PUBLIC INCENTIVE REVIEW COMMITTEE MEETING MINUTES

PUBLIC INCENTIVE REVIEW COMMITTEE MEETING MINUTES

JANUARY 19, 2006

The Public Incentive Review Committee of the City of Lawrence met at 4:00 p.m. in the City Commission Chambers, in City Hall with Mayor Highberger presiding and members Commissioner Mike Rundle, Kirk McClure, Bob Johnson, Brenda McFadden, Mike Maddox and Rich Minder present.

Commissioner Sue Hack was also present

Staff members present were Mike Wildgen, David Corliss, Ed Mullins, Frank Reeb, and Scott Wagner.

Others present were Lavern Squier and Heather Ackerly Lawrence Chamber of Commerce, Genna Hurd, University of Kansas, Policy Research Institute, Packerware representatives included Joel Plaas and Robert Weilminster

Ed Mullins reviewed his staff memo. He said PackerWare Corporation (Berry Plastics) had a production facility in Lawrence since 1968 and was purchased by Berry Plastics in 1997.

The application for property tax abatement was for 24.5 million in construction and 93.5 million in machinery and equipment.

He said Ordinance No. 7706 stated that the applicant must 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 5 year period as determined by the City adopted econometric model

He said the applicant stated that the waste products the facility would generate did not pose an environmentally hazard and were recyclable.

The firm employed 450 employees which would be considered a medium sized employer which was defined as not being of a size that would make the City economically dependent upon its continue operation.

The following table itemized 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

He said the proposed wages exceeded both the mean and median wages with the exception of the Engineer position. He said that was an Industrial Engineer position and the applicant might want to discuss that position with PIRC.

The lowest wage listed was $10.50 which exceeded the 2005 wage floor which had been calculated at $10.06 per hour.

Mullins said the cost benefit ratio model showed 1:4.80. The minimum ratio in Ordinance No. 7706 was 1:1.25 over a 15 year period. Therefore, the requested abatement meets the criterion.

The employee benefit information indicated that the company paid 70% for the health plan which also met the requirements.

Under Section 16 in Ordinance No. 7706 provided that when an investment exceeded $20 million the City Commission might consider a property tax abatement that exceeded 50%. PackerWare’s proposed investment was greater than $20 million and the applicant was requesting 90% property tax abatement.

Maddox asked if there was any criterion that PackerWare did not meet based on their request.

Mullins said the only issue was the engineer’s position which did not meet the criterion by $.06.

Robert Weilminster, Vice President of Corporate Development for PackerWare’s parent company Berry Plastic said their company would make sure that they were in an appropriate wage scale for that position.

He said when finishing up the numbers for end of the year, with respect to the employee benefit, the health care actually worked out so that the company was picking up 75% of those costs in relation to the 70% they shared in the application.

Maddox said there were three constituencies which were the City, County, and School District and the overall cost benefit ratio was strong. He asked how that ratio broke down when looking at each constituency.

Mullins said he did not have that breakdown at this time. He said all the constituencies were above the 1:1.25 except for the School District. He said he believed the School District was slightly over 1.

Weilminster presented the committee with a video on Thermoforming which would be the technology supported by the proposed project. He said what the company did in Lawrence currently was called injection molding that helped produce cups at a high rate of speed in order to be able to compete in a very competitive market.

He summarized the project in phases. He said in phase one, there were two lines, 400 feet long and each one of those lines was approximately 12 million dollars. Phase 2, added another two lines and phase 3 added 4 additional lines for a total of 8 lines with respect to the overall project.

McFadden asked if most of their competitors were overseas.

He said most of their competitors were domestic.

McFadden asked if those lines would produce less waste.

Weilminster said the lines would produce less waste.

Johnson asked to compare and contract this process with the injection molding. For example the line was 400 feet and he asked what would be the line for the injection molding.

Weilminster said they could produce approximately 60 million cups a year with a 3 million dollar investment which took up a space of about 30 feet long by 12 feet wide. He said with the new technology was a 12 million dollar investment to make 375 million cups a year which took up a space of about 400 feet long by 50 feet wide. He said that would make it 6 times as much production.

Plaas said in terms of the actual product bulk enabled them to ship and store more product in the same amount of space.

Minder asked about the warehousing needs that were associated with the expansion.

Weilminster said they would need another 100,000 square feet to warehouse their new product. He said part of the problem with the warehouse was that they would take the existing warehouse space for their new product. Therefore, they would be creating a need for more space, but they were not anticipated the need for more space until the ladder half of 2006 or early 2007.

Maddox asked if the new line would replace the injection mold process or supplemented that process.

Weilminster said from their perspective the new line would supplement the injection mold process. He said they were bringing a cup to the market place with the thermoforming technology that would enable Berry to compete with paper and actually replace that product.

Weilminster said the reason for this mission was because they figured out how to produce cups with propylene. Propylene was much more complicated to work with because of the material characteristics, but it was also very environmentally friendly material. He said it was much more complicated to process that was why the machine was $12 million dollars. He said the cups that they would produce would be virtually “bullet proof” and the cup was better than their competition’s cups. He said as far as sales ability, the produce would cost less, be more environmentally friendly, and was virtually indestructible.

Rundle asked about stamp number 5 on the bottom of the cup and would it be recyclable.

Weilminster said that product was recyclable.

Weilminster presented a PowerPoint presentation to the committee. He said PackerWare had been in the Lawrence community since 1968 and was acquired by Berry Plastics in 1997. He said their corporation was one of the largest molders in North America. They were primarily an injection molder and they went into thermoforming with a platform that enable their company to set themselves apart from their competition by figuring out how to thermoform Propylene versus styrene.

He said they had 6900 employees worldwide.

He said they had grown aggressively over the past 10 years from 1995 to 2005 and a lot of that was via acquisition. They had a very good acquisition strategy as far as the type of companies they wanted to buy and how those companies fit into what their company did. There was also a fair amount of organic growth and this new product would drive significant organic growth.

He stated that another important aspect was Berry’s capital funding which allowed Berry Plastic to continue to put them in the position they were in the market place. Last year they spent 106 million dollars in capital to fund their company.

He presented to the Committee a list of companies they had acquired over the years and the fact that from a cultural standpoint they recognized the importance of those companies and their presence in the market place.

From the standpoint of their footprint, they had plants all across the United States and across the world.

He said the facility today was 500,000 square feet and did 93 million dollars in sales. He said to put that project into perspective, 4 of those lines would double the sales out of the Lawrence plant. He said right now they had approximately 450 employees. Their company had been in the Lawrence community since 1968 and had a great partnership with the community and that was part of the reason they were there today.

He said in Phase 1 and 2 drink cups would be the primary product that they would produce off of that equipment and Phase 3 they could potentially move into container molding or clam shell that was used for salads.

As far as expansion, it was broken out into phases. Phase 1 would include the addition of 2 production lines and 43 new employees. From an infrastructure expansion standpoint they would be taking existing warehouse at the PackerWare site and converting that space in manufacturing space.

He said Phase 2 would be 2 additional production lines and that would maximize the space in that warehouse that they were converting and add 35 additional employees. They would finish out the infrastructure expansion and they would reach out for 50,000 square feet to support 2 lines and another 50,000 square feet to support the next 2 lines.

He said one of the issues they wrestled with as they evaluated the project was when they brought in the support to run that type of equipment, their target would be to get the ultimate payback on those 8 lines. He said they believed they could put 40,000 square feet onto that site which would enable them to add the other 4 lines.

He said when adding that all up together from a capital standpoint that brought that project to $18 million dollars.

He said Phase 1 and Phase 2 would double the amount of electricity that they used in that plant.

He said from a wage standpoint, they would meet the requirements from a living wage standpoint.

Regarding capital over 5 years they would expect to spend $30 million dollars in 2006 and would then reach into 2007 and 2008 with another $32.5 million; and 2009 and 2010 would be Phase 3 which would round out the project.

Minder said with regard to the 78 new employees, he asked what would be the types of positions.

Mullins said there were 154 proposed new positions and those positions were summarized in his memo.

Weilminster said the types of positions would be 72 operators, 37 material handlers, 35 technical/maintenance workers, 6 group leaders, 2 engineers, and 2 department heads. He said were building another business from top management all the way down to the most important part of their business which the people in production.

Highberger said on the systems and support equipment would that property be taxed as real property or personal property.

Weilminster said right now it was a blend, but for the most part they believed it would be real property. He said their might be some things that needed to be worked out as far as the appropriate categorization.

Mullins said whether real or personal it would be assessed at 25%, but the equipment was going to depreciate faster and the personal property would be reduced at a greater value each year.

Highberger said the reason why he raised that question was because there was a proposal in the state legislature to remove equipment from taxation.

Weilminster said they had worked with Mike Wildgen, City Manager, and David Corliss, Assistant City Manager/Legal Services Director, on how they were going to finance their portion of the project. He said they were asking the City for an IRB abatement as far as the equipment and after understanding that process, they thought it made sense, since they would not lease the building improvements, to ask for a constitutional abatement for the building improvements and the building and that came to his attention yesterday, when he had talked to Gilmore and Bell, City’s Bond Counsel He said they were asking for the City’s support with respect to 90% abatement.

He said infrastructure did not mean that they needed the City to bring in a lot more water or putting a lot more water in the sewer system. He said they used a lot of water in their plastics but a lot of that water evaporated off of their cooling towers. He said the water comes out of their equipment hot and they used cooling towers to cool that water and then that water was fed back to the equipment again.

He said concerning electric there was a huge climate control, compressed air, water and material handling was how they moved the resin from the rail cars, into the silos, and into the machines. Another benefit was when there was more rail moving in and out of the community, needless to say the rail services tended to provide a better service.

On the equipment side, they would phase up to 8 lines and each line would require 3 high speed printers. He said there was a significant investment in high speed decorating equipment. The overall investment in molds was approximately $93.5 million dollars.

Maddox asked about variable costs. He said it was tough to make a 5 year plan because the economy changed. He said one of the issues the PIRC struggled with was how would they compare companies who come to PIRC to ask for an abatement and then things change.

Weilminster said what kept them awake at night was the energy and energy trickling back to natural gas and oil. Processing those 2 energy items was how they generated their plastic. The plastic market as far a resin coming up stream to their company had been incredibly volatile in the past 2 years.

Weilminster said their company had been in Lawrence for a long time and the City had supported their company in the past. He said they understood they were asked the community for help. It was their responsibility to get the deliverables on their side of the performance. One thing they saw important about this project was that they had customers waiting for them to decide the location of this project. He said Phase 1 of the project was in the bag. Basically, it was a matter of where this project would be done and when the equipment could be ordered. He said they had the customer behind them. He said their company needed to grow and they needed to make a decision about in what community it would grow in.

He said one of the reasons they had requested that abatement amount was because of the nature of the costs with respect to a manufacturer regarding this type of capital investment in the Lawrence community. He said the mill levy rates were extremely high. He said he came from the State of Maryland where there was no tax on manufacturing equipment. He said he knew the Governor was looking at that issue and that created issues for communities, but the reality was that they needed to take a look at spending $120 million dollars in capital and then take a look at the expenses that go behind that and at the end of the day they all had business they ran. What it came down to was making good business decisions. He said Lawrence community was nine times higher than what they paid in gross taxes in other communities, just in property taxes. He said fortunately and unfortunately one of the aspects of this project was that a lot of incentives that were coming on the state side with respect to income taxes were something they could not take advantage of right now.

Johnson said the warehouse space was not a part of the proposal for the abatement, but if they were able to finish in 5 years all three phases, they would need 200,000 square feet more than today. He asked what the probability was that those 200,000 square feet of warehouse leased space would be in Douglas County.

Weilminster said as long as Douglas County could support them with space, needless to say they would want to move their trucks as little distance as possible to get the cups from the plant to the warehouse. He said right now, 100,000 square feet was their own space. He said generating the revenue would be tax revenue on 100,000 to 200,000 square feet.

Rundle asked if labor costs were the same in all those areas that Weilminster was comparing.

Weilminster said labor cost were comparable. He said they had looked at that project from every angle.

Corliss suggested that the Plaas discuss their Temp to Hire Program.

Plaas said one of the ways they found that worked best for them to hire in this community was using that Temp to Hire Program. He said they had been working with Aerotek for three years now. He said last year they ran about 500 employees through the Aerotek Program and approximately 99 of those people came aboard full time. There were only 6 hires made last year that came outside of Aerotek and one of those people hired was a direct hire through the University.

He said people could get a job on a moments notice working through Aerotek. He said no one could come through their doors without going through Aerotek and Aerotek kept an office at their facility. He said the way it worked was that a person would start at Aerotek and if things worked out over a 60, 90, or 115 days, then that person could come aboard full time. He said Aerotek was a good program and they received good retention after people had gone through that program.

He said they had found some great people through that program. He said some people came to their company to find a job just to make ends meet while they were trying to find a scheduling job. He said if there was a scheduling opening, then that person could go from being an operator to becoming a key scheduler. He said they got to work with 3 human resources professionals in their facility, but they also had an Aerotek person that worked in the facility and he was just like one of their employees. He all of the temporary help were welcomed to attend all of their employee functions because they were working to become full time.

He said Aerotek was connected throughout the metropolitan area. He said there had been situations where someone ended up at the Aerotek office in Kansas City looking for a job and Aerotek would direct them back to their office in Lawrence because they happened to be a resident of Lawrence. He said that widened their scope and they saved advertising dollars because Aerotek was constantly looking for people. It was a great way for their company to screen people and a great way for people to screen their company to find out if they would be a good fit. He said they did not try to use temporary help as an inexpensive way to hire people.

Weilminster said they use that tool at a lot of their plants, but the important thing was those temps were part of their 450 head count throughout the year and those people would become Berry Plastics employees. He said they were just using Aerotek as a front end for the probationary period which was part of their employment policy package at all of their plants.

Plaas said the thermoform process was much more complicated and there was not way they could take an unseasoned person and put them in thermoform because everything was much more high-tech. He said the thermoform operation would be 40 yards away from their existing building and would be the more senior employees that would be graduated to those positions.

Genna Hurd, Lawrence Chamber of Commerce, said on the last page of the letter was the net benefits and the benefit cost ratio. She said the ordinance looked at a 1:1.25, but they also tell people that they should also look at the net benefits because sometimes there might be a project that had very high ratio, but the benefits were not as good.

She said the model did take into account the primary effects and then secondary effects or spillovers to the local community and those were listed in the last page of the letter. She said one thing about this model was for the annual operating expenses as well as the utilities only allowed for them to add, but did not allow them to change it over time. Because this project was done in phases with the 3^rd phase having a significant increase in operating expenses, they did a calculation of the incremental change and an annualized average. Otherwise they had input the impacts of that first phase, the benefit ratio would not have been as high and that would have been unfair to this project. The best they could do working within the constraints of their model was to do an annualized average which was footnoted in the report.

She said page 3 of the report, showed the reliability of this model which was intended to be only one of the things used in decision making because it had its limitations. She said physical budgets and tax structures changed and would change throughout the life of the project and this model only accounted for what was currently in place right now with the tax structure as well.

Highberger asked if the model was run with any abatement percentages other than 90%.

Hurd said she ran that model with other percentages after she read the article in the newspaper anticipating that PIRC might be looking for the School District to come out at 1.25. She said it was somewhere in between 86% and 87% abatement would get the School District up above the 1.25 benefit. She said at the end of 10 years an 87% got the School District to a 1.24 and an 86% got it to a 1.31. Once again, she advised PIRC not to just look at only that benefit ratio but also the net benefits of the project.

Maddox asked if Hurd calculated what the net dollar difference was.

Hurd said she would have those figures.

Maddox said he thought $9,700.

Maddox asked about the net benefit for the School District at the end of 10 and 15 years.

Hurd said at 15 years it was 86% which was a 1.31 ratio. She said at 10 years, the net benefit to the schools was $13,601 and at the end of 15 years was $485,067.

Highberger said it seemed like an awfully big shift for shifting a few percent going from $9,000 to 13,000.

Minder said it did seem like with this particular project there were huge economies of scale from capital investment with the labor inputs being somewhat of a less of a consideration for the profitability of it. The inputs of the things related to the oil industry being the one mentioned, but then the capital inputs having huge economies of scale. Nevertheless from the standpoint of the School District preparing future workers even with labor being relatively less of a contributor to profitability in terms of how it would play out, $9,700 over 10 years was a pretty small benefit to work with to produce that labor.

Maddox said from a school standpoint a lot of the benefit to the school system would be driving additional students into the school system and the project did that. He said he assumed it was taking into account that it would add additional costs with those students coming in, but he assumed that when those students came to their school, the budget process would provide budgeted dollars to support that. He said theoretically the school district was $9,700 better off 10 years from now if they had the project versus if they did not have the project.

Hurd said one thing that might help visualize that was a graph on page 9 of the report. That graph broke down the City/County and School District along with the combined total and the discounted benefits, cost, and then the net benefits.

Johnson said he was familiar with the policy to the extent that that policy specifically said that it would do the calculation on 15 years and he asked why they were discussing 10 years.

Rundle said it made more sense to talk about 10 years because that was the period for the abatement.

Hurd said one thing about this particular project because it was done in phases with the 3^rd phase not happening until year 4, the 15 year period would actually account for the full life and she assumed that the abatement for the phase would not start until that phase actually happened. She said those 15 year numbers would account for the whole project done in all 3 phases. The model did let you add things in and this 15 year period would then cover it.

Hurd said that was the same type of issue with the employees in that the employment was staggered and was covered in the 15 year period. The 15 year period allowed you to see some of the benefits and particularly once some of those abatements started ending, the City/County and School District then started to see more benefits of the project.

Johnson asked if 10 years was looked at historically.

Maddox aid the ordinance stated 15 years and that was should be used.

Johnson said there was a policy and it made some sense that they should follow the policy.

Highberger said the ordinance stated 1.25 at 15 years as the minimum for even qualifying to be considered. He said if they had a new applicant with no track record, the applicant might leave after the expiration of the abatement. He said it did not make sense to consider a 15 year cost benefit ratio on a ten year abatement.

Rundle asked whether the model accounted for depreciation.

Hurd said they did account for depreciation. She said they did input the state guidelines for depreciation.

Johnson said on Table 3, page 5, it discussed the estimated location of the new or retained employees which would be 61% in Lawrence, 15.6% in the rest of Douglas County, and 22.5% would commute into the County. He asked if those numbers were reflective of the current employment or was that part of the model.

Hurd said those numbers were part of the model based on a survey conducted of new firms.

Plaas said the Lawrence facility had 54% Lawrence residents and all of Douglas County was closer to 62%.

McClure said that would be a 10% reduction of jobs located in Lawrence. He asked how sensitive the model was to a 10% reduction of jobs.

Hurd said she would need to run an analysis to determine that amount.

McClure said Hurd was assuming 62% of the jobs were in Lawrence. If 54% were in fact in Lawrence that would appear to be a 10% reduction of jobs.

Hurd said that affected the number of school children.

Weilminster said the encouragement for those employees would be to be closer to the plant. A lot of those jobs were going to be primary and secondary significant wage earnings in their families so a lot of those jobs might come out of the City or the County.

Highberger listed 5 possible options for the Committee to consider

1. Approve the application as requested

2. Deny the application

3. Adjust the percentage abatement between real property, personal property, and equipment given the fact that the County’s ability to tax equipment might be changing within the lifetime of that abatement.

4. Approve the abatement with a different amount across the board.

5. Fixed amount payment of lieu of taxes rather than a percentage base. He said this option would give them predictable revenues and there would be a built in performance guarantee that if the applicant investment did not occur as projected then the actual ratio shifted accordingly.

He said he had some concerns about the state taking away the County’s ability to assess property taxes on business equipment. He said he was ready to suggest that PIRC consider 100% abatement on the equipment and a lower percentage on the real estate, but given the fact that those numbers still seemed to be somewhat in flux, he was going to back off on that idea.

He said he was very supportive of this project because it would have a great benefit for this community. This business was born and raised in this community, provided a great number of jobs, and was a good employer. He said this had the potential to keep the long-term viability of the current operation in addition to providing some jobs for this community.

He said he wanted to make sure that they perform their fiduciary duty. He said he had some concern about the cost benefit ratio for the school district as reflected in the model.

He said his preference would be to approve the abatement with a slightly reduced across the board percentage. He said it would be interesting to see if there was a way to have the school board sign off on this project before this was given to the Commission next week.

Rundle pointed out that any PIRC action would be a recommendation to the City Commission.

Minder said part of the issues that were raised with respect to the accuracy of the model were already noted. He said some of his questions went to the type of workforce and their ability as a district to expand their capacity to provide a good workforce over the long haul. The School District would be looking to retain and to enhance their ability to provide that workforce. Any benefit that could be enhanced to meet that outcome would be the thing they would need to look at based on the numbers that were produced in the report. He said it was difficult to see, on those numbers, just how much more capacity they would be generating to produce the workforce over the long haul that would be good for the inputs that would be needed in the firm.

He said it did seem like the benefits to the School District were significantly lower. He said he did not know what payment in lieu of taxes would look like to the School District or other partnership arrangements that could be worked in the deal, but that would be another consideration.

Highberger said any payment under the abatement was a payment in lieu of taxes if it was a fixed number or even if it was not a fixed number a certain percentage of that could be allocated toward the school district and that would change the cost benefit ratio for the other entities.

Minder said he was excited about the project and he liked how this firm was smart in making capital investment to take advantage of product in a market that was really sensitive to those investments and the community would benefit because of that. He said that made a lot of sense and was supportive of the project. He said he also concurred with the Mayor regarding wanting to see something lower than the proposed 90%

Rundle said he assumed the payment in lieu of taxes, if it were set to whatever those taxes would be the first year, at an abated rate that that would continue throughout the 10 years which would actually be a higher benefit because normally the rates would be going down with depreciation.

Corliss said by statute, the property that was purchased with the proceeds of IRB’s was exempt from taxation. He said as part of the agreement that went with the bond issuance, communities had payments in lieu of taxes. Those payments in lieu of taxes essentially, true up to whatever percentage abatement that the governing body approved in the issuance in the IRB and granting the tax abatement.

Squier said did the City have discretion in that lease agreement to set the PILOT so that guaranteed that USD 497 received a percentage.

Corliss said a fixed amount could be established over time and the City could determine where that amount went as part of the agreement.

Mullins said the payment went to the County and it was usually allocated in the same proportion as the appropriate mill levy for each entity. He said he did not know how the County would handle the payment distribution.

Corliss said he was looking at the statute on payment in lieu of taxes and it did not necessarily fall under the IRB statute and the governing body could determine how it wanted to those revenues to be used.

Maddox thanked Berry Plastics because the company had been a good corporate citizen and this was an important project for the community. He said he was involved with a lot of recruitment companies and it was a lot harder to recruit new companies to this community than it was to grow their own. He said he did have some concern about the 10 year net benefit to the School District and he would like to see it little better and at the same time, he thought Johnson made a very good point that the ordinance required that they look at a 15 year cost benefit. The 15 years with a $372,000 benefit to the School District was significant. He said there was also a 5.2 million dollar net benefit to the City/County and School District combined on a 10 year basis which if the City and County could find a way to divert $100,000 of that 5.2 million to the School District, you would be right where you wanted to be if you reduced the percentage of abatement which was a doable situation.

He said the application met all of the stated requirements in the ordinance and he would like to see a detailed agreement between Berry Plastics, the City and the County on performance and that there would be some teeth that if the performance wasn’t made there was some adjustments to what they were agreeing to do over time.

He said he was supportive of the application and he would like to see a 90% abatement with an adjustment if it could be done legally between the City, County, and School District to make the school district come out to where they would be on a 86% or 87% abatement over 10 year cost benefit analysis.

Johnson said this was his first meeting on this committee and it was an accident that he would get to come at the first meeting when the committee was considering an unusually large request for abatement. He said he remembered the weeks and months in developing this policy coming on the heals of the American Eagle project which qualified by the old plan but didn’t suite the people. He said they were concerned about trying to build a policy that would be objective and predictable. He said having spent hours on this policy he thought the policy was properly developed. He said he was comfortable with it and the City Commission, at that time, accepted that policy. He was delighted being part of the committee in dealing with so large of an abatement. He said his question was why they did not ask for 100% abatement. He said if he owned the company and was bringing those types of numbers to the table, he would ask for a 100% abatement because he suspected on a 15 year basis, 100% tax abatement would probably be positive and would probably exceed the City standards.

He said he was absolutely supportive of the 90% abatement. In fact, he went back and read the document and was reminded that on page 7 of the tax abatement policy, under paragraph E, it said that a company that had been on the Douglas County property tax roles for at least 3 years, shall be eligible for an additional 5% tax abatement for a new project. He said if the committee wanted to cut the abatement to 86%, he would agree to that, if the committee would include the 5% bonus. He said everything he read and saw supported the 90% tax abatement.

The point was well taken with respect to the school district, while it as not bad, it could be better and he personally thought if would make some sense to go into a payment in lieu of taxes and work out a strategy because if the City was huge beneficiary, it made a lot of sense because they did not need to spend much on infrastructure to make this happen.

He said it would be easy to develop an interlocal agreement and tie the abatement in such a fashion that money could transfer to school. He said this project was exactly what they had in mind 3 years ago when they decided to structure the abatement policy in two phases because they wanted to encourage big companies to come to this community. He said they would be missing a huge opportunity if the committee did not recommend this abatement and the City Commission did not support the 90% abatement.

Rundle said if the State government was successful in removing the equipment from taxation then this would all be moot. He said he understood the bulk of the property depreciated such that at the end of the abatement there was low or no taxable value so the payment in lieu of taxes being at a fixed rate would be his preference.

The living wage was a minimum threshold and he had communicated with Lynn Parman and Lavern Squier from the Chamber that he was not really interested in abatements on those jobs that paid at the $10.50 per hour level, because people at that wage level could not really participate as fully in the economy, buy a house, and those types of things. At that level, he thought there were more costs to the community in education. The counter to that thinking was because the school district wanted increased enrollments and he did not know if that was related to state aide.

He said it was mentioned that there was a lot of out of County employment and that was because they were able to have a lower cost of living in those areas. That caused him concern that they were losing the benefit of the students or the benefit of having those wages stay in the community. He said he was reluctant to support this abatement.

McClure said he was concerned that they had glossed over the issue of financing versus abatements. He said it was clear they were also being asked to advise on the IRB financing. He said that was a significant benefit that the applicant owed to the company and he saw no reason not to go ahead with that financing that would provide a fixed rate financing over a long term and it could be easier for them to get the capital. He said they would be able to get the private capital markets and an enormous benefit that the community could provide by lending its bonding authority to help them raise those funds.

The separate issue was the abatement. He said they were seeing the same problem they had for some time in the misuse of the benefit cost analysis. There was little reason why any community would want to negotiate when the benefits were less than the costs. He said they were always going to be better off if they could attract the capital investments and the jobs without providing the subsidy. In fact, the benefit cost ratio would always be higher. What the cost benefit ratio told them was not to give the abatement, but to enter into negotiations and get the best deal possible for the public sector. He said they were all thinking about giving away money and compensating the school district, but they all knew what would happen when the next budget preparations round came. There was never going to be enough money and they were all going to wish they had those additional tax revenues.

He said he was very concerned about the job placement. The way it worked was that they were giving away the taxes which was a normal benefit to the public sector in exchange for bringing in jobs. Those jobs were supposed to bring in wages to the community and those wages would spillover within the community creating service sector jobs. If the jobs leave the County, they would not get the tax benefits because they had abated those taxes, the wages leave and go to another county and the spillover jobs would happen in those other communities. The benefit cost analysis had probably been exaggerated, but they did not know by how much. He said he thought the benefit cost ratio was high enough for further negotiations.

He said the third issue was with issues in the application. He said there were places that did not tax personal property, but it was the combination of land, labor, finances, and utilities that made deals work. Land was not an issue because it was an existing firm, but labor, financing, and utilities, they were already discussing subsidizing on financing side. He said the public sector was lending its bond authority to provide those IRB’s. Ultimately if the community issues IRB’s and those IRB’s go bad, the public sector was hurt. He said he disagreed with the notion that their taxes were extremely high.

Finally, the last issue was this business was having problems with past performance. Berry Plastics, right now was on the non-compliance list. Wages were below community average and multiple of their job categories and in one area, they were paying wages below the living wage. If they were going to adhere to policy, they were talking about further abatements to a non-compliant firm.

He said what he would suggest was that they were not in a position to financially hand out money. The IRB was fine, but no abatement and 100% taxation on the real estate He said they knew the equipment would depreciate over 8 years and knew there was legislation working in Topeka that might exempt that equipment anyway. He said they needed to find that lower percentage that made everyone happy, especially the school board.

Rundle said past abatement was not done under the policy with the living wage and that was not enforced because those abatements were done before they established the living wage.

Maddox said he disagreed that Berry Plastics was not one of the companies they had asked for more information or to change what they were doing to stay in compliance with their existing abatements. He said it was a huge disservice to this community to not support this project. Berry Plastics was meeting the criteria that were setout as they expected to look at companies and offering abatements. This was not a new company to this community, but an existing company that had been in this community and was growing. Not only did they risk not getting new jobs if they did not support this project, but their going to miss the existing jobs. He said this was also an opportunity for this community to step up from an economic development standpoint and open their arms to new opportunities in this community of which they had a huge reputation outside this community of being a very closed community and not being open to new opportunities. This was a chance for them to step up and support a good strong project that at the end of the day had a strong net benefit to this community.

He said for McClure to say that the ratios were not important, was counter to everything that McClure had said at every other PIRC meeting. He said McClure’s position was that the ratios were everything.

He said this company met the criteria in this case and was an opportunity for them to support a great project in this community and they had been good corporate citizen.

McClure said he was roughly certain that he did not say that ratios were not important. He said he published research on things like benefit cost analysis and he knew it was being used well. He said ratios did tell them something which was to go further with negotiations. The problem in Douglas County was once reaching that 1.25, they seemed to turn off that thinking as wanting to grant abatement, but in fact it was time to say what was the right abatement to get this investment and what he was suggesting, was that’s the way they needed to think. He said he thought they did a disservice to the taxpayers of Lawrence, Douglas County, and USD 497, because they were constantly asking them to dig deeper in their pockets. Service costs were going up, never mind the fact that they had abated those taxes to firms that were in non-compliance. The policy stated that they shall pay wages equal to above community averages and they had not been in compliance on past abatements. That was going to be a tough explanation to give to the taxpayers to ask them to dig deeper in their pockets to give an abatement to a non-compliant firm.

Johnson asked how a 5.2 million dollar net benefit to this community a harm to the taxpayers.

McClure said it could be 8.2 million. He said they would be giving away millions of dollars of taxes.

Johnson said McClure assumed it would be 8.2 million, if they did not give that abatement. He said he trusted that McClure was a great researcher, but McClure did not have any experience in running a big company and making a decision of where that company was going to locate their next plant. He said McClure was making a huge assumption that they could not give the abatement and get the same investment. He said he did not think those guys were bluffing when they say there were a lot of communities trying to attract this project. He said he did not think they should make decisions to hurt our community, but when having a significant net benefit to a project, this was the opportunity to take advantage of.

Highberger said there was some dispute about whether they had asked PackerWare for information regarding their previous abatement and what had transpired otherwise. He asked Frank Reeb to provide any update on that type of information.

Reeb said PackerWare was one of the businesses at the last PIRC meeting in December that the City Commission asked him to send a letter to requesting additional information. He said there were two issues that the City Commission asked for information about and one issue dealt with the decision to lease equipment for the 1998 abatement and the other issue was the amount of wages paid in particular, to one SOC Code. He said since then he had heard back and they explained that was a typographical error on the information because there was a new Human Resources person and the first time they worked with the questionnaire was a year ago. He said he had looked at the SOC code that PackerWare provided and compared that code with the mean wage for the Lawrence MSA for the 2004 Wage Survey which was the applicable criteria and the mean wage was $8.40 an hour and the mean wage that PackerWare reported was $11.46 which was obviously above the mean wage.

Highberger said for the record, PIRC had not had the opportunity to review that information.

Reeb said correct.

Johnson asked if Corliss could speak as an objective person with respect to the taxation issue and the communities bonding capacity for IRB’s and if the IRB user failed to pay, whether or not that liability moved to the City.

Corliss said one of the key components of the documents of this IRB’s was that the community had no tax liability for those revenues. If the business defaulted on an IRB then the bond holders look to the trustees. The City had the issue of making sure that due diligence was performed and that the bond holders would receive as much of their revenue as they could. He said that was exercised recently with the Holidome. The Holidome defaulted on their bonds and staff had to spend some time making sure that the bond trustee was doing their due diligence covering the City from a legal liability standpoint.

He said was their tax liability on the City, the documents clearly indicated that there was not. Would a prospective bond purchaser look at defaults from IRB’s in the future as to whether or not to buy City Municipal Bonds, he did not have any municipal finance experience to speak to that issue. If the economy was faltering in warrants, that might effect somebody from wanting to purchase municipal securities from the City.

Corliss asked Weilminster if he was prepared to discuss who would buy those bonds.

Weilminster said yes. He said with respect to the bonds for the equipment the bonds would be held by their leasing partners. From an exposure standpoint, with respect to the City he was having a hard time connecting those dots and those would be financial partners that were partners of Berry Plastics.

With respect to building improvements, because of the conversation with respect to the IRB and some implications that were brought up by the City’s outside councel on Berry Plastics, they would probably choose to fund the real property improvements via their own internal cash flow.

McClure said failure of IRBs did hurt the market climate for bonds in a community. He said he did not say there was not any legal tax liability on it, but they all knew what happened when the Holidome failed.

He said he was in favor of the IRB financing.

Rundle said he had never been a bond underwriter or researched anything that McClure had. He said it was not just the potential failure, but it was an advantage to have access to the IRB’s. The fixed rate of interest was not necessarily the same that they would get from a bank. He said that was part of the benefit was being able to have access to that financing model. It might be in this case that they could get financing equally and easily from other sources, but in a theoretical sense it was an access to a financing tool.

Weilminster said the only reason they were choosing IRB financing was because of the law in the State of Kansas that required them to use the IRB financing in order to reach out to their recent partners. There were other communities that would not cause them to jump through those hoops which actually were going to be a cost to Berry Plastics in this process because needless to say there was going to be bond fees and attorneys and it would be their preference not to actually pursue IRB financing. He said they were at this meeting because they were forced to be in respect to IRB financing. If the committee would like to give their company another route to continue this conversation, he would be more than happy to pursue this project that way also.

McFadden asked Weilminster how Berry Plastics arrived at the 90% abatement amount.

Weilminster said he asked for a 90% tax abatement because through this process Berry Plastics had been very transparent in every community that they brought this project to. For a manufacturer to try and invest $120 million dollars in manufacturing equipment in real property in this community was incredibly difficult to justify. Even with a 90% abatement rate the community was not on a level playing field. He said if he told them what the other communities wanted right now over the 15 year life of this project, that from a tax standpoint they would pay four times more in property taxes to put this project in this community than they would with the other communities that were still under consideration. He said the two things that he would implore this committee and the Commissioners present were to realize that the magnitude of this project was potentially a $120 million dollar project over 5 years. He said he was not sure the community was realizing what the magnitude of the dollars meant. He implored everyone involved in the decision making process with respect to this project to please step back and not get caught up in 90%, but get caught up with the fact that their company had been located in this community and was a good corporate citizen. He said there were valid reasons to approve this when they put the pro’s and con’s of this project on the table. He said he was completely objective with respect to this process.

He said there were a couple of communities that this project fit into. He said it fit into them because of capital and real estate for phase 3. The real estate for phase 3 in this community was a shoe horn, but they believed if they could get the support of the community to put this project from a tax standpoint on a level playing field with the other communities, then this community had a strong opportunity to grow with Berry Plastics in the future.

Weilminster said their company had justified the 90% tax abatement in order to put this community on the same playing field as the other communities regarding what the cost of that project was going to be for Berry Plastics going forward.

Johnson asked if they could get to the point where they agreed that there ought to be or ought not to be a 90% tax abatement and then with the understanding that with real property under the IRB’s which was 100% and machinery under the constitutional abatement. He said if it was a 90% abatement those were the dollars they were talking about and whatever agreement they worked out that would be the agreement. If the City wanted to make the school district a greater beneficiary that could be done internally between the local governments.

McClure asked if he was saying internally out of the City budget or internally within the PILOT.

Weilminster said however they could do it legally. He said all they were trying to do was to get this point and if it was done within the PILOT fine or with the internal local agreement between the funds after they came from the County to the City.

Highberger said he was supportive of this project. He said he was worried that the bulk of this abatement went to personal property and they were in a situation where this cost analysis might go away next year. He said there was some flex with those cost benefit analysis numbers based on how many of their employees lived in Lawrence and how many did not. Given that issue and the issue with the school district was his concern. Again, he was supportive of the project, but he would like the numbers to be adjusted somewhat to provide a little more protection to the City either by lowering the across the board percentage or doing a 100% abatement on the equipment and a lower percentage on real estate.

Minder said at one level the school district would clearly want the Board of Education to come out of this a little better than it was proposed here. The two options of going with the current proposal with the condition of some interlocal agreement that would redistribute the benefits seemed to be one option on the table. The other options of changing the percentage of the abatement and the mix of how the benefits were generated and the cost were accounted for were just how valuable those were with respect to the analysis. He said it was too difficult for him to process at this point to be able to feel like he was in a position to evaluate those alternatives.

McFadden asked for an explanation about IRBs compared to a constitutional abatement.

Corliss said the proceeds from the IRB could be used to pay for lease payments for the equipment if they were going to be for the thermoform process.

Weilminster said that was what they were working on with the leasing company right now.

Corliss said under Kansas law the only way to get a tax exemption on the leased personal properties were IRBs.

Weilminster said the bond holders would actually be the leasing company.

Corliss said under Kansas Law the equipment that was owned or leased automatically was entitled to a statutory exemption because it had gone through the industrial revenue bond process. The bonds pay for the industry to acquire the property interest and the revenue from the industry retired those bonds. He said part of that then could be a payment in lieu of taxes when saying industry would do financing and that you would pay 100% of the taxes.

He said with the constitutional amendment, cities and counties could adopt by ordinance or resolution, a tax abatement for manufacturer, research and development or warehouse.

Squier explained the state law regarding constitutional abatements and how there was a way, through a not-for-profit economic development corporation, for a business to have a constitutional abatement and lease the property.

Highberger said he was going to make a motion with the calculation that he had done. Again, he had a concern about personal property taxes on equipment going away and he looked at what would happen with a complete exemption on personal property and varying levels of exemption on real property based on the numbers that were in the report and given the numbers that were given in the slide that he asked about earlier where there might be some shift in the middle category between real and personal property which would affect those numbers, but all that was taxed as real property, a 100% abatement on personal property and a 0% abatement on real estate would result in 79% to 80% total abatement, and equivalent to an 80% across the board abatement.

He said he was going to propose the approval of the IRB financing and granting an abatement of 100% of personal property and 0% of real property with an instruction to the City to negotiate an agreement with the school district to allocate some portion of that revenue to the school district.

Johnson asked if it would be simpler to instruct staff to determine what would be an appropriate percentage on personal property that would bring USD 497 whole.

Rundle said he assumed that if the proposed state law on eliminating personal property on business equipment was approved that even the PILOT on an IRB would go away too.

Corliss said he understood that the current proposal would be that effective January 1, 2007 new purchases of equipment would be exempt statutorily. He said that was one of the current proposals, but there would likely be any number of different alternatives or amendments before it would become final.

Johnson said if the committee voted on that proposal that would effectively be an 80% abatement.

Highberger said it would be a 79% plus abatement depending on how much of the middle category turns out to be personal property.

Johnson said in essence what was being said was that Highberger would support this proposal at an 80% tax abatement, but not 90%.

Highberger said that was correct.

Johnson said if it were an 80% tax abatement would the benefit accrue significantly greater to the City. If the goal was to make the school district whole, by reducing the percentage, then you would significantly adding to the benefit of the City and lessening the benefit to the school district.

McClure said that was why he was suggesting rearrangement of the PILOT, not an interlocal obligation of general revenues, but a reallocation of the payment in lieu of taxes.

Maddox said this application warranted more than an 80% abatement.

A motion was made by Chairman Highberger to approve the IRB application, a 100% abatement on personal property, and a 0% (zero) abatement on real property, and to provide for an interlocal or Payment in Lieu of Taxes (PILOT) agreement that would provide that USD 497 have a net cost to benefit ratio as a result of the abatement of at least 1:1.25 over a ten year period.

The motion did not receive a second.

Maddox motioned to approve the 90% tax abatement as requested by the applicant and that the City, Douglas County and USD 497 would work jointly on an interlocal or Payment in Lieu of Taxes (PILOT) agreement that would provide that USD 497 have a net cost to benefit ratio as a result of the abatement of at least 1:1.25 over a ten year period. The granting of the abatement would be subject to the applicant being in compliance with all existing abatement conditions on abatements currently in effect. McFadden seconded the motion.

Maddox said the goal was if looking at an 86% or 87% abatement that would get the School District in a 10 year analysis to about 1.25. He said he would ask that an agreement be entered into that would ultimately get the school district to a 1.25 ratio.

McClure asked if that agreement would be within the PILOT.

Johnson said it probably would be an interlocal agreement.

McClure said that meant they were now dipping into general revenues of the City for USD 497.

Maddox said what he was trying to get to was the revenues that were coming from that project to be split differently.

The motion carried 4-3. Ayes – Maddox, McFadden, Minder and Johnson. Nayes – Highberger, Rundle, McClure.

A motion was made by Maddox to approve the IRB application as requested by the applicant.

The motion was seconded by Highberger.

The motion carried 7-0.

It was moved by Johnson, seconded by McFadden to adjourn at 6:15p.m.