The City of Manhattan agreed to a Tax Abatement for Nanoscale Materials, Inc. at the Tuesday night meeting. Here is a memo given to the Commission:

BACKGROUND

On August 5, 1986, Kansas voters approved a constitutional amendment which authorizes tax abatements and exemptions for purposes of economic development. The constitutional amendment permits cities and counties to exempt from property taxes all or any part of buildings, land and tangible personal property used by new or expanding business exclusively for the purpose of manufacturing, research and development, or the storing of goods traded in interstate commerce. Since 1994, the State of Kansas requires cities to perform cost-benefit analysis before any tax abatement may be granted.

On March 19, 1996, the City of Manhattan passed Resolution No. 031996-E, setting forth the City’s policy on Property Tax Exemptions/Abatements for Economic Development. The policy indicates that the cost-benefit analysis should return a net benefit to the City, result in the creation of new jobs, and the benefiting firm must make a capital investment in new construction.

From time to time, a City utilizes the tax abatement tool to enhance economic development in the community. This economic development tool has been used very sparingly by the City in the past. As of this date, there are only four tax abatements which have been approved by the City. Those are summarized on the following chart.

Firm

Abatement Authorized

Abbott Aluminum

50% average abatement on land, buildings and personal property over 8 years (1994-2001) with smaller tax owed in early years

Firm

Abatement Authorized

Transportation Design & Manufacturing (TDM)

100% abatement on land, buildings, and personal property over 10 years (1996-2005)

Manko Window Systems

75% average abatement on land, buildings and personal property over 10 year period (1997-2006)

Meadowlark Hills*

100% abatement on land, buildings and personal property over 10 years (2000-2009)

* This abatement is somewhat unique, in that, Meadowlark Hills is a not-for-profit organization which is not subject to taxation. The Commission approved the abatement request in the event that there may be some change in state law regarding Meadowlark’s status.

DISCUSSION

The City is in receipt of a request from Nanoscale Materials, Inc. for a 75% average abatement on personal property over a 10 year period (see attached materials). It is important to note that Nanoscale Materials, Inc. is not requesting an abatement on land or a building but only the personal property or equipment utilized in their research and development activities. Nanoscale Materials, Inc.’s proposal requests a 100% abatement during years one through three, a 75% abatement for years four through six, a 60% abatement during years seven through nine with a 50% abatement in year ten. Nanoscale’s personal property tax abatement would be effective for property to be located at their new Kansas State University Research Park facility.

Nanoscale Materials Inc. was founded in 1995 to develop and commercialize reactive nanoparticles and other related technologies. Reactive nanoparticles are extremely small particles of matter having extraordinary physical and chemical properties which hold promise for meeting a wide variety of needs in both civilian and military markets. Reactive nanoparticles and related technologies were developed at Kansas State University (KSU) under the direction of Dr. Kenneth J. Klabunde, University Distinguished Professor of Chemistry. Dr. Klabunde is internationally recognized as a pioneer in this emerging field. Currently, Nanoscale Materials operates in space located at the Kansas Entrepreneurial Center. However, having outgrown that facility, they are looking to be one of the first tenants in the new KSU Research Park and expand operations, creating quality new jobs in the community.

According to the City’s policy, the Finance Department has performed a cost-benefit analysis regarding Nanoscale’s proposal. The cost-benefit analysis examines the impact on each taxing jurisdiction, including the City, Riley County and U.S.D. 383. The model takes into account capital investment made by the company and community spinoff effects from job creation. The model shows the following economic impact of the firm on the community:

Job Creation: 105 jobs over next ten years

New Residents: 16 over next ten years

Additional Students: 3 over next ten years

Personal Income: $29.4 million increase over next ten years

Local Retail Sales: $19 million increase over next ten years

Property Tax Base: $3.6 million increase over next ten years

In addition, the model shows the following net benefits to the various taxing jurisdictions over the ten-year abatement period:

City: $1 million

Riley County: $505,523

USD 383: $251,957

State of Kansas:$19.4 million

A notice of the public hearing to consider this issue appeared in the official City newspaper on Monday, August 27. In addition, all of the materials have been forwarded to the School District and Riley County.

The State Statute which allows for the granting of tax abatements requires that a Governing Body make certain findings of fact regarding such abatements. It requires that the abatement be utilized exclusively by the firm for the purposes provided in the constitutional amendment. A Resolution which makes these findings of fact has been prepared for the Commission’s consideration along with an ordinance granting the abatement.