Huy Fong Sriracha sauce remains on the shelf of an Albany, Calif. supermarket Dec. 19 despite talk of a shortage.

LOS ANGELES — A chili sauce factory — the fate of which has sparked national concern among spicy food aficionados — was once extolled as a successful use of California's now-defunct redevelopment program.

But the city that used redevelopment tools to lure the Huy Fong Foods factory that makes the firm's signature Sriracha sauce has turned against it.

Huy Fong's Irwindale, Calif. facility is now being threatened by a lawsuit from city leaders.

Over the past few months, resident complaints about burning eyes, itching throats and a pervasive smell of chili peppers wafting from the factory have received national media attention.

Judge Robert O'Brien ordered that the plant cease any activity resulting in noxious odors in a preliminary injunction filed Dec. 16 in Los Angeles County Superior Court. The California Department of Public Health also decided earlier this week that the factory should hold the product for 30 days before shipping, halting shipments through mid-January.

There has been a steady stream of articles noting foodies' concern that a partial shut-down of the plant could create a shortage of the popular chili sauce with the rooster emblem ever since the San Gabriel Valley city filed its original complaint on Oct. 28.

Company officials didn't return calls seeking comment about the impact of the partial shutdown.

Crushing of the chili peppers that occurs during harvest season from September through November was thought to be the cause of the odors, according to court documents. But City Attorney Fred Galante, a founding partner in law firm Aleshire & Wynder, said the city has continued to receive complaints since that segment of the manufacturing process ended.

The 650,000-square-foot, $40 million Huy Fong Foods plant opened in October 2010 to great fanfare.

Huy Fong Foods "competed along with several other developers for the right to buy the land and develop the property," Galante said. "They provided the city with what was thought to be the best proposed development."

Among considered advantages were that Huy Fong Foods only ships at certain times of the year and truck traffic would be limited.

"It was seen as a low impact project with high employment," Galante said.

An economic strategic plan for the city and its former redevelopment agency that was adopted Oct. 11, 2011 referred to the public-private partnership that began in 2008 between the city's redevelopment agency and Seventh Street Development, the developer of the plant's 23-acre site, as an "emblem of a true American success story, possible with the land assemblage and brownfields revitalization tools of redevelopment."

The chili sauce manufacturing plant was built on the former location of an asphalt batch plant and a rock, sand, and concrete aggregate processing facility.

The project enabled David Tran, 69, Huy Fong chief executive officer and creator of five hot sauces, to increase production of his products by ten-fold compared to what he could achieve at his 68,000-square-foot plant located 11 miles east in Rosemead, Calif.

Expected to employ triple the 70 employed in Rosemead, the plant also was mentioned in the city's October 2011 report as exactly the kind of "high quality industrial/flex" development that the city wanted to attract over the next five years.

"I can see why they considered it a success," said Larry Kosmont, founder of Kosmont Cos., an economic and commercial real estate consultant.

The majority of redevelopment projects in the state have been retail, which add to the tax base through sales tax, but don't provide the same good-paying jobs that manufacturing plants do, Kosmont said.

Dan Carrig, legislative director with California League of Cities, said he's not familiar with the intricacies of the deal, but it does fit the definition of good redevelopment.

Businesses would typically like to locate on undeveloped land, which he said creates sprawl. The idea behind redevelopment was to transform blighted areas like the site of the former asphalt plant into a use that provides economic benefits to the city.

From that standpoint, the project is a success, Carrig said.

There was $81 million of outstanding Irwindale Community Redevelopment Agency bond debt as of June 30, according to the city's most recent comprehensive annual financial report.

Another $4 million of redevelopment agency debt was moved to the city's books after the California Department of Finance determined it was not an enforceable obligation of Irwindale's redevelopment successor agency, according to the CAFR.

In a letter released by Tran on November 8, he said the city gave him a $15 million interest-only loan for 10 years with a balloon payment at the end to cover the cost of the land.

Tran called the loan "attractive and irresistible," in his letter, but added that after last year's odor complaints he recently took out a loan from East West Bank to repay his debt to the city at less favorable terms.

Galante disputed reports that Tran was offered a sweetheart deal saying that the property was sold to Tran for full market value. The hot sauce manufacturer also is required to make payments in lieu of sales tax, since the company doesn't produce any, of $2.5 million payable over 10 years.

Tran points out in his letter that it is in the best interest of the city to work with his company to resolve the problem.

"The company's building is unique and custom built to only producing our sauces," Tran said.

The city has 700 businesses, including Breeder's Choice pet foods and a MillerCoors brewery, employing 40,000 people, vastly outnumbering the residential population of 1,400.

The hot sauce plant and a 2.2 million-square-foot business center developed by developer Trammell Crow Co. are part of a plan to transform the city from a mining community into a manufacturing, high-tech based suburban community, according to the city's economic development report.

The city filed the lawsuit against Huy Fong Foods in October saying it received 30 complaints from residents about odors emitted by the plant in September.

Although the city is largely seen as industrial, Galante said the city wants to attract businesses that operate responsibly and the factory owner agreed as part of the approval process that the plant would not produce odors.

City leaders spoke with their counterparts in Rosemead, who said no complaints had been lodged there, before selecting Huy Foods for the site, he said.

The chili manufacturer did not begin to move operations from Rosemead to Irwindale until last year. The city received complaints last year during harvest season from September to December. But the outcry from city employees and residents burgeoned this fall as operations grew from last year's 10% of capacity to 40% this year, Galante said.

Following last year's complaints the chili sauce manufacturer installed a filtration system, but it has not been effective, according to the attorney.

The city wants the company to bring in an expert to evaluate the problem and come up with a solution.

"We have been told by more than one expert in the field that there is equipment that will solve the problem," Galante said.

An expert the city contacted estimated the cost of the filtration system to be between $500,000 and $600,000.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.