5.1 Ad Valorem Exemption CITY OF SALINA
REQUEST FOR COMMISSION ACTION DATE TIME
3/1/93 4:00P.M.
AGENDA SECTION: Public Hearings and Items ORIGINATING DEPARTMENT: APPROVED FOR
NO. 5 Schedu]ed for a Certain Time PLANNING & DEVELOPMEN~ AGENDA:
ITEM Roy Dudark ~ ~
NO. 1 and la. BY: BY:
Item
Consideration of application for property tax exemption submitted
by SP Plastics Manufacturing.
Background
On February 22, 1993, SP Plastics Manufacturing, Inc. filed an
amended application for property tax exemption pursuant to the
city's ad valorem tax exemption policy for economic development
purposes. The company is requesting tax exemption for $830,000
of new machinery and equipment. The expansion is expected to
create 27 new jobs. The business and property is eligible for
exemption under state law and the city's policy.
Prior. to granting a tax exemption, the governing body is required
by state law to analyze the costs and benefits of the exemption,
establish a procedure to monitor compliance with terms and
conditions and conduct a public hearing on the granting of the
exemption.
Assuming $830,000 of capital investment and 27 new jobs, a tax
exemption of 88% during years 1 - 5 and 44% during years 6 - 10
results under the city's adopted policy formula. The exact
exemption will depend upon actual capital expenditures and jobs
added prior to project completion. Based on these figures, the
amount of property taxes exempted over 10 years is estimated to
be $86,704 or 88% of taxes otherwise due. The project would
generate an estimated $11,823 in property taxes and $167,025 in
sales taxes for a total of $178,848 over 10 years. After 10
years, the entire project would become fully taxable.
A more detailed analysis of the costs and benefits of the
requested exemption is contained in the attached staff report and
application and supporting materials.
COMMISSION ACTION
MOTION BY SECOND BY
TO:
CITY OF SALINA
REQUEST FOR COMMISSION ACTION DATE TIME
3/1/93 4:00P.M.
AGENDA SECTION: ORIGINATING DEPARTMENT: APPROVED FOR
NO. AGENDA:
PLANNING & DEVELOPMEN~
ITEM Roy Dudark
NO.
BY: BY:
Page 2
Recommendation
Following closure of the public hearing, approve the attached
resolution granting a property tax exemption to SP Plastics, Inc.
Encl: Resolution #93- 4562
Staff Report
Amended Application and Supporting Materials
cc: William A. Maki
COMMISSION ACTION
MOTION BY SECOND BY
TO:
STAFF REPORT
SP Plastics Tax Exemption Request March 1~ 1993
Introduction
SP Plastics Manufacturing, Inc. filed an application for property
tax exemption on February 3, 1993. On February 8, 1993, the City
Commission referred the application to city staff for a report and
set February 22, 1993 as the date for public hearing to .consider
the request. On February 22, the applicant submitted a revised
applicatoin increasing the amount of capital investment from
$600,000 to $830,000 and the number of jobs from 18 to 27. In
response, the City Commission continued the public hearing until
March 1, 1993. The following report outlines the nature of the
request, amount of exemption requested, financial costs and
benefits of the project, and recommended terms and conditions of
granting the exemption.
Nature of Request
SP Plastics Manufacturing, Inc. is requesting tax exemption for the
acquisition of additional injection molding machinery and equipment
associated with the expansion of their existing business. SP
Plastics primarily manufactures plastic tubular coat hangers. The
company was founded in 1979. The product line is sold to national
retail chains. Annual sales have grown to $6 million in 1992. The
company currently employs 63 people and has averaged 71 during the
last 12 months.
The proposed machinery and equipment would be housed in their
existing manufacturing facility owned by the Salina Airport
Authority at 1648 W. Magnolia Road. The estimated capital cost of
the project is $830,000 for the machinery and equipment.
SP Plastics is qualified for the exemption as a business engaged in
manufacturing articles of commerce. The machinery and equipment is
eligible as it represents newly acquired tangible personal property.
The company is requesting an exemption of 70% or as allowed by the
city's policy. The company states that the exemption could be a
deciding factor in determining whether to expand the Salina
facility or open another facility in North Carolina to serve a
growing east coast market. The tax exemption would help offset the
added freight cost from Salina to that market.
Project Costs
The city's tax exemption policy is structured to produce a level of
exemption in direct relationship to the number of new jobs created
and the amount of capital investment in new plant and/or
equipment. SP Plastics is proposing to create 27 new jobs and
invest $830,000. This results in the following calculations:
Staff Report
SP Plastics Tax Exemption
Page 2
Base Exemption
$300,000 of investment and 1 job 25%
Incentive Exemption
$530,000 added investment @ 11%
0.3% per $15,000
26 additional jobs @ 2% 52%
Total 88%
The tax exemption formula calculates to 88% during years 1 - 5 and
44% during years 6 - 10. It should be noted that the city's tax
exemption policy is keyed to actual performance or results. An
assessment will be made at the time of project completion review
and the exemption will be fixed for the term of the exemption. A
review will be conducted in January of 1994. If the expansion is
completed but the hiring process is not, the company may elect to
take a partial exemption for year one. At any rate, the project
will be considered complete no later than 18 months from initial
approval and the exemption will be fixed no later than January,
1995.
As shown on the attached spreadsheet, the total tax exemption over
10 years is estimated to be $86,704 or 88% of the taxes otherwise
anticipated. Due to the descending scale, the bulk of the taxes
exempted ($66,496) will occur during years 1 - 5. The exemption
figures result from the following property valuation calculations:
Building Replacement Cost N/A
Deprecation Factor (.95) N/A
Assessed Value (25%) N/A
Equipment Replacement Cost $830,000
Depreciation Factor (Straight
Line over'7 yrs. or .143/yr. up to 80%)
Assessed Value Year 1 (25%) $207,500
The tax exemption request will affect five taxing districts in
proportion to their respective mill levy. The largest impact will
be to the State Education Fund, which with a 1992 mill levy of
32.000 or 31.4% of the total levy, would not receive revenues
totalling $27,225 over the 10 year period. The City of Salina
would have the second largest impact of $25,404. Such "lost"
revenues are predicated on the assumption that the project would
occur without the tax exemption. Upon completion of the project,
the percentage of exemption will be fixed by ordinance in
accordance with actual capital cost and number of new jobs
created. The ultimate dollar amount of the exemption will depend
upon final assessed values and future mill levies.
Staff Report
SP Plastics Tax Exemption
Page 3
SP Plastics will also receive the following additional economic
incentives:
State Job Tax Credits ($1,500/employee) $ 40,500
State Investment Tax Credits ($1,000/$100,000) 8,300
State/Local Sales Tax Exemption ($830,000 x 6.9%) 57,270
City Waiver of Building Permit Fees N/A
Total $106,070
While not quantifiable with available information, the project will
require an increase in local governmental expenditures to provide
public services to the expanded manufacturing facility as well as
the new households and school age children resulting from the added
employment and population growth.
Project Benefits
The proposed manufacturing facility will produce both economic and
fiscal benefits to the community. Economic benefits are both
temporary and permanent. Temporary benefits involve the purchase
and installation of machinery and equipment. These benefits are
reflected in the $830,000 cost of the project. Permanent benefits
include direct expenditures for wages as well as induced activity
in the form of retail sales. SP Plastics intends to hire 27
employees to fill the positions of production and warehouse
worker. Each position will receive $6.00/hr. for an annual wage of
about $12,480. Economic benefits flow from this direct annual
increase in payroll as follows:
Direct New Jobs Created 27
Direct Payroll Increase $337,000
Secondary Spin-off Jobs (.64 of direct) 17
Secondary Payroll Increase ($15,000 avg.) $255,000
Effective Buying Income (.65 of payroll) $385,000
Retail Sales Increase (.43 of payroll) $255,000
The manufacturing facility and related economic activity will also
generate fiscal benefits through taxation of property and retail
sales. Estimated tax revenue resulting from the project over the
10 year period is shown below.
Property Taxes Sales Tax
City $3,464 $30,600
County 2,518 11,475
U.S.D. 305 1,372 -0-
Library 579 -0-
State 3~890 124,950
Total $11,823 $167,025
Staff Report
SP Plastics Tax Exemption
Page 4
Additional financial benefits resulting from the project include
property taxes collected on new dwelling units to house employee
families and state aid received for new students in the school
system. These revenues will help offset the increased public
service costs.
Terms and Conditions
In granting a tax exemption, the City Commission may impose any
terms or conditions as deemed necessary to fulfill the purpose and
intent of the tax exemption policy. Recommended terms and
conditions are included in the resolution and encompass such items
as exempt property, base employment, term of exemption, payment of
taxes not exempted, and revocation of exemption.
Conclusion
SP Plastics appears to meet the criteria for tax exemption based on
the class of business, demonstration of economic benefit and type
of property involved. An analysis of the estimated costs and
benefits of the project has been provided. Notification of the
public hearing to consider the tax exemption has been published and
mailed to the primary taxing jurisdictions affected by the
request. The Board of City Commissioners may, at its discretion,
approve a tax exemption for economic development purposes when
deemed to promote the best interests of the City of Salina.
Attachment: Tax Exemption Calculations
ATTACHMENT
SP Plastics Tax Exemption Request 3/1/93
Assessed Taxes Taxes ................ Taxes Exempted ..................
Year Valuation Levied Exempted City County USD 305 Library State Ed. State Misc.
1 $207,500 $21,166 $18,626 $ $ $ $ $ $
2 177,827 18,139 15,963
3 148,155 15,113 13,299
4 118,482 12,086 10,636
5 88,810 9,059 7,972
6 59,137 6,032 5,308
7 41,500 4,233 3,725
8 41,500 4,233 3,725
9 41,500 4,233 3,725
10 41,500 4 ~ 233 3,725
Totals $ N/A $98,527 $86,704 $25,404 $18,468 $10,058 $4,248 $27,225 $1,300
Mill Levy 29. 849 21. 718 11. 882 5. 057 32. 000 1.500
Share of Total Levy 29.3% 21.3% 11.6% 4.9% 31.4% 1.5%
Valuation Data Tax Exemption Data
Cost of Buildings & Improvements SN/A Base Exemption 25%
Estimated Appraised Value (.95) N/A Added Jobs Above Base 52%
Assessed Value (25%) N/A Added Investment Above Base 1_!1%
Cost of Equipment (Dept. over 7 yrs.) 830,000 Total Calculated Exemption 88%
Assessed Value (25%) 207,500
Total Mill Levy 102.006 Total Allowed Exemption (years 1-5) 88%
(years 6-10) 44%
February 22,1993
Salina City Commision
Salina, KS 67401
Dear Sirs,
We respectfully request the Salina City Commission to consider
our enclosed Tax Exemption. This Tax Exemption will enable
us to be more competative than opening another division of
our Company on the East Coast, by being more competative, we
will be able to expand our Salina division. Thank you for
your consideration.
Respectfully,
William A. Maki
Plant Manager
¢:TY OF SALINA. )~ANSAS
" APPLICATION FOR PROPESTY TAX EXEHPTION
~PPL ICANT T riFORW.IAT I ON
1. ApplJc~n~ 9usiness N~me d~a Adaress:
SP ~la~i~ l~a~ ~ M~ ~ ~ ~na. ~_
~ote: Attach the name ar, d address of principal o~ners and officers of
business. See Attachment A.
Name, address and telephone number 0f person to co~tact Jn regards
appi ~ cat1 on:
William A. Maki 825-6599
II. BUSINESS It;FORMATION
1. Type and nature of ,pplicant's business:
· Plastic Injection Moldinq. See Attachment B,
___ Note: Attach a general description of-business history and experience.
2. Is this a new businuss or an expansion of an existing business?
Expansion
3. Principal competition in local market:
Our market is based on a National level, There q m~jn~ ~nm~(~ors.
in the Un±ted States.
III. PROJECT INFORMATION
1. Location of the proposed project:
1648 w. Ma~nol±a ....
2. Name and address of the owner of the land dnd building occupied or to bm
occupied by the business:
Salina ,Airport iAuthorit¥ 3237 Arnold Ave. Sp~na. Ks. ~?4nl
3. General description of proposed project:
To ~urchase 4 ~dditional Injection Mold$~ Machifles and all ...fi
accessory equipment to ru~said eouio~fl~. E~uiDm~n~ ]n~e~ ~.
Note:Same ~ttac~uil ing.a site plan showing extsttng ane proposed buildings
and improvements.
4. Estimatea capita| ccst of project:
$ O (Buildings ~,ld Improvements)
S 83o.ooo (Machinery and Ecuipment)
5. Number of existing (full-~ime equivalent) employees:
~ee Att~nhm~nt £.
Note: If an existing business, attach the average total monthly
employment figures fur the p~st twelve months.
6. Number of new (full-time equivalent) jobs to be created:
Note: Attach a listing of the number and type of new jobs to be
created.
IV. TAX EXEMPTION INFORMATION
1. Amount or percen:age of tax exemotion requested:
2. Why ~x exemption is being requested:
~ Attmnhm~nt m.
Note: Attach a supporting statement explaining why the requested
tax exemption is a critical factor in determining whether
the proposed project is to be completed.
V. APPLICANT CERTIFICATION
I certify that the above information 'and statements are true and
correct to the best of my knowledge and belief. I understand that this
information will be available for public inspection under the Kansas
Open Records Act. I further understand that failure to produce the
stated economic benefits may result in a reduction or loss of tax
exemption. Furthermore, I certify that the requested tax exemption is
a critical factor in the achievement of the stated economic benefits .
and, if not granted, could prevent the realization of the business
location or expansion.
Signature
Tttle
Date
(Jan. lggO)
Corporate Offices:
Soo Plastics Inc.
1351 Industrial Park Drive
Sault Ste. Marie, MI 49783
Principal Owners:
Jan VanProoyen, President andOwner
Julius Novak, Board member and Owner
Harold Melin, Board ~er and Owner
Eric Zelden, Board member and Owner
Any inquiries to above individuals my be directed to the
Corporate Offices.
A~I~ACHM B
SP Plastics was formed in Salina, Kansas in December of 1989. We
are a division of Soo Plastics Inc. of Sault Ste. Marie MI.,
which was formed in 1979. We are a Plastic Injection Molding Company
which primarily manufactures Plastic Tubular Coat Hangers. Our
product line is sold to consumers in Retail Chains, such as
Walmart, Venture, Osco Drug, Par-mor Drug Stores, etc. You will
find our hangers in states from California to Oregon and
Florida to New York. Our sales for 1992 were over $6,000,000.00.
Our Production Department is in operation 7 days a week, 24 hours
a day.
ATTACHMENT C
FULL-TIME EMPLOYEES 1992
January 77
February 67
March 72
April 75
May 67
June 68
July 70
August 82
September 75
October 74
November
December 63
Average
ATTACHMENT D
Employment Forecast for 1993
May 75
June 80
July 84
August 90
September 94
October 98
November 98
December 98
January 1, 1994 Project Complete
We will be anticipating an increase of 25 Production workers
and 2 warehouse persons.
ATTAChmENT E
Our Corporate Office is going to make a decision as to whether they want
to expand the Salina facility or start a new plant in North Carolina.
This decision is based upon delivering our product to a growing East
Coast market at the best price possible. The draw back with expanding
the Salina plant is the Freight costs to the East Coast.
By receiving a tax exemption on our machines, we can overcome the
extra Freight costs and thus have our cc~panies needed capacity added
to the Salina facility.