Unraveling Fresno's industrial development: From warm welcome to present challenges

by Ishshah Padilla | Thursday, January 25, 2024

FRESNO, Calif. – Following an extensive City Council meeting to conclude 2023, the Council voted (5-2) to approve the Highway 99 Freeway Agreement for the North and American Avenues interchanges.

Perea, Karbassi, Chavez, Esparza, and Bredefeld voted in favor of approving the project. On the other hand, Maxwell and Arias opposed it, with Arias advising his colleagues to wait due to pending litigation and adding “It is untruthful to say that expanding an interchange in an industrial area would not help expansion and fuel the expansion in industrial areas.”

Caltrans, as the lead agency overseeing this $112 million project, emphasizes that the operational improvements are exclusively geared towards enhancing safety. The focus is not directed at facilitating access to a potential 3,000-acre industrial park in southeast Fresno, that would lie between the highway’s expansion project.

Ultimately, the majority of the Council voted yes due to long-overdue safety improvements in a heavily congested highway area, as stated by Caltrans. The looming risk of millions in funding being reprogrammed or withdrawn entirely in case of project delays or non-completion played a decisive role in their decision.

Caltrans Interchange Project. Photo Credit: Caltrans

“This is about keeping dollars here in Fresno. Infrastructure is so important for quality of life but the reality for some people that oppose this (interchange project), this is straight up about killing economic development in Fresno, that is the goal,” said Councilman Mike Karbassi. “I think we need to work collaboratively and sincerely to put everyone at the table and work together to mitigate.”

This feeling resonated with many who believe Fresno has the capacity for ongoing growth, retention, and attraction of new businesses capable of offering high-value jobs while contributing to the development of both the city and the county.

The current industrial sector, predominantly located in south Fresno according to the City’s General Plan, has come under increased scrutiny in recent years. Controversies related to rezoning and heightened concerns about pollution and health risks, as highlighted by advocacy groups, have brought this sector to centerstage.

But before there was controversy over the expansion of industrial development, Fresno welcomed businesses by utilizing tools to incentivize companies to relocate. And by emphasizing the region’s inherent operational and comparative advantages; a robust strategy to combat Fresno’s decades-long unemployment rate.

Historically, Fresno had one of the highest unemployment rates compared to other counties similar in size in any metropolitan area.

So how do you attempt to fix the prominent unemployment problem?

One way was to convert available land to “shovel-ready dirt” and promote its potential.

From the early 2000s to the mid-2010s, developers encountered no problem in obtaining city approval for building projects in areas appropriately zoned to accommodate spaces for light to heavy industrial.

California till this day continues to have one of the most strictly regulated environmental standards, meaning developers would have to follow established rules and codes from both the state and city. They would start by submitting an application to the relevant department. The staff would then review the application, necessitating reports, studies, and other procedural steps. Upon completion, developers would be granted Entitlement, signifying project approval, and they would assume responsibility for constructing the requested project. This process was known for its relatively swift and predictable nature.

There was no argument; if the building could generate 100 jobs and contribute to improving unemployment numbers, this was the idea that won the day.

Business Migration

Also, during that time, cities were getting creative on how they attracted potential businesses, often relying on incentives such as tax rebates, tax-sharing agreements, and fee waivers.

One example, in 2002, the U.S. Department of Housing and Urban Development designated Fresno as one of eight locations across the country for the “Federal Empowerment Zone.” This program provided qualifying businesses within the urban Empowerment Zones (EZs) with substantial tax incentives to facilitate job growth, promote economic development, and affordable housing. Wage credits, tax deductions, bond financing, and capital gains were all made possible by the 2000 Community Renewal Tax Relief Act.

Fresno had and continues to have the upper hand when it comes to location, which gave businesses an operational advantage.

Additionally, in an era when next-day shipping was not yet commonplace, and the delivery of most goods took several days, large corporations began to recognize the strategic advantage of establishing warehouses, manufacturing, or packing facilities in the heart of the state. This realization, sometimes by sheer luck, allowed them to significantly reduce shipping times.

The feasibility of one-day shipping was further enhanced by the presence of major parcel carriers, UPS, who opened a distribution center on Mckinley Ave. and Hwy 99 in 1982. FedEx also dominated because it was the least expensive trackable shipping. In 2013, FedEx doubled its capacity by relocating near North and East avenues, this was a testament to the growth of Fresno’s economy.

The transportation of goods was well received, it provided these companies with the advantage of quickly reaching a large percentage of their customers across the state.

“At no point was there the idea that trucks driving up and down the freeway and getting off in south Fresno was a bad thing. It was good,” said Newmark Pearson Commercial, Senior VP, Ethan Smith.

In 2004, the Fresno Regional Job Initiative (RJI) was launched by the previous Mayor, Ashley Swearengin, with the aim of stimulating job creation by adding 30,000 net new jobs over the next few years in the Fresno Metropolitan Statistical Area (MSA), which refers to Fresno and Madera counties.

The RJI presented an action plan outlining the city’s strengths, weaknesses, and economic opportunities, along with a step-by-step strategy to achieve the set goal. Emphasizing the region’s enduring comparative advantages, the initiative identified key sectors, including healthcare, agile manufacturing, information processing, construction, logistics/distribution, tourism, and water technology.

“Everyone was drawn to Fresno for different reasons, over the years. But because of its central location, because of its strong agricultural base, there has always been a hub of industrial activity, of jobs, it’s a place where people want to locate their businesses,” said John Kinsey, a land use lawyer who represents several businesses in south Fresno.

According to Smith, during that time, constructing and operating an industrial building in Fresno was notably less expensive than in northern/southern California. A few reasons why were due to the building trades, more affordable land–which meant less property taxes, and the cost of labor.

The Built-In Labor Force

From 1990 to the early 2000s, when the unemployment rate consistently remained in the double digits, the RJI identified a workforce that was not adequately prepared to meet the needs of some of these potential business opportunities.

At the time a large percentage of the available labor pool lacked higher education, technical skills, and faced language and legal barriers.

But instead of this being seen as a disadvantage, it was seen as an opportunity. The City recognized that by welcoming these industries, they could help train, educate, and prepare the workforce by providing year-round employment and an opportunity for upward mobility in the local labor pool.

In the realm of industrial businesses, there has been a natural tendency to attract individuals who prefer hands-on work and aren’t necessarily inclined to sit behind a desk. These are people who may not enjoy frequent public interactions and simply want to go to work, learn a skill, accomplish their tasks, and then head home. Those were never considered bad jobs, sure, this was not suitable for everyone but held genuine appeal for certain individuals. This dynamic was true for people in all communities, not limited to Fresno.

Business Challenges

Jumping ahead to the past decade, during which an influx of businesses was drawn to south Fresno due to its strategic logistics and efficient movement of goods. Among them, Ulta and Amazon, who quickly became the employer of choice by adding thousands of people to their payroll with competitive salaries and benefits.

Several years before California raised the minimum wage to $15 an hour, many entry-level positions at these e-commerce centers offered a starting wage of over $15 an hour and a better working environment. This raised the bar, to be competitive surrounding employers now had to raise their wages and provide better working conditions to retain their workforce.

It was also around this time that the narrative shifted, and challenges in the industrial sector began to surface.

According to commercial real estate expert, Smith, some of the strongest arguments right now are tied to those of environmental justice.

The concept of “industrial” or simply the term itself now carries an automatic assumption that these jobs are dirty, and that these large companies are somehow exploiters. Will Oliver, President/CEO of the Fresno County Development Corporation (EDC), emphasizes the importance of clarifying what exactly falls under the industrial category, which could help alleviate some of these negative associations.

Within light industrial, you’ll find diverse activities like research and development, manufacturing and assembly, food processing, textiles, and consumer goods, to name a few.

In contrast, heavy industrial may involve more chemical-based jobs such as mining, oil and gas, steel production, and rendering facilities. It’s crucial to emphasize that these are not inherently “bad” jobs; they play an essential role in the economy. These facilities are typically strategically placed to minimize potential impacts.

Many businesses in south Fresno, as stated by Kinsey, assert that they are engaged in clean, light industrial operations. A significant number of these business owners are hometown locals who have grown up in the area and feel a strong sense of responsibility to the community as proud Fresnoans.

Things like CaLEnviroScreen and the California Environmental Quality Act (CEQA), are often used by advocacy groups to stop a project in its tracks, citing health and environmental consequences.

“We went from a city that wants industrial businesses, wanted logistic businesses to opposing them because of the environmental justice aspect of it,” said Smith.

The city’s general plan, crafted by dozens of elected officials over the past few decades has consistently designated the area between Jenson and American avenues and southward for both light and heavy industrial purposes. Some of these industrial businesses have operated in areas zoned for industrial uses for 50-60+ years, however, advocacy groups now perceive the zoning as a threat to nearby communities.

Historically, certain businesses and zoning were established well before residential homes became a factor. Over time, homes were permitted in some pockets of the area, leading advocacy groups to argue that residents are now labeled as “victims” due to the presence of the industrial sector.

Rex Hime, Government Relations Director for the Western Electrical Contractors Association (WECA), acknowledges that the Building Trades also contribute to the present industrial challenges.

According to Hime, the Building Trades are using “greenmail” to pressure developers into accepting exclusively union labor, raising the costs for those looking to invest in the Fresno area. Greenmail is the abuse of environmental protection laws (such as CEQA) to coerce private developers and local governments to sign Project Labor Agreements (PLA) and it is used across the state.

Despite the City of Fresno already having an established PLA, tipping the scales for union contractors and labor on public projects exceeding $1 million, the Building Trades are now looking to extend this requirement to the private sector.

He argues that not only is the goal of greenmail discriminatory in nature, but it deters those who want to bring economic growth to the area and invest in the future of Fresno.

“Recently, however, I’ve seen industrial projects getting hit by every single angle. And it is not just Fresno, it’s in other areas too,” said Kinsey.

Another factor hindering industrial development, as noted by the EDC, was the construction of the High-Speed Rail, which required many companies to relocate their operations due to right-of-way acquisition, absorbing a significant portion of the available commercial real estate.

Oliver says that most businesses managed to maintain their location operations during this process, resulting in company expansions, new lease agreements, and investments that created an economic surge.

However, in the long term, Fresno was not equipped to generate new inventory to cater to potential tenants in the future. Consequently, a company seeking relocation to Fresno may now encounter fewer options, and the available properties could present more challenges or uncertainties.

“If we had 7% vacancy, we would have many more projects deciding to locate in Fresno, which would result in new job creation, but we just don’t have it,” said Oliver. “I think there would be fewer challenges if there we more projects in the pipeline, and there would be more projects if there was entitled land available.”

Fresno is now perceived as a major player; Oliver explained that these challenges are not exclusive to Fresno but are prevalent in other sizable metropolitan areas.  The city has caught up with the times and is now recognized as an emerging regional economy that is both fragile and ripe for investment, drawing increased scrutiny and interest.

“Businesses will typically go if they have a choice through the path of least resistance. Why would somebody pay millions of dollars more and several years more including the financing cost and the uncertainty in the approval process to get a project approved in the City of Fresno when they can get something comparable nearby,” Kinsey said.

Where does Fresno stand to compete in the economy?

According to the EDC, Fresno has struggled to maintain a healthy industrial supply pipeline, especially compared to its competing markets.

The Inland Empire, Phoenix, Dallas, Las Vegas, Visalia, and Madera all have projects in the pipeline for industrial/commercial real estate. Fresno on the other hand is uncompetitive on that scale.

“With attractions projects requiring consistency and available inventory, it’s difficult to compete with markets in Texas, Arizona, or Nevada, let alone counties in our backyard,” said Oliver. “When we have viable sites to propose, you’d be surprised that we can stack up competitively in terms of costs, workforce training, and incentives, but if we don’t have the availability, we can’t respond to show our interest.”

Based on the input from these professionals, recent opportunities that could have greatly benefited Fresno’s economy instead found their way to the cities of Madera and Visalia for various reasons.

“Visalia is frankly one of the beneficiaries of the gridlock we are seeing in Fresno,” said Kinsey, as a lot more industrial spaces and projects are being approved fairly quickly.

It is crucial for every community to have a spectrum of jobs, as cited by Smith. Industrial development challenges are complex and not exclusive in any way to Fresno and go beyond the local administration.

According to Oliver, the City of Fresno is doing what it can to help alleviate some of these obstacles, offering concierge services while helping provide programs/services to prepare and support the available workforce alongside several local partners.

Kinsey sees a glimmer of hope, noting that many of the businesses he represents are open to engaging in conversations with their communities to find solutions and mitigate some of their concerns.

The goal should never be to compromise road safety (referencing the Caltrans interchange project) or discourage companies from choosing Fresno as their relocation destination, Smith stated.

Fresno cannot justify being left with “vacant and underutilized properties over long periods of time. We should strive to find some common ground to achieve environmental justice and economic development hand-in-hand,” said the EDC.

Coming Next

Scannell Properties, a proposed project aimed to bring a “significant and unique opportunity for our community,” will soon be before City Council for consideration following a unanimous vote from the City’s Planning Commission.

According to the EDC, this project represents a noteworthy and distinctive chance for the community, marking the entry of the first national speculative developer into Fresno’s market. The attention and financial commitment from Scannell Properties underscore the appeal of the city’s commercial and industrial sector for future job-generating developments and growth.