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UPDATE: NN faces penalties after falling flat on job creation

Nathan Baker • Updated May 10, 2019 at 6:33 PM

Now that it’s clear global manufacturer NN Inc. will leave Johnson City without delivering the jobs it promised in exchange for tax incentives, officials said Friday penalties in its incentive agreement will be triggered.

An annual report obtained Friday by the Johnson City Press through a request for public records showed the company employed 63 people at its Mockingbird Lane office building, far fewer than the 200 required by its payment in lieu of taxes, or PILOT, agreement with the Johnson City Industrial Development Board.

NN’s 10-year PILOT agreement with the board, granted in 2014, forgave it of five years of property taxes, then gradually increased its payments to the city based on a percentage of the assessed taxes on its $6.6 million building. Starting in 2019, if the company did not employ at least 80% of the promised 200, the agreement penalizes the company by requiring it to pay a proportion of the assessed taxes equal to the percentage of jobs it missed.

In an emailed statement, Northeast Tennessee Regional Economic Partnership CEO Mitch Miller said NN will pay 67% of the assessed property taxes on its building.

“Our preference certainly would have been for NN to remain in Johnson City and create the 200 jobs they projected back in 2014, but the protection in the PILOT put forth by the IDB is the reason we will see the property taxes paid this year,” Miller said.

With real estate and personal property taxes considered, the company should pay $113,000 for 2019. The agreement does not include a provision to recover the taxes forgiven over the past four years.

While still under the agreement, if NN has no employees in Johnson City, it will be required to pay all of the assessed taxes.

When first pitched to the Industrial Development Board in 2014, Miller, then CEO of the Washington County Economic Development Council, said the company intended to invest in and expand its global headquarters in Johnson City, bringing 200 new jobs, and would likely couple that growth with an expansion of a bearings manufacturing plant in a neighboring county.

The board approved the incentives, worth nearly $1 million, requiring the company to create the new jobs in three years, or face financial penalties.

When those three years were up, and NN reported 64 employees in its offices, company representatives asked the city to extend the deadline for job creation, saying the three-year term had been a misunderstanding.

Months after the extension was approved, NN announced it would sell its manufacturing plants in Mountain City and Erwin and its Johnson City offices would no longer be a headquarters, but a shared services center. Its headquarters would be in Charlotte, North Carolina, where the company was promised a $4.3 million incentive package.

Last month, a news release posted to its corporate website announced the company would close its shared service center in Johnson City by the end of June. The announcement surprised local officials and left questions about the $3.4 million in local, state and federal incentives promised to the company.

Jennifer McEachern, Communications Director for the Tennessee Department of Economic and Community Development, said NN’s past job reports will be analyzed to see if the company will have to pay back any of the $2 million the state granted it for job creation.

After its fifth performance report, due Thursday, job creation numbers from the last three reports will be averaged and the company will be asked to repay the difference between the calculated amount and the 200 jobs promised. To the state, the company reported creating 51 new jobs in 2017 and 76 in 2018.

NN’s job figures were reported to the state differently than to local officials. The 2019 numbers were not available from the state Friday.

Penalties for missed investment and job creation requirements for state economic development grants have been a topic of interest since Hemlock Semiconductor announced it would close its Clarksville plant and keep the $95 million non-refundable state grant it received.

Those penalties, know as clawback provisions, were written into state law this year as part of the Fair Accountability and Clarity in Tax Subsidies Act, enacted by the General Assembly.

In addition to requiring clawbacks, which have been written into all state incentive agreements since Hemlock Semiconductor’s departure without the law, the original bill required the state to disclose the dollar amounts of state grants to companies and required the state to verify that companies were creating the jobs they claimed. Currently, companies self-report job creation numbers.

Those transparency measures were eliminated from the final legislation after urging from Department of Economic and Community Development officials and Gov. Bill Lee.

Previously reported:

Public records show global manufacturer NN Inc. failed to create the jobs promised to Johnson City in exchange for years of forgiven property taxes on its multimillion-dollar office building.

As the company prepares to leave the city for good next month, an annual report obtained Friday by the Johnson City Press through a request for public records showed it employed 63 people locally, far fewer than the 200 required by its payment in lieu of taxes, or PILOT, agreement with the Johnson City Industrial Development Board.

The figure for full-time employees at NN’s Mockingbird Lane offices is fewer than last year, when the company reported 82 jobs.

Last month, a news release posted to its corporate website announced the company would close its shared service center in Johnson City by the end of June. The announcement surprised local officials and left questions about the $3.4 million in local, state and federal incentives promised to the company.

According to the 10-year PILOT with the Industrial Development Board, NN was to pay no taxes for five years on its office building, appraised at $6.6 million by Washington County records. In the fifth year, if it had not created at least 80% of the 200 jobs it promised, it must pay a proportion of the assessed taxes equal to the percentage of jobs it missed.

Based on the formula in the incentives agreement, the missed job creation should mean a payment of more than $70,000 from NN on the $113,000 abated for the 2019 tax year. There don’t appear to be any provisions in the agreement to recoup the four previous years of abatement from the company.

When first pitched to the Industrial Development Board in 2014, Mitch Miller, then CEO of the Washington County Economic Development Council, said the company intended to invest in and expand its global headquarters in Johnson City, bringing 200 new jobs, and would likely couple that growth with an expansion of a bearings manufacturing plant in a neighboring county.

The board approved the incentives, worth nearly $1 million, requiring the company to create the new jobs in three years, or face financial penalties.

When those three years were up, and NN reported 64 employees in its offices, company representatives requested the city extend the deadline for job creation, saying the three-year term had been a misunderstanding.

Months after the extension was approved, NN announced it would sell its manufacturing plants in Mountain City and Erwin and its Johnson City offices would no longer be a headquarters, but a shared services center. Its headquarters would be in Charlotte, North Carolina, where the company was promised a $4.3 million incentive package.

After the company announced its withdrawal last month, Miller, now the CEO of the Northeast Tennessee Regional Economic Partnership, said NN would be held to the requirements of the incentive agreement.

“This news is disappointing but not shocking,” Miller said then. “The PILOT agreement protects taxpayers.”

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