NEWPORT NEWS -- The city is thinking of granting up to $46 million to help Newport News Shipbuilding pay for a massive, $750 million investment in new facilities.
The yard needs to make that investment if it is to participate in the multibillion-dollar program to replace Ohio-class submarines.
The plan is that the grants would over time match the increased taxes the yard would pay on the machinery and tools in those facilities, Director of Development Florence Kingston told a work session of the City Council.
"We're solidifying Newport News Shipbuilding's future here in Newport News with an investment in Newport News Shipbuilding to ensure its success," Kingston said.
The proposal for grants to the shipyard comes in two big pieces.
The first, for up to $6 million, would help the yard finance $43 million of additional investment to the 160-year-old foundry the yard acquired back in 1902 -- an investment the Navy wants it to make on top of the $30 million invested over the past decade and the $50 million it already planned for the next several years. The additional $43 million is needed so the castings the foundry produces can meet tougher new standards set by the Navy.
The city's Industrial Development Authority would borrow the $6 million over four years, at which point the additional taxes on the foundry would repay the grant.
The biggest piece of the grant proposal would kick in after the authority is repaid.
That $40 million would go to help the yard finance more than $700 million for the huge new buildings and high-tech manufacturing equipment in the North Yard that will be needed for the Ohio replacement submarines.
That $40 million would be granted in pieces over several years, probably in the range of a bit more than $6 million a year over six years, Kingston said. That annual amount would match the increase in the taxes the yard would pay on the new facility and its equipment.
In addition to actually investing in the foundry and facility, the yard would have to boost employment by 1,000 positions, in addition to preserving the 120 jobs in the foundry.
The proposal would not reduce taxes the yard now pays -- more than $20 million a year -- and would not affect taxes on other new investments it makes besides the foundry and the North Yard facility, Kingston said.
The yard asked for the help -- and for a similar amount the General Assembly approved earlier this year -- because it will be years before it starts making money from the upgrade at the foundry or work inside the new North Yard facility.
"The first Ohio replacement subs come in 2027, 2028 -- I can't get my mind around that -- but we have to be ready to work on them by 2021," said Bill Bell, the shipyard's vice president for human resources and administration.
The Defense Department plans to order the first Ohio replacement submarine in 2021. The Navy says Connecticut-based Electric Boat would be the lead contractor for the Ohio program, delivering all 12 boats. Newport News would do about 40 percent of the modules that make up each hull, with Electric Boat doing final assembly.
As part of winning a major share of the $96 billion Ohio program, which would run from 2021 to 2039, the yard will also win a larger share than it has been getting from the Virginia fast-attack submarine program.
Newport News Shipbuilding and Electric Boat split work on that program 50-50.
City staff will ask the council to vote on a resolution clearing the way for the grants at the next council meeting, on June 28.
At the same time, the council will probably get a formal proposal for a tax break for low-income seniors, Mayor McKinley Price said.
The idea is that seniors with an annual household income of less than $25,000 and assets less than $10,000 would not have to pay real estate taxes. In addition to those thresholds, seniors would have to be spending 40 percent or more of their income on housing, including taxes, mortgage payments, water-and-sewer bills and other utilities. That income cap does not include income a caregiver earns, or the income from a reverse mortgage.
The city would continue its tax deferral program for seniors. That program says seniors who earn $50,000 or less do not have to pay taxes on their property, but the taxes come due when they sell their homes.
City Manager Jim Bourey said city officials started looking at the issue after hearing that residents who have taken out reverse mortgages -- basically a loan based on the equity in their home in order to help cover living expenses -- were not able to participate in the deferral program.
The city ended its old exemption program for seniors on July 1, 2012, because of the high cost, launching the deferral program instead. That exemption was for people with incomes of $50,000 or less and assets of $200,000 or less.
At the time, the exemption cost the city $2.4 million in lost revenue.
The exemption proposed for the lowest income seniors would likely cost a minimum of $255,000 a year, affecting 188 people, finance director Lisa Cipriano said. But the program could bring in people, like those with reverse mortgages, who can't use the deferral program.
Nobody knows that number, but Bourey said that means the total cost of the program, in terms of lost tax revenue, could reach $500,000 a year. In 2011, Newport News replaced a broad-based tax abatement program for seniors, replacing it with the current deferral program.
"There are so many people who need this out there," said Councilwoman Pat Woodbury.