A breakdown in negotiations with Connecticut has brought Hexagon Metrology, parent of Brown & Sharpe, back to Rhode Island, where it’s signed a deal to build a new, 115,000-square-foot facility at Quonset Point, with tax incentives to reward future job creation.
The project, valued at about $15 million, will keep the 172-year-old toolmaker in its home state and put another major tenant in Quonset, in the Kiefer Park section of the complex, where Gov. Donald L. Carcieri had been trying to lure it for two years.
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The new plant is expected to open in mid-2006, Hexagon spokesman William L. Fetter said. The company will be moving from a larger facility in North Kingstown that Fetter said isn’t suited to the high-tech manufacturing and assembly work being done there.
While Brown & Sharpe made a wide range of tools, under Hexagon it’s specializing in high-precision measuring gear, Fetter said. The new site will also house Hexagon Metrology’s North American headquarters, as well as training programs and enhanced support services.
“It’s a big investment in Rhode Island,” said Jean B. Robertson, director of policy at the state Economic Development Corp. Not only does it save the 255 current jobs at the plant, she said, but it strengthens Hexagon’s ties to the state.
Hexagon Metrology is part of Swedish-based Hexagon AB, the world’s largest manufacturer of precision dimensional measurement equipment and software, with 10 manufacturing facilities on four continents and more than 40 sales and support locations worldwide.
Concerned about the potential impact of Hexagon’s purchase of Brown & Sharpe in 2001, Rhode Island officials reached out to the company immediately to try to help it stay and grow in the state, Robertson said. But Hexagon turned to Connecticut after legislators rejected Carcieri’s plan for the state to build a $12-million, bond-financed plant for the firm to lease.
Instead, Hexagon announced in February that it was moving to North Stonington, lured by the offer of a $4-million state loan and $2 million in site upgrades.
Ironically, it was Hexagon’s interest in that deal that gave Rhode Island new options, Robertson said.
The reason Rhode Island had offered to finance and build a plant for the toolmaker, Robertson said, was that the company was “in acquisition mode,” and it didn’t want to add new debt to its balance sheet. But legislators didn’t want the state to take such a big risk, so the RIEDC, believing only off-balance sheet financing would satisfy Hexagon, couldn’t move forward.
When Connecticut prevailed without that provision, however, the RIEDC saw an opportunity.
Behind the scenes, the agency, Carcieri and legislators prepared a new offer: Hexagon could buy 14 acres at Quonset Point for $1.4 million on a 14-year installment plan, pay for its own facility, and get a sales tax abatement on the project and two job creation incentives.
When Brown & Sharpe was acquired by Hexagon in 2001, it had 228 employees, but it has since added 27, Robertson said. The company’s total annual payroll is now $13.9 million, with an average salary of $54,400, plus benefits, a RIEDC analysis shows.
By Robertson’s estimate, Hexagon workers pay $363,000 in income taxes each year.
One of the job creation incentives would provide a $1,000 rebate on the year’s land payment for each job created over the 228 baseline, including $27,000 in the first year for the existing new jobs. Each job would have to pay at least $25,000 per year, plus benefits.
Conversely, if Hexagon’s payroll falls under $13 million during the term of the deal, it would have to pay $2,000 per job lost, on top of the year’s $100,000 land payment.
The second incentive, under the Jobs Development Act, would cut Hexagon’s corporate tax rate by a quarter of a percentage point for every 50 jobs it adds in three years. Rhode Island has one of the nation’s highest corporate tax rates, 9 percent, meaning Hexagon pays $90,000 for every $1 million in taxable income, and would get a $2,500 annual break, in perpetuity, for every 50 jobs added. (The break would be rescinded if employment drops.)
Robertson said she couldn’t disclose Hexagon’s actual tax liability, but based on an analysis of the company’s tax returns for the last three years, she’s determined the incentive would be “revenue-neutral” to the state, entirely offset by additional payroll taxes.
The RIEDC is also expecting $6 million worth of construction payroll to be generated by the project, with about $376,000 in resulting income tax revenues. That would cover the bulk of another incentive Hexagon is getting, a sales tax abatement on building materials, furniture, fixtures and equipment for the new facility, valued at $490,000 and capped at $500,000.
Separately, the Town of North Kingstown has approved a 10-year property tax phase-in plan for the company.
Still, none of this had gone through if Hexagon’s deal with Connecticut hadn’t fallen apart.
“We really appreciate all the effort that the people of North Stonington had made on our behalf,” Bill Gruber, president and CEO of Hexagon Metrology North America and Brown & Sharpe, said in a news release. “In the end, however, Hexagon and the State of Connecticut were unable to agree upon the terms and conditions of the state’s assistance agreement.”
With the Rhode Island deal in place, Gruber said, Hexagon’s new priority is to “move forward with construction and move into the new facility as quickly as possible.”
Under Carcieri’s original plan, Robertson said, the Quonset facility was to open next month.
