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 Carnaúba 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.