Answers to frequently asked questions regarding the Mercury Marine
incentive package

At FCEDC, we’ve been fielding some questions from both the public and
the media regarding the recently released local incentive package
being offered to Mercury Marine. In light of this, we felt it would be
helpful to share these questions and the answers with all of you.

 

How much land is being acquired and what will it be used for?

There are three parcels near the Hickory and Pioneer intersection –
1.57 acres, 10.10 acres, and 9.41 acres. The City will utilize a Tax
Increment District (TID) to fund the acquisition with expectations
that the three parcels may be developed as commercial opportunities at
some point in time.

 

Is Mercury Marine being given $50 million as a grant or is this a
loan?

The $50 million is being provided in the form of a low interest rate
loan with the expectation of repayment over the 12-year term. We are
anticipating that the company will not get the entire loan up front,
but rather it will be disbursed over an 18-month period of time. The
loan will be collateralized and is considered “performance-based.”

 

So if it’s a loan and it’s going to be repaid, why do we need the
sales tax?

With the reduction in the interest rate (the loan is at 2% versus the
County borrowing at market rate) and potential credits for job
retention and creation, the company won’t be paying enough to cover
the debt service from the borrowing. The sales tax is being
recommended to cover that “gap.”

 

How much sales tax could be needed to cover that “gap?”

The max “all in” annual amount – that is if the company earns every
single credit available to them – is just over
$3 million annually.

 

How does Mercury Marine earn the credits again? Is that what the
“performance-based” statement means?

Mercury Marine can earn credits towards the repayment of the loan by
retained jobs ($500 credit per retained job) and creating new jobs
($1000 per credit). The credits are based upon how well the company
performs. We will be utilizing the same baseline measurement of
employment as the Wisconsin Department of Commerce for the
measurement. So, for example, if the company retains the baseline
number of jobs and adds 300 new jobs, the credit towards the repayment
would be $1,063,000.

 

Is there a limit on how much the company can earn as a credit?

Yes. The agreement caps the total number of jobs at 2,900. This would
equate to a maximum annual credit of $2,137,000. This would be
deducted from their repayment amount and provides us with the maximum
annual gap of $3 million previously mentioned.

 

How much is that per job? It seems like a very large number.

If Mercury reaches all the credits possible and the sales tax is
paying a gap of $3 million annually, it equates to approximately
$12,400 per job at Mercury Marine in local incentives. A threshold of
$20,000 per full-time job is typical for economic development loans.

 

So what if the company doesn’t perform? Some people think they are
just going to move anyway.

This is a 12-year agreement so if the company doesn’t maintain its
presence in Fond du Lac, the loan will immediately becomes due and
payable in full. There is also a $500 penalty for each job not
retained at the baseline level previously mentioned.

 

What happens if the company goes bankrupt?

The City of Fond du Lac and Fond du Lac County are guaranteeing the
loan and a proportionate rate (28% City, 72% County). The sales tax
would still be utilized to cover a portion of the debt service from
the borrowing, but then the City and County would need to make up the
difference to cover the balance of the debt service. Note though that
we previously indicated that the loan will be collateralized. This
means that the City and County will have property and/or equipment
pledged from Mercury Marine. If something does happen, the City and
County would sell that asset to attempt to cover the remaining debt
rather than it coming from the taxpayers.

 

Other businesses, large and small, in Fond du Lac County are also
struggling. Why are we only helping Mercury Marine?

While the magnitude of the impact that Mercury Marine has on our
community justified the size of the incentive package, the tools being
utilized, the programs tapped into and the expertise utilized to put
the package together are similar and in some cases identical to those
previously used for other Fond du Lac County businesses. Fond du Lac
County’s revolving loan fund, for example, at the end of 2008 had a
portfolio of $3.6 million. In 2008 alone, $1,592,500 was approved in
loans to local businesses from this one fund alone. Existing business
development services are available to any business in Fond du Lac
County through Fond du Lac County Economic Development Corporation.

 

So how much will be collected for the sales tax and does Mercury
Marine get all of it? If not, what happens to the rest of the money?

The $3 million represents less than half of the estimated annual sales
tax revenue (projected at $6.5-$7 million in current economic climate)
with the balance planned to be utilized for economic development,
reduction of County debt, and property tax relief.

 

What happens to the .5% county sales tax once the 12-year loan is
done? Do we still need to pay the tax or is there a sunset?

A sunset clause has been mentioned and briefly discussed. There will
need to be further discussion on whether a sunset date is incorporated
into the authorization of the sales tax. County Board action is
needed to either extend the timeline, or eliminate the tax, and this
can be done at any time with proper notice.

 

Is the .5% county sales tax the only option?

No. The gap could be placed on property taxes but that would equate
to an approximate 10% increase on the County portion of the tax bill.
The 2008 rate was $5.03/$1000 so a 10% increase would be $.50 per
$1000. An owner of a home worth $125,000 would see an increase of
$62.50 annually while an owner of a home worth $250,000 would
experience an annual increase of $125. A wheel tax on motor vehicles
registered in Fond du Lac County could also be implemented. This
would add $100 per each vehicle registered.

The sales tax is consumer driven and many food items, medications and
other medical-related items, and motor fuel are not subject to the .5%
sales tax. Of the $6.5-$7 million collected annually, approximately
22% is paid by people not living in Fond du Lac County.

If you have any further questions, please do not hesitate to contact
us at (920) 929-2928 or [email protected].