CHAMPAIGN — City officials are moving forward with a request from Kraft Foods to subsidize its expansion plans with a $3.6 million assist in the purchase of the former AC Humko site.
Kraft officials told city council members this week that they cannot guarantee a new 730,000-square-foot warehouse on the site of the former AC Humko plant would bring more jobs and product lines to the plant in Champaign, but the expansion is a "game-changer."
City council members gave the initial OK on Tuesday night to create a new tax increment financing district to provide a $3.6 million subsidy for the $38 million project. City officials will now spend the next few months developing a formal agreement with Kraft and bringing the proposal before a review board.
A final version could be on city council members' desks by December. Kraft officials said this week that, ideally, they would like to have the new warehouse operational by the end of 2014.
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.
The Champaign plant, however, has to compete internally with 37 other Kraft plants for new product lines when the corporation looks to expand. Champaign plant manager Christine Bense said the new warehouse will make the local facility more attractive to its corporate leaders.
"In our minds, this is the game-changer for Champaign," Bense said. "This project is the thing that, for us, unlocks potential that we don't have today."
By contrast, the former AC Humko site has significantly declined in value since it closed in 2008, when its assessed value was $1.58 million. This year's assessment puts it at $661,490.
Kraft officials say they will end up paying more than $4 million more for the site than they normally would as its previous owners look to recoup the large costs of environmental cleanup. That is the primary reason they are seeking a city subsidy.
Bruce Knight, the city's director of planning and development, said Kraft is the only group that has approached the city about redeveloping the AC Humko site.
"This is going to be a challenging property to redevelop no matter what, and we think it makes sense to partner with one of our largest employers to help complete a project that then opens up the potential for new product lines, new employment, new economic activity in the existing plant," Knight said. "And, more importantly, I think solidifies Kraft's future at this location for years to come."
City council members were very supportive of the plan in their comments before an 8-0 straw poll. Council member Vic McIntosh pointed out that this may be the only opportunity to redevelop what is now a vacant property.
"We're not going to get a Phillips 66 to pay $4.3 million to put a filling station in there," McIntosh said. "This is an ideal use for this."
Council member Will Kyles, who works in the plant and abstained from the vote, said the economic impact of the company that employs 1,200 locally goes beyond the borders of the plant's property.
"The impact of Kraft's success not only just affects that company. ... It also impacts our local businesses and the region as a whole," Kyles said.
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 — in this case, assistance for Kraft in the redevelopment of the AC Humko site.
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.
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.
Knight said the city has shared its plans with the Champaign school district, which would be most affected by the tax increment financing district, and school officials have said their board supports the plan.
"I think they recognize the nature of this proposal is win-win," Knight said.