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HomeMy WebLinkAboutAgenda - 06-07-2011-7aORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 7, 2011 SUBJECT: Economic Development Incentive for AKG Expansion DEPARTMENT: Economic Development, Manager's Office, Attorney's Office ATTACHMENT(S): 1. Company Summary 2. Performance Agreement Between Orange County, NC and AKG North America, Incorporated 3. Offer Letter: Agreement 4. Vicinity Map Action Agenda Item No. ~ - (~ PUBLIC HEARING: (YIN) Yes INFORMATION CONTACT: Gary Shope, Economic Development, 245-2326 Frank Clifton, County Manager, 245- 2300 John Roberts, County Attorney, 245- 2318 5. Aerial Photograph Craig Benedict, Planning and Inspections Director, 245-2592 PURPOSE: To hold a public hearing on the issuance of incentives to a private company by Orange County, City of Mebane and the NC Department of Commerce and to consider approval of an economic development incentive agreement. BACKGROUND: Local and state government has the goal of promoting economic development through the expansion of existing businesses and the relocation of new. The Local Government Act, North Carolina General Statute 158-7.1 et seq., outlines the requirements of public hearings, and the public hearing has been scheduled in compliance. The subject property is within the City of Mebane and also within Orange County wherein both jurisdictions will receive a tax base benefit. A summary of the company and project is provided at Attachment 1. The terms of the agreement are noted in Attachment 2. An aerial photograph is provided at Attachment 5. FINANCIAL IMPACT: AKG presently pays over $113,000 in personal and real property taxes each year to Orange County. The proposed expansion is estimated at approximately $3 million, which will generate approximately $25,700 in additional taxes each year. Designating $20,000 a year as part of an agreement, over five years, will still net the County approximately $5,000 in additional tax revenue each of those five years. In addition ninety (90) new jobs will be created with an average wage of $44,000 a year. Although employees may not reside in Orange County, the $4 million in wages could add to the economic benefit of nearby businesses and housing. There are also other economic benefit multipliers such as construction activities, materials and jobs that create economic positives. RECOMMENDATION(S): The Manager recommends that the Board hold the public hearing, approve the economic development incentive agreement, and authorize the Chair to sign the agreement on behalf of the County. ~'TTt~ AKG Project Summary AKG Company Background AKG is a private, family-owned company that started in Germany in t , ~~ 1919 manufacturing coolers for the automobile industry. The company ~ ---~~-- - ---- has evolved to encompass a wide variety of markets, including Loghfr~ma~o~ 5=te: compressors, industrial coolers, and construction equipment. The °7"~C°'C0/7/°/`g0°'O.html company's North American presence began in 1981 with the ` construction of its facility at the corner of Oakwood Drive and Mattress Factory Road in Mebane. The Mebane facility focuses on brazed aluminum heat exchangers for the industrial and off-highway markets. The Mebane plant has capabilities to serve the entire process from custom engineering to assembly and shipping. The most recent addition to the Mebane facility was the completion of the new ' „~__ administration building in 2004. ~~~ ~ _ ~ :: ._ _ , - AKG's parent company is located in Hofgeismar, Germany and ,,ageofM~~ef~~,tyhom.,K~~hS;t~: directs the operation of the AKG-Group with 2,800 employees http://uwv.akg-america.com/akgna0.htm1 ~,~,orld-wide that produce over 2.5 million heat exchangers annually. AKG is truly an international company with multiple facilities in Germany, as well as a presence in France, China, Turkey, India, Japan, Great Britain, and Latvia. AKG North American Operations The Mebane location, in conjunction with the Mitchell, South Dakota facility, constitute 'AKG --'~ North America' which is responsible for the ~:° ~~: production of brazed aluminum heat exchangers. The Mebane facility, built in 1981, employs more than 300 ~~ people in a wide range of capacities, from shipping ~,~ ~-~ • ' .. - ~~` and receiving to engineering and quality control. The ~ '- Mitchell, South Dakota plant was built in 2005 and Product lmages from AKG websife: houses similar processes. AKG North America has a htiro://wwru.akQ-america.com/1365.O.htmI worldwide reputation for quality heat exchangers for a variety of industries, including construction, forestry, agriculture, transportation, and mining. 2 CONFIDENTIAL Page 1 of 2 AKG Project Summary Expansion Plans Based on predictions for strong customer sales in 2011, AKG North America, Inc. is planning an expansion at one of its US facilities, either the Mebane facility or its sister plant in Mitchell, South Dakota. The proposed expansion is projected to include a new 50,000 square foot assembly building as well as additional employee parking .and a reconfigured facility entrance to accommodate the increase in traffic. The company has estimated that the expansion will involve at least $3M in capital investment and the creation of 90 new jobs with an average wage of $44,175. The jobs created will provide opportunities for a wide range of skills, including welders, machine operators, accountants and engineers. In addition to the expansion planned for 2011, AKG North America is also considering a second phase expansion, with a potentially greater capital investment. Local and State Commitment To demonstrate both the local and state commitment to locating AKG's North America expansion at the Mebane, Orange County facility, Orange County's Economic Development staff has worked cooperative with representatives from the City of Mebane as well as North Carolina's Commerce Department to present a cohesive package that demonstrates our support for the expansion. In addition, the North Carolina Department of Transportation and Duke Energy have been active in demonstrating their support for the Mebane location. All team participants present a strong and united proposal. The company is currently evaluating the submissions from both Orange County and Mitchell, South Dakota, and is expected to make a decision in the next week. Project 'Quality Control'1 Summary AKG Planned Ca ital Investment $3,000,000 New Jobs Created 90 Com an Location Finalized June 2011 Avera e Wa e -New Jobs $44,175 Pro osed Business Grant -Oran e Coun $100,000 ( aid over 5 ears) Proposed Business Grant -City of Mebane $100,000 ($60,000 grant over 3 years, $40,000 in kind services) Pro osed North Carolina One rant $120,000 ( aid over 3 ears) i 'Quality Control' is the name provided to this project by the NC Department of Commerce 3 CONFIDENTIAL Page 2 of 2 A+~c.M~a- a STATE OF NORTH CAROLINA ORANGE COUNTY PERFORMANCE AGREEMENT BETWEEN ORANGE COUNTY, NC AND AKG NORTH AMERICA, INCORPORATED This Agreement made and entered into this the 7~' day of June, 2011 by and between Orange County, a body politic existing under the laws of the State of North Carolina (appearing hereinafter as "County"} and AKG North America, Incorporated, a Mebane, North Carolina Company licensed to do business within the United States and North Carolina (appearing hereinafter as "Company"). WITNESSETH THAT WHEREAS, the County has offered to the Company an inducement package as hereinafter set forth; and , WHEREAS, the State of North Carolina and the Town of Mebane, North ..Carolina have offered separate inducement packages to the Company; and WHEREAS, but for the offer of an inducement package the Company would not be expanding its facility within Orange County; and WHEREAS, the Company has agreed to meet and continue meeting the minimum investment and employment requirements as hereinafter set forth; NOW, THEREFORE, the parties hereto in consideration of these mutual covenants and agreements passing from each to the other do hereby agree as follows: 1. INDUSTRIAL INVESTMENT AND EMPLOYMENT AGREEMENT A. INVESTMENT: The Company shall directly invest a minimum three million dollars ($3,000,000.00) in addition to 2011 assessments in real and taxable business personal property. The Company shall maintain the minimum taxable investment for a period of at Least five years through and including 2016. If total increase of taxable investment shall fall below the minimum investment levels, due to,depreciatian or removal of equipment, as assessed by the Orange County Tax Assessor, the amount of the following annual installment will be reduced by a pro-rata percentage of the shortfall B. EMPLOYMENT: At the time of the commencement of this Agreement Company and County agree Company has 313 full time employees at its Mebane facility. At the expiration of this Agreement, the Company shall employ at least the equivalent of 403 full time employees in accordance with "Exhibit A". Ninety (90) new full time equivalent employees shall be hired at the Mebane facility pursuant to the terms of this Agreement Employees counted toward this total shall include both new and existing employees of the Company, provided such employees are located in Orange County on a full time basis. Employees of the Company will be eligible to participate in Company sponsored health insurance and retirement programs. For purposes of this section "403 full time equivalent employees" shall be defined as 403 actively employed individuals and shall not 4 Page 1 of 7 5 include vacant positions for which the Company is actively or otherwise recruiting. It is understood that vacancies occur and that when such occur the Company will immediately, or as soon as is reasonably possible thereafter, fill said vacancies. The average wage of the 90 new full time equivalent employees shall be, at a minimum, forty-four thousand one hundred seventy-five dollars ($44,175.00). C. GRANT PARTICIPATION: Where applicable, the Company agrees to partner, through the commitment to create new jobs, with Orange County and other applicable agencies to apply for grants that will improve and/or add water, sewer, road or other necessary infrastructure in order to facilitate the successful completion of this project. The Company agrees to meet with program representatives, and to participate in the grant request process as necessary to secure the required funding. D. GUARANTEED MINIMUM LEVEL OF PERFORMANCE: The Company guarantees that its minimum level of performance pursuant to this Agreement shall be as set out in this Section 1. Company agrees that failure to meet the minimum .level of new employment as reflected in Section 1 B shall entitle the County to reductions in inducement installments paid to the Company in an amount of two hundred- fifty dollars ($250.00) per employee not hired as reflected in Exhibit A. Company further agrees that failure to meet the minimum level of direct investment as reflected in Section lA shall entitle County to pro rata reductions in inducement installments paid to the Company. E. STATUTORY COMPLIANCE: The Company understands that the County's participation is contingent upon compliance with North Carolina General Statute 158-7.1 and other relevant North Carolina General Statutes. 2. INDUCEMENT FACKAGE A. COUNTY INDUCEMENT GRANT: The County, upon completion of this Agreement, shall provide to the Company an inducement to offset facility development, expansion, and acquisition costs in an amount not to exceed One Hundred Thousand dollars ($100,000.00) in equal installments over a five year period. The first installment shall occur during January of the 2012 calendar year upon receipt of proof, as described in Section 4 of this Agreement, that the minimum employment and investment numbers refezenced in Section 1 of this Agreement have been met and that all local property taxes on the real and business personal property owned by the Company and located within Orange County have been paid. Subsequent annual installments will occur during the month of January for the term of this Agreement with the final installment occurring in January 2016, provided proof of payment of all property taxes and verification of employment and investment levels has been submitted to the County. B. TOTAL COUNTY COMMITMENT: The total County commitment for the Inducement Grant outlined in the paragraph above shall not exceed One Hundred Thousand Dollars ($100,000.00). 3. EXPANSION OPPORTUNITY Participation in this Agreement shall not exclude the Company from consideration for additional inducements from the County either during or upon completion of this Agreement. Future projects shall be considered on a case-by-case basis and induced at the discretion of the County based on Page 2 of 7 6 new taxable investment and job creation in excess of the minimum levels outlined in "Section 1" above. Any such agreement shall require a separate "Performance Agreement" which shall conform to all relevant North Carolina Statutes and/or Orange County Ordinances, Policies or Resolutions, shall be in writing, and shall be mutually agreed upon by the Parties. 4. PROOF AND CERTIFICATION The officials of Parties to this Agreement shall furnish the necessary reports and certificates to verify that each Party's respective goals are met. Once the Company maintains its investment and employment goals for the term of this Agreement it will no longer need to furnish these reports. Acceptable forms of proof for taxable investment shall be the records of the County Tax Administrator. Acceptable forms of proof of payment of taxes shall be in the form of cancelled checks, and receipts of payment from the County Tax Administrator. Acceptable forms of proof for employment numbers shall be in the form of a notarized statement from a North Carolina licensed Certified Public Accountant and shall be verified by the North Carolina Employment Security Commission. 5. REMEDY A. INDUCEMENT PACKAGE: If the County does note meet and maintain the terms set forth in the inducement package, the Company has the option to reduce the amount of its investment and employment package by a pro-rated share upon thirty (30) days written notice to the County. B. DELAY OF INDUCEMENT PACKAGE INITIATION: If .,the Company does not meet employment and investment goals enumerated in this Agreement by December 31, 2011, the onset of this Agreement maybe delayed one {1) year, at the option of the Company. Written notification of a request to delay onset .must be received by the County no later than December 3 i, 2011. This Agreement shall initiate no later than December 31, 2012 and shall expire no later than January 31, 2017. G INVESTMENT AND EMPLOYMENT PACKAGE: If the Company does not meet and maintain either the investment or employment goals within the annual timetable set forth in this Agreement, and does not opt to delay the onset of this Agreement as described above, then the county will reduce the annual installment payment on a pro-rata basis until such time as the Company once again meets both the investment and employment goals. Pro-rata reduction shall be computed based on the percentage of the goal not met. If both investment and employment goals are not met, the larger percentage of shortfall will be applied. In order to qualify for the full reimbursement, both investment and employment must meet or exceed the minimum standards outlined above. 6. SEVERABILITY If any term or provision of this Agreement is held to be illegal, invalid, or unenforceable, the legality, validity, or enforceability of the remaining terms, or provisions of this Agreement shall not be affected thereby; and in lieu of such illegal, invalid or unenforceable term or provision, there shall be added by mutually agreed upon written amendment to this Agreement, a legal, valid, or enforceable term or provision, as similar as possible to the term or provision declared illegal, invalid, or unenforceable. Page 3 of 7 7. COMPLIANCE WITH THE LOCAL GOVERNMENT BUDGET AND FISCAL CONTROL ACTS OF NORTH CAROLINA GENERAL STATUTES All appropriations and expenditures pursuant to this Agreement shall be subject to the provisions of the ~ Local Government Budget and Fiscal Control Act of the North Carolina General Statutes for cities and counties and shall be listed in the annual report submitted to the Local Government Commission by the County. 8. GOVERNING LAWS & FORUM This Agreement shall be governed and construed by the Laws of the State of North Carolina. Any action brought to enforce or contest any section of this Agreement shall be brought in the North Carolina General Court of Justice sitting in Orange County; North Carolina. The Parties hereto stipulate to the jurisdiction of said court. 9. INDEMNIFICATION The Company hereby agrees to indemnify, protect and save the County and its officers, directors, and employees harmless from all liability, obligations, losses, claims, damages, actions, suits, proceedings, costs and expenses, including reasonable attorneys' fees, arising out of, connected with, or resulting directly or indirectly from the Site or the Facility or the transactions contemplated by or relating to this Agreement,. including without limitation, the possession, condition, construction or use thereof, insofar as such matters relate to events subject to the control of the Company and not the County. The indemnification arising under this Article shall survive the Agreement's termination. 10. TERMINATION A. COMPANY: Upon Company's meeting its Employment and Investment obligations as set out in Section 1 above and upon Company's certification to such and certification of the payment of all real and personal property taxes, as set out in Section 4 above, then upon the occurrence of any of the following events, the Company shall have the- option of terminating this Agreement: Failure of the County, to provide. the initial inducement installment as provided in Exhibit A to this Agreement; or, under the same circumstances, failure of the County to make future inducement installments, as provided for in Exhibit A to this Agreement. Should the Company exercise its option to terminate this Agreement, pursuant to this Section or of its unilateral choice, regardless of any of the -above incidences of default, the Company shall repay to the County all funds paid to or for the benefit of the Company pursuant to this Agreement. Thereafter, the County shall have no further obligation to make annual inducement installments. Any such termination of this Agreement by the Company shall be in writing and shall meet notice requirements as set out herein. B. COUNTY: The County shall have the option of terminating this Agreement upon any Abandonment of Operations by the Company, without penalty to the County, which option shall be executed by giving written notice to the Company. Abandonment of Operations shall be defined as a period in excess of four (4) weeks during which the Company's level of Full Time Equivalent Employees or Direct Investment goes below twenty percent (20%) of the guaranteed Page 4 of 7 8 minimum levels of performance commitments for either Full Time Equivalent Employees or Direct Investment as reflected in Section 1 above. C. NATURAL: In any event, the above terms notwithstanding, this Agreement shall terminate upon the 31St day of January of the year in which the final fmancial inducement installment is made. 11. LIMITATION OF COUNTY'S OBLIGATION NO PROVISION OF THIS AGREEMENT SHALL BE CONSTRUED OR INTERPRETED AS CREATING A PLEDGE OF THE FAITH AND CREDIT OF THE COUNTY WITHIN THE MEANING OF ANY CONSTITUTIONAL DEBT LIMITATION. NO PROVISION OF THIS AGREEMENT SHALL BE CONSTRUED OR INTERPRETED AS DELEGATING GOVERNMENTAL POWERS NOR AS A DONATION OR A LENDING OF THE CREDIT OF THE COUNTY WITHIN THE MEANING OF THE STATE CONSTITUTION. THIS AGREEMENT SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CO-LINTY TO MAKE, ANY PAYMENTS BEYOND THOSE APPROPRIATED IN THE COUNTY'S SOLE DISCRETION FOR ANY FISCAL YEAR IN WHICH THIS AGREEMENT SHALL BE IN EFFECT. NO PROVISION OF THIS AGREEMENT SHALL BE CONSTRUED TO PLEDGE OR TO CREATE A LIEN ON ANY CLASS OR SOURCE OF THE COUNTY'S MONEYS, NOR SHALL ANY PROVISION OF THE AGREEMENT RESTRICT TO ANY EXTENT PROHIBITED BY LAW, ANY ACTION OR RIGHT OF ACTION ON THE PART OF ANY FUTURE COUNTY GOVERNING BODY. TO THE EXTENT OF ANY CONFLICT BETWEEN THIS ARTICLE AND ANY OTHER PROVISION OF THIS AGREEMENT, THIS ARTICLE SHALL TAKE PRIORITY. 12. LIABILITY OF PUBLIC OFFICERS No officer, agent or employee of the County or the Company shall be subject to any personal liability or accountability by reason of the execution of this Agreement or any other documents related to the transactions contemplated hereby. Such officers, agents, or employees shall be deemed to execute such documents in their official capacities only, and not in their individual capacities. This Section shall not relieve any such officer, agent or employee from the performance of any official duty provided by law. 13. MISCELLANEOUS A. ENTIRE AGREEMENT: Amendments. This Agreement, including Exhibit A attached, which is incorporated herein and made a part hereof, constitutes the entire contract between the parties, and this Agreement shall not be changed except in writing signed by the Parties. B. BINDING EFFECT: Subject to the specific provisions of this Agreement, this Agreement shall be binding upon and inure to the benefit of and be enforceable by the Parties and their respective successors and assigns. C. TIME: Time is of the essence in this Agreement and each and all of its provisions. Page 5 of 7 9 14. NOTICES Any notices pursuant to and/or required by this Agreement shall be in writing and shall be delivered via United States Mail, certified, return receipt requested: If to Orange County; If to AKG North America, Inc.; County Manager Ralf Huffer, Vice President 200 S. Cameron Street 7315 Oakwood St. Extension Hillsborough, NC 27278 Mebane, NC 27302 Any addressee may designate additional or different addresses for communications by notice given under this Section to the other Parry. AGREEMENT REVIEWED AND ACCEPTED BY: Ralph Huffer Vice President AKG North America Bernadette Pelissier Date Chair Orange County_Commissioners This instrument has been pre-audited in the manner required by the Local Government Budget and Fiscal Control Act. Finance Director Approved as to form and legal sufficiency. Office of the County Attorney Date Attest: Title: Date Attest: Donna Baker Date Clerk to the Board Orange County Commissioners Page6of7 10 "Exhibit A" December 31 Baseline Em to ees New Em to ees Total Em to ees 2011 313 33 346 2012 21 367 2013 13 380 2014 13 393 2015 10 403 Total at Natural Termination of A Bement 90 403 Page 7 of 7 ~~ ~ May 11, 2011 Rick White President, AKG of America, Inc. 7315 Oakwood Street Extension Mebane, North Carolina 27302 Re: Plant Expansion -Orange County, North Carolina Dear Mr. White: Orange County is pleased to submit this proposal to support the expansion of AKG, North America, Inc: s facility in Orange County, as detailed in your letter of April 29, 2011. Orange County does not have a formalized policy in place, however the Board of County Commissioners wants to acknowledge the importance of AKG's proposed investment and employment growth in Orange County and is pleased to commit to the following general structure. Based upon a minimum $3M investment in taxable facility, machinery and equipment, and the creation of at least 90 new jobs over a period of five years, Orange County will award a $100,000 Business Investment Grant to AKG, North America, Inc. payable at a rate of $20,000 annually over a period of five years based upon the terms and approval of a formalized agreement. This grant award is in addition to additional grant considerations to be provided by the City of Mebane and the State of North Carolina. Should AKG, North America, Inc. select Orange County as the expansion location, the County will formalize a Business Investment Grant contract, subject to the public hearing requirements of North Carolina General Statute X158-7.1 and the adoption of a formal agreement in a public vote by a majority of Orange County Commissioners. Orange County appreciates AKG's corporate presence, and Iooks forward to the opportunity for continued discussions to-expand your presence in our community. Please feel free to contact me should you have questions or need further clarification. Sincerely, Gary Shope, Director Orange County Economic Development 11 cc: Ms. Bernadette Pelissier, Chair, Orange County Board of Commissioners Mr. Frank W. Clifton, Jr., Orange County Manager Mr. John Roberts, Orange County Attorney Subjecfi Property ~ ~ ~ E .. )- ) ;y Y..^~t I(( J tH ~ ~ M4 ' ` T)fR ~ < < I ~ k .W r f ?~ ~~k ~ i ~~ ~~ k'.: t ; `* _ y~ 70 rn N T ~1 C z. G1' C ~ Y ti._}'_ ~~+ ~ ~,. r ~ ~~ ~ ~ :< :Q s~s ,G .„.. ~~ „ ~ ,~~. ~ +~4 ~ r 3 b +> `~r~~ ~ i»T7 ui~t,' ~~~ r, s ~~ rid "'1" ~' County Boundary I~„; „'~ Mebane City Limits Subject Property Mebane ETJ ~ Parcels 1 inch = 1,500 feel o soo 1,000 ~ I N Orange County Vknning and Inspections Department GIS Map prepared W Brien Carson. 5/31/2011 Sub j~Gt P _ rop~~Y ~~ 5 ~ Subject AroAerty Parcels -_. ~ , ~~ ~~~~ ~- . . t < 2 t ,f ~ , __, .~ ~~ ;" ' -• N } u 7 inch ~ 25p feet "~ w<.t~*' 140 ~ ~ ~t :` 280 r °! r ,, - ~~Be Coun ~ ~ ~P F'rePar~ by g~ ~~0 5/3~ 01~~nt