Sherman is moving forward with plans for a tax abatement for the local Tyson Foods Inc. facility.
The Sherman City Council created an industrial reinvestment zone for Tyson during its regular meeting Monday. Tyson is considering a possible investment of $30 million in building and equipment for an 80,000-square-foot expansion of its local facility. In a document created for the council, city staff said the current taxable value of Tyson’s property is about $88 million, but the expansion project would add about $19 million in additional taxable value.
“This ordinance designates Tyson’s property as a reinvestment zone, which is the first required step before the city can grant a tax abatement agreement,” Director of Finance Mary Lawrence said, explaining the additional equipment and facility expansion will eliminate a bottleneck in the local facility’s operations. “The abatement agreement is six years at 50 percent a year, which is in accordance with our tax abatement matrix.”
Last month, the Sherman Economic Development Corp. board approved a performance agreement with a $1.5 million incentive for the local beef and pork products production facility’s expansion, which would increase the capacity of its material handling department. Following SEDCO’s incentive approval, Derek Burleson, from external communications with Tyson, sent a statement explaining the company hasn’t approved the expansion yet.
“We are exploring a potential upgrade of our material handling facility at our Sherman, Texas, case ready plant as part of our strategic plan to maintain efficiency and better support the plant’s production capabilities,” Burleson said via email. “We appreciate the Sherman Economic Development Corp.’s collaboration on the proposed expansion.”
City staff said in a document created for the council that the project is scheduled to begin during the first quarter of 2019 and should be operational by the summer of 2020.
Following the SEDCO approval, the tax reinvestment committees from Sherman, Grayson County, the Sherman Independent School District and Grayson College met to consider a tax abatement for Tyson’s proposed $30 million facility and equipment expansion next year. The Sherman committee recommended the abatement and the council set a public hearing on the proposed tax abatement agreement for its next meeting on Jan. 7. The proposed agreement would be a 50 percent tax abatement for six years for the company.
In a separate agenda item, the council also agreed to nominate Tyson’s proposed expansion as an enterprise project through the Economic Development Bank with the Office of the Governor Economic Development and Tourism.
“In order to apply for the state Enterprise Zone Program, Tyson has to be nominated by the city,” Lawrence said. “The state Enterprise Zone Program allows them to receive sales tax rebates. This is just on their state dollars, so this nomination does not cost us anything, nor will Tyson receive any local sales tax rebate dollars.”
Despite the proposed increase to its capacity, Tyson is not planning to add any additional jobs with the potential local investment, though SEDCO Executive Vice President Stacey Jones said the company is expected to retain all of its 1,700-plus employees.
SEDCO’s performance agreement went into effect last month and will expire May 31, 2021. The $1.5 million incentive, which is 5 percent of the company’s total planned capital investment, would be delivered to Tyson in two payments of $750,000 after the company makes $15 million of its planned capital investment and after it reaches the $30 million threshold.
Tyson, which is the largest employer in Grayson County, last expanded in 2013, when it added 75 jobs and spent $11 million in capital investments as part of a more than $40 million investment in four of its plants. For that expansion, SEDCO gave the company a $460,000 incentive over a two-year period.
In a recently issued fiscal earnings report for the final quarter of the 2017-2018 fiscal year, Tyson reported the company’s beef sales volume increased due to a greater availability of cattle supply, as well as a stronger demand for its beef products and increased exports. Its pork sales volume decreased as a result of the company balancing its supply with customer demand during a period of margin compression.
“Tyson Foods produced solid earnings in fiscal 2018, demonstrating the strength of our differentiated portfolio and diversified business model,” Tyson President and CEO Noel White said in a news release issued about the report. “We exceeded our revised guidance due to a strong finish in the fourth quarter in the Beef and Pork segments.”
White, who was appointed to his position in September, said company executives believe its fiscal year 2018-2019 adjusted earnings will be $5.75 to $6.10 per share, based on current assumptions.”
“We expect continued strong cash flow generation as we grow sales and volume, particularly in value-added and branded products,” White said. “I am confident in our team members and their ability to execute our strategy to sustainably feed the world with the fastest growing protein brands. Our strategy is working, and it has allowed us to produce good returns this year and will enable continued long-term growth.”