Stillwater News Press

May 6, 2009

Plant worth investment

By Larry Brown, Stillwater Chamber of Commerce

For the past 16 to 18 months Oklahoma, and Stillwater in particular, have risen above the harsh realities of a global economic downturn.

Sales tax revenues stayed strong indicating consumer confidence in the retail sector of our economy. Housing markets continued to expand with the price of housing rising and continued new housing starts.

Unemployment remained low while commercial development and investment in Stillwater grew at a remarkable pace.

As we moved into the last half of 2008 we began to see the recession take its toll on Stillwater. Decisions were made at the corporate level to close retail stores that were doing quite well in the local markets.

Hardest hit were those business and industries engaging in the manufacture and sale of large ticket items dependent on purchasing decisions based on discretionary income and credit availability. Most noticeably, Stillwater’s Mercruiser plant took an economic hit unprecedented in the plant’s 35-year history in Stillwater.

Following a round of employee layoffs last year, Mercruiser and the Stillwater Chamber of Commerce entered into discussions regarding the future of Stillwater’s Mercruiser plant. Several issues were identified for action and as a result the chamber worked with the Oklahoma Department of Commerce and the city of Stillwater to provide some solutions to keeping the Stillwater Mercruiser plant viable.

Unlike many communities that we compete against in the economic development arena, Stillwater does not have a multi-million dollar war chest of incentive money that it can throw at companies.

What we do have is a pro business approach combined with a willing environment to be innovative in our incentive approach. As part of an effort to maintain and strengthen Mercruiser’s presence in Stillwater the Stillwater Industrial Foundation infused nearly $1 million into Mercruiser with the purchase of excess land from Mercruiser. It was a win- win situation.

Mercruiser received an infusion of cash and the Stillwater Industrial Foundation took title on prime commercial and industrial property for future development. In addition, the Stillwater Chamber of Commerce facilitated meetings between Mercruiser and the city of Stillwater to negotiate a temporary reduction in the company’s utility rates.

A third initiative was identified that had the potential to negatively affect Mercruiser’s bottom line. Mercruiser made significant investment in the Stillwater facility and received a state incentive package under the Oklahoma Quality Job’s Act as part of this expansion. This incentive exempted from state property tax all qualified capital investment made by Mercruiser from 2004 to 2007.

As a specific qualifier for the incentive package, the state requires that companies applying for the incentives increase payroll and/or workforce numbers at benchmark levels. Mercruiser made the capital investment and brought new jobs to Stillwater. However, as the economy continued to worsen and the demand for pleasure boats decreased, Mercruiser’s production was curtailed to meet market demand.

As a result, Mercruiser could not continue to meet the job/payroll requirements as set forth in the Quality Jobs Act. Because of their inability to meet those job/employment numbers, Mercruiser not only lost the incentives offered under the Quality jobs Act, they were also required to refund the incentives they had received plus an additional 25 percent in interest and penalties.

Working with Mercruiser the Stillwater Chamber of Commerce developed a legislative initiative to provide relief form the clawback requirements of the Quality Jobs Act. Realizing the importance of Mercruiser’s presence in the region, Sen. Jim Halligan, Rep. Cory Williams and Rep. Lee Denney agreed to sponsor legislation to address this issue. Designated as SB 929 this legislation provides Mercruiser with continued property tax exemption on those major qualified capital investments made from 2004 to 2007.

The bill removes the job/payroll creation obligation from Mercruiser’s incentive contract while maintaining the required capital investment component of the agreement. SB 929 provides Mercruiser with an excess of $1.3 million (includes clawbacks, interest and penalties associated with the original incentive agreement) in benefit at a cost to the state of only $197,000.

SB 929 does contain a clawback provision, requiring Mercruiser to repay all incentives, interest and penalties, should the plant close or cease production prior to 2012.

Our initial intent with SB 929 was to help Mercruiser. However, it soon became clear that this was not simply a stimulus package for Mercruiser but was an initiative that would have statewide appeal and impact.

Mercruiser has been a long-term resident of Stillwater (over 35 years) and has been one of the major manufacturing facilities in Oklahoma. Mercruiser has provided Oklahoma companies with over $100 million in supplier and logistic contracts.

It is estimated that over the last five years direct and indirect salary as a result of the Stillwater Mercruiser facility has been $110,739,662 annually and the total statewide employment because of the Mercruiser facility was nearly 2,700 people (direct and indirect).

Over the last five years Mercruiser ‘s annual research and development budget has averaged $20 million. Capital investment in the Stillwater plant has averaged $10 million annually.

If this were a new company coming to Oklahoma with these types of numbers the incentive package offered by the state would be somewhere between $70 million and $80 million dollars. However, because Mercruiser is an existing company the incentive programs are very limited.

Even in the midst of this tough economic time Mercruiser continues to be a major force in the community, employing over 400 people directly and causing the employment of over 400 other people (indirect).

Mercruiser will continue to have nearly $30 million in contracts with suppliers and logistic providers in Oklahoma. Its business provides income to over 500 Oklahoma families and supports 234 Oklahoma students. In addition, the company will continue to invest in Oklahoma with capital improvements and research and development.

What our legislators had to ask themselves about SB 929 was this; is it worth $197,000 to keep 800 jobs and $30 million of annual supplier and logistic contracts in Oklahoma? Is it worth $197,000 to keep a manufacturer that has had nearly 2,700 jobs tied to its facility (direct and indirect) and over $100 million in annual supplier and logistic contracts with Oklahoma companies? Is it worth $197,000 to keep a company that has spent over $20 million annually on research and development in Oklahoma and is it worth $197,000 to keep a company that has invested nearly $10 million annually? Is it worth $197,000 to keep a major Oklahoma manufacturer of over 35 years viable and competitive? Is it worth $197,000 to keep a company that has directly impacted over 1,250 Oklahoma households? The Legislature answered these questions with a resounding YES!

We firmly believe that in the long term, Stillwater is the best economic option for Mercruiser. Production costs at the Stillwater plant are lower than any other Mercury United States location.

The quality of the product coming out of the Stillwater plant is second to none. Meridian Technology Center is a strong partner in workforce training. State corporate taxes are lower than any other Mercury U.S. location. The Stillwater workforce is highly skilled and non union. Oklahoma is a right to work state.

All of those factors add up to a positive longterm financial outlook for Mercruiser. Immediately, however, they are in survival mode. The Stillwater Chamber of Commerce is committed to helping them through the next 12 to 18 months, working to keep the Stillwater plant viable and keep the Stillwater Mercruiser plant open and growing.

Our sincere thanks to Sen. Jim Halligan, Rep. Cory Williams and Rep. Lee Denney for their support and leadership on SB 929, I would encourage all of you to thank them the next time you see them for this effort. They truly have the best interests of our communities at heart.



Larry R. Brown is president and CEO of Stillwater Chamber of Commerce. Contact him at 372-5573 or lbrown@stillwaterchamber.org.