Huntsville City Council passes development agreement for Toyota-Mazda deal

HUNTSVILLE, Ala. - Thursday night the Huntsville City Council passed a development agreement that puts a $1.6 billion deal with Toyota & Mazda closer to reality.  On Wednesday, officials from both companies as well as state and local officials announced plans to bring automotive plants to a Huntsville-annexed portion of Limestone County.

The agreement includes approximately $320 million in direct and non-direct local incentives. These incentives lure the company to town and save them money. When you read the chart below, think of it like this: direct costs are a direct benefit to the company (Toyota and Mazda.) Indirect (non-direct via the chart) costs are things that benefit the public, too.

"Indirect is things that are owned by the public, not the company, that open up further development and industry," explained Shane Davis. "Does the company benefit from it, yes. But thousands of acres out there benefit from it too."

The Development Agreement and Incentives Package

The development agreement approved Thursday acts as a contract between the city and the companies. It outlines what each will do for the other moving forward with the deal. At the council meeting Shane Davis, Director of Urban Development, outlined the details within that agreement.

There is an $80 million "hard" cost from the city's coffers, city leaders said, which will be paid for when the city borrows money and pays it back with tax revenue from future development on the site. That includes the cost of the site, which the city will give to the companies as part of the agreement. The city will also pay for a rail spur extension and on-site rail assistance which is included in that $80 million figure.

$107 million in property taxes will be abated over a 20-year period. The city says the tax money it forfeited during this deal (which does not include taxes to support schools) is money it never would have had without Toyota-Mazda, and there is not a direct impact to the city budget because of it. They don't consider it money the city missed out on.

The city will also need to rush projects including road extensions that it had already budgeted and planned on doing in its capital plan. That includes Greenbrier Parkway, which will eventually extend to I-65.

Sales taxes for construction and permitting fees are waived per the deal.

"This is a generational project," Mayor Tommy Battle said. "We are investing in this company. We will invest $80 million in direct dollars, total investment will be $320 million, and some of that is unfound money because it is money that would never come to us if they never came here," said Battle. "When you look at it, it's our investment into them and they're going to give us back something."

Alongside the deal with the city, the state is providing approximately $380 million in incentives. That includes a 10-year jobs credit worth more than $90 million and investment credits worth $210 million.

During Thursday night's meeting, the council also granted optioning for private properties needed for the site in Limestone County.  That would give the city control of the properties needed beyond the 1,200 acre TVA megasite. Approximately 2,400 acres will be used for the project.

The automotive deal is estimated to bring a 20-year return on investment of $5.6 billion.

"Those are real numbers," Davis commented.

Clawbacks

Davis does not appreciate the term, "clawback," but it describes an important protection for the city in any development agreement. It is essentially a benchmark that has to be met by the company, or else they lose all or some of the incentives. Davis said he prefers to call them a "recovery investment."

This deal has a clawback.

"We always protect the community's investment," he explained. "We are not providing the company 2,400 acres without some stipulation. They must make that 1.6 billion dollar capital investment. The terms of our deal are that we get our maximum recovery. That's every dollar our taxpayer put into the company."

He added, "And then if their investment falls below that but they made an investment, it's proportional."

What Does the Development Agreement Mean

Now that Huntsville has approved the agreement, it means the real work can begin.

"It's equivalent to the touchdown pass. It's finished, and now the hard work begins by the company and the community. Utilities and infrastructure," said Davis.

It also brings welcome relief to those working on the deal.

"We're all tired," Davis said. "I know the company is exhausted, our team is exhausted, but now we have 48 projects we are working on so we will come right back to work."

What's Next

To finalize the deal, the Limestone County Commission would also need to approve tax abatement as an incentive. They're scheduled to meet Tuesday, January 16 at 10 a.m.

More land still needs to be annexed in, and some land sales still need to become final.

Davis said that Toyota-Mazda might exceed its $1.6 billion investment into the community.

"If you look at Toyota's track record, they typically under-state and over-perform," he said. "If you look at their other facilities across the state and what they've done here in Huntsville, you see that. We expect no different with this project."

This is the project's tentative timeline:

Leaders call it an "aggressive" schedule, and they say that since the Toyota-Mazda announcement was made the phones have been ringing in Huntsville about the land surrounding the new site. More development is expected in new homes and contractors looking to locate nearby. Some speculate there may be an industrial park there related to Toyota-Mazda in the decades to come.

The funding depends on the TIF district that the council will consider at a special meeting on January 17.  City finance officials say that is a key part of financing the deal because it is a funding mechanism that allows infrastructure to pay for itself and return the city's investment.