Catalent tax abatement OK’d in first of two Bloomington city council votes: 9–0

Bloomington’s city council voted 9–0 on Wednesday night to approve a tax abatement for Catalent in exchange for a capital investment of $350 million and 1,000 new jobs.

Final approval will require a confirmatory vote on March 2, after a public hearing.

The additional jobs would grow the pharmaceutical company’s local workforce by about one-third.

Catalent is looking to spend about $10 million on development of real property, possibly by buying more land. The other $340 million would be invested in personal property, which includes all the non-permanent fixtures inside a building, like manufacturing equipment.

The investment by the pharmaceutical company would be contingent on a tax abatement on the additional value for both real and personal property. Real property would be abated at a rate of 50 percent a year for 10 years, making a total of $826,760 in additional paid property taxes and $826,760 in abatement.

The bigger break comes for the personal property, which is 90 percent for 20 years, and totals an estimated $43,450,785 in abated taxes, which is calculated to have a net present value of about $28.4 million.

Because tax increment finance (TIF) capture is calculated on real property but not personal property, the impact of the abatement on TIF revenue would not be significant.

In the state of Indiana, the tax abatements don’t have an impact on the tax levy, that is, the amount of taxes collected by local governments. But an abatement does have an impact on how the tax burden is distributed across different taxpayers.

Councilmember Ron Smith was sanguine about the tax abatement. “I just think this is a fantastic opportunity,” Smith said.

Some councilmembers said they were voting yes Wednesday night, but seemed to leave open the possibility of voting no two weeks from now. Their concerns included: some skepticism about the “but for” criterion for tax abatements; the ability of Bloomington’s market to absorb the demand for additional housing; and the diminished income tax benefit of the new jobs due to out-of-county location of workers.

A part of Catalent’s pitch for the abatement includes the idea that Bloomington is one of a few different places in the country where the pharmaceutical company is considering expansion. That is, Bloomington is in competition with other places for Catalent’s investment.

Competition with other locations feeds into the standard argument companies make for tax abatements: The investment that the company is proposing will not happen “but for” the tax break offered by a municipality.

On Wednesday night, councilmember Matt Flaherty picked up on the “but for” concept by floating the idea that Indiana’s overall corporate tax climate is already favorable, compared to the location of some of the other existing Catalent facilities. Catalent has biotherapeutics facilities in  Kansas City, Missouri; Madison, Wisconsin; Morrisville, North Carolina; and Emeryville, California.

Flaherty said, “We should be thinking about what other corporate income tax rates are—for instance, I think ours is 5.5 percent. Wisconsin’s is 7.9 percent.” Responding to Flaherty was Jacob Everett, who is a consultant for Catalent on site selection. Everett said there are places that don’t tax manufacturing equipment at all, which in Indiana is taxed as personal property. Everett said, “Certainly the tax climate as a whole is complex. And there’s a lot of layers.”

Councilmember Kate Rosenbarger expressed some skepticism when Bloomington’s director of economic and sustainable development, Alex Crowley, described how the “densification” of housing in Bloomington would help absorb 1,000 more Catalent employees over the next five years.

Rosenbarger said, “Fifteen duplexes a year isn’t going to really add to densification in our most sought-after neighborhoods across the city.”

She was referring to the cap that was placed on the number of duplexes in R1, R2, and R3 zoning districts in the most recent revisions to the unified development ordinance (UDO). Rosenbarger had supported making duplexes an allowable use in those zoning districts, instead of the conditional use that was eventually adopted by the council.

Crowley responded to Rosenbarger by pointing to the way that large student-oriented housing developments free up housing in other parts of the city. “When I was talking about densification, I wasn’t saying the onesie, twosie duplexes in the core neighborhoods.” He continued, “There are some substantial new housing complexes that are going up…They’re actually drawing people out of other locations.”

The challenge of providing housing factors into locations where new employees might live, and that affects local income tax revenue. In Indiana, local income tax is collected by the locale where an employee lives, not by the place where the employer is located.

Already, half of Catalent’s current workforce of 3,212 full-time employees live outside of Monroe County. That percentage is not likely to improve with the addition of 1,000 workers, according to representatives of Catalent.

The likely out-of-county location for many of the new employees was a sore point for councilmember Steve Volan on Wednesday night. He pointed to the local income tax revenue that would be missed, as well as the increased carbon footprint for Catalent that would be caused by the commute from outside of Monroe County.

Volan analyzed Catalent’s land that it currently uses for employee parking as a housing opportunity. He said he was not suggesting that Catalent get into the housing business, but that Catalent should allow a housing developer to build housing on its land, with the condition the housing has to go to Catalent employees. This would reduce the carbon footprint for those employees by allowing them to live near work, and it would benefit Bloomington because of the local income tax that would be collected by the city, Volan said.

Crowley said he was open to the idea of working with Catalent as part of Bloomington’s transportation demand management program, that’s under development. After the position was authorized for the 2021 budget, Bloomington was able to hire a transportation demand manager, Jeffrey Jackson, towards the end of that year.

But Crowley was cool to the idea of making the tax abatement contingent on Catalent’s agreement to allow a developer to build housing on its land. He pointed to the short time frame between now and March 2— when the confirmatory vote is set—to add that provision to the deal.

Related to transportation demand, on Thursday (Feb. 17), Catalent has two items on the agenda for Bloomington’s board of zoning appeals. One of them is for a variance that will allow for the creation of a  523-space surface parking area.