City Commission to consider tax incentive for company expansion


More than 40 new jobs, multimillion dollar investment projected

 By Jeff Keeling

Johnson City commissioners will consider a tax incentive Thursday for a local manufacturer looking to complete a $43 million expansion and add more than 40 new jobs.

Washington County Economic Development Council CEO Mitch Miller outlined the proposal dubbed “Project Heat” at Monday’s agenda review meeting. He said the company is considering several other of its sites for the expansion, but seemed confident Johnson City had the inside track. Miller also reviewed with commissioners a draft “capital investment plan” that would help govern future incentive requests.

The current request is for a payment in lieu of tax (PILOT) agreement that would last for four years and is contingent on the company’s investment and job creation. The first year, the company would pay no property tax on the new investment, which primarily covers equipment for a new product line. PILOT payments equaling 25, 50 and 75 percent would follow over the next three years.

The total estimated incentive over four years includes county taxes and totals $404,018. The expansion would bring just over $300,000 in PILOT payments during the same period. At its $43.8 million value if completely built out, the equipment would have an estimated annual property tax revenue of more than $400,000. Because the abatement applies to equipment, that revenue would decline over the next couple of decades as the equipment value is depreciated.

Like the NN Inc. incentive approved earlier this year, this one runs through the Industrial Development Board. The IDB would hold title to the taxable property until the end of the abatement period in order to comply with federal law.

The proposed deal includes “clawbacks” that would trigger if it doesn’t create at least 80 percent of the 43 projected jobs. According to the proposed ordinance, the company had more than 1,000 local employees as of July 1. The Business Journal of the Tri-Cities TN/VA’s 2014 “Book of Lists” lists A.O. Smith as the only Johnson City manufacturing employer with more than 1,000 employees, and the company has locations in at least two of the other communities being considered for the investment.

The jobs must pay an average of at least $12.84 per hour, with additional benefits totaling at least 23 percent of that amount. The company expects half the jobs to pay that amount, another 15 to pay around $22 an hour, and six management jobs to pay more than $37 per hour.

Miller said a decision and announcement could come as early as the end of this month. Total payroll for those jobs would exceed $1.7 million annually.

After some discussion, commissioners generally reacted favorably to the possibility of another round of investment and job growth. Mayor Ralph Van Brocklin said the additional details Miller provided after a visit to the commission in July gave him a greater comfort level – particularly with his understanding that no tax revenue currently coming into city coffers could be discounted.

Providing incentives for new investment only deals with tax revenues “we currently don’t have,” Van Brocklin said.

The plan provides jobs, keeps the company here and appears to position it for more success in the future, he said. The loss of this expansion to another of its locations, on the other hand, could potentially make the 1,000-plus jobs already in Johnson City less secure.

“I’m at this point willing to accept the fact that I’m not going to realize as much tax money on the front end as I would have without allowing this type of abatement,” Van Brocklin added. “It seems we’re allowing them to be more competitive in the future, and while the number of jobs is not great there’s still an increased number of jobs, and a hope that that will increase in the future as a result of these investments.”

Vice Mayor Clayton Stout asked what the company’s goal was.

“Their goal would be to completely retrain their staff, add in production and do it here in Johnson City,” Miller said. “I look at this as a major retention of jobs.”

Commissioner Jenny Brock accepted Miller’s contention that the incentives game is one that all competitive communities are playing, with both new companies and expansions.

“This is basically what Volkswagen is doing down in Chattanooga,” she said of the automaker’s recently announced expansion there.

Plan to govern future incentives still a work in progress

Commissioners were less sanguine about the proposed capital improvement plan. As written, it would use a point system for incentive requests. Job creation and total capital investment are the primary scoring factors, with minimums in those factors at 25 jobs and $1 million in investment.

Companies could score “special consideration” points for locating in the downtown tax increment financing district; for location of a national or international headquarters; or for being a Fortune 500/Global 1000 company or a “nationally recognized industry leader.”

The more points an applicant scored, the longer a tax abatement it could qualify for, and sustainably built projects (LEED certified) could have their PILOT terms extended. All factors would be subject to documentation, including ongoing job growth.

“I think we should have this in our toolbox to use, but I think it should be used sparingly,” Commissioner Jeff Banyas said. “I’m afraid it’s going to turn into, any time you remodel, buy new equipment or do anything in Johnson City, ‘we want an abatement.’

“It seems to me there’s a lot of gray area in here. I guess I’m just gun shy from the TIF, but I just want to make sure it’s used to recruit large manufacturers and not any time a couple doctors open a new office.”

Miller said the draft could be revised to restrict certain types of projects from qualifying, and in other ways.

“This is a draft. I wanted to put it in front of you. We want to make sure this commission is fully comfortable with what this IDB is doing.”


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