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Chiquita’s incentives deal required its global headquarters to stay in Charlotte

By Steve Harrison and Ely Portillo
sharrison@charlotteobserver.com
  • http://media.charlotteobserver.com/smedia/2014/03/10/09/15/KeubJ.Em.138.jpg|316
    MARK HAMES - mhames@charlotteobserver.com
    Charlotte-based Chiquita Brands International is merging with Irish fruit company Fyffes.
  • http://media.charlotteobserver.com/smedia/2014/03/11/20/31/hj9Z7.Em.138.jpeg|278
    MARK HAMES - mhames@charlotteobserver.com
    Charlotte and Mecklenburg County have so far paid Chiquita $510,000 each, for a total of more than $1 million. They are scheduled to pay the fruit company about $1.5 million in future grants in coming years.

Charlotte and Mecklenburg County’s deal with Chiquita Brands International would potentially let them end incentive payments because the fruit company is moving its headquarters to Ireland as part of a merger, according to a review Tuesday of the 2011 agreement.

But city and county officials declined to say Tuesday whether they will seek repayment of the more than $1 million already paid, or whether they would stop payment on $1.5 million in future local grants Chiquita is scheduled to receive.

The biggest question revolves around a provision in Chiquita’s contract with the city of Charlotte and Mecklenburg County that states it must operate its “global headquarters” in Charlotte.

The contract also states that if Chiquita moves its global headquarters from Charlotte within 10 years, it must repay the incentives it has received.

The city and county have so far paid Chiquita $510,000 each, for a total of more than $1 million. They are scheduled to pay the fruit company about $1.5 million in future grants in coming years.

The state is providing the bulk of Chiquita’s incentive package, which has a total value of about $22 million. The state and local governments promised Chiquita the money to help lure the company away from Cincinnati. The state’s agreement with Chiquita doesn’t appear to include a requirement that the headquarters stay in Charlotte.

The state’s contracts with Chiquita contain conditions that the company must maintain at least 375 jobs here after its third year in Charlotte. Chiquita has about 320 workers in uptown Charlotte, ahead of its hiring requirements, and a company spokesman said Tuesday that any changes to local employment would be minimal.

Those positions have an average salary of about $100,000, according to Chiquita. Mecklenburg County’s economic development chief John Allen said Monday that where the headquarters is technically located might not be that important.

“What’s important is the jobs, and the investment,” he said.

To date, the state has paid Chiquita more than $1.5 million, an N.C. Department of Commerce spokeswoman said.

One of the state grants – worth $2.5 million – is contingent upon a local match. That local match could be stopped if the city and county decide Chiquita has violated the agreement and that it’s no longer eligible for grants.

Lawyers for Mecklenburg County and Charlotte met Tuesday to discuss what the pending merger of Chiquita and Irish fruit company Fyffes means for the incentives deal.

ChiquitaFyffes, as the resulting company will be called, will split its executives between Charlotte and Dublin, with the CEO and two top officers based across the Atlantic. Ireland, ChiquitaFyffes’ new home, has a substantially lower corporate tax rate than the U.S.

But despite what appears to be a clear provision in the local contract about the global headquarters, city officials were reluctant Tuesday to say whether they would seek to recoup the money it has given to Chiquita or stop future payments.

“It’s not just the city that’s at the table,” said Charlotte City Council member LaWana Mayfield. “We all need to have a conversation to be on the same page.”

Council members David Howard and Vi Lyles also said they couldn’t speculate on what the city would do as a result of the merger between Chiquita and Fyffes.

In 2011, when Charlotte City Council approved the incentives in closed session, former council member Edwin Peacock was one of three members who voted against the deal.

Peacock said Monday in an interview that the city should attempt to recoup its investment.

“If you have a clawback and don’t use, what good is it?” said Peacock, who lost in November’s mayor’s race to Cannon.

Charlotte City Attorney Bob Hagemann warned in an email to city and county officials that the city doesn’t yet know what effect the merger will have.

He said that legal staff would work with Chiquita to determine exactly what the corporate structure of the merged company will be, and figure out what that means for the incentives.

Lawyers also cautioned elected officials not to publicly say whether Chiquita should pay back any incentives.

“Now is not the time for elected officials to stake themselves out on if, or how, a merger would affect the grant agreements,” Mecklenburg County Attorney Marvin Bethune wrote in bold.

City hasn’t used clawback

Mayor Patrick Cannon said Monday he didn’t think the merger impacted the incentive package, but on Tuesday said the city needed to take a “deeper dive” and explore the definition of headquarters.

The city has “clawback” provisions in all of its job-creation grant programs. But economic director Brad Richardson said Charlotte hasn’t ever had a reason to demand a company repay incentives.

The Chiquita merger may present the city and county with a number of questions: Would officials be prepared to engage in a possible legal fight over recouping the grant money? Would a squabble with a corporate partner hurt recruiting of other businesses?

The contract with Chiquita states that if the local governments and banana company have a dispute, the two sides should first seek arbitration.

The state grants provide the most money. One grant is worth $16.1 million – equal to 75 percent of the company’s estimated state income tax withholding for the new jobs – and is set to be paid over 11 years.

The state also agreed to give Chiquita a $2.5 million grant from the One North Carolina fund. That grant is contingent upon a local match.

Break with policy

When Charlotte City Council discussed the Chiquita proposal in 2011 in closed session, some former council members were concerned they were setting a bad precedent by breaking city policy to give the company incentives.

Charlotte’s incentive policy had been for a company to make a capital investment in the city, and then be refunded a portion of the new property taxes it paid the city and county.

That’s what happened when Siemens built a new factory on Westinghouse Boulevard. The city and county gave more than $7 million to Siemens in 2009 and 2010, in exchange for 1,065 new jobs and 1,480 jobs retained. The city paid the money after Siemens finished its expansion.

But when Chiquita was considering moving its corporate office, the company didn’t envision having a large property tax bill because it wouldn’t have a traditional factory in the city. It wouldn’t even build a new office building, but would instead rent space in the NASCAR tower uptown.

The company, however, was pressing for up-front money to help offset its moving expenses from Ohio.

While the company wouldn’t have a large property tax bill, the upside for the city and county is that the company pledged to create 417 jobs with an average salary of $106,000.

In a closed session meeting, council members voted 7-3 to approve the deal. Two of the three no votes are no longer on council: Republicans Peacock and Warren Cooksey.

Democrat Patsy Kinsey voted no and is still serving.

After the Chiquita vote, the City Council changed its policy, making it easier for the city to award incentives for corporate moves. The idea was that a corporate headquarters relocation brought cache and was valuable to the city.

Harrison: 704-358-5160
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