Business & Real Estate

Sacramento economic development groups tentatively OK merger

In a shake-up of Sacramento’s business hierarchy, the organization that has for decades recruited companies to the region tentatively agreed to merge Thursday with an upstart group launched by area chief executives.

The agreement between the Sacramento Area Commerce and Trade Organization and the recently founded Greater Sacramento Area Economic Council is designed to bring additional firepower to the task of selling the region to companies looking to expand or relocate. SACTO is the region’s official economic development organization and is funded by private donations and area governments.

The merged organization will be called the Greater Sacramento Area Economic Council, although the SACTO name will be used in promotional materials, at least for a while, to ensure continuity. The leader of the council, Steve Oldham, said the new name does a better job of emphasizing the identity of the Sacramento region.

On the surface, the agreement represents a changing of the guard, with a 40-year-old organization yielding to an outfit formed less than a year ago. But leaders of both organizations said the deal is really about infusing the SACTO infrastructure with a significantly larger budget, along with the energy and expertise of the region’s CEOs.

And while the public might see the merger as a mere shuffling of names and organizational titles among corporate insiders, the leaders of the organizations said the deal will make Sacramento more effective at persuading companies to bring jobs to the area.

“The term we’ve used was ‘SACTO on steroids,’” said Gary Bradus, a lawyer with Weintraub Tobin and the immediate past chairman of SACTO.

On Thursday, SACTO’s board of directors approved a term sheet spelling out tentative terms of a merger. The SACTO board is expected to vote on a definitive agreement next week, and its 368 members would vote on the plan sometime in the next month. A majority vote is needed. The board of the Area Economic Council has already signed off.

The merger comes amid some grumblings among Sacramento leaders that SACTO could be doing a better job. Sacramento Mayor Kevin Johnson, among others, has offered moral support to the Area Economic Council. In its latest fiscal year, SACTO said it assisted in eight “corporate locations and expansions” that resulted in 1,300 new jobs and $108 million in capital investment.

Oldham, the new group’s interim executive director, said his group’s formation wasn’t intended as a criticism of SACTO. Rather, he said the CEOs have concluded that a fatter budget and their own personal involvement could make a big difference in marketing the region to the outside world.

He said his CEOs group has 15 board members already, including David Lucchetti of Pacific Coast Building Products, Chancellor Linda P.B. Katehi of UC Davis, Pat Talamantes of The McClatchy Co. and Chris Granger of the Sacramento Kings. More CEOs are expected to join, as are several SACTO board members.

“We realized that we as CEOs needed to get involved,” said Oldham, former CEO of Roseville’s SureWest Communications. “If we were going to complain about getting growth and getting those things to happen, we had to put our own personal time into it.” He said the CEOs won’t be involved in day-to-day operations but have agreed to meet with companies thinking of moving to Sacramento.

The new group is raising money in much bigger chunks than SACTO, which had a total budget of $2.1 million for the last fiscal year. While a top-tier SACTO membership costs $25,000 a year, the Area Economic Council has secured 15 pledges of $100,000 apiece, for multiple years. Oldham said the group expects to raise at least $3.5 million a year, including smaller donations.

“We think that’s the minimum (budget) of a very successful organization,” Oldham said. The group will seek annual contributions from the public sector, as does SACTO, which gets nearly $300,000 a year from area governments.

Oldham’s group expects to name a permanent CEO within a couple of weeks. Barbara Hayes, the president and CEO of SACTO since 2000, plans to resign at the end of December.

Hayes said she’s been thinking of leaving SACTO for more than a year, although she hasn’t yet begun looking for another job.

The other nine staff members of SACTO will be offered jobs at the Area Economic Council, Oldham said. The new group plans to take over SACTO’s space at the Wells Fargo tower on Capitol Mall.

The merger caps a period of flux in the leadership of the business community. The Sacramento Metro Chamber and Sacramento Area Regional Technology Alliance named new CEOs in recent weeks.

For SACTO, the merger follows a lengthy period of soul-searching. The organization spent 18 months discussing a possible merger with the Metro Chamber but abandoned the idea in 2013 after concluding its economic development mission should be separate from the chamber’s public policy advocacy and other functions.

When the Area Economic Council emerged earlier this year, it was seen as something of a threat to SACTO. But SACTO officials said they soon warmed up to the idea of a partnership.

“Maybe the first knee-jerk reaction was along the bittersweet lines,” said Robert Dean, SACTO’s chairman and an executive with the Pacific Legal Foundation. “It was, ‘How dare you think SACTO’s not doing a good job?’ You’re so protective when you’ve spent all these years and efforts. The reality is, once you get by that knee-jerk reaction, you start looking at what it really means and what could it be. It becomes very easy then.”

He said the additional dollars will make an enormous difference. An in-house study of 11 other comparable metro areas showed that SACTO ranked near the bottom in terms of budget. With the merger, the new organization will jump to third or fourth place, if all goes according to plan.

Oldham said the CEOs who founded his group realized it made little sense to create a duplicate version of SACTO, which already has 400 active prospects. What SACTO has in place “was a perfect template for us,” he said.

There was some political sensitivity at work, too. Some potential donors had told Oldham that they “wanted to see some accord with SACTO,” Oldham said. “I think that’s extremely understandable.”

Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.