Playing politics with pain: Glenn Gruenhagen blames Hutch Tech lay-off on taxes

Update 3/16: While Minnesota Republicans carried on about how HTI's relocation of jobs could have been motivated by a two-year tax credit for businesses relocating to Wisconsin, that's probably not a motivating factor. According to this business source:

"No deduction or credit will be allowed if the person, partnership, limited liability company, or S Corporation has done business in Wisconsin during any of the two taxable years preceding the first taxable year in which the deduction or credit would otherwise be allowed." Since HTI's Eau Claire (above photo) has been open and operating for some time, this MNGOP talking point is clearly nonsense. [end update].

I live in Hutchinson, Minnesota, and so have followed the fortunes of a local company that manufactures suspension drives for computers. Put bluntly, the company's fading from the local scene mostly has to do with shifts in demand for the product, created by changing computer technology, as well as shifts in manufacturing offshore.

That hasn't eased the pain of the people I know who worked there--mostly parents of young friends around college age--who have been laid-off in the last few years from the non-union plant. Fortunately, most have been able to go back to school and switch careers.

Today's Star Tribune reports in Hutchinson Technology laying off hundreds:

Far fewer people will be working for Hutchinson Technology due to the Minnesota company's plan to restructure and move its components operations from Minnesota to its facility in Eau Claire, Wis., and overseas.

Hutchinson, based in its namesake city west of the Twin Cities, said Tuesday that it will cut its current U.S. workforce of about 2,275 by 30 to 40 percent. In Hutchinson, about 600 of the 1,125 jobs will be eliminated.

Leave it to Minnesota's Republicans to seize on a local small town's misery to tout Wisconsin, run by divisive fringe Governor Scott Walker, over Minnesota. My favorite new state House member, Glenn Gruenhagen wrote in an email that went out today:

This is how a stable, low-tax and pro-growth business climate at the federal level can generate revenue for Minnesota. But there is still vast room for improvement at the state level and we continue losing jobs to neighboring states. We recently learned a prominent Hutchinson company will shift its manufacturing operations to Wisconsin at a savings of $45 to $60 million annually. Our tax climate remains among the most unfriendly in the country and Gov. Dayton’s plans to raise taxes would put us at a further disadvantage.

You reach a point of diminishing returns when tax increases push our job creators out of the state, cutting off revenue streams we need for sustainability and a strong economy. Our neighbors – including Wisconsin – recognize this and declare themselves “open for business” instead of strangling the goose that lays our golden eggs.

Is Minnesota's tax climate the reason to blame for HTI's shift in production? Or is Gruenhagen simply demogoguing the pain that workers will be feeling in nearby Hutchinson (Gruenhagen lives in Sibley County, but sells insurance in McLeod County's seat, Glencoe).

A curious closing in South Dakota

Posted on the company's website, the press release announcing the restructuring notes:

Fortun said that improvements in TSA+ yield and output and being ahead of plan with the ramp of its assembly operation in Thailand have provided an opportunity to further lower the company's operating costs. "With a faster than expected transition from our legacy TSA component manufacturing process to our more automated TSA+ process, we need fewer employees to meet customers' volume requirements," said Fortun. "Additionally, progress at our Thailand assembly operation is enabling us to accelerate the transition of assembly manufacturing to that location. The continued transition of TSA to TSA+ and the continued ramp of our Thailand operation, combined with the savings from our consolidation and restructuring, will improve the utilization of our high-volume manufacturing locations and support infrastructure and help us return to positive cash flow and profitability sooner."

And where are those TSA+ components made? The Hutchinson Leader reports in Hutchinson Technology to end manufacturing in Hutchinson:

The decision to consolidate manufacturing in Eau Claire was made because the plant there is better equipped and has the capacity for the production of TSA+, the company's newest line of suspension assemblies.

TSA+ suspension assemblies, which accounted for about 45 percent of the company's fiscal 2011 first quarter shipments, are expected to account for more than half of the company's fiscal 2011 second quarter shipments and two-thirds of its shipments by year end.

Fortun said improvements in TSA+ yield and output and being ahead of plan with the ramp of its assembly operation in Thailand have provided an opportunity to further lower the company's operating costs.

"With a faster than expected transition from our legacy TSA component manufacturing process to our more automated TSA+ process, we need fewer employees to meet customers' volume requirements," Fortun said.

In 2009, the company announced it was resuming plans to build a plant in Thailand, according to news reports in July 2009:

HTI shipped 146 million suspension assemblies in the quarter and about 10 million TSA+ suspension assemblies, a next-generation product made in Eau Claire.

Company officials said sales of TSA+ suspension assemblies have the potential to double in the fourth quarter. HTI also resumed plans to establish an assembly operation in Thailand, which could be operational by the second half of next year.

In April 2009, the local paper in Eau Claire reported:

"Our TSA+ manufacturing processes are critical to providing next-generation suspension assembly products that meet customers' requirements for superior performance and lower costs,"  Pautz added. "High-volume TSA+ production is done in Eau Claire. That team is doing a great job in meeting increased demand, while at the same time continually improving the process.

In 2009, Democrat Jim Doyle was in his second term as governor; Democrats had taken control of the State Assembly with the 2008 elections, while retaining control of the State Senate. Under Republican logic, one would think that Hutch Tech jobs would have flowed to South Dakota. 

And indeed, Hutch Tech did open a plant in South Dakota in 1988, and company co-founder Jeff Green made waves at the time by criticizing Minnesota's business climate. Employment peaked at that plant in 1999, but declined after that time ( Rob Swenson, "Hutchinson Plays Smaller, Vital Role", Argus Leader, September 17, 2008, Nexis, accessed 3/8/2011).

But Hutch Tech closed that Sioux Falls plant in January 2009. 

It moved equipment and a few hundred jobs to Hutchinson and Eau Claire.

There's nothing in the current reportage to suggest that taxation is causing the consolidation to Eau Claire, nor the placement of the TSA+ lines in Wisconsin during the Doyle years.

And this company's leadership isn't shy. Were today's decision made because of the sudden shift in Republican talking point about business climates in Wisconson and Minnesota, we'd have head about it. Instead, the restructuring follows siting decisions made some time ago.

Offshoring of manufacturing

And then there's the shift to offshore manufacturing. In a related blog post at the Strib, business writer Eric Wieffering writes in Hutch Tech: Too little, too late?:

To some degree, the people of Hutchinson have been bracing for this moment ever since their namesake company's fortunes took a dramatic turn for the worse almost three years ago. The company has shed about 2,000 jobs since then. Still, the impact of the latest cuts is hard to overstate: the elimination of up to 40 percent of all jobs, including nearly half in Hutchinson.)

(One measure of how depressingly familiar this type of news has become for Hutch Tech: The quote that accompanied today's news is, word-for-word, the same as the one the company issued in '09, when it shut its South Dakota facility and laid off 300 employees. The only difference was the executive whose mouth the words were attached to.) [BSP: and the state in which the plant was located]

A year ago, Hutch announced plans to build its first overseas production facility, in Thailand. The company is banking on that facility to help claw its way back to profitability, but given that many of its competitors moved manufacturing to Asia a decade ago or more, did Hutch wait too long?

Details, details. Why would Glenn Gruenhagen look at facts when he can use his neighbors' misery to flog Governor Dayton?  Why let facilities and global trends get to the way of a chance to punish a DFLer?

Images: Hutch Tech, Eau Claire (above); Screenshot of Representative Glenn Gruenhagen's email (below)

Comments

[Phoenix Woman]

Good catch!

[Phoenix Woman]

Oh, and can we start calling them "ThaiTech" now, being that's where they're going? They're probably going to change their name anyway.

[Colin Lee]

Logic isn't the strong suit with these folks. First, they argued that Minnesota was losing jobs to South Dakota due to taxes after TCF moved a mail drop there to qualify for weaker usury laws. Now, they're arguing Minnesota is losing jobs to Wisconsin. They always claim taxes are at fault.

The simple, undeniable reality is that Minnesota overall business taxes are lower than in Wisconsin and South Dakota. Should they instead be claiming that Minnesota's third-lowest unemployment rating is because we're a low tax state?

According to a 2009 study by the Council on State Taxation at cost.org, Minnesota overall business taxes only amount for 4.3% of gross state product. This is compared to 4.9% in South Dakota and 4.6% in Wisconsin. Both South Dakota and Wisconsin tend to have higher property taxes because of their lower income taxes, which harm small businesses and new startups that produce the most jobs.

However, the single greatest source of frustration for startups and small businesses is not taxation, according to the right-leaning NFIB. Every recent small business survey they've conducted for years has shown the cost of health insurance as the single greatest impediment to small businesses in America.

[Phoenix Woman]

"Every recent small business survey they've conducted for years has shown the cost of health insurance as the single greatest impediment to small businesses in America."

Yup, which is why North American automakers looking to actually build cars from the ground up, which requires skilled and educated labor (as opposed to merely putting together pre-made parts, which doesn't require as much skill -- which is how various Japanese carmakers can have final-assembly plants in right-to-starve states with deliberately-horrible public education), are opening up shop in Canada, which, unlike the US, doesn't have private health insurers, much less a fantastically rich and huge health insurer lobby that can warp or even kill legislation that threatens its existence or even its profits.

[Randy O. Olson]

I hope some of you flog this bastard (Glenn) in your local newspaper opinion pages.