SAN JOSE -- The San Jose City Council unanimously approved a $7 million incentive package Tuesday for Samsung Semiconductor to expand its research and development headquarters in the city.
The approval completes a deal that was announced in August with a signing ceremony at the City Hall Rotunda that included Mayor Chuck Reed, Jong-Joon Kim, president of device solutions for Samsung Electronics, and Gov. Jerry Brown, making his first trip to City Hall, whose administration teamed with the city to offer state research and development tax credits and cash reimbursement for employee training.
"This is a big deal, there's no doubt about it," Reed said. "It's not very often we get this opportunity. Our highest priority is to capture the growth companies that want to stay here and grow here."
The council also unanimously approved Reed's "March budget message," which provides policy guidance to the city manager in developing a budget for the upcoming fiscal year beginning July 1.
Samsung Semiconductor, based in San Jose since 1986, now has 370 employees in 200,000 square feet of office space. The company is a subsidiary of South Korea-based Samsung Electronics, the world's second-largest semiconductor maker, which in December announced a $4 billion expansion of its semiconductor fabrication plant in Austin, Texas, where it has been a major presence since 1996 and employs about 2,500.
City officials said they faced tough competition to keep Samsung from expanding in Texas. They argued that over 10 years, the Samsung expansion will deliver $23 million in revenues in property, business, utility and other taxes, more than three times the value of the incentives, which they noted are not direct payments but rather discounts on company growth.
"We share in the upside," Councilwoman Rose Herrera said. "We'll return many times to the budget before we're done."
Samsung's San Jose expansion would replace existing offices with a modern, environmentally friendly research and development campus totaling 680,000 square feet, with a 10-story office tower, nine-story parking garage and a restaurant that will employ at least 2,000.
The city's $7 million in Samsung incentives include a more than 50 percent reduction in traffic impact fees valued at $3.9 million; a 50 percent rebate on the city's 5 percent utility tax on gas and electricity for power usage over 10 years valued at $2.6 million; plus up to $500,000 worth of reimbursements for production and assembly equipment purchases. The city also expedited permit processing, with design permits signed off Monday on an application submitted 76 days earlier.
On the budget, Reed said that San Jose is looking at a second consecutive year without severe deficits and cutbacks in staffing and services, thanks to difficult decisions by the City Council and city employees in making across-the-board 10 percent pay and benefit cuts.
Reed proposed limited raises targeted to veteran workers, especially police officers and firefighters, rather than across-the-board raises, arguing the city can't yet afford to restore all of the 10 percent pay cuts, and that many employees new to their positions are already entitled to annual "step" raises until they reach the top of the pay scale for their job.
"We are grateful to our employees who stepped up and helped us in our moment of crisis," Reed said. "As a result, we can begin to restore some of the pay."
The city has been grappling with an uptick in crime and an unusual number of retirements and resignations in the police department.
Reed's budget calls for opening a newly built but mothballed police substation in the south end of the city next year. Councilman Ash Kalra, who represents that area, said he looks forward to the opening but that the city should evaluate whether the cost of opening it is more beneficial than diverting more funding toward patrol staffing.
Councilman Don Rocha told Reed: "I know this is just the beginning, but as a start, I think you did a pretty good job."
Contact John Woolfolk at 408-975-9346. Follow him on Twitter at Twitter.com/johnwoolfolk1.