Food Maker Looks North Despite Pleas

SACRAMENTO â€”  Gov. Arnold Schwarzenegger made saving Amy’s Kitchen a crusade. He called the owners of the organic food company at home and pressured bureaucrats to grant them favors if Amy’s would expand operations in California.

But Schwarzenegger’s economic mission fell short Monday. The Sonoma County company, known for its frozen vegetarian pizzas, soups and progressive employee relations, announced it would build its new manufacturing facility in Oregon, where electricity and water are cheaper and the business climate more attractive for its needs.

Amy’s Kitchen, started in 1988 by a couple who met at a spiritual retreat in India, is a modest-sized company, with 750 employees and about $100 million in annual sales.

But for Schwarzenegger, it represented one of his most high-profile efforts to convince the world that California is a good place to do business now that he is governor.

Schwarzenegger has tried since last spring to entice Amy’s Kitchen into expanding its operations in California. His administration even helped get its founders, Andy and Rachel Berliner, appointed to the California Commission for Jobs and Economic Growth -- a private, not-for-profit group started specifically to stop companies from leaving the state.

In a statement Monday, Amy’s Kitchen said it would keep its current food-making operation and corporate headquarters in Santa Rosa. But the rapidly growing company said it “does hope� to build a new manufacturing facility in Medford, Ore.

The company said it wanted to complete a land purchase -- including, possibly, a 50-acre site at a drastically reduced price, thanks to concessions -- for a plant of up to 200,000 square feet that would employ about 200 people.

In addition, Amy’s Kitchen said it would drop its attempt to get a discount of about $1 million in power costs offered if it agreed to expand in California.

The rate reduction had been pushed by Pacific Gas & Electric, which serves Amy’s factory in Santa Rosa, at the request of the Schwarzenegger administration.

“They went out of their way to help us, and they did the best they could,� said Andy Berliner, speaking of the administration. “In the long term, perhaps seven years, California will be competitive, but we’re just not there now.�

Berliner said the company would save about $1 million a year by putting its new plant in Oregon -- because water, sewer, power and workers’ compensation insurance costs are so much lower. He did not, however, rule out expanding the Santa Rosa plant in the future.

The failure to attract the new plant is a blow to Schwarzenegger’s efforts to sell California as a great place to do business, but it comes on the heels of a success: Schwarzenegger and Bay Area officials have persuaded air carrier Virgin USA to put its operational hub and 1,500 new jobs at San Francisco International Airport instead of Boston or Washington, D.C.

Vincent Sollitto, a spokesman for the governor, said Schwarzenegger is thrilled that Amy’s Kitchen is keeping its headquarters and original plant in California, but he said the failure to attract the expansion “shows there is much that needs to be done to expand and create jobs.�

“The fact that they are going to also expand in Oregon is a constant reminder to me and others that other states are going to be extremely aggressive with offering our businesses incentives to leave,� said Mark Mosher, acting executive director of the California Commission for Jobs and Economic Growth.

Mosher said the Berliners had been a welcome addition to the California jobs commission, despite deciding to expand their company in Oregon.

“They are a great laboratory for the problems faced by this type of business,� he said.

Schwarzenegger has tried to dangle economic incentives in order to persuade a few companies to stay in California, but his most forceful technique has been just showing up or phoning to speak to owners personally -- a sort of economic development based on celebrity endorsement.

Billboards with his image have been put up in 12 states encouraging people to do business with California. Schwarzenegger sat behind the wheel of a moving van -- his image plastered on the side -- to transfer a tiny printing operation from Nevada to California.

The governor also visited Japan recently, where huge electronic billboards with his image dominated an event that showcased California-grown food.

And last spring, the Berliners received a call at their home from the governor, who joked with them: “Berliner, huh? Ich bin ein Berliner!� -- repeating a famous line used by President Kennedy.

The governor asked them to remain patient while he worked to lower the cost of workers’ compensation insurance, one of the biggest burdens for Amy’s Kitchen.

Since Schwarzenegger and the Legislature reached agreement on reforming the state’s workers’ compensation system, insurance rates for injured employees have declined about 10% -- far less than the 40% drop Schwarzenegger predicted in April.

Medford, near the California border, appealed to Amy’s Kitchen because the workers’ comp premium to insure a pizza dough maker would be 70% lower than what the company pays in California. In addition, the building site features easy access to railroad shipping and proximity to many of the organic farms that supply the company.

The governor’s business, transportation and housing secretary, Sunne Wright McPeak, arranged for the Berliners to meet with water agencies in Santa Rosa and Modesto. Officials in the Central Valley had hoped to lure the couple’s new plant by offering more attractive water and power rates, comparable with Oregon’s.

And PG&E; offered to cut its rates for Amy’s Kitchen, which spent $1.2 million last year powering its ovens, freezers and other equipment at its 175,000-square-foot Santa Rosa facility.

The company had told regulators at the Public Utilities Commission that cutting its power costs would be a “material factor� in whether or not it expanded in California. The savings would have been $973,000 over five years under the proposed rate cut.

The PUC had planned to vote on the issue Thursday, but Ron Low, a spokesman for the power company, said it would withdraw the offer.

Still, a broader rate-cutting program for large industrial companies threatening to leave California could be introduced early next year, he said.

The decision to grant an individual concession to Amy’s Kitchen had worried consumer groups that monitor PG&E; and state utilities regulators. Mindy Spatt, spokeswoman with the Utility Reform Network, said California needed a uniform program, not a piecemeal offer designed for individual companies.

“It can’t be a popularity contest,� Spatt said. “It can’t be a question of who complains the loudest. It can’t be a question of who threatens the most.�