GM Pullback Imperils Cities Where Factories Are Tax Lifeline

(Bloomberg) -- The sprawling General Motors Co. factory in Lordstown, Ohio, has helped finance the local government for years by providing well-paying jobs and tax revenue. So when it shutters next year, the impact will likely ripple through the city’s and county’s coffers.

The 3,300-resident village in Ohio’s eastern rust belt is among several likely to be hit hard if the automaker follows through on plans announced Monday to cut over 14,000 jobs and close seven factories worldwide, including the Lordstown assembly plant where over 1,600 people help manufacture the Chevrolet Cruze.

Such towns can face a major financial squeeze when key industries dwindle: think of Atlantic City, New Jersey, when its casinos were battered by competition, or Detroit after auto industry jobs disappeared.

"It’s going to get much tougher for the local governments," said Tod Porter, an economics professor at Youngstown State University in Ohio.

In Ohio’s Trumbull County, home to Lordstown, General Motors’ property is the second most valuable on the government’s tax rolls, assessed at $14.7 million, according to its 2017 financial report. It’s also one of the largest employers, accounting for 3,600 employees and 5 percent of total county employment in 2017. GM estimates that it paid $250 million in wages associated with work at the Lordstown complex that year.

GM Pullback Imperils Cities Where Factories Are Tax Lifeline

Losing an industry or even just one company carries major concerns for local governments, and, by extension, their bondholders. Detroit collapsed into bankruptcy after decades of seeing its population dwindle as auto-industry jobs moved away. Atlantic City had to be rescued by New Jersey as some casinos shuttered and others appealed their tax bills. Trumbull County has about $12 million in general-obligation debt, according to data compiled by Bloomberg.

In Warren, Michigan, where GM is planning to close a propulsion plant next year, the automaker is a major taxpayer, according to the city. GM’s property was by far the most valuable in Warren, accounting for about 10 percent of its $3.3 billion worth of total taxable property in 2017.

GM Pullback Imperils Cities Where Factories Are Tax Lifeline

The company "unquestionably" contributes to Warren’s economic vitality, the 135,000-resident Michigan city said in its financial report. The auto maker employs 22,000 people there, making it the largest employer. Over 300 people work at the plant that’s slated to be closed.

Warren Mayor James Fouts said he planned to offer tax breaks to GM in the hopes of keeping the plant in operation and preserving its jobs. He said GM still has a large presence in the area and has invested heavily in a tech center, which should reduce the impact of the plant closure. 

“I still feel we need to keep our manufacturing facility alive in Warren,” he said in an interview. He said he hoped the state of Michigan would also offer tax incentives to the company. He declined to say how much the city may offer.

GM’s shutdown of the Lordstown plant will likely affect more jobs than those only at the plant, creating important ripple effects, said Porter, the economics professor at Youngstown State. Reduced spending by local residents could lower sales tax collections, a major source of revenue, and weigh on home prices, he said. Even the university could lose students, he said, if their families move out.

Arno Hill, mayor of the village of Lordstown, Ohio, did not immediately respond to a request for comment. No one at Ohio’s Trumbull County government was available to comment.

©2018 Bloomberg L.P.