Medical manufacturer to shutter Alabama plant after receiving millions in incentives

Medical manufacturer to shutter Alabama plant after receiving millions in incentives

• November 27th, 2023

Baxter Healthcare Corp. accepted about $3.3 million in state and local government incentives tied to the expansion of its Alabama plant. In exchange, the company agreed to hire and keep at least 200 employees through last year.

This month, with the decade-long deal done, the company is closing the facility in Opelika and laying off 459 employees. So was this a good deal for Alabama? For Opelika?

“No question about it. It’s a huge capital investment,” Gary Fuller, Opelika’s mayor, told AL.com on Wednesday, emphasizing that the city’s incentives were performance-based. “It was an excellent arrangement for us.”

The small city paid Baxter $1.3 million in cash incentives over the last eight years, in addition to providing other tax breaks, according to city records obtained by AL.com.

The medical device manufacturer also received $2 million from the state, said Stefania Jones, spokeswoman for the Alabama Department of Commerce.

Representatives for the Commerce Department didn’t respond to specific questions about the impact of the incentives given the closure, though Jones said that Alabama and Baxter “fulfilled their obligations in the agreement.”

Fuller pointed to two ways the city directly benefited from Baxter’s presence: education-related taxes, which he said supported Opelika city schools, and the city’s occupational license fee, for which the city collects 1.5% of payroll.

Baxter was eligible for more than $5 million in total cash incentives through its decade-long agreement with Alabama, Opelika and Opelika Industrial Authority, per a copy of the original 2014 agreement. In exchange, Baxter invested $270 million into expanding the facility that’s operated since the early 2000s, doubled the existing space to 400,000 square feet and doubled its workforce to 350 employees.

As of Nov. 30, Baxter is laying off hundreds more employees than it was incentivized to hire. That’s per a WARN notice reported Sept. 27, which major employers are legally required to file to notify the state that it plans to cut a lot of jobs. The company reported to Opelika that it employed 564 full-time workers at the Alabama plant, as of June 2022, per a company memo obtained by AL.com.

Sam Addy, a senior research economist who has served on committees reviewing the state’s incentive program, said that the Departments of Revenue and Commerce examine what a company like Baxter presents early on while making incentive agreements.

“They get [incentives] for when they are meeting the terms on an annual basis, so we don’t lose out,” he said. “The main risk is, do they get successful enough to stay?”

Greg LeRoy, executive director and founder of Good Jobs First – a watchdog group for state and local economic development subsidies – said Alabama and Opelika could’ve made a stronger deal. The agreement could’ve required a longer maintenance period than the incentives and tax credit period, he said.

“Business basics drive these decisions, not incentives. In this case, obviously, the incentives apparently don’t matter, or marginally, because even if the company had left earlier they wouldn’t have had to pay back very much and still got a lot of benefits.”

The bigger question, he said, is: “Why isn’t Opelika sticky enough for this company to stay?”

Addy, who is also associate dean for economic development outreach at the University of Alabama Culverhouse College of Business’ Center for Business and Economic Research, noted that Baxter progressed further than some other companies have before closing. He pointed to the state’s “pay-as-you-go” incentive program as why it’s successful, as opposed to handing over the incentives up front.

“As a whole program, it’s really good. The ROI on it is very high,” he said. “But you will always find single firms that don’t achieve success as we wanted.”