Public Incentives Review Committee
Meeting Minutes
City Commission Chambers, City Hall
February 20, 2007, 5:00 p.m.
PIRC Members Present: Mayor Mike Amyx, Commissioner Sue Hack, Brenda McFadden, Linda Robinson, Jere McElhaney, Kirk McClure, Jason Edmonds.
PIRC Members Absent: None.
City Staff Present: David Corliss, Ed Mullins, Toni Wheeler, John Miller, Scott Wagner, Beth Frailey Krishtalka.
Others Present: Beth Johnson, Lavern Squier, William Piercey, Chad Lawhorn, Laura McHugh, Genna Hurd.
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Mayor Amyx called the meeting to order at 5:04 p.m. and noted a quorum was present. He turned the presentation over to City Manager David Corliss.
David Corliss invited the representative of the applicant, API Foils, Inc. to the committee table and introduced Bill Piercey, Vice-President of Finance. Corliss then went through the materials provided to the committee. Corliss indicated that in the packet was a copy of the codified version of Ordinance 7706 which adopted the current version of the City’s tax abatement policy. This ordinance has been codified as Article 21 of Ch. 1 of the City Code. Also in the committee packet was a letter dated February 7, 2007 from Bill Piercey along with a completed City application for a property tax abatement. Additional materials included a memo from the City’s Finance Director Ed Mullins and David Corliss, and a report from the KU Institute for Policy & Social Research prepared by Genna Hurd. Corliss then turned the meeting over to Bill Piercey to provide an overview of the proposed project and the application.
Bill Piercey provided background information on API Foils, Inc. He noted that the firm is a global company with two different manufacturing facilities in the United States – one in New Jersey and one in Lawrence, Kansas. Each facility specializes in different manufacturing products in the decorative foil market. He reviewed the four main competitors API has in the global marketplace, and that API has chosen to remain competitive in this industry with renewed investment in plant and equipment. In their review of the market, they have initially chosen the Lawrence plant location for a possible expansion project. The proposed project would be a 20 million dollar investment, phased over a 4 year period. He stated that the project will still need to be approved by the parent company, and ultimately the shareholders of the company, and financing will have to be arranged.
David Corliss then reviewed the staff memo with the committee. The memo detailed the major requirements of Ord. 7706 for granting a tax abatement. Each of the target requirements were analyzed in the memo which include the following: that the firm be environmentally sound, firm size, wage requirements, cost-benefit objectives and employee benefits. The application of API Foils was found to have met all the major objectives of Ord. 7706. There were no significant environmental issues noted with this application. In terms of firm size, with a current Lawrence employment of 65, the firm fell into the medium size category. Corliss noted that our tax abatement policy is geared toward the smaller and mid-sized firms. The wage data was compared to the 2005 Kansas Wage Survey with a 3% inflation factor as this is the latest data available. Per Ord. 7706, the 2007 wage floor is $10.73. The lowest proposed wage in the application is $14.42 per hour, so the application meets the wage floor requirement.
Genna Hurd with the KU Institute for Policy & Social Research reviewed the cost-benefit model and the report prepared by her office. She informed the committee of the changes made during the last legislative session which will exempt new purchases of machinery and equipment from the tax rolls. Therefore, the cost-benefit model was just ran on the planned 4-5 million dollar building expansion. $4.5 million was used for purposes of the model. She noted a couple of corrections that need to be made to the report and that the committee would get a revised version. She noted that the cost-benefit analysis is just one component of the decision-making process and that it does not capture all impacts, for example – environmental impacts are not included in the model. There are other limitations to the model as well. For example, on page 3 of the report, the model does not allow for operating expenses to vary over time. For purposes of the model, the City’s new franchise fees which will be effective July 1, 2007 were used. Overall, over a 10 year period, the model estimates a 6.26 to 1 return on the applicant’s requested tax abatement.
Mayor Amyx commented that the application and the estimated cost to benefit numbers were very strong. He asked Genna Hurd if she had any reservations about the application.
Genna Hurd pointed the committee to the appendix, page A-3 and the graph of cost to benefit results for USD 497. Only in year 3 do the costs outweigh the net benefits in the model. This is due to the fact that in this year, the estimated additional school children were added into the model data.
David Corliss wanted the committee to understand what has happened to state law changes regarding machinery and equipment. Last year, the legislature enacted changes that will exempt new purchases of machinery and equipment from property tax assessments. Therefore, the application is only for the estimated value of the new addition to the plant. Per the application, this is expected to cost between 4-5 million. Corliss went on to review the additional components of the staff memo. The employee benefits requirements of Ord. 7706 have been met by the applicant. The project is under $20 million, so it qualifies for up to a 50% abatement according to our policy plus an additional 5% per the policy incentives for a total 55% abatement. The current City tax abatement policy has removed some of the “but for” decision making from the equation, which is, would the project improvements happen without the tax abatement. The current policy is geared toward if the application meets with all of the policy guidelines, then a tax abatement should be granted. It is staff’s view that this applicant has met all the requirements for a tax abatement as requested. If the committee approves the applicant’s request, then this item will be scheduled for the March 6, 2007 City Commission agenda.
Mayor Amyx asked the committee if there were further questions or comments regarding this application.
Commissioner Hack stated that she thought the application was very through and complete and thanked the applicant for wanting to invest further in our community.
Mayor Amyx stated that the applicant had done his homework very well with this application. It was very complete. He commended the applicant for proposing to add 31 new jobs to the community. He said the company’s commitment to the City of Lawrence is to be applauded and commended and he wanted to offer his thanks on behalf of the City.
Commissioner Hack offered to the applicant that if there was anything further they could do to ensure this project goes forward with API Foils, to please let them know.
Bill Piercey stated that there were two more thresholds that needed to be met in coming weeks with the company. They needed to obtain corporate approval and to secure financing for the project.
Mayor Amyx discussed the City’s on-going concerns with the safety of the entrance to East Hills Business Park and that City staff was continuing to work on solutions to this.
Bill Piercey expressed the same concerns and said that the proposed expansion project would add an even greater number of trucks and delivery vehicles to that entrance and that employee, visitor, and contractor safety was a priority.
Mayor Amyx assured Mr. Piercey that safety of this entranceway is a top priority of the City and that staff will continue to address this issue.
Commissioner Hack indicated that staff has been having on-going discussions with KDOT about this project and that this application would provide additional data to support the City’s position that additional safety improvements need to be made.
Kirk McClure expressed concerns about the applicant. He noted that API Foils had not submitted complete responses to the annual survey under their prior tax abatement and he wanted to know why, and to receive assurances that the company would fully respond to surveys if a new abatement were granted.
Bill Piercey did not know why some data may have been missing in the past and said he would check into any missing information.
Jason Edmonds expressed his thanks to the applicant for the project.
Linda Robinson on behalf of USD 497 also expressed her thanks to the applicant for the proposed project.
Brenda McFadden inquired about the next steps the committee needed to take on this application.
David Corliss indicated that a recommendation to the City Commission needed to be made and it would be appropriate for the committee to consider a motion on the application.
Mayor Amyx stated that he would entertain a motion to receive the request for a 55% tax abatement from API, Foils, Inc. on the proposed building expansion and to recommend to the Governing Body approval of such request pursuant to the application.
Jason Edmonds made a motion as described by Mayor Amyx.
Sue Hack seconded the motion.
Kirk McClure indicated that he had on-going concerns with the City’s process for granting a tax abatement. He stated the process was too automatic. He noted that it would always be better for taxpayers if the expansion project happened without a tax abatement. He pointed out that the state has already mandated a tax abatement on the new machinery and equipment and that this portion of the abatement on the building expansion was not instrumental for the project. He said our current policy is not working. Tax abatements are not instrumental. We are not enforcing our current policy requirements and terms of agreement for tax abated companies. He said we don’t seem to learn from our mistakes. We have tax abated firms in non-compliance with current agreements. We also have situations where we have tax abated firms who have left the City.
Jere McElhaney stated that while he appreciated Mr. McClure’s opinion, he did not agree with the opinions expressed. He said that while it is true that Serologicals did leave the City, they are paying the full amount of taxes on their current structure and the community has a very marketable structure in place. He said in the business world, there are also other impacts to consider, such as expenses from gas, electricity, city utilities, etc. that will also benefit the community with these types of projects. He stated that he personally did not believe in tax abatements and that we should not be giving tax breaks. He also noted that the University of Kansas does not pay taxes on their properties, but yet they benefit from municipal and county services such as fire and medical protection. He stated that he wished his own company could receive a tax abatement, but as a general principle he does not believe in them. He said that under our current policy, if a company comes in and meets all the requirements that the ordinance sets out, then the applicant should receive an abatement. He stated that the report by API Foils, Inc. is well put together and deserving of an abatement.
Mayor Amyx again said there was a motion and second before the committee to receive the request for a 55% tax abatement from API, Foils, Inc. on the proposed building expansion and to recommend to the Governing Body approval of such request pursuant to the application. He asked for all those in favor of the motion.
All responded aye in favor of the motion, except for Kirk McClure who voted nay. The motion passed.
The meeting ended at approximately 5:35.