Gilbert Tweaks Incentives

 New CompuCom deal avoids Fancy Pokket pitfalls
 

By Mandy Catoe

Sunday, December 25, 2016

The incentive package that helped land 1,500 CompuCom jobs is unlike any Lancaster County has offered before – molded by painful lessons from the Fancy Pokket deal and the experience of the county’s new chief business recruiter.
“I want our community to be the most aggressive county in the state for local incentives,” said Jamie Gilbert, who has been county economic development director since July. “At the same time, we expect performance and accountability.”
In the Lancaster County lexicon, “Fancy Pokket” has come to mean delays and frustration. Under the 2012 deal, the Canadian baker got free land in the county’s industrial park, and it promised to open a manufacturing plant by mid-2014 and employ at least 68 people there within five years.
Things didn’t work out as planned. The company built a gleaming $11 million facility, but it hasn’t produced anything. After multiple hiccups and a threat from county officials this year, the company announced in October that it would start hiring immediately and begin baking in January. But now there’s another months-long delay.
Gilbert says when he came on board, he suggested a different incentive structure. CompuCom is that new kind of deal, designed so “we won’t have any Fancy Pokket situations.”
The problem with the Fancy Pokket agreement, Gilbert says, is that it had only two benchmarks. The company had to get a certificate of occupancy for the manufacturing plant, and it had to create 68 jobs within five years of the plant’s opening. Failure to do either of those things would result in a single penalty: the company would have to pay $274,000, the value of the county’s free land.
But a cash payment that big is a hard thing to ask of a new employer who is investing $11 million here, Gilbert says. And getting a company to write you a big check is sometimes not easy.
Fancy Pokket missed the twice-extended deadline for its certificate of occupancy, responding only to the county’s ultimatum this year. Now that it has that document, it has five years to create the 68 jobs. Technically, Gilbert said, it could hire all 68 people on the last day of the fifth year and still be in compliance.
The CompuCom incentive package is much different. It contains small annual benchmarks for what the company agrees to accomplish each year. And the deal’s penalties are not cash payments from the company. They’re adjustments to CompuCom’s tax bill from the county.
“From this point forward, all our tax credits are done based on annual agreed-upon job-creation numbers that have to be hit yearly,” Gilbert said. “If they fall short, then their tax credit will be less.”
Every new agreement will have a mechanism for reporting to the county’s Economic Development Department and working with the county’s auditor to ensure that the jobs are there, Gilbert said.
If a new business creates 80 percent of the target number of jobs in a given time period, then they will receive 80 percent of the tax credit for that period.
“This is easier and fairer for the company,” Gilbert said, “and allows us to maintain the trust of the residents who pay us to create jobs.”
Not all has changed
Despite this key difference, some parts of the CompuCom deal are familiar.
Its incentive agreement gives the company a Fee-In-Lieu-of-Tax-Agreement (FILOT) and a Special Source Revenue Credit (SSRC), which is an additional  reduction of the FILOT payments.
The 30-year FILOT arrangement reduces the assessment rate on the company’s personal property from 10.5 percent to 6 percent and provides a fixed millage rate throughout the period.
Personal property includes furnishings and business equipment and is normally taxed at 10.5 percent, whereas real property is taxed at 6 percent. The county offered the 6 percent rate to compete with neighboring states.
The FILOT for CompuCom is for both the personal and real property. Had CompuCom moved into an existing building, rather than constructing a new one, the FILOT would have involved only personal property.
Because Fancy Pokket was on county land, it owed no property taxes at all until after obtaining the certificate of occupancy. It missed deadlines for two years before finally getting the CO in late October.
“Without the CO,” Willis said, “the company doesn’t pay taxes, because the building doesn’t go on the tax rolls until after obtaining that.”
But in CompuCom’s case, the developer owns the land, so even if there are delays, taxes on the land will be paid.
In the case of Fancy Pokket, Gilbert said he would have structured the agreement with a timetable of smaller milestones. For example, the county could have allowed the company two years to get the CO. If it didn’t meet that deadline, the company could repay the land value in five yearly installments of $54,000.
During each of those five years, Fancy Pokket could have lowered the annual payment if it had created some of the promised jobs. For example, if  the company produced 50 percent of the promised jobs in a given year, it would pay the county 50 percent of the $54,000 that year.
No cash incentives
The county does not lure businesses with cash as some states do with grants. Willis said the county learned that painful lesson in 2002 with FrontDoor Communications.
Willis said the county improperly advanced $636,569 to FrontDoor as part of an incentive package to start a media company at Catawba Ridge, in western Lancaster County along the Catawba River. The Catawba Ridge development failed to materialize.
“That was a complete failure,” Willis said. “The company paid the county back with a bad check.”
Eventually the company repaid the debt.
Rudy Carter, then council chair, had to sign bad-check warrants for the company.
Former County Administrator Chap Hurst disbursed the funds based on a letter offering incentives to the company, rather than on a contract signed by the county council.
The company was supposed to bring 1,600 jobs and a $150 million investment to the county. But FrontDoor opened only temporary offices in Lancaster County, hired just a handful of people and published a few issues of a Charlotte magazine before it folded.
The money advanced to FrontDoor was returned to the county in 2005 when its former CEO Robert M. Davis Jr. became involved in a new company called Focal Pointe, which bought land at Catawba Ridge.
Follow Reporter Mandy Catoe on Twitter @MandyCatoeTLN or contact her at (803) 283-1152.