Springfield City Council approved a resolution of intent last night to develop a $70 million tax abatement plan for manufacturer Kraft Foods Group (Nasdaq: KRFT), which is looking to subsidize a $100 million investment in new equipment at its Queen City facility.
This is the second time in little more than a year that Kraft has sought property tax abatement on facility upgrades for its east Springfield plant.
Last year, 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 for the city’s third largest employer among manufacturers, based on Springfield Business Journal list research.
The resolution, which allows city economic development staff to create a property tax abatement plan for Kraft, passed with an 8-1 vote. Councilman Doug Burlison cast the lone opposing vote.
If council approves the plan city staff is now free to draw up, the city would issue industrial development revenue bonds in an amount not to exceed $70 million to pay the cost of acquiring and installing equipment upgrades at the facility.
Through the proposal, Kraft is calling for a 50 percent tax abatement on equipment purchases for 10 years.
Todd Sherman, general manager of Springfield’s Kraft facility, told council the manufacturer’s investment would be devoted to packaging upgrades for its natural cheese and shredded cheese products, new technology for Kraft singles and a new microwavable cup line for Kraft Mac ‘n’ Cheese.
Springfield Economic Development Director Mary Lilly Smith said the city assumes no risk in the deal because if Kraft misses a payment on the bonds, 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. That means the city has no responsibility on that,” Smith said at the meeting. “Kraft, in this case, would be paying all the taxes, insurance and repairs on that property. The company buys those bonds, and it repays them.
“Essentially, the bonds are owned by the same company that is obligated to make the lease payments equal to the principal and interest. It can’t transfer those bonds to anyone else. They are special limited obligation [bonds] payable only with the money the city receives,” Smith said. “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.”
Three individuals not representing Kraft spoke in support of the resolution. Rob Dixon, Springfield Area Chamber of Commerce executive vice president, said with Regal-Beloit Corp. (NYSE: RBC) announcing last week that it was closing its Springfield manufacturing plant and would lay off some 330 workers, it was important council let the business community know the city supported those companies that would invest in Springfield.
“We talk in economic development a lot about trying to attract new businesses to a community, but really it is a lot easier to keep the existing customers you do have than it is to attract new ones,” Dixon told council.
Burlison said he opposed the measure, not because of negative feelings toward Kraft, but because he didn’t feel it should be a function of government to help fund 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. “Opportunities like this, to make the point that this is not necessarily an appropriate venue for government to perform in, I’m just not going to let slip away.”
Councilman Jerry Compton, however, said he felt it was important for the city to demonstrate its support of such improvement projects, especially since the proposed temporary abatement is designed to garner future increases in property tax revenue.
“I think it is important to try and keep jobs in our community. We are competing with other communities in the state that are taking advantage of the very same state laws that allow this,” Compton said. “I personally would rather see 50 percent of an increase than 0 percent.”
Smith said a formal plan request, which would identify the value of the tax abatement, should be back before council for consideration by the end of the summer.[[In-content Ad]]
