Figeac Aero economic development incentives

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Wichita politicians, economic development officials, and civic leaders bemoan the lack of incentives Wichita can offer. A deal under consideration illustrates what is really available.

Next week the Wichita City Council will consider a forgivable loan to Figeac Aero North America related to its expansion of its Wichita facility. Following is an explanation of the various incentives and benefits planned for this company.

Figeac will receive forgivable loans of $250,000 each from Sedgwick County and the City of Wichita, with the State of Kansas adding $500,00, although it is not clear if that is a grant or forgivable loan.

City documents don’t mention this, but a letter from the Kansas Department of Commerce indicates that Figeac will benefit from the Promoting Employment Across Kansas program, commonly known as PEAK. This program rebates 95 percent of the state withholding taxes back to the company. An investigation from earlier this year showed that PEAK incentive payments can be a substantial sum. Tables available at the Kansas Department of Revenue indicate that for a single person with no exemptions who earns $40,000 annually, the withholding would be $27 per week (for weekly payroll), or $1,404 annually. For a married person with two children earning the same salary, withholding would be $676 annually. Under PEAK, the company retains 95 percent of these values.

Briefcase with moneyWe don’t know how much withholding tax Figeac employees will generate. An estimate is that with 200 employees earning $40,000, averaging the two withholding scenarios illustrated above, Figeac would receive $1040 * 200 * 95% = $191,900 per year in PEAK payments.

The Department of Commerce also offers tax credits through the High Performance Incentive Program (HPIP). This rebates, in the form of tax credits, 10% of the capital investment above $1.0 million. City documents state Figeac will invest about $21,000,000, with capital investment of $7,000,000 in machinery and equipment, which should qualify for HPIP credits. This means the company would receive tax credits equal to ($7000000 – $1000000) * 10% or $600,000. It’s possible that other expenditures would qualify for these credits. Tax credits are economically equivalent to a cash grant for both the state and the recipient.

The letter from Commerce also says the state will “underwrite a portion of the company’s actual expenses for training new employees.” No dollar value is given for this.

Finally, the city is issuing Industrial Revenue Bonds in an amount up to $20,680,000. The city does not lend this money to Figeac. Instead, the purpose of the IRBs is to enable property tax and sales tax forgiveness. City documents are sketchy as to the amount of tax that will be saved, but documents state “After the five year exemption period, the new improvements would generate an estimated $82,470 annually for the General Fund and $29,196 for the Debt Service Fund.” This means the city alone is forgiving $111,666 per year in taxes. City documents usually give the amount of tax that overlapping jurisdictions are abating, but this information is missing. Based on relative mill levies for the county, school district, and state, I estimate the total property tax benefit at $414,000 per year.

The IRBs also carry a sales tax exemption. The $7,000,000 in machinery and equipment would be exempt from sales tax, and possibly some of the property improvements. If Figeac spent $10,000,000 in expenditures subject to sales tax, the one-time benefit to Figeac is $715,000.

The following table summarizes the benefits.

Summary of benefits for Figeac Aero

Comments

One response to “Figeac Aero economic development incentives”

  1. Dave Trabert

    Incentives are given when one is not otherwise competitive. Wichita should fix the ‘otherwise’ issues so that incentives aren’t needed.

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