An agreement with Kia Motors Manufacturing Georgia to issue $1.6 billion in bonds for potentially growing its supplier base could secure West Point and Troup County millions and additional tax revenue for the school system.
Troup County Commission Chairman Ricky Wolfe said that officials with the county, West Point, state, and Troup County and West Point development authorities have been negotiating a deal over the last six months with Kia. The agreement they reached, spelled out in a memorandum on understanding presented Tuesday to the County Commission, Troup County Development Authority, Troup County Board of Education and West Point City Council, was approved by each.
The Kia plant was started in Troup County with a $1.1 billion bond, but the company has almost reached the capacity of that initial bond. Under the original 16-year bond agreement started in 2007 with the state and local governments, Kia and some suppliers pay no property tax to the county until 2023, and 50 percent of its school property taxes are abated for the first six years, then 25 percent for the remaining 10 years of the bond.
The newly proposed agreement would give Kia the option of using up to $1.6 billion in bond funds – up to $1 billion issued by the West Point Development Authority and up to $600 million issued by the Troup County Development Authority – that would give the company the ability to expand its supplier base in Troup County.
“This is not a doubling of the plant, this is not a mirroring or doubling the size of the facility to produce twice as many vehicles,” Wolfe said. “It’s basically Kia wanting to have the ability to grow when the market demands that it grows. What this M.O.U. (memorandum of understanding) provides them is an opportunity to grow, and it’s pretty much a line of credit.”
The agreement also gives Kia the ability to offer the same incentives it has for abatements to suppliers that locate in Troup County or West Point city limits.
“What they wanted, if they so choose, is to bank their suppliers. In other words if a supplier comes to the community, they wanted to have the ability, if that supplier is of strategic importance to them, to fund part of their plant here,” Wolfe said. A recent publication wrote that “Kia wants to produce 55 models of vehicles in the next four years. When model changes occur, it can be very expensive. Not only will Kia have to re-tool, but every supplier it has that is making a widget has to re-tool as well.”
Those additions in changes in models may not substantially affect employment at the Kia plant itself, but plans would require changes, new technology and possibly expansions of suppliers.
“This is a significant increase in jobs, mostly through suppliers,” said West Point Mayor Drew Ferguson IV at Tuesday night’s City Council meeting. “… This is a big step forward to ensure Kia stays here and stays technologically advanced. It’s been a real team effort that will have lasting positive effects for generations.”
The terms of the second bond, which also will be 16 years and begin in 2013, are similar to the first. Kia will get a 100 percent property tax abatement from Troup County and West Point, and pay 50 percent of its school property taxes the first eight years and 75 percent the last eight years of the bonds. The terms only apply to investments made with the $1.6 billion, and does not affect the terms and investments made from the first bond, Wolfe said.
The agreement also gives suppliers more incentive to locate in Troup County, and not surrounding areas, Wolfe said.
“If you look at the M.O.U., you’d be hard pressed, I think, from a business perspective, to make a case that a supplier would not locate in Troup County, because they would be a strategic partner to Kia,” Wolfe said. “Kia would fund a part of their investment and for what Kia invests, they get the so-called ‘Kia deal,’ with the inducements.”
Wolfe said the Callaway South Industrial Park, built with county and city of LaGrange bonds, has only had one tenant in the last four years. Talk of the current agreement, however, has brought four potential investors to the site, Wolfe said.
The new agreement also comes with guarantees to local governments in compensation.
“The city of West Point has great needs … and the city made a very strong point that it’s not fair for the tax payers of the city of West Point to spend money for the ongoing costs of the public service for the needs of Kia onsite,” Wolfe said. “Kia should be paying more of its own way.”
As part of the agreement, Kia will pay the city of West Point $6 million paid incrementally over 16 years. The funds will be unrestricted, so the city may choose to budget it however city leaders wish.
“(LaGrange Development Authority and the county, Ricky Wolfe and Bobby Carmichael) stood firm on the fact West Point needed to benefit from this and I am eternally grateful for their support,” Ferguson said.
The Troup County Development Authority also will receive a pilot fee, or “processing charge,” of $400,000, and West Point Development Authority will receive up to $650,000 for issuing the bonds. Wolfe said that establishes a precedent for any other pilot investment programs to pay the development authority a fee to cover the cost of issuing bonds.
Kia also guarantees in the agreement to pay the county $3 million, which will be restricted to use only for a career academy. A career academy is similar to a charter school that would be under the control of the local board of education and aimed at helping students who may have different educational needs to graduate.
The Troup County Board of Assessors also will get $400,000, paid at $25,000 per year, from Kia, with additional contributions expected from other suppliers, to fund an additional employee “whose life will be to keep up with all this stuff, and we’re talking millions and millions of widgets being moved on a constant basis,” Wolfe said. The agreement also includes specifications from the board of how it needs to evaluate the assets of Kia and its suppliers for tax purposes, which has been confused in past years due to the state agreement over tax abatement.
Those payments are guaranteed even if Kia does not end up using all the bond money to make investments.
The Troup County School System also could reap an estimated $47.3 million in additional tax funds over the next 16 years if Kia uses all $1.6 billion in the bond agreement, Wolfe said.
“I know it would be important to you to be able to project with some degree of certainty part of 47.3 million in taxes that are supposed to come your way,” Wolfe told Board of Education members Tuesday. “… At the end of the day, it’s going to be a projection, because it’s gonna be driven by market.”
Board of Education Chairman John Darden said he appreciated the group’s work on the agreement.
“I think this is a win-win for everybody involved,” he told Wolfe.
Wolfe said the agreement’s guarantees mean no real risk to tax payers. The development authorities, county and city are not on the hook for the bond payments, and Kia will only take the amount that it will invest. If it doesn’t make the planned improvements, for instance if there is another economic downturn, or the brand flops, Wolfe said, then the money won’t be spent and the inducements for Kia won’t be given. The city and county still would get the guaranteed payments amounting to nearly $10 million.
“In order for Kia to make 55 model changes in the next four years, they want the ability to invest in their strategic suppliers if they so choose,” Wolfe said. “Again, if they invest, we are considering giving them an inducement to that credit. If they don’t invest, then there is no inducement to be made. So, from my point of view, the risk associated with this investment is very, very low.”