October 27, 2009
Revisiting SC Johnson, Uptown and property tax exemptions
We really don't bash the JT too often, but we can't let a story from Saturday slide. The headline read:
That's a remarkably upbeat take on SC Johnson's Uptown contribution, which will be about half of what it would have been without a sneaky deal between the company, Gov. Jim Doyle and former Mayor Gary Becker. (Click here for our June 1 story that blew the deal wide open. Click here for a summary of additional stories about the deal.)
The JT's story is based on the Oct. 23 Joint Review Board meeting, which we attended, as well. The board met to create a new tax increment district (TID) for Racine's Uptown (known as TID 16). The TID allows the city to borrow money to make improvements and then pay back the loan by collecting any additional property taxes in district for the next 15 years.
To be clear, the TID gets all additional property taxes in the district. Racine Unified, the county, the state, Gateway and even the city itself do not see a penny of the additional property taxes until at least 2024.
Interestingly, the TID is not limited to Uptown. It extends down 14th Street to to the SC Johnson campus, where the company happens to be constructing a roughly $50 million new building known generally as "Project Honor." (Technically, it's two buildings.)
Here's where things get interesting. SCJ and former Mayor Gary Becker swung a deal that dates back to 2007. SCJ didn't want to pay property taxes on its new building - $50 million is a lot of assessed property - and Becker really wanted to get his Uptown arts district going.
The swap went something like this. SCJ found a tax loophole with the state that allowed education centers next to architecturally significant buildings to be exempt from property taxes. Project Honor, located next to the Frank Lloyd Wright Administration Building and Research Tower, qualified.
Gov. Jim Doyle agreed to sign an executive order exempting a portion of the project - known as Fortaleza Hall - from property taxes. The order also includes the Administration Building and Research Tower, which are valued at $4 million.
Becker agreed to the executive order in exchange for the rest of Project Honor - known as the Community Building - being included in an Uptown TID. (Actually, it's unclear if that was Becker's demand or SCJ wanting to control where its property taxes were spent. The latter seems more likely.) SCJ also agreed to kick in $500,000 over five years for Uptown, as well.
The end result: SCJ is saving at least $200,000 a year - possibly twice that much - on property taxes because of the state tax exemption. (We may never know the actual savings because the state is responsible for assessing the building, but simply won't assess the new building because it's tax exempt.)
The rest of the property taxes from the new buildings on their campus are directed into a district located on the company's door step. SCJ will pay between $160,000 and $200,000 per year in taxes to Uptown for the next 15 years.
The money will be used for:
* $400,000 to renovate buildings owned by the city's Redevelopment Authority. That includes remodeling the facade of 1418 Washington Ave. and putting a new roof on 1511 Washington Ave. The city hopes to sell both buildings to artists or small businesses.
* $50,000 for public arts projects, possibly including another mural in Uptown.
* $75,000 for streetscaping
* $750,000 for marketing Uptown, though that number may be adjusted down, depending on need
From what we can tell, there's nothing wrong with the Uptown TID. The district's historic buildings and unique layout is a potential jewel in Racine and using development tools to revive the district is a reasonable and prudent of city money. (As a side note, the city was set to create the new TID earlier this year, but Becker got arrested the district was put off until the new mayor was put into place.)
It's even hard to argue with SCJ's aggressive tax approach. They're a successful corporation that's really good at managing and saving money. That's the reason it's one of the largest private companies in the world, and we're lucky to have them based in Racine.
But it should at least be acknowledged the company quietly (even secretly) worked with the governor and mayor to save hundreds of thousands of dollars per year at the expense of Racine taxpayers. You can argue the company deserved the tax break for all that it does for the city, but there's no question they received a huge tax break that only went public after the fact.
SCJ is contributing to improving Uptown, which is a potentially valuable project for the city. The company, which is handsomely profiting off the arrangement, just shouldn't receive credit for doing so.
The JT, which chased us on the story, but still reported on it themselves, should have known better than the headline they ran.