Shortchanging Our Schools

Jobs gone, Fruit of the Loom's unpaid property tax bill remains in Russell County

Fruit of the Loom closed its factory in Jamestown, but the spot where the letters used to be is still visible. A local businessman bought the building for $7.2 million on Jan. 30.
Fruit of the Loom closed its factory in Jamestown, but the spot where the letters used to be is still visible. A local businessman bought the building for $7.2 million on Jan. 30. Herald-Leader

JAMESTOWN — The jobs that underwear maker Fruit of the Loom once provided in Russell County are gone, but local officials believe the company's tax debt remains.

The county property valuation administrator, Tim Popplewell, notified the company in late January that the sprawling plant it closed last year had been inappropriately omitted from the county's tax rolls for several years.

Popplewell sent the company bills for tax years 2009 through 2014, totaling $1.37 million.

A number of local services such as the health department, public library and ambulance service would share in that money, but the school system would get the most, at $730,792.

Superintendent Michael Ford said the money would be a welcome windfall for the district, citing needs for instructional materials, technology improvements and facility upgrades.

"We don't have any extra money to do anything with," Ford said. "I'm rubbing my hands for it right now."

It's not yet clear what, if anything, Fruit of the Loom will have to pay, however.

The company told Russell County officials it owed no taxes because it didn't own the factory property in the years covered by the bills. Fruit of the Loom also contested the value Popplewell placed on the factory and 75-acre property.

A local appeals board upheld the assessment but the company plans to appeal to the state Board of Tax Appeals, said company spokeswoman Lindsay Porter.

The case ultimately could end up in court to settle questions about the plant's value and whether it should have been placed on the tax roll earlier.

Vanishing jobs

Fruit of Loom, formerly known as Union Underwear, is a subsidiary of billionaire Warren Buffett's Berkshire Hathaway conglomerate. It is headquartered in Bowling Green.

The company was once the state's second-largest manufacturing employer, reportedly reaching a peak of about 11,000 workers in the early 1990s at its headquarters and plants in Jamestown, Frankfort, Campbellsville, Franklin, Greensburg, Princeton and Bowling Green.

The Jamestown plant opened in 1981 and expanded through the decade, hitting a high of 3,200 employees in 1990 and transforming the economy.

"We always said it built a lot of houses in Russell County," said Ford, whose father and other family members worked at the plant.

In the mid-1990s, however, Fruit of the Loom and other apparel makers in Kentucky began laying off thousands of workers and closing plants as they moved production to poor nations where they could pay people far less to sew garments.

The number of employees at apparel factories in Kentucky dropped from 32,200 in 1990 to an estimated 1,800 workers in 2014, according to the Kentucky Education and Workforce Development Cabinet. That figure included jobs at the Fruit of the Loom plant in Jamestown, but the 2015 count won't. The company announced in April last year that it would close the plant, which had 600 workers, and shift production to Honduras.

The plant, where workers knitted and dyed fabric to be sewn elsewhere, was the company's last manufacturing facility in Kentucky.

Russell County Judge-Executive Gary D. Robertson called the plant closure a "devastating blow" in a letter to Buffett in August.

In addition to the job losses, losing the plant would mean $200,000 less in annual occupational-tax revenue for the county and $1.2 million less in water sales for Jamestown, even as the city faced payments on a $12 million bond issue for a water plant built mostly to benefit Fruit of the Loom, Robertson said.

Robertson said he understood Buffett's desire to maximize profits, but also knew his reputation as one of the world's leading philanthropists.

"So how can you reconcile destroying the livelihoods of 600 families?" Robertson asked Buffett in the letter. "Surely greater profits can't be more important than the lives of these people."

Buffett did not respond, Robertson's office said, and the plant closed. As a result, Russell County's unemployment rate in January was higher than a year earlier — the only place in Kentucky where that happened, according to the Education and Workforce Development Cabinet.

Who owned what?

The tax issue involving Fruit of the Loom's former operation is rooted in a financing deal signed more than three decades ago, according to records and interviews with local officials.

The city sold $10 million in bonds in the early 1980s to finance construction of the factory. The city held title to the property and leased it to the company, which made payments on the bond debt, said county Attorney Kevin Shearer.

A 1983 lease put the end date of the agreement in December 2010 or when the bonds were paid off, whichever was later, with the company taking title to the plant for a payment of $1.

The company did not have to pay property taxes on the plant and land while the property was in the city's name.

Fruit of the Loom took title to the building through a deed filed Jan. 2 this year. The deed said the company had paid off the $10 million bond, forgiven a debt of $112,500 the city owed the company and handed over $1.

Popplewell and other local officials believe the property should have been put in the company's name and placed on the tax roll years earlier.

Fruit of the Loom paid the city and county $37,500 each annually in lieu of property taxes, which is one reason some officials had no reason to question whether the company should be paying taxes, Popplewell said.

Porter said Fruit of the Loom "paid its fair share."

With the company's plant and land not on the tax roll, however, other taxing districts such as the school system and health department didn't get money they otherwise would have.

Fruit of the Loom did pay tangible property taxes, which apply to equipment and inventory. The company's 2014 tangible bill, which the company paid in December, was $45,603.

Popplewell said he believes Fruit of the Loom waited to take title to the plant until it suited the company's desire to sell the facility.

"They were doing what was more financially appealing to them," Popplewell said.

Porter, the company spokeswoman, said the company paid off the $10 million bond in 2000. It was the duty of the bond trustee to tell the city no later than Dec. 1, 2010 that the bond had been paid, at which time the city was to issue a deed to the company, Porter said.

Popplewell said he's seen nothing to show that the city of Jamestown got a notice from the bond trustee in 2010 that the debt had been satisfied.

Porter said as far as the company knows, the trustee did not notify the city in 2010.

Fruit of the Loom was not required to notify the city the bond had been paid or initiate the request to put the site in the company's name, Porter said. But the company did ask the trustee bank last year to tell Jamestown the bond had been paid, so that the city would give the company a deed, Porter said.

The company couldn't take ownership until that notice, Porter said.

After taking ownership of the factory on Jan. 2, Fruit of the Loom sold it to local businessman Terry L. Stephens, who operates Stephens Pipe & Steel LLC, for $7.2 million on Jan. 30, according to the deed.

What's it worth?

Popplewell took office in 2010 but said he did not immediately spot that Fruit of the Loom was listed as exempt from property taxes. The office re-assesses different areas of the county each year.

Working with a representative of the state Department of Revenue, Popplewell placed a taxable value of $24.8 million on the factory and land.

Popplewell billed the company for six years of taxes based on that assessment. That was as far back as he could reach under the law, he said.

In addition to the money the school system would receive from the bills, payments to other taxing districts would include $98,500 to the hospital; $72,382 to the library; $67,159 to the health department; and $73,875 to the ambulance service, according to Popplewell.

However, the county government could end up owing Fruit of the Loom a refund of $125,000 because the payments the company made to it in lieu of property taxes totaled more than it would have owed in actual property taxes, Popplewell said.

Fruit of the Loom maintains it doesn't owe any real-property taxes for 2009 through 2014 because the property was owned by the city those years. The $24.8 million assessment also is too high, the company contends.

Porter said Fruit of the Loom had the property appraised last fall.

"We used that appraisal in setting our initial asking price for the plant and property, and were pleased to be able to sell the plant and property for a price consistent with our appraisal, to a business that would provide jobs in Jamestown," Porter said.

But local officials argue the property was worth more in the years Popplewell assessed, when the factory was still operating.

"I felt like that was a fair number," Popplewell said of the $24.8 valuation. Shearer, the county attorney, said he recognizes how much the Fruit of the Loom factory helped the county in its day. Both his parents worked at the plant, Shearer said, raising the family's standard of living and making it possible for him to go to college.

"It made all the difference," Shearer said.

But local officials have an obligation to figure out if the company owes taxes, Shearer said.

Popplewell said he'll exonerate Fruit of the Loom's tax bills if he receives proof the company doesn't owe anything.

"If we end up with a goose egg and that's what it's supposed to be, I'm okay with that," he said. "I just want it to be right."

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