The costs are indeed passed along to consumers. All of the competing producers are paying relatively the same amount in taxes. This gives no producer an advantage. This acts to increase the price for all.
Posted on 03/06/2010 6:36:05 AM PST by Willie Green
JAMES CITY — With layoffs imminent locally and a corporate goal to cut another $500 million this year, what’s next at the brewery?
InBev produces beer at 151 breweries in 30 countries, of which James City’s represents only 0.75% of capacity, according to one close observer. In short, we’re vulnerable.
AB InBev has been zealous at cutting costs among all 12 U.S. breweries, achieving $1.2 billion in “synergies” last year, according to the 2009 annual report.
No one is talking openly about what the county might do to save the brewery. One obvious answer is to cut water rates, but the county doesn’t control them. The alternative is to cut taxes to make operations more efficient. The company is still said to be making capital investments in the brewery, which is a positive sign of continuity.
Shifts in taste toward wine and other drinks continue to hurt beer. Fourth quarter results released this week show that shipments to American wholesalers fell 1.9%, while wholesale shipments to retailers fell 4.1%. The Wall Street Journal concluded that “the beer maker’s sales will continue to be weak.”
In that climate, InBev is pushing for more cost reductions. Employees said that the company turned off the heat earlier this winter until the union stepped in. Management has turned off every other light as well as going dark on weekends.
Keeping the brewery is important to the entire Peninsula. It provides hundreds of high-paying jobs and is among the largest taxpayers in James City County. Since AB InBev’s union contract is in place until 2014 (see box), officials have time to ensure James City remains an attractive site for InBev.
Last fall the Gazette found that the James City plant is second highest behind Newark in terms of utility costs, namely water.
The brewery has a capacity of 9.6 million barrels a year and pays $38.4 million for utilities, according to figures posted last year on the corporate website. Some of that information has since been redacted.
Water costs the brewer more here than elsewhere. In Cartersville, Ga., for example, AB InBev pays about one-third the rate.
Newport News Waterworks supplies 3 million gallons a day. At peak capacity, the annual water bill approaches $6 million.
Amazingly, Newport News offers no discount for volume. Waterworks officials say it would be hypocritical to cut rates for heavy industrial users while pushing conservation.
The brewery is Newport News’ largest customer, although usage has dropped over the past few years as Anheuser Busch adopted new water-saving technology at the plant.
It would seem that James City has little control over water costs to the brewery. JCSA’s system, largely dependent on groundwater and desalination, is much smaller than Newport News. At its peak, the brewery was pulling 5 million gallons a day. JCSA averages only a 4.7 million gallon a day draw for all 18,000 customers, according to its website.
Property is another pressure. All eyes are on Fort Collins, Colo., where AB InBev is challenging the plant’s property assessment. Larimer County values the brewery at $91.8 million while AB InBev puts it closer to $50 million. The difference would save the company around $1 million in taxes.
Larimer County’s assistant county attorney, William Ressue, said in a phone interview that an appeal hearing date has not yet been set. If the tactic works there, it’s likely to be repeated elsewhere.
The recession aggravates matters. James City is already facing a budget shortfall that could bottom out at $6 million.
Raising the real estate tax rate by a penny would add about $30 to the average homeowner tax bill, according to county estimates, but the danger is it would cost industry far more. The point was not lost on supervisor Bruce Goodson, who emphasized business interests during the annual budget retreat in January.
The machinery & tools tax is another sacred cow. The rate has remained constant, at $4 per $100 in value, for more than 30 years. The county assesses machinery and tools at a quarter of their original value. A machine costing $500,000 would net $5,000 a year in tax revenue.
According to Virginia Economic Devlopment Partnership figures, James City’s rate falls about square in the middle of the range, which suggests there might be some wiggle room to either increase or decrease.
The tax consistently generates about $5 million a year to the county, and most of that is believed to be paid by the brewery. County officials have insisted that tax would remain even if the plant were to close.
The tax cannot be raised above the personal property tax rate, which is $4, although the county has some latitude to change the percentage of assessed value to increase revenue. The tax rate can be lowered however, without any extraordinary effort, Finance manager John McDonald said Friday.
Brewery workers attested this week in a thread on vagazette.com that cost cutting is Job 1. The annual report put it this way: “The integration was achieved even more quickly and succesfully than we imagined, as our new U.S. colleagues embraced our dream, ownership culture and core values of meritocracy, accountability and informality.”
UNION PACT BUYS TIME
Talk persists that the brewery is in danger of closing, but one factor may preclude that.
Long-term employees who spoke on condition of anonymity say that union contracts negotiated shortly before the InBev merger protect the plant from closure in all but the most extraordinary circumstances, like increased excise taxes. The contract doesn’t expire until 2014.
Sources also said the number of layoffs next week should top out at fewer than 50, well below the 80 quoted to the Gazette earlier this week.
Layoffs are technically temporary. Permanent layoffs tip a buyout provision in union contracts.
One source on the thread in vagazette.com said the contract was expedited during the buyout “because they could ill afford a strike during that time. It basically would have killed the deal.”
A respondent in Columbus suggested they share information with each brewery work force through Facebook or e-mail.
If I’m going to buy a foreign beer it certainly wont be Bud.
I'm all for the brewery paying for the water that it uses, but all those other taxes? Good grief. You wonder how they can manage to make a decent profit at all
IMHO there is nothing wrong with businesses paying their fair share of local taxes. Afterall, they benefit from local government services just like everybody else: paved roads, police & fire protection, public transit, etc. etc.
But I certainly agree that some methods of local taxation are counterproductive and idiotic.
For instance, the Machinery and Tools Tax is totally asinine since it actually discourages replacement of older, worn-out equipment with newer, more productive.
Regardless of whether this is an industrial/manufacturing business or a service sector business like a restaurant or doctor's office... what kind of business can STAY in business if the structure of the tax code discourages the proper maintenance and upgrade of it's property, plant & equipment.???
And all those taxes get passed on to the person that drinks their beer.
That anti-tax rhetoric is actually incorrect economics.
In a market economy, price is determined by supply and demand in the market.
Producers CANNOT "pass along" their costs unless they enjoy monopolistic or oligopolistic control of the market.
If they could simply "pass along" their costs or taxes, then they would never go out of business.
Naturally,this means war!!
****That anti-tax rhetoric is actually incorrect economics.
In a market economy, price is determined by supply and demand in the market.
Producers CANNOT “pass along” their costs unless they enjoy monopolistic or oligopolistic control of the market.
If they could simply “pass along” their costs or taxes, then they would never go out of business.****
The costs are indeed passed along to consumers. All of the competing producers are paying relatively the same amount in taxes. This gives no producer an advantage. This acts to increase the price for all.
“In a market economy, price is determined by supply and demand in the market.
Producers CANNOT “pass along” their costs unless they enjoy monopolistic or oligopolistic control of the market.
If they could simply “pass along” their costs or taxes, then they would never go out of business. “
Exactly!
The costs are indeed passed along to consumers. All of the competing producers are paying relatively the same amount in taxes. This gives no producer an advantage. This acts to increase the price for all.
And people continue to wonder why businesses move out of the U.S.
Add to these bloated local taxes the local codes, regulations and other impedimenta, all of which add up to more costs. Add in the liability insurance to protect from rapacious lawyers...
Mexio begins to look good after a while...
Since it’s from the guy trying to sell mass rail, your post is utterly HILARIOUS!!
C’mon Willie, is that all you got?
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