The Shearer's Grant Adds Value

Surprisingly, there has been discussion over whether the Shearer's relocation grant is good for Massillon. Shearer's is proposing to bring 125-150 corporate jobs with the relocation of its  headquarters from Brewster to Downtown Massillon.

Council is currently considering a $100,000 grant to assist in that relocation. Even before this article in the Inde , it was clear that the grant adds value to Massillon.

First, let's look at the job numbers. Assuming 125 jobs and not 150, and what I believe is a conservative average of $40k in salary per job, the tax revenue looks like this:


# Jobs Average Salary Tax (@1.8%) Total Tax
125 $40,000.00 $720.000 $90,000.00

So, at $40,000 per year in average salary, the relocation is worth $90,000 per year in tax revenue. The next step is to figure the value today of that $90k per year over the next ten years. According to numbers from finance.yahoo.com, 10 year corporate bonds were trading at the following yields on Friday:


Corporate Bonds
Maturity Yield Yesterday Last Week Last Month
10yr AAA 2.26 2.34 2.29 2.47
10yr AA 3.33 3.56 3.45 3.37
10yr A 3.33 3.41 3.36 3.20
Avg. 2.97

Shearer's is not public, but an investment-grade risk level seems a reasonable assumption from what is known of the company.  Plus, the grant is in the form of a loan that must be paid back to the city if the company does not stay for the full ten years.  This further mitigates the risk to the city.

Now that we've established the cash flows and discount rate with some reasonable assumptions, we're ready to find the present values:


Year Cash Flow Discount Rate Present Value
0 ($100,000.00) ($100,000.00)
1 $90,000.00 2.97% $87,404.10
2 $90,000.00 2.97% $84,883.07
3 $90,000.00 2.97% $82,434.76
4 $90,000.00 2.97% $80,057.06
5 $90,000.00 2.97% $77,747.95
6 $90,000.00 2.97% $75,505.44
7 $90,000.00 2.97% $73,327.61
8 $90,000.00 2.97% $71,212.59
9 $90,000.00 2.97% $69,158.58
10 $90,000.00 2.97% $67,163.82
NPV $668,894.99

The grant has a net present value of more than $600,000.

Since we do not yet know exactly how much new payroll will be coming to the city, let's look at it another way.  Assuming the same discount rate, the only way that the deal does not add value to Massillon is if it results in less than $11,705.10 per year in additional tax revenue:

Year Cash Flow Discount Rate Present Value
0 ($100,000.00) ($100,000.00)
1 $11,705.11 2.97% $11,367.50
2 $11,705.11 2.97% $11,039.62
3 $11,705.11 2.97% $10,721.20
4 $11,705.11 2.97% $10,411.96
5 $11,705.11 2.97% $10,111.65
6 $11,705.11 2.97% $9,819.99
7 $11,705.11 2.97% $9,536.75
8 $11,705.11 2.97% $9,261.68
9 $11,705.11 2.97% $8,994.54
10 $11,705.11 2.97% $8,735.11
NPV $0.01

$11,705.11 in tax revenue is equal to an additional $650,283 in payroll. Anything above that results in a positive NPV.  This is a significant cushion to account for employees that already live in the city or errors in the $40k per job assumption. 

Here are some other NPV figures at various discount rates:


Discount NPV
2.97% $668,894.99
5.00% $594,956.14
7.50% $517,767.29
10.00% $453,011.04
12.50% $398,278.77
15.00% $351,689.18

In fact, the internal rate of return on the grant at $90k per year is 89.85%.

Of course, this analysis also does not take into account the financial impact of an additional 125-150 corporate employees downtown five days per week on our restaurants, shops, and other businesses.