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Gunner: KBI short-changing district

Tom Jackson • Feb 3, 2014 at 12:40 PM

Hundreds of thousands of dollars in taxes are at stake in an Ohio Supreme Court case that pits the cash-strapped Perkins Schools against the KBI wheel bearings plant, which has been fighting to stay in business.

Administrators at Perkins Schools, who contend KBI is trying to seriously undervalue its plant, say they’re willing to negotiate a reasonable compromise with the company.

Perkins superintendent Jim Gunner said the school district wants to strike a compromise, but he believes KBI should be willing to give ground on its claim that a plant that sold for $25.5 million is only worth $2.5 million.

“I don’t know how a reasonable person can argue the value drops tenfold right after a purchase,” Gunner said. “I think that’s unreasonable on their part. It’s not fair for us to agree to that. All that does is shift the taxation to you — you’re going to pay more because KBI pays less. I think companies need to pay their fair share”

KBI and officials with the local chapter of the UAW did not return calls requesting comment. KBI’s attorney, Andrew Ferris, did not return repeated calls.

The school district won a ruling in 2012 from the Board of Tax Appeals in Columbus.

KBI appealed, however, and the case is before the Ohio Supreme Court. Mediation was ordered, but it apparently failed and the case went back on the high court’s docket this month. A ruling is apparently at least a few months away.

It’s impossible to say when the Supreme Court might rule if the case doesn’t get settled, but a ruling before the end of this year seems unlikely, said Karrie Kalail, the attorney representing Perkins Schools.

The Erie County auditor’s website shows KBI owes about $225,100 in real estate taxes this year on its property of close to 130 acres, at the site at Perkins and Hayes avenues.

The Perkins school district will get about $125,000, with Perkins Township getting about $56,000, EHOVE about $11,000 and the Erie County Board of Development Disabilities about $10,200, with smaller amounts going to the Erie County commissioners, the mental health district, the health department, the county park system and senior citizen services.

The auditor’s office values the property at about $10.8 million.

The Board of Tax Appeals, however, sided with Perkins Schools in its 2012 ruling and set the value at $25.5 million.

KBI representatives say the property is only worth $2.5 million.

The end result of this battle could have huge implications for both sides.

If the Ohio Supreme Court upheld a valuation of $25.5 million, KBI’s tax bill would approximately double, Erie County auditor Rick Jeffrey said.

That bill would get a lot bigger if the Ohio Supreme Court ordered back taxes, going back to the 2008 local Board of Tax Revision ruling that the Perkins school district appealed, Jeffrey said.

“I tell people that there are three things that can happen,” Jeffrey said. “It can go up, it can go down, and it can stay the same. I really don’t know. I don’t want to guess on how they’re going to rule. We kind of have to put it in neutral until the dust settles”

The KBI plant has changed owners more than once in the last few decades.

It was originally a General Motors plant. In the 1990s, it became part of Delphi Automotive, a car parts company spun off from GM.

In 2006, Delphi announced it would sell or close 21 of its 29 plants, keeping only eight plants; the Sandusky plant was one of the 21. In February 2008, Kyklos Bearings International bought the plant from Delphi.

In August 2008, KBI sold the property to 2509 Hayes LLC for $25.5 million. KBI executives have said the sale was a saleleaseback arrangement, designed to allow KBI to raise operating capital.

The legal issue the Ohio Supreme Court must decide is whether that sale should be used to determine the property’s value.

The Board of Tax Appeals cited a Supreme Court ruling that stated a sale between a willing buyer and seller is the best way to determine value, and that ruling would apply to the KBI sale.

Perkins has lost three straight levy tries. The school board voted Wednesday to make a fourth attempt on the May ballot.

Gunner and Kalail both said the school district is willing to settle the case.

“The school district is certainly willing to look at a different value. It’s not advocating the full $25.5 million” Kalail said. “It wants to be realistic and reasonable”

Gunner said the school district never challenges the valuation of local residences, but sometimes it will challenge the value set for commercial businesses if the district’s attorney thinks it’s worth it.

In a typical year, the district will challenge fewer than five valuations. In many cases, the district intervenes when a company says its property is overvalued, Gunner said.

“That’s what happened with KBI” he said.

After the 2008 sale, KBI claimed the property was not worth the $25.5 million price, Gunner said.

Peter Zaehringer, executive director of the Erie County Economic Development Corp., said the KBI plant currently employs about 600 to 700 people.

Layoffs last year prompted speculation that KBI’s days might be numbered.

In August, however, a UAW official said KBI had accepted a GM contract to continue making wheel bearings at the plant, guaranteeing it would stay open until at least 2016.

Zaehringer, who said ECEDC has taken no position on the tax dispute, has been working closely with the plant’s management to try to preserve KBI’s viability.

“The situation is better now than it was a year ago, before the new union contract,” he said.

Before that contract they were absolutely not competitive, he said. The new labor pact gives the plant more opportunities to compete for new business.

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