Closed plant will reap benefits through '09

CNY Business Journal (1996+), Apr 18, 2003 by Spohr, George

SYRACUSE - While Service Corp. International (SCI) was looking for ways to bury the Marsellus Casket Co., it was working with Onondaga County economic-development officials to make sure tax incentives would remain in place through 2009.

Donald Western, assistant secretary of the Onondaga County Industrial Development Agency (IDA) and economicdevelopment director for the county, says the government was broadsided on March 27, when SCI announced it was closing its plants in Syracuse.

SCI sold off Marsellus' intangible assets to the Batesville Casket Co., Marsellus' largest competitor. The plant's windows were boarded up, and the company's 315 workers were let go. Western says - weeks later - it's still hard to believe what's happened.

"When the owner [of Marsellus Casket] ended up selling, back in 1996 or 1997, to SCI, there was this great vertical consolidation in the industry," Western explains. "Everyone knew there was this Batesville, so you had to kind of ask yourself, 'Is this niche that Marsellus is in going to sustain it?' And following the acquisition by SCI, employment actually grew."

That's why economic-development leaders helped SCI secure - through 2009 - a PILOT (payment in lieu of taxes) program. Normally, programs end after 10 years. Marsellus Casket's first PILOT program began in 1989 and should have ended in 1998. An extension was granted in 1994 to last through 2003.

After the company was purchased, the company again asked for an extension. In 2000, SCI, through local plant officials, received its final PILOT extension.

But Western says he didn't see SCI at the corporate level - a debt-ridden company that has been shedding its assets since 1999, after a decades-long buying spree left the company with assets that didn't fit its core business: funeral homes and cemeteries.

Analysts such as William Burns at Johnson Rice & Co. in New Orleans, who has followed SCI for almost two decades, say the sale of Marsellus shouldn't have come as a surprise. Burns says SCI has tried to sell Marsellus several times throughout the years.

Western insists, though, that he didn't see those signs. "We really relied on local management. That's one reason we modified the PILOT," he notes.

Because its Syracuse facility is in an Empire Development Zone, Marsellus is eligible for tax benefits, says Tim Gillson, vice president and regional director of the Empire State Development Corp.

In 1997, the company took advantage of that. The state provided an interest-subsidy grant to the company for a $1million loan, Gillson says. It also received state money to train workers as part of a consortium of companies seeking training. The consortium received $250,000. Gillson says he's unable to specify how much of that went to Marsellus.

As for Western, he says he saw nothing but positive signs coming out of Marsellus Casket's offices, signs of growth that seemed to tell officials they had done the right thing by helping the company out.

When Marsellus Casket was sold to SCI, it had 190 employees. That number rose and peaked under SCI management, Western says, to about 340. Western says the IDA acted as a conduit for two bond sales for the company. In 1998, Marsellus (through its SCI parent) sold $7 million in tax-exempt bonds. As of June 30, it owed $4.5 million in principal on those bonds. In 1999, the company sold $1.5 million in taxable bonds.

So far, SCI hasn't made any payments on the principal, though it has made interest payments. Under the law, SCI doesn't have to make payments on the bonds until Dec. 1, 2008.

"Over the '90s, you saw what you wanted to see," Western says. "You really thought you did the right thing - the community being there for a home-grown company. But SCI turned out to be an amoral bunch of bloodsuckers." Saying SCI practices "the worse side of capitalism," Western blasts the company for its "abysmal behavior."

He says he was insulted when he heard SCI had boarded up the company's windows. "They expect local employees here to ransack and pillage a facility," he says. "It seems to me they only came up with that preemptive type of strike because that's how they would behave."

SCI officials declined requests for comment.

Western says he regrets that there weren't "recapture provisions" in the agreements made with SCI. He says that in 1988, provisions like that weren't the mainstay, as they are now. There's only one catch-22 for SCI - and even that isn't something that would make SCI rethink its plans to close its Syracuse operations, Western says.

"They do have an obligation to make a payment for each [position] less dm 335 that are at the site in a given year," Western explains. If SCI still owns the property next January, it will have to pay $400 per employee. Since it will have zero employees at the site, it means SCI will have to pay $134,000. The IDA would collect it and it would be distributed to tax jurisdictions.

But if SCI "vacates the premise and sells it, it goes away," Western concedes.

He says those in the IDA who helped map out agreements with SCI feel used. He says the tax-exempt bonds have interest of only about 1.4 percent. "Then the jerks from SCI came in and said 'The cost of doing things is too high.' That's a flat-out lie."