Tax issue strains ties between Postville, county and employer

Northeast Iowa town still reeling from immigration raid

Mike Wiser
Published: June 24 2012 | 12:05 pm - Updated: 31 March 2014 | 8:49 pm in
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Four years after an immigration raid on a kosher slaughterhouse put a national spotlight on the town of Postville, the relationship between the city, its biggest employer and the county could hardly be worse.

In 2010, Allamakee County officials sued Agri Star Meant and Poultry, seeking payment of more than a half-million dollars in unpaid property taxes incurred when the processor was known as Agriprocessors and under different ownership.

Two years of courtroom wrangling later, the county has racked up a legal bill of just under $140,000 in pursuing its claim. Despite a ruling in the county’s favor, a final resolution seems far off.

Then, in March of this year, county officials refused to sign off on an incentive package for Agri Star, essentially stopping the company from obtaining close to $1 million in tax abatements through the Iowa Economic Development Authority.

"It’s outrageous," said Doug Gross, the 2002 Republican nominee for governor and an attorney with the Des Moines law firm BrownWinick that represents Agri Star’s owner. "These are two totally unrelated issues and the county is holding the incentives hostage for some type of leverage in the tax litigation."

But the ferocity with which Agri Star has fought the tax claim, despite a ruling by a federal judge that the county is owed the money, has left a bad taste in the mouths of some of Postville’s most prominent citizens.

"I’d like to help them. I think we could get a brownfield designation for the old turkey processing plant near them and that would help them expand, or fix up that entrance," said Postville Mayor Leigh Rekow, a farmer and former state representative. "But we can’t do anything until this lawsuit is resolved."

Part of Postville

Two water towers dominate Postville’s skyline. One bears the name of the town, the other — which greets motorists coming in from the west on Highway 52 — is painted with the name Agri Star.

Agri Star came to be when Montreal businessman Hershey Friedman formed a limited liability corporation called SHF Industries and bought assets of the bankrupt Agriprocessors plant in June 2009.

The sale came 13 months after a massive U.S. Immigration and Customs Enforcement raid on the plant that ended in the arrests of 389 workers on immigration violations.

Immediately after the raid in May 2008, replacement workers with little training were brought in to replace the illegal immigrants, who were detained and eventually deported. The plant’s CEO, Sholom Rubashkin, was facing fraud charges at the time, and was eventually sentenced to 27 years in prison. Meanwhile, the housing bubble burst and property values plummeted in Postville.

Enter Friedman, who bought the plant and promised to pay better wages, install an E-Verify system for background checks, and run everything above board.

According to court filings, Friedman bought the assets "free and clear" of liability in 2009.

He still operates the business as a kosher slaughterhouse, which means the animals must be killed and prepared in a specific way in accordance with Jewish laws of the Torah. For example, animals need to be killed almost instantaneously to mitigate the amount of pain they feel and certain veins and fats must be removed before processing.

Postville Mayor Rekow said the replacement workers were soon replaced by permanent employees, much to the relief of locals who had become concerned with the rowdy behavior downtown when shifts left the plant. Even though Friedman didn’t plan to live in town like the former owners, things seemed to be moving in the right direction, Rekow said.

The tax question

Then the county sued SHF Industries in 2010, saying the company owed taxes for the 2007-08 tax year when property taxes went unpaid by Agri Star.

SHF Industries objected, pointing to the "free-and-clear" ruling. But in January of this year, the same judge who issued that ruling — Chief Bankruptcy Judge Thad Collins — said that while Agri Star was aware of the tax liability, it had not made the court aware of that liability.

Therefore, the company was "not a good faith purchaser," and the county was still owed the money.

But Collins’ ruling also questioned if the court can make SHF Industries pay the back taxes or if the county needed to collect the taxes from some other entity, such as the banks that had sold Agriprocessors’ assets to SHF.

In response to a request for an interview, Friedman issued a statement through the West Des Moines public relations firm WANT:

"Our intent with Agri Star Meat and Poultry LLC is to create a high quality product and a high quality workplace. We are committed to the employees of Agri Star, the city of Postville and our customers across the country. We strive to create a safe, productive workplace where our employees are provided with competitive wages and benefits. We produce high quality products for our kosher consumers. Two key components of our business strategy are integrity and trustworthiness. We will strive every day to uphold these values."

‘Downward spiral’

Today, Postville looks much like it likely did before the 2008 raid. The town of 2,227 sits at the crossroads of Highways 51, 52 and 18 in the hills of Northeast Iowa.

Hispanics, many of whom work at Agri Star, make up about a third of the population, and that influence is seen in the restaurants and Supermercado downtown.

Orthodox Jews, who also work at the plant, influence the downtown landscape as well. There are two Jewish markets, and Jews dressed in black suits and white shirts walk past pickup trucks and storefronts on the four or five downtown streets.

City Clerk Darcy Radloff said the town "is still coming back" from the raid and the effects of the recession. She credits Agri Star with some of that comeback.

"They are very valuable," she said. "I think we saw how much so after the raid and the bankruptcy when the whole town hit this downward spiral."

Aaron Anderson, 33, has lived in Postville most of his life and witnessed the raid and its aftermath. He knows people who work at the plant and thinks the town might be better off without it.

"It wouldn’t bother me at all if they left. I think they should," he said. "It might take 10, 20 years to get the town back to normal, but we would get there."

The opinion got a nod of agreement from Eugene Severn, a retired Air Force major, who, like Anderson, was spending an early afternoon at the Livingood Barber Shop in downtown Postville,

"I don’t know if a break would be so bad," Severn said. "The relationship is not so good, but they brought a lot of it on themselves by not paying their bills."

No end in sight

Agri Star’s employment base fluctuates with the season, but the best estimate is the company typically has between 600 and 700 people in its employ on any given day. That’s a tremendous amount of economic influence, given that those wages support not only the workers, but the grocery stores, the filling station and the local charities.

It makes the acrimonious lawsuit between the company and local officials all the more sensitive.

In March, Allamakee County Treasurer Lori Hesse joined state Rep. Bob Hager and County Supervisor Lennie Burke on a trip to Des Moines to tell the Iowa Economic Development Authority Board that they would not sign off on a local match for tax abatements for Agri Star.

Hesse wouldn’t speak about the lawsuit on the advice of the county’s attorney, Wesley Huisinga of Cedar Rapids, but the county’s position is laid out in a March 23 letter from Huisinga to Economic Development Director Debi Durham, which was obtained through an Iowa Open Records Act request.

"Given the substantial tax obligations owed, and SHF’s continued efforts to escape liability, ...neither Allamakee County nor the city of Postville are in a position to support, in any way, SHF’s request for tax abatement or other local financial contributions," Huisinga wrote.

In a phone call from his Cedar Rapids office, Huisinga said both sides have asked the court for clarification on how to proceed, but nothing has been forthcoming. The county also is seeking attorney fees and other costs associated with the litigation, which pushes the estimated price tag to more than $850,000.

Gross, who represents SHF Industries, says the county and the city have been obstinate.

"We’ve approached them several times, but they don’t want to talk about a possible settlement," he said.

Tina Hoffman, spokeswoman for the Iowa Economic Development Authority, said agency rules don’t allow the state to offer the incentives in question without a local contribution, so the incentive offer to Agri Star has been put on "indefinite hold" until the lawsuit is resolved.

Even those closest to the case aren’t sure when that might be.

"Now we might have to go to trial again because of the (January ruling). That will mean more depositions, more witnesses," Gross said. "I don’t know when it will end."

 
 

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