The Little Rock Board of Directors will vote tonight on a $35 million bond issue for HMS Manufacturing, which plans to make plastic housewares in a facility at the Little Rock Port. In addition to lower-cost government finance, the facility is in line to get a significant property tax break.
Because the city will own the facility through the bonds it issues until they are paid off, the property is technically tax-exempt. But as is often the case, there is a proposed payment in lieu of taxes agreement, or PILOT, in which the company would agree to pay some portion of the property taxes it would owe if the property was in its name. That agreement is also on the agenda for approval tonight.
The total property tax in the Little Rock School District is 70.4 mills, counting payments to city and county governments and the schools. The biggest beneficiary is the school district. Taxes are assessed on 20 percent of property’s appraised value, making the effective tax rate 1.4 percent on land and improvements, or $140,000 for every $10 million in value. When the facility was announced, it was described as a $20 million investment and the taxable portion of the project has not been appraised.
Different deals are struck in PILOTs. In this case, it is proposed that HMS will pay 35 percent of the total tax bill, pro-rated among taxing authorities. For example, the Little Rock School District property tax is 46.4 mills, or roughly two-thirds of the total property tax millage owed by all entities in that jurisdiction. So, where a property owner would normally pay $140,000 in annual property taxes on every $10 million in appraised property value, it would pay about $49,000 per $10 million under a 35 percent PILOT. The school district would get about two-thirds of the reduced amount.
Some Little Rock PILOTs have set smaller percentage payments over the years. Also, defenders of such tax benefits note that they still provide new money for tax entities (the city and county have 5-mill property taxes, as well as road and capital improvement millages.) There’s hope, too, that jobs will be created in the city of Little Rock and residents for the school district, though this has been somewhat illusory at other port facilities.
The company said it hopes to create 80 jobs. It will get additional public incentives: A cash state payment of 3.9 percent of payroll annually for five years, refund of any sales taxes paid on materials purchased, and $500,000 in a cash payment from the governor’s quick action closing fund. It is renovating an existing facility for its manufacturing and distribution operation.