CHAMPAIGN — Kraft Foods is asking the city for a $3.6 million subsidy to build a $38 million warehouse on the former site of the AC Humko plant on Mattis Avenue, and city officials want to set up a special financing district to do it.
City officials say the project — which would be expected to pay for itself after 10 years — would secure the future of one of the area's biggest employers and potentially open a door for Kraft to create more jobs.
Administrators are proposing the creation of a new tax increment financing district to pay the subsidy. The city council will need to sign off on that move, and it will discuss the plan when it meets at 7 p.m. Tuesday in the Champaign City Building, 102 N. Neil St.
Kraft plans to build a 760,000-square-foot warehouse on the site of the former AC Humko plant, which closed in 2008. Champaign Planning and Development Director Bruce Knight said that would unlock 400,000 square feet in Kraft's existing plant at Mattis and Bradley avenues for expansion — potentially new product lines and new employees.
"It not only solidifies Kraft's future here for the long term, but it opens up the opportunity for Kraft to generate more employment yet," Knight said.
The Champaign Kraft plant is the largest food production facility in the United States but is landlocked and has no capacity to add production lines, according to a memo to the city council. It generates over $2.5 billion annually in revenue, ships on average 1.5 billion gross pounds per day on 130 trucks, and employs about 1,200 people.
By contrast, the former AC Humko site has significantly declined in value since it closed in 2008. Knight said the assessed value of the property that year was $1.58 million. This year's assessment puts it at $661,490.
That dropoff also means less revenue for the area's taxing bodies, such as the city, school and park districts, among others. Knight thinks that, by providing the $3.6 million subsidy, the taxing bodies can immediately recover the tax revenue lost when AC Humko closed, have the subsidy itself paid off in 10 years and generate more tax revenue in the future as Kraft property values continue to increase.
"We really talked about how to create a win-win situation," Knight said.
Before Kraft could expand, it would have to spend an estimated $4.2 million to clear the AC Humko site. That requires "significant environmental remediation, site preparation, sewer improvements, road improvements and retrofits, and relocation of processed pipe and structures," Kraft officials wrote in a letter to the city. "These costs are rather significant and have a negative impact on Kraft's ability to approve the Project for the Champaign site."
In order to make the project economically feasible, Kraft officials asked the city to set up the tax increment financing district to pay for a $3.6 million subsidy.
A tax increment financing district freezes the amount of property taxes various taxing bodies receive from property within the district at the assessed value at the time the district is created.
As the property value increases because of new construction or building improvement, all property taxes exceeding that initial value — the "tax increment" — is put into a special fund controlled by the city. The money from the fund must be used to pay for infrastructure and other improvements in the district.
Because the tax increment comes from property tax revenues forgone by those other taxes bodies, non-city entities will end up paying for about $2.9 million of the $3.6 million subsidy. The remaining $700,000 in Kraft payments will be property tax increment that the city, too, must forgo.
In this particular case, Knight said the city plans to make payments back to the other taxing districts to "make them whole" with the property tax revenues they lost when AC Humko closed. That means that, while some of the money will go toward the Kraft plant, all the taxing bodies will actually receive more than what they get now.
Knight said that was part of the deal to encourage the other taxing bodies to sign off on the plan.
When the tax increment financing district expires — after 12 years at the earliest — property tax billing would go back to normal, and all the taxing bodies would, theoretically, begin receiving revenues that wouldn't exist had the city never used the district to create the incentive for Kraft.
Champaign school district spokeswoman Stephanie Stuart said the school district is aware that the city is discussing a new tax increment financing district and was invited to an information meeting about it.
The AC Humko site is incorporated into the city of Champaign, but the Kraft Foods site is not part of the city. The city and Kraft have a long-term agreement that the Kraft property will not be annexed into the city.
In return, Kraft cooperates with zoning laws and fire protection and provides a payment in lieu of taxes to the city. The agreement is the result of a 1987 court order.
News-Gazette reporter Meg Dickinson contributed to this report.