MASON CITY – The Mason City council voted 5-1 to approve a resolution for a development agreement with Prestage Foods of Iowa, LLC.
City staff recommended the approval of the resolution setting a public hearing for May 3, 2016 to consider a Development Agreement between the City of Mason City and Prestage Foods of Iowa, LLC. That is believed to be the final vote on the economic development agreement between the city and Prestage.
The lone “no” vote was from at-large councilman Alex Kuhn.
The council heard hours of public comments – both pro and con – before it finally was able to discuss the agenda item themselves, well after 1:00 AM Friday morning, after the rest of the agenda had been addressed. One notable speaker was legislator Sharon Steckman, who addressed the council on the possible encroachment of hog confinements in Cerro Gordo county. She finished up by telling the city council to “slow down” on its apparent path to approving the development deal with Prestage.
When the council finally reached agenda item number 35 – dealing with Prestage – Councilmen John Lee, Brett Schoneman and Travis Hickey again made it clear they are firmly behind the development, with Janet Solberg and Bill Schickel voicing little or no concern, as well.
Mr. Kuhn, however, says the city is giving Prestage too much. Citing the company’s reasons for choosing Mason City for their hog processing plant, one of which was the fact that there are already plenty of hogs in the area, allegedly, to feed the plant’s 10,000 per day requirements when it opens in about 2 years, Mr. Kuhn said no incentives should be necessary to lure the plant here. With his strong ties to labor, Mr. Kuhn also says the wages will be too low, and pointed to historic wages from decades ago that would rise only 20% from that time period to now, while the cost of living has risen 175%. Furthermore, he claims the plant will have too much employee turnover, leaving needy people in the community that will need assistance such as food stamps, tax credits, reduced price school lunches, and more. He says the $15+ million in tax incentives given to Prestage from the city should be used to cover those potential needs in the future.
On March 21, 2016, the North Iowa Corridor Economic Development Corporation announced that Prestage Foods of Iowa would construct a 600,000+ square-foot pork processing plant in Mason City. Prestage Farms, Inc. is based in North Carolina and has hog raising facilities in North Iowa. Prestage has been in Iowa for 12 years. The proposed plant will be their first pork processing facility (they have existing turkey processing facilities in several states). Prestage Foods of Iowa proposes to employ 900-1,000 employees initially on the first shift (Phase I), and intend to provide a second shift in the future, employing an additional 1,000 (Phase II). The capital value of the plant is expected to be $239,250,000.
———-
Development Agreement:
The proposed development agreement provides for City construction of certain public improvements and for incremental tax rebates, as incentives for development of the pork processing facility. Construction of the public improvements is based on two phases. Phase 1 is the initial construction and operation period, with the majority of the workers on a single day shift (there will likely be a small night-time cleanup crew in addition to the day workers). Phase II adds a second shift, with a corresponding increase in the number of workers and need for water and wastewater capacity. The City’s obligations under Phase II begin when Prestage Foods delivers the Phase II Election Notice (Exhibit J in the Agreement), indicating to the City that they will be hiring for the second shift and requesting construction of the additional public improvements needed for Phase II.
The Phase I public improvements are those required to enable the initial, single-shift processing after the plant is constructed. Phase I improvements include:
1. Water utility system improvements, to provide up to 1.5 million gallons of potable water per day to the processing plant.
2. Wastewater utility system improvements to treat up to 1.5 million gallons of wastewater from the processing plant. The Operations and Maintenance Manager notes that the current facilities can handle this volume, and no significant upgrades will be necessary.
3. Road Improvements. The City will construct an approximately 2,800 linear foot, standard width extension of Pierce Avenue, ending in a cul-de-sac, together with related improvements to the existing roadways at South Pierce Avenue, South Federal Avenue and 43rd Street SW. The City will apply to the Iowa Department of Transportation for a RISE grant to fund these improvements.
Regarding the water and wastewater improvements, the City Engineer believes that our current facilities have the capacity to meet these needs, but utility mains will need to be extended to the site and other improvements specific to the increase in demand on both systems will be needed.
Adding a second shift will require more water capacity and more wastewater treatment capacity than can be provided under Phase I. The Phase II Public Improvements would be constructed when the developer is ready to begin a second shift and has made the required notification to the City. The Phase II improvements include:
1. Improvements to the water utility system in order to provide up to 2.8 million gallons of potable water per day to the processing plant.
2. Improvements to the wastewater utility system in order to treat up to 2.8 million gallons of wastewater from the processing plant. As with Phase I, the Operations and Maintenance Manager notes that the current facilities can handle this volume, and no significant upgrades will be necessary.
The Phase 2 improvements are to be completed within 24 months of receiving the Phase 2 Election Notice from Prestage Foods, barring unavoidable delays.
The City will fund the water and wastewater utility improvements in both phases with general obligation bonds (and, in the unlikely event that the RISE grant is not received, the road improvements will also be funded with GO bonds). These bonds will be repaid by the significant water usage fees generated by this facility. The Agreement obligates Prestage Foods to pay a minimum of $950,000 per calendar year for purchase of potable water. If Phase II is implemented, Prestage Foods must pay a minimum of $1,950,000 for the water purchase. This additional revenue, along with the TIF revenues not paid as rebates, will be sufficient to service the debt that was needed to finance the improvements.
In addition to the public improvements, the City proposes to provide a 10-year, 50% rebate of incremental property taxes. The amount of the annual rebate is subject to the actual taxes paid (based on the assessed value of the improvements on the property); however, the total 10-year rebate cannot exceed $15,500,000.
In return for City incentives, Prestage Foods of Iowa must meet minimum employment commitments and maintain a minimum property value. For Phase 1, Prestage Foods of Iowa must provide a minimum of 922 full-time equivalent jobs by November 1, 2019, and maintain at least that number through the life of the agreement. When Phase II is implemented, Prestage Foods must add at least 850 full-time equivalent jobs within 30 months of the City’s receipt of the Phase II Election Notice. From that point, Prestage Foods of Iowa must maintain a total minimum of 1,772 full-time equivalent jobs at the plant, through the end of the Agreement.
If actual certified full-time employment numbers drop below the numbers as required above, the amount of the incremental property tax rebate is reduced by the same percentage. However, if the number ever falls below 50 percent of the required minimum in any year, no rebate will be paid for that year.
Prestage Foods of Iowa also must enter into a Minimum Assessment Agreement that requires the assessed value of the property, beginning with the completion of construction, to be at least $100,000,000 for the life of the agreement. The actual taxes collected will be higher should the assessed value exceed $100,000,000, as expected; however, in the unlikely event that the assessed value drops below that amount, the taxing bodies will continue to receive property tax based on the $100,000,000 minimum assessment.
Budget Impact: There is no immediate impact to the budget related to this resolution. If the development agreement is approved and Prestage Foods begins construction, the City intends to sell General Obligation bonds for construction of the public improvements. This debt will be repaid through water revenues and TIF funds, as noted above. The City will see positive impacts to its budget in future years as the property value is no longer needed to pay for public improvements.
—-
Click here to see concessions from Prestage Foods to Mason City, announced earlier this week.
