Company seeks bond, tax break from city

Monday, December 3, 2007
A sign in front of the DANA Corp. building announced its availability for purchase. Shaefer's Electrical Enclosures of Advance, Mo., has asked Cape Girardeau for bonds and a tax abatement to help finance its purchase of the plant. (Aaron Eisenhauer)

The 150,000 square foot Dana Corp. plant on the south side of Cape Girardeau won't be vacant for long if the city council approves an economic development bond and tax abatement package to finance a move by Schaefer's Electrical Enclosures Inc. of Advance, Mo.

The proposal includes a plan for the city to authorize up to $5 million in bonds and a 50 percent property tax abatement for 10 years. Schaefer's Electrical's management has negotiated a $2.85 million price for the building, according to information supplied to the council, and plans to use the remainder of the bond issue to finance the purchase of additional equipment to expand operations.

The proposal has the support of Mayor Jay Knudtson, Cape Girardeau Area Chamber of Commerce president and chief executive officer John Mehner and Cape Girardeau Area MAGNET executive director Mitch Robinson. The plan, they said, will keep a major industrial plant in use while providing the space for a major regional employer to expand its work force.

"They are at a point in their company's life cycle where they have to take the next step," Robinson said.

Council members tonight will be asked to approve a resolution that would move the deal forward. Further consideration of the bond issue would take place Jan. 7, with final approval no earlier than Jan. 21.

Dana Corp. filed bankruptcy in March 2006 in New York and announced plans to move production at the Cape Girardeau plant to Mexico last December. The terms of the building sale must be approved by the U.S. Bankruptcy Court. While several potential buyers showed interest in the building, no competing proposals have been made to the court, said broker Tom Kelsey of Lorimont Place Ltd., who represented Dana in the negotiations. A decision from the judge should come within two weeks, he said.

"We were very pleased with the interest in that building, which speaks highly of Cape Girardeau, that facility and the quality of our workers," Kelsey said.

Dana plant manager Max Dunlap said Friday that the last of the company's equipment will be removed from the plant sometime in January.

Schaefer's is a 21-year-old company started by Frank Schaefer in 1986. A group of investors led by John Tlapek of Cape Girardeau purchased Schaefer's in 1999.

It currently employs more than 100 people at its cramped 60,000 square foot facility in the Advance Industrial Park. Shortly after the move to Cape Girardeau, total employment would approach 150, company president Mark Diamond said.

The company has outgrown its current facility and the Dana building is ideal for continued growth, Diamond said. The current building has been expanded seven or eight times during the period since the current owners took over, he said.

"We looked at a facility in Marble Hill and we looked at a facility in Dexter," Diamond said. "When we looked at what was available and the price per square foot, the more we talked and looked at the dollar amounts, the more we came to the realization that from an investment standpoint it is a much better investment than building a new addition on to our factory here."

The city would issue bonds under the state's local industrial development bond program, known as Chapter 100 bonds, for the chapter of state statutes granting the authority. The Schaefer's Electrical deal would be the first use of the bonds by the city, although Cape Girardeau County government has used the authority to finance expansion of the Procter & Gamble paper products plant on Highway 177 and the Nordenia USA plant, also on Highway 177.

Under the Chapter 100 bond program, the city would become the owner of the property. Schaefer's would pay off the bonds by leasing the property. Chapter 100 rules allow for full relief from property taxes for up to 20 years, but Schaefer's would be required to make payments for 10 years equal to 50 percent of the taxes that would be due if it owned the property, with full tax payments thereafter, Mehner said.

Based on the value of the property and the equipment that is expected to be installed at the plant, the tax savings for the company would total more than $342,000 over the 10 year period, with $260,000 coming from the Cape Girardeau School District. But local taxing jurisdictions would receive an immediate benefit from the sale if the deal goes through, Mehner noted.

Due to the bankruptcy, Dana has not paid its property taxes for 2006 or 2007. It owes $104,421 in taxes and $16,210 in penalties, of which $77,131 is owed to the school district. Those taxes would be paid by Schaefer's Electrical as part of the purchase of the property, Mehner said.

"The back taxes that we hope to recover would be settled through the bankruptcy court," Mehner said. "At least the tax amounts would be recovered."

The move would also help Cape Girardeau avoid the loss of sales taxes on the utilities consumed at the Dana Building, Mehner noted.

Under the bond program being used, Cape Girardeau taxpayers would not be obligated to repay the bonds if Schaefer's were to fail as a business.

Along with the specific proposal to finance Schaefer's Electrical's move, the city will be developing a policy for future deals using Chapter 100 bonds, Knudtson said.

The deal makes sense for the city, Knudtson said.

"It became an issue to evaluate on the simple premise that we had an empty building we are replacing with a very vibrant and successful company with 150 to 200 new jobs," Knudtson said. "In my mind, it became a very simple question."

If Dana Corp. had approached the city and said it would keep its plant open in exchange for a 50 percent reduction in property taxes, "I would have said where would you like me to sign," Knudtson said.

The decision to look outside Advance for a new location was a difficult one, Diamond said. To ease the transition for its employees, most of whom live within five or 10 miles of the current factory, the company is developing plans to provide transportation so they can avoid the expense of driving the 54-mile daily round trip to Cape Girardeau, Diamond said.

"We want to stay local, but we've got to make a good business decision," he said.

335-6611 extension 126

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Details of the proposal

Schaefer's Electrical Enclosures Inc. of Advance, Mo., is seeking approval of the Cape Girardeau City Council for a bond and tax abatement package to finance a move to the Dana Corp. building at 2075 Corporate Circle. The key points of the plan include:n Cape Girardeau authorizes the sale of up to $5 million in Chapter 100 industrial development bonds, financing the purchase of the building and new equipment. The city becomes owner of the property.

* Schaefer's Electrical moves its production, bringing its current workforce of more than 100, with plans to immediately add 40 new jobs, to Cape Girardeau.

* Schaefer's Electrical, through lease payments to the city, repays the bonds.

* For 10 years, Schaefer's Electrical makes annual payments in lieu of property taxes equal to 50 percent of the taxes that would be due if the property remained in private hands.

* If Schaefer's Electrical fails to make lease payments or goes out of business, city taxpayers would not be liable for any loss incurred by the bondholders.

* When the bonds are retired, Schaefer Electrical becomes owner of the property.

* No direct tax subsidies, other than the reduced property taxes, will be part of the package.

Source: Plan submitted by Cape Girardeau Area Magnet

Dana Corp. timeline

* Jan. 13, 1989: Dana Corp. of Toledo, Ohio, announces plans to build a 140,000 square-foot building in Cape Girardeau at a cost of $3.4 million to manufacture components for the automotive and trucking industry. The company's total investment in the plant, including equipment is estimated at $23 million. Corporate leaders estimate the plant will eventually employ 200.

* July 2, 1989: Dana announces it is accepting applications for jobs at the plant under construction off Southern Expressway.

* March 25, 1990: Dana announces it is "officially in the building" with 45 employees in training.

* July 26, 1990: Gov. John Ashcroft visits Dana plant; employment reaches 68.

* February 1993: Dana presented industry of the year award by the Cape Girardeau Area Chamber of Commerce.

* Sept. 24, 1996: Dana employees vote 205 to 87 against joining the United Auto Workers union. Total employment is approximately 350.

* February 2000: Dana again named industry of the year.

* July 9, 2003: Workers at the plant are unsettled by a hostile takeover bid for Dana Corp.; employment at 315.

n April 11, 2005: Dana announces layoffs of 32 employees, reducing the work force from 314 to 282.

* Sept. 23, 2005: Workers at the Cape Girardeau plant vote to join UAW. Plant employment at 258.

* March 3, 2006: Dana files for bankruptcy protection for U.S. operations in the U.S. Bankruptcy Court in New York.

* Nov. 9, 2006: Dana announces plans to close eight U.S. plants, without specifying which will be shut down.

* Dec. 12, 2006: The 200 employees at the Cape Girardeau plant are told they will lose their jobs within 18 months, with production being shifted to Mexico.

* July 19, 2007: Employees approve a closing settlement for the plant negotiated between Dana and representatives of the UAW. The agreement sets Nov. 30 as the final day of operations at the plant, but many employees leave and most manufacturing ends before that date.

* Friday: Proposal for Cape Girardeau to sell up to $5 million in economic development bonds to finance purchase of the 150,000 square-foot facility for use by Schaefer's Electrical Enclosures Inc. included in city council agenda. Proposal includes a 50 percent cut in property taxes for 10 years. Plant manager Max Dunlap said all company equipment will be removed by mid-January.

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