December 18, 2014

Elyria
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Lorain OKs $5.9 million in tax and water rate breaks for Republic

LORAIN — Faced with losing 100 Republic Steel jobs to Mexico, or gaining about 450, Lorain city leaders said the $5.9 million in tax and water rate breaks City Council members approved Monday were a deal they had to make.

“This is certainly a sizeable investment in the city of Lorain, one that is critical to manufacturing,” Mayor Chase Ritenauer told Council members. “Sometimes we hear manufacturing is completely gone. This is a deal that shows it’s not.”

The deal is tied to Republic building an electric arc furnace at its plant at 1827 E. 28th St., which is expected to create 450 jobs. Work on the furnace is expected to begin in August and be completed in early 2014.

In exchange, Republic receives a 75 percent rebate on its payroll withholding taxes for new jobs created in the first five years and a 40 percent rebate in the ensuing 10 years, totaling about $3.4 million. Republic also gets a 12 percent discount on water use — up to 40 million gallons annually for 15 years — worth approximately $2.5 million. The breaks work out to about $13,000 per job.

Republic had about 550 workers at the plant at the end of last year, according to Francesco DiGiannantonio, Republic’s chief financial officer. Republic relocated 200 jobs in 2008 when it shut its blast furnace, but DiGiannantonio said the 450 jobs are separate from any jobs that might return to the plant.

The deal is contingent on Republic increasing its $30 million payroll to at least $37.5 million in three years, according to Doug Rangel, executive director of the Lorain Development Corp., the private consultant who negotiated the deal for the city.

“The more net income they report and the more taxes they pay, the more money that would be rebated to them,” Rangel told Council members.

Rangel said Republic could receive the breaks if its payroll went below $37.5 million if the U.S. steel industry declines for two straight quarters or U.S. Gross Domestic Product — the sum total of all goods and services the nation produces — declines for two straight quarters. Rangel said the deal is off if Republic’s Lorain payroll dips below $30 million.

“You don’t know what’s going to happen two years, 10 years, 15 years from now. It is an unknown,” Rangel said after the Council meeting. “They’ve got to prove it (an economic or industry decline) has impacted them.”

Most of Republic’s steel goes to auto companies and auto parts suppliers in the Midwest. However, Republic — whose parent company is the Mexico-based ICH — considered moving 100 jobs to its plant in Matamoros, Mexico, and building the furnace there. DiGiannantonio said the Matamoros plant already has one electric arc furnace and the tax and water breaks were “critical” in Republic’s decision to expand in Lorain.

“We’re positioning ourselves to be a global competitor,” he said. “This was a very good collaboration, in my view, between the community and company.”

Contact Evan Goodenow at 329-7129 or egoodenow@chroniclet.com.