Tuesday, October 06, 2015

Local Caterpillar Plant Could Absorb Job Cuts Without Penalty Under Terms Of Agreement With Oconee County And Athens-Clarke County

During Restructuring

When Caterpillar announced on Sept. 24 that it plans to cut 10,000 employees and consolidate and close more than 20 facilities around the world, it left unspecified which plants would be impacted.

In its news release, which has been the source of much of the reporting on the announcement, Caterpillar would say only that “There are many factors that impact these contemplated decisions” as well as their timing.

“Employees will be notified as decisions are made for each facility,” the news release said. The closings and job cuts announced are to occur through 2018.

Caterpillar has until 2032 to bring its hiring at its plant on the east side of Bogart up to 1,100 full-time employees without violating the terms of its memorandum of understanding with Oconee County and Athens-Clarke County.

At the end of 2014, when Caterpillar filed the annual report required by that MOU, the total number of full-time jobs based on the monthly average was 658. It was only required to have 250.

Job Creation Figures

Caterpillar reported on July 31 that it had created 1,466 jobs at its local plant, and that figure has been misreported as the number of employees.

Plant Entrance

Jay Boling, economic development assistant with Oconee County, told the Georgia Department of Community Affairs in a letter on July 31 that “The plant now reports 1,466 employees for this reporting period.”

Caterpillar is required to file a semi-annual report on jobs created with the state as well as the annual report on the monthly average of full-time employees with the two local governments.

The state gave an incentive grant to Caterpillar, and it has now exceeded the requirement for that grant that it create 1,300 jobs.

The 1,466 figure has been used in several reports by The Oconee Enterprise as the number of full-time employees at the plant.

In the report for last year, dated March 24, Caterpillar reported the 658 full-time employees and 932 full-time jobs created. Included in the later category were 130 jobs described as “Agency/Leased.”

Milestones Reached

In the July 31 report, Caterpillar reported that it had reached several milestones at the local plant.

In early 2015, the plant began building Small Track Type Tractors, or small dozers, for countries with high emission standards.

In June of this year, according to the report, the plant began production of these tractors for countries with lower emission standards.

Production of a model of “emission complaint” mini-hydraulic excavator was launched in July, the report said. Other models of mini-hydraulic excavators already were in production.

Production volume for both the tractor and excavator is “expected to continue to grow sharply during the second half of 2015 as the facility follows its projected production ramp up,” the report said.

Restructuring And Cost Reduction

Caterpillar’s announcement of its restructuring and cost reduction plans received much national and some local attention.

The company’s sales and revenue for 2015 are expected to be $1 billion lower than the projected figure of $49 billion, and sales and revenues are expected to be about 5 percent below 2015 figures in 2016. That would translate into a decline of $2.4 billion.

If those projections hold, the company would report sales and revenue decreases for four years in a row, a first in Caterpillars 90-year history, according to the news release.

The company blamed the declines on cutbacks in the mining and energy industries, but it said the reductions will be felt in all three of Caterpillar’s “segments,” namely construction industries, resource industries and energy and transportation.

Local Investment

Oconee County borrowed $10.4 million via a revenue bond in 2012 to finance an incentive program to bring Caterpillar to the area. Athens-Clarke County put up roughly the same amount. The plant straddles the border of the two counties.

The two governments developed the plant site, put in the roads and other infrastructure, and built the plant for Caterpillar. Oconee County is paying $700,000 annually through 2034 to pay back the bond that financed those investments.

The two counties, through a complicated abatement scheme, waive much of the property taxes Caterpillar would otherwise pay.

If Caterpillar owned the land and building, it would have been billed $91,113 in real property taxes in Oconee County last year. Instead, it paid $42,185 in real property taxes on the "lease" for its facility and manufacturing equipment.

That is a savings of $48,928, or 53.7 percent.

The two counties had expected parts suppliers for Caterpillar to build facilities nearby, providing tax revenue to offset the loss as part of the Caterpillar tax abatement. That has not happened and might be less likely to happen while Caterpillar goes through its planned restructuring.

Jobs Are Payback

The MOU the two counties signed set community job goals for Caterpillar and specify a procedure for how those jobs are to be calculated.

In its first year, Caterpillar was required to have 100 full-time jobs, and it had 214.

The goals increase by 150 each year until 2017. The increase is in uneven increments until 2032–the 20th year of the agreement–when the number of full-time jobs is to be the 1,100 figure. The goal for 2018--the target date for the end of the Caterpillar restructuring--is 750, or less than 100 more than were employed at the plant in 2014.

Other figures have been used in many news reports and statements by government leaders, with 1,400 common, but the MOU is precise in stating the 1,100 minimum figure.

The number of jobs is “determined based on the monthly average number of full-time employees subject to Georgia income tax withholding for the taxable year,” according to the MOU.

Penalties Specified

The MOU specifies that each year, if Caterpillar does not meet its jobs goal, it must calculate a “community jobs shortfall percentage.”

It must do the same for goals on investment in the plant.

The shortfalls in jobs and shortfalls on investment are then averaged, and Caterpillar is to make a “community recovery payment” based on that amount.

These would be the circumstances if Caterpillar were to drastically scale back or even close the plant.

If the shortfall figure is 30 percent or less, however, the payment is waived.

Caterpillar has the option to purchase the property, the facility and the equipment from the two counties at any time prior to the end of the 20-year agreement. If it does that, it will pay taxes at the normal rate.

No comments: