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Commissioner opposes incentives for Project X

Washington County is going head-to-head with another state for a project that could retain current jobs and create new ones, but one commissioner disagreed with the proposed incentives during last week’s meeting of the Commercial, Industrial and Agricultural Committee.
“We’ve been aware of the plan for two years, and the company is ready to make a decision,” said Mitch Miller, chief executive officer of the Washington County Economic Development Council.
Miller said a local company is planning an expansion that would bring in a new production line, but another state is offering a cash deal to relocate. If the current 150 jobs are moved, Washington County would lose $8 million from the local economy.
“Where we are at the end of the day is recognizing the importance of retaining these jobs,” Miller said. “It would be devastating for the local economy to lose them.”
But the competition is fierce, according to Mayor Dan Eldridge. “The competing state doesn’t have these jobs,” he said. “They are all in, paying cash and the home of the company’s headquarters, which make this a steeper incline for us.”
Eldridge said the jobs on the line pay 30 percent more than the per capita median income in the county. “We can’t lose these jobs.”
During the Jan. 5 meeting, Miller requested financial support from the county for two proposals the WCEDC has developed to secure Project X, the title being used during negotiations because the company prefers to remain anonymous.
In both scenarios, the county would provide funds for the Industrial Development Board to purchase the building occupied by the company.
“We’re looking at a purchase price right at $1 million, which would be covered by rent,” Miller said.
In the first scenario, the company would commit to creating 25 new production jobs with an average annual salary of $34,000, and making a $16.6 million capital investment.
Under the terms of a 15-year lease agreement, the company would be responsible for building maintenance and insurance, but would pay no rent for the first three years. In addition, it would owe no property taxes throughout the lease because the IDB, a tax-exempt organization, would own the building.
However, if the company does not meet the minimum percentage of expected job numbers or investment by the end of year five, the lease would be adjusted to include an annual increase in rent and payments equivalent to the property taxes that would have been owed.
In the second scenario, the company would commit to creating 75 new production jobs with an average annual salary of $34,000, and making a $20 million capital investment.
Additional incentives in this scenario would allow the company to pay a lower amount of rent overall, with nothing due for the first six years, and receive a reduction in personal property tax over a five-year period by allowing the IDB to take the title to new machinery and equipment purchased during that time.
While this scenario would not return the full $1 million purchase price to the county, Miller said the true loss would be failing to retain the current jobs.
“It’s a unique project in that the competing state is putting up the money,” he said. “We had to think outside the box.”
According to Miller, the State of Tennessee will consider providing additional incentives to help a county recruit new jobs, but not for the retention of current ones.
Should the company decide to leave during the 15-year term, Miller said the county would have an asset in the building, which he said was worth more than $1 million and the only facility of its size currently available, that could be used to recruit another business. In addition, the binding lease would ensure the company paid the full $648,000 in rent.
Commissioner Todd Hensley asked how the one-time payment of $1 million for the building would be made.
“We have options, but the simplest is to use the General Fund,” Eldridge said. “We could write a check and reimburse the General Fund the next time the county does a bond sale. We are allowed to do that.”
Miller said the consultant has indicated the company will be more likely to go with scenario two.
The reduction in operating costs during those first rent-free six years is the most appealing aspect to a public company because it impacts the value of its stock, according to Eldridge.
Hensley asked how long the operation has been in Washington County, and Eldridge said since the 1990s.
“Would they be willing to disclose their identity before (a recommendation) goes to the commission?” Hensley asked, but Miller said he did not expect that to happen.
Such an arrangement is not uncommon, according to Eldridge, even when it comes down to a vote by the legislative body. “It takes the subjectivity out of it,” he said. “A more objective decision can be made by looking only at the metrics and whether it’s good for the community.”
Commissioner Robbie Tester objected to the proposed incentives. “When we cut a special deal, how is this fair to other companies?” he asked. “It’s up to government to keep a level playing field.”
Hensley argued a one-size-fits-all (policy) is never going to work.
Commissioner David Tomita agreed. “We want to foster local business. I agree it’s our bread and butter,” he said, but pointed out a higher level of competition often requires different incentives.
“The concessions made to Eastman (for example) are exponentially larger than other businesses.”
Eldridge reminded committee members the primary focus of the project is the retention of jobs.
“We are breaking new ground, and I hope you understand the importance,” he said. “It’s not just the jobs, it’s the type of jobs.”
Eldridge said there are no prospects to replace the positions if the company relocates to the competing state.
“I can’t reiterate strongly enough that we have 150 families who have no other opportunities if we lose these jobs,” he said. “We have to be proactive.”
Hensley said from an agricultural commerce point of view, the project offers a wise way of spending money while protecting the taxpayer.
He then made a motion, seconded by Commissioner Robbie McGuire, to recommend the project to the Budget Committee for consideration at its Jan. 14 meeting.
The motion passed with Tester opposed.