Sneaker maker hot-foots it to San Diego: smog rules contribute to Vans' decision on new plant.

Vans' decision to build a $10 million plant in San Diego County underscores just how far Orange County will have to go if it hopes to reverse the tide of companies pulling out of the county.

The Orange-based sneaker maker, which posted $83 million in sales last year, wanted to stay close to home and was seriously considering sites in Anaheim and Santa Ana.

"For us, closer was better than far away," said Richard Leeuwenburg, Vans president and chief executive. "This is where we grew up and we wanted to stay here."

Although Vans isn't closing its factory in Orange, a number of factors prompted it to expand in Vista, a fast-growing city of 76,000 east of Oceanside:

* By choosing to stay in Orange County, Vans could have racked up at least $1 million in pollution credit purchases to comply with local air quality regulations.

* Because the same payroll dollar goes further in Vista than in OC, where the cost of living is higher, the company said it expects less turnover and, as an extension, lower recruitment costs.

* Perhaps most importantly, while Vista's incentives were not necessarily the best financially, nearly all involved said Vista's attitude and aggressiveness was a key factor in the decision. Factors such as the cost of building the new plant and the proximity to major markets played a smaller role in the decision.

"For us, the sense of community displayed by Vista tipped the scale," Leeuwenburg said. "It's not that Anaheim or Santa Ana or any other city was particularly bad, just that Vista was that much better."

Among other things, Vista promised to walk Vans through the various applications for permits, ranging from a permit from the San Diego Air Pollution Control District to permits from the local building and safety department.

Santa Ana and Anaheim also vowed to help Vans get "fast track" approvals for permits. Santa Ana even invited two officials with the South Coast Air Quality Management District to the negotiations to try to speed the permit process. But neither city could do much about the cost of purchasing air pollution credits, which turned out to be one of the major disadvantages of opening a new plant in Orange County.

In producing its sneakers, Vans uses adhesives that emit volatile organic compounds believed to be a primary contributor to smog. The AQMD has imposed a ceiling on the amount of these compounds a company can emit.

Under AQMD rules, any company that builds a new plant or expands an existing one cannot emit any additional volatile compounds unless it purchases credits to offset the added emissions. The credits can be transferred from another company facility that emits fewer compounds than the AQMD allows. They can also be purchased from another company that closes down operations or emits fewer compounds than allowed.

Vans officials estimated they would have had to spend up to $1.5 million to purchase those extra credits, depending on market prices, if they decided to build their new factory in Orange or Riverside counties. In contrast, the San Diego Air Pollution Control District doesn't require offset credits for facilities emitting less than 40 tons per year of volatile organic compounds.

District spokesman Bob Goggin said the APCD had not received a permit application from Vans, so he could not tell if Vans would fall into this category. But, Goggin said, there is a chance the APCD could impose a "no net increase" rule for VOCs in the near future.

Anaheim officials said they felt stymied by the AQMD regulations. "These are essentially political decisions, not economic ones. They render my city less competitive and I question the logic of that," said Al McCord, the city's director of economic development.

Vans officials said the pollution credit costs certainly weighed in their decision, but not to an overriding degree. They said the company is reformulating its adhesives to take out most of the volatile compounds. If Vans is successful in doing so, it could avoid most of the extra costs associated with buying pollution credits.

"Even if we did succeed in cutting down these costs, we would still have moved out of the county. There were other factors at work," said Mason Bailey, the company's strategic planning manager.

Vista was chosen from a short list of six cities that included Anaheim, Santa Ana, Riverside, Tucson and Otay Mesa, which is a master-planned community southeast of San Diego. That list was developed from a total of more than 100 cities and communities, most of them west of the Mississippi.

In Anaheim, Vans looked at two sites, one of which was in a redevelopment zone, McCord said. He said he told Vans officials the city would enlist the aid of its utilities department to help the new plant save energy costs. The city also was considering offering rebates on the energy saved and offered to use redevelopment funds to offset the cost of improvements.

Santa Ana economic development officials promised Vans help in setting up on-the-job training programs and continuing education programs at Rancho Santiago College.

Despite such incentives and what Vans officials described as a "full-court press" from Santa Ana's economic development agency, Vans executives were more impressed with Vista's efforts.

Fine is a staff reporter for the Orange County Business Journal