published Tuesday, July 15th, 2014

Governments foot nearly half of initial $600 million cost of Chattanooga VW plant expansion (video)

Will VW's new SUV be successful?
  • photo
    Tennessee Governor Bill Haslam speaks to officials and guests while at the Hunter Museum of American Art on July 15, 2014 as they gather for Volkswagen's announcement investing $600 million to expand and create 2,000 new jobs in the Chattanooga area producing a new sport utility vehicle.
    Photo by Dan Henry /Chattanooga Times Free Press.

  • photo
    Christian Koch, president/CEO of Volkswagen Chattanooga, speaks to officials and guests while at the Hunter Museum of American Art on July 15, 2014 as they gather for Volkswagen's announcement that they are investing $600 million to create 2,000 new jobs and expand the Chattanooga plant where they will be producing a new sport utility vehicle.
    Photo by Dan Henry /Chattanooga Times Free Press.

Nearly half of the planned $600 million expansion of the Volkswagen assembly plant in Chattanooga will be paid for by state and local governments and utilities in Tennessee.

But officials said today that adding another vehicle line, research center and 2,000 direct jobs by VW in Chattanooga should spur thousands of other jobs and bring millions of dollars of additional tax revenues into local coffers.

State and local officials said today that a total of $262.3 million of upfront grants are being offered to pay for VW's expansion and another $12 million of training assistance will be offered for the additional workers added by VW.

"There was a lot of negotiating to get to this agreement and this is where we ended up," Chattanooga Mayor Andy Berke said following an announcement of the Volkswagen expansion today at the Hunter Museum of Art. "We are going to bring the type of innovation jobs to Chattanooga in a way that has not typically been seen here in the South. We're being trusted not only to build the car but to design the car of the future and that's a great opportunity for us."

Tennessee Gov. Bill Haslam said the National Research & Development and Planning Center that VW intends to create in Chattanooga, along with 200 engineering jobs, is a first for a Southern auto plant.

“There’s not one anywhere in the South,” the Tennessee Republican said.

Last summer, the Haslam administration offered nearly $300 million of grants, training assistance and tax credits to lure what was initially planned as a 1,350-job expansion. That offer was pulled off the table by the end of January when talks stalled and workers prepared to vote on whether they would join the United Auto Workers. GOP lawmakers, upset by the union's heavy Democratic support and worried about how UAW might hurt the state's right-to-work heritage, expressed concern about granting so much assistance to VW if the plant brought more UAW presence to Tennessee.

Workers voted 712-626 in mid February against joining the UAW. But the union initially appealed the vote, complaining that Republican politicians had threatened to limit the subsidies if the plant was unionized.

But the UAW dropped its appeal in early April and three days later talks began toward a new incentives package. The city and county agreed to pump in more upfront cash.

By the time an agreement was struck at the governor's mansion in Nashville on June 13 between state and local officials, Tennessee was able to leverage a bigger project with less tax credits than originally proposed last year. The deal was inked Monday in Germany when VW and state officials were able to gather at VW's headquarters to finalize the terms of the incentive package.

Corker said waiting another six weeks to hammer out an agreement that ultimately boosted the employment total by nearly 50 percent "was definitely worth the wait."

VW agreed not to press for nearly $100 million of tax credits the company could receive over time under the state's job and industrial machinery tax credit statutes.

In all, with property tax breaks and new roads planned around the plant, VW will be aided by more than $300 million of government assistance for the planned 2,000-employee addition.

about Dave Flessner...

Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...

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