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5.1 Ad Valorem Exemption - REMA CITY OF SALINA ~EST FOR COMMISSION ACTION DATE TIME 12/21/92 4:00 P.M. AGENDA SECTION: Public Hearings and Items ORIGINATING DE~R~ENT: APP~VED FOR ~. 5 Scheduled Ar a Certain Time COMMUNITY DEVELOPMENT AGE,A: Planning Division ITEM Roy Dudark gl BY: BY: Item Consideration of application for property tax exemption submitted by REMA Bakeware, Inc. Background On December 1, 1992, REMA Bakeware, Inc. filed an 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 a new $900,000 manufacturing facility and $900,000 of machinery and equipment. The expansion is expected to create 30 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 $1,800,000 of capital investment and 30 new jobs, a tax exemption of $100% during years 1 - 5 and 50% 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 $250,376 or 80.8% of taxes otherwise due. The project would generate an estimated $59,422 in property taxes and $198,400 in sales taxes for a total of $257,822 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. C~MISSION ACTION MOTION BY SECOND BY TO: CITY OF SALINA REQUEST FOR COMMISSION ACTION DATE TIME 12/21/92 4:00P.M. AGENDA SECTION: ORIGINATING DEPARTMENT: APPROVED FOR NO. COMMUNITY DEVELOPMENT AGENDA: Planning Division 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 REMA Bakeware, Inc. Encl: Resolution #92- 4535 cc: Glen Trotter Staff Report Application and Supporting Materials COMMISSION ACTION MOTION BY SECOND BY TO: STAFF REPORT REMA Bakeware Tax Exemption Request December 21r 1992 Introduction REMA Bakeware, Inc. filed an application for property tax exemption on December 1, 1992. On December 7, 1992, the City Commission referred the application to city staff for a report and set November 21, 1992 as the date for public hearing to consider the request. 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 REMA Bakeware, a division of Anchor Hocking Corporation, is requesting tax exemption for the construction of a building addition and acquisition of machinery and equipment associated with the expansion of their existing business. REMA Bakeware manufactures aluminum cookware and bakeware. The company was founded in 1983. In 1988, Anchor Hocking Corporation purchased the assets of REMA Bakeware from local owners. Annual sales have grown from $12 million in 1988 to $42 million in 1991. The company currently employs 129 people and has averaged 131 during the last 12 months. The proposed building addition consists of a 25,000 sq. ft. manufacturing facility to be located on land owned adjacent to their existing operations at 625 E. North Street. The proposed building site is lot 2, Block 13, Northeast Industrial Park and is within the special redevelopment area of the city (north Salina). The estimated capital cost of the project is $900,000 for the building and improvements and $900,000 for machinery and equipment. REMA Bakeware is qualified for the exemption as a business engaged in manufacturing articles of commerce. The building improvements are eligible as they will be newly constructed and an addition to the tax base. The machinery and equipment is eligible as it represents newly acquired tangible personal property. The company is requesting an exemption of $241,695 which was an estimate based on assessed value ratios in effect prior to a constitutional amendment passed by voters on November 3, 1992. The company states that the exemption could be a deciding factor in determining whether the expansion costs are justified in Salina. Staff Report REMA Bakeware Tax Exemption Page 2 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. REMA Bakeware is proposing to create 30 new jobs and invest $1,800,000. This results in the following calculations: Base Exemption $300,000 of investment and 1 job 25% Incentive Exemption $700,000 added investment @ 24% 0.3% per $15,000 and $800,000 @ 0.2% per $15,000 29 additional jobs @ 2% 58% 107% Location Premium (North Salina) 50% of base and incentive 53% Total Per Adopted Formula 160% Total Exemption Allowed 100% While the tax exemption formula calculates to 160%, the tax exemption may not exceed 100% during years 1 - 5 and 50% 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 construction 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 $250,376 or 80.8% of the taxes otherwise anticipated. Due to the descending scale, the bulk of the taxes exempted ($190,955) will occur during years 1 - 5. The exemption figures result from the following property valuation calculations: Building Replacement Cost $900,000 Depreciation Factor (.95) $855,000 Assessed Value (25%) $213,750 Equipment Replacement Cost $900,000 Depreciation Factor (Straight Line over 7 yrs. or .143/yr.) Assessed Value Year 1 (25%) $225,000 Staff Report REMA Bakeware Tax Exemption Page 3 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 totaling $78,507 over the 10 year period. The City of Salina would have the second largest impact of $73,447. Such "lost" revenues is 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 actual dollar amount of the exemption will depend upon final assessed values and future mill levies. REMA Bakeware will also receive the following additional economic incentives: State Job Tax Credits ($1,500/employee) $ 45,000 State Investment Tax Credits ($1,000/$100,000) 18,000 State Sales Tax Exemption ($1,260,000 x 6.9%) 86,940 City Waiver of Building Permit Fees 2~433 Total $152,373 While not quantifiable with available information, the project will require an increase in local governmental expenditures to provide public services to the 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 of materials and employment of workers to construct the building as well as the purchase of machinery and equipment. These benefits are reflected in the $1,800,000 cost of the project. Permanent benefits include direct expenditures for wages as well as induced activity in the form of retail sales. REMA Bakeware intends to hire 30 employees to fill the position of production worker. Each position will receive $7.00/hr. for an annual wage of about $14,500. Economic benefits flow from this direct annual increase in payroll as follows: Direct New Jobs Created 30 Direct Payroll Increase $435,000 Secondary Spin-off Jobs (.64 of direct) 19 Secondary Payroll Increase ($15,000 avg.) $285,000 Effective Buying Income (.65 of payroll) $468,000 Retail Sales Increase (.43 of payroll) $310,000 Staff Report REMA Bakeware Tax Exemption Page 4 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 $17,409 $ 37,200 County 12,657 9,300 U.S.D. 305 25,551 -0- Library 2,911 -0- State 893 151,900 Total $59,422 $198,400 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 REMA Bakeware 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 REMA Bakeware Tax Exemption Request 12/21/92 Total Taxes Percent Amount ................ Amount Exempted .................. Year Anticipated Exemption Exempted City County USD 305 Library State Ed. State Misc. 1 $ 44,755 100% $44,755 $13,113 $ 9,533 $ 5,211 $ 2,193 $14,034 $ 671 2 $ 41,473 100% 41,473 12,152 8,834 4,829 2,032 $13,004 622 3 38,191 100% 38,191 11,190 8,135 4,447 1,871 11,975 573 4 34,909 100% 34,909 10,228 7,435 4,065 1,710 10,946 524 5 31,627 100% 31 627 9,355 6,736 3,683 1,550 9,917 474 6 28,345 50% 14 172 4,152 3,019 1,650 694 4,444 213 7 25,086 50% 12,543 3,675 2,672 1,460 615 3,933 188 8 21,804 50% 10,902 3,194 2,322 1,269 534 3,419 164 9 21 804 50% 10,902 3,194 2,322 1,269 534 3,419 164 10 21,804 50% 10~ 902 3 ~ 194 2,322 1,269 534 3,419 164 Totals $309,798 $250,376 $73,447 $53,330 $29,155 $12,267 $78,507 $3,757 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 $900,000 Base Exemption 25% Estimated Appraised Value (.95) 855,000 Added Jobs Above Base 58 Assessed Value (25%) 213,750 Added Investment Above Base 24 Cost of Equipment (Dept. over 7 yrs.) 900,000 Sub-Total 107 Assessed Value (25%) 225,000 Location Premium (50%) 53 Total Mill Levy 102.006 Total Calculated Exemption 160% Total Allowed Exemption 100% /~/l~ REMA 625 EAST NORTH STREET PHONE (913) 823-1682 T~u~. qroup . P.O. BOX 2240, SALINA, KS 67402-2240 FAX (913) 823-3840 November 30, 1992 Board of Commissioners 300 West Ash Salina, KS 67401 Dear Commissioners: We respectfully request that you approve attached request for tax exemption. The REMA Company wishes to grow in the City of Salina. We hope that by approving this request, REMA will continue to have a long and prosperous stay in Salina. Respectfully yours, /~en T~ot~e~ Director of Operations REMA Bakeware 625 East North St. Salina, KS 67401 gt/lh J C:TY OF SALINA, KANSAS ~.) i~~ ~PPLICATIOIt FOR PROPERTY TAX EXEMPTION ~ r~ :'. ~PPL ICANT T~'iFORMATION 1. Applicant Business Name and Address: Note: Attach the name and address of principa) uwners and officers of the business. ~~ Name, address and telephone number of person to contact in regards to this application: II. BUSINESS iNFOR~YiON Hote: Attach a general description of business his;ory an~ experience. 2. Is this a new business or an expansion of an existing business? 3. Principal ccmpe~ition in local market: III. PROJECT INFORMATION 1. Location of the proposed project' 2. Name and address of the owner of the land ~nd building occupied ur to be occupied by the business: 3, General description of proposed project: Note: Attach a site plan sho~ing existing anU proposed buildings and improvements. ~ ~ 4. Estimateo capit~l ccst of project: S .. ~)~)~ ~d 6 (Buildings and Improvements) S .... ~y, ~) d ~Machinery and Eauipmen~) 5. Number of existing (full-time equivalent) employees: Note: If an existing business, attach the average total monthly employment figures for ~he past twelve months. 6. Number of new (full-time equivalentJ 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 percentage of tax exemption requested: ...,..~'.:.. ~,~-, 2. Why ~ax exemption. ~s ~e~n9 ~eques~ed: 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. T further understand that failure to produce the stated economic benefits may result in a reduction or loss of tax exemption. Furthermore, I ~ertify 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. / Titl~ (Jan. 1990) ANCHOR HOCKING CORPORATION Directors and Officers William P. Sovey, Chairman of the Board 29 E. Stephenson Street Freeport, Illinois 61032 Thomas A. Ferguson, President 29 E. Stephenson Street Freeport, Illinois 61032 William T. Alldredge, Vice President-Finance 29 E. Stephenson Street Freeport, Illinois 61032 Clarence R. Davenport, Vice President & Treasurer 29 E. Stephenson Street Freeport, Illinois 61032 Roland E. Knecht, Vice President & Secretary 29 E. Stephenson Street Freeport, Illinois 61032 Dale R. Matschullat, Vice President-General Counsel 29 E. Stephenson Street Freeport, Illinois 61032 Clarence R. Davenport, Assistant Secretary 29 E. Stephenson Street Freeport, Illinois 61032 Shirley K. Martin, Assistant Secretary 29 E. Stephenson Street Freeport, Illinois 61032 Rema Bakeware, Inc. is a division of Anchor Hocking Corporation which is a subsidiary of Newell Company. II. Business Information In December of 1988, Anchor Hocking Corporation (a subsidiary of Newell Co.) purchased the assets of REMA Bakeware, Inc., located in Salina, Kansas. REMA is a manufacturer of aluminum cookware and bakeware and sells its products primarily under the brand names of Airbake and Cushionaire. Annual sales have grown from approximately $12 million in 1988 to $42 million in 1991. III. 5. Full Time Employees January 114 February 115 March 113 April 142 May 141 June 140 July 140 August 138 September 136 October 134 November 129 December 129 III 6. The 30 full time employees added because of this project will be Production/Direct Labor Employees. Ail of our employees are the same labor grade and class. IV. Tax Exemption Information Anchor Hocking Corporation is considering expansion of its facilities in Salina, Kansas or utilizing existing capacity in\ its facilities located in Wisconsin. Expansion of the facilities in Salina would help the company become a more efficient producer of its bakeware products, however, the expansion costs must be justified to the corporate officers. Property tax exemption would be considered an incentive to the company over the next ten years to expand in Salina and could be a deciding factor whether or not to expand in the city. The new addition would provide the community with approximately thirty permanent new jobs. In addition, $1.8 million will be invested in the expansion of the plant and new machinery. Property tax exemption would benefit the city of Salina and provide an incentive for Anchor Hocking Corporation to expand in Kansas versus Wisconsin.