Records show Washington County officials asleep at wheel on auto maker PILOTs

A review of county records revealed officials for years failed to hold two companies accountable for agreements made in exchange for tax benefits, potentially resulting in dozens fewer jobs and thousands of dollars in tax revenue.In 2006, Nakatetsu Machining Technologies and Koyo Corporation of USA signed payment in lieu of tax — or PILOT — agreements with county leaders, promising to build manufacturing plants and bring jobs to the Washington County Industrial Park if the county gave the companies 10-year tax breaks on property, buildings and equipment.The two Japanese auto parts makers built plants, hired employees and started production lines in 2008, but didn't file required employment reports with the county until February of this year, after an inquiry from the Johnson City Press.The 10-year-old PILOT agreements require the companies to file written reports with the county before Jan. 31 each year, starting after the completion of the manufacturing buildings, detailing the total number of employees at the end of the prior tax year and classifying the nature of their positions.According to the lease agreements signed by county leaders and business representatives, the companies were supposed to face penalties for employing fewer than 100 full-time workers by the 2013 tax year.To calculate any penalties, a county official was tasked with multiplying the difference between the abated taxes the company owed and the taxes the company would have paid without abatement by the percentage below 100 the company employed. For example, if one of the companies employed 80 people at the end of the 2013 tax year, the company would owe an additional payment of 20 percent of the difference between the full taxes and the reduced amount specified in the PILOT agreement.But no employment reports for either of the companies were filed until February of this year, a month after the Press informally asked for those records, two years after the figures were supposed to be analyzed for potential penalties and seven years after they should have first been filed.According to the records filed in that month reporting back to the 2013, 2014 and 2015 tax years, Koyo exceeded the 100-job threshold with 131 employees in 2013, 149 in 2014 and 155 in 2015. Nakatetsu, however, reported maintaining only 72 employees in 2013, 75 in 2014 and 79 in 2015.Washington County attorney Tom Seeley said a reporting issue was discovered earlier this year, and efforts were made to try to bring the records up to current requirements."I think all of those reports were filed in 2016," Seeley said Thursday. "The lease agreements were done in 2007, and when the issue came up, we started looking at it and realized there was an issue."According to Seeley, the jobs expectations for Nakatetsu may have been written incorrectly in the original lease agreement in 2006.He and the company's attorney, Steve Kramer, are searching through records from when the deals were struck, looking for discrepancies that may show a lower expected jobs figure, closer to 60 or 65 employees."I'm not saying there was a mistake," Seeley said. "They have raised that issue, and there does seem to be a legitimate question. We will go back to the Industrial Development Board once Mr. Kramer gets that documentation."P.C. Snapp, the county's Economic Development Board Executive Director in 2006, said he couldn't recall the specific number of jobs the Industrial Development Board intended to require from each company, but said he believed the two local plants had "equaled or exceeded that number."A Johnson City Press report announcing Nakatetsu and Koyo's exercised options on property in the industrial park lists their intentions to initially hire 150 workers. By 2007, when the companies broke ground, that combined number had grown to up to 200 in reports.An article published in the Greeneville Sun in November 2007 attributed expected hiring figures of 80 to 90 local employees to Nakatetsu manager Jeff Carter.Carter did not return a call seeking comment for this article.In 2011, a press release from the Tennessee Department of Economic and Community Development announced a $6.3-million expansion at Nakatetsu expected to help retain the 60 jobs then existing at the plant and create 35 new jobs, which would have put the total jobs at the facility at 95.County Mayor Dan Eldridge, who was elected after the Nakatetsu and Koyo deals were struck, but who works closely with the two companies' representatives on economic development efforts, said the county's documentation, other than the executed lease agreement, does not show a commitment by Nakatetsu to 100 jobs."I think the question today is, did the agreement reflect what was actually agreed to among the parties at the time?" the mayor said. "I don't have any documentation in the old files that anywhere states Nakatetsu committed to 100 jobs."Once the county's and company's attorneys determine whether a change is needed to the agreement, the county Industrial Development Board, as the title holder to the property, will be required to take action to make changes.So far, Eldridge said the board's members had not been notified of the potential discrepancies in the contract.Chuck Mason, the IDB's vice chairman, said he was unaware of the situation."To be honest, I haven't heard anything about it, but now I will check and find out," Mason said Friday. "I thought they were meeting their goals, but I'll definitely contact Dan and find out what's going on."He added that the two Japanese companies have been valuable tenants in the industrial park, bringing higher wage jobs and new economic activity.The Press first asked for records of all the county's existing PILOT agreements and documentation of the required jobs and investment benchmarks on Jan. 6, in an email to the Washington County Economic Development Council's Business Development Director Alicia Summers.One week later, Summers provided a Johnson City Commission resolution authorizing a PILOT agreement with NN Inc. — which is set to start performance reporting next month — and the general requirements for the county's PILOTs with Koyo, Nakatetsu and Tusla Dentsply, but referred the Press' reporter to Washington County Attorney Tom Seeley for copies of the records.On Jan. 18, the Press asked Seeley by email for the PILOT agreements with Koyo, Nakatetsu, Dentsply and the recently expired agreement with Bush Hog and "dated documentation of the certification of the attainment of any of the requirements stipulated in the agreements (job creation, investment, expansion, etc.)"On Feb. 12, attorney Brett Mayes of Seeley's office emailed the executed lease agreements and memorandums of understanding between the county and the companies, but the provided materials did not include employment reports.A Feb. 19 memo from the county attorney's office signed by Mayes, written to Assessor of Property Scott Buckingham, informs the assessor's office of the discovered missed jobs benchmarks and asks the assessor to calculate the company's penalties for the 2013-15 tax years.The memo also informs the assessor that the county has no records on file of a qualified expansion for Nakatetsu, which under the the terms of the lease agreement would allow newly constructed floor space and installed equipment to be taxed at lower rates."All other expansions or acquisitions should be taxed at the full rate from the time of addition to the property tax rolls," Mayes wrote in the memo.County tax records show three divisions of Nakatetsu's parcel. The first includes the existing facility built in 2007. Its value after the most recent reappraisal is $3.1 million.The second division was created for an expansion built in 2012. It's currently valued at $625,800.The third was for a 2014 expansion, now valued at $272,400.Tax book records provided through a Freedom of Information Act request show in tax year 2013, the first year in which Nakatetsu would have been subject to penalties for missing the PILOT agreement's jobs threshold, the company was taxed at 60 percent of full value on the original building, the payment set in the agreement without penalties. Had the company paid the penalty resulting from the backdated jobs record, it would have added $2,574.08 to the company's $13,789.73 payment.The 2012 addition, which Mayes' memo claimed was not a qualified expansion, was taxed at 10 percent of full value, according to the provided records. Instead of the $435.91 payment recorded, the tax bill should have been $4,359.10.In the 2014 tax book entry, the original facility was taxed at 70 percent of full value, resulting in a $17,424.69 payment. The penalty for that year should have been $1,866.93.On the 2012 addition, the tax bill and payment was amended on Feb. 29, 2016, from $991.19 (20 percent of full value) to $4,955.84. A note explaining the change reads "Pickup did not meet Pilot Lease Agreement." The bill was recorded paid on March 4.In the 2015 tax year, the second addition was added to the rolls.It was originally taxed at 10 percent of full value, but another change upped the original $215.40 payment due to $1,941.79.The payment for the 2012 addition likewise increased from $1,486.43 (30 percent) to $3,469.41.The original building was taxed at 80 percent. Had the penalty been assessed, it would have been $1,036.57.Three years of penalties on the original property add up to $5,477.58. Had the unqualified expansions issue not been uncovered, it would have cost the county $7,674.02 in the past two tax years, and the two expansions would have been exempt from a portion of tax responsibilities for the next nine years.Eldridge said the recording and communication issues regarding the open PILOTs had been corrected."Obviously, from my perspective, if there's been an oversight, it's more important to correct it, and that's been done," he said. "That's my focus. Tom Seeley is going to oversee the process, just to make sure everything's on track and coming in the way it's supposed to. He's communicating with the trustee's office and property assessor's office."Seeley said no one person or office was charged with keeping records of employment from the companies. One breakdown may have occurred when the Washington County Economic Development Council took on a larger managerial role, he said."Some of it might have been the transitions from some of the function of the IDB is now with the Economic Development Council," he said. "We're working with them on newer projects, and they have been tracking and keeping up with terms on the newer deals."Mitch Miller, CEO of the Economic Development Council, said the organization's staff does oversee the PILOT projects struck by Johnson City's Industrial Development Board. Alicia Summers is responsible for keeping track of them.Miller said the county's IDB has not delegated the responsibilities for the PILOT programs to his staff, however.Here's a collection of documents used for this article. All are in PDF format:Nakatetsu LeaseKoyo LeaseNakatetsu Employment RecordsKoyo Employment RecordsNakatetsu Tax BooksMayes Memo