Answers to frequently asked questions regarding the Mercury Marine incentive package

NOTE: I am posting this as an informational item, not as an endorsement of the sales tax. What do you think of the tax? Please vote in the poll (to the left) or share your ideas under the comments section.

At FCEDC, we've been fielding some questions from both the public and the media regarding the recently released local incentive package being offered to Mercury Marine. In light of this, we felt it would be helpful to share these questions and the answers with all of you.

How much land is being acquired and what will it be used for?

There are three parcels near the Hickory and Pioneer intersection – 1.57 acres, 10.10 acres, and 9.41 acres. The City will utilize a Tax Increment District (TID) to fund the acquisition with expectations that the three parcels may be developed as commercial opportunities at some point in time.

Is Mercury Marine being given $50 million as a grant or is this a loan?

The $50 million is being provided in the form of a low interest rate loan with the expectation of repayment over the 12-year term. We are anticipating that the company will not get the entire loan up front, but rather it will be disbursed over an 18-month period of time. The loan will be collateralized and is considered “performance-based.”

So if it’s a loan and it’s going to be repaid, why do we need the sales tax?

With the reduction in the interest rate (the loan is at 2% versus the County borrowing at market rate) and potential credits for job retention and creation, the company won’t be paying enough to cover the debt service from the borrowing. The sales tax is being recommended to cover that “gap."

How much sales tax could be needed to cover that “gap?”

The max “all in” annual amount – that is if the company earns every single credit available to them - is just over $3 million annually.

How does Mercury Marine earn the credits again? Is that what the “performance-based” statement means?

Mercury Marine can earn credits towards the repayment of the loan by retained jobs ($500 credit per retained job) and creating new jobs ($1000 per credit). The credits are based upon how well the company performs. We will be utilizing the same baseline measurement of employment as the Wisconsin Department of Commerce for the measurement. So, for example, if the company retains the baseline number of jobs and adds 300 new jobs, the credit towards the repayment would be $1,063,000.

Is there a limit on how much the company can earn as a credit?

Yes. The agreement caps the total number of jobs at 2,900. This would equate to a maximum annual credit of $2,137,000. This would be deducted from their repayment amount and provides us with the maximum annual gap of $3 million previously mentioned.

How much is that per job? It seems like a very large number.

If Mercury reaches all the credits possible and the sales tax is paying a gap of $3 million annually, it equates to approximately $12,400 per job at Mercury Marine in local incentives. A threshold of $20,000 per full-time job is typical for economic development loans.

So what if the company doesn’t perform? Some people think they are just going to move anyway.

This is a 12-year agreement so if the company doesn’t maintain its presence in Fond du Lac, the loan will immediately becomes due and payable in full. There is also a $500 penalty for each job not retained at the baseline level previously mentioned.

What happens if the company goes bankrupt?

The City of Fond du Lac and Fond du Lac County are guaranteeing the loan and a proportionate rate (28% City, 72% County). The sales tax would still be utilized to cover a portion of the debt service from the borrowing, but then the City and County would need to make up the difference to cover the balance of the debt service. Note though that we previously indicated that the loan will be collateralized. This means that the City and County will have property and/or equipment pledged from Mercury Marine. If something does happen, the City and County would sell that asset to attempt to cover the remaining debt rather than it coming from the taxpayers.

Other businesses, large and small, in Fond du Lac County are also struggling. Why are we only helping Mercury Marine?

While the magnitude of the impact that Mercury Marine has on our community justified the size of the incentive package, the tools being utilized, the programs tapped into and the expertise utilized to put the package together are similar and in some cases identical to those previously used for other Fond du Lac County businesses. Fond du Lac County’s revolving loan fund, for example, at the end of 2008 had a portfolio of $3.6 million. In 2008 alone, $1,592,500 was approved in loans to local businesses from this one fund alone. Existing business development services are available to any business in Fond du Lac County through Fond du Lac County Economic Development Corporation.

So how much will be collected for the sales tax and does Mercury Marine get all of it? If not, what happens to the rest of the money?

The $3 million represents less than half of the estimated annual sales tax revenue (projected at $6.5-$7 million in current economic climate) with the balance planned to be utilized for economic development, reduction of County debt, and property tax relief.

What happens to the .5% county sales tax once the 12-year loan is done? Do we still need to pay the tax or is there a sunset?

A sunset clause has been mentioned and briefly discussed. There will need to be further discussion on whether a sunset date is incorporated into the authorization of the sales tax. County Board action is needed to either extend the timeline, or eliminate the tax, and this can be done at any time with proper notice.

Is the .5% county sales tax the only option?

No. The gap could be placed on property taxes but that would equate to an approximate 10% increase on the County portion of the tax bill. The 2008 rate was $5.03/$1000 so a 10% increase would be $.50 per $1000. An owner of a home worth $125,000 would see an increase of $62.50 annually while an owner of a home worth $250,000 would experience an annual increase of $125. A wheel tax on motor vehicles registered in Fond du Lac County could also be implemented. This would add $100 per each vehicle registered.

The sales tax is consumer driven and many food items, medications and other medical-related items, and motor fuel are not subject to the .5% sales tax. Of the $6.5-$7 million collected annually, approximately 22% is paid by people not living in Fond du Lac County.

If you have any further questions, please do not hesitate to contact us at (920) 929-2928 or info@fcedc.com.