$229 million Kraft Heinz Expansion Saves the Bacon in Missouri

(BRK.A), (BRK.B)

The city of Kirksville, Missouri, and the Kraft Heinz Company are nearing the completion of a $229 million financing agreement that will see the company adding as many as 69 jobs and will preserve the existing 463 full-time jobs.

Kraft Heinz had originally planned to lay-off 279 workers and close its bacon producing facility.

Under the terms of the agreement, the city of Kirksville will issue Chapter 100 bonds that allows cities or counties to purchase or construct certain types of projects with bond proceeds and to lease or sell the project to a company. These “industrial development” bonds may be issued either as a “revenue” bond or a general obligation bond.

Eligible projects include purchase, construction, extension and improvement of warehouses, distribution facilities, and industrial plants.

Property Tax Abatement

Under Missouri law, upon the approval of the city/county issuer, it may be possible to exempt/abate most of the real and/or personal property tax of new real estate improvements and new machinery financed by a Chapter 100 bond. To enact this procedure, the city/county must own the assets financed by the bonds and an eligible company would lease the assets from the city/county for the term of the bonds. The amount and term of abatement/exemption depends on a negotiation with the city/county issuer, as they have the discretion to abate any portion of the property taxes.

The property tax is exempt by virtue of public ownership, however, the city/county may require that a portion of the payments otherwise due will be paid in the form of a payment in lieu of tax.

In this case, the city of Kirksville will own the property, eliminating property taxes for Kraft Heinz over a 10-year period.

Kraft Heinz will pay PILOTs (payments in lieu of taxes) to the local taxing districts. The amount will be 50-percent of the revenues that will be generated from the expansion project.

The tax abatement period will begin in 2017 and end in 2026.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.