A significant workforce slump at the Beech-Nut baby food factory in Florida has cost the company more than $1 million in penalties, according to Montgomery County Economic Development Director Ken Rose.
Five years ago, the county Industrial Development Agency gave Beech-Nut a long-term payment-in-lieu-of-taxes incentive to build its new baby food factory in the Florida Business Park. The PILOT was intended to keep the company in Montgomery County when it decided to leave its longtime home in Canajoharie.
Essentially, Rose said the agreement allowed the Switzerland-based Hero Group, Beech-Nut’s parent company, to pay no property taxes on the Florida facility through 2020 as long as it hit certain job-creation and investment goals. After that, he said, the company will gradually pay a greater portion of its taxes each year until it is fully taxed in 2028.
The factory is currently valued at $125 million, which would generate a roughly $4 million tax bill at current rates, according to Rose.
The PILOT agreement has the potential to save the company many millions of dollars.
“But it’s not a blank check,” Rose said. “We have something called a PILOT hold-back mechanism.”
He explained that if Beech-Nut doesn’t employ enough people or invest enough in its facility, the IDA can charge it a certain fraction of regular property taxes.
Specifically, in 2012, Beech-Nut missed its job creation marks by more than 100 full-time employee equivalents.
The company was required to have 373 employees last year but managed a maximum of only 260, which resulted in the IDA forcing it to pay a total of more than $1 million in taxes to four local entities.
While the penalty resulted from the 2012 shortfall, the checks went out just last month. The largest payment, $585,600, went to the Greater Amsterdam School District. Nearly $400,000 went to Montgomery County, while $60,000 and $24,000 went to the local fire district and town of Florida, respectively.
Beech-Nut officials did not return calls for comment Tuesday, but Rose said the jobs shortfall was likely a delayed response to the recession.
“People stopped having so many babies during the recession,” he said. “They’re a baby food manufacturer. They felt it.”
Beech-Nut did have to pay some taxes for 2011 job shortfalls but only a small fraction of what it paid last month. Rose said the company will likely pay even more next year.
By Jan. 1, 2014, Beech-Nut is required through the PILOT agreement to employ the hourly equivalent of 471 full-time workers in its Florida factory. Unless it manages to improve its employment numbers by more than 200 jobs this year, it faces between $1.25 million and $1.5 million in penalties.
The money is an unexpected boost for the four taxing entities but not good news for the local economy.
“I’d rather have the jobs,” Rose said.