Kingsport BMA debates tax break for Eastman

Matthew Lane • Nov 19, 2007 at 12:00 AM

KINGSPORT — City leaders discussed and debated the need to grant Eastman Chemical Co. a multimillion dollar tax break during a work session Monday afternoon, with some aldermen questioning the fairness of the proposal and whether it is in the best interest of Model City residents.

Eastman announced in July it plans to invest more than $1.3 billion over five years in its Kingsport headquarters operation. The company plans to modernize the plant during the next five years, investing about $265 million every year at the Kingsport site through 2012.

Eastman Chemical Co. Chairman and CEO Brian Ferguson said at the time incentives from the state “could rise to the level of $100 million over 10 years” to help with the project. In addition, Eastman requested an in-lieu-of-tax agreement with Kingsport where the company would pay the city $6.6 million over 14 years. This is money Eastman would pay to Kingsport instead of the taxes assessed on the increased value of property.

City Finance Director Jim Demming said at the 15th year of the agreement Kingsport would receive an additional $1.2 million in annual taxes from the improvements made at the facility.

Aldermen Pat Shull and Ken Marsh raised questions about the proposal, whether or not it was fair and in the best interest of the citizens of Kingsport.

“If we don’t go forth at all, over 15 years Eastman would pay $28 million in taxes. Once the final improvements are made, if Eastman retains all of the equipment ... the city could potentially pick up another $4 million in taxes,” Shull said.

Eastman officials attended Monday’s work session, and Marsh asked what increase in employment and production the $1.3 billion investment would have.

Parker Smith, vice president of operations at Eastman, said the $1.3 billion project would result in increased capacity and new jobs.

Alderman Larry Munsey, a former Eastman treasurer, said this would be the third in-lieu-of-tax agreement Kingsport has done — once with Eastman in 1996 and with Willamette in 2000. Munsey noted the one with Willamette was for a $475 million project that created no new jobs.

According to city finance records, Willamette’s in-lieu-of payments came to $1 a year for the first eight years of the agreement.

“There are two reasons to do in lieu of. You can do them to maintain what you already have. We did that because we didn’t want to lose (Willamette). If we had not, they’d been gone probably,” Munsey said.

“In my opinion, the thing that started what we are experiencing in regards to growth, the single most important thing was Eastman’s announcement of the $1.3 billion project. I think that this is the appropriate thing to do without question,” he said.

Shull said Eastman is a good corporate citizen, and he is grateful for their contributions to the community.

“What they’re doing their shareholders would applaud. We’re here to represent the citizens of Kingsport and see if it’s in the best interests of the city of Kingsport,” Shull said. “Taxes are an emotional issue. A $22 million tax break seems to be a little out of balance. Maybe a midpoint would be something more fair.”

Munsey said two times in the past Eastman agreed to have part of its property annexed into the city, once during the 1980s and again about five or six years ago. City Manager John Campbell said these annexations resulted in Eastman paying about $4 million a year more in property taxes to the city.

Marsh said the BMA was elected to represent the best interests of the citizens of Kingsport, not Eastman or any other entity.

“If we did not go along with this, the city would get $28 million in taxes over this time and the county would get $31 million. Do we want to forgo over 60 million in taxes for Kingsport and Sullivan County for $13 million?” Marsh asked. “You’re also, by going down the road of this agreement, taking $5 million to $6 million out of the school system. If we don’t take that money in that cycle, guess who pays it — the taxpayers of Kingsport. This is a very significant decision we’re talking about making.”

Vice Mayor Ben Mallicote said to draw a bright line of distinction between what’s good for Eastman and what’s good for the city just doesn’t hold up.

“Eastman is probably the best corporate partner any city ever had. By making this announcement, they said very clearly Kingsport is our home and will be our home for the foreseeable future,” Mallicote said, adding Eastman could have negotiated with Kingsport over the in-lieu-of payment or gone to other Eastman facilities.

“What’s worse, they could have gone the Sam’s route, after the fact, and invested $1.3 billion somewhere else. They chose Kingsport and moved forward in good faith on the assumption we would do the same thing,” he said.

Mayor Dennis Phillips noted Kingsport gave the developer of Kingsport Pavilion $2.5 million toward the construction of the shopping center.

The developer had to give Target free land before it decided to build a store in the Model City.

“This community’s mood is based on the success of Eastman. We were sitting here 10 years ago wringing our hands that Eastman was going to close,” Phillips said. “If you quit supporting your industries, then we need to go home. Within reason we need to do all we can do to support our industries. It’s not the board’s job to humiliate industry.”

Marsh said if Monday’s discussion had not taken place the citizens of Kingsport would not have known the BMA was going to grant a very significant tax break, with little discussion, to Eastman.

“We’re here to represent the people of the community, to get the facts on the table and let the chips fall where they may,” Marsh said.

The BMA will consider the in-lieu-of-tax agreement during its regular board meeting tonight at 7 p.m. at City Hall.

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