Clawbacks

According to Greg LeRoy of Good Jobs First, Philips Semiconductor recently agreed to pay back $13.1 million in tax breaks to the City of Albuquerque, the Albuquerque Public Schools and other public bodies. The clawback comes because Philips is closing the plant, even though Albuquerque had three years ago authorized $400 million in industrial revenue bonds (IRBs are low-interest loans) and the IRBs also made the plant eligible for tax breaks. "This is 100 percent of what we calculated to be the taxes that would have been paid had it not been for the IRB," the city's development director said.

The clawback is a victory for the Southwest Organizing Project and others in New Mexico who have advocated greater accountability in economic development.

Model language coming soon.

Albuquerque Journal
August 22, 2003

Philips to Repay Tax Break
City, APS, Others Will Share $13.1 Million

By Jim Ludwick
Journal Staff Writer

Philips Semiconductor agreed Thursday to pay $13.1 million to make up
for tax breaks it received at its plant in Albuquerque.

Mayor Martin Chavez said the deal has been under negotiation for months.

"It was a smart business decision," Chavez said. "We thought we could be
looking at a number of years of litigation."

The money will be divided among the city, Albuquerque Public Schools and
other entities, said Michael Albers, director of the city's Office of
Economic Development.

The city will get $2.2 million, he said.

Philips announced last fall that it planned to close the Albuquerque
plant at the end of this year. The City Council had approved a $400
million industrial revenue bond issue in 2000 to help upgrade the
operation, with the understanding that Philips would pay back some tax
breaks if it closed the plant within five years.

IRBs are bonds that are used to finance business projects. They are
repaid by the companies that use them, not by the city, but the use of
the bonds clears the way for tax incentives.

Albers said city negotiators proposed the figure that they thought
Philips should pay, and the company agreed to the number that was
suggested.

"This is 100 percent of what we calculated to be the taxes that would
have been paid had it not been for the IRB," Albers said. "This is just
a straight calculation, as we view it, for the premature termination of
the deal."

Company representatives could not be reached Thursday evening.

Chavez said he would like for the city to hang onto the money, rather
than spend it for city programs. "We have to work with the council, but
my preference is to put it in the bank," he said.

Albers said the deal could be finalized within the next month, and quick
payment is expected.

"There was an agreement in principle today. There still is documentation
to be worked out. We still have work to do, putting it to bed," he said.

Another $5.6 million related to state investment credits could still be
at issue, but the matter will have to be handled by the state rather
than city negotiators, Albers said.

Albers said officials "still are hopeful there will be a buyer who will
operate the plant in some fashion."

He said the negotiations with Philips "were complicated by efforts of
both parties to keep the plant open by selling it. We've been pursuing
parallel tracks. We've tried to move methodically. It takes time with
complex negotiations and transactions."

Albers said the agreement demonstrates that "there is a prudent way to
do IRBs. We can feel good about going ahead with the IRB program. We
have a mechanism that provides protection."

City officials have often cited the lessons of the Philips arrangement
as they have discussed other IRB proposals.

Earlier this week, the mayor signed closing documents for an MCT
Industries Inc. bond issue. Councilors had originally rejected the MCT
deal because they wanted some financial protections and benefits built
into the IRB arrangement.

The proposal that councilors ultimately approved for MCT calls for
repayment of a percentage of property tax abatements if MCT ceases
operating in Albuquerque in the next five years. It allows the use of
$4.3 million in IRBs to refinance a similar bond issue that had been
approved in 1997.

Chavez, in signing the MCT documents this week, said he never understood
why the MCT bonds were initially rejected by city councilors, because
they were for an IRB refinancing rather than a new project. But Chavez
said other businesses should take note of the fact that the bond issue
has now moved ahead.

"IRBs with appropriate safeguards are alive and well in Albuquerque,"
Chavez said.

home | login | my profile | join our network | about us | contact us | forums | site map