There’s a disconnect between the public plans announced for the planned Toyota-Mazda plant and the written agreement between the company and the city of Huntsville, but Huntsville Mayor Tommy Battle and Limestone County officials said the slight risk is overwhelmed by the likely gain.
As announced in Montgomery on Jan. 10, the Toyota-Mazda joint venture would invest $1.6 billion in a Huntsville-annexed Limestone County plant that would employ 4,000 and open in 2021.
The agreement between Huntsville and Toyota Motor North America Inc., however, includes no requirement on the number of jobs to be created. It requires a $1.4 billion investment, and contemplates a start in production that could be pushed back as far as Nov. 1, 2024.
While the state’s incentive agreement with Toyota has not been finalized, Commerce Secretary Greg Canfield has said it is structured so that Toyota-Mazda can’t collect all the incentives until it reaches 4,000 jobs. Rather than being front-loaded, most of the state incentives are paid out only after the company meets performance goals.
“We felt comfortable with the state’s position,” Battle said, even though Huntsville has no way to recoup its investment if the number of jobs falls short. “Plus, our clawback was basically on investment. We felt very comfortable that if somebody invested that $1.6 billion … there’s very little risk.”
The Huntsville agreement references Toyota’s “expected employment of up to … 4,000 full-time employees,” and at another point the company “commits to create up to 4,000 full-time jobs,” but specifically states Huntsville has no recourse if the company fails to meet employment goals.
Battle said the city’s experience with Toyota at the Huntsville engine plant, and the performance of other automakers in and out of the state, gave him confidence that Toyota-Mazda will hire 4,000 employees, regardless of its legal commitments.
“We felt very, very comfortable when we finally finished up this development agreement that we had an acceptable risk to the community,” Battle said. “We had a partner there that we knew. We knew of their track record. We know that they over-produce rather than under-produce.”
Battle said he took particular comfort after seeing how the Toyota engine plant operated through the recession.
“We know they don’t lay employees off even during bad times, like 2008, 2009,” Battle said. “When lines idled, they put some of their team members out in the community doing community service.”
Moreover, Battle said, the plant itself would not have to hit the 4,000 mark to create far more indirect jobs in the Huntsville area.
“I use a 2.5 multiplier, which some people say is low,” Battle said. “You’ll have 2.5 jobs off each manufacturing job. They may be the person working in the grocery store or the person working in the drug store, maybe building a house for those folks.”
Suppliers, he said, also will create a large number of jobs, even if Toyota employs fewer than 4,000.
“In the early conceptual we saw a supplier park, which was involved on the (Toyota-Mazda) property, and those supplier parks are how Chattanooga got to 16,000 jobs” when a Volkswagen plant located there.
The primary recourse Huntsville has against Toyota-Mazda involves the amount the company invests in the plant. The agreement requires an investment of $1.4 billion, $200 million less than the plans the companies announced Jan. 4.
Battle said he expects the investment to be $1.6 billion, “but direct investment sometimes falls a little bit short of total investment, so we always shave a little bit off of what they say.”
Pursuant to the agreement, the company must invest the $1.4 billion within a specified time from the time it begins construction, which is to be no later than Nov. 1.
Much of the project development agreement is redacted — not available to the public — because, according to the agreement, it is “confidential, proprietary, trade secret and competition sensitive.” The amount of time that can elapse between the beginning of construction and the investment of $1.4 billion is redacted.
Not redacted, however, is that Toyota can at its discretion extend the time in which it must make the full investment by up to two years. In no event, according to the agreement, can the investment be delayed beyond Nov. 1, 2024.
If Toyota fails to make the investment within the required amount of time, Huntsville can demand payment of up to $74.38 million.
That amount is not arbitrary, Battle said.
“The maximum recovery amount relates directly to the price that we pay for the land, plus the railroad spur improvement that we put in,” he said. “It was our direct costs that were coming out of the project.”
Huntsville is buying the land for Toyota and also paying for a $6.9 million rail line spur. Including $107 million in tax abatements, the city approved $320 million in incentives. The state is adding $380 million to that amount, and Limestone County’s abatement package is valued at about $80 million.
Also redacted from the agreement is the average annual wage of the workers, which state officials said will be $50,000, exclusive of benefits.
While both Huntsville and Limestone County agreed to abate property taxes for 20 years, the Huntsville agreement only requires the plant to remain in operation for 10 years.
“We figure if they come in and invest $1.4 billion and they go for 10 years, at the end of that 10 years, that land and property is still worth $1.4 billion,” Battle said. “If somebody else comes in and operates it, if it goes fallow, it still has a value of $1.4 billion. And if somebody has invested $1.4 billion, after 10 years, it’s very hard for them to walk away from it. So we felt comfortable with that.”
Tom Hill, president of the Limestone County Economic Development Association, was similarly comfortable with the 20-year abatement granted by the Limestone County Commission.
“If there’s nobody there after 10 years, it’s a moot point,” Hill said. “The property tax abatement is based on value that’s on site. To win these major projects, you have to compete.”
Limestone County Commissioner Ben Harrison typically votes against abatements and incentives, arguing they create an unfair playing field for businesses and can hurt taxpayers. He voted in favor of the 20-year abatement on this project, however.
“In the final deal, there were no cash incentives from Limestone County,” Harrison said. “The abatements are showing favoritism toward Toyota-Mazda, but I was appreciative of the fact that it would not cripple us in terms of cash incentives. We’ll have a hard time meeting the infrastructure demands as it is. If it had included cash incentives that required us to go into debt, I would have opposed it.”
He said he had some concerns about the Huntsville agreement not requiring Toyota-Mazda to meet employment guidelines and for it requiring only 10 years of operation, but the size of the agreement overwhelmed any risk.
Hill said the details worked out by lawyers in hammering out the project development agreement are of minimal significance compared to the potential rewards.
“It’s a fantastic project for the area,” Hill said.