Texas Rising September/October 2009

by Gerard MacCrossan

Luring the CAT to Central Texas

Local Government Tools that Made The Difference

  • Local property tax abatement (Chapter 312, Texas Tax Code) — no city or county tax bill for 10 years.
  • Value limitation and tax credits (Chapter 313, Texas Tax Code) — Eight-year limitation on the value assessed for school district maintenance and operation tax and two-year eligibility for tax credits. (No limitation on interest and sinking tax assessment.)
  • Freeport exemption from personal property tax on parts and materials exported within 175 days of delivery to manufacturing facility.
  • Economic development sales tax — Incentive funds allocated by 4A corporation.

Incentives for Caterpillar

Local

  • City of Seguin —100 percent property tax abatement for 10 years.
  • Guadalupe County —100 percent property tax abatement for 10 years
  • Seguin ISD — Available $80 M value limitation per year on appraised property value for maintence and operations plus hold harmless funding from the state of Texas.
  • Freeport exemption on personal property tax in Seguin, Guadalupe County, Seguin ISD.
  • Seguin Economic Development Corp. — $2M incentive: $1M cash; $1M bond for sewer, road infrastructure.
  • Regional partners offering incentives include: Guadalupe Valley Electric Cooperative, Center Point Energy and Springs Hill Water Supply Corp.

State

  • Texas Enterprise Fund — $10M.
  • Texas Department of Transportation — Deceleration lane, traffic signal — $450,000-$500,000 est.

Construction under way as Chapter 313 change paves way for incentive application

Enticements that local economic development officials estimate could total about $80 million during the next 10 years, proximity to transportation and even the mild winter weather were factors prompting Caterpillar’s anticipated roll into Texas.

The heavy equipment giant is relocating one of its primary global engine assembly, test and paint operations to Guadalupe County, about 30 miles northeast of downtown San Antonio. Texas won the investment and 1,465 projected jobs over sites in Mexico and South Carolina. Caterpillar plans to have a $170 million facility close to Interstate 10 manufacturing engines by mid-2010 and fully operational in 2011.

Seguin Economic Development Director Terry Treviño estimates the local incentive package, which includes $10 million from the Texas Enterprise Fund, could save Caterpillar $70 million during the next decade. The rest of the package includes city and county property tax abatements under Chapter 312 of the Texas Tax Code, freeport exemption on parts and materials used in manufacturing that stay in Texas for no more than 175 days, and reduced school taxes Caterpillar is seeking under Chapter 313 of the Texas Tax Code limiting the appraised value of taxable property.

Construction work is under way at the plant and Caterpillar’s Chapter 313 application – the last piece of the incentive puzzle awaiting approval – was filed with the Seguin Independent School District in July after the 2009 Texas Legislature modified the incentives’ qualifications. The change allows a company to qualify for Chapter 313 tax abatements if it hires more than 1,000 workers earning 110 percent of the average county wage. Caterpillar announced its work force’s average wage will be $21 per hour, which is higher than the average manufacturing wage in Guadalupe County, but not 110 percent — the level needed to qualify under the previous Chapter 313 rules.

State Rep. Edmund Kuempel of Seguin, who introduced the amendment modifying Chapter 313, says legislators knew the change was beneficial not just for Caterpillar and Seguin, but the whole region and state.

“It is a big boost for towns and counties within 30 or 40 miles, not just with Caterpillar, but the suppliers, too,” he says. “The work force could grow to 3,500 or 4,000 people with the work force at Caterpillar and the companies servicing it.”

Although most of the incentives will be provided by Guadalupe County and Seguin entities, surrounding communities, such as New Braunfels, Marion, Schertz and Wilson and Gonzales counties, also will benefit from wages paid to commuting workers and new companies moving in, Kuempel says.

“Seguin is a prime location that brings Cat closer to our supplier base and customers,” says Caterpillar spokeswoman Kate Kenny. “Seventy percent of the products manufactured in Seguin will be exported and this location provides excellent access to ports and other key logistical opportunities.

“State and local officials worked very quickly and aggressively to meet our needs and deadlines to make this a reality,” Kenny says. “We value teamwork and this was a true team effort.”

“It is a big boost for towns and counties within 30 or 40 miles, not just with Caterpillar, but the suppliers, too.”

— State Rep. Edmund Kuempel

According to Treviño, the city’s and county’s similar Chapter 312 tools already in place streamlined the process for offering the 100-percent, 10-year property tax abatement. Seguin ISD’s Chief Financial Officer Sandra Hill says Caterpillar has applied for the appraised value limitation, which would apply to the maintenance and operation portion of the school tax bill; the ISD’s debt service tax would be levied at the total appraised value.

The Seguin EDC kicked in $2 million backed by 4A sales tax receipts – $1 million in cash and a further $1 million to fund sewer and public road improvements around the Caterpillar site. The EDC’s investment is substantial considering the annual 4A receipts are about $800,000, according to Treviño. However, Seguin EDC had funds in the bank, thanks to reserves generated from previous real estate investments, and last summer paid off all its debt prior to agreeing to sell the new Caterpillar bonds.

It wasn’t just financial commitments that swung the Caterpillar deal. Seguin city leaders committed in early December – before the deal was formally announced – to expanding wastewater collection capacity at the site, which lies on the northeastern outskirts of Guadalupe’s county seat.

The Texas Department of Transportation offered two new turn signals and a deceleration lane for truck traffic entering the plant. Spokeswoman Helen Havelka says preliminary cost estimates for the TxDOT work – all on public right-of-way – is $450,000 to $500,000.

Part of the state funds committed will go to work force training, Treviño says. Adding 1,465 employees – making Caterpillar the community’s largest employer – shouldn’t be very difficult given 25,000-population Seguin’s proximity to northern San Antonio and its bedroom communities in western Guadalupe County, as well as New Braunfels and San Marcos.

“We’re one of the largest manufacturing cities in the state of Texas,” Treviño says. “The work force 
is skilled.” Training would be delivered by the Alamo Community College District, almost certainly at the Central Texas Technology Center – a collaboration with Seguin and New Braunfels economic development officials located adjacent to the New Braunfels Airport in northwestern Guadalupe County. TR

A Caterpillar 725 articulated dump truck powered by a C-11 diesel engine that is among the type that will be built in Seguin.