Toyota Mazda announced last week it will invest $1.6 billion to construct a new auto manufacturing facility in Huntsville, Alabama. Expected to be operational in 2021, the plant could build up to 300,000 Toyota Corollas and Mazda crossovers per year, pushing the state into the top tier of auto-producing states. The operations are expected to create up to 4,000 jobs with an average salary of $50,000.
Alabama and communities in the Huntsville area have provided an incentive package worth approximately $800 million. Incentives were important – the company stated early on that it expected an incentive package valued at around $1 billion – but the largest offer did not carry the day.
So, what incentive elements mattered most to securing the project? Our assessment is that in Huntsville’s case it was three T’s: talent, teamwork and TIF.
Talent is the top issue for expanding and relocating businesses. Communities need to have procedures in place to address workforce needs in the context of the site selection process and the ability to offer high-quality training programs to convince companies that the location can meet their workforce requirements. Huntsville and Alabama offered both.
Toyota President Akio Toyoda said “the key factor in choosing Alabama was its workforce.” The company knows about the area’s talent base from direct experience because Toyota has been producing engines in the region for over 15 years. Toyota executives also noted that the Huntsville area has a base of 50,000 auto-related jobs, so they know they are not building the skillset from scratch.
Huntsville took another important step: According to AL.com, the city commissioned a study that found that it could accommodate 7,000 additional advanced manufacturing jobs through 2022.
Finally, the state included $20 million for Alabama Industrial Development Training to construct a training facility and recruit and train workers for the auto production facilities.
Coordinated state and local incentive offers are necessary for success. Multiple state, local and utility organizations contributed to the incentive package. The combined offer, not just the state portion, drove the value of the incentive package to the company. Here is a rundown of the core elements of the state and local offers.
State incentives ($380 million)
- $90.6 million (estimated) jobs credit over 10 years (a cash rebate based on 4% of new payroll available on an annual basis and payable over 10 years)
- $210 million investment credit over 10 years (a credit against the companies’ income and utilities taxes)
- $20 million reimbursement for eligible capital costs
- $25 million state sales tax abatement
- $14.3 million abatement of state property taxes that don’t support education
- $20 million for Alabama Industrial Development Training
Local incentives ($320 million +)
Multiple local governments are contributing incentives. The largest amount will come from the city of Huntsville:
- $68 million for the project site (direct)
- $107 million for a 20-year property tax abatement (direct)
- $24 million construction sales tax abatement (direct)
- $6.88 million rail spur extension (direct)
- $2.5 million on-site rail assistance (direct)
- $250,000 for Japanese Saturday school (direct)
- $600,000 for temporary office space for two and a half years (direct)
- $2.8 million for utility extensions: (non-direct)
- $60 million to complete the Greenbrier Parkway (non-direct)
- $40 million in improvements to Old Highway 20 (non-direct)
- $6.6 million in waived permitting fees (non-direct)
- $1.5 million for in-house and third-party inspections (non-direct)
Madison, Limestone, and Morgan counties plus the cities of Athens and Madison will also provide some incentives. For example,
- Limestone County approved a 20-year property tax abatement valued at $80 million
- Madison County is considering $3 million in incentives for the plant.
Athens Utilities, which will provide services to the plant site, is also offering incentives estimated at $5.5 million to provide a substation for the plant. The Tennessee Valley Authority (TVA) has said it will not disclose incentives they provide.
The site itself was a critical factor, but so is the ability to finance improvements for the site to “quickly get up and running.” The proposed tax increment financing district, or TIF 7, is how that will happen.
The core of the property is a 1,200 acre TVA-certified megasite. The city of Huntsville also agreed to acquire an additional 1,100 acres to complete the site to meet Toyota’s needs. The city will provide sewer, roads, utilities and all other infrastructure needed for the plant.
It is worth pointing out that the “plant” will actually be two separate facilities (Mazda and Toyota) on one campus, plus room for a supplier park.
Huntsville is planning to create a tax increment finance (TIF) district that encompasses the plant site. The TIF designation would allow the city to issue bonds and repay those bonds using property tax revenue collected on the increase in property values within the district. The proceeds from the bond issue will be used to finance infrastructure and other needed improvements.
According to local reports, the TIF 7 district would include 5,700 acres (2,400 of which are for the Toyota-Mazda project). Huntsville would borrow $151 million (this is the bond financing) to purchase the property for the plant, extend Greenbrier Parkway, improve Old Highway 20, and make improvements to the sanitary sewer system. Recreational areas and greenways may also be part of the infrastructure package.
Smart Incentives has seen that businesses increasingly want communities to be responsible for location-based assets, which include land, infrastructure, and the local workforce. Companies with major projects expect all of these factors to be in place with the opportunity for customization. Competitive communities are bringing all of these elements to the table in the context of their incentive offerings.
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