Finance Committee OK’s Carey Tax Rebate With Formation of Incentive Program

By Michael Miller For The Prairie Advocate News

SAVANNA – The Savanna Finance Committee, after long and thoughtful debate, voted to recommend that the Council approve a tax rebate request by J.C. Carey Motors in order to help Mr. Carey restructure his business to comply with General Motors (GM) standards so he could continue to be a GM dealer. One caveat was included in the recommendation, however; that said approval would be contingent upon the formation of a business incentive program to address the potential other requests that would issue from such a move.

As reported at the last Council meeting, several options were considered by the Committee, including limiting such applications to those that would generate a certain minimum amount of sales tax for the City, such as $50,000.00. Also under consideration was a flat annual contribution of $15,000.00 tax funds which would be capped at $150,000.00 with no other funds involved. Other options included providing up to 100 or 200 percent of the taxes generated over the sales tax derived from the business above an established amount derived from actual taxes paid from previous years with a residual not to exceed $150,000.00 or ten years, whichever came first. Another scenario would see a reduced flat annual contribution of $15,000.00 sales tax funds to be capped at $150,000.00 with no other funds involved.

The meeting was attended by Committee members Bill Robinson (Chairperson), Mayor Larry Stebbins, Bill Grummitt, and Peg Haffey. Most of the other Council members also attended, including Jeff Griswold, Lois Hunsaker, Robert David and Tony McCombie, as well as J.C. Carey and City Clerk Paul Hartman.

Robinson began the discussion by asking Carey about rumors he might leave his current location and sell used cars at the current facility. Carey said that he’d envisioned having both new and used cars in Savanna if he had to move the franchise. Robinson said that his biggest issue with granting the rebate was that he felt if they did it for Carey, they “should be able to do it for everybody.”

“We’re representing all the people in this town . . . if we do it for one and somebody else comes in, how do we say ‘no’?”

McCombie asked whether or not it would be possible to form guidelines to govern other such requests, perhaps determined by a minimum amount of sales tax generated. David agreed, saying that it wasn’t the case that Carey had decided to upgrade his business, that in fact he’d been dictated to by his corporate office that these changes were necessary to keep his business.

Stebbins said he’d done some online research, investigating the approach that other towns take toward business incentives, and had discovered that unfortunately very few towns had their “economic policies on display.” He did say that he’d found some information about O’Fallon’s approach, including five basic questions that the city asks while deliberating the possibility of granting business incentives. Further reading revealed that “all of their stuff on sales tax is only to do with excess sales tax.” He said that the village of Niles notes that it does not “compromise sales tax for incentives.”

Haffey asked whether City Attorney Phil Jensen (not present) could be questioned about the formation of a business retention plan.

“What’s the biggest fear?” Carey said. “Somebody else is going to come in and want the same thing, correct?”

Stebbins said their biggest fear was that they’d spend three months working on the budget and if the City had to figure out what will happen that would take a long time to get there, to come in suddenly and abruptly decide “this is what we’re going to start doing,” that was not a “good process in his opinion.” The mayor said a detailed plan was necessary before embarking on any such course of action, and while noting the time sensitivity of Carey’s request, felt that it would take at least six months to a year to truly form such a plan.

Carey said he felt the reason the rebate hadn’t passed to date was due to his failure to explain things properly. Doing some calculations, Carey said that in a period of ten years, the City could very well give him a total of $80,000.00 or more. He said that this year the sale of new cars is up 37 percent and the sale of used cars is up 41 percent. Factoring in the amount that cars go up every year, Carey calculated that the real number the City may have to give him may be in the neighborhood of $110,000.00 versus the $150,000.00 he is asking. Griswold commented that even though the price of cars goes up, so does the price of doing business with the City, so in the long run you have to weigh inflation on both ends.

Robinson continued to have reservations, saying that “it isn’t just a City thing. It’s the taxpayers’ money, and it’s paying for something in a private enterprise.”

Carey countered by saying, “Isn’t that what our city does all the time when it puts a road in for somebody, when it puts a sewer in for somebody?”

Robinson said that was for the City, and this is for a private building. “You own the business, you make a profit off the business, but you want the taxpayers to pay for part of the remodeling of it, and I don’t think that’s right.”

Carey said that his proposal wasn’t much different than what had been done for other businesses, such as Poopy’s, and Robinson said that was for a new business coming in with new taxes. David said that this situation was one where a private business put money “back into taxpayer’s coffers” and that the taxpayers would be investing “in upcoming revenues . . . we’re spending money to make money down the road.”

Robinson said that before you engage in something like this “you should have a plan to know where you’re going ten years out.”

Haffey wondered, based on Carey’s timeline, if there was sufficient time to put something into the next budget, then made a strong statement advocating the City’s involvement in helping out businesses. “I think it’s our job to grow our town . . . I think it’s our job to reinvest our money, to make our town continue to grow.” She advocated working with Jensen to come up with some sort of business retention plan.

Stebbins wondered aloud about extending the offer on the overage, perhaps out over fifteen years.

Carey said he couldn’t understand why action would have to take a year or more, and remarked about the difference in pacing of a business as opposed to City business. Stebbins said that the difference is that as business people, you take your own risks, and as city officials you can’t take risks with taxpayers’ money. “It’s too big to jump in like that; you have to think way ahead,” he added, giving the example of the current long term planning involving the construction of the City’s new sewer plant. Carey wondered if it wouldn’t be difficult to finance that plant if the City lost one of it’s bigger taxpayers. Stebbins explained that the two weren’t connected, and that the fees for water and sewer plus grants would be financing the sewer plant project.

Grummitt said that the City is “definitely interested” in putting together some sort of business incentive/investment plan, but since Carey was the first to bring such a proposal up the City had to be sure that what was done for him could also be done for others, both large and small businesses. “Your success is our success” he told Carey. “I don’t want to say ‘no’ to your proposal, but I can’t say ‘yes’ until I know how it fits for everybody.”

Robinson again cautioned about the possibility of multiple requests of this kind from area businesses and the difficulty of budgeting for all these requests. “Now we’ve got two or three times that amount coming out of the budget,” he said.

“And,” McCombie said, “those businesses are growing and are going to generate more.”

McCombie and Hunsaker both warned against waiting too long to get something in place, which could result in what Hunsaker said would be Carey ending up in Thomson, “and we’re screwed.”

McCombie also warned against being “too cautious” and said she knew she’d “have some pretty upset people in my ward if I were to vote ‘no.’ And I won’t vote ‘no.’ I’m not willing to lose another business . . . do we want a bedroom community or do we want a thriving community?”

Carey again tried to explain what the City would be getting out of the proposal and Stebbins said that if he “ended up one year short” in his projections the City has nothing to fall back on and would have to raise taxes. Carey said that the real estate taxes would be recouped within a short period of time.

Hartman offered a suggestion. He said that twenty years ago there was a fund with $40,000.00 in it, from which local businesses could borrow up to $10,000.00, at two percent interest. The idea was to attract business. He suggested establishing a similar fund, putting it in the budget, and give $15,000.00 of this to Carey. Taking a very conservative estimate of the percent at which car sales went up, at seven percent and look at a five year average of the sales tax that is brought into Savanna, you will see that it’s “leaping and bounding. You could make at least $40,000.00 more if you stick it in this fund I’m suggesting . . . you’re going to make it every year in sales tax, whether you give it to him or not, you’re going to make it. It’s going to be here, one way or another . . . what you’re doing is betting $15,000.00 against sixty . . . who wouldn’t pay $15,000.00 to save sixty, or forty five?”

But, Hartman added, certain restrictions would have to be put upon dispersal of the fund. For instance, Carey might be required to stay in business for ten years in order to get the total money he required. An additional condition to reassure the City that it wouldn’t lose money might be that if Carey didn’t make a certain amount of money he wouldn’t get the $15,000.00 per year. Hartman said that it was unfortunate that such a fund wasn’t established years ago, but that now all that had to be done was to “put the 40 grand in there and get going, or put fifteen in there or thirty . . . whatever. And do it every year, take it right out of the sales tax. Establish something.”

Haffey expressed confidence that some sort of plan could be worked out that would ensure that the City wouldn’t lose money but that conversely, would allow Carey to get the help he needed and stay in Savanna. McCombie suggested approving his proposal contingent upon approving a plan that would be applicable to other businesses interested in future such proposals.

Carey theorized that he couldn’t see his project being completed until at least September of 2012. He said that he’d always felt the better way to look at his proposal was as an investment, not as an expense. Stebbins said that current state law dictates that in order to rebate a sales tax, the business has to be “underutilized, or vacant for a year.” He said to Carey that he hoped his marketing said “I am going to do more business,” as this would conform to the “underutilized” requirement of the law. Robinson wondered what would happen to the status of the agreement if the law changed within the ten year period. Carey, responding to things he’d heard about him never really intending to leave Savanna, said that while he wants to be in Savanna, that it would “be a bad bet” to assume that he wouldn’t leave Savanna.

Ultimately, two recommendations were passed by the committee. The first was to rescind the previous recommendation to Council to deny Mr. Carey the sales tax rebate, and the second was “to recommend to the Council to approve a sales tax rebate incentive to expand J.C. Carey Motors in the amount of $15,000.00 or 50 percent of sales tax, whichever is less, for a period of ten years, contingent upon completion of the City of Savanna Business Retention Plan.”

The full Council will meet again this Tuesday, September 27th, to deliberate on the matter further.