Archive for Thursday, October 19, 2000

Tax abatements, bonds key to new business

October 19, 2000

As Eudora continues to grow in population, its need for economical growth to sustain and provide for expansion increases as well. In order to lure businesses to come to Eudora, tax abatements and industrial revenue bonds (IRB) can be used as bait.

HP Pelzer, a German company that makes automotive parts, announced its recent purchase of the former Communicolor building. With the company coming to Eudora, it will add new jobs. One of the biggest reasons the company was able to come to Eudora was through the issuance of IRB's.

When a company uses IRB's to finance a business, private investors hold the bonds which are then issued through the city. The city then holds the title on the purchase until the bonds are paid off. In return, HP Pelzer has agreed to pay in lieu of payments for 10 years of 50 percent on the building and 25 percent on equipment. The payments will be equivalent to taxes to go to the city, county and school district.

Debi Moore, senior vice president, economic development, Lawrence Chamber of Commerce, said with HP Pelzer using IRB's, it provided a lower interest rate because IRB's are tax exempt.

"If a company is using bonds, they are exempt from property taxes," Moore said. "What the community does is they ask the company to pay an in lieu of payment equal to what their property may be."

Another way to bring in businesses is with tax abatements. Ray Barmby, senior vice president of Chapman Securities Inc., Overland Park, said any company besides retail businesses could ask for tax abatements when approaching admittance to a city. This is done to protect smaller businesses from being pushed out of the market. With abatements, companies are free from paying tax rates assessed against a property up to any amount a city allows. Eudora's policy is no more than 50 percent abatement. Under state law, abatement cannot exceed 10 years.

Moore was instrumental in getting HP Pelzer to come to Eudora. She said with tax abatements, the company holds the title and finds its own way to finance a business purchase such as land and building.

"The biggest difference is that the bonds are the financing mechanism as is owned by the governmental entity that issues those bonds," Moore said.

Barmby said by allowing a company such as HP Pelzer to come in with in lieu of payments, it was an excellent way to bring in money which otherwise wouldn't be available.

"If the company had gone down the road and decided to put it in say DeSoto, there'd be nothing for the city, county and school district," Barmby said. "It's a win/win situation. You get an empty building filled, you get new jobs and you get new money."

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