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HomeMy WebLinkAboutItem 01 International Paper Company Request Regrding Enterprise Zone Extension in Springfield AGENDA ITEM SUMMARY Meeting Date: 7/20/2015 Meeting Type: Work Session/Reg. Mtg Staff Contact/Dept.: John Tamulonis/CMO Staff Phone No: 541-726-3656 Estimated Time: 20 Minutes/10 Minutes S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Encourage Economic Development and Revitalization through Community Partnerships ITEM TITLE: INTERNATIONAL PAPER COMPANY REQUEST REGARDING ENTERPRISE ZONE EXTENSION IN SPRINGFIELD ACTION REQUESTED: Work Session: Discuss approving a three-year property tax exemption and extending the Enterprise Zone exemption an additional two years for a total of five years for an investment in the International Paper Mill in Springfield. Regular Meeting: Approve/Not approve: RESOLUTION AUTHORIZING THE CITY MANAGER TO SIGN AGREEMENTS WITH LANE COUNTY AND THE INTERNATIONAL PAPER COMPANY TO APPROVE A THREE-YEAR ENTERPRISE ZONE PROPERTY TAX EXEMPTION AND TO EXTEND THE ENTERPRISE ZONE PROPERTY TAX EXEMPTION AN ADDITTIONAL TWO YEARS FOR A TOTAL OF FIVE YEARS FOR AN INVESTMENT IN ITS PAPER MILL IN SPRINGFIELD ISSUE STATEMENT: As co-sponsor of the Springfield Enterprise Zone with Lane County, consider approving the resolution to extend property tax abatement for five years to the International Paper Company for its proposed $101.6 million equipment replacement upgrades to its paper mill manufacturing operations in Springfield. International Paper has requested that both sponsors of the Springfield Enterprise Zone (City of Springfield and Lane County) approve five-years of extended enterprise zone benefits though International Paper is not increasing employment. Its decision to replace two nearly nonfunctional and key components of its ongoing Springfield plant operations—a head box and boiler floor (current value approximately $3-$4 million)—would allow the facility to continue operations, increase efficiency, and help maintain quality for critical world markets. The replacement equipment would take nearly a year to install, employ about 400 additional contractors at its peak, and does not anticipate reducing any of its current employment of about 260 through this project. International Paper is scheduled in the coming weeks to consider where to make upgrades to multiple manufacturing facilities and these proposed upgrades could greatly enhance the long-term operations of this Springfield plant. The EZ benefits could influence where International Paper chooses to make a major investment and they need to know if they will have the requested five-years of enterprise zone benefits. ATTACHMENTS: 1: Council Briefing Memo 2: Enterprise Zone Letter Request and Application from International Paper 3: Resolution DISCUSSION/ FINANCIAL IMPACT: See Attachment 1: Council Briefing Memo. Attachment 1, Page 1 of 4 M E M O R A N D U M City of Springfield Date: 7/14/2015 To: Gino Grimaldi COUNCIL From: John Tamulonis BRIEFING Subject: International Paper Company Request Regarding Enterprise Zone Extension in Springfield. MEMORANDUM ISSUE: International Paper Company has requested that both sponsors of the Springfield Enterprise Zone (City of Springfield and Lane County) approve including an extension of enterprise zone benefits for its proposed upgrade to its paper mill in Springfield. The firm has an upcoming decision to replace two key pieces of ‘functionally obsolete’ equipment currently valued about $3.5 million -- the ‘head box’ (about 50 years old) and the ‘boiler floor’ (about 40 years old) -- with the new equipment represents an investment valued at about $101.6 million. International Paper needs to know if it will have five-years of enterprise zone benefits for these and the related investments ensuring operations. (See Attachment 2). COUNCIL GOALS/ MANDATE: Encourage Economic Development and Revitalization through Community Partnerships BACKGROUND: International Paper operates its paper mill on about a 200-acre site in Springfield, employs 260 full-time on average this past year, and has over 50 additional general service positions on site to operate the mill. The taxable value in FY15 of the land and facilities was about $228 million and total property taxes were about $1.6 million for all of the taxing entities. The City’s share of property taxes from this facility was about $1.06 million, which represented about 5.7% of the City’s General Fund property tax revenues in FY15. International Paper has and does need the upgrade to these two key pieces of equipment to ensure the paper mill, the primary activity on the firm’s Springfield site, continues to operate efficiently and provides the high quality product needed to be competitive in its major domestic and Asian markets. The head box provides the slurry/pulp feed material needed for the paper manufacturing machine to operate and produce the firm’s paper products. The boiler floor is a surface on which to burn biomass fuel to produce steam used in manufacturing of the paper. These two pieces of equipment are required to run the mill. The Enterprise Zone application indicates the firm expects to start the project in September 2015 and finish constructing the facility in November 2016 and fully employ its current workforce of 260 full-time employees throughout the projects. In addition, the firm expects to employ an additional 400 contractors--most from local building trades, engineering firms, and supply houses -- for the construction, implementation, and start-up of the projects. International Paper’s proposed project of $101.6 million is eligible for extended Enterprise Zone benefits of up to five years provided the Enterprise Zone both sponsors agree to terms and the firm signs an agreement that: 1. The investment is over $25 million in eligible manufacturing equipment or buildings; Attachment 1, Page 2 of 4 2. The firm maintains its Average Annual Compensation level for all employees above 150% of Lane County’s average wage of $38,353 or above $57,530 throughout the five-year exemption period; 3. The firm signs a First Source Hiring Agreement with the Oregon Employment Division; 4. The firm increases or maintains a mandatory minimum employment level though out the five-year exemption period; and 5. The firm agrees to and complies with other reasonable conditions the sponsors request at the time authorization. The EZ application indicates the firm’s full-time employment on site averaged 260 employees over the previous 12 months. International Paper fully anticipates its full-time employment would remain at this level and that all new employees would receive compensation that exceeds the 150 percent of the Lane County average annual wage. The most recent data on Lane County’s average annual wage at the time of applying for this authorization was $38,353 and 150% of that figure is $58,530, while International Paper’s current full-time employees’ compensation is over 2.5 times the Lane County’s average or over $95,882 in average compensation. In addition, International Paper must have a first-source agreement with the Oregon Employment Division in effect to enable the approval of the EZ agreement until the end of the tax exemption period. This first-source agreement requires that International Paper’s Springfield operations first consider for any employment openings those qualified candidates forwarded by the Employment Division from publicly funded employment agencies. With the proposed investment and wage level meeting two of the minimum qualifying requirements for the EZ exemption and the firm working on the First-Source Agreement, the Enterprise Zone sponsors – the City and Lane County – must essentially decide if they are willing (a) To agree on the requested additional two years of exemption and (b) Sign an acceptable agreement with the firm that sets a minimum employment level and meets reasonable additional requirements from the sponsors. Discussion of Enterprise Zone Requirements: The waiver of property taxes for a three-to-five-year period is the primary benefit to the applicant. However, for the firm to qualify for extended property tax exemptions, the sponsors of the zone and the firm must agree in writing that: (a) During the entire five-year property tax exemption period, the firm agrees to and does compensate all newly hired employees at an average rate of not less than 150 percent of Lane County's average annual wage prevailing at the time of approval; (b) The firm agrees to a minimum level of employment to be maintained throughout the exemption period; and (c) The firm will meet any additional local requirements that the zone sponsors may reasonably request. If the applicant does not sign an agreement to that effect and does not meet these conditions, it cannot obtain the additional two years of tax exemption benefits. As co-sponsors, both the Springfield City Council and the Lane County Board of Commissioners would need to approve resolutions that extend benefits under the terms described above. Attachment 1, Page 3 of 4 International Paper has requested such approval from the Zone sponsors with its authorization application. (See Attachment 2.) The Springfield Enterprise Zone Manager has forwarded the firm's request to the Lane County Tax Assessor and informed the Lane County Administrator of the request. The Board of Commissioners would consider this only after the Springfield City Council has considered the request and approved it. The proposed project is eligible for the extension of benefits if both Sponsors agree to the terms and the firm signs a written agreement to the terms. 1. $25 million minimum Investment: The proposed investment of $101.6 million exceeds the $25 million minimum. 2. Employment Compensation Levels Above 150% Lane County’s Average Compensation: International Paper fully anticipates all its new employees, on average, would receive compensation that will exceed the 150 percent of the Lane County average annual wage. The most recent data on prevailing Lane County average annual wage at the time of applying for authorization was $38,353 and 150% of that figure is $58,530. The firm far exceeds the required compensation level with its current Average Annual Compensation about 2.5 times that of Lane County’s average wage. 3. First Source Agreement: The firm fully expects that First Source Agreement would be in place shortly after the sponsors approve the resolution. 4. Mandatory Minimum Employment Level: A firm expanding or re-investing must typically increase by at least 10% the average number full-time employees over the previous 12 months to receive Enterprise Zone benefits. A firm making a major investment of over $25 million may also receive the EZ tax abatement if it agrees to a minimum level of employment throughout the five-year exemption with the sponsors’ approval. International Paper states it does not from this project expect to decrease the current levels of employment at the Springfield operations -- now at 260 full-time employees. The discussions relating to setting an agreed-to-minimum level of employment over a more-than-six-year span, were more difficult. International Paper said that it could agree to guarantee a minimum level of employment if it were set at 80% of current full-time employment and could adhere to it even with future unanticipated market variations and volatility. The 80% of its current employment sets a minimum level of 208 full-time employees starting now and throughout the exemption period ending in 2022. 5. Other reasonable conditions: In return for the extension, the City has, for some time, required that firms developing sites and requesting extended Enterprise Zone benefits pay the City a portion of the cost of providing public services during the two-year extended EZ period for Police, Fire and Life Safety, and other services generated by the new facility's operations. In this case, the proposed upgrades are removing $3-$4 million in equipment and replacing it with much higher value new equipment that enables the facility to operate efficiently for many years. The upgraded mill equipment would meet current building, fire, and specialty codes and would therefore likely require fewer service calls and public services than the old facility. Consequently, additional service fees have not been included in the extension period of two years. Instead the sponsors are requesting the firm provide $500,000 in five $100,000 payments each year of the Enterprise Zone exemption to offset the loss of the removed equipment. Attachment 1, Page 4 of 4 Financial Impacts: The existing paper mill and associated buildings, equipment, and property are currently valued at about $228 million or about 5.37% of the City’s Total Assessed Property Value on the FY15 tax roll. International Paper paid about $1.6 million in property taxes to the City and all the public taxing districts that fiscal year. The financial impacts of extending the IP property tax abatement on the City estimated using a straight–line depreciation of the $101.6 Million value range of the investment in the new mill facilities indicates that the equipment would come onto the tax rolls valued at about $85 million after depreciation from the time of installation. The current tax code area rate of $18.1590 per $1000 valuation would indicate a total property tax exemption to all the public taxing districts in the 01999 Tax Code Area for the five years of about $8,563,000. The $85 million in new equipment would represent about $1.54 million in total property taxes the year it comes onto the tax rolls to all the public taxing districts in the 01999 Tax Code Area. The City’s share of property taxes was about $1.06 million, which represented about 5.7% of the City’s General Fund property tax revenues in FY15. Estimated Property Tax Abatement in Tax Code Area 01999 and Requested Payment: All Taxing Agencies City of Springfield Requested Payment Years 1 to 3 $5,313,000 $2,131,000 $300,000 Years 4 to 5 $3,250,000 $1,348,000 $200,000 Total Years 1 to 5 $8,563,000 $3,479,000 $500,000 RECOMMENDED ACTION: Approve the resolution a. Approving and extending the property tax exemption period an additional two years beyond the initial three years for a total of five-years for International Paper Company’s $101.6 million investment in the Springfield Paper Mill; b. Set the guaranteed minimum level of employment at 80% of current full-time employment of 260 full-time employees or 208 full-time employees starting now and throughout the exemption period ending in 2022; c. Authorize the City Manager to sign agreements, including the annual payment by July 1st of each Enterprise Zone exemption year to the City of $100,000 as a reasonable offset of the lost property tax revenue to general government agencies, with the Enterprise Zone co-sponsor Lane County, should the Lane County Commissioners approve a similar resolution, and with the applicant, International Paper, to be effective throughout the five-year extended Enterprise Zone tax exemption period; and d. Forward the request and application to Lane County Commissioners. Attachment 2, Page 1 of 8 Attachment 2, Page 2 of 8 Attachment 2, Page 3 of 8 Attachment 2, Page 4 of 8 Attachment 2, Page 5 of 8 Attachment 2, Page 6 of 8 Attachment 2, Page 7 of 8 Attachment 2, Page 8 of 8 Attachment 3, Page 1 of 3 RESOLUTION NO. ________ RESOLUTION AUTHORIZING THE CITY MANAGER TO SIGN AGREEMENTS WITH LANE COUNTY AND THE INTERNATIONAL PAPER COMPANY TO APPROVE A THREE-YEAR ENTERPRISE ZONE PROPERTY TAX EXEMPTION AND TO EXTEND THE ENTERPRISE ZONE PROPERTY TAX EXEMPTION AN ADDITTIONAL TWO YEARS FOR A TOTAL OF FIVE YEARS FOR AN INVESTMENT IN ITS PAPER MILL IN SPRINGFIELD WHEREAS, the International Paper Company (International Paper) could receive a property tax exemption under ORS 285C.160 because it is an eligible business firm, and WHEREAS, International Paper agrees (a) to compensate during the entire enterprise zone tax exemption period all new employees at an average rate of not less than 150 percent ($57,530) of Lane County’s prevailing average annual wage ($38,353) at the time of applying for authorization; (b) to comply with all the requirements of the Agreement for the Enterprise Zone Extended Abatement; (c) to comply with all applicable requirements of ORS 285C and reasonable requests for the Springfield Community Enterprise Zone sponsors; WHEREAS, International Paper anticipates it will complete construction of the project upgrades to the paper mill in 2016; WHEREAS, International Paper has filed an authorization application form with the Springfield Enterprise Zone Manager; WHEREAS, International Paper will negotiate a First Source agreement with the Oregon Employment Division for referring qualified candidates to International Paper for new job openings within the Springfield Community Enterprise Zone until the end of the five-year exemption period; WHEREAS, the Springfield City Council would like to encourage investment in Springfield manufacturing and high technology facilities, increase both the number of family wage jobs and the wages paid to its citizens in new economic sectors, assist in the diversification of manufacturing and high technology in the local economy, ensure competitiveness of future Springfield businesses, and provide for the long-term operation of International Paper facilities. Attachment 3, Page 2 of 3 NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Springfield as follows: 1. The Springfield City Council, as the governing body of one of the sponsors of the Springfield Community Enterprise Zone, approving the three-year Enterprise Zone abatement and extending the property tax benefits of the Springfield Community Enterprise Zone for an additional two years to the International Paper Company, as requested in Exhibit A and incorporated herein by reference, for a proposed $101.6 million upgrade in paper mill equipment to replace the functionally obsolete head box and boiler floor equipment; 2. The International Paper Company must meet the terms outlined below through a signed agreement with the sponsors to the effect that the firm will a. Invest approximately $101.6 million in enterprise zone eligible equipment and buildings in the Springfield Paper Mill; b. Pay all its new employees, on average, compensation that will exceed the 150 percent of the Lane County average annual wage where the most recent data on prevailing Lane County average annual wage at the time of applying for authorization was $38,353 and 150% of that figure is $58,530; c. Enter into a first-source agreement with the Oregon Employment Division effective with approval of the enterprise zone authorization until the end of the five-year extended enterprise zone abatement period; d. Maintain a mandatory minimum level of full-time employees equal to or greater than 80% of its annual average full-time employment of 260 at the time of authorization application (where this 80% minimum is equal to 208 full-time employees) at all times during the span from the authorization application until the end of the Enterprise Zone Exemption Period; and e. Pay to the City of Springfield $500,000 in $100,000 annual installments to be paid by July 1st in each year of the five-years of Enterprise Zone Exemption as a reasonable offset to general government agencies of the lost property tax revenue from removed equipment. 3. The City Manager is authorized to sign agreements with Lane County, the co- sponsor of the Springfield Community Enterprise Zone, and the International Paper Company to the terms described herein and provided that the International Paper Company meets the terms of ORS 286C; and 4. The City Manager is authorized to take appropriate action to facilitate the extension of the Property Tax Exemption as described herein. Attachment 3, Page 3 of 3 5. This Resolution shall take effect upon adoption by the Council and approval by the Mayor. ADOPTED by the Common Council and approved by the Mayor of the City of Springfield, this _____ day of __________, 2015. Adopted by a vote of ____ for and ____ against. _________________________________________ Mayor ATTEST: _________________________________________ City Recorder