TO:              David L. Corliss, City Manager

CC:               Diane Stoddard, Assistant City Manager

FROM:          Roger Zalneraitis, Economic Development Coordinator/Planner

DATE:           October 9, 2009

RE:               Finalization of Amarr Garage Doors Abatement approved in 2003

Background

In October of 2003, Amarr Garage Doors applied for 55% tax abatement on property, plant, and equipment associated with an expansion for a new assembly line at their Lawrence facility.  Amarr received approval for this abatement in November of 2003, subject to a performance agreement.  The performance agreement was completed in December of 2003 and is attached.

Construction began on the expansion in 2004, but was delayed because of an additional expansion, a call center, at the Lawrence plant.  Call centers are not eligible for constitutional abatements in Kansas, so Amarr did not seek abatement on this project.  The expansion associated with this abatement resumed upon completion of the call center, and in late 2007 was finished.  Amarr and the City have worked to finalize the necessary documentation in order to have the Commission adopt the necessary implementation ordinance for the 55% abatement on the expansion.  Amarr has requested that their abatement begin on January 1, 2010.

Abatement- Plant and Equipment

The performance agreement stipulated that in order to receive their 55% abatement, Amarr needed to make capital investments of at least $7.7 million in new facilities and $9.4 million in new equipment purchases.  Amarr exceeded both investment requirements.  Amarr spent $9.4 million on their facility expansion and $9.7 million on equipment.  Together, this is almost $2 million more than originally projected.  The equipment purchases are only those that occurred prior to July 1^st, 2006, so the equipment is subject to taxation (Amarr additionally purchased $1.1 million of equipment after July 1^st, 2006 for the expansion).

In the 2008 tax year, Amarr’s physical expansion was appraised by Douglas County at $4,263,800.  Property taxes were about $128,000.  The 55% tax exemption will result in a reduction in Amarr’s annual property tax on their facility of approximately $70,400.

Also in 2008, the equipment associated with Amarr’s expansion was appraised by Douglas County at approximately $3,036,000 (this is after depreciation).   Property taxes were about $91,000 on the equipment.  The 55% tax exemption will result in a reduction in Amarr’s annual property taxes on equipment of approximately $50,000.

Abatement- Employment

The performance agreement also stipulated that Amarr hire 80 employees with the expansion.  Amarr has struggled with employment recently due to the recession and, in particular, the decline in home construction.  The first question that arose regarding employment is whether Amarr should be measured against all employment at their facility, or just employment associated with the expansions.

A review of past PIRC Abatement Reports shows that abatements typically measure employment for the portion of the facility that is being abated, not the overall facility.  For example, in 2003 Amarr had three separate abatements active.  Each abatement measured employment associated with that abatement, not with the facility overall.  Thus although Amarr’s overall employment has been affected by the recession, the key metric for review should be the jobs associated with the particular expansion that was being abated.

As noted, Amarr expected to create 80 jobs with this expansion.  However, as of March of this year they only had 40 jobs associated with this expansion.  Staff notes that there have been additional hirings at Amarr since then, and some of these new jobs may be associated with the expansion. 

Staff believes that since the abatement has not yet begun, Amarr’s compliance with their performance agreement should not be considered at this time.  At the end of the first year of the abatement (December of 2010), the City will evaluate Amarr’s investment, employment, and wage structure per Ordinance 7706 (the Ordinance under which Amarr’s abatement was issued) to assess their compliance with their performance agreement and make any adjustments to the abatement at that time. 

Nevertheless, for reference purposes staff used the performance evaluation method as established in the new economic development policy (Ordinance 8384) to measure Amarr’s performance (the calculation is attached).  Based on their wages, health care premiums, investment requirements, and employment as of March of this year, Amarr would achieve a 95% compliance with their performance agreement.  This is largely because their investments far exceeded their requirements.  A similar analysis at the end of 2010 may yield different outcomes depending on employment or wage structure. 

Recommended Action:  Staff recommends that the City Commission adopt Ordinance No. 8470, granting a fifty-five percent (55%) tax abatement for Amarr Garage Doors, beginning January 1, 2010.