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Spokane, Washington  Est. May 19, 1883
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Lease, bonding shield taxpayers from risk in West Plains car factory development, officials say

Mullen’s K50 electric vehicle. (Mullen Technologies / Courtesy)
Mullen’s K50 electric vehicle. (Mullen Technologies / Courtesy)

Battles over tax breaks and public money-backed incentives won’t come to the West Plains, according to local leaders involved in the negotiations to bring Mullen Technologies to the area.

Instead, a proposed agreement offers protections for local taxpayers and the West Plains Airport Area Public Development Authority, including financial benchmarks, warranties and a nonrefundable deposit from the electric car and high-tech battery manufacturer.

“It’s pretty much just a straight-up real estate deal,” said Spokane County Commissioner Al French, who sits on the PDA’s board of directors. “We’re entering into an agreement where we’re going to build the buildings and they’re going to pay rent on the buildings. There’s no risk for taxpayers.”

Todd Coleman, executive director of the PDA, agreed, saying a development fee and a security bond from the California-based company would ensure the PDA is paid in full for the construction of a facility – even if the company pulls out before the facility is built.

“We want to protect ourselves,” Coleman said. “They have to be fully committed. It minimizes the risk to the PDA and the taxpayers.”

The West Plains PDA is a 20-year agreement between the city of Spokane, Spokane County and Spokane International Airport. They devote 75% of the tax revenue generated by improvements and new businesses in the PDA geographic area to the PDA to be used for “the acquisition, construction, development, equipping, leasing, operation and maintenance” of public projects, according to the agreement between the three entities. The PDA board of directors includes elected officials and representatives from businesses.

As a governmental organization, the PDA also has public bonding power to take out loans and repay with them with tax revenue. It also can issue revenue bonds, which are not paid back by taxes but from sources such as road tolls or lease fees.

A letter of intent signed last month by Coleman and David Michery, CEO of Mullen, describes the agreement.

Towne Automotive Photography / Youtube

According to the proposal, the PDA would build 1.3 million square feet of space for the company – for a factory as well as a research and development area for creation, production and assembly of its high-end electric sports cars and air-cooled lithium-ion batteries that could be used in automobiles and commuter aircraft.

The cost of improvements, permitting, engineering, construction and construction management for the two phases is not yet known, but Coleman said Mullen has an end-of-month deadline to deliver a building layout. Coleman’s staff and city engineers will then determine the full project’s estimated cost. For the project to move beyond this point, Mullen will have to pay the PDA a nonrefundable development fee equal to 4% of the project’s estimated cost.

“We anticipate that will be probably several millions of dollars,” Coleman said of the development fee.

Payment of the development fee also is contingent on Mullen raising $50 million ahead of its anticipated initial public offering, or IPO, in September, when the company plans to list and sell shares.

Once the development fee is paid, the PDA will finance construction of the facility by selling revenue bonds, to be paid back through the lease agreement with Mullen Technologies. Construction will include extension of the Geiger rail spur, and water, sewer, gas and power utility connections.

French said state law prevents the PDA from “gifting money for a deal like this,” but one of the biggest lures is the PDA’s ability to acquire a revenue bond at a “lower interest rate than you can get at your local bank.”

“That has some pretty significant value to it,” he said.

The dollar value and interest rate of the bond have yet to be determined. Once it is, it along with the leasehold excise tax – a 12.85% tax that applies in lieu of county property tax when publicly-owned property is leased – will define the cost of the lease.

“We’ll structure the lease rate so it will recover back and provide for the payment of the bond,” said Coleman, noting the bond will likely have a 20-year term.

Prior to the PDA acquiring the revenue bond, however, Mullen must secure a security, or surety, bond equal to the revenue bond, which Coleman said would protect the PDA from being stuck with paying for the facility if Mullen pulled out at any time in the process.

“If they default at any point, their surety bond would have to pay 100% of whatever the outstanding debt is,” Coleman said. “ If for any reason they defaulted on those loans, we’d have a 100% paid-for facility that we could turn around and lease to another company.”

Such protection – and lack of incentives – insulates the Mullen project from criticisms that have dogged some Amazon warehouse projects around the country, Coleman suggested. For instance, Amazon received state tax incentive deals worth millions of dollars tied to the openings of distribution centers near Chicago, and critics say the giveaway to one of the country’s biggest companies outweighs the benefits to the local economy.

While it’s unclear what is in Spokane County’s agreement with Amazon, which is almost done building a warehouse in the PDA, French said there’s “nothing controversial” and it’s only been kept out of public eye as the two parties negotiate minor points. It was first delayed as the county and Amazon waited to hear if the federal government would devote $14.3 million in BUILD grant program – or the Better Utilizing Investment to Leverage Development grants – to rebuild Geiger Boulevard, which happened in December. It was then pushed further back by the federal government’s 35-day shutdown, French said.

Coleman said the development fee and security bond ensures full commitment from Mullen while protecting public funds. Coleman added that the company’s upcoming IPO offers a third protection, one based on the company wanting to appear consistent and reliable to potential investors. In other words, the company has announced Spokane as the site for its factory and it will want to remain true to its word to build the trust of investors.

“That was the whole idea behind the nonrefundable deposit and surety bond. They have to be fully committed,” he said. “They plan on doing an IPO this fall. If they changed positions, that wouldn’t look good for the IPO.”

Coleman said subsidies for the Mullen deal include waiving of the general facility charge to connect the facility to the city’s water system. The PDA also is trying to work with the state Department of Commerce to secure “green incentives” because of the company’s work on electric vehicles and lithium batteries for autos and airplanes. Coleman said it is unclear if these incentives would apply to what Mullen does.

“The electric car is the eye candy. Their work on air-cooled lithium batteries will propel automobiles and commuter aircraft,” Coleman said. “This is where all the jobs are going to come from.”

As Coleman suggested, the company’s Qiantu K50 electric sports car has received a lot of attention. Unveiled at the New York International Auto Show in April, the 450-horsepower K50 was designed by Chinese automaker Qiantu and is powered by two electric motors, one on the front axle and one on the back. Though Mullen has said it wants to improve the car’s performance, it has a 250-mile pure electric range, can go from 0 to 60 mph in 4.2 seconds and has an electronically-limited top speed of 125 mph. The car is built on an aluminum frame and has 29 carbon-fiber body panels that weigh about 100 pounds.

Perhaps the biggest expenditure that will be shouldered by state and local government is the $2 million, 1.2-mile rail line under construction on the West Plains that will connect with the Geiger Spur. Mullen will not directly fund the project’s construction, but the state already has pledged $2 million to build the spur. The Legislature committed another $500,000 this year to build a transloader facility, which will transfer freight shipments between trucks and rail, but the total cost for the transloader facility is $4 million.

“We still have some more work to do. There are some grant opportunities out there,” French said.

Mullen will pay a $150 per rail car fee for use of the spur and transloader, which could help increase chances for more grant funding. Besides that, French called the transloader “one of the synergistic elements” that would help attract other companies.

Coleman said he doesn’t anticipate that the factory will provide much sales tax, other than what is collected during construction. Like Amazon, sales tax is collected at the point of destination, not departure. However, the company will generate leasehold tax and, if the company opts to purchase the building from the PDA, it will pay property tax.

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