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Wichita City Council eases rules on tax abatements

The Wichita City Council changed its rules Tuesday to make it easier for businesses to hang onto tax breaks when they don't generate the jobs and economic development they promised.

Citing the poor economy, the council then used the new rules to extend property tax breaks for a year for three companies that wouldn't have qualified under the old system.

Among the companies getting tax abatement extensions was Coleman, which barely qualified even under the relaxed rules by counting long-departed temp-agency workers as jobs created.

Another was Big Dog Motorcycles. That company announced Friday that it has hired an investment banker to explore possibilities of selling or merging the company, which none of the council members knew when they voted to extend its tax breaks.

The third company receiving an extension of its tax breaks was gourmet food and wine retailer Dean & DeLuca.

The dollar amounts of tax abatements granted Tuesday were not available.

Council members appeared reluctant to tone down the rules, especially at a time the state's top finance officer is on a crusade against tax abatements of all stripes.

Kansas Revenue Secretary Joan Wagnon has estimated that the state would be getting about $1 billion more a year if not for tax abatements granted by state and local governments. Wagnon says that would be enough to stave off layoffs and cuts to education and social services that have already begun and are expected worsen next year.

Tough economy cited

But Tuesday, council members said a loosening of the rules was needed in times of economic stress like the current recession.

Mayor Carl Brewer said if Wichita doesn't give tax breaks, its business base will migrate to communities that do.

"As long as America and the rest of the world provide incentives, it's just we have to be competitive," he said. "Our goal is to make sure ... every person that wants a job can have a job. To do that, we'll have to do these types of things."

What the new rules do

The new rules passed by a 7-0 vote.

Wichita typically grants property tax abatements as one incentive for a business to move to or expand in the city.

The concept is that by investing, creating jobs and spurring commerce in the community, the companies attracted to Wichita more than make up for their tax breaks.

The abatements are generally granted for five years and are renewable for an additional five.

Under the old rules, companies had to prove they met their job-creation projections, spent what they said they would on facilities and equipment, and maintained a ratio of at least $1.3 in estimated economic activity for every $1 of tax abated.

With the new rules, companies will have to meet two of those three criteria.

Another key change is in the way the city counts job creation.

Under the new rules, if a company can show it met its job target at any point in the process, it's counted as having met that requirement even if the workers have since been laid off.

Coleman

That change allowed Coleman to qualify to keep its tax abatements for another year.

The company promised to create 200 new jobs when it got its tax abatements in 2001, 2002 and 2003, according to a city report.

The company initially created 130 jobs, but has since reduced its work force by 357 jobs.

But the city credited Coleman with an extra 189 jobs created by counting temp-agency employees who worked at Coleman during a peak production cycle in 2007.

Coleman vice president and controller Marlyn Ash-Potter said she thinks the company has met the spirit, if not the letter, of its commitment to the city.

While there are now fewer Coleman workers in Wichita, the percentage of higher-paid office workers has gone from 29 percent of the workforce to 44 percent, so overall payroll is higher than it was when the company sought the tax abatements, she said.

"While we didn't add the 200 head count, we do think we've added that value to the city," Ash-Potter said.

A majority of the council agreed.

Brewer hailed Coleman for a "very rich history in the city of Wichita" and for supporting civic and charitable causes.

"I can't think of not one event or anything that ever happened in the city of Wichita that the Coleman Co. hasn't been there to support or the employees been there to support," Brewer said. "I think that when partners need help, we should continue to help them.

The extension passed 5-2 with council members Janet Miller and Jim Skelton opposed.

Big Dog

Council members voted on the Big Dog tax-break extension without knowing how bad things have gotten at the custom motorcycle manufacturer.

When Big Dog qualified for tax abatements in 2003, it promised 40 new jobs. The company added 79, peaking in 2005 at 336.

But the recession devastated sales of luxury cycles. The city report on Big Dog listed current employment at 115, but company vice president John Brock said only 30 to 40 people work there now.

The company has shut down production and is selling down its warehouse inventory before making more bikes, Brock said. He said executives hope to ramp back up in the spring when demand for motorcycles will be higher.

On Friday, Big Dog founder and CEO Sheldon Coleman announced that Big Dog had retained an investment banker to explore options for its future.

Among the options are selling Big Dog, merging with another company or finding an investor willing to pump cash into the business in exchange for an equity share, the announcement said.

Council members said they didn't know about that when they considered the tax breaks.

Skelton said he sees the company's announcement as a critical fact the city should have known.

"It's embarrassing ... if a decision is made and we find out something that was relevant later," Skelton said.

City Manager Bob Layton said he didn't know about Big Dog's announcement either, but it "wouldn't have changed anything based on the criteria" for tax abatements.

If the company changes hands, the costs and benefits to the city will be about the same as long as it continues its operation in Wichita, he said.

The company's tax-abatement extension passed 5-2 with Skelton and council member Jeff Longwell opposed.

Longwell said he was convinced to vote no by an analysis showing that assisting Big Dog is costing the city $2.29 for every $1 of economic benefit.

Dean & DeLuca

The Dean & DeLuca exemption was the least controversial of the three abatement extensions, passing 7-0 after a brief discussion.

When that company got its tax breaks in 2000, it promised to create 255 jobs. It peaked at 230 in 2007 and has shrunk to 184 now, according to city documents.

But while it fell short on job creation, the company met its commitments for capital investment and cost-benefit ratio.

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