Memo

To:                  Public Incentive Review Committee

From:             Ed Mullins, Finance Director

Date: January 13, 2006

Re:                  PackerWare Corporation

An application for property tax abatement, dated December 22 , 2005, from PackerWare Corporation has been received.  The application is for property tax abatement on $24.5 million in construction and $93.5 million in machinery and equipment.  The City Commission has referred the application to the Public Incentive Review Committee.

Objectives:

Ordinance No. 7706 states “a property tax exemption may not be offered to every firm that is eligible under state statutes.”  Property tax exemptions will be targeted to:

1.         Encourage existing industry to expand

2.         Assist new business start-ups

3. Recruit new companies from out-of-state

4. Encourage high technology and research based businesses

5. Encourage the location and retention of good ‘corporate citizens’

The PackerWare Corporation (Berry Plastics) is currently headquartered in Indiana. The company has had a production facility in Lawrence since 1968.   PackerWare was purchased by Berry Plastics in 1997.  The company has 15 domestic and 3 international manufacturing locations.

Targets:

Ordinance No. 7706 further states the applicant must fully comply with the following requirements:

1. Business is environmentally sound

2. Business is small to medium size – to avoid a situation where the City becomes dependent upon one (1) industry, and to maintain the character of the community

3. Average wages paid per employment category meet or exceed the average in the community as determined annually by the Kansas Department of Human Resources Wage Survey

4. Wages paid are at or above, an amount which is equal to 130% of the federal poverty threshold for a family of three (3), as established by the United States Department of Health and Human Services (currently $10.06 per hour)

5. Business provides one of the following: 1) the availability of covered employees to obtain an employer-sponsored health insurance policy, pursuant to employer guidelines, in which case the employer provides a minimum of 70% of the cost of such policy; or 2) as an alternative to offering an employer-sponsored health insurance policy, the employer shall pay the covered employee a wage which is at least $1.50 per hour above the amount required in item 4

6. A combined positive cost: benefit ratio of 1:1.25 or greater over a                       15 year period as determined by the City adopted econometric model

Application of Target Objectives:

Environmentally sound: 

As a manufacturing location, the facility will generate waste.  The applicant states that the waste products do not pose an environmental hazard and are recyclable.

Firm Size:

With current Lawrence employment of 450 employees, the firm would be considered a medium sized employer.  Medium sized is defined as not being of a size that would make the City economically dependent upon its continued operation.

Wages

The applicant proposes hiring a total of 154 full-time employees as a result of the proposed expansion, 72 operators, 37 material handlers, 35 technical/maintenance workers, 6 group leaders, 2 engineers, and 2 department heads.  The positions are projected to be added over a five year period.  The following table itemizes the positions, survey wage code, proposed salary and the mean and median wage according to the 2005 state wage survey.

Position	Wage Code	Proposed Wage	Mean Survey Wage	Median Survey Wage
Operators	51-2099	$10.50	$9.67	$9.60
Material Handler	53-7062	$12.00	$10.00	$9.73
Tech/Maintenance	49-9042	$16.50	$13.69	$13.52
Group Leader	51-1011	$20.00	$19.48	$19.24
Engineer	17-2112	$32.00	$32.06	$30.06
Department Head	11-1021	$35.00	$34.22	$30.64

            The applicant’s proposed wages exceeded both the mean and median wages in the State survey with the exception of the Engineer position.  The mean wage for Industrial Engineers in the state survey was $32.06 per hour compared to the proposed $32.00 per hour.

            The 2005 wage floor has been calculated at $10.06 per hour.  The lowest wage listed in the application was $10.50.  It appears that PackerWare meets the wage criteria specified in Ordinance No. 7606.  

Benefit: Cost Analysis

The cost benefit ratio of this project was calculated by the University of Kansas Policy Research Institute.  The model shows an overall cost benefit ratio of 1:4.80.  The overall ratio includes the city, county, and school district.  The cost benefit ratio for the City of Lawrence was 1:7.18.  The calculation is a projection of costs and benefits over a 15 year period of time.  The minimum ratio in Ordinance 7706 is 1:1.25 over a 15 year period.  The requested abatement meets this criterion.

Employee Benefits Information

Full time employees who have worked 60 days are eligible for health and dental insurance. A 401(K) plan that matches 100% the first $300, fully paid disability insurance, and personal leave days and vacation time are available.  The employee contribution for hourly and nonexempt salaried to participate in the health plan varies from $20 to $46 per month depending upon the health plan selected.  The amount paid by the company for each plan is 70%.  PackerWare does spend the 70% for employee health care specified in Ordinance No. 7706.

Eligibility for 90% Tax Abatement under Section 16

Ordinance No. 7706 provides that when an investment exceeds $20 million the City Commission may consider a property tax abatement that exceeds 50%.   PackerWare’s proposed investment is greater than $20 million and the applicant has requested a 90% property tax abatement.

PIRC

The role of the Public Incentive Review Committee is to 1) receive and review requests, 2) gather and review any additional information to determine if the company meets the target objectives, 3) conduct preliminary negotiations, if appropriate,  4) review the tax abatement report and performance agreements, and 5) make recommendations to the City Commission.