Public Incentives Review Committee
Meeting Minutes
April 21, 2005, 4:00 p.m.
PIRC Members Present: Mayor Dennis Highberger, Commissioner Rundle, Kirk McClure, Jere McElhaney, Brenda McFadden
Absent - Cindy Yulich, Mike Maddox
Others Present: Bruce Boyer, Melinda Henderson, Chad Lawhorn, Heather Ackerley.
City Staff Present: Mike Wildgen David Corliss, Debbie Van Saun, Frank Reeb, Scott Wagner.
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Mayor Highberger called the meeting to order.
Brief introductions were made. Mayor Highberger welcomed new PIRC member Brenda McFadden.
Introductory remarks were made by Mayor Highberger. He stated that he really appreciates those from the community that came to the meeting and all of our local companies that are making a difference in the community.
PIRC liaison from City staff – Frank Reeb, presented an overview of the 2004 Tax Abatement Report.
Reeb stated that data from the report came from two sources. The first source was from survey data sent to the firms that are receiving tax abatements, 12 companies total. Survey responses were received back from 11 of the 12, Microtech did not respond to the survey. The second source was from data provided by the Douglas County Appraiser’s Office.
Reeb noted that the report did not include information on 3 pending tax abatements. Those 3 abatements are a 10 year, 50% abatement for Prosoco, Inc. for $2,348,000 on new construction and modifications and $260,000 in new machinery and equipment (approved November 5, 2002)(the construction is complete and the property is on the tax rolls but Prosoco has not yet applied for the abatement order from the Board of Tax Appeals); (2) a 10-year, 80% tax abatement for Serologicals Corporation for $13,236,792 in new construction and $12,508,559 in new machinery and equipment (approved by the City Commission January 21, 2003); and (3) a 10-year, 55% tax abatement on approximately $7,700,000 of new construction and modifications and approximately $9,400,000 of new machinery and equipment for AMARR Garage Doors (approved on November 18, 2003).
Reeb then briefly reviewed the various tables presented in the 2004 report. Table 1 contains key information regarding each tax abated company, including the amount of the abatement, its expiration date and the 2004 amount of property subject to the abatement. It was noted that the Progress Vanguard building was sold in 2004 and that the building is now on the tax rolls.
Table 2 contains employment data from each firm. The data provides a four year history (where applicable) beginning in December 2001 to December 2004. This information provides some trendlines in terms of employment over the past few years. The table has the projected employment information as stated on the tax abatement application. Finally, the last column represents the number of employees above or below the projection as of December 31, 2004. Reeb noted that the survey questionnaire asked respondents to report employment totals as of December 31 and that a company may have had higher employment totals earlier in the year that would not be reflected here. It was noted that six companies did not meet their projected totals at the end of 2004. Reeb explained that the numbers reported by Amarr Garage Doors, Inc. reflect both the 1994 and 1998 abatements and are broken down by the abatement. However, some of the numbers included in the 1998 data, also include some employees from the 1994 abatement. Therefore the employment total reported in Table 2 does not match the total employment figure reported on page 4. It should also be noted that this table only includes full time permanent employees as part of the full-time employment count. It does not include full-time temporary to hire counts. PackerWare/Berry Plastics reported employment of 91 full time temp to hire employees as of 12/31/04 and Sauer-Danfoss had 42 full time contract employees.
Table 3 contains specific wage information by firm and by 6 digit SOC categories. The data from this table came from three sources. The 6 digit SOC information came from the Kansas Wage Survey conducted by the Kansas Department of Labor. In approximately 20 job classifications, there was not enough data from the Lawrence area market, so a four digit SOC code from the same survey was provided. Finally, in a few job categories, statewide data averages had to be used as there was not enough data in the Lawrence Metropolitan Statistical Area.
Commissioner McElhaney asked if Lawrence Metropolitan Statistical Area data had always been used. He thought that in the past, data from Northeast Kansas was used.
Commissioner Rundle replied that Lawrence Metropolitan Statistical Area data had always been the data set relied on by the committee.
Frank Reeb noted that after each company’s report, there is some summary information provided. He noted that the table does not include categories where only one or two employees were reported in order to keep that information from being individually identifiable.
Table 4 is a summary of taxes paid related to the abatements each company received. Reeb noted that it is taxes related only to the abatement and does not contain additional company tax information.
Table 5 is a summary of those companies that have had industrial revenue bonds (IRBs) issued on their behalf.
Table 6 contains information from the survey about local expenditures made by each company.
Table 7 contains survey information about company achievements, involvement in the community, job training and other information.
Reeb noted that the report was prepared through the assistance of a KU MPA program intern in his office, Kevin Watson. Reeb then answered questions concerning the 2004 Tax Abatement Report.
Brenda McFadden had some general questions regarding the abatement process and the application itself.
Mayor Highberger requested that the committee take up her questions after discussion regarding the report was finished.
Commissioner Rundle asked Reeb what the charge of the PIRC was regarding the report.
Reeb stated that the committee has the charge to review the report and send recommendations to the City Commission by May 1. The committee could also request more information from the tax abated companies or that additional information be included in the report.
Mayor Highberger had some general questions about the employment numbers and job creation at DST Systems.
Reeb reported that he did not have any specific data regarding why DST employment did not meet projected targets.
Mayor Highberger also had some questions regarding the tax abatement applications currently in process. He wondered for instance, would the Serologicals abatement be retroactive since presumably they had paid some 2004 taxes on buildings that had been abated but not yet approved by the Kansas Board of Tax Appeals (BOTA).
Reeb said yes. He understood that they were taxed based upon that portion of the building that was complete and that the abatement application that would go before BOTA could be applied retroactively but only for one year pursuant to state statute.
Mayor Highberger asked the committee how they would like to proceed regarding the lack of response to the survey from Microtech.
Brenda McFadden stated that they were not in compliance with the approved policy.
Jere McElhaney suggested that a letter from the PIRC committee be the first step in getting the required information from Microtech.
Brenda McFadden asked what other course of action could be taken regarding companies not in compliance.
Mayor Highberger thought that a letter would be appropriate, to be drafted by Frank Reeb on behalf of the PIRC with a 60 day deadline to respond.
Brenda McFadden made a motion that a letter be drafted per the Mayor’s recommendation.
Second by Commissioner Rundle.
All voted in favor of the motion.
David Corliss noted that the committee may want to have a discussion about what would happen if Microtech did not respond per the committee’s request.
Mayor Highberger stated that the committee would operate under the assumption that Microtech would respond.
Commissioner Rundle said that the committee in the past has never wanted to be heavy handed in its enforcement. He noted that the report did show quite a bit of non-compliance.
Jere McElhaney asked what categories of non-compliance Commissioner Rundle was talking about.
Commissioner Rundle said that average wage data and number of jobs created were the categories he was concerned with.
Kirk McClure responded that he had prepared an analysis based upon a 90% compliance rate and found that there were still several firms in non-compliance. He said that strikes him as a problem. He said the situation was widespread and on-going. However, he noted that it would not be productive to go after current firms that are in non-compliance. He stated that the committee needs to look to the future in terms of making sure firms comply with their objectives and application when receiving tax abatements.
Mayor Highberger asked when the committee would see reporting data on companies with a performance agreement.
Frank Reeb said that the three pending abatements have executed performance agreements.
Kirk McClure stated that the City had ample authority under state statutes to force compliance from these companies and to reconsider their abatements.
Jere McElhaney said that the enforcement steps would come out of the PIRC. He noted that this process is not an exact science and it may have some shortcomings, but there have also been shortcomings on the part of the PIRC too. He stated that we have been learning and fine tuning things that can be done. For him, the key compliance question was “Are they paying their taxes?” and the answer is yes. He said the economy has been difficult the past two years. Currently, there are increasing fuel costs and a number of other considerations that should be taken into account.
Kirk McClure said that there is no official policy as to what constitutes non-compliance.
Jere McElhaney said that the company achievements and accomplishments in the community were things that are hard to quantify.
Mayor Highberger said that this information was not part of the compliance data in his mind.
Brenda McFadden thought that if there were rules, that they should be enforced and that it was not fair to other taxpayers in the community to not enforce the rules.
Commissioner Rundle assumed that after September 11, there were problems and other issues in the economy, but the committee does not have a mechanism to know exactly why companies are not meeting performance goals.
Kirk McClure said that the research shows that tax abatements have no impact in attracting firms. The levels of non-compliance shown in this report is beyond what is acceptable in other communities. However, the committee should again be looking forward, in terms of improving policy.
Commissioner Rundle said that a number of firms are in compliance.
Kirk McClure said that if you use his 90% rule, about 6 firms are out of compliance – 6 out of 13 (abatements).
Jere McElhaney asked that Kirk McClure fax him a note on the data he has put together.
Kirk McClure will get this information to Frank Reeb to distribute to the committee.
Jere McElhaney wondered if we were seeing a trend in terms of companies inquiring about tax abatements.
Commissioner Rundle reported that Lynn Parman with the Chamber of Commerce has seen a lot of activity in terms of firms inquiring about the community and has that data in her economic development reports.
Jere McElhaney asked if we have information on the number of firms contacting City staff.
Mike Wildgen reported that Lynn Parman is the primary contact here. He said that tax abatements are part of the tools used in luring firms to the community. He is not sure that the lack of recent applications is a reflection on the state of economic development.
Mayor Highberger asked the committee if they would like to accept the 2004 report or request more information.
Kirk McClure again reiterated the failure of current policy and of tax abatements in general.
Mayor Highberger said that he was not ready to write off tax abatements as a policy tool. We now have clear consequences with our current policy and the execution of performance agreements. He feels much better about the future effectiveness of enforcement with our current policy.
Jere McElhaney stated that he thought the committee had three items to accomplish. The first was to send a letter to Microtech. The second was to accept the report and to forward recommendations to the City Commission. The third item was to hear from the representatives from the tax abated companies who were here today.
Commissioner Rundle said he was concerned about the high level of non-compliance and would like to send the report to the City Commission for direction on what the commission would like the PIRC committee to follow-up on.
Jere McElhaney thought that the committee was still debating as to the level of non-compliance among the tax abated companies.
Mayor Highberger offered to clarify the direction sought from the City Commission. He suggested the committee forward the report to the City Commission, noting that the report indicates a level of non-compliance among the tax abated companies and that PIRC requests direction from the City Commission on this issue, and on the issue of investigating ways to improve the use of public incentives.
Jere McElhaney made a motion to forward this recommendation and request for further direction to the City Commission as stated by Mayor Highberger.
Seconded by Commissioner Rundle.
All voted in favor of the motion.
Brenda McFadden wanted to discuss the questions she had raised earlier about the existing tax abatement ordinance. She had questions as to what constituted “environmentally sound.” No definition was provided in the ordinance. She asked what is a “small or medium sized company” – again, no definitions were provided. She stated it would be difficult for her to advise a client that was seeking assistance with the application and requirements. She also had questions regarding the renewal fees paid by tax abated companies and who paid for the independent auditor’s report.
Mayor Highberger said that we have not had to use that provision yet as no companies have yet been required to file such reports under the current ordinance.
David Corliss stated that an independent auditor’s report will be required for some of the pending tax abatements that will be going before the Board of Tax Appeals. The current $250 renewal fee is applied toward the costs of city administration of the tax abatements, such as preparation of this report.
Brenda McFadden said that the application that was available on-line did not ask for financial information like tax returns, certificates of good standing from the Kansas Secretary of State, etc.
Frank Reeb said that the current application form does require that kind of information and it appeared she had a prior version of the form. He stated he would get her the current application form.
Mayor Highberger stated that the current policy went through a very long review process and that it might be difficult to open that up for discussion again.
Commissioner Rundle said that some clarification in the ordinance might not prove too controversial.
Mayor Highberger thought that the City Commission could provide direction for the PIRC on how to proceed.
Frank Reeb handed out a proposal for discussion purposes only from the Policy Research Institute to the Lawrence Chamber of Commerce regarding the reasons for revising and proposed costs to update the current cost benefit model.
Mayor Highberger again thanked members of the audience for attending and asked if anyone would like to speak.
Bruce Boyer from Prosoco wanted to try and explain some of the data from the report. He said that Prosoco now has more Lawrence based employees than ever. He said the original application form asked for total employment. He said Prosoco employment in Lawrence was actually up 15 employees. He suggested that the committee might go back to the cost-benefit model and run it again after a few years so that real numbers could be used versus projections. He said the community is still deriving benefits from firms receiving tax abatements and the model should show that.
Mayor Highberger asked if the PIRC ever did do some modeling after an abatement was granted.
Kirk McClure said that the model outcomes depended on various factors, one of which was if an employment position was filled by a Lawrence resident or a non-Lawrence resident. He stated that ideally what you want is for firms to hire people already living in the Lawrence community.
Mayor Highberger asked if there were any other comments from the audience. No further comments were offered.
Commissioner Rundle moved to adjourn the meeting.
Seconded by Brenda McFadden.
All voted in favor.
The meeting adjourned at approximately 5:10 p.m.