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City Council approves $49 million in IRBs for Spirit AeroSystems

  • The Wichita Eagle
  • Published Tuesday, Nov. 5, 2013, at 11:23 a.m.
  • Updated Tuesday, Nov. 5, 2013, at 11:27 a.m.

The approval of $49 million in industrial revenue bonds for Spirit AeroSystems by the Wichita City Council turned briefly into a debate about the company’s 2013 layoffs and the propriety of public/private partnerships Tuesday.

A longtime Spirit employee who was laid off this year called the partnership offensive. And political opponents of public incentives for private development criticized what they called the city’s mismanagement of its economic development projects.

The bonds will finance new air-handling units, chillers, cranes, docks, doors, a fabric structure building and a fire pump house, along with other modifications. According to city documents, the improvements will enable Spirit to continue existing commercial part production programs, take advantage of new technology and compete for new aircraft parts business.

Council member James Clendenin said it was essential for the city to support one of its largest employers.

“In today’s world, we need to ask ourselves the consequences of not showing a commitment to a big company like Spirit AeroSystems, which will be employing people for many years,” Clendenin said.

“Saying yes to IRBs today is supporting big businesses and small businesses. When Boeing left, they were offered much more than Wichita was able to meet, in IRBs and in cash. They went to where their profit was the best, where they were received the warmest.”

Industrial revenue bonds are issued by a government – but carry no financial risk to taxpayers – to help a private company land financing for an industrial improvement, such as expansion or modernization. The debt securities are then sold to investors, with the goal of improving local employment and the economy.

The Spirit issue qualifies for a 10-year property tax exemption, along with a sales tax exemption, according to city documents that do not estimate the actual amount of property taxes that will be abated in the first year.

Craig Tolson, a former 35-year Spirit purchasing employee, told the council that he opposed public incentives for a company that jettisoned longtime employees recently in a layoff.

After the vote, Tolson said the council’s vote offended him because Spirit chose earlier this year to lay off longtime employees in what he described as a “cost-cutting” move. He said that happened because his salary was too large.

“They have replaced me with someone less experienced, and cheaper,” he said.

Spirit spokesman Ken Evans said the company doesn’t discuss personnel issues.

“Reductions in the salaried and management portion of our workforce this year have been about rebalancing the workforce in order to meet commitments to customers and shareholders,” Evans said.

Evans reiterated the significance of the bonds to Spirit – and the company’s significance to Wichita.

“I can tell you that they are a factor in the business environment that allows companies like ours to remain competitive,” he said.

Evans said in an e-mail that in 2012, Spirit paid $11.5 million in real and personal property taxes. Since Spirit was established in 2005, it has grown in Wichita from about 7,400 people to approximately 10,700 today. The company has hired more than 250 factory workers in the last couple of months and is continuing to hire today to meet rising demand, he said.

Since 2005 Spirit has invested $1.5 billion in Kansas in real property, buildings and equipment, Evans said.

Wichita anti-tax blogger Bob Weeks also took the council to task for the Spirit bonds, demanding that the city reduce spending by the amount of its taxes that are being abated – a figure not included in city documents seeking approval of the issue.

He cited an Eagle story that indicated the city had to research the numbers of jobs created by IRB-fueled tax abatements and didn’t track the actual amounts of taxes abated in those deals.

“The city doesn’t really manage its economic development projects,” Weeks told the council. “You can’t say the number of jobs created. … That tells me maybe we just don't care.”

However, audience member Lonny Wright defended the bond issue to the council.

“I’m pro-Wichita. I’m pro-jobs,” Wright said. “Spirit is a major employer with a major impact. They’re buying these bonds themselves. We don’t have a risk. We have a benefit.”

Spirit will buy the bonds itself, city documents state, and the bonds will not be offered for public sale.

The Spirit issue qualifies for a 10-year property tax exemption, along with a sales tax exemption, according to city documents that do not estimate the actual amount of property taxes that will be abated in the first year.

Reach Bill Wilson at 316-268-6290 or bwilson@wichitaeagle.com. Follow him on Twitter: @bwilsoneagle.

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