November 14, 2005
Clearing the record | Critics say Wal-Mart hasn't provided the jobs or the wages it promised for its Lewiston distribution center. The truth is considerably more complicated.
By Douglas Rooks
When Wal-Mart's regional distribution center in Lewiston opened in June, it brought 225 jobs to town. It's the first phase of an 892,000-square-foot facility that represents the state-of-the-art in the world's largest retailer's plans for its numerous supercenters. These mammoth stores, frequently exceeding 200,000 sq. ft., add groceries to the traditional department store merchandise and have, in short order, made Wal-Mart the nation's largest and fastest-growing supermarket chain.
At a ceremony in August, Gov. John Baldacci cut the ribbon for what will be Maine's largest distribution facility, and local celebrity Joey Gamache, the former boxing champion, was also on hand. In the background of the celebration, however, there were discordant notes.
Wal-Mart Watch, a much-visited website, featured the Lewiston distribution center as the lead story in its expose, called "Broken Promises," claiming that Wal-Mart wasn't meeting its guarantees for wages and number of jobs. A union organizing group called Laborers New England created a stir by claiming that "Wal-Mart Stole Your Tax Dollars" by offering substandard jobs.
These contentions arose from a generous local and state package of concessions ˆ some $17 million in all ˆ that were agreed to in 2002 as inducements for Wal-Mart to build the $40 million facility in Lewiston.
As it turns out, none of the claims is true. They may represent no more than simple misunderstandings, and a lack of familiarity with the concession package's terms. But heightened suspicions about Wal-Mart are far from uncommon, as the retailing giant not only continues to "streamline" its supply chain, but undertakes a lengthy process of reducing wage and benefit costs.
Recent national news coverage demonstrates the pattern. On Oct. 24, the media covered Wal-Mart's plans to expand health care coverage to its employees, primarily by reducing the monthly payroll deduction. The announcement included the admission by company officials that just 43% of Wal-Mart employees currently enroll in its health insurance plan, far below industry averages (rival Costco insures 80%). But most analysts saw the offer as a big step forward, with one saying that critics "would have trouble attacking the plan."
Two days later, the New York Times ran a story, based on an internal company memo obtained from Wal-Mart Watch, that described sweeping recommendations for reducing the cost of benefits, including health insurance. The memo, from M. Susan Chambers, Wal-Mart's executive vice president for benefits, outlined ways to discourage older workers from staying, suggesting that "all jobs [should] include some physical activity (e.g. all cashiers do some cart-gathering)." The reason was made clear later in the memo: "The cost of an associate with seven years of tenure is almost 55% more than the cost of an associate with one year of tenure, yet there is no difference in his or her productivity."
Chambers told the newspaper that the changes overall would serve employees better and that "this is not about cutting." But in the memo, she also admitted that "Wal-Mart's critics can easily exploit some aspects of our benefits offerings to make their case; in other words, our critics are correct in some of their observations." Wal-Mart, for instance, has a high percentage of workers who receive Medicaid benefits.
Reasons for concern
In Lewiston, things are simpler. The charge that Wal-Mart has not created the 350 jobs it promised is easily answered, because that total involves the second phase of the distribution center, the refrigerated warehouse, that is just under construction and won't open until sometime next year. When that happens, Wal-Mart will meet or exceed the 350 jobs specified in its agreement with Lewiston, according to John Bisio, Wal-Mart's regional director of community affairs, who's based in the Bentonville, Ark. corporate headquarters. Local sources say that there will probably be twice the current number of jobs ˆ possibly as many as 450.
"We keep our promises," Bisio said. "If for any reason our plans change, you'd hear about it first, from us."
The claims about wages are also quickly cleared up. The dispute stems from a classified ad run in several papers for "Material Handling First Shift" for a company "located at the new Wal-Mart Distribution Center." It advertised wages of $8.50-$9.50 per hour, far below the $13 an hour the company projected when it signed the 2002 agreement. Labor organizers and others cried foul.
The company involved, however, wasn't Wal-Mart, but a pallet company subcontracted to get things started at the distribution center, Bisio said. Wal-Mart does subcontract some other startup jobs at $10 an hour, he said, but these are not permanent positions.
Lincoln Jeffers, assistant economic development director for Lewiston, said Wal-Mart may well do better than its earlier estimates. Distribution center employees start at $13-$13.50 an hour and within six weeks earn $14, with further increases to $16 possible, he said. Bisio declined to be specific about wages, describing it as an internal matter, but said pay rates are "competitive" and considerably higher than Wal-Mart's retail store pay, which averages about $9 an hour.
Still, the Lewiston project's reception may reflect fallout from the original deal to locate there, which left even some city councilors who voted for the agreement criticizing the company.
Rex Rhoades, executive editor of the Lewiston Sun Journal, wrote several columns and editorials in 2002 critical of the process. In one of them, he wrote, "It strikes me as grossly unfair that one of the poorest states in the union with the highest citizen tax burden must pay top dollar to attract low to middle income retail industry jobsˆ It's not as if this is an export industry or these are research and development jobs. When Wal-Mart sells groceries, somebody else doesn't. We only eat so much, making it a finite market."
He says now that there were three reasons for concern. First was the extraordinary secrecy involved in the negotiations, and what the city council saw as great pressure to conclude a deal. "The whole thing happened in the week between Christmas and New Year's" of 2001-2002, he said. "We saw that as an effort to sidetrack public input."
Second, it appeared that the council "overpaid" for the center, even though such projects typically attract tax breaks elsewhere. "It just seemed that it cost us a lot more than it did most other communities," he said.
Finally, the Sun Journal saw the package as benefiting Wal-Mart at the possible expense of existing distributors, Rhoades said. Lowering the cost of building the distribution center, in essence, might give Wal-Mart an unfair advantage over its competitors.
Rhoades seems to regard this as water over the dam now, though. "I love jobs just as well as the next guy," he said.
Lincoln Jeffers says these are good jobs, too, that have enhanced employment in the area. He said that the distribution center has been "a great addition" in part because wages are higher than at similar distribution operations, which previously started employees at as little as $10 an hour.
The multiplier effect
That argument surprises Stacy Mitchell of the Institute for Local Self-Reliance in Portland, who deplores the incentives offered to national retail chains like Wal-Mart, while local entrepreneurs with good ideas lack basic startup funding.
"In general, Wal-Mart is below its competitors in terms of wages," she said. Warehouse jobs that are more skilled and dangerous might be paid more, but the average Wal-Mart retail employee makes less than $19,000 a year, she noted.
The problem with subsidizing Wal-Mart, she said, is that it just "takes away from retail somewhere else," and she echoed Rhoades' concern that the new distribution center "will come at the expense of existing wholesalers." She sees no evidence that the Wal-Mart center will make the pie any larger, saying, "the net effect is zero."
Mitchell conceded that Lewiston itself may show employment gains from the center, but asked, "Is this really something we should be supporting with our state tax dollars?"
She said city leaders who think they can have a thriving downtown while facilitating big-box development elsewhere in town are kidding themselves. She pointed to Biddeford, where the city wants to float a large bond issue to close a trash incinerator downtown that it believes impedes redevelopment, while it also provides generous tax increment financing for Lowe's and Target stores near the turnpike.
The critics don't see the whole picture, though, according to Paul Badeau, marketing director for the Lewiston-Auburn Economic Growth Council, which has backed the Wal-Mart distribution center from the beginning. Focusing too narrowly on the project itself, he says, misses the "multiplier effect," the spinoff development that's sought after from the Route 128 corridor in Massachusetts to California's Silicon Valley.
A tire warehouse has already opened near the distribution center, and Bisson
Transportation and Safe Handling have announced new facilities for the same area. Landing the Wal-Mart distribution center is "a great deal" for the L-A area, Badeau said, because it has put the twin cities on the map for similar projects. "We've been getting lots of regional and even national companies calling," he said. "The infrastructure built for Wal-Mart will benefit a lot of other projects, too."
That's what justifies the local subsidies for the project, he said. The city's part of the package including donation of the 61-acre site on Alfred Plourde Parkway, a mile off the turnpike, assessed at $300,000; restoration of the gravel pit previously located there, $940,000; and $1 million in sewer and water line construction. There are also local tax incentive financing packages valued at $5.8 million. The state contribution included $1.2 million in road improvements and projected business equipment tax reimbursements estimated at $5 million-$8 million. Central Maine Power built a new substation large enough to handle not only Wal-Mart, but other new development in the area.
Running the numbers
Wal-Mart's John Bisio said that the build-out of the distribution center, the initial 450,000-square-foot dry goods warehouse and the similarly sized refrigerated facility to be finished next year, is just the third of its kind. There are 28 other Wal-Mart distribution centers nationally, and many will be enlarged or replaced with facilities similar to Lewiston.
Centers typically distribute to stores within 150-200 miles, which would put Lewiston in range of all of New England except far southern and western sections. While the refrigerated warehouses are specifically designed to supply supercenters, all of the Wal-Mart stores in the region will be served through Lewiston. At the moment, Maine has 11 Wal-Mart supercenters and another 11 department stores.
Bisio said Wal-Mart "couldn't be happier" with its relationship with Lewiston, and said city officials have been helpful in making adjustments as construction progressed. He agrees with Badeau on the spinoff benefits, saying, "This kind of project generates a tremendous return in jobs and other economic opportunities."
The State Planning Office estimates the distribution center will produce $1.77 million in new revenue annually for the state, including $500,000 in fuel taxes from increased trucking. Badeau said that Diamond Phoenix, a local company, is another example of a spinoff benefit. It built the robotic "picking and sorting" machinery used in the new warehouse.
The numbers sound good, but they don't convince everyone. Wal-Mart has gotten incentives almost everywhere it takes its distribution centers, "and they really go after those subsidies," said Stacy Mitchell. With the collapse of Maine's once-solid manufacturing base, "towns and cities are really desperate for jobs, and the tendency is to pay the price being asked," she said.
Cities like Lewiston would be better off if they concentrated on rebuilding their downtowns, including ordinances that steered development there rather than to outlying areas, she said. That might involve limiting the size of retail stores ˆ though not necessarily distribution centers ˆ and asking for comprehensive economic impact statements, predicting job losses elsewhere and not just the positive numbers developers like to use, Mitchell said. Regional economic development agencies can help, too, by going beyond one city's boundaries to examine the effects on neighboring communities.
Big companies almost always have advantages over small ones, she said, even when the small business are local. "Just look at the Hurricane Katrina cleanup," Mitchell said. "Home Depot is getting most of the business, and the local suppliers are shut out."
Paul Badeau is convinced that Wal-Mart will be a good neighbor in Lewiston. When the company was looking for sites, he was impressed because "they left no stone unturned. It wasn't just the usual questions about the labor market, government cooperation, and transportation." Company officials, he said, wanted to talk with the local police chief and fire chief, and requested a local minister as well. "There was a real concern for the quality of life, what we have to offer in schools, entertainment and worship," he said. "They knew they'd be moving top management people to the area, and wanted it to be someplace they knew they'd want to live."
At a ceremony in August, Gov. John Baldacci cut the ribbon for what will be Maine's largest distribution facility, and local celebrity Joey Gamache, the former boxing champion, was also on hand. In the background of the celebration, however, there were discordant notes.
Wal-Mart Watch, a much-visited website, featured the Lewiston distribution center as the lead story in its expose, called "Broken Promises," claiming that Wal-Mart wasn't meeting its guarantees for wages and number of jobs. A union organizing group called Laborers New England created a stir by claiming that "Wal-Mart Stole Your Tax Dollars" by offering substandard jobs.
These contentions arose from a generous local and state package of concessions ˆ some $17 million in all ˆ that were agreed to in 2002 as inducements for Wal-Mart to build the $40 million facility in Lewiston.
As it turns out, none of the claims is true. They may represent no more than simple misunderstandings, and a lack of familiarity with the concession package's terms. But heightened suspicions about Wal-Mart are far from uncommon, as the retailing giant not only continues to "streamline" its supply chain, but undertakes a lengthy process of reducing wage and benefit costs.
Recent national news coverage demonstrates the pattern. On Oct. 24, the media covered Wal-Mart's plans to expand health care coverage to its employees, primarily by reducing the monthly payroll deduction. The announcement included the admission by company officials that just 43% of Wal-Mart employees currently enroll in its health insurance plan, far below industry averages (rival Costco insures 80%). But most analysts saw the offer as a big step forward, with one saying that critics "would have trouble attacking the plan."
Two days later, the New York Times ran a story, based on an internal company memo obtained from Wal-Mart Watch, that described sweeping recommendations for reducing the cost of benefits, including health insurance. The memo, from M. Susan Chambers, Wal-Mart's executive vice president for benefits, outlined ways to discourage older workers from staying, suggesting that "all jobs [should] include some physical activity (e.g. all cashiers do some cart-gathering)." The reason was made clear later in the memo: "The cost of an associate with seven years of tenure is almost 55% more than the cost of an associate with one year of tenure, yet there is no difference in his or her productivity."
Chambers told the newspaper that the changes overall would serve employees better and that "this is not about cutting." But in the memo, she also admitted that "Wal-Mart's critics can easily exploit some aspects of our benefits offerings to make their case; in other words, our critics are correct in some of their observations." Wal-Mart, for instance, has a high percentage of workers who receive Medicaid benefits.
Reasons for concern
In Lewiston, things are simpler. The charge that Wal-Mart has not created the 350 jobs it promised is easily answered, because that total involves the second phase of the distribution center, the refrigerated warehouse, that is just under construction and won't open until sometime next year. When that happens, Wal-Mart will meet or exceed the 350 jobs specified in its agreement with Lewiston, according to John Bisio, Wal-Mart's regional director of community affairs, who's based in the Bentonville, Ark. corporate headquarters. Local sources say that there will probably be twice the current number of jobs ˆ possibly as many as 450.
"We keep our promises," Bisio said. "If for any reason our plans change, you'd hear about it first, from us."
The claims about wages are also quickly cleared up. The dispute stems from a classified ad run in several papers for "Material Handling First Shift" for a company "located at the new Wal-Mart Distribution Center." It advertised wages of $8.50-$9.50 per hour, far below the $13 an hour the company projected when it signed the 2002 agreement. Labor organizers and others cried foul.
The company involved, however, wasn't Wal-Mart, but a pallet company subcontracted to get things started at the distribution center, Bisio said. Wal-Mart does subcontract some other startup jobs at $10 an hour, he said, but these are not permanent positions.
Lincoln Jeffers, assistant economic development director for Lewiston, said Wal-Mart may well do better than its earlier estimates. Distribution center employees start at $13-$13.50 an hour and within six weeks earn $14, with further increases to $16 possible, he said. Bisio declined to be specific about wages, describing it as an internal matter, but said pay rates are "competitive" and considerably higher than Wal-Mart's retail store pay, which averages about $9 an hour.
Still, the Lewiston project's reception may reflect fallout from the original deal to locate there, which left even some city councilors who voted for the agreement criticizing the company.
Rex Rhoades, executive editor of the Lewiston Sun Journal, wrote several columns and editorials in 2002 critical of the process. In one of them, he wrote, "It strikes me as grossly unfair that one of the poorest states in the union with the highest citizen tax burden must pay top dollar to attract low to middle income retail industry jobsˆ It's not as if this is an export industry or these are research and development jobs. When Wal-Mart sells groceries, somebody else doesn't. We only eat so much, making it a finite market."
He says now that there were three reasons for concern. First was the extraordinary secrecy involved in the negotiations, and what the city council saw as great pressure to conclude a deal. "The whole thing happened in the week between Christmas and New Year's" of 2001-2002, he said. "We saw that as an effort to sidetrack public input."
Second, it appeared that the council "overpaid" for the center, even though such projects typically attract tax breaks elsewhere. "It just seemed that it cost us a lot more than it did most other communities," he said.
Finally, the Sun Journal saw the package as benefiting Wal-Mart at the possible expense of existing distributors, Rhoades said. Lowering the cost of building the distribution center, in essence, might give Wal-Mart an unfair advantage over its competitors.
Rhoades seems to regard this as water over the dam now, though. "I love jobs just as well as the next guy," he said.
Lincoln Jeffers says these are good jobs, too, that have enhanced employment in the area. He said that the distribution center has been "a great addition" in part because wages are higher than at similar distribution operations, which previously started employees at as little as $10 an hour.
The multiplier effect
That argument surprises Stacy Mitchell of the Institute for Local Self-Reliance in Portland, who deplores the incentives offered to national retail chains like Wal-Mart, while local entrepreneurs with good ideas lack basic startup funding.
"In general, Wal-Mart is below its competitors in terms of wages," she said. Warehouse jobs that are more skilled and dangerous might be paid more, but the average Wal-Mart retail employee makes less than $19,000 a year, she noted.
The problem with subsidizing Wal-Mart, she said, is that it just "takes away from retail somewhere else," and she echoed Rhoades' concern that the new distribution center "will come at the expense of existing wholesalers." She sees no evidence that the Wal-Mart center will make the pie any larger, saying, "the net effect is zero."
Mitchell conceded that Lewiston itself may show employment gains from the center, but asked, "Is this really something we should be supporting with our state tax dollars?"
She said city leaders who think they can have a thriving downtown while facilitating big-box development elsewhere in town are kidding themselves. She pointed to Biddeford, where the city wants to float a large bond issue to close a trash incinerator downtown that it believes impedes redevelopment, while it also provides generous tax increment financing for Lowe's and Target stores near the turnpike.
The critics don't see the whole picture, though, according to Paul Badeau, marketing director for the Lewiston-Auburn Economic Growth Council, which has backed the Wal-Mart distribution center from the beginning. Focusing too narrowly on the project itself, he says, misses the "multiplier effect," the spinoff development that's sought after from the Route 128 corridor in Massachusetts to California's Silicon Valley.
A tire warehouse has already opened near the distribution center, and Bisson
Transportation and Safe Handling have announced new facilities for the same area. Landing the Wal-Mart distribution center is "a great deal" for the L-A area, Badeau said, because it has put the twin cities on the map for similar projects. "We've been getting lots of regional and even national companies calling," he said. "The infrastructure built for Wal-Mart will benefit a lot of other projects, too."
That's what justifies the local subsidies for the project, he said. The city's part of the package including donation of the 61-acre site on Alfred Plourde Parkway, a mile off the turnpike, assessed at $300,000; restoration of the gravel pit previously located there, $940,000; and $1 million in sewer and water line construction. There are also local tax incentive financing packages valued at $5.8 million. The state contribution included $1.2 million in road improvements and projected business equipment tax reimbursements estimated at $5 million-$8 million. Central Maine Power built a new substation large enough to handle not only Wal-Mart, but other new development in the area.
Running the numbers
Wal-Mart's John Bisio said that the build-out of the distribution center, the initial 450,000-square-foot dry goods warehouse and the similarly sized refrigerated facility to be finished next year, is just the third of its kind. There are 28 other Wal-Mart distribution centers nationally, and many will be enlarged or replaced with facilities similar to Lewiston.
Centers typically distribute to stores within 150-200 miles, which would put Lewiston in range of all of New England except far southern and western sections. While the refrigerated warehouses are specifically designed to supply supercenters, all of the Wal-Mart stores in the region will be served through Lewiston. At the moment, Maine has 11 Wal-Mart supercenters and another 11 department stores.
Bisio said Wal-Mart "couldn't be happier" with its relationship with Lewiston, and said city officials have been helpful in making adjustments as construction progressed. He agrees with Badeau on the spinoff benefits, saying, "This kind of project generates a tremendous return in jobs and other economic opportunities."
The State Planning Office estimates the distribution center will produce $1.77 million in new revenue annually for the state, including $500,000 in fuel taxes from increased trucking. Badeau said that Diamond Phoenix, a local company, is another example of a spinoff benefit. It built the robotic "picking and sorting" machinery used in the new warehouse.
The numbers sound good, but they don't convince everyone. Wal-Mart has gotten incentives almost everywhere it takes its distribution centers, "and they really go after those subsidies," said Stacy Mitchell. With the collapse of Maine's once-solid manufacturing base, "towns and cities are really desperate for jobs, and the tendency is to pay the price being asked," she said.
Cities like Lewiston would be better off if they concentrated on rebuilding their downtowns, including ordinances that steered development there rather than to outlying areas, she said. That might involve limiting the size of retail stores ˆ though not necessarily distribution centers ˆ and asking for comprehensive economic impact statements, predicting job losses elsewhere and not just the positive numbers developers like to use, Mitchell said. Regional economic development agencies can help, too, by going beyond one city's boundaries to examine the effects on neighboring communities.
Big companies almost always have advantages over small ones, she said, even when the small business are local. "Just look at the Hurricane Katrina cleanup," Mitchell said. "Home Depot is getting most of the business, and the local suppliers are shut out."
Paul Badeau is convinced that Wal-Mart will be a good neighbor in Lewiston. When the company was looking for sites, he was impressed because "they left no stone unturned. It wasn't just the usual questions about the labor market, government cooperation, and transportation." Company officials, he said, wanted to talk with the local police chief and fire chief, and requested a local minister as well. "There was a real concern for the quality of life, what we have to offer in schools, entertainment and worship," he said. "They knew they'd be moving top management people to the area, and wanted it to be someplace they knew they'd want to live."
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