Recession woes delay textile factory, city leaders say it will continue

EDINBURG - One year ago this week, Gov. Rick Perry and local politicians proudly announced a Brazilian denim company's plans to build a factory locally, calling it one of the most important projects in the city's 100-year history.

The state even kicked in $800,000 in economic incentives, but construction never began. Sao Paulo-based Santana Textiles missed deadlines while the city spent millions developing close to 100 acres at the Edinburg North Industrial Park, including a 23-acre tract for the denim factory.

Now, with weeds sprouting freely from fissures in streets the city built just last year at the site near Expressway 281 and Ramseyer Road, city and state leaders say Santana Textiles is moving forward with the project with more ambitious plans than before.

"They're actually going to increase the production they intend to have at the site," said Ramiro Garza, president of the Edinburg Economic Development Corp. "We're confident that this is moving forward."

Since the July 2008 announcement of plans to construct a 300,000-square-foot factory, Santana has expanded on its original plans, Garza said. The 23-acre project that was expected to cost upwards of $170 million is now expected to encompass 33 acres.

In broadening its plans, Santana faced difficulty finding more financing for the project, Garza said. During this recession, credit markets have tightened and banks have been more reluctant to extend funding.

"The market got tight as far as financing is concerned," Garza said. "They've decided that they're going to obviously use a lot of the credit they have in South America."

Recessionary woes have also curtailed other development at the 100-acre industrial park. The city has spent close to $3.5 million to develop the park, where so far only one company has opened operations.

Semco Manufacturing planned to start construction on a new factory at the park this fall, creating up to 100 new jobs. Greg Swartz, the plant manager for the Pharr-based company that fashions steel for oil rigs and equipment for making and moving ice, said the project is on hold indefinitely until the economy improves. The company has laid off close to half its workforce.

"Our business is slower in general. Obviously we need to wait for the economy to pick up," Swartz said. "The smart move right now is ... just to be conservative until things turn around."

The Edinburg factory would be the first U.S. location for Santana, a major denim producer with plants in Brazil, Argentina and Mexico. Garza said the factory would allow Santana to enter the U.S. denim market, producing denim from locally grown cotton.

Local cotton growers, however, have yet to meet with the company, said Webb Wallace, executive director of the Cotton and Grain Producers of the Lower Rio Grande Valley. Wallace said it was also dubious the company would exclusively use locally grown cotton, because it could still be cheaper to import it from other countries.

But he acknowledged the factory could help boost cotton acreage, which has declined dramatically as prices for the commodity have fallen. Agricultural analysts expect the region's cotton acreage to fall to 60,000 this year, down from 260,000 in 2006.

"They'll buy the cheapest cotton," Wallace said of Santana. "If we've got the same cotton at the same price, then we save them money."

Santana officials could not be reached for comment Wednesday. An official at the São Paulo, Brazil, headquarters said someone would be available for comment today.

A local representative based in Monterrey is in Berlin this week, Garza said.

The plant, which was expected to open in part by January 2010, will likely not open until the later part of next year, Garza added.

The state has already kicked in close to $800,000 toward the project as part of a $1.65 million incentive through the Texas Enterprise Fund. Santana has thus far missed deadlines outlined in a contract the company signed with the state to receive the money, said Katherine Cesinger, a spokeswoman for the governor's office.

The company paid a $7,228 fine earlier this year for not creating 13 jobs by the end of 2008. By the end of 2009, the contract stipulates, the company must have created 103 jobs. By 2014, Santana is expected to create 800 jobs. When the company can verify that it has created 400 jobs, it will receive the remaining portion of the incentive package, Cesinger said.

"If they don't meet the benchmarks they've agreed to, they will pay (the incentives) back to the state," she said, adding that the governor's office believes the company is moving forward with the project. "We made an investment in it and we're continuing to work with the company."