BASF in Wyandotte
December 12, 2016
BASF deal with Wyandotte shows tax incentives can be vital to keep, attract business development
President-elect Donald Trump’s deal to save jobs at an Indiana manufacturing plant has renewed the controversy over what it takes to keep jobs from going overseas.
In most cases, it means offering sizable tax incentives.
While the Carrier deal continues to be debated at the national level, local communities have long known they have more than foreign countries to be concerned about when it comes to attracting new developments, or simply keeping what they’ve got . They’re often in competition with communities in other parts of the United States.
In particular, cities in southern states, which often offer lower tax rates and fewer historical ties to unions, have taken away thousands of jobs formerly located in rustbelt states.
Perhaps there’s no better example of this than a deal struck 10 years ago between BASF Corp. and the city of Wyandotte.
In 2006, the company announced plans to relocate the emulsion and resin production activities of the recently acquired Johnson Polymer to Wyandotte from Sturtevant, Wis. The company also planned to move the business, pilot plant and research and development functions to Wyandotte.
The City Council was aggressive in offering tax incentives in order to bring the development to Wyandotte, ultimately winning out over another site that was in contention in Chattanooga, Tenn.
James DeSana, who was mayor at the the time, said the city wasn’t about to let this plant slip through its fingers.
“We sat down as seven elected officials and not one of them blinked an eye as far as ‘we’re not going to sit and negotiate tax credits with BASF.’ We’ve given them everything we can.”
What the city offered was a 50 percent tax exemption for real property for 12 years, after the project was completed in 2009. It was fully on-line in 2010. The city also granted a 100 percent personal property tax exemption for 20 years for the project and any additional personal property made by BASF for the facility during the concurrent 20-year period.
The company also sought and received tax incentives from the state.
Although the city had to give a little, officials said they’re getting a lot in return.
In addition to the creation of new jobs, the relocation of the plant is projected to bring in more than $21.8 million in additional tax revenue over a 20-year period, which provides for the city’s long-term tax base. The project also increased utility usage, which is owned and operated by the city, and additional employees have meant a boost to downtown retailers and restaurants.
Wyandotte City Administrator Todd Drysdale said the city believes tax incentives offered to BASF to assist in bringing the plant to the city was a wise decision.
“Not only was additional opportunities for employment created, the addition of this facility on the BASF property continued to make the site attractive for additional investment by the company, which has continued to occur over the last decade,” Drysdale said.
“As one of the most important strategic partners of the city, the health of BASF is extremely important to us based on many factors — employment, tax base, utility use and philanthropic contributions.”
Greg Pflum, vice president and general manager of BASF’s Midwest Hub, said the Wyandotte Resins and Dispersions plant (what the plant is called today) has been a tremendous success for the company in Wyandotte.
“We have hundreds of customers who we successfully serve from the facility and we are looking forward to continued growth and development with new customers,” Pflum said.
In some ways, the success of the plant even exceeded company expectations.
When the relocation was announced, BASF estimated that approximately 175 jobs would come to Wyandotte.
Pflum said BASF has added many more jobs in Michigan than originally projected. In the past few years, the company has added over 400 jobs in Wyandotte and Southfield, with Wyandotte being the company’s largest location.
Drysdale said forgoing tax revenue to attract new investment is always a debatable decision.
Those who are against tax abatements argue that they wouldn’t be necessary if tax rates were lower in the first place, or at the very least they allow local governments to pick winners and losers. The question arises as to why governments choose to offer tax abatements and other incentives to some companies, but not others.
Drysdale said that tax abatement deals require a longer perspective than the period of time when the property taxes are abated.
“In our case, assisting with bringing a new facility and the employment opportunities to the city and Downriver was an easy decision,” he said. “Unfortunately, there is not much of a choice with these tax abatement requests because they are doled out so commonly by local communities in the state. If our city refused to grant them, another city in the state, or another state altogether, would certainly give them out.”
The way Drysdale sees it, in order to be competitive, tax abatements need to be included as an economic development tool. He said the necessity of tax abatements is derived from the disparity in tax policies across many state boundaries, and even between local municipalities within the state that have different millage rates.
“Although utopian in thought, if tax policies were fair and consistent across the board, tax abatements may go away,” Drysdale said.
He pointed out that the city’s deal that offers personal property exemption will turn out to be a moot point for the remainder of the agreement, since the state is phasing out and will eventually eliminate personal property tax.
As far as tax revenue is concerned, because the property is still receiving the tax abatement, the city won’t realize the majority of benefits until the future.
When the decision was made back in 2006 Ed Nuernberg, who at that time served as general manager of the BASF Wyandotte Site, said tax incentives were “a significant contributing factor in selecting the Wyandotte site,” making it the most economically viable alternative.
The city’s location on the Detroit River also was cited as a plus, making it advantageous as a shipping location.
Gerry Podesta, who was group vice president of BASF’s Performance Chemicals Division in North America, offered a third factor in the decision, saying it had to do with culture.
“We are acquiring a company that has a long history in the Racine, Wis., area,” he said. “They have a sense of family and we knew we had to relocate them. We wanted to maintain upper Midwest values by putting them in a place they would be comfortable with.”
Pflum agreed that within a site selection process, there are always many factors that influence the decision.
“One factor is the community support a project receives, and the granting of tax abatements is one way communities provide support that can help attract growth such as this,” he said.