Last month Palm Coast government announced that Ground Up, the Connecticut-based muscle-car parts company, was eventually closing shop there and moving its operations to the 70,000 square foot building on Commerce Boulevard that once served as City Hall then as headquarters to Palm Coast Data. Ground Up pledges to bring 30 to 40 jobs. The city had been in talks with the company since January.
Today, the Palm Coast City Council embraced an unusual incentive to the company: a five-year, 75 percent discount on the property taxes Ground Up will owe the city. In exchange, the company will have to spend what money would have gone to the city on certain city-related initiatives. The package is the first of its kind in Palm Coast, though it’s not a particularly unusual approach in aid packages: American foreign aid is usually structured the same way. The federal government requires recipient countries to spend their aid dollars on American goods, thus recycling the money back to home coffers.
Palm Coast is calling its approach a “recapture, enhanced value grant,” a method in use by a few cities, namely Jacksonville and Lakeland, if differently structured than Palm Coast’s. Jacksonville and Lakeland offer a rebate of up to 50 percent on the incremental increase in property taxes, from a base year, and stretch the grant over 10 years.
Palm Coast government’s goals include the directive to “create a business recruitment program and develop incentives through in-house resources.” In previous years, the city has offered incentives by discounting impact fees (the one-time levies on new construction) or, in Palm Coast Data’s case, sold it that very building at 2 Commerce Boulevard for what at the time, was a very low price. County government a few years ago offered rebats on property taxes of prospective new companies, but the approach fizzled out.
As Palm Coast Development Director presented the tax rebate approach to the council in a workshop this morning, council members were quick to applaud it and hope for more.
“For the amount of money it’s a no brainer. I hope that they pay decent salaries, which I’m sure they will. And I’m hoping that we are opening a good can of worms,” Council member Eddie Branquinho said.
“How can we parlay this success into broadcasting to other businesses, perhaps, maybe competitors, maybe in a similar industry or just similar size, how can we herald the fact that we’ve got these people coming and we want more?” Alfin said.
There is a cost to the city. But since it’s only one company for now, the cost is almost insignificant. In 2020 the tax bill for 2 Commerce was $55,855. The Palm Coast portion of that was $12,884. Based on those numbers, DeLorenzo said a 75 percent tax rebate would be $9,684, “and over a five year period depending on taxable value growth and millage, that can be approximately 50 to $60,000 for the life of the grant, maximum.”
The company will always pay its full property taxes. Ground Up will then submit an annual report showing whether it’s in compliance with the grant terms. It’s required to stay in the city, to have a minimum of 25 jobs at the Palm Coast location, and to provide a list of grant-related activities. Unlike Jacksonville and Lakeland grant structures, Palm Coast is not requiring Ground Up to have a minimum average salary (in Lakeland, for example, the salaries must be 115 percent of the average wage in the county, or at least $22 an hour. Call center employees don’t usually command that high a wage.)
Once the grant compliance document is reviewed and matched with requirements, the city would then rebate the 75 percent. “They can only expand the grant funds on expenses that are allowed in this agreement,” DeLorenzo said. For example, the company may reinvest its rebate on improvements of its facility. It may hold a car show that would attract visitors to the city. It could work with school programs geared toward science and engineering, or even foster one such program. “These are all intended to recapture the grant in the into the community.”
It’s “far superior than cash upfront for them to relocate,” Council member Nick Klufas said.
No analysis was presented regarding the cumulative effect of such a program if, for example, five or 10 companies were to be awarded similar incentives. If the same benefit were extended to 10 companies, the city would be short $100,000 a year (the equivalent of just under the cost of a sheriff’s deputy for a year). The assumption is that the rebate works as an investment that, by bringing that much business activity, that many jobs and the resulting reinvestment required by the grant, the subsidy would be repaid in other ways–and would ensure a stronger job base past the five-year life of the grant. But absent hard data, those remain assumptions, not observed evidence that the incentive works.
The company bought 2 Commerce Boulevard for $4 million in April. It plans to open by December. The company is hiring, starting with 30 employees, with plans for future expansion. Its call center will remain in Connecticut for a while, until the Palm Coast operation is fully operational.
DeLorenzo traced the origin of the relationship with Ground Up. It started in January, when the company’s financial representative contacted the city, showing interest in 2 Commerce. City and company officials soon met there. Ken Santoro, co-owner of Ground Up, said he was looking to move his company to northeast Florida, with a few sites in mind. ” We continued to have a high level of engagement with them, it was something obviously we were interested in pursuing them moving here, it’s a low impact business for us, and would add significant jobs.” Ground Up officials asked what type of economic incentives the city had. The city offered up the tax rebate, which Ground Up liked.
DeLorenzo also explained how the city kept the deal silent for months: “We’ve known for several months, that this was going to happen that they were going to come here,” he said, “but they were had a fully operational business in Connecticut and they needed us to work carefully with them on the timing of the announcement, because they didn’t want to lose all their employees in Connecticut and and damage their business.”
On the other hand, it also prevented employees in Connecticut from knowing what was coming, and preparing for it with enough lead time so as not to be left jobless when the time came. Florida law allows local governments to exempt their business prospects from open-record provisions, at least for a time. But Palm Coast and Ground Up didn’t feel it necessary to invoke those confidentiality provisions.
“So we worked very closely with them to craft the message and release a message at the start, at a certain time, we released the message a couple weeks ago because they needed to start hiring,” DeLorenzo said.
The council was especially interested in posting company listings for job searches on the city’s website.
The agreement has yet to be ratified by the council at a subsequent business meeting. That may take a few weeks as Ground Up is still getting its documents in order.