CEO Peter Farrell may move ResMed out of state.
  • CEO Peter Farrell may move ResMed out of state.
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San Diego–based ResMed makes products for the treatment of sleep-disordered breathing. Trouble is, it doesn’t make those products in San Diego. Its main manufacturing facility is in Australia, where the company was founded in 1989. It also has manufacturing plants in Singapore, Malaysia, Paris, and Freudenstadt, Germany. It does make electric motors in Chatsworth, and it has an assembly/distribution plant in South Carolina.

It has 3700 employees worldwide, and only 404 of them are in San Diego.

But the community is atremble. ResMed’s chief executive, Peter Farrell, is unhappy about the election results. He doesn’t want higher taxes, stronger unions, and tougher regulations. He deplores the Democratic Party’s huge majority in the state legislature.

So, he is thinking of moving ResMed’s headquarters elsewhere — to, say, Texas, South Carolina, or Singapore. A specially appointed ResMed subcommittee will study possible relocations and give a report in February. Both U-T San Diego and the San Diego Business Journal gave Farrell a forum to mouth his warnings.

“California just doesn’t have a business-friendly environment,” he complained to the Business Journal.

Unfortunately for taxpayers, “business friendly” is commonly a euphemism for “corporate socialist.” When business executives talk of a “business friendly” state or municipality, they mean “willing to give away taxpayer funds to corporations.” Usually that means taking those funds from schools, infrastructure, and essential government services.

As Farrell was denouncing California, the New York Times was running a series of articles on how American corporations pick the pockets of taxpayers by demanding all manner of enticements — cash grants, loans, tax breaks, property tax abatements, income tax credits and/or exemptions, and free services, including worker training. In return for the payoffs, businesses put a plant in a metro area or promise not to move to friendlier climes.

The Times says that state and local governments shell out $80 billion a year in this out-and-out bribery game, often called “jobs blackmail.” Of that sum, $19 billion yearly has been coming from Texas, whose representatives have been visiting a number of cities, including San Diego, to induce businesses to move. The Times points out that Texas is 11th from the bottom in education spending per pupil among American states. But to balance its budget last year, it cut education spending by $5.4 billion. Asked if he had qualms about filching jobs from other states, Governor Rick Perry — yeah, that guy who wanted to be president — said, “Competition is what drives this country.”

Perry would not understand that it’s competition for corporate innovation and efficiency, not competition for jobs blackmail, that propels the national economy. Nor would Perry understand that this subsidy racket is basically a zero-sum game because one community’s gain is usually another’s loss. In the United States, it can be a losing game if the company decides to move offshore — say, if ResMed decides to move its headquarters to Singapore.

Here’s what relocation incentives usually mean: a community shells out so much money to get a company to build a plant in town that tax revenues falter, infrastructure crumbles, and schools decline severely. In a few years, the company that begged for the subsidy can’t get employees to transfer there. As soon as it legally can, it vamooses, leaving an empty plant.

“States should invest in public services and education, not subsidize big business,” editorializes the Times. One encouraging statistic: California gives out $112 in subsidies per capita, compared with $759 in Texas and $672 in Michigan.

This scam has been going on a long time. I wrote about it in the Union-Tribune in the 1990s, and I was hardly the first journalist to do so. In 1999, economists did an exhaustive study of $176 million in loans, grants, and tax increment financing deals by various government bodies in Minnesota. The result of all those payments: “high costs, low wages, and an absence of standards to ensure that job subsidies produce an effective return on taxpayers’ investment.”

For the Reader, I have written columns about massive subsidies Florida is shelling out to get San Diego research institutions to set up operations in the Sunshine State. Last year, Florida was paying a staggering $1 million per job — more than ten times the amount that is generally considered far too high.

One of the most egregious examples comes from one of the sickest states: Illinois. Once upon a time, mighty Sears Roebuck epitomized Chicago’s muscle. It built the huge Sears Tower in downtown Chicago. Then it got into trouble. In 1989, Illinois shelled out a bundle to get the company to relocate to a Chicago suburb. But last year, the sinking Sears (now named Sears Holdings) threatened to move to Ohio or elsewhere. The state coughed up $275 million to get it to stay. Immediately it laid off workers. It turned out that under its contract with the state, Sears can lay off another 1750 without penalty. So much for job creation.

U-T San Diego published an editorial bemoaning ResMed’s unhappiness and urging Mayor Filner to meet with Farrell and persuade him to stay. I emailed chief executive John Lynch, asking if the newspaper would favor such subsidies as cash grants and loans, tax breaks, free services, and the like to keep the company in town. Lynch replied that reducing taxes and regulation should be considered to retain local companies.

Constance Bienfait, ResMed’s head of investor relations, says it is too early to say what would be acceptable. ResMed’s tax team has already met with the mayor’s office, although management feels that access to tech talent may be enough to keep the company in town. Bienfait said ResMed has “a fiduciary responsibility to look at the best place to operate.”

That goes to the heart of the problem. Decades ago, companies had several constituencies: customers, employees, communities, vendors, shareholders. Beginning in the 1980s, shareholders became the only constituency. Clearly, greed is the reason that companies get subsidized, shareholders get massaged, and employees, taxpayers, and communities get screwed. I hope Farrell won’t play this game. ■

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Comments

Dennis Dec. 19, 2012 @ 11:21 a.m.

This is the classic example of Rent Seeking, or corporate welfare. The Chargers are playing the same game to get a new stadium built with the city covering most of the costs. The Padres got a similar deal. No new wealth is created but the city provides subsidies that then reduce their ability to provide the services that the public pays taxes for. I certainly hope Filner does not fall for this deal.

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Don Bauder Dec. 19, 2012 @ 12:47 p.m.

Dennis: Amen. Filner's aides must ask themselves, "Where does this stop?" If the City caves to ResMed, how many other companies will threaten to leave if they don't get a payoff? Actually, under corporate laws as often interpreted, San Diego companies could be considered cheating their shareholders by NOT asking for a bribe to remain in town. Most of these companies have a big investment in buildings, equipment, etc. If the City holds firm, they will drop the bribe demand. Best, Don Bauder

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Don Bauder Dec. 19, 2012 @ 12:55 p.m.

Textex: Amway is in multi-level marketing -- a form of pyramid scheme. It is a big and powerful company -- Amway heir Dick DeVos was instrumental in Michigan's recent passage of right-to-work legislation. Best, Don Bauder

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Javajoe25 Dec. 19, 2012 @ 12:53 p.m.

I wonder if Resmed received any subsidies, tax breaks or other assistance to set up here originally?

This is getting to be an annoying but familiar routine: extortion of the municipality for the sake of higher profits. I doubt they will go home--Australia's minimum wage is $15.96/hr. My bet is, if they go anywhere it will be Singapore, with no minimum wage at all.

I just wish we could do what they do in many European countries and that is to allow companies to leave in pursuit of lower wages and higher profits as long as they pick up the costs of unemployment, continued medical coverage, retraining and relocation if required for the employees they leave behind. Why should taxpayers get stuck with the tab every time a company decides they could make more money some place else?

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Don Bauder Dec. 19, 2012 @ 1:26 p.m.

JavaJoe: You have used the correct word -- extortion. It's the same scam the pro sports teams pull: line our pockets or we leave town. It's always pulled by someone claiming to be conservative, claiming that taxpayers are abused, government is too large and intrusive, etc. Yet they live off government largesse. ResMed's relocation to Singapore is a possibility, unfortunately. Best, Don Bauder

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SurfPuppy619 Dec. 19, 2012 @ 7:06 p.m.

Decades ago, companies had several constituencies: customers, employees, communities, vendors, shareholders. Beginning in the 1980s, shareholders became the only constituency

THIS IS THE DOWNFALL OF OUR COUNTRY- MAKING THE SELECTFEW RICH WHILE SHRINKING THE NATIONAL TAX BASE AND DESTROYING THE COUNTRY.

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Don Bauder Dec. 19, 2012 @ 10:25 p.m.

SurfPup: I have been writing for some time -- beginning, I believe, in the 1990s, but possibly the 1980s -- that the massive switch of corporations to care only about shareholders, and not about employees, communities, vendors, etc., is at the heart of our societal self-destruction. Unfortunately, the attitude seems embedded in law. It is the root of short term thinking: companies only think as far ahead as the next quarter, and pleasing Wall Street. Accounting fraud is rampant greatly because of this mentality. It is described by one word: greed. Best, Don Bauder

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itdoesntmatter Dec. 19, 2012 @ 7:30 p.m.

It would be interesting if Dr. Ferrell were permitted to know how many hourly employees file FMLA claims due to stress. Department Managers and Supervisors are well known for making career advancement impossible. They are, however skilled in the maintenance of the glass ceiling on their own second floor. Like ninja assassins, they pick and choose who stays and who doesn't, based on trumped up claims. Moving operations away from San Diego would leave 400 people unemployed. Any bets which departments will shoulder the majority of that number? Look no higher than the 2nd floor.

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Don Bauder Dec. 19, 2012 @ 10:28 p.m.

itdoesnotmatter: This describes many U.S. corporations today -- perhaps even most. It goes back to greed: the only thing management of public companies cares about is earnings per share in the next quarter, and it will go to any length to achieve those earnings -- by hook or crook, quite often by crook. Best, Don Bauder

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Vickers Dec. 20, 2012 @ 9:52 a.m.

Don I can tell that you have never had a job at a corporation where you actually have to compete in a global environment. Its very easy to judge business decisions from your ivory tower in the newspaper office without ever really have worked in a company like Resmed. Are you aware of the already existing taxes levied on Resmed and other med device companies? How about the costs to a company by unions, other taxes and regulations? It sucks the life out of companies and throttles down innovation. Believe me, I live it daily. You only watch it on TV and get Obama's version of it. (who, by the way has also never had a real job). Those 'handouts' given by the government are tax breaks on already massive and suffocating corporate taxes. Reduce those and the crushing regulations and this will create a friendly business climate. And I come from a union family, and even we can see their effects on companies today. Farrell never asked for a handout, you put those words in his mouth for the benefit of this article. Essentially, made something up to backup your weak points. Do you know why businesses move operations overseas? You villify companies that are trying to survive in the USA any way they can. I guess they should be quiet and pay the massive taxes then quietly go overseas. That is a better more humane way to handle it.

You, sir, have not a clue what drives this economy or how a real business operates.

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Don Bauder Dec. 20, 2012 @ 10:05 a.m.

Vickers: U.S. corporate taxes -- what companies ACTUALLY PAY, not the rates -- are low by comparison with other countries. And in general, companies pass most if not all of these taxes on to their customers anyway. U.S. companies did not massively move operations overseas to avoid taxes; they moved to take advantage of low and slave wages to bolster short term returns. You are going to have to read this column again. I never said that Farrell is asking for a handout. I said, quoting the company, that ResMed's tax team has met with the mayor's aides, but it is too early to say what the board's committee will recommend or ResMed will do. I noted that it is possible that the company will stay to take advantage of San Diego's technical labor pool. That's what I hope it does. Frankly, I think you are listening to propaganda fed to you by your employer, or have been brainwashed by some business school. You are the one who needs to know what really goes on in business. Best, Don Bauder

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Visduh Dec. 20, 2012 @ 10:17 a.m.

Don, if a reader doesn't look closely, it does indeed appear that you are accusing ResMed of asking for a handout. And too often the comments made by Farrell are in a sort of corporate code that means they expect handouts. But in this case, he may not be on that page at all. The taxes in the state are an impediment as are several other costs of doing business, such as workers comp rates. Whereas some states have made it a priority to streamline permitting processes and health-and-safety regulation, California is constantly described as having a crazy quilt mosaic of overlapping regulations and agencies with often contradictory requirements and demands. The current political environment does not encourage industries like ResMed, or many smaller enterprises, and the two new top brackets of state income tax will drive more high-wealth and high-income people out of the state.

So, I go along with you on the folly of states and cities "buying" jobs, and at steadily growing cost. That's not the role of government. But neither is it the role of government to overtax, under-deliver on services, and erect barriers to enterprise.

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Don Bauder Dec. 20, 2012 @ 9:49 p.m.

Visduh: Maybe I didn't make it clear enough: while the ResMed tax team has met with the mayor's aides, the company has not concluded that it wants a handout to remain in San Diego. The purpose of the column (encapsulated in the headline) was to urge ResMed not to insist on a subsidy. Best, Don Bauder

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Burwell Dec. 20, 2012 @ 8:32 p.m.

According the latest 10-K, Resmed's worldwide effective tax rate ranges between 23% and 27% percent, depending upon the level of research spending in any given year. In the year ended June 30, 2012, Resmed earned $331,945,000 on $1.368 billion in sales, and paid only $77,095,000 in taxes. I don't think Resmed's tax burden is too large. I just don't see how corporate taxes can be cut any further. Yet business executives demand more. They want Congress to change the law so that corporations can repatriate earnings stashed in offshore tax havens free of tax.

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Don Bauder Dec. 20, 2012 @ 10:07 p.m.

Burwell: Excellent research and conclusion. U.S. corporations are undertaxed -- particularly if you consider what they ACTUALLY pay, not their tax rate. The offshore repatriation should be the subject of a future column. Best, Don Bauder

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SurfPuppy619 Dec. 20, 2012 @ 10:17 p.m.

Resmed earned $331,945,000 on $1.368 billion in sales

That is an amazing profit margin, is that earned income before taxes???? Must be. Even taking out the $77 mil in taxes they still had an extremely high profit margin.

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Don Bauder Dec. 21, 2012 @ 8:27 a.m.

SurfPup: ResMed is a very profitable company, and deserves to be: it makes very good products, surviving in a competitive marketplace. But, as Burwell points out, it pays low taxes on those sturdy profits. I hope the mayor's office points that out to the company. Best, Don Bauder

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genoz Dec. 21, 2012 @ 8:26 p.m.

So how many of the corporations are a part of the 47% that pay no taxes but receive government hand outs? You know why companies want to move to Texas, low wages for the workers. The payroll does not go down by one penny, instead the payroll savings get gobbled up by the CEO's. Well I hope you like Texas where it is over 100 degrees five months a year. You won't find many parks in Texas or oceans. But if you like air conditioning it will be a great place for Resmed.

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Don Bauder Dec. 21, 2012 @ 9 p.m.

genoz: You ask a poignant question: how many corporations are a part of the 47% that pay no taxes? Plenty, I can assure you. Another question: how many companies that Bain Capital bought paid no taxes? And how many Bain personnel in on the deals paid no taxes because the deals were run through the Cayman Islands? Best, Don Bauder

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Ponzi Dec. 23, 2012 @ 10:10 a.m.

How much welfare does ResMed want? Consider that most of their sales are paid for with Medicare and other social welfare programs to begin with. The whole “sleep apnea” phenomenon is has been sold to America as if it’s an epidemic. The promoters of these gadgets are scaring people by telling them “they could die in their sleep” without one of their devices. Most people who have sleep problems can correct them without a mini-ventilator. Because most sleep, problems have to do with diet, weight, drinking, exercise and other habits.

ResMed is already on massive welfare.

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Don Bauder Dec. 23, 2012 @ 12:28 p.m.

Ponzi: I honestly don't know if most of their sales are paid for with Medicare and other social programs. That should be a matter of public record in the latest 10-K. In any case, I would think it is a high percentage, so your point is well taken. Best, Don Bauder

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Ponzi Dec. 24, 2012 @ 1:34 p.m.

From MesMeds 2011 10-K report:

Third-Party Reimbursement "The cost of medical care in many of the countries in which we operate is funded in substantial part by government and private insurance programs. In Germany, we receive payments directly from these payers. Outside Germany, although we do not generally receive payments for our products directly from these payers, our success in major markets is dependent upon the ability of patients to obtain adequate reimbursement for our products."

"In the United States, our products are purchased primarily by home healthcare dealers, hospitals or sleep clinics, which then invoice third-party payers directly for reimbursement. Domestic third-party payers include Medicare, Medicaid and corporate health insurance plans. These payers may deny reimbursement if they determine that a device is not used in accordance with cost-effective treatment methods, or is experimental, unnecessary or inappropriate. The long-term trend towards managed healthcare, or legislative proposals to reform healthcare, could control or significantly influence the purchase of healthcare services and products and could result in lower prices for our products.”

If you do a Google search of "ResMed medicare" you discover dozens of documents that ResMed publishes to guide people through the medicare and medical reimbursement process.

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Don Bauder Dec. 24, 2012 @ 9:55 p.m.

Ponzi: Good research. We still don't know if MOST of ResMed's revenue comes from government, but we sure know that a big percentage of it does. I hope Filner's aides remind ResMed of that. Best, Don Bauder

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Twister Jan. 12, 2013 @ 5:48 p.m.

Lies, damn lies, and statistics.

You don't take percentages to the bank, you take MONEY to the bank.

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Don Bauder Jan. 13, 2013 @ 8:51 p.m.

Twister: On the other hand, if you deposit money in a bank these days, you get almost nothing in interest. You might be better off with damn lies and statistics. Best, Don Bauder

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Twister Jan. 13, 2013 @ 9:36 p.m.

Rome wasn't burned in a day, but the fuse was lit centuries before. When the concept of property took hold.

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Don Bauder Jan. 14, 2013 @ 7:43 a.m.

Twister: So we can't blame Nero after all. Best, Don Bauder

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Twister Jan. 15, 2013 @ 9:56 p.m.

Enough fiddling around can bring down any system.

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