More abatements, more debate at council
Posted October 3, 2012
A pair of tax abatements for a major automotive supplier triggered another philosophical discussion over investment incentives during City Council’s Sept. 18 meeting.
U.S. Farathane Corp. — which manufactures injection-molded plastic component parts for automotive companies, including the Big Three — was seeking industrial facilities tax exemption certificates for investments at its facilities in the 38000 block of Mound and the 42100 block of Merrill.
Sterling Heights Economic Development Manager Kasey Green hailed U.S. Farathane as an example of “automotive production and related manufacturing returning in force” as the area emerges from the economic downturn.
Collectively, the two investments, primarily tied to equipment and machinery, total more than $9.7 million. The planned upgrades, said Green, are intended to boost the company’s capacity and capabilities for multiple products and vehicle lines.
“These upgrades to technology are critical to keeping their sites on the cutting edge and making them attractive to source work in the long run — all very important to the long-term health and viability of these production locations in our community,” she said.
According to Green, U.S. Farathane already has 189 employees in Sterling Heights, and the two new projects will add 77 full-timers to those ranks.
Green also estimated that the projects will have at least a 4 to 1 “multiplier” effect on the local economy, based on employees’ theoretical shopping and dining activity in the city, and increased work for other suppliers and firms.
The Mound project involves a more than $1.2 million personal property investment for various machinery and equipment, and though U.S. Farathane qualified for a seven-year term based on the amount and the six jobs created, it was capped at three due to the length of the lease on the building. The company can apply for an extension of up to four years if the lease is later renewed.
The investment will involve $9,006, $2,733 and $19,049 in city, school and total taxes, respectively, abated over the three-year period, or $17,080, $5,184 and $36,128 abated over a six-year term.
It was a similar situation for the Merrill project, which qualified for a 12-year term, but is capped at six for now. That endeavor, which is expected to create 71 jobs, involves nearly $8.5 million in real and personal property for machinery, equipment, and the addition of a 25-ton craneway, which is a support on which a crane travels.
That investment will involve $106,878, $36,910 and $230,601 in city, school and total taxes, respectively, abated over the six-year period, or $168,576, $60,158 and $365,636 over a 12-year term.
While in years past City Council often granted the abatements with little fanfare, they’ve become, in recent months, much-discussed issues, mainly due to Councilman Paul Smith’s propensity to decry them.
It was particularly so Sept. 18, when talk of the U.S. Farathane applications — which were approved 6-1, with Smith dissenting — spiraled into a theoretical debate over such measures’ true value.
Mayor Pro Tem Michael Taylor said a discussion on abatement effectiveness is “long overdue,” and he said he believes that whether they’re good or bad policy in general is a “close call.”
While he insisted it’s “dubious to say that just by incentivizing companies by giving them tax breaks that more investment will come in,” if Sterling Heights decides to stop awarding tax abatements, “I worry that while we may be making a few extra bucks today, that down the road, when our industrial base has eroded and has moved on to another community, we’ll look back and say, ‘Well, maybe it was because of this,’” he said. “And I’m not willing to make that bet.”
Taylor did note that he doesn’t like “the vilification of companies that come in front of the city just for availing themselves of part of the tax code that is available to any other company in a similar situation,” an apparent allusion to Smith’s tendency to question petitioners at length.
Councilman Joseph Romano pointed to BAE Systems, General Dynamics and Chrysler as examples of success stories that received tax abatements to expand in the community and reiterated his argument that companies will merely go elsewhere if Sterling Heights gets a reputation for being “not friendly to manufacturing.”
Romano also insisted that city officials haven’t given all abatement requestors “carte blanche,” claiming that they’ve occasionally amended term lengths and monetary amounts in the past.
Smith said he considers U.S. Farathane’s projects routine replacement of old equipment and called Green’s assertion that they’ll lead to 300-plus new indirect jobs “empty fantasy — numbers that can neither be proven or disproven.”
“What is not fantasy is that the city of Sterling Heights, for the first time, is laying off employees and … we don’t have enough money to run our city,” he said, alleging that U.S. Farathane’s annual income is more than double that of the city. “I think Sterling Heights can be business-friendly and still charge everybody the same tax rate.”
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