Hirschfeld Energy Settles with City: Adds Rail Spur Incentive

The City of San Angelo sued Hirschfeld Energy for $2.7 million for failure to invest $40 million in the local plant and provide 225 jobs for ten years.  It settled for $1.4 million or 52 cents on the original public dollar.

During the contentious negotiation Hirschfeld added more than 30 jobs in Abilene and said it planned to increase that in the future.  The City's settlement provides a reward for Hirschfeld adding 28 jobs locally to the 47 employees working in the steel bridge fabrication plant. 

Hirschfeld may increase its workforce to 75 employees during the five-year period. If it does so, the company will earn property tax rebates for that given year of 75 percent in years one through three and 50 percent in years four and five. The rebate will be lost for any year during which 75 employees are not maintained.

Hirschfeld's 2015 property taxes are estimated at $481,226 by the Tom Green County Appraisal District.   This is down from a 2013 property tax bill of $518,524.

Seventy five percent of $481,226 is roughly $360,000.  Three years of that is nearly $1.1 million.  Add two more years at fifty percent, $240,000 times two, and Hirschfeld would have nearly $1.6 million.  That roughly a wash with the $1.4 million refund.

The settlement was aided by City Councilwoman Elizabeth Grindstaff, who helped the parties negotiate.  It seems she helped her employer Texas Pacifico Railroad in the process

The company will also make commercially reasonable efforts to build a railroad spur to its plant within 12 months, at an estimated cost of about $1 million. If Hirschfeld does not complete the rail spur within 24 months, it loses all rights to property tax rebates.

For Hirschfeld to get back its $1.4 million settlement money from the city it must build the railroad spur within two years.

To sum up, 225 additional jobs for ten years became 27 jobs for five years.  That's 12% of the original commitment for half the time.  A $40 million plant investment became $1 million  That's 2.5% of the 2009-2010 promise.  And the deal is contingent upon Hirschfeld adding a railroad spur that will benefit the employer of the negotiator that helped the parties reach a settlement.  Interesting and just a bit unsettling.

It feels like practical politics, i.e what are you planning to do the next few years at Hirschfeld Energy and how can we rebate your money?  OK, you're planning to add jobs for the new Atlanta Braves stadium.  Add 27 of them here.  You're planning on building a railroad spur.  Good we'll make your rebate contingent upon what you've got in the works.  Stamp it, seal it.

My gut may be off base on the negotiation process, but Hirschfeld's owner Insight Partners must be delighted about the settlement.  It removes a barrier to Insight monetizing, i.e. selling Hirschfeld.  I hope it's an IPO.  It'd be interesting to see how many millions in dividends Insight pulled from Hirschfeld while it held off repaying local taxpayers. 

Update 10-6-16:  The settlement has a few remaining details to be ironed out before it is signed.