KINGSPORT — Eastman Chemical Co. will receive a multimillion dollar tax break for its $1.3 billion reinvestment project the company plans to undertake over the next five years. The tax break, however, did not come with the full support of the Kingsport Board of Mayor and Aldermen.
Over the next five years, Eastman plans to invest more than $1.3 billion in its Kingsport headquarters operation. The company plans to modernize the plant, investing about $265 million every year at the Kingsport site through 2012.
Eastman requested an in-lieu-of-tax agreement with Kingsport where the company would pay the city $6.6 million over 14 years instead of an estimated $28 million in property taxes. The $6.6 million is money Eastman would pay to Kingsport instead of the taxes assessed on the increased value of property.
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. And once the final improvements are made (around the fifth year), if Eastman retains all of the equipment, the city could potentially pick up another $4 million in taxes.
During its regular meeting Tuesday night, the BMA voted 5-1 to approve the agreement. Alderman Pat Shull voted against the agreement, while Alderman Ken Marsh abstained from voting, saying he has an interest in Eastman.
City Attorney Mike Billingsley said there was no legal reason for Marsh or Alderman Larry Munsey, a former Eastman treasurer, to abstain from voting on the proposal.
The BMA discussed the matter for over an hour during Monday’s work session and again Tuesday night. In the end, no one’s opinion changed.
“The bottom line is we’re talking about $28 million in taxes over the next 14 years. If we approve this agreement, we will be collecting $10 million instead of $28 million. That’s 10 million we didn’t have,” said Mayor Dennis Phillips. “I think any community owes it to its citizens to be aware of the needs of their industries. We went through a long dry spell of uncertainty. I think if we approve this, we’ll approve it for the employees, the community and be making a statement to Eastman — we want you here and stay here forever.”
Shull said no one on the BMA is showing any hostility toward Eastman.
“As important as it is to maintain a healthy Eastman, we also have to maintain the integrity of the tax system,” Shull said. “Are we shifting the burden too far one way? I think a $14 million (in-lieu-of payment) would be reasonable.”
Munsey pointed out that on several occasions in the 1980s and once in the 1990s, Eastman agreed to allow part of its property to be annexed by the city, for which the company received zero benefits. Munsey said the amount of taxes levied against those properties has been $96.3 million, and the proposed tax break is about 19 percent of that amount.
“I think having received a return of five to one is more than fair,” Munsey said. “Our welfare is so tied to Eastman, we’re investing in ourselves.”
Marsh said Eastman has been an exemplary corporate citizen but added the $1.3 billion would be spent in Kingsport whether the BMA approved the in-lieu-of agreement or not.
“I don’t blame Eastman at all for this request. There’s nothing unethical or illegal. The public needs to know the facts of the situation,” Marsh said. “I’m very hopeful Eastman would put flesh on the bones of the $1.3 billion, which they’ve been asked to do a number of times.”
Marsh said he would like to know the number of jobs to be created and how much capacity would be increased with the $1.3 billion investment.
“We’ve got no definition on this. No guarantee of jobs and no indication of volumes. It’s important for the public to know,” Marsh said.
“For a very small investment, we get a terrific return. Not just additional buildings, processes and technology, but we get a renewed commitment to this city from a company that makes it go, not just through employment but through being a civic engine,” said Vice Mayor Ben Mallicote.
Shull said he was aware of what Eastman means to the city.
“The other side of the coin is I’ve tried to weigh the interest of all citizens as well as Eastman and try to sort it all out. We’ve not achieved the balance I wanted,” Shull said.