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Abatement process aiding growth

Wednesday, September 22, 2010

While many large industries across the country have gone by the wayside in recent years due to the economic recession, the same cannot be said for those in Clay County.

Recently, West Central Indiana Economic Development District Economic Development Specialist Jim Coffenberry, Clay County Council President Mike McCullough, Clay County Commissioner Paul Sinders and Clay County Redevelopment Commission President Tom Ames spoke with The Brazil Times about the amount of industrial economic growth in the county since 2007.

"The unemployment rate is still high, but there are still several companies here that are expanding," Sinders said. "I am pleased and proud of those industries making the effort to proceed with growth and expansion even in the current tough economic times."

Coffenberry, who provides economic development services to a total of six counties and industrial development assistance to Clay, Vermilion and Sullivan counties, added Clay County is ahead of the curve in industrial development.

"Since 2007, Clay County has had by far the most investment in industry among the counties I cover, including Vigo County," he said.

Coffenberry said the biggest factor to the growth has been the improvement and streamlining of the tax abatement process.

"There used to be no set form for applying for an abatement, so each company had a different process, which made it difficult to compare one from another," he said. "Also, other than rescinding an abatement, there was no protection for counties and taxpayers in the event a company shut down or were not in compliance with the abatement's terms."

That all changed in 2007 when, with the help of Redevelopment Commission Attorney Lou Britton, a better abatement process was created which would benefit not only the county, but the industries as well.

"Lou played a big role in creating a standard abatement application which could be put together the same way every time which increased efficiency," Coffenberry told The Brazil Times. "The fee set for Lou to prepare an abatement is $2,500, and if the company had its own attorney prepare the application, it would cost two or three times more."

Another aspect of the abatement process, which has been improved, is the "clawback" terms.

Coffenberry said the county had previously utilized "clawback" terms according strictly to Indiana Code in which the county would either renew or stop an existing abatement depending on a company's existence and compliance with the terms.

"Lou helped the county create an Abatement Calculation Agreement which still falls within the regulations of Indiana Code, but allows it to be less of a black and white issue, while giving the county a chance to recoup abated taxes," he said.

With the Abatement Calculation Agreement, if a company has only met 70 percent of its estimated growth during an annual abatement review, the county may choose to allow only 70 percent of the abated taxes slated for that specific year. In addition, should the compliance review show a company has reached less than 50 percent of its anticipated growth, or shuts down prior to the end of the abatement term, the county may not only stop the abatement, but also recover all of the abated taxes dating back to the initial approval.

"It doesn't matter if a company is in the ninth year of a 10-year abatement, if they shut down, move or fall far below its expected growth, the county can file a claim to 'clawback' all of the abated taxed up to that point," Coffenberry told The Brazil Times. "This benefits both parties because the county can get back the funding it could have had, but it also gives any company some breathing room in the event of unforeseen circumstances, like an economic recession."

Although some accounting professionals claimed this process would not be favorable to companies, it has proven to be extremely successful in Clay County.

"It is a fair and reasonable approach for all parties," Sinders said.

Coffenberry added, "There is no better protection plan, and every company has gone along with it since we started it. This new approach has even been adopted by other counties."

On top of that, area companies have been favorable to allowing a portion of the abated taxes to be placed in a special fund, which was established in September 2008, for the Redevelopment Commission projects.

"According to code, this fee can be up to 15 percent of the abated taxes, but we went with 5 percent, which has been included on every abatement since 2008," Coffenberry said.

The Redevelopment Commission acts as a fact-finding entity for the county, as they receive the first look at a potential abatement and provide a recommendation to the County Council on whether or not the application should be accepted.

Ames said he believes a major reason the process has worked is the willingness of officials to be "user-friendly" with area companies.

"We have worked well with the commissioners and council to visit the companies to learn more about them and their plans for the future," he said. "It makes everyone's job easier when the entities are coordinating and creates a smoother process when everyone is on the same page."

McCullough said county officials have made a conscious effort to create relationships with the companies to maintain the goal of creating employment.

"Another added benefit of visiting and touring the industries is that we have additional knowledge about what is going on when we get questions from the general public," he said. "Now, with having the Local Option Income Tax in place, it makes it all the more important to maintain current employment levels and continue to create job growth."

The hard work and extra effort put forth has paid off.

Since the end of 2007, companies have made more than $25,765,000 in expansions and additional investments, along with creating between 250 and 280 new jobs through the new abatement process.

"Those figures don't even include the recent abatements for IVC, PDF and Morris Manufacturing, which was approved by the City of Brazil," Coffenberry said. "It also does not include the expansions announced by other companies, like KIHM Metals, which did not apply for an abatement. Given the economic climate the past couple years, it is quite remarkable to see so much industrial economic growth, which is even more impressive when you consider the per capita numbers."

He added since companies now know that if they need something, officials will give their all and will be there to promote growth.

"In the last year-and-a-half alone, county officials have met and visited with 10 different manufacturers to learn more about their respective operations and inform them about the abatement process," Coffenberry told The Brazil Times. "Of those, six have applied for at least one abatement, while four have applied for two or three."

McCullough added, "The companies have also been able to see there is no politicking on the level and no one is in a struggle for authority. I think that has helped make them more comfortable and willing to work with us."

Sinders told The Brazil Times the relationship between governmental agencies could create further expansion in upcoming years with the City of Brazil currently improving utility options.

"We work very well with the city, and with water and sewer services being extended to the Interstate-70/State Road 59 area, I see the generation of more interest to develop it once the economy starts to turn around," he said.

According to Ames, no matter where the area of focus for economic development is, growth will continue to occur as long as everyone is working toward a common goal.

"Having a good working relationship is key, not just among governmental entities, but with industries as well," Ames told The Brazil Times. "It creates a positive atmosphere when we can retain the current jobs and even expand the employment opportunities, no matter the economic circumstances."

What are tax abatements?

A tax abatement is a temporary reduction of taxes on an industry's improvements, either in real estate or equipment (personal property), which are phased in over a period of time set by a governmental entity as an incentive to attract private investment and job creation.

Taxes on existing infrastructure are not affected by this process, and still are required to be paid.

For example, if a company has current real estate and equipment with a total value of $2 million, and are planning on adding $1 million in new equipment, taxes on the $2 million would remain in place. At the same time, if an abatement is granted on the improvements with a 10-year term (which is the maximum allowable), taxes on the $1 million are waived only in the first year, then phased in by 10-percent annual increments across the remaining term of the abatement, meaning the company would then be paying taxes on a $3 million total value when the abatement expires.

Companies may apply for additional abatements on separate improvements while other abatements are still in effect.

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Very informative article.

One question: if the abatement is granted and a percentage of personal property tax is waived, is the tax levied on the book value or depreciated value of the property?

-- Posted by RDK on Thu, Sep 23, 2010, at 5:53 AM

I think its fantastic companies want to expand and have operations in Clay County. But, do these "experts" realize the wages the people have to work for. I say this because I used to work for a local, family owned fabrication company that always receives praise from people. I worked with some of the hardest people I've even known or been associated with. The guys would always ask for overtime so they could feed their familes. You can't feed a family for 12.00 a hour. I understand this is capitolism but its really crummy when the family who owns the business lives in the lap of luxury and the people that make the owners business what it is qualify for welfare and foodstamps.

-- Posted by Schraderfan on Thu, Sep 23, 2010, at 7:15 AM

RDK - it seems to me that the personal property (equipment) tax would be calculated on the depreciated value of the personal property. Therefore, the percentage of tax abatement would also be calculated on that value also.

After all, if there were no abatement, the tax received would be on the depreciated value.

-- Posted by Leo L. Southworth on Thu, Sep 23, 2010, at 11:47 AM

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