Inside secret contracts used to entice Facebook, Kraft Heinz, Ferrara Candy Co., Amazon to DeKalb

NIU professor says city of DeKalb isn’t first to to use non-disclosure agreements to do business

A large crane lifts materials to construction workers at the site of the Kraft Heinz Company distribution center Wednesday, Dec. 13, 2023, in the ChicagoWest Business Center in DeKalb.

DeKALB – When Facebook’s parent company, Meta, was planning to locate a massive data center to DeKalb, local officials kept secret details regarding the new facility for months.

The same goes for confectionary Ferrara Candy Co. and online retail giant Amazon, all of whom have settled into the city since 2020. That’s because local officials involved in enticing the companies to the community signed non-disclosure agreements with the companies prohibiting them from speaking publicly about the business dealings.

So what do these non-disclosure agreements reveal? What role do the secrets contracts play in dealings that have since brought more than $1 billion dollars invested into DeKalb and the promise of substantial job and tax revenue growth?

Chris Goodman, associate professor of public administration at Northern Illinois University, said such contracts may look alike inside of a given industry because the issues are reasonably similar.

He speculated that each deal may be unique prompting all kinds of subtle differences in the agreements.

The agreement may outline, among other things, exclusions from confidential information, injunctive relief and remedies, termination of discussions, survival and required disclosures. In some cases, the contract is signed by a city manager or another city official.

“The non-disclosure agreements essentially prevent the municipalities in most cases from divulging that information to other folks during the negotiation process,” Goodman said. “The company knows all of the offers, but the governments that are involved in those negotiations only know their own. That significantly enhances the negotiating power of the private company in that circumstance.”

Many businesses that have since announced their arrival in DeKalb were known only under code names for months.

Meta’s $1 billion DeKalb Data Center was known as “Project Ventus,” and referred to as such in city public meeting documents and by officials in public conversation. Ferrara Candy Co.’s $100 investment was called “Project Hammer.” Kraft Heinz’s $400 million facility was “Project Wildcat.”

Code names were used though public votes by elected officials were taken on these project plans without residents knowing anything about the businesses at the center of the votes. In some cases, significant tax incentives were approved for the companies by local municipal leaders who were under NDA contract not to disclose what companies were recipients of tax relief.

The latest is Kraft Heinz, which in July announced plans to set up a 775,000-square-foot automated distribution facility on the city’s south side. After the first year of a full assessment, the development will become eligible for a 50% property tax abatement for a period of 15 years, officials said.

Meta’s DeKalb Data Center was awarded a 20-year, 55% property tax abatement plan, already approved by the DeKalb City Council and agreed upon through the DeKalb County Enterprise Zone, before the company’s plans were made public. The abatement comes with a stipulation of 50 tech jobs with a starting wage of $38.50 an hour to qualify for tax abatements within the first few years, documents show.

Because Kraft Heinz occupies space in an enterprise zone – an economic tool used by governments to designate geographical areas that offer businesses incentives to put down roots – the development may be spared from paying some of the sales tax on the materials purchased for the construction of the building.

Michael Reffle, director of site operations north for Meta's DeKalb Data Center, gives a tour of the data storage spaces which are carefully temperature controlled at the campus, 2050 Metaverse Way, DeKalb on Wednesday, Nov. 29, 2023. The data center's servers are now operational. Once complete, the campus will house more than 2.3 million square feet across five buildings.

DeKalb’s use of NDAs to entice business

A public records review by the Daily Chronicle of these projects found that City Manager Bill Nicklas signed NDAs before the companies’ decisions were finalized in June 2021 for Amazon, in July 2019 for Ferrara, and Economic Development Planner Jason Michick signed the NDA before decisions were finalized in September 2018 for Meta.

Those NDA contracts, however, were subsequently released to the Daily Chronicle via public records only after the companies announced who they were.

In the case of Kraft Heinz, an NDA was released under a former code name in Project Wildcat in June 2022. When the code name switched to Project Supernova, however, release of a subsequent NDA contract to the paper was denied to the Daily Chronicle by the city of DeKalb in August. In its denial, city staff said release of the Project Supernova NDA could reveal trade secrets or cause competitive harm. In a Tuesday ruling, the Public Access Counsel at the Illinois Attorney General’s Office ruled that the city should not have denied release of the records to the Daily Chronicle.

The city on Friday released its updated NDA agreement with Kraft Heinz but redacted the signatures of those who signed the contract .

Local officials say their use of NDAs is necessary to land these companies in an increasingly competitive business environment these days.

City Manager Bill Nicklas said the city stands behind its use of non-disclosure agreements in working with mega-corporations.

“We’re going to have to sign these agreements,” Nicklas said. “If we’re going to do business with Fortune 500 companies, we are going to have to respect that operations are confidential.”

One lawyer with a Chicago-based civil rights law firm, however, says he believes this type of business dealing is counterproductive to the promise of transparent local government.

In a Dec. 11 email, Loevy and Loevy partner Matt Topic said the use of NDAs in local government to shield potential business dealings with mega-corporations from the public can be harmful.

“Records cannot be withheld simply because the public body has entered into an NDA,” Topic said. “The public body or the company still has to prove that the material would actually cause competitive harm if released or interfere with an open bidding process or other legal basis. Put simply, the government cannot contract away the public’s right to information. They do have a place though, because a company must claim at the time it furnishes the information that it is a trade secret or proprietary (in addition to proving that it actually is), and the NDA is one way to do that.”

Lou Sandoval, president and CEO at Illinois Chamber of Commerce, said he believes the use of NDAs in local government is inevitable in today’s world.

“Given the challenges in trying to protect intellectual property and especially if you’re working in a strategic and innovative fashion, you’re trying to gain competitive advantage and I believe that it has a role,” Sandoval said. “Prudence should govern, but it has a role in putting disclosures out. Obviously, common sharing, especially if you’re a publicly traded company, it helps protect the interests of the company. It allows for the FCC and the like. So, it does have a role. At the same time, it might not be transparent. It creates protections for both sides.”

Work continues at the site of the Kraft Heinz Company distribution center Wednesday, Dec. 13, 2023, in the ChicagoWest Business Center in DeKalb.

Other elected officials recently shared their opinions about the use of NDA contracts to conduct city business.

Seventh Ward Alderman John Walker said he is wary of the city’s intentions.

“To me, that’s a red flag for me, to be honest with you,” Walker said. “I honestly don’t understand why they would do that. Then again, like I said, I’m not an attorney. I don’t know the rules or regulations 100%. This just doesn’t make any sense that you release all the other ones, but you don’t want to release that one.”

City Attorney Matt Rose declined comment, saying he’s not privy to what’s at issue to discuss.

The topic at hand, however, is nothing new in government, experts said.

Goodman said the city of DeKalb is not the first nor will it make for the last governmental entity to choose not to be fully transparent about how it is enticing major companies to do business in town.

“For a long time, there’s been economic development incentives similar to what Ferrara or Meta have gotten from the city of DeKalb,” Goodman said. “That’s a pretty commonplace kind of thing.”

Topic echoed that sentiment.

“In my experience, companies make frequent use of these kinds of agreements and broadly claim that they will be harmed from release of any information about them or their products and services,” Topic said. “In litigation, requesters are usually able to get additional information released, though it’s common for at least some material to be withheld. I’m not seeing anything new here: it has been this way for the last 15 years that I’ve been doing these kinds of cases.”

At the same time, private companies are forcing governments’ hand more and more in ways they haven’t alway done in the past, which Goodman said leaves municipalities with little choice but to go along with the negotiations.

“What is new is that that negotiation process is happening behind closed doors and that’s largely because the companies are demanding that,” Goodman said. “That is an intentional thing on the part of companies to force governments to come to the table with their highest and best offer and then the company is free to pick whichever one they might go with.”

Fifth Ward Alderman Scott McAdams said while he’s not privy to the details regarding Kraft Heinz’s NDA release, he heralded the company’s arrival.

“As a general rule, I think that it’s good to have transparency,” McAdams said. “[...] I think that the Kraft deal is fantastic for the city and fantastic for the region. I can’t wait to welcome them as partners.”

Goodman said he believes the way government engages with certain private companies to entice economic development in today’s world is the way of the future.

“They are looking to decrease their own cost in any way possible,” Goodman said. “That can be through reduced land costs, that can be through reduced taxation, that can be through incentives for hiring workers. Those are mostly state programs, not local programs. But that’s kind of what the business side of this equation is is that they’re just trying to drive down the cost of this development to as low as possible. Having some bit of their tax burden reduced by the host community is one component of that.”

Sandoval said he believes the future is ripe for private companies to continue using NDAs to shield their business dealings with government.

“There’s been a lot of instances of insider trading,” Sandoval said. “As the government comes down on interests for providing information that’s not made available publicly to everyone, those are the laws that are in place. It’s a risk management strategy to try to prevent information that would give anybody an unfair advantage to know the trading of stocks and interests in the company from getting out there and some having a competitive advantage versus others.”

Mayor Cohen Barnes likened it to a balancing act having to promote economic development and transparency in government.

“You’ll be in negotiations with a union or a private company, and during the negotiation process, sometimes the deliberation process you can’t release exactly where you stand on a particular item or where a negotiation is in the process because that itself could end up ruining negotiations,” Barnes said. “It could disclose information that someone could then take advantage of the city, let’s say, or advantage of a union. That’s why there’s a lot of things that have to happen in private for a period of time for everyone to enter those negotiations open and honest and be able to advocate on their own behalf.”

Goodman said he believes it’s clear that transparency comes at a cost in the way government is handling economic development.

“That does significantly reduce the amount of transparency and accountability in that process because the public doesn’t get any input into it other than directly electing local officials in that process until afterwards,” Goodman said. “Then, the deal is done and then there’s really no public input at that point.”

Goodman said he believes that the public has a right to know what’s going on in government.

“It doesn’t have to be this way,” he said. “We could go back to the situation we had before where this was much more transparent. The incentives still happened. The issue was that companies would not have as much leverage over localities in terms of the kind of incentives that are offered to them. Because of the secrecy, companies can effectively play different locations off of each other because those locations don’t know what’s being offered.”