Memorandum

City of Lawrence

Legal Services Department

 

TO:

David L. Corliss, City Manager

 

FROM:

Toni Ramirez Wheeler, Interim Director of Legal Services and

Frank S. Reeb, Director of Administrative Services / City Clerk

 

Date:

November 2, 2006

 

RE:

PackerWare Performance Agreement

 

Attached please find the Performance Agreement between the City of Lawrence and PackerWare Corporation required by Ordinance No. 7706.  The ordinance states in pertinent part:

 

Any tax abatement granted pursuant to this ordinance shall be accompanied by a Performance Agreement between the applicant and the City.  The Performance Agreement shall include provisions to ensure compliance with the requirements of this ordinance and appropriate consequences in the event of non-compliance. 

 

The Application and Approval

In an application dated December 22, 2005, Packerware Corporation, a manufacturer of injection molded rigid plastic packaging, applied for Industrial Revenue Bond financing and requested a 90% property tax abatement.  The application requested the issuance of industrial revenue bonds, in multiple series, in an aggregate amount not to exceed $118,000,000 and further requested a property tax abatement on $24.5 million in new construction and $93.5 million in machinery and equipment.    On January 3, 2006, as part of its Consent Agenda, the City Commission received the Packerware application and referred it to the Public Incentive Review Committee (PIRC).

 

On January 19, 2006, the PIRC recommended approval of the industrial revenue bond portion of the application as requested.  The Public Incentive Review Committee also recommended approval of the 90% tax abatement as requested, subject to the City, Douglas County, and USD 497 agreeing to an interlocal agreement that would provide that USD 497 would have a net cost to benefit ratio of at least 1:1.25 over a ten year period (the cost to benefit ratio for USD 497 as prepared by the University of Kansas Policy Research Institute was 1:1.03 after ten years).  The tax abatement approval recommendation was also conditioned on the applicant demonstrating compliance with all existing abatement conditions on tax abatements currently in effect. 

 

On January 24, 2006, the City Commission conducted a public hearing on the requested tax abatement and industrial revenue bonds.  At the outset of the public hearing, it was noted that after the PIRC meeting, and after the publication of the statutorily required notice of public hearing to the USD 497 and Douglas County, Packerware Corporation amended its application to request a 90% tax abatement on $24.5 million in new construction pursuant to Article 11, Section 13 of the Kansas Constitution.  In other words, the new construction would not be financed through industrial revenue bonds. The $93.5 million in machinery and equipment would continue to be financed through the industrial revenue bonds and Packerware would agree to a Payment in Lieu of Taxes agreement with a provision for a payment equal to 10% of the applicable property taxes.  As part of its revised application, Packerware agreed to pay the school district $120,000 in equal annual installments of $12,000 over 10 years.  Following extensive public comment and commission discussion, the City Commission approved Resolution 6627, a resolution determining the intent of the City to issue Industrial Revenue Bonds in the aggregate amount not to exceed $118,000,000 to finance the costs of acquiring, constructing and equipping one or more facilities for the benefit of Packerware Corporation and its successors in interest; and directed staff to prepare the appropriate cooperative agreement which includes the payment to the school district as referenced in the applicant’s proposal dated January 24, 2006. 

 

On February 7, 2006, the City Commission conducted a public hearing on the Packerware request for a 90% tax abatement on $24.5 million in new construction pursuant to the Article 11, Section 13 of the Kansas Constitution and approved the request as presented.   

 

Performance Agreement

Berry Plastics Corporation, the parent corporation of PackerWare Corporation recently indicated the performance agreement is acceptable to them.  Execution of the performance agreement was delayed pending the passage of HB 2583 which eliminated property taxes on new business machinery and equipment purchased after July 1, 2006.  Berry Plastics was also recently acquired by Apollo Management L.P. and Graham Partners. 

 

Staff requests the City Commission authorize the execution of the attached agreement, if appropriate.