company would save on manufacturing costs by expanding overseas.

Avago’s planned expansion comes as the company saw 26 percent growth year over year in its wireless communications business, which accounted for 44 percent of its net revenue in the second quarter.

Avago posted net income of $134 million during the second quarter, up from $125 million the same quarter last year.

The company approached the city seeking incentives after it received cash offers from Singapore and Taiwan, said Josh Birks, economic health director for the city of Fort Collins.

Birks has proposed the city rebate to Avago two kinds of taxes: a use tax on manufacturing equipment bought outside the city but used here, and a personal property tax on that equipment, which has a steep depreciation curve.

If Avago buys $130 million in manufacturing equipment, that will generate $3.9 million in use tax revenue, which the city would rebate to Avago. The purchase also would generate about $2 million in personal property tax revenue over 10 years, on which the city would rebate about $1 million.

Manufacturers pay a 3 percent tax on equipment they buy for use in Fort Collins, but companies can apply for a 1.5 percent tax rebate, which Avago already receives. The proposed deal would waive the entire 3-percent tax on Avago.

Hewlett-Packard received the same deal when it added an engineering laboratory aimed at developing energy-efficient data centers, Birks said.

“This is a pretty common economic development tool for us to use,” he said.

“Theoretically, there’s no limitation on how many of these we would do,” he said. “I think practically, we’re going to do those that make sense that are in industries that help to perpetuate the strengths and unique assets of Fort Collins.”

Birs is suggesting the county offer only a personal property tax rebate over five years because the county does not collect use taxes on manufacturing equipment.

Despite losses in equipment tax revenue, the city estimates it would see a net gain in revenue from other taxes on Avago throughout the decade.

The package is also performance-based. For the company to receive its annual tax rebate, Avago must hire the jobs it promised and maintain its manufacturing operation.

The deal would not require that new Avago employees live in Northern Colorado, but Birks said that the city may consider those kinds of stipulations for other companies in the future.

Regardless, Sharp said Avago would rather hire people locally to avoid paying relocation costs.

“In today’s market, relocation is becoming less common,” he said. “You’re naturally always going to end up tending to draw on the local talent base.”

City and county leaders support the incentives package.

Larimer County Commissioner Lew Gaiter said the commission would rather help an existing company than spend money recruiting an outside company.

Gaiter is not concerned that the county will lose out on tax revenue.

“I’d rather have 50 percent of something than 100 percent of nothing,” he said. “If we don’t work with them, we might not get anything at all.”

Mayor Karen Weitkunat considers the company a key part of the city’s technology manufacturing sector, and she said she would welcome the new jobs.

Other companies could apply for the same kind of incentives package, she said.

“Everybody has that opportunity,” she said. “I think if you bring forward some 200 jobs and several million in revenue, certainly you have the same fairness at the table.”