Incentives Deal of the Month
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Kansas Incentives Keep Goodyear's 1,700-Worker Plant Online in TopekaBy JACK LYNE Site Selection Executive Editor of Interactive Publishing
TOPEKA, Kan. For a while there, it looked like Goodyear's (www.goodyear.com) 1,700-employee plant in Topeka, Kan., was nearing the end of its 48-year-old history. But the massive 3-million-sq.-ft. (270,000-sq.-m.) production facility will stay online after Goodyear received a state and local incentive package of more than US$20 million.
Incentives secured, the Akron, Ohio-based giant will now invest $120 million over the next five years in upgrading its Topeka tire plant, the company announced in mid-August. While the investment won't produce any new jobs, Goodyear's decision was nonetheless huge for the state and city, which faced losing 1,700 jobs.
The deal was sealed, though, only after four separate votes: one by local officials, one by the state legislature and, surprisingly, two by Goodyear's union workers.
"Investing in Topeka will improve Goodyear's ability to better serve our customers by establishing a production site that would be fully capable of meeting market demand for large, off-the-road tires," said John Loulan, vice president of operations for Goodyear's North American tire business unit. "This investment will allow us not only to satisfy current customer requirements efficiently, it also will position the company to broaden our product line as we strive to meet customers' needs for larger size tires."
New Tire Line Triggered Goodyear's SearchBroadening the product line was the catalyst that ultimately led to Goodyear's decision to upgrade the Topeka plant. The company in February announced that several of its existing plants were contending to manufacture its new "two-piece tires" for the mining industry.
The Topeka operation (the only contending site revealed by Goodyear officials) was obviously a strong contender. With 69 acres (27.6 hectares) under a single roof, the Kansas operation is the world's largest plant that manufactures large, off-road tires.
Age, however, was working against the Topeka facility. Built in 1944, the facility is one of Goodyear's oldest plants and has high operating costs, company officials explained. In addition, the facility's equipment was outdated, they said. The plant's off-road tire line hadn't been upgraded since 1995, and its radial-tire line hadn't been enhanced since 1999.
"Without the money coming in and the revitalization of our equipment, we end up like the steel industry and end up offshore," Wil Leiker, head of United Steelworkers of America Local 307 at the Topeka plant, told The Topeka Capital-Journal. "That's just the reality of the manufacturing business."
Shawnee County Approves Tax ExemptionsLocal officials wasted no time in grasping that reality.
The Shawnee County Commission in February unanimously approved tax exemptions on the machinery and equipment that Goodyear would install if Topeka won the project.
Local officials and Goodyear haven't estimated the exemptions' total value. Officials with the world's No. 3 tire maker, however, did say that the Topeka plant pays $1.6 million in annual property taxes on its machinery and equipment.
In approving the tax exemptions, the Shawnee County Commission deviated from its normal policy of awarding incentives for creating new jobs. A lot was on the line, though, in protecting Goodyear's existing jobs. The tire maker's huge Topeka operation ranks as the area's largest manufacturer, with a $100-million-plus annual payroll. The plant's yearly utility bill tops $8 million, and it pays more than $2 million annually in real and personal property taxes.
"We know that this is a substantial investment, and we want to do everything we can to be competitive," said Doug Kinsinger, president of the Greater Topeka Chamber of Commerce (www.topekachamber.org). "Some of the best manufacturing jobs in the area are with Goodyear. It's a quality company."
State Creates New IncentiveState support for Goodyear's incentives came more slowly.
Topeka-area lawmakers in early March began introducing measures to assist the tire maker. Early proposals narrowly failed, though, largely because of legislators' focus on the state's $680 million budget shortfall.
But lawmakers passed reworked legislation in May that created a specific new incentive.
The Goodyear Bond Program that was approved authorizes the Kansas Development Finance Authority to issue bonds in conjunction with Goodyear's investments in Topeka. The bonds will be issued in increments of $10 million for every $50 million that the tire maker invests. The state will pay off the bonds over 15 years by using a portion of Goodyear employees' withholding taxes.
A petition signed by more than 1,000 of Goodyear's Topeka employees was cited as a significant factor in several legislators' votes.
Union Initially Rejects New ContractThe vote at Local 307, however, turned out to be more problematic than anyone would've imagined. Union members, in fact, in mid-July rejected Goodyear's new labor contract by a vote of 459 to 434. Some union members said they hadn't been fully informed of the specifics of the contract; others objected to the agreement's mandatory overtime and deferred pay increases.
A second vote wasn't guaranteed, at least according to Topeka plant Manager Larry Robbins.
A re-vote "was far from automatic," Robbins wrote in a plant newsletter published several days after the contract rejection. "Keep in mind, Goodyear's management team was really disappointed by the initial vote," continued Robbins, who pointedly reminded workers of the incentives that had already been approved. "The direction and expectation is clear: Topeka has only this chance to once again accept and ratify the Topeka Competitive Revitalization Agreement."
Union members capitalized on the chance, ratifying the new agreement in a second vote, 842 to 358. The approved contract was unchanged, requiring mandatory overtime if needed and replacing a 65-cent wage increase with 190 stock options (which can be exercised over a 10-year period).
Topeka's Second Recent Big ScoreThe multiple votes that secured the Goodyear upgrade marked a second recent major win for Topeka. The city earlier landed Target's new $80-million, 650-job distribution center (see the Blockbuster Deal of the Week for the week of Aug. 12, 2002).
In both cases, the city got a major boost from the quarter-cent economic development sales tax that Topeka voters approved in 2000.
"It is exciting that we are having yet another significant economic development announcement within a 30-day time frame that has been assisted by the economic development sales tax," said Kinsinger.
For more on new projects in Kansas and other Plains states, look for the
Central Plains Spotlight in the January 2003 issue of Site Selection.
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