CLAYTON — To get Caterpillar to update its product development center in Clayton and expand its manufacturing plant, the town will reimburse the company with substantial tax payments in the next seven years.
Currently, Caterpillar employs about 450 workers in Clayton, where it manufactures earth-moving equipment. The expansion will include a new engineering and test facility near the plant off N.C. 42 East.
If all goes as planned, the expansion promises $33 million worth of investment in its Clayton-based facilities and 199 jobs during the next five years. Caterpillar could also receive more than $2 million in benefits from the state if it meets benchmarks on job creation and property investment during the next nine years.
And while it’s up to Clayton and Johnston County to provide the tax breaks for the corporation to meet those goals, the added revenue in increased sales tax redistribution from the county, utilities taxes and disposable income will put more money in Clayton’s coffers in the long term.
The county plans to give Caterpillar about $1.2 million in incentives during the next seven years to expand its Clayton plant, including reissued property taxes in the form of grants over several years.
Clayton will reissue 90 percent of the increase in Caterpillar’s taxes – based on development of the new facility – in the form of grant money during the next five years. In the sixth year, the town will reimburse the company 80 percent, and in the seventh year, that figures drops to 70 percent.
The company considered other sites for the project, including Illinois, Japan, Belgium and Brazil. But Clayton was the final choice, partly because of the incentives package, said Rudy Watkins of the Harvest Group, a Tennessee-based tax-incentive negotiation firm that worked with Caterpillar on the deal.
“They’re very competitive,” Watkins said. “The state of North Carolina was very generous.”
Johnston County Commission Chairman Allen Mims said it’s worth it to offer Caterpillar a tax break. The company is bringing much-needed jobs and a boost to the tax base, he said.
“This is the game you have to play with these folks, because they’re looking other places,” Mims said. “I’m willing to work with them to help them get started.”
In Clayton, town manager Steve Biggs is thinking along the same lines as Mims.
During the next seven years, the town will be paying its fair share alongside Johnston County to reimburse the company for property taxes.
“The town reimburses them in the form of a grant, we can’t actually rebate taxes,” Biggs said.
When working on economic incentive packages, the town takes on the role of a grant-writing agency, helping Caterpillar secure extra grant money to meet its job growth and investment requirements. The grant writing itself, Biggs said, adds up to about a $10,000 investment from the town.
Once Caterpillar purchases equipment for the new plant, the town will reimburse the company for 50 percent of the property tax for the next five years based on the new equipment valuation.
“The reason this works is, 199 more people will come to be employed, whether as newcomers, unemployed or under-employed people. It will mean more disposable income in Clayton,” Biggs said.
An increase in jobs translates to more property tax revenue as new employees buy houses, and generate more sales tax revenue as they go shopping in and around Clayton.
But the most important boon for the town is the amount that Clayton will recoup through the electric franchise tax and the increase in the town’s property tax base.
Through the electric franchise tax, the town will receive 3 percent of the company’s gross purchase of electricity from Progress Energy. That means that for every dollar the new plant spends on electricity, the town of Clayton gets paid 3.06 cents.
The town’s proportion of the Johnston County sales tax revenue will also increase thanks to this deal. As the company invests $14.5 million in Clayton proper in the next five years, the town’s tax base will grow, increasing the proportion of the sales tax that the town can receive back from the county. Biggs couldn’t give an estimate for the increase, but he says it would be substantial.
“We’re putting people to work, we’re creating wealth, and wealth generates wealth,” Biggs said. “It’s a direct relationship with the sales tax redistribution.”
Staff Writer Sarah Nagem contributed to this report