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REDI president explains IBM deal particulars

Tuesday, May 25, 2010 | 5:09 p.m. CDT; updated 2:23 p.m. CDT, Wednesday, May 26, 2010

This story has been changed to include a more detailed explanation of IBM's lease agreement with the city.

COLUMBIA — The Columbia City Council voted at a special meeting Monday night to approve a deal that would bring IBM to Columbia. Mike Brooks, president of Regional Economic Development, Inc., detailed the particulars of the negotiation, called Project Tiger, including the lease agreement and the benefits Columbia would receive from the deal. Here is a look at the deal REDI struck with IBM:

  • The city will pay a $500,000 down payment to the Columbia Area Jobs Foundation in order to acquire the building IBM will use at 2810 LeMone Industrial Blvd. CAJF is acting as an agent of the city in purchasing the building. Once the building is complete and occupied, the property will be transferred from CAJF to the city. After this transfer occurs, the city will assume the obligation to pay the current owner's loan of $2,500,050, according to the city ordinance authorizing the purchase.
  • The city will own the building and lease the building to IBM for a period of 10 years. As part of the lease agreement, IBM will pay the city a little more than $1 million per year. The lease payments are based on gradually paying off a $10 million loan that CAJF negotiated with a local banking consortium on IBM's behalf, Brooks said.
  • IBM received an $8.6 million bond through the Missouri BUILD Program, which can be used to pay the lease. This bond is contingent on IBM maintaining certain employment numbers. However, the city's lease is not contingent on IBM receiving that tax credit, Brooks said.
  • IBM will also be responsible for paying for the varying aspects of the building's operation, including snow removal, cleaning and building maintenance, among others.
  • IBM has agreed to spend approximately $10 million on improving the building, including making it a sustainable structure.
  • IBM is locked into its lease regardless of outside factors. First Ward Councilman Paul Sturtz raised concerns about clawback provisions in the agreement with IBM, asking if the company can pull out of its lease if the data center does not perform to expected standards. Brooks said the lease was ironclad and IBM was responsible to pay back the lease. "It's almost the perfect clawback because you don't have to do anything," Brooks said. "You own the building."

IBM's entrance into Columbia is expected to bring an increase in tax revenue with it. Here are the benefits Brooks said IBM's move would bring to Columbia:

  • IBM is expected to bring $507,000-$660,000 in annual sales tax revenue to Columbia once the data center is fully staffed.
  • REDI estimated IBM will bring $356,000-$464,000 in annual sales tax revenue to Boone County.
  • REDI predicted an additional $700,000 revenue from property taxes by 2014 as a result of IBM's move to Columbia. 
  • The opening of IBM's Columbia facility is expected to generate an additional $17 million in retail sales, Brooks said.

The council expressed concerns about the housing market and IBM's impact on Columbia housing at the meeting. Brooks said he expects between 250 and 300 new homes to be built as a result of Project Tiger. However, he said to expect the employees coming from other IBM locations to rent, not buy.

Because of Columbia's designation as a college town, Brooks said Columbia is in a better position to handle more renters than Dubuque, Iowa, the site of IBM's last facility.


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Comments

Ray Shapiro May 25, 2010 | 6:01 p.m.

("Brooks said he expects between 250 and 300 new homes to be built as a result of Project Tiger. However, he said to expect the employees coming from other IBM locations to rent, not buy.")

So like we need developers to build more rental properties?
What about all the existing homes which local owners have been trying to sell in Columbia?
Some of these homes have been on the market for about a year.

(Report Comment)
Mark Foecking May 25, 2010 | 6:35 p.m.

"However, he said to expect the employees coming from other IBM locations to rent, not buy."

Hmm. Does this mean they think they might be moving again in a few years?

DK

(Report Comment)
Ellis Smith May 26, 2010 | 6:53 a.m.

Ray Shapiro & Mark Foecking:

Since the deal is apparently now sealed, we will soon find out.

A few months of reality are more instructive than a year's worth of speculation. That doesn't mean we are going to be happy with reality.

How much do we REALLY know about IBM's operation of these facilities? Has anyone privately interviewed a sample of their employees and former employees? (Where is the world's greatest journalism school when we really need it?)

However, Ray, I repeat my assertion that if anyone thinks the positions will all be filled by hiring local candidates (including MU graduates) they are suffering from serious delusion. There are viable candidates schooled at other Missouri institutions of higher learning (including other campuses of University of Missouri System) and there are 49 other states.

(Report Comment)
Glenn Rice May 26, 2010 | 7:47 a.m.

"As part of the lease agreement, IBM will pay the city a little more than $1 million per year." But George Kennedy (http://www.columbiamissourian.com/storie...) stated that the lease will be $1 a year. The other newspaper reported the same. Which is it?

(Report Comment)
Abby Rogers May 26, 2010 | 9:32 a.m.

My name is Abby and I'm the reporter for the story. Thanks Glenn for your sharp eye. There is a $1 million per year payment as part of the lease agreement with the city. But that money will be will be paid to the Columbia Area Jobs Foundation. In turn, the jobs foundation will use that money to pay back loans it has gotten on IBM's behalf. Below I've detailed the lease agreement between the city and IBM. IBM's lease has three components:
1) The lease of the building as it is today, without any improvements, is for $1 a year. This is a 10-year lease with the option to renew for another five years at the same $1 per year rate if IBM maintains job levels
2)Columbia Area Jobs Foundation has borrowed up to $10 million from local banks to upgrade the building. Columbia Area Jobs Foundation is acting as an agent of the city in this case. IBM is receiving state bond monies from. This bond money will be used to pay Columbia Area Jobs Foundation back for the loan, at a rate of a little more than $1 million per year.
3)The common operating expenses, such maintenance and janitorial services, for the building are being done by a property management company. Columbia Area Jobs Foundation will oversee this portion of the lease.

(Report Comment)
Tom Watson May 26, 2010 | 10:27 a.m.

From the IBM employee group AllianceIBM
Reality Check!
800 IBM jobs to be “created” in Missouri
What about the 14,000 IBM jobs lost?
IBM is marching into Columbia, Missouri
with a promise of creating 800 jobs.
Oh by the way, $28 million in tax incentives please.
This for a company that has billions in cash.

The Alliance@IBM is certainly all for job creation.
We are also for job retention.
But that is not what is happening in IBM.

In the last year and a half IBM has terminated almost 14,000 US employees and moved much of their work offshore.
Where are the jobs for them?
Will they be re-called and offered jobs in Columbia?
Sorry, IBM doesn’t value its employees enough to do that.
Of the 800 jobs to be “created” how many will be new hires?
In the case of Dubuque, many IBM employees from around the country were told—move or be gone.

What of the wages for Columbia’s new IBM employees?
The example of Dubuque and other US Global delivery centers is enlightening. Average salary in the older sites at East Fishkill and Boulder is $70,000.
In the newer Dubuque it is $50,000.
That is factoring in the higher paid IBMers that transferred to Dubuque.
And that won’t last because as employees have told us,
band levels and pay scales are dropping for the transferees.
Let’s face it: job “creation” in Columbia and Dubuque is also about lowering wages in IBM.

So while there may be some IBM glitter in the eyes of Columbia residents right now it is important to ask IBM questions on job creation and what will happen when the contract runs out.
Above all taxpayers must demand transparency and accountability from IBM.

(Report Comment)

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