Johnson City essentially did both when it handed NN Inc. a sweetheart deal to locate its headquarters here four years ago.
The bearing manufacturer was awarded a PILOT — payment in lieu of taxes incentive — that allowed it to go five years without paying any taxes on the promise of having 200 high-paying jobs here. Over the 10-year life of the PILOT, the city would have exempted NN from an estimated $900,000 in property and equipment taxes.
The state of Tennessee also kicked in a $2 million grant, and the Tennessee Valley Authority contributed incentives worth $400,000.
The tradeoff for a community in a PILOT is supposed to be the gain the tax base receives from the people who work, live and spend here. Local economic development also sold the PILOT to the city on the prospect that it would lead to a multi-million-dollar expansion in a neighboring county.
NN never lived up to its side of the equation. Johnson City became less and less of a priority. Maybe it never was.
In 2017, the city amended its tax incentive agreement with the company to give it more time to create those jobs. Three months later, NN sold its plants in Erwin and Mountain City. Two months after that, it announced its corporate headquarters would move to Charlotte, North Carolina, but still promised to maintain a presence in Johnson City.
The 2017 amendment gave NN until March 2019 to have at least 160 full-time employees on payroll. But last year, the manufacturer reported just 72 employees, 88 shy of meeting the new agreement’s minimum requirement. This year’s report was due in May.
But as News Editor Nathan Baker reported, the company announced April 19 a complete pullout. No more jobs in Johnson City.
Local officials rattled their sabres in response, promising to hold NN accountable to the terms of the PILOT. Mitch Miller, Northeast Tennessee Regional Economic Partnership’s CEO, said the company will owe property taxes due based on the PILOT agreement as long as it has its $6 million building in north Johnson City. Provisions in the contract require NN to make proportional property tax payments based on the difference between the jobs requirement and the actual employment figures — but only in the years after the deadline.
So in a nutshell, NN already has enjoyed about four years of tax-free existence in Johnson City — hundreds of thousands of dollars — while giving the city a fraction of the benefit in return. It seems nothing in the PILOT contract requires NN to be held accountable for those tax-free years.
Feeling cheated yet? You should. Think of the number of homeowners it would take to cover that amount in taxes.
Once those jobs are gone, the city should be able to assess 100 percent of taxes on the building after the agreement expires, rather than a proportional amount.
More importantly, local governments should never enter into a PILOT incentive without tighter provisions that penalize a company for early withdrawal. Any contract should go beyond a deadline for creating jobs to include a payback provision on the unpaid taxes amassed if a company fails to deliver. There must be a minimum number of years those jobs exist after the incentive period.
As taxpayers, you should demand that any future PILOT incentives offered by area counties and municipalities make it impossible for another NN-like scheme to happen.