Beverage giant Pepsico and German dairy company Theo Muller Group will likely get to keep more than $3 million in incentives that they received in the last two years for starting a Greek yogurt production plant in Genesee County, even though they’re now closing it and cutting 170 jobs, state and local officials said Friday.
The companies confirmed Thursday that they are ending their joint venture, Muller Quaker Dairy LLC, and shutting down the $206 million facility they opened in Batavia in 2013, because the business was failing to meet expectations. The plant is being acquired by Dairy Farmers of America, a national milk and food production cooperative with 15,000 members in 48 states, giving hope to employees and the county. But details of that company’s timing, price, and future plans for the facility have not been announced.
The 363,000-square-foot plant had been hyped as the largest yogurt-making facility in the country when it was announced by Gov. Andrew M. Cuomo and Pepsico CEO Indra Nooyi in 2012. Greek yogurt was a relatively new and hot item for consumers, and strong sales were projected for the future, with one market research firm forecasting 5 percent annual growth through 2019. So the closure of the state-of-the-art facility after such a short time caught local leaders by surprise.
Now it’s also drawing heat from critics of state and local tax incentives, who oppose what they call “corporate giveaways” without adequate protection for taxpayers, and say this is a textbook example.
“This highlights the underside of the realm of economic development,” said E.J. McMahon, president of Empire Center for Public Policy. “This type of thing is not fail-safe and is not guaranteed to work out. Some taxpayer investments are going to be more speculative than others, which is why we should be doing much less of it in the first place.”
The critics say both the state and the county were too generous and lenient with the terms of the awards to Muller Quaker, which preceded adoption of any clawback provisions by the state two years ago. And they say it’s not the first example of the effects of a “flawed policy.”
“It’s yet another company that is getting tax breaks and folding up shop,” said Ron Deutsch, executive director of the Fiscal Policy Institute. “This is like casino gambling in New York. You’re betting on a company to succeed and create jobs. When they don’t, you walk away the loser.”
According to state officials, the joint venture was awarded $15.5 million in state incentives, including up to $4.5 million in Excelsior Jobs tax credits over 10 years through Empire State Development, a $1 million grant through the state Department of Homes and Community Renewal, and a $10 million Investment Tax Credit. It also separately received up to $5.67 million in property tax breaks, also over 10 years, and another $5.4 million in sales tax breaks through the Genesee County Economic Development Center.
Those incentives are given out over time or based on achieving goals. But through two years, the company collected $556,446 in Excelsior credits, while the state grant was disbursed at $995,000, because the firm met “performance criteria” for “specific investment and jobs created,” said ESD spokeswoman Laura Magee.
“The agency was overly generous and not prudent,” said Assemblyman Robin Schimminger, a Kenmore Democrat. “I don’t know why they would have front-loaded the Excelsior tax credits. It appears that they might have been a little bit more cautious.”
On the local level, the property tax break was structured as a payment-in-lieu-of-taxes, with no payments for each of the first five years and then 50 percent of the full tax for the next five years, said Earl Wells, spokesman for the Genesee County Economic Development Center. That means the joint venture didn’t have to pay $1.5 million in property taxes for the last year, while saving on sales taxes for any equipment, furniture or other purchases it made.
“That’s a pretty generous PILOT,” said James Allen, executive director of the Amherst Industrial Development Agency, which itself has been criticized for being too generous. “They haven’t paid any taxes for the first two years.”
The state has since changed the law to allow agencies to recover tax incentives when a company fails to meet or maintain the job or investment requirements that were agreed to. But it doesn’t apply retroactively. Meanwhile, officials said the future incentives for Muller Quaker will be terminated.