Memo
To: Public Incentive Review Committee
From: David Corliss, City Manager
Ed Mullins, Finance Director
Date: February 19, 2007
Re: API Foils, Inc. Request for Tax Abatement
An application for property tax abatement, dated January 24, 2007 from API Foils Inc., has been received. The application is for a 55% property tax abatement on $4-5 million in construction. API Foils also proposes to install $11-12 million in machinery and equipment and employ 31 additional employees over a four year period. 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’
API Foils is a wholly owned subsidiary of API Holdings, Ltd and is currently registered in Delaware. API Foils is ultimately owned by API Group PLC, a United Kingdom based public company. The company started in Lawrence as Astor Universal in 1995. The company received a tax abatement in 1996 that expired in 2005.
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 $10.73 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 manufacturer of decorative foils, the facility will generate waste. The applicant states all solvents used in the manufacturing process are incinerated or removed by certified haulers.
Firm Size:
With current Lawrence employment of 65, 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 31 employees as a result of the proposed expansion, 25 operators, 3 mechanics and 3 technical workers. The production workers are similar to the description of machine operators in the State wage survey. The wages for the API Foils operators is in the range of $14-15 per hour. One of the proposed technical workers is a chemist with an average salary of $38.46 per hour. The other technical workers are for quality control inspectors and have a proposed salary of $21.63 per hour. The remaining three positions are mechanics with an average salary of $21.63 per hour.
The latest published Kansas Wage Survey is 2005. As a result, the survey wages in the table were inflated by 3%.
|
Position |
Wage Code |
Proposed Wage |
Mean Survey Wage |
Median Survey Wage |
|
Machine Operators |
51-9111 |
$14.42 |
$9.69 |
$8.92 |
|
Chemist |
19-2031 |
$38.46 |
$23.72 |
$20.61 |
|
Quality Inspector |
51-9061 |
$21.63 |
$ 14.35 |
$13.24 |
|
Machinery Mechanic |
49-9041 |
$21.63 |
$18.70 |
$18.42 |
The applicant’s proposed wages exceeded both the mean and median wages in the State survey for all of the proposed positions.
The 2007 wage floor has been calculated at $10.73 per hour. The lowest proposed wage listed in the application was $14.42 per hour. API Foils meets the wage criteria specified in Ordinance No. 7706.
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 over fifteen years of 1:6.86. The overall ratio includes the city, county, and school district. The cost benefit ratio for the City of Lawrence for the same period was 1:9.52. The minimum ratio in Ordinance 7706 is 1:1.25 over a fifteen year period. The requested abatement meets this criterion. Since State law now exempts new machinery and equipment, the $11 million in equipment was not included in the cost benefit analysis.
Employee Benefits Information
Employee benefits include 77.5% of health and dental insurance being paid by the employer, a 401(K) plan that has an employer match, disability insurance, and sick leave and vacation time. . API Foils exceeds the 70% expenditure for employee health care specified in Ordinance No. 7706.
Amount of Tax Abatement and Policy for Granting Abatements.
Section 1-2116 of the City’s Ordinance (7706) governing tax abatements provides the following:
“ AMOUNT OF TAX EXEMPTION.
In determining the actual amount of tax abatement to be granted to Kansas basic industries that meet the Economic Development Objectives of Section 1-2103 of this ordinance and the other requirements of this ordinance, the City shall use as a guideline the following basic schedule:
(A) fifty percent (50%) property tax abatement for ten years on investments less than $20 million in adjusted 2001 dollars;
(B) when the investment under consideration exceeds $20 million dollars in adjusted 2001 dollars the City Commission may consider a property tax abatement that exceeds fifty percent (50%);
(C) a company that has been on the Douglas County property tax rolls for at least three (3) years shall be eligible for an additional five percent (5%) tax abatement for a new project; and
(D) the governing body may vary the amount and duration of the abatement provided the net abatement to a business shall not reduce the net tax revenues as would be received pursuant to the above schedules to the local taxing units over ten (10) years. It shall be the policy of the City to approve a tax abatement for the real property and personal property portion of a project if the project meets the requirements of this ordinance.
The abatement term for projects considered under authority of Section 13 of Article 11 of the Kansas Constitution shall begin in the calendar year after the calendar year in which the business commences its operations. The abatement term for projects considered under authority of K.S.A. 12-1740 et seq. and K.S.A. 79-201a shall begin in the calendar year after the calendar year in which the bonds are issued.”
Staff’s review of the API Inc. tax abatement application finds that the request conforms to the City’s policy for tax abatements, and qualifies for the 50% tax abatement plus the additional 5% tax abatement for a total qualifying tax abatement of 55%.
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.
The public hearing before the City Commission for this request has been scheduled for March 6, 2007.