Apocalypse now

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“Awkward” would be a kind word to use to describe the appearance of Zumtobel executive Bill Simoni at the Ulster County IDA county agency’s monthly meeting in Kingston last Wednesday morning.

Simoni’s message didn’t lack drama. The Austrian-based international lighting firm at which he works had a new chief executive who Simoni said had questioned whether the Highland-based American operation was carrying its weight. According to Simoni, the Austrian boss said he intended to dispose of it if it wasn’t.

Zumtobel Group, which has about 5500 employees worldwide and 215 in Highland (about seven per cent of Ulster County’s total number of 3200 manufacturing workers), had brought in Kevin Maddy, to turn around the company’s North American operations. Maddy has substantial turnaround experience in the aerospace and semiconductor capital equipment industries. His appointment was consistent with the new CEO’s belief in driving the worldwide organization towards profitable growth.

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Until recently, the performance of Zumtobel in America “hasn’t been that good,” Simoni told the IDA. The chief executive, Ulrich Schumacher, wanted better results, and soon. Needless to say, Simoni suggested, the performance of the new American management was being closely watched.

According to information from a Google search, Shumacher, an aggressive and controversial executive determined to double Zumtobel profitability in the next three years, has decreed a workforce reduction of eight per cent, a cut in productions costs of five per cent, and a ten per cent reduction in administrative and marketing costs.

Schumacher had been seeking a partner firm in America. “Due to the competitive structures in the already consolidated U.S. market,” Reuters reported him as saying in April, “we see the best opportunity to pursue growth in the form of a strategic partnership.” He denied he wanted to leave the American market entirely.

That policy didn’t seem to offer Highland much security. The chief executive originally wanted to grow the business dramatically – but with a partner. The speculation was that a move from Highland to another location could be one result, suspension of the firm’s American manufacturing another. It was unclear whether performance improvements would save the American operation or make it more attractive to a buyer or strategic partner.

The firm’s new American management Zumtobel and a predecessor firm with which it had combined, Staff Lighting, have been at the same location on Route 9W in Highland for about 40 years.

Simoni said Central Hudson had a program to provide training money. Simoni was exploring a match for those funds in the form of a grant from the IDA.

According to Anthony Campagiorni, Central Hudson’s vice-president of business development and governmental affairs and also president of the Ulster County Economic Development Alliance, the utility does have a business retention program that required new private-sector investment (from $500,000 to $2 million to be eligible for $100,000 to $200,000 from Central Hudson) plus a match of some kind from a public agency. Zumtobel has not yet submitted an application.

Simoni said he had been in communication for several months with Suzanne Holt, director of business services in county executive Michael Hein’s office. Zumtobel had filled out an IDA application.

The Zumtobel situation was not on the UCIDA meeting agenda. After Simoni’s presentation, the IDA board members noted cautiously that this was the first they had heard of the application. Simoni appeared flabbergasted by that news. He was visibly upset. How could that be?

That was the most awkward moment.

Holt explained that she had received no response when she had called Zumtobel to confirm the firm’s appearance at the IDA meeting. On the basis of the lack of a response, she had assumed Simoni wasn’t coming. There had been a snafu in communications. Simoni, unaware of Holt’s assumption, showed up. Added to the agenda, he made his short presentation.

His ask seemed a surprise to the board, or at least most of the members. Despite Simoni’s expressions of urgency, the board, lacking information, was unprepared to act.

Board members asked Simoni a couple of questions about the firm’s employment plans. The first goal, he said, was retention of the present 215-person Highland work force. After that stabilization, it was a reasonable expectation if all went well that the employment count might go up by ten or 20 jobs a year. Management, he said, thought sales in the American market could go up over time from $45 million annually to $184 million – a very big lift.

IDA chair Mike Horodyski, also a Lloyd town councilman and a bank president, sought to provide Simoni reassurance. He expected the IDA to make a decision on the grant application by December. “I’m one vote,” he said, “but I’d expect to get this done.”

After Simoni had left the premises and the IDA had resumed its meeting, Horodyski shared an observation from community gossip about Zumtobel. “I’ve heard they’ve been getting some pressure from the mother ship for some time,” he said.

The local IDA doesn’t go out of its way to share information. The board members have folders on the table in front of them at the meetings that the small audience is not privileged to share (we outsiders get the one-page agenda). There’s a lot that is not said. The fact, for instance, that Zumtobel’s application was for $50,000 in the form of an IDA grant came out only in board conversation.

 

Seeking government money

Though Bill Simoni didn’t say so at the IDA meeting, the new Zumtobel management has been trolling for other kinds of reinforcement, primarily governmental ones. In a later conversation, Simoni seemed not entirely unfamiliar with the concept that most state funding decisions are ultimately made not on the county or regional level but on the Capitol’s second floor, the governor’s office.

Last year New York State government announced the winners of its annual consolidated funding applications (CFA) process in early December. CFA awards statewide amounted to about $700 million, easily the largest round of regional funding. Zumtobel is believed to have been encouraged to apply this year. Zumtobel has expressed public willingness to invest its own capital as a match to a CFA grant.

Deb O’Connor, associate dean for continuing and professional education at SUNY Ulster who handles contract courses at the community college, said she has been expecting announcement of a batch of SUNY workforce development grants, including for Zumtobel. She is convinced the grants will be announced before the end of November.

O’Connor has been working with Zumtobel on its training needs. She’s a believer in training. “Better education means better performers,” she said. “Training truly makes a difference.” She said that her experience has been that firms whose workers get good training are more successful.

Neither Zumtobel nor O’Connor know what training grants the firm’s going to get. O’Connor supports its management’s overall strategy. “If I were in their position, I’d apply for everything,” she said. Nothing ventured, nothing gained.

The odds are better than even that Zumtobel management – and everyone else — will hear about the fate of this year’s grant applications from Albany prior to the December IDA meeting.

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How does what Zumtobel might be getting in grants stack up as compared what the firm is paying in taxes? The Highland firm’s property is assessed at about $5.2 million, or about one half of one per cent of the total Lloyd tax load. Assuming Zumtobel is paying roughly three per cent of the property’s value for all property taxes, its annual property-tax contribution would be about $156,000.

For better or worse, the state’s StartUp New York program, which offers freedom from all state taxes for ten years, has established new levels of government largesse for the attraction of new jobs. Existing businesses too have been striving to find ways to get state support.

The most substantial benefit to the area economy is the 215 paychecks Zumtobel is contributing to the local economy. These jobs are important to Highland and vicinity. Local officials and businesses are anxious to see the local payrolls continue.

 

Unlikely to close

“They were talking in very dramatic terms,” said Deb O’Connor about Zumtobel’s description of its needs, who detected “a new level of aggressiveness” in current management. Zumtobel had closed a smaller facility in New Jersey and consolidated staff in Highland. It had reduced its job count somewhat. The firm still had a significant problem with labor turnover, she said. She and others surmised that closing the Highland plant, though not inconceivable, seemed at present unlikely. “Would they be happy with no [American] plant?” she asked.

Another knowledgeable source was skeptical the Highland plant might close. He noted recent signs of a significant turnaround in Zumtobel’s American operations. A third business source noted that the company had spent several thousand dollars to achieve prominence at a Council of Industry event. Would it have done that if it was seriously thinking of closing the plant?

Contacted on Monday, Maddy said his team was in the midst of a complete strategic review. He was optimistic. He praised the quality of the “exceptional work force” at Highland and the cooperation of the local trade union (IBEW). He said the search for a strategic American partner had been put on hold. “Our improvement is right on track,” he said.

Just because the-sky-is-falling picture may have been a slight exaggeration does not mean, however, that Zumtobel’s local supporters should not offer the firm assistance. Just the opposite.

The real question is the form that local, county and state assistance should take. What conditions should it include, what skin should the company need to put into the game? A billion-dollar company won’t be swayed by a $50,000 IDA inducement unless it’s part of a broader understanding. Perhaps those matters will be clarified when word is received from Albany about the CFA and workforce development grants.

Kevin Maddy and his team “have a lot of good ideas to help their efficiency, to help their education … and they seem to have turned a corner on profitability,” summed up one of the sources. “If they can right themselves and get their product line together, they’ll be all right. A sitdown with them to put the whole package together would be wise.”

As for the IDA, a screening system for review of applications for assistance is vitally necessary. Because there isn’t one, the IDA has been basically reviewing applications for grants on an ad-hoc first-come, first-served basis – and funding practically all the requests. Oiling the squeaky wheel is no way to manage economic development.

Recent data confirmed that most new jobs in the present economy are being created by very small firms, those least likely to have the ability, the clout and the access to the IDA. Perhaps the Ulster County IDA, which has a finite amount of funds and few money-raising projects in the pipeline, should become more selective and more innovative. Ulster County comptroller Ellliott Auerbach recently made recommendations along the same lines.

What if a new shovel-ready manufacturing project that promised to create almost a hundred jobs were to apply? What if it needed quick inducement beyond what the state was offering? Could a financially depleted IDA provide appropriate assistance?

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