By Jeff Keeling
A shift in plans at the July 13 Washington County Budget Committee meeting left Mullican Flooring’s 200-new-job Johnson City expansion plans dependent on the City of Johnson City’s willingness to split the cost of a $1.2 million economic incentive with the county.
Monday night, city commissioners appeared ready to do just that. Commissioners put consideration of a $600,000 cash investment in a payment-in-lieu-of-tax (PILOT) arrangement with Mullican on Thursday’s agenda. Judging by their comments about the company and the deal – which could bring a return of at least 4 percent to both city and county – approval seems likely.
“I say we forget the process that’s happened up to this point and as a commission we decide whether to participate,” City Commissioner Jenny Brock said, referring to the fact that the county had been planning to fund the entire incentive itself up until last Wednesday.
“The jobs that will stay here and come here are a tremendous benefit,” Brock said. “We talk about jobs and job creation as commissioners all the time, and this represents an opportunity for us to invest in that.”
The four other city commissioners essentially echoed Brock’s statements.
Mullican projects its expansion will add 200 jobs, mostly in production, representing more than $8 million in annual payroll. The company plans to invest about $5.5 million in equipment and another $2 million in property improvements during the expansion.
At its July 13 meeting, the Washington County Budget Committee amended a plan to fund – through the local Industrial Development Board (IDB) – purchase from Mullican of a 139,000-square-foot building the company would buy for $1.2 million at the end of this month. The recommendation to the full county commission, for consideration July 25, now calls for $600,000 to be spent for the plan, which is similar to one entered into with NN Inc. on its new headquarters in 2014.
Over a 15-year period, Mullican would pay rent totaling $1,926,000, and higher personal property taxes due to its capital investment, for a total of about $2,065,000. County real property tax abatement would total $157,000, for a net return of about $700,000. If city real property taxes are abated, the return would be similar after accounting for the growth in personal property tax.
“We were full partners on the NN incentive a couple years ago,” Mayor Dan Eldridge told budget committee members July 13. “I have fielded a lot of questions from various commissioners on, ‘where is Johnson City on this, how do we get them engaged in incenting industrial expansions and job creation?’”
Budget committee member Paul Stanton made a motion, after learning city commissioners probably would discuss the subject Monday, to reduce the county’s contribution. “I don’t think it’s appropriate for us to dedicate the full $1.2 million when we don’t know whether we will have a partner that can do half that,” Stanton said.
Like other city commissioners Monday, Jeff Banyas spoke highly of Mullican’s role in the community, and said the arrangement would be, “a good deal for taxpayers.”
City Manager Pete Peterson said attorney Mark Mamantov, who advises the city on many tax-related funding matters, told him the city would have to use cash in the deal. It and the county could each loan $600,000 to the IDB, and split the payments as they came in. Mullican would start paying rent in the fourth year of 15, with an amount of $94,500 the first year that would increase by $12,000 annually.
At the end of the term, Mullican could buy the building back for $1. The building’s assessed value for tax purposes is $1.324 million.
Mullican’s expansion would bring its total employment to about 430 from its current 231, Washington County Economic Development Council’s Alicia Summers told budget commissioners July 13, and repeated to city commissioners Monday. Of the new jobs, 175 would be in production and 20 to 25 in warehousing, with an average annual salary above $40,000. Mullican would transfer warehousing and distribution to the new building to allow for production expansion.
The PILOT arrangement would abate property taxes – something that can only be done if the IDB owns the building – in their entirety for the 15 years. “Clawback” provisions modeled on similar ones used by the state of Tennessee, which require at least 80 percent “attainment” of the new jobs.
Commissioners and Peterson said intergovernmental communication certainly could have been better through the process. But with Mullican sitting on available manufacturing facilities in Wise, Va. and Bowling Green, Ky., all agreed it was important to move forward even without an interlocal agreement yet drafted.
Economic Development Council CEO Mitch Miller told commissioners Monday the state of Tennessee is considering an incentive for Mullican’s expansion as well. It could come in the form of a cash grant or tax credits. Either way, he said, the state “expects local communities to contribute something when it provides these economic incentives. That’s the same thing the state was telling us (in 2014) when you all approved an incentive for NN’s new headquarters.”