Memorandum

City of Lawrence

City Manager’s Office

 

TO:              David L. Corliss, City Manager

CC:               Diane Stoddard, Assistant City Manager

FROM:          Roger Zalneraitis, Economic Development Coordinator/Planner

DATE:           December 8, 2010

RE:               Employee Training Incentive for Plastikon

 

On October 26th, the City Commission received Plastikon’s incentive request for assistance in the purchase of the Serologicals Building in East Hills Business Park.  Plastikon requested Industrial Revenue Bonds (“IRBs”) and an employee training incentive of $500 per employee, paid over 5 years by the City and County, with a maximum payment of $63,000 to Plastikon over those five years.  The Commission received a memo on the incentives and forwarded the training incentive to PIRC for consideration.  Tonight the Commission is receiving the summary of the Public Incentive Review Committee (“PIRC”) meeting, and considering whether to approve the employee training incentive.

 

It should be noted that Plastikon has since withdrawn it’s request for an Industrial Revenue Bond.  Plastikon has instead opted for more traditional debt financing for its project.  This leaves the employee training incentive as the only local incentive that they are requesting.

 

Employee Training Incentive

The PIRC committee met on November 3rd to consider the employee training incentive.  A copy of the draft minutes for the November 3rd meeting is attached.  Members asked two follow-up questions regarding waste streams from the manufacturing facility, as well as whether materials were counted as part of their local purchases in the application form.  Staff has sought a response from Plastikon on these two questions.  There was also a discussion on whether how performance agreements should measure substantial compliance.  While it was agreed that in this case a straight averaging would suffice, PIRC members indicated a desire to revisit this subject in future incentive discussions.

 

Subsequent to that meeting, Plastikon retained counsel to assist with local and state incentives.  Counsel identified that Plastikon has supplied the City with wage numbers that included benefits in them.  In our application, we ask that salaries be supplied without benefits.  Plastikon issued a clarification letter and revised its incentive application to include only monetary wages and not benefits.

 

PIRC was convened again on December 2nd to reconsider the request in light of the wage-only numbers supplied by Plastikon.  A copy of the draft minutes are attached, as well as the benefit-cost model results. PIRC unanimously recommended that the incentive be approved by the City Commission.  In this meeting, PIRC members asked what the impact would be if none of the anticipated local sales occurred.  In the application, Plastikon projects $5,000,000 of local expenditures each year.  Staff did not have the answer at that time, but has since reviewed the model and found that if local purchases were zero, this would result in a loss of between $50,000 and $100,000 of revenue for the City over 15 years, and between $5,000 and $20,000 of revenue for the County over 15 years.  This is about 5-10% of total revenue for the City, and around 2% for the County.

 

PIRC also requested that City Staff work to clarify the incentive data we were seeking with future applications and applicants.  After this discussion, PIRC unanimously recommended that the incentive be approved by the City Commission.

 

Next Steps

The next step will be for the County to consider their portion of the employee training incentive.  Once the County Commission has acted, the City Manager will finalize a performance agreement between Plastikon and the City and County for compliance with wage, hiring, and capital investment targets. 

 

The City Commission should be aware that the Performance Agreement may refer to Plastikon or to a subsidiary of Plastikon that may be created to operate their Lawrence facility.  Plastikon is investigating the possible creation of a subsidiary for corporate governance purposes.

 

Actions Requested

Approve the employee training incentive, and authorize the City Manager to execute a performance agreement with Plastikon, if appropriate.