Chattanooga, Hamilton County may dip into reserves to cover Volkswagen incentives

photo The Volkswagen assembly plant in Chattanooga builds vehicles.

Read moreVolkswagen center, workers coming to downtown Chattanooga

WHAT'S NEXT?• The Chattanooga City Council will consider the incentives Tuesday at City Hall after individual council member briefings this week.• The Hamilton County Commission will vote on the incentives package at its July 23 meeting at the courthouse.• The Industrial Development Board of Chattanooga will decide on the incentives July 24 at City Hall.VW incentives• $165.8 million -- State of Tennessee grant for site preparation, building construction and plant equipment• $52.5 million -- City of Chattanooga and Hamilton County government grants for VW project• $12 million -- State grant for employee training• $9 million -- TVA and distributor assistance• $3.3 million -- Annual property tax breaks on city and county taxesVW contributions• 2,000 jobs• $600 million investment, including $200 million of new building and $400 million in plant equipment• $1.4 million in annual school tax payments, in addition to $2.5 million already being paid each year• $250,000 in annual economic development fees paid to the city and county for 10 yearsSources: Tennessee Department of Economic and Community Development, Mayor Andy Berke, Memorandum of understanding between VW and city and county governments.

Nearly half of the $600 million expansion planned at Volkswagen's Chattanooga assembly plant will be paid for by Tennessee taxpayers under the proposed incentives package signed this week by company and government officials.

State and local governments and utilities pledged $274.3 million of upfront grants and employee training assistance to convince VW to add production of a sport utility vehicle line in Chattanooga, according to the memorandum of understanding between local governments and VW released Wednesday.

The incentives include $52.5 million of city and Hamilton County grants to help VW build and equip the new vehicle line and an extension of the property tax breaks granted to VW when it initially came to Chattanooga six years ago. The original incentives package in 2008 totaled $577 million of federal, state and local government assistance and credits.

City and county commissioners have until July 29 to approve the new incentives for VW. But several said Wednesday they expect VW's expansion will more than pay back taxpayers for the investment with increased tax revenues generated by new automotive jobs, payrolls and suppliers.

VW plans to add 2,000 jobs in Chattanooga, including 200 at a new research and development center, and will pay the school portion of the taxes on its new investment, plus a $250,000 annual economic development payment to the city and county. Also, VW will return 300 acres it controlled at the Enterprise South industrial park to help the city and county lure other automotive suppliers needed for the new vehicle line.

The Chattanooga Area Chamber of Commerce estimates at least 3,600 other jobs will be created by suppliers and the economic spin-offs from the VW expansion.

"With the full amount being paid in property taxes for schools, plus the additional sales tax generated by all of the new employees this will bring, it looks like a very, very good deal to me," Hamilton County Commission Chairman Fred Skillern said. "It looks like less than a seven-year payback, and that's a pretty good deal."

In a briefing for county commissioners Wednesday, Hamilton County Mayor Jim Coppinger said the county could pay for its $26.25 million cash share of the project from its reserves, which totaled $111.2 million at the end of fiscal 2013 and have continued to increase since.

"We get a lot of criticism over having a big fund balance, but this is one of the things we've built it for," Coppinger said.

Chattanooga Mayor Andy Berke said the city also could dip into its reserves or issue additional debt to fund the startup grant for VW. The Industrial Development Board of Chattanooga, which technically owns the VW plant in order for the facility to qualify for property tax breaks, also could issue its own bonds for the project.

The City Council has yet to be briefed on the terms of the memorandum of understanding that the mayors and Gov. Bill Haslam signed at VW headquarters in Wolfsburg, Germany, on Monday. Berke said Wednesday that the incentives are similar in many ways to what VW received in 2008 when it pledged to hire 2,000 employees to produce the Passat passenger car in Chattanooga.

City Councilman Larry Grohn said Wednesday he doesn't see how the council could turn down the plan.

"So far, all of the ripple effects from the Volkswagen plant have more than lived up to the initial projections, and we're looking at the multiplier this time to be eight to 10 times what our investment will be," Grohn said.

"The number of suppliers that will need to locate here with this expansion really could make this VW expansion another major wave of growth in the history of Chattanooga. This is like a Sputnik moment for us -- a jolt for us to get ready for a new future."

Deputy Business Editor Mike Pare contributed to this story.

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