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April  16,  2010

Council may balk at granting a
tax break for reopening refinery

Some members of County Council signaled a possibility that they will seek to block county government from joining with the state in offering incentives to the company that has announced it will buy and reactivate the oil refinery near Delaware City.

"I want to see people put back to work [but] I have a problem with giving away a half million [dollars] to this business," George Smiley, chairman of Council's finance committee said.

While several of his colleagues agreed with him and no one took an opposing position at a recent committee meeting, one of the 13 council members said privately after the meeting that "it's all just talk."

Governor Jack Markell recently announced that his administration has brokered a deal by which P.B.F. Energy Partners L.P., an investment subsidiary of Germany-based Petroplus A.G., will buy the refinery idled by Valero Energy Corp. and its power plant for $220 million. That, he said, will "bring 600 full-time jobs to Delaware in exchange for certain economic incentives" it the new owner follows though on plans to overhaul the refinery and put it back into operation in the early spring of 2011.

The incentives, the governor's announcement said, would include a $20 million loan which would convert into an outright grant if at least $100 million is spent on the overhaul and 600 jobs are maintained for five consecutive years. Another $10 million would be given to the company to help pay for projects to curb nitrogen oxide emissions.

A separate statement issued by Petroplus referred to the purchase deal being contingent on obtaining "certain regulatory approvals and obtaining satisfactory permits from local regulatory authorities."

The tone of the conversation at the committee meeting on Apr. 13 indicated that Council members have not been told what incentives county government would be called upon to provide.

"We're not sure what they're going to be looking for from the county," Nicole Majeski, County Executive Christopher Coons's chief of staff, told the committee. She added that anything in that regard would be determined "in consultation with us" and that County Council would be involved.

As previously reported, Coons's spokesperson Angie Basiouny told Delaforum that he is "working closely with the governor to determine what the county can do to assist this important venture."

Smiley and others at the committee meeting referred to the possibility that precedent was sent when county government agreed to a five-year exemption from property taxes included in the economic development incentive given Fisker Automotive in exchange for its acquisition of the former General Motors automobile assembly plant.

In objecting to a similar deal for Petroplus, Smiley noted that the county must rely on the property tax as its primary source of income. It has been unable to diversify revenue streams because Markell, his predecessor Governor Ruth Ann Minner, and the General Assembly have turned deaf ears to county pleas for enabling legislation. State government, on the other hand, has a variety of revenue sources, Smiley said.

John Cartier said that, at a minimum, the county should be entitled to a 'payment in lieu' of the tax to compensate for public safety and other services it will be called upon to provide. Moreover, he said, that arrangement should be limited to a fixed time period "to ensure we're not going to be forever locked out of revenue from the site."

Council president Paul Clark said he was troubled by the apparent disparity in granting tax relief and other incentives to large companies while not doing the same for small businesses making proportionate job-creating investments. "If we give it for [employing] 1,000 people are we also going to give it for employing 10?" he asked rhetorically.

Penrose Hollins took up the same theme noting that "the owners of these [large] businesses stand to make millions" from their investment.

Beyond the possibility that a large chunk of property tax could be in jeopardy, there is concern that the manner in which the refinery acquisition is structured could also shut down its collecting anything from the real estate transfer tax. If instead of buying the property, P.B.F. Energy Partners could possibly acquire and merge with an existing or a new Valero subsidiary company that would carry the refinery on its books as an asset.

County attorney Gregg Wilson noted that after the Claymont Steel plant was acquired in that way by the American subsidiary of a Russian company the General Assembly enacted legislation to block a repetition. "That loophole has been corrected, but there are always other loopholes that can be created," he said.

Joseph Reda questioned how much revenue county government will receive from permit fees related to overhauling the refinery. "If it's done as maintenance, they won't need any permits," he said. The Petroplus announcement referred to an intention "to perform major maintenance work at the refinery over the next nine months" prior to operations being restarted.

Ed Milowicki, the county's chief financial officer, pointed out, however, that if the deal were to fall through and the refinery were permanently shut down "we're not going to get any tax revenue."

Read previous Delaforum article: Support for refinery undetermined

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