The announcement of a Czech gun factory at the Little Rock Port came with a report on a number of financial inducements from the state and local governments and another surfaced this week.
The Little Rock City Board is set to consider issuing up to $120 million in bonds to finance the plant. The bonds will be backed by payments from the company, CZ-USA and will not be a government general obligation. But the city will own the plant until it’s paid for and the bonds will carry a lower interest rate thanks to government issuance.
There’s also this financial help to the company: Because the city will technically own the plant, it is exempt from taxation. But an agreement has been proposed for the company to make payments in lieu of property taxes that otherwise would be owed, as is customary in such bond deals. The company will effectively get a significant tax break.
According to an agreement filed with the city clerk, the company will pay no more than 35 percent of the normal real and personal property tax rate on the factory through 2040. The figure will be reached in consultation with the county assessor.
The plant is going to be built in stages, so it’s impossible to say now what the agreement is worth in dollars initially and going forward. But this will give you some idea:
Taxes are computed on 20 percent of the appraised value of a property. Thus, property appraised at $120 million would be taxed on an assessed value of $24 million. At the 70-mill rate collected in the Little Rock School District, mostly for schools but also for many other government units, that would mean more than $1.6 million a year in property taxes. But 35 percent of that would be about $600,000, or a savings of about $1 million a year. As a practical matter, the savings will be smaller because, on account of vagaries of the assessment process, the overall median effective tax rate in Pulaski County is .68 percent of median value of all property, or about $816,000 on a $120 million property. A 65 percent reduction would save better than a half-million a year.
The Arkansas Blog first reported on the package of incentives offered the day the plant was announced. It holds the potential of creating more than 500 jobs over a six-year period.
The company will be given 73 acres of port land for free. It was acquired 10 years ago for almost $1 million. (Correction: Port Director Bryan Day said this particular plot of land was paid with accumulated port revenues, not from the pot of money given to the port from a city sales tax for land acquisition as the post originally indicated.) It is also going to get $24 million in state loans and direct grants. Additionally, if it meets employment targets it will get significant state cash payments based on payroll as well as refunds of sales taxes on purchases. The city and county also going to pay $1 million toward road improvements to serve the plant.
UPDATE: Day tells me the gun factory will not use the port railroad or barge facilities, the two sources of port revenue. So there isn’t a direct benefit to the port from adding the plant.
What’s the plant worth to the city? It’s a hard question to ask without knowing how many employees are city residents and how many live elsewhere, reducing rollover effects in the local economy. But Day tells me he’s embarking on a project to ask port employers to voluntarily provide ZIP code information to get a handle on that question. I think it would be worth requiring of recipients of handouts for road construction, lowered property tax rates (5 mills of which goes to the city) and other financial favors. You perhaps could even set a target of local employment and a sliding scale for financial rewards based on hitting targets.
Day defends the economic incentives as “the only way communities can successfully compete for jobs from larger industries.”