Incentive renewal means Spirit won’t pay Wichita property taxes for at least 20 years

Spirit AeroSystems, Wichita’s largest employer, won’t pay city property taxes for another 20 years after the Wichita City Council renewed an incentive agreement.

The council voted Tuesday to renew a non-annexation agreement reaffirming that Spirit’s campus on Oliver is not technically within city limits.

The City Council renewed a similar 20-year agreement with Textron Aviation in December 2019.

After re-upping the incentive agreement, the council unanimously voted to grant Spirit a one-year extension on job growth promises the company could not deliver on, largely because of the joint crises of the pandemic and the worldwide grounding of the Boeing 737 MAX.

In 2016, when Spirit had 10,800 employees in Wichita, the company promised to hire an additional 349 local workers by 2021 if the city issued $280 million of industrial revenue bonds and a 10-year tax abatement for facility improvements in Wichita.

Before the 737 MAX grounding, Spirit had far surpassed that hiring goal, reaching peak Wichita employment of 13,200. But the manufacturing giant laid off 5,000 local workers in 2020, and the company now employs roughly 9,000 people in Wichita.

District 3 Council Member Jared Cerullo asked Spirit executives what would happen if the city reconsidered annexing the land and capturing property taxes on the company’s campus.

“If we do not extend this agreement, what is the possibility of these companies — what does the future look like for these companies?” Cerullo said.

Adam Pogue, vice president of manufacturing services, said Spirit is constantly reevaluating its workforce priorities in Wichita and other cities.

“When you think about what Spirit looks like today and our 10 sites around the world and the focus that we’re putting not only on the commercial business but the defense business and aftermarket in terms of diversifying our company after coming out of COVID and the grounding of the [737 MAX] . . . I guess I’d say, all these things count in terms of consideration of where we put the work, what the workforce looks like,” Pogue said.

In an email statement after the vote, Spirit spokesperson Forrest Gossett said the renewal of the agreement will help Spirit continue to invest in Wichita for decades to come.

“We value the long-standing support from the city of Wichita as we expand our operations, invest in our facilities and increase the number of job opportunities at our Wichita site,” Gossett said. “Spirit is emerging from the global pandemic with a focus on diversification, and the city’s support of a 20-year non-annexation agreement creates another layer of predictability for tenants within the Aerospace Industrial District.”

Non-annexation history

Sedgwick County created four industrial aerospace districts at the request of the city between 1979 and 1980 — two for Cessna’s Wallace and Pawnee campuses, one for Beechcraft and one for Boeing.

The city then established non-annexation agreements for each of the industrial districts, exempting them from city property taxes but not from county and school property taxes.

After Boeing left Wichita in 2014, the industrial aerospace district at that campus was amended to cover Spirit’s campus and the Air Capital Flight Line commercial development at the former site of the Boeing company. Air Capital Flight Line was included in the extension of the non-annexation agreement.

Tim Goodpasture, the city’s economic development analyst, said Wichita has to offer generous incentives to companies so they remain committed to the city.

“These companies have options in terms of where they locate, and other communities are willing to provide incentives to get those companies to locate new or expanded facilities in their communities,” Goodpasture said. “We’re competing on a daily basis, not just in the United States, but with locations throughout the world where our companies have opportunities to put new work.”

He said that by renewing the non-annexation agreement, Wichita isn’t so much missing out on potential property tax as it is securing Spirit’s investment in the city.

“By giving up a property tax in perpetuity on something that’s not in the city, we’re not really giving anything up because it’s technically not in the city,” Goodpasture said.

Had the council voted not to renew the non-annexation agreement, the city still wouldn’t be able to immediately collect property taxes on Spirit’s campus, City Manager Robert Layton said during the meeting.

“Involuntary annexation is very difficult,” Layton said when Mayor Brandon Whipple asked him to comment on what would happen if the council voted not to renew the incentive agreement.

Job growth extension

The City Council also gave Spirit a one-year extension to hit its goal of employing 11,149 workers — their base 2016 workforce plus 349 new hires — by 2021.

That hiring promise was made when the council issued $280 million of industrial revenue bonds and granted 100% tax abatement for Spirit’s facility improvements in Wichita. Goodpasture said Spirit has made more than $1 billion of improvements to the campus since 2016.

He said IRBs are issued for a “five plus five-year period,” which mean tax abatements typically last 10 years but the council can modify or abandon them at the five-year mark.

A provision in the city’s economic development guidelines allows for extensions on job creation goals due to unfavorable economic conditions outside of a company’s control, Goodpasture told the council.

An extension is justified, he said, because the aerospace current conditions index dropped by five points for a period of at least a year since the city’s 2016 agreement with Spirit.

Pogue, the Spirit vice president, said the company’s increased focus on defense manufacturing for the U.S. military has allowed them to recall some Wichita workers who were laid off in 2020.

He also said that by the end of 2022, Spirit expects to be back to producing 42 airplane shipsets a month, now that the 737 MAX has been approved for flight across the U.S. and E.U.

Before voting in favor of the one-year extension, Vice Mayor Brandon Johnson voiced his skepticism that Spirit will be able to make good on job growth promises by December 2022.

“I know you can make the planes. I’m not worried about that,” Johnson told Pogue. “But the employment numbers . . . As you’re working back up to that level of production, do you think you’ll hit the employment numbers for this extension?”

Pogue did not give a straight answer.

In an email statement, Gossett, the Spirit spokesperson said the company expects to employ more than 12,600 Wichita workers by the end of 2024. But he acknowledged that Spirit is unlikely to hit the job growth goal tied to the IRBs, even with a one-year extension.

“We are not currently forecasted to hit 11,149 employees until sometime in 2023,” Gossett said.

Gossett declined to comment on the impact of the looming federal contractor COVID-19 vaccination mandate on the size of Spirit’s Wichita workforce.

Thousands of Spirit and Textron employees who refuse to get vaccinated will be at risk of losing their jobs in January when the mandate goes into effect.

This story was originally published December 7, 2021 at 5:12 PM.