Economist: Continental Tire plant deal won’t break even until 2024
Published 10:28 am Tuesday, September 13, 2016
According to a previously unreleased economic analysis obtained by Mississippi Watchdog, it’ll be more than seven years before state taxpayers break even on a $263 million incentive deal to bring a $1.45 billion tire plant to Hinds County.
The economic analysis of the Continental Tire plant deal by Bob Neal, senior economist for the Mississippi Institutions of Higher Learning, was provided to the Mississippi Development Authority in July 2015. According to Neal, the state will break even by 2024 and the plant and other associated firms will employ 5,318 by 2030, generating a “net positive impact in Mississippi.”
When Neal sent his analysis to the MDA, the deal was secret and even had a code name: Project Potter.
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In February 2016, it took the Mississippi Legislature only five hours and precious little discussion to approve a $274 million bond issue to finance the incentive package for Continental Tire and a Gulfport shipyard for Topship, a subsidiary of Edison Chouest Offshore. The shipyard project was code named Project Crawfish.
The IHL later doubled down on its numbers with another economic analysis for lawmakers in February that included a similar conclusion to Neal’s earlier analysis.
The economist predicted in his analysis that the project will cost the state’s general fund more than $5.49 million in 2020, $4.5 million in 2021, $4 million in 2022 and $907,660 in 2023.
According to Neal’s analysis, that’s predicated on the construction phase of the project generating an estimated $83.5 million in general fund revenue from 2017 until 2021. These numbers assume an inflation rate of 3.5 percent annually and wage increases of 1 percent per year.
State taxpayers will provide Continental more than $18.8 million per year from the bond issue starting in 2019. That amount will shrink to $14.6 million in 2037, $10 million in 2038 and $5.29 million in the final two years of the deal before the final payment in 2040.
Neal also predicts that returns to state coffers will be $126.9 million by 2030 and $486.8 million by 2040.
The company is subject to clawback procedures in the memorandum of understanding between it and the state. Production at the plant has to begin by Dec. 31, 2019, and the company has until 2028 to create 2,500 jobs that earn $40,000 or higher, or face financial penalties.
Also, the release of funds to the company are tied to several key milestones. If the plant meets its 2019 production goal and has created at least 500 jobs, it will receive the rest of the bond issue funds. If the company doesn’t meet its production goal, it can qualify for the rest of the funds by creating at least 650 full-time jobs.
In addition to the bond money, the company will receive a 25-year income tax exemption and breaks on both local property taxes and the state’s corporate franchise tax. Continental’s corporate franchise tax will be capped at $25,000 per year. The franchise tax is levied at a rate of $2.50 per $1,000 of capital or property, whichever is greater.
Neal, whose analysis focused on the bond debt, said during his testimony before a state Senate committee in February that he hadn’t conducted any fiscal analysis of the impact of the tax breaks.
The state’s bond indebtedness totaled $4.3 billion in April, and that figure will increase by $582 million as a result of passage of the incentive package in February and a general bond bill enacted in April, according to state treasurer Lynn Fitch.
In August, ratings firm Moody’s downgraded Mississippi’s bond outlook to negative, citing flagging state revenues and above-average debt levels. The state still retains its Aa2 general obligation bond rating.