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Sour relationship has one industry pondering a move

South Boston News / May 28, 2014
In the eyes of its owner, American Industrial Heat Transfer is an island adrift in La Crosse — isolated from other manufacturing companies, and shunned by the same officials who once wooed the company to Southside Virginia.

The lone tenant of the Roanoke River Regional Business Park, AIHT suffers from not having other manufacturers in close proximity, says Ghasem Sariri, AIHT owner and president. The lack of a critical mass of industries has aggravated one of the company’s major challenges — finding a skilled workforce of welders and machine operators who can build heat exchangers and related products, the company’s line of business.

But Sariri says the company’s go-it-alone problem is worse than all that. Despite the lavish promises extended by state and county officials to lure AIHT to Southside, Sariri says, the company has had to put up with broken promises, shabby treatment and decidedly unfriendly business conditions since announcing its arrival in 2006.

He says he is seriously considering leaving La Crosse and taking his operation back to the company’s Zion, Ill. home.

Local officials, not surprisingly, tell a different story about a relationship that both sides acknowledge has gone sour.

While they decline to speak on the record — the result of ongoing litigation between AIHT and Mecklenburg County — various officials say the problems at the La Crosse plant are mostly of AIHT’s own making. Officials suspect the major reason for AIHT’s inability to hire a sufficient number of skilled workers is the low wages the company pays. The incentives that were promised to AIHT failed to fully materialize because the company fell short of its promised investment and job-creation targets, they note. On a personal level, Sariri has been described as “argumentative” by more than one official.

The aura of bad feeling has Sariri rethinking whether he wants to stay in Southside Virginia.

“Generally, we believed that the local officials we met [when first considering Mecklenburg] had a vision of bringing quality manufacturing companies to the area, and we thought they would be people we could work with for the long-term benefit of our company, and the area at large,” he said.

“To bring a manufacturing facility from a big metropolitan area like Chicago to rural Southside Virginia is not really financially beneficial by any means, particularly given how established we have been in Illinois, but … the idea that we would have a good location, strong support from the local leadership, and good people to hire made it attractive to us, in spite of all those great challenges,” Sariri explained.

When the company first began to scout the area in 2005, Sariri recalled, “A lot was done to wine and dine us. We were given extensive tours of the area, and even a pontoon boat ride and dinner at a private home, with all the local officials we have mentioned. One of the officials offered to babysit our children when we moved down. One of the officials recommended a close family member to work in our company.”

Six years later, the two sides are combatants in two lawsuits pending in Mecklenburg County Circuit Court.

One is over the company’s contention that it is being taxed unfairly for its machinery and tools at the La Crosse plant.

The other lawsuit stems from a practice, since discontinued, that continues to visibly anger company officials: the decision by Mecklenburg County and the towns of South Hill and La Crosse to dump landfill leachate into a sewer manhole by AIHT’s facility in La Crosse. The gas and fumes from the leachate backed up into the plant, sickened several employees and cost Sariri thousands of dollars, the company’s lawyers contend.

In the lawsuit, AIHT faults local and county officials and a private trucking company for taking actions that sickened employees and cost the company more than $500,000 in lost revenues. In response, local officials, through their lawyers, argue that faulty construction and a failure by AIHT to maintain its sewer system are to blame.

Last year, the Town of South Hill entered into a settlement agreement with AIHT promising not to allow or authorize any future dumping near the plant. The suit is still pending against the remaining defendants: Mecklenburg and Brunswick County IDAs, Edmunds Transport and Brunswick County landfill

In reply to those who say Sariri is difficult to deal with, Sariri and the company lawyers, Dan Carroll and John Albee, note pointedly that it was local officials who made the choice to dump landfill wastes into the sewer drains nearby the AIHT plant, without the company’s assent or approval.

“They [AIHT] had been working in the LaCrosse plant for a period of years when, without notice, in late January/early February 2012 trucks appeared on the road leading to the plant, dumping something into the sewers with sewage hoses,” Albee explained.

Promises and performance

Founded in 1985, AIHT is a privately-owned corporation specializing in the production of heat exchangers and heat exchanger products. It manufactures more than 30 product lines of air-cooled and liquid-cooled heat exchangers that are shipped to industrial clients throughout the world.

For the most part, its workers are welders, machine operators and maintenance staff. There is also a sales staff and a handful of other professionals such as engineers and those versed in computer technology.

By all appearances, AIHT is exactly the type of advanced manufacturing operation that local and state officials say is crucial to the region’s economic future. In fact, the push to recruit more advanced manufacturing to Southside has spawned a number of job training and continuing education initiatives — the latest being this week’s announcement that the Southern Virginia Higher Education Center in South Boston has been designated a “Center for Excellence,” where workers can train in medium-level skills such as welding, precision machining and industrial maintenance (see related story).

In 2006, when AIHT’s plant in Southside was first announced, then-Gov. Tim Kaine heralded the company as “a clear win for Southside Virginia” that “will expand the employment base and provide good-paying jobs for the quality workforce in Southside.” Added Glenn Barbour, chairman of the Mecklenburg County Board of Supervisors: “The company’s history proves that they will be an asset to this and surrounding communities providing excellent wages and benefits for their employees.”

That hope hasn’t panned out quite the way both company and local officials anticipated.

Key to the successful recruitment of AIHT were the incentives offered to the company: $250,000 from the Governor’s Opportunity Fund (GOF) and $300,000 from the Tobacco Region Opportunity Fund (TROF), the latter administered by the Virginia Tobacco Commission. Sariri also was told that his company would be eligible to receive benefits from the Virginia Enterprise Zone Program, while the Virginia Department of Business Assistance would provide training assistance through its Workforce Services Jobs Investment Program.

In return, Sariri promised to invest at least $11 million in improvements, machinery, and equipment, and to create and maintain 85 jobs at the facility. He had 30 months to fulfill his obligations, beginning March 27, 2006.

It didn’t happen: by May 2009, three years after the original agreement, AIHT had created only 13 full-time positions at the La Crosse plant.

As a result, Sariri, Mecklenburg County, and the Virginia Tobacco Commission amended the original incentives agreement after Sariri felt short of his commitments. By May 2009, Sariri’s capital investment at the facility was only $8.8 million, not $11 million as originally touted.

Officials with the county and the Tobacco Commission agreed that Sariri’s failure to meet his capital investment and jobs targets were “due to certain difficulties in beginning work at the facility and the negative market conditions facing all companies,” according to a 2009 Amendment to Performance Agreement signed by Sariri, Mecklenburg County Administrator Wayne Carter and Neal Noyes, then-executive director of the Tobacco Commission.

As part of the agreement, Sariri agreed to return $92,000 of the initial GOF/TROF award of $550,000, and AHIT was given an additional 24 months to make an added capital investment of $2.2 million at the facility and to bring up the size of the La Crosse workforce to 40 full-time employees. The jobs had to pay at least $21,207 annually and come with a standard package of fringe benefits.

The median salary for manufacturing and maintenance workers in Mecklenburg County at that time was just over $24,000, according to state labor market data.

Although AIHT has complied with the terms of the revised incentives agreement — the company currently employs about 65 workers — the experience left a bad taste with Sariri.

“In the end, most of these grants did not materialize, or were greatly reduced. What was given to us in the end didn’t pay to pave the parking lot,” he said in a recent interview.

Help Wanted

In addition to a string of disappointments over promised incentives, Sariri claims state and local officials overstated the skills of workers who make up the area labor pool.

While he said he can overlook the lack of support and follow-through from the various government agencies, Sariri points to two hindrances the company cannot overcome: the lack of a ready, willing, and able workforce, and a failure by local officials to bring additional manufacturing concerns to the area. An absence of progress on both fronts, Sariri continued, has him wondering if Southside Virginia is ready for or even desires economic development.

As far back as 2009, Sariri complained that he never saw the stream of trained CNC or traditional welders that were promised when AIHT located in the area, although he acknowledges that he was told the local community college, Southside Virginia Community College, through the advanced learning center in South Hill, offered a special course and certification program to prepare workers for his factory.

Chris Niles, operations manager for AIHT, says it is his understanding that for at least the last year or two, no one affiliated with SVCC has taught welding, and it shows in the quality of applicant for jobs with the company.

“We don’t know what [SVCC] is teaching, but this company, because of what we build, is certified by the American Society of Mechanical Engineers (ASME),” said Niles. Prospective employees at AIHT are given a basic welding test adhering to ASME standards for boilers and pressure vessels. It is a test he contends any certified welder should be able to pass.

Most of the applicants, Niles says, either cannot read the blueprints that describe the type of weld to be demonstrated, or cannot successfully complete the weld.

“We’re willing to train anyone willing to work and who has at least a basic understanding of welding. Any kind of welding course teaches some of the things needed,” Niles said. He expressed bewilderment over why the company has such a hard time attracting quality employees, especially since AIHT offers benefits, paid vacations and paid holiday leave.

Natalie Coronas, who heads SVCC workforce development program at the Lake Country Advanced Knowledge Center in South Hill, says the college offers — now and in the past — two certificates in welding: the Career Studies Certificate and Advanced Certificate.

On any given day, the advanced knowledge center’s welding lab is packed with students, and the college enrolls at least 50 students each semester in welding classes, says Coronas.

The Career Studies Certificate prepares students for entry level welding certification testing. The program follows the guidelines developed by the American Welding Society (AWS), and teaches basic welds, and reading and interpretation of welding drawings.

SVCC’s second program, the Welding Certificate Program, provides advanced welding skills training based on industry-prevalent welding and cutting processes, according to the school’s website. Students in this two-year program are trained to use metalworking tools in manufacturing and fabrication, read technical drawings, develop basic hand drafting skills, and pass welding certification tests in structural plate and pressure pipe.

Job training efforts aside, more than one former employee at AIHT said the problems is not a lack of skilled labor in the area, but the company’s refusal to pay a competitive wage.

One former employee, who asked to not be identified, said of the company, “I worked at American Industrial Heat Transfer. It is a very good facility, with nice people and interesting work, but the wages are very low, there is no job security and the employees are micro-managed, making for a stressful environment.” He also criticized management for “using inappropriate words in the workplace.” Overall, he felt the company could drive economic development in the area if it would focus on stabilizing its workforce by “paying them fair market value.”

Both the former employee and Gina Sariri, who heads human resources for AIHT, declined to share information on how much AIHT pays its welders, machine operators and maintenance workers.

But Gina Sariri said, “We have much higher average wages than any employer in the area in our industry. We have a great, well-paid staff of people, most of whom have been happily employed for 3 to 5 years” — since the inception of the facility — “and we offer all our employees full-time work only, with holiday, vacation pay, and other benefits all year round.”

The average wage for skilled welders in Southside Virginia, according to one local welder and data from the Virginia Employment Commission, ranges between $18 and $25 per hour.

Strolling through the plant, one sees several dozen empty workstations that Niles said he would happily fill with employees. Outside the plant, near U.S. 58, AIHT has posted two large “help wanted” signs. Niles says the signs, which have been in place since before he started working at AIHT, and help wanted ads that have run in local newspapers have not delivered the number or quality of workers the company needs to succeed.

Niles said he is willing to work with SVCC to develop training and certificate programs that benefit companies like AIHT. His advice to the college: “Don’t assume. Ask us what skills and training we need from workers.”

More court battles

On top of other conflicts between the company and local government, there’s a new bone of contention: the taxes that AIHT pays on its machinery and equipment.

Claiming that the Commissioner of Revenue has overvalued company assets, Sariri has filed suit in Mecklenburg County Circuit Court to overturn the county’s tax assessment. Sariri says the county has pegged the value of the plant’s tools and equipment at current market prices, not what cost him to purchase the equipment several years ago.

In a sense, the lawsuit represents a sequel to the prior legal dispute between AIHT and local governments over the dumping of landfill wastes nearby the plant. In that case, Sariri’s lawyers introduced evidence — at the request of presiding Judge Leslie Osborne — of what it would cost him to replace machinery and equipment ruined by pollutants. Sariri claims the Commissioner of Revenue is now using that court evidence that established a replacement cost for the equipment as the basis for a much higher tax assessment — rather than looking at actual purchase invoices for the equipment.

Whether Sariri pays his workers too little, is argumentative, angry or even difficult to deal with — all such gripes are fundamentally beside the point, his lawyers say. The question Mecklenburg County needs to focus on is what this multi-million dollar global company can do for the area’s economy. According to Albee, county officials should look for ways to work with AIHT and Sariri, because if AIHT succeeds, so does the community.

In the meantime, Sariri strongly suggests that his near-term plans include moving AIHT back to Zion. He and his wife already have returned to Illinois and took AIHT’s professional staff — engineers and others — with them. The company still owns the plant in Zion where it operated before moving to La Crosse.

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