City Beat: Kraft seeks up to $70M in tax abatement

Kraft Foods Group is asking for additional incentive to produce more cheese, and Springfield City Council says it intends to help.

On July 15, council approved a resolution of intent to develop a $70 million tax abatement plan for manufacturer Kraft (Nasdaq: KRFT), which is seeking to subsidize a $100 million investment in new equipment at its Queen City facility.

The proposal is Kraft’s second attempt in 13 months for property tax abatement on facility upgrades at its east Springfield plant. In June 2012, Kraft requested up to $55 million in tax incentives for the purchase of new equipment through a resolution before council approved a 10-year, $26 million abatement.

The resolution approved 8-1 last week allows city economic development staff to create a second property tax abatement plan for Kraft. Councilman Doug Burlison cast the lone opposing vote.

If council approves the final plan, the city would issue industrial development revenue bonds in an amount not to exceed $70 million to pay the cost of acquiring and installing new equipment. Kraft is calling for a 50 percent tax abatement on equipment purchases for 10 years.

Todd Sherman, Kraft’s general manager in Springfield, told council the manufacturer’s investment would be devoted to packaging upgrades for its natural and shredded cheese products, new technology for Kraft Singles and the addition of a microwavable cup line for macaroni and cheese.

Springfield Economic Development Director Mary Lilly Smith said the city assumes no risk in the deal because if Kraft misses bond payments, the agreement would collapse and Kraft would be obligated to pay its property taxes in full.

“The city issues bonds and the company transfers ownership of the development site, or in this case, the equipment, to the city, and the city leases all of that property back to the company on a triple-net lease,” Smith told council before the vote, noting the bonds would not be transferable.

“The company buys those bonds, and it repays them. A default by the company does not impact the city’s credit rating in any way, and the city is not responsible for the repayment of those bonds.”   

Outside of Kraft officials, three individuals spoke in support of the resolution.

Rob Dixon, Springfield Area Chamber of Commerce executive vice president, said with Regal-Beloit Corp. (NYSE: RBC) announcing July 9 its plan to close the 330-employee Springfield manufacturing plant, it was important council let the business community know the city supported those companies investing in local operations.

As a peer in manufacturing, Ozarks Coca-Cola/Dr Pepper Bottling Co. President John Schaefer said he supported tax incentives for Kraft, the city’s third largest employer among manufacturers, according to Springfield Business Journal research.

“We work hard every day to maintain our competitiveness and keep our jobs here in the city, so I applaud Kraft’s request for the bonds (as well as) efforts to improve its facility and increase its chances of gaining jobs in the future,” Schaefer said.

Kraft’s Sherman, however, said the upgrades would not necessarily produce additional jobs. In fact, he estimated for council the company has roughly 30 fewer full-time employees than in 2012 when it made the previous abatement request.

Councilman Burlison said he opposed the measure because he didn’t feel it should be government’s role to help fund corporate improvement projects.

“The debate about whether taxpayers and government should get involved with corporate investments is not beside the point,” Burlison said, referring to comments from a supporter who said the law allows for tax abatement in support of such investments. “This is not necessarily an appropriate venue for government to perform in.”

Last year, Burlison said he was disappointed to learn Kraft could actually cut some jobs with efficiencies aided by the city’s tax abatement.  

Smith said a formal plan request, which would identify the value of the tax abatement, should return for council’s consideration by the end of summer.

Fair toast
City Council voted 7-2 in favor of permitting alcohol sales in select areas during the Ozark Empire Fair. The Agricultural and Mechanical Society of Springfield, the governing board of the city-owned fairgrounds, requested spirit sales at the fair as a way to compete with others events in the region.

The request came just 18 months after the board gained city approval for alcohol sales at other fairground events. Last year, Councilwoman Cindy Rushefsky expressed hesitation about alcohol sales during the fair, saying alcohol could change the complexion of the event known to draw families from across the area. At last week’s meeting, Rushefsky reiterated those concerns when she moved to add an amendment to only allow beer and wine sales at the grandstand.

“If we make a mistake – and that is if the fair board has made a mistake and we go along with it – then we could destroy the fair for a long, long time,” she said.

But Rushefsky was in the minority. The amendment failed, gaining only the support of Councilman Craig Hosmer. With council’s vote – Rushefsky and Hosmer stood opposed – it approved alcohol sales from vendors at the E-Plex, in the grandstand area for concerts and in an invitation-only VIP area.

Councilman Jeff Seifried was among those who sided with the competitive aspect.

“I think it’s important not to micromanage the fair,” Seifried said.

“I think they are saying, ‘We want to add this as part of our ongoing program that is not only going to make us competitive, but a place that families and my 55-year-old mother going to a George Strait concert want to be at.’”