Intel's huge investments barely benefit Kiryat Gat

Intel Kiryat Gat

Kiryat Gat's socio-economic rating is static, and it has to share the spoils of Intel's municipal taxes with regional councils.

Intel's planned NIS 40 billion investment in Israel has once more focused attention on Kiryat Gat, where the company has concentrated the bulk of its investment in the country. Analysis by "Globes," however, shows that it is doubtful whether the town will actually derive much benefit from the investment.

Intel's previous investments in fabs in Kiryat Gat, for which it received support from the state, have had no appreciable effect on the town's socioeconomic status, judging by the socioeconomic indices published by the Central Bureau of Statistics. Kiryat Gat's socioeconomic rating has remained unchanged at 4 for the past 20 years.

Sources told "Globes" that only 500 of the fab's workers reside in Kiryat Gat, while a few hundred residents work in industries that benefit from the fab's location in the area, such as the food and operations industry.

Intel's first fab in Kiryat Gat began operating in the late 1990s. The company subsequently made four major investments in constructing fabs in the town and expanding and upgrading its existing fabs. Intel invested a total of NIS 76 billion in building and upgrading the fabs, receiving a total of NIS 7 billion from the state for this purpose.

One of the ways to assess the effect of these investments on Kiryat Gat is the socioeconomic index published by the Central Bureau of Statistics. The index, formerly published once every five years, has been published every two years since 2013.

The index rates 255 communities in Israel according to the socioeconomic status of the people living in them by demographic composition, education, standard of living, employment, and retirees. A higher rating means a higher socioeconomic status.

During the entire period involved, Kiryat Gat's rating was a below-average 4. The lack of change is even more prominent in the nationwide rating of 255 communities. For example, Kiryat Gat was in 100th place in 1999, 94th place in 2003, 97th place in 2008, 100th place again in 2013, and 98th place in 2015, the most recently published index.

Nearly NIS 50 million

Beyond jobs, the town's real gain is revenue from municipal property tax generated by the fab. The long struggle over this multi-million-shekel bonanza, however, is a story in itself, pitting Kiryat Gat against three regional councils - Lakhish, Yoav, and Shafir - over the division of the revenue from the industrial zone in which Intel, among other companies, is located. Intel's existing fab pays NIS 50 million of the aggregate NIS 70 million paid by the entire industrial zone. The Kiryat Gat municipality receives 60% of this amount, while the regional councils receive 40%.

This dispute has been heard by the Ministry of the Interior geographic committee headed by Ruth Yosef. Today, the committee held a discussion on Kiryat Gat's request for cancelation of the agreement for sharing the revenue among the authorities. "3,000 housing units are added to the town every year, and we open 15 new kindergartens, without having any more industrial space," Kiryat Gat Mayor Aviram Dahari told "Globes." "Every housing unit costs the city NIS 10,000, in contrast to industrial space, which balances the budget. If the revenue sharing agreement with the regional councils is not canceled, Kiryat Gat will suffer economic collapse." Referring to the construction of the existing fab, Dahari comments, "Keep in mind that when such a fab is built in Kiryat Gat, all of the discussions take place in the Local Planning and Building Commission, all of the resources are allocated for licensing, and residents of the town suffer from the construction for years on end. I can't imagine Kiryat Gat without Intel, but revenue from the fab should go to Kiryat Gat, not other places."

The current dispute originated with Intel's decision in the 1990s to build a large fab in Israel. The Israeli government decided that it would be built in Kiryat Gat, which was a national priority area. Since the city lacked sufficient space to ensure future expansion of the fab, Kiryat Gat signed an agreement in late 1995 with the neighboring regional councils of Lakhish, Yoav, and Shafir, which transferred 4,085 dunam (1,021.25 acres) to Kiryat Gat's jurisdiction for construction of a joint industrial zone and established the division of revenue between the authorities. The fab was built. Under the agreement, 37.5% of the municipal property tax revenue was paid to Kiryat Gat and 62.5% to the regional councils. The Kiryat Gat municipality began a campaign in 2003 to cancel the revenue sharing agreement on the grounds that new residential neighborhoods were being constructed in the town with no commercial and other business space to balance the town's economic situation. In 2009, three new residential neighborhoods were built - Habanim, Guggenheim, and Haprachim. The famous first roof agreement was signed with the Kiryat Gat municipality in 2013, based on construction of 7,600 more housing units in the Karmei Gat neighborhood. The roof agreement raised the dispute by another notch, and the distribution of revenue was changed in 2014 with the approval of the boundaries committee, giving Kiryat Gat 59% of the municipal property tax revenue, with the three regional councils getting 40%: Yoav 18%, Shafir 17%, and Lakhish 6%.

"This relationship is in crisis"

Meanwhile, Kiryat Gat's request for the formation of a geographic committee to consider cancelation of the revenue sharing agreement is under discussion. The regional councils strongly opposed the committee's establishment. For example, a letter sent by the Shafir Regional Council through Adv. Joseph Raiten to former Ministry of the Interior director general Dr. Shuki Amrani in April 2015 stated that the Regional Council opposed the establishment of another committee. "Kiryat Gat complied with the original contract for sharing the revenue for a decade. This relationship reached a crisis after current Kiryat Gat Mayor Aviram Dahari was elected. He unilaterally changed the agreements between the parties, and Kiryat Gat almost completely stopped paying the regional councils the money due them under the contract." The Shafir Regional Council added in the letter that in January 2014, then-Minister of the Interior Gideon Saar decided to change the distribution of revenue, as recommended by the Wallerstein Committee, and to revise the amounts every five years according to population growth criteria, the socioeconomic status of each authority, etc. Shafir Regional Council therefore asserted that there was no justification for the appointment of another committee, and that Dahari, despite the fact that previous committees had rejected Kiryat Gat's demands, was insisting that all of the revenue from the joint industrial zone should be given exclusively to Kiryat Gat. The letter added that the council  reached a state of insolvency, and balanced its budget only after a painful recovery plan. Shafir Regional Council said it had absorbed the people removed from Gush Katif when Israel withdrew from the Gaza Strip, with all of the resulting economic consequences.

The Ministry of the Interior, however, eventually decided to established a geographic committee to consider the matter. It was duly formed in 2017. In today's committee discussion, the Kiryat Gat municipality claimed that over the past 22 years, it had paid over NIS 250 million to the regional councils, although it had contributed to construction of new residential neighborhoods, absorbed new immigrants, and thousands of new housing units had been built in its jurisdiction. The municipality demanded that the ordinance for sharing the revenue from the industrial park between Kiryat Gat and the regional councils should be canceled retroactively to 2017, when the geographic committee was formed, and all of the municipal property tax revenue be awarded to Kiryat Gat.

The Yoav Regional Council stated, "The Yoav Regional Council absolutely rejects the arguments and position of the Kiryat Gat mayor concerning cancelation of the ordinance for sharing revenue between the Yoav Regional Council, Kiryat Gat, and the Shafir and Lakhish Regional Councils.

"Over the past year, the Kiryat Gat municipality, led by the mayor, has taken unilateral and illegal action in violation of the revenue sharing ordinance, and is illegally delaying payment of money from the joint industrial zone to the Yoav Regional Council.

"The mayor of Kiryat Gat has got it wrong in this matter. The money he grabbed does not belong to the Kiryat Gat municipality; it belongs to Yoav Regional Council. The Kiryat Gat municipality has no authority to keep it in its treasury. Its behavior in this matter violates the law.

"Obeying the law is a cornerstone of actions by administrative authorities. The Kiryat Gat municipality's breaking the law and use of brute force will result in chaos.

"The prevalence of fake news and headline grabbing make it seem that everything is permissible, that legal ordinances can be ignored, and money belonging to others can be retained, while issuing false statements having nothing whatsoever to do with the provisions of law. There is no legal way for the Kiryat Gat municipality to keep this money in its treasury. The headlines that the Kiryat Gat municipality is striving to create are futile.

"The Yoav Regional Council believes that these actions are extremely serious, harm the rule of law, encourage hooliganism, and jeopardize any possibility of cooperation between authorities.

"The Regional Council previously asked the minister of the interior to order that the revenue sharing ordinance should be enforced on the Kiryat Gat municipality, and that the municipality should be prevented from acting as its own judge in this matter.

"The Yoav Regional Council will employ all the available legal means to protect its rights against the Kiryat Gat municipality or any other entity."

Published by Globes, Israel business news - en.globes.co.il - on January 31, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Intel Kiryat Gat
Intel Kiryat Gat
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018