Archive for Thursday, January 13, 2011

Berry Plastics warehouse deal likely to require 90 percent tax abatement and cash incentives

January 13, 2011


A deal to land a 675,000-square-foot Berry Plastics warehouse likely will require both a 90 percent tax abatement and upward of $600,000 in cash incentives, according to new figures from Douglas County.

Douglas County commissioners are preparing for a Feb. 2 public hearing on a package of incentives for the approximately $20 million Berry project, which is proposed for a 60-acre site about 1.5 miles west of the Lecompton interchange on the Kansas Turnpike.

Douglas County Administrator Craig Weinaug has begun sending out a financial analysis of the project to local governments that would be affected by any future tax abatement. He’s also sending a message that incentives have been an important part of the package offered to Berry.

“The company certainly had other alternatives,” Weinaug said. “They had an alternative in a neighboring community where free land and infrastructure was offered. They were offered the types of incentives that are more expensive than what we’re offering.”

The incentives package that county commissioners will consider — city commissioners aren’t involved because the site is outside the city limits — includes:

• A 10-year, 90 percent tax abatement for the company’s project, which is now being valued at $18.5 million.

• Up to $600,000 in county funding that would be used to pay for various infrastructure costs. Those costs include a new turn lane on County Route 438 — also known as the Farmers’ Turnpike — to serve the site. Also, the county is proposing to help pay for an upgrade to a Rural Water District No. 6 waterline that is needed for the large building and interior, private roads that would serve the facility.

All together, the improvements are expected to cost about $1.6 million. Berry Plastics would pay the difference. Weinaug thinks the county has a chance to win two state grants to help with the costs, perhaps lowering the county’s costs to about $250,000. But Weinaug said county commissioners may choose to spend the full $600,000, even if the grants are received, to ensure that the project happens.

The financial analysis, completed by the city of Lawrence’s economic planner, found that all the local governments affected by the tax abatement will come out ahead on the deal over a 15-year period.

Douglas County is expected to receive $2.21 in benefits for every $1 it invests — directly and via tax abatements — in the project. The Lecompton school district — the project is not in the Lawrence school district — is expected to receive $12.69 in benefits for every $1 it gives up through the property tax abatement. The Lecompton Township checks in at $3.53 for every $1; the state of Kansas $3.44; and the Lecompton Fire District $4.22.

The financial analysis, though, does assume that the project will create or “retain” 379 jobs. That’s a different number from what has previously been used. The project is expected to add 11 new jobs to Berry’s area work force. In addition, more than 200 employees at Berry’s existing Lawrence production plant are expected to be relocated to the new warehouse.

Weinaug said the figure of 379 jobs was used because the warehouse project plays a key role in Berry’s ability to increase the number of workers in the Lawrence production plant. Weinaug said there is an expectation that as the warehouse use is removed from the production plant that more space will become available for additional production jobs.

Lawrence’s production plant, which has about 950 employees, has been growing as the company has rolled out a new line of environmentally friendly drink cups.

Weinaug said that if the new warehouse project isn’t completed, Berry’s Lawrence facility likely would start losing out on growth opportunities.

“If they are unable to build the warehouse here, I don’t think they would start laying people off or moving out of town, but I think it would be a sign that they’ve peaked here and they wouldn’t be growing in the future,” Weinaug said.


kernal 7 years, 3 months ago

Is there not room at their present facility for expansion or another site that's already zoned industrial? Why are they persisting on putting this out in a bucolic rural area? Douglas County, you need to look at the overall future of our county and I don't mean just the next five years. That location is NOT a good spot for a plastics factory.

Why do we want to spread factories all over the county instead of in one area? We have had factories and plants in northwest Lawrence, far east Lawrence, North Lawrence and now you want to go out to Lecompton area? What's with that?

By the way, I don' t live anywhere near the proposed site, nor do I own any property in that area. Just in case someone leaps to the conclusion that I have a monetary or personal stake in this.

Scott Morgan 7 years, 3 months ago

Why not? This isn't a tourist area. Don't live near it then, move. Let's get some jobs in this county.

Bucolic rural area my foot. Think about how much a good job means to others. If you wish to see nature undisturbed head out to the U.S. Army Lake, or also known as Clinton. Talk about an underused upper middle class playground.

We in Kansas should be ashamed of all the tourist traffic going to Lake of the Ozarks and others in MO. What do we have? A underused big body of water which the corp won't even let us hold a music festival near. Think about it, we own Clinton but can't use it.

I think in another decade the corp won't even allow us to look at the water.

kernal 7 years, 3 months ago

Fine job of Not answering my question. Just your usual ranting and side tracking. Keep reading.

BorderRuffian 7 years, 3 months ago

bucolic rural area?!?!?!?!?

What an asinine remark. How incredibly insensitive of you and insulting to those who live there. And how terribly selfish of you and other Larryvillains who think that any income producing entity must feed Larryville's obese gut.

Consider what this plant might mean to the bucolic rural inhabitants who have almost nothing in the way of business or other income producing businesses. Consider how even ONE such plant might assist those bucolic rural areas in terms of infrastructure.

But, no! All you seem to be able to see is how the entire emphasis of Douglas County planning benefits downtown Lawrence. How obtuse!

jhawkinsf 7 years, 3 months ago

did you create a couple of hundred jobs? if the answer is yes, then yes to your abatement.

ModerateOne 7 years, 3 months ago

This is not a bribe oew. The city gets 10% of something instead of 100% of nothing.

ModerateOne 7 years, 3 months ago

Correction -- the city actually gets nothing because the project is outside city limits. Only the county, state, and school district get to enjoy the new and extra tax revenue.

ModerateOne 7 years, 3 months ago

If you can afford to shop at Hy-Vee but choose to shop at Aldi, does that mean Aldi is bribing you, or that it simply wants you as a valued patron? Call it what you want but I think we should call Plastikon a valued patron of the community because it provides good jobs and pays lots of taxes.

jafs 7 years, 3 months ago

How exactly does the math work?

In what way will the county/school district/etc. get more money by giving up tax revenue?

ModerateOne 7 years, 3 months ago

Jafs-- the government does not give up existing revenue in a tax abatement. A tax abatement only gives up a portion (albeit a large portion at 90%) of the revenue that is not now available but will be available upon a new $18.5 million improvement. The amount of tax is based on the value of the property. Thus 10 % of the tax on an $18.5 million piece of commercial property is better than the few hundred bucks/year the site currently pays as undeveloped land.

Of course the company is also asking the county to pay $600K in water/sewer etc but that will (apparently) be offset by the taxes paid by the new and future job holders -- not to mention the fact that the company will also pay $1 million in addition to the government's 600K and the water/ sewer will hopefully attract additional tax revenues in the area.

jafs 7 years, 3 months ago

There are other possibilities, of course, in between undeveloped land and a 10 year 90% abatement.

And, it is notable that you expect the taxes to be made up by new and future job holders - ie. workers are subsidizing the company expenses. That seems to be Brownback's idea as well - encourage growth but don't expect the businesses to pay any taxes, and let the workers make it up.

Also, I still have the same question - how does $1 of tax abatements produce more revenue than that? Especially at the county level, school districts, etc.?

jhawkinsf 7 years, 3 months ago

The benefit of jobs provided will offset the abatement. I say do it. We need the jobs to stay here, not go to other communities or other countries.

DeMontfort 7 years, 3 months ago

Please do note that the cost-benefit analysis hits the break even point FIVE YEARS AFTER THE ABATEMENT ENDS.Where are we at year eleven after the abatement is over?

Richard Heckler 7 years, 3 months ago

It's as much about taking care of the real estate industry as it is about Berry Plastics. How about a 3 year tax rebate.

When this rebate expires Berry will back for more have no fear. How many rebates and abatements has this company received?

How many employees live in Douglas County or Lawrence?

Richard Heckler 7 years, 3 months ago

Become acquainted with 3 descriptions as to how we taxpayers can be far too generous for OUR own good:

Keep in mind Tax Increment Financing...

“Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You with the Bill)

Not Smart Development Increases Taxes:

Local Expert Thinking With Excellent links

On the tax dollar table: 1. $90 million sewage treatment plant = tax increase attached to sewer rates 2. 31st street expansion - no cost revealed as yet 3. more water and sewer lines who knows where 4. USD 497 tax increase plus new buildings 5. $20 million USD 497 athletic project needs paid for 6. USD 497 Building Maintenace 7. New fire stations 8. More LPD staff etc etc etc

Richard Heckler 7 years, 3 months ago

Rural and city neighborhoods should have substantial input in all city/county decisions because the neighborhoods are loaded with voting taxpayers. Elected officials are working for these voter/taxpayers, not the other way around.

groundhog411 7 years, 3 months ago

$600,000 plus two state grants estimated at $350,000 equals $950,000 of taxpayers money for 11 new jobs, thats over $86,000 per job

just_another_bozo_on_this_bus 7 years, 3 months ago

But that doesn't factored in the barely veiled extortion entailed in the threat to remove hundreds of existing jobs if this (latest) demand for corporate welfare isn't met.

coderob 7 years, 3 months ago

I hear there are a lot of orange growers in Florida. I bet that we could subsidize some of them enough to come to Kansas, too.

But seriously, the cost of labor is way more important in determining where businesses locate than taxes. Kansas isn't unionized so I'd wager that the alternative city was in Kansas as well. If the factory didn't come to Douglas County, it would at least end up in Kansas, and maybe KU would get a few extra students out of the deal in the long run.

Of course, politicians, blue or red, only care about getting reelected, and not the longer term picture. Yeah, we may have been able to keep a business in town, but long term, the factory and its workers are going to consume local resources, and the county will be left with less money proportionately since Berry Plastics barely has to pay taxes.

The thing that makes this more illogical is that Lawrence unemployment is at 6 percent, lower than the 9 percent national average and 6.8 percent at the state level. A 6 percent unemployment rate actually isn't indicative of masses of people unable to find work. Rather, I'd guess that 3-5 percent of those people would be unemployed regardless of the economic situation since unemployment is a normal part of the economy. Businesses close. People get fired. Nothing new there. So really abating this plant isn't creating any jobs. It's just causing people to jump from town to town, leaving houses empty elsewhere, and as a result, causing an ironic decrease in our society's overall efficiency. This isn't smart business, Douglas County. It's unnecessary icing on the cake for Berry Plastics.

kernal 7 years, 3 months ago

One more time. Why can't Plasticon, Berry Plastics, whatever they're calling themselves this year, expand at their present site or utilize an other industrial zoned site that's not currently in use.

We also need to keep in mind, the employees will need to commute. The cost of fossil fuel has gone up and likely will not come down much so employees want to live closer to their jobs. To meet those needs builders want to build new homes, but last I heard the rural water districts are having a hard time meeting the needs of their current customers and have concerns about adding new customers.

There are many concerns that need to be addressed and I hope the county commissioners will not jump into this blindly.

groundhog411 7 years, 3 months ago

96 acres zoned, only 60 being used, in thier haste did the County over zone 36 acres. This will be interesting...stay tuned

pizzapete 7 years, 3 months ago

I remember an LJ article from several years back where they listed numerous local companies that received tax abatements in prior years. There were several companies listed that made big promises to add a certain number of new employees within a certain time period. Most of the companies that were mentioned never added anywhere close to the number of jobs they had anticipated.

jafs 7 years, 3 months ago

Yes - good point.

And, at the time, Ms. Hack commented that she didn't want to be too picky about enforcing the agreements.

If we're going to use them at all (and I'm against them on principle), we should make absolutely certain that the business involved meets it's end of the bargain.

Richard Heckler 7 years, 3 months ago

It is true that the total number of jobs at all firms given tax abatements is in excess of the total number of jobs promised. The firms that met the promised number of jobs produced more extra jobs than the shortfall experienced by the firms that failed to meet their promises. However, this statistic would have merit only if the jobs would not have been generated in the absence of the tax abatement. This is simply not the case.

The tax abatement is a needless giveaway. The firms would have produced the jobs without the tax abatement. Some of the firms have made public statements to this effect. All of the published research on tax abatements finds this to be true. Property taxes are too small a percentage of a firm’s total operating expenses to be crucial to the decision to build or expand. The firms will even lie to the City saying that without the tax abatement the firm cannot build or expand.

What the report shows is that Lawrence has an ongoing problem with its tax abatement program. In a normal economic development program, non-compliance should be minimal. The PIRC should be discussing what to do with no more that one firm that is out of compliance. Instead, the PIRC is trying to cover up the fact that non-compliance is normal in Lawrence. Six of the eight firms are substantially out of compliance in at least one of the important areas or investment, wages, or jobs. This is not a new or temporary condition; it has been going on for years.

The City has been misled. It has been told by business advocacy organizations, such as the Chamber of Commerce, that tax abatements are needed to attract firms even though the experience both locally and nationally says the opposite. The City has been led into a position of offering abatements, almost automatically, to firms just for the asking.

Yet, these firms fail to make the promised investments, fail to pay wages comparable to other firms in the community, and fail to produce the promised jobs. In many cases, the firms go out of business before the City can hope to realize any benefits. (Note that the PIRC report is deficient in that it only reports on existing abatements; it does not report of the firms that have been given abatements that went out of business such as Davol or E&E.)

An ongoing problem of non-compliance hurts the City. Word is out; Lawrence is a pushover town. A firm can promise much, produce little, and still keep its tax break.

The City of Lawrence is confronting a severe budget problem. Revenues are not flowing into the City as expected. Social service agencies saw their budgets cut (although the Chamber of Commerce was given even more taxpayer money to further its failed economic development activities). We would all have been better served if we had not offered needless giveaways to firms in the form of tax abatements. Those lost tax revenues are sorely needed.

Flap Doodle 7 years, 3 months ago

You know what? I'd swear I saw this exact same post on another thread this morning. merrill gets a gold star for recycling.

Mari Aubuchon 7 years, 3 months ago

I agree with both of your posts wholeheartedly.

irvan moore 7 years, 3 months ago

if you have to have tax abatements (and you do) then an employer who has been in Lawrence and provided jobs for years is deserving of them.

Steve Jacob 7 years, 3 months ago

It would be and easy decision if not for the fact many of those people working there would not live in Lawrence. Topeka is not that much farther away, and housing in Topeka and Jeff county is much cheaper.

jayhawklawrence 7 years, 3 months ago

Beggars can't be choosy and the poster that said we are a government town was exaggerating a little but not by much.

We need to think about whether our community operates in the Red or operates in the Black as in how much do we depend upon state and federal taxes to simply exist.

How about the 47% of the American population (by some reports) that pays no federal income tax?

And why do people that get the most handouts always seem to complain the loudest?

Manufacturing, that part of the economy that intellectuals and politicians tend to kick around all the time, is rebounding and is a shining star emerging from the recent bank and wall street generated economic debacle. Why is that?

If you are a banker you rent money to people with guarantees that you will get paid back. It is collateralized. If they don't pay back you take their house or their business or whatever, unless you are selling phony securities to farmers in Estonia which is what they were doing before the crash.

It is US manufacturing that we should be proud of. These guys are the real talent that produces goods that we export and that create new products that keep this country moving. We should thank God that a manufacturer wants to expand their operations here in Lawrence, instead of another company that wants to rent money that they never made themselves or somebody else that is living off of grants and other types of subsidies until they can learn how to swim by themselves...or not.

Jeteras 7 years, 3 months ago

I have to ask the question,,, Why is the county paying for anything? should they not say, look your building the facility it is YOUR responibility to pay for the improvements that impact the area.

This will not benefit everyone in the county. Is this not a gov. for the people by the people.. I say lets have a vote. $600,000 of your money is going to a PRIVATE company, did you get your check? didnt think so.

bryanw 7 years, 3 months ago

With all these abatement requests ( And ok's) the question has to be asked if development pays for itself or not? Not just on paper either. At the end of abatement time, a company either has to meet the guidelines when requesting abatement, no if and or buts. If they don't, their taxes should be prorated back to what they would have been 10 yrs before. Nobody can read the future but why should taxpayers be left holding the bag?

It used to be when a new development started, developers paid for the upgrade and development. Now, they don't pay and subsequently this is when development started not paying for itself. We can't afford development in this town anymore. You just can't hope a company will stay in this town after the abatement is over...not with the economy the way its been in the last decade. Jobs or no jobs, taxpayers are broke!

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