Small, mid-size and even larger steel-consuming manufacturers—as well as the local economies in which they operate—are among the benefactors of tax credits or financial incentive programs offered by local and state governments, as illustrated by three case studies.
The first involves Chicago-based Tempel Steel Co., which in August had considered shuttering its suburban Libertyville, Ill., production facility and relocating the operations to Mexico. But with the help of tax credits and other financial incentives from city and state economic development organizations totaling up to $7 million over several years, the company instead agreed to consolidate the suburban operations at its Chicago facility.
Tempel Steel, which describes itself as the largest independent manufacturer and global supplier of motor lamination steels with 2007 sales topping $500 million, was offered the incentive package only three months after approaching the City of Chicago and state leadership.
Vincent Buonanno, Tempel's chairman and chief executive officer, credited Chicago Mayor Richard M. Daley and his office with providing "the jet fuel for accelerating the permitting process" and other needed approvals to expand its Chicago manufacturing facility to relocate the Libertyville operations there.
Tempel expects to spend between $10 million and $13 million on the Chicago expansion and Libertyville relocation. By July 2009, the Chicago headquarters will add about 40,000 square feet of manufacturing space, Buonanno said, and many of the Libertyville workers will join that operation, doubling the employee base in Chicago to 700 from 350. "The big decision" that the incentives provided "was not to take it all to Monterrey (Mexico)," where Tempel operates a third motor-lamination plant, he said.
Several factors persuaded Tempel to stay in Chicago, Buonanno said, not the least of which were the proximity of steel suppliers and customers and the sophisticated skills that Chicago's employee base provides, such as technical, engineering and tool and die experience. Tempel employs die setters, tool makers and press operators. Even shipping steel from Indiana mills to Chicago is cheaper than shipping to Libertyville, he added.
Buonanno praised city and state leaders for fast-tracking the package that will keep the company in Chicago. "The city is aggressive. Daley is all over this. He's very ambitious" on behalf of Chicago business, he said, adding that the mayor's office removed the red tape usually involved in such processes.
"We are also grateful to the state of Illinois," he said, which is providing half the benefits in the incentive package. "Both the city and state responded quickly. They came out for a tour the next day."
The second case study is Matandy Steel & Metal Products LLC, a general line carbon steel service center in Hamilton, Ohio, which announced in August that it had taken advantage of state and local efforts to revitalize dirty industrial sites with a plan to build a roll-forming plant for producing steel studs. Its J.N. Linrose Manufacturing subsidiary is already making steel studs for commercial building applications in leased space.
Under Hamilton's brownfield redevelopment program, the city received $750,000 from the Clean Ohio Assistance Fund to acquire the land, raze the shuttered Hamilton Die Cast plant and clean up the site—a 5.6-acre parcel that Matandy acquired from the city for $87,300, said Frank Pfirman, the company's president.
The clean-up of properties through the Clean Ohio program indemnifies the property owner from legal obligations related to previous environmental claims, Pfirman said, adding "It's good for us and it's good for the city."
J.N. Linrose also will benefit from the city's tax increment financing (TIF) program, which pools property tax receipts for the improvement of blighted neighborhoods, including industrial areas.
"Our obligation (under the TIF program) is to invest about $2.2 million," Pfirman said, including $500,000 earmarked for equipment and at least $1.5 million for the new construction. Matandy has already purchased $700,000 worth of roll-forming equipment. The city also mandates that Linrose create at least 10 jobs. Linrose already has 15 employees and expects to hire more when the new 30,000-square-foot building is completed next April or May.
The last case study is Genzink Steel Supply & Welding Co., which in August began receiving state tax incentives to expand its facility in Holland, Mich.
Working with Michigan Economic Development Corp., Genzink Steel has committed to create 104 jobs during the next five years in order to receive $1.1 million in state tax incentives over a seven-year period and a direct grant of $150,000 for job training.
The company had considered moving to Houston because it supplies oil and gas field and coalfield customers, which remain growth industries, and to serve wind tower manufacturers in the Great Plains states.
Genzink Steel plans a $7.9-million, two-phase expansion, said John Maxson, the company's chief operating officer. The first phase, which could be finished as soon as May 2009, consists of a 38,000-square-foot addition to house computer numerical control (CNC) torches and boost welding and fabrication capabilities. The second addition will be geared toward training, safety and employee amenities.
The expansion is part of Genzink Steel's master plan "that targets how our country responds to critical needs, such as alternative energy," Maxson said. The company also will supply steel and fabricated steel components to meet maintenance needs for existing windmills, as well as components used in oilfield applications, coal mines, industrial facilities and warehouses.
Wind towers can be 70 feet high and weigh 80,000 pounds. "They are not easily made or transported," he said, adding that such heavy fabrication "requires a high skill-set from the fabricator. That's where training (and grants to fund it) is vital. Skilled tradesmen are aging in the U.S., so our ability to train a new generation is key to our future and to how well the equipment is built."
Genzink has 300 employees, 76 of which were hired during the past year. "We plan to add 104 (more) jobs in five years," Maxson said.
Apart from the state's assistance, he credited the City of Holland and a local economic development organization for providing further incentives for expansion.
Many of Genzink Steel's customers are in Texas, and wind power is expanding throughout Iowa, Oklahoma and Texas. By not relocating to Houston, Maxson was concerned that distance was a disadvantage. However, "our whole program hinges on skilled personnel and the ability to manage the subcontracting portion of the business," both of which he felt would be more difficult if the company left Michigan. Citing the strength of the supply chain of machinists in Michigan and neighboring states, he said that machine shops formerly tied to the auto industry are eager to do work for growth industries like wind power.
Some energy-related steel suppliers have already moved to the oil patch, but "they are traveling farther and farther to find quality fabricators," Maxson said, so staying put "bodes well for us."