May 15, 2009

Tax-exempt deal will save SC Johnson at least $190,000 per year

The cover page of the 'Project Honor' plans SCJ filed with the city.

Former Mayor Gary Becker traded away at least $190,000 a year in local property tax payments for money to pay for his vision of an arts district in Uptown.

The city issued SC Johnson a $39 million building permit on May 12, 2008, to build the 60,345-square-foot "Project Honor" on its Racine campus. The project is made up of two buildings: Fortaleza Hall, designed to honor Sam Johnson, and the Community Building, which will include a cafeteria, company store and other employee amenities.

Under an executive order Gov. Jim Doyle signed Jan. 10, 2008, Fortaleza Hall will be exempt from property taxes as an educational and tourist center. The same goes for SCJ's Administration Building and Research Tower, which paid about $40,000 in property taxes last year. (To get an idea of how rare the executive order was, Doyle's order was the only executive order signed by a Wisconsin governor between January 1965 and Dec. 12, 2008 to involve Racine. It was also only the second time a governor made a building tax-exempt for architectural significance.)

But the new Community Building will not be exempt from taxes. Instead, it will be included in the Uptown Tax Incremental District, and property taxes collected on the new building will be used to pay for property and street improvements in the Uptown area. (Read our initial story on Becker's deal with SCJ here.)

So how much money are we talking about?

SCJ's building permit was for $39 million for Fortaleza Hall and the Community Building combined. The Community Building is listed at 44,000 square feet, according to company press release. Fortaleza Hall is about 16,000 square feet.

Dividing the $39 million project strictly by square feet would result in a 75-25 percent split between the two new buildings. The Community Building would then cost about $29.25 million and Fortaleza Hall would come in just under $10 million.

But SCJ's numbers suggest the buildings are closer to equal in value. The company's response to an earlier story said they would pay $166,924 in incremental tax to the Uptown TID district for the Community Building. Assuming that's per year (it's not clear from the statement), and assuming a property tax rate of $21.81 per $1,000 of assessed property value (last year's amount), it appears SCJ is estimating the Community Building's assessed value at closer to $7.7 million.

Our own reporting suggests Fortaleza Hall may be the more expensive, and valuable, of the two new buildings. SCJ doesn't have to break down how much they're spending on the tribute to Sam Johnson, but the company is reportedly sparing no expense. A world-class architect, curved Italian class and the hanging display of the Carna├║ba aircraft (the one that launched SCJ's fortune) are all included. (Click here for SC Johnson's response to our initial stories revealing that the Administration Building and Research Tower are now tax exempt.)

SC Johnson Spokeswoman Kelly Semrau said the company estimates Fortaleza Hall, once complete, will be tax exempt from $150,000 and $200,000 in property taxes. An assessment will be conducted after the project is completed, she said. (That runs counter to one of our sources, who said the building won't be assessed because it's already tax exempt.)

Based on current tax rates, that would place Fortaleza Hall's estimated assessment at between $6.8 million and $9 million.

Semrau noted the construction amount and the assessed amount are not the same. She added SCJ officials reduced the square footage of Fortaleza Hall since the company applied for the building permit.

Blueprints for Project Honor taken from the plans SCJ filed with the city. Fortaleza Hall, which will honor Sam Johnson, is on the left. The Community Building, for SCJ employees, is on the right.

So let's put together some pieces.

We've reported in the past (and now have a third source confirming it) that Becker and SCJ made a deal. SCJ would receive the city's support in pursuing tax-exempt status for its Administration Building, Research Tower and Fortaleza Hall, and Becker would receive $500,000 over five years for Uptown. SCJ also agreed to include its new Community Building in the Uptown TID to help pay for street and building improvements in the area.

In other, simpler words, Becker traded away a minimum of $190,000 in annual property tax payments (and probably more) for $500,000 over five years to improve Uptown.

What's incredible about the deal is the disregard Becker showed for other local governments in making the deal. Based on the 2008 tax rate, and assuming $190,000 in annual tax payments:
  • Racine Unified lost $59,000 in annual property tax payments.
  • Gateway Technical College lost $10,000 in taxes.
  • Racine County lost $25,000 in taxes.
  • And, the city lost $93,000 in taxes.
We attempted to reach Racine Mayor Tom Friedel and Mayor-elect John Dickert Friday for comment. We'll report their reaction when we get it.

Dave Hazen, Racine Unified's finance director, didn't know specifics about SCJ's tax-exempt properties, but he said the arrangement sounded similar to the tax incremental finance districts local governments setup to attract development. New developments in TIDs pay taxes, but all of the tax money goes to pay off the loans used to build roads, utilities and other infrastructure needed to attract business in the first place. Unified only benefits once the TID's loans are paid off, usually around 15 years after the development is finished.

Case in point, the city created an Uptown TID and will capture all of the property tax from SCJ's new Community Building for the next 14 years. Instead of supporting schools, the county or the city's general fund (ie. police, fire, parks, etc.), the property tax payments will only go toward streets and buildings in Uptown. The result: SCJ is building a $39 million structure, and Racine Unified won't see a dime for 14 years.

Despite being left out, Hazen said it's hard for school officials to oppose TIDs. "It's good for development, it's how the community is going to grow," he said.

He added a key point about TIDs: They never take away tax base from local governments.

The wild card in all of this is whether SC Johnson could have gotten the property tax exemption from the state on its own. If SCJ could have, then Becker swung a deal to at least get something in return.

But two sources with direct knowledge of the negotiations told us Becker and SCJ traded support for the tax exemption for the Uptown money. Maybe SCJ doesn't build Project Honor without the deal, or maybe a great local employer simply deserves the tax break, but it's increasingly clear our former mayor gave away hundreds of thousands of dollars in annual payments to support his vision for Uptown, and he did it without telling the City Council or making the deal public.

This map shows Project Honor's outline, just north of the existing Administration Building.

23 comments:

  1. concrete katie5/15/2009 7:17 PM

    Meanwhile the small storefronts along Sixth Street had their property taxes escalate for no explicable reason. In 07 my assessment on the neglected 600 block of Sixth Street went up $32,000 and in 08 (a year our street was torn up) the assessment went up another $33,000. Someone has to pay so let's stick it to the little guy. Maybe yours went up for no reason you can think of too? I know others who were treated worse along Sixth Street and some who escaped the hikes. Something really stinks about this. When the Uptown project was born our now newly elected mayor John Dickert had his name on many of the buildings in Uptown in his capacity as a real estate person. So what is his involvement in this matter? What involvement did Brian O'Connell have in this? What involvement did Brian Anderson have? What happened to the Crandall & Arumbula plan that all promoted and then shoved unter the carpet after years of accolades and public meetings? Wow!

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  2. Crooked Racine Govt.; Go Figure!!5/15/2009 9:39 PM

    This comment has been removed by a blog administrator.

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  3. And J wax saids they love Racine. Looks like to me they love $$ a lot more

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  4. How did The Uptown Art Project chose the Realtor to buy/sell the property there? If J. Dickert was the Realtor would that not suggest that perhaps Dicket was closer to Becker then we where lead to believe?
    Why do I think the whole Uptown project will be found out to be just one huge good old boy deal

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  5. Thanks again Pete and Dustin - we hardly ever agree politically but you're one of the few (certainly the only paper) that reports ALL the news -

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  6. How much did that 39 Million Dollar building permit cost SCJ? Questions need to be asked and I believe a Committee of a Whole is in order. I at this point do not want to cast false aspersions on the Mayor, but please Mr. Mayor do not get off on the wrong foot with the cover up. It would be a bad move.

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  7. I wonder what the savings would be for Johnson Wax to relocate its headquarters to Mount Pleasant? Furthermore, the savings to shift production to one its offshore plants might be significant.

    I sure hope that the number crunchers at SCJ are busy at work on this one!

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  8. SCJ's New slogan should be:

    "A crooked family company"

    Mr. Dickert has some explaining to on his first day in office.

    Why is it that NO OTHER NEWS outlet is covering this story??

    I will be contacting WISN, WTMJ, and Fox 6 to hopefully put some more light on this scandal.

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  9. L8ManChecker5/16/2009 12:42 PM

    D- Thank you for digging into this...showing us what real reporting on the community looks like.

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  10. Actually, I believe SCJ stays here for a number of reasons.

    First, moving to Mt. Pleasant - really? Isn't the building on Hwy 20 in Mt. Pleasant? But why would you build a new multi-million dollar facility, then spend millions again to rebuild?

    And what about all that free water from lake michigan, free gas from dump, cheap labor from all the temporary employees and (rumored) tax exemption for the facilites at Waxdale? Moving to an off shore location might not be so cost effective when all those factors are considered.

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  11. Some of you sent away for those $40 digital TV converter coupons even though you could have afforded to buy one on your own. Other taxpayers footed the bill. You took advantage of the law to benefit yourselves financially. Same principal, just different scale, from SCJ.

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  12. 4:45 - Are you serious??

    You sound stupid and probably are.

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  13. 7:17 - Hope your TV keeps working well.

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  14. Great job on the follow-up, Dustin.

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  15. Don't Let The Door Hit Ya......5/18/2009 6:24 AM

    Hopefully SCJ scrams out of town.....And takes its arrogant cocky employees with them.

    Last I checked (I've lived here 59 years), SCJ has NEVER paid any of my bills. So don't tell me how I will/would be sorry if they left.

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  16. If J-Wax and its employees are so committed to the city of Racine, why is it that over 70% of it's employees don't even live in the city itself??

    Can anyone answer this?

    All sizzle, no sausage.

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  17. Anon 7:17

    My TV works great, I have directtv. I don't need a converter box.
    Care to leave your name and address so I can refer you so I can get a $100 credit to my account?? Seeings how J-Wax doesn't pay my bills??

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  18. I love living in a city that is owned by a Billion + company I think!

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  19. Don't let the - Sure encourage one of the largest employeers in town to leave. These are all small minded comments out here in regards to the monety dealings. Sounds like a win/win situation to me for both SCJ and the city. So get over it whiners.

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  20. So 2:33, let's give tax breaks to all corporations to help them provide jobs and stay in the state.

    It amazes me that folks will defend tax breaks for one corporation yet not for another. Of course, SC Johnson has been a "good" corporation (by supporting the Democrats).

    Proves a point that some will spin anything.

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  21. Where to start... OK, so Johnson decides to build in Racine (not somewhere else) and then negotiates that the taxes they pay will go to revitalizing downtown? So, would everyone agree that its is a good and honorable thing to invest in Racine's infrastructure so that we can draw tourists, business, and people who might actually WANT to live here from other places? More money on 6th street means more taxes for Racine. This program appears to me to be an enabler even if there are others that benefit along the way... that is how politics work Remember, all of this money is incremental to Racine... all of it! In my opinion, this money is being directed in manner that will help Racine in the long term by investing in its future.

    Second, try to envision a Racine without Johnson... try to count up all of the major factories and corporations who decided they couldn't survive in Racine. Do you think Johnson could get lower manufacturing and higher talent somewhere else? Bet you ass they could! Johnson continues to invest in Racine despite the outcry of the uninformed and ignorant. The jobs they create help drive the economy of Racine and surrounding areas and the taxes their employees pay help to pave our roads. Try to imagine the absolute disintegration of Racine without Johnson in town.... just try! They are one of the last remaining pillars we have holding our economy up.

    So, what would your solution look like?

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  22. Last poster - you hit the nail on the head. Good post.

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  23. The assets of our sad land should belong to all our citizens and ought to be managed by a common man's government answerable to the people through frequent and honest elections. Once the federal government nationalizes our industries, we won't have to worry about losing dollar-sign dynasties and their corrupt companies. With a people's government in charge, we'll be guaranteed jobs paying a living wage, low-cost health care and the protection from poverty which every Western European worker enjoys. (In case you don't know it already, most Western European toilers put in workweeks capped at forty hours and receive five weeks paid vacation per year. We don't need the elitist labor exploiters who run our sick system and this sorry town. Let's build s government-guaranteed social safety net for all Americans and we won't have to fret about the corporate porkers.)

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