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Home My WebLink About07/20/2015 Work SessionCity of Springfield Work Session Meeting MINUTES OF THE WORK SESSION MEETING OF THE SPRINGFIELD CITY COUNCIL HELD MONDAY JULY 20, 2015 The City of Springfield Council met in a work session in the Jesse Maine Meeting Room, 225 Fifth Street, Springfield, Oregon, on Monday July 20, 2015 at 6:30 p.m., with Mayor Lundberg presiding. ATTENDANCE Present were Mayor Lundberg and Councilors VanGordon, Wylie, Moore, Ralston, Woodrow, and Pishioneri (by phone). Also present were City Manager Gino Grimaldi, Assistant City Manager Jeff Towery, City Attorney Mary Bridget Smith, City Recorder Amy Sowa and members of the staff. 1. International Paper Company Request Regarding Enterprise Zone Extension in Springfield. John Tamulonis, Community Development Manager, presented the staff report on this item. As co-sponsor of the Springfield Enterprise Zone (EZ) with Lane County, Council is being asked to consider approving the resolution to extend property tax abatement for five years to the International Paper (IP) 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 $344 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. Mr. Tamulonis introduced several representatives from IP who were in the audience— Ann Marie Person, Kallie Hodgson, Ken Hill, Michael Culver and Cynthia Leon, as well as their attorney Eric Kodesh. Councilor Pishioneri joined the meeting via speaker phone at 6:35pm Mr. Tamulonis said the current employment is about 260 employees at the plant site. In discussions this afternoon with the Lane County Tax Assessor's office, it was noted there is an additional facility in Glenwood which was originally missed since it had a Eugene address. That means there will need to be some adjustments in the employment figures and will be closer to 280 employees. Staff will make that change to the resolution before it is finalized. IP has asked that the figure be 80% of current employment as a standard used by their company. They are not expecting a reduction in staffing, but City of Springfield Council Work Session Minutes July 20, 2015 Page 2 felt they could not commit to a five-year commitment of full staffing due to the unknown element of market conditions in the future. IP has several hundred contractors that work at the plant currently. During the construction period, about 350-400 additional contract employees will be working on site. Construction could start in September and they would extend their usual annual shut -down to remove old equipment. As part of the removal of equipment, the City has asked the company to make five payments of $100,000 for a total of $500,000 to help offset the loss of tax revenue. If they get the five- year exemption, the company must have wages of 1.5 times that of the Lane County median. Currently, IP pays an average of over 2.5 times the average amount. Part of the EZ requirement is that new employees would need to reach the level of $58,530/annual compensation. IP must also sign an agreement that they will go the State of Oregon Employment division for all new hires during the EZ period. Councilor Moore asked if the exemption begins when the plant is fully operational. Mr. Tamulonis said it will begin on January 1 following the year they are fully operational. They do have an exemption on the new investment that is being installed as they are in construction. Councilor Moore said it sounds like the City would not receive tax revenue on the new investment until 2021. Mr. Tamulonis said the City would still get taxes on the old investment which is valued at about $190M. Councilor Pishioneri asked if the average wages were based on top salary employees and lowest, the average, or average of work force. He is uncomfortable with them having the ability to reduce down to 80% of current staff. Mr. Tamulonis said the average compensation would be above $58,530 for new employees. Their current workforce has a substantially higher level of compensation. The current level has no bearing on that requirement. They would have the ability to reduce staffing, but have no intention to reduce below current levels based on this project. The investment will increase efficiency, but does not replace workers. Councilor Pishioneri said he is concerned about allowing a company to become more efficient only to lay off workers. If they want the 80% figure in the case of a market turn, he would like that written in the agreement. Mr. Tamulonis said they have not explored that and he was not aware of a way to define that in terms of a tipping point. Councilor Pishioneri said he is not against this, but has that concern. A reduction in workforce counters what the EZ is for which is to increase workforce. Mr. Tamulonis said the key piece was how viable the facility would be long term without this investment and they continued to use the old equipment. Councilor VanGordon asked about multi-year payout and tax exemption, and if the revenue was not expected to change dramatically. Mr. Tamulonis said they don't know the depreciation schedule, but there could be some fluctuation City of Springfield Council Work Session Minutes July 20, 2015 Page 3 Councilor VanGordon asked if they had an estimate of the property after 2022. Mr. Tamulonis said there could be about a $650,000 increase for property taxes per year after that date, decreasing over time due to depreciation. Councilor VanGordon said the mill is important to the community and employs a lot of people, so he wants IP to be as successful as possible. His only concern is trying to understand the change in employment. A representative from IP said they have 260 employees and the proposed project will operate in the same way it currently exists with the current equipment. The 80% is per an IP standard guideline, but they plan on operating the mill at the same level and move forward as a stronger mill. Councilor VanGordon confirmed that 80% was the corporate standard used by IP for these types of applications. He was told it was, so said he was fine with that figure. Mr. Tamulonis said when the City signs the agreement, there will be an annual check-in on the number of employees annually, as well as the wages. If there are any layoffs beyond the 20%, the City and County would need to be informed and they would lose their EZ exemption. Councilor VanGordon asked if it would be possible during the annual review to ask for an explanation of why any reductions in employment occur. Mr. Tamulonis said they could certainly ask. Councilor Moore asked about how the other taxing agencies would be affected. Mr. Grimaldi said they will get the taxes they currently receive, but will not receive the additional taxes until the EZ period is over. Mayor Lundberg said IP has been in town for a long time, been a solid employer and pays great wages. Swanson got a similar deal and would be building a more efficient building and their overall number of employees is reduced. They started with no employees because after the fire, no one was working there, so anyone hired from this point forward was an increase. The City saw that as an investment, and the IP situation is also an investment in our community. The intention is not to reduce the work force. The investment in our community is huge. Mr. Grimaldi asked IP if the equipment being installed changes the current staffing. Ms. Hodgson said yes, they would be operating in the same way as they do currently. Mayor Lundberg said she received a message from Councilor Pishioneri saying he supported the EZ. Councilor Woodrow thanked IP and said she is encouraged they are reinvesting in our community. She was comfortable with the questions and answers. Councilor Wylie said it sounded like they may be employing fewer people when they are finished. Ms. Hodgson said it would not affect the number of employees needed to run the plant. City of Springfield Council Work Session Minutes July 20, 2015 Page 4 Ms. Hodgson said there is another potential project to improve the assets, but no plans to reduce the number of employees from the current figure. The investment is mostly in newer machinery. Mr. Tamulonis said with the addition of the employees at the Glenwood facility, staff will ask for an amended motion to adjust the resolution to 80 % rather than an actual figure. ADJOURNMENT The meeting was adjourned at 6:58 p.m. Minutes Recorder — Amy Sowa Z4Christine L. Lundberg Mayor Attest: A— Amy Sowa City Recorder