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HomeMy WebLinkAbout2014-01-14 - AGENDA REPORTS - TAX INCENTIVE PRGM W/ ADI (2)PUBLIC HEARING DATE: SUBJECT: DEPARTMENT: Agenda Item: 6 CITY OF SANTA CLARITA AGENDA REPORT City Manager Approval: Item to be presented by: January 14, 2014 Jason Crawford USE TAX INCENTIVE PROGRAM WITH AEROSPACE DYNAMICS INTERNATIONAL AS PART OF THE ECONOMIC DEVELOPMENT 21 -POINT BUSINESS PLAN FOR PROGRESS Community Development RECOMMENDED ACTION City Council approve reimbursement of $299,493.54 to Aerospace Dynamics International (ADI) per the Use Tax Incentive Program agreement entered into between the City of Santa Clarita and ADI in June of 2010. BACKGROUND The City of Santa Clarita's (City) 21 -Point Business Plan for Progress was adopted by the City Council in April 2009. The programs of the 21 -Point Business Plan for Progress were developed as a way to enhance the economy, increase job growth, build upon Santa Clarita's current successes, improve the infrastructure of the City, and develop the local workforce. The Use Tax Incentive Program was designed to increase the partnership opportunities between the City and local businesses by incentivizing business expansion and generating increased use tax revenue to the City. This program was continued through the Economic Growth Plan, adopted by City Council in March 2012. Aerospace Dynamics International (ADI), a local aerospace manufacturing company, is currently expanding their business. Their project is in construction and includes a new 87,888 square -foot building that is expected to house an additional 200 employees, with an average pay rate of $65,000 annually per employee. The construction costs are estimated to be $14,700,000 and the capital expenditures (CAPEX) for the project is estimated to be $60,000,000. ADI also has future plans for further expanding their business in the City of Santa Clarita. Uhil'1 'u uU On June 10, 2010, the City and ADI entered into a Use Tax Incentive Program Agreement (Agreement). The executed agreement is attached. The Agreement requires that if the amount of disbursement exceeds $50,000 in a fiscal year, the disbursement of funds must be brought to City Council for approval. In March 2011, a similar item was brought before the City Council requesting the approval for the disbursement of $100,000 for that fiscal year. The Council approved that request. Normally, the City would receive 3% of the 1% of use tax paid by a business through the stan- dard allocation from the State. Through the Use Tax Incentive Program, qualifying businesses can apply for a Direct Pay Permit that allows the full 1% of use tax paid by a business to be directed to the City of Santa Clarita, creating an increase in revenue for the City. To qualify for a direct pay permit, a business must have at least $500,000 in use tax purchases in the prior year. Once a direct pay permit is secured, the business is able to execute a contract with the City of Santa Clarita to qualify for the Use Tax Incentive Program. Under the contract between the City and ADI, there are two options for the incentives generated by ADI to be rebated: 1) Cash Rebate: A cash rebate equal to 30% of the net new use tax generated as a result of participation in the program. 2) Business Expansion Credit: A rebate equal to 50% of the net new use tax generated as a result of the participation in the program. Business Expansion Credits may be used for any permit or development fees for an approved project located within the City of Santa Clarita. Under this agreement ADI is entitled to the 30% rebate of new use tax generated to the City notwithstanding the business expansion, and this rebate is increased to 50% of the new use tax generated due to the business expansion. This delta between the 30% rebate and the 50% rebate that is attributed to the business expansion results in a reimbursement of fees that is less than 1% of the total cost of the project. To date under this agreement, ADI has generated $537,782.66 in use tax payments to the City of Santa Clarita as a result of their participation in the Use Tax Incentive Program. Without this program, the City would have received only $16,133.48 as a part of the Use Tax pool allocation, but with this program the City received the full $537,782.66 of which, per this agreement, the City will retain $276,958.07 and ADI receives a total rebate credit of $260,824.59 (or 50% of the new use tax allocated to the City). To date, ADI has redeemed $144,288.92 in Use Tax Rebate Credits and therefore has a current credit balance available of $116,535.67. ADI has requested that this fund balance be disbursed pursuant to the Use Tax Sharing Agreement. As part of ADI's expansion plans, they were required to pay all Bridge and Thoroughfare fees and Fire Protection District Development fees prior to issuance of building permits. The City is then contractually obligated to reimburse ADI those fees through the Use Tax Incentive Program, once those use tax funds have been received by the City. The amount requested for approval to be reimbursed to ADI at this time is $299,493.54, based up on the Bridge and Thoroughfare fees I of $190,098 and the Fire Protection District Development fee of $109,395.54 The reimbursement of these fees will be made in two payment installments. The first payment of $116,535.67 (the balance of the existing credits) will be provided to ADI upon City Council approval. The remaining $182,957.87 will be reimbursed in a second payment once ADI has generated sufficient Use Tax Credits equal to or exceeding that amount. As of January 1, 2014, Section 53083 of the Government Code was modified to require any "economic development subsidy" over $100,000 granted by a local agency to be publicly noticed. An "economic development subsidy" means any expenditure of public funds in the amount of $100,000 or more, for the purpose of stimulating economic development within the jurisdiction of a local agency, including, but not limited to, bonds, grants, loans, loan guarantees, enterprise zone or empowerment zone incentives, fee waivers, land price subsidies, matching fund, tax abatements, and tax credits. Additionally, a public hearing is required to be held regarding the economic development subsidy. Attached is the information required by Government Code Section 53083. ALTERNATIVE ACTIONS Other action as determined by Council. FISCAL IMPACT The funds to meet the request of ADI will be disbursed from the sales and use tax revenue account. ADI's continued participation in the Use Tax Incentive Program results in an increase in use tax revenue that the City would not normally receive. ATTACHMENTS Public Hearing Notice Use Tax Incentive Program Agreement Assembly Bill No. 562 Information 3 CITY OF SANTA CLARITA NOTICE OF PUBLIC HEARING A Public Hearing will be held by the City Council of the City of Santa Clarita to consider the disbursement of Use Tax Funds to Aerospace Dynamics International per California Assembly Bill No. 562, Chapter 740 Section 53083, in the City Hall Council Chamber, 23920 Valencia Boulevard, 1" Floor, on the 14th day of January, 2014, at or after 6:00 p.m. Proponents, opponents, and any interested persons may appear and be heard on this matter at this time. Further information may be obtained by contacting Andree Walper, Economic Development Associate, (661) 286-4166, Santa Clarita City Hall, 23920 Valencia Boulevard, Santa Clarita, California. If you wish to challenge this action in court, you may be limited to raising only those issues you or someone else rose at the public hearing described in this notice, or in written correspondence delivered to the City Council, at, or prior to, the public hearing. Dated: December 12, 2013 Armine Chaparyan Interim City Clerk Publish Date: December 16, 2013 I /0.00-23 Sl 21 -POINT BUSINESS PLAN FOR PROGRESS USE TAX INCENTIVE PROGRAM This document is to confirm participation of Aerospace Dynamics International ("Company') in the Use Tax Incentive Program established by the City of Santa Clarita ("City") as a result of the 21 -Point Business Plan for Progress, approved by City Council on April 28, 2009. I. Purpose. The Use Tax Incentive Program was designed to increase the partnership opportunities between the City and local businesses by incentivizing business expansion and generating increased use tax revenue to the City by allowing portions of qualified use tax payments to be remitted back to participating businesses. II. Acknowledgement. Company acknowledges its participation in the Use Tax Incentive Program is voluntary and may be withdrawn at any time. III. Consultant Support. Company acknowledges the City has identified a consultant to be available as a resource to Company. The consultant is available to: • Perform a vendor survey to determine which of the Company's vendors are eligible for Use Tax direct payment. • Provide Company the necessary information to pay use tax and direct to the City of Santa Clarita. • Review Company quarterly accrual reports to verify that use taxes are being directly allocated to the City. • Review Board of Equalization supplied data provided to the City identifying eligible use tax revenue. • Report back to Company on the use tax benefit received by the City. Alternatively, Company may select their own consultant to assist with this program. Should Company choose to use their own consultant, it is the Company's duty to arrange for the payment of consultant(s) services. The City is not liable for payment of services provided through this program by anyone other than the City -retained consultant. IV. Reporting — Company Responsibility. For accounting purposes. Company agrees to provide copies of their State Board of Equalization Sales/Use Tax Returns and accrual reports on a quarterly basis to the City's consultant. The consultant is responsible for providing this information to the City. This information will be used to track use tax payments from the Company to the Board of Equalization and from the Board of Equalization to the City in accordance with the Board's administrative procedures. V. Revenue Sharing. Any new use tax generated by Company and directly allocated to and received by the City after the execution of this Agreement will be available to be shared with Company via one of the following rebate options: 10 a. Cash Rebate: A cash rebate equal to 30 percent of the net new use tax generated as a result of participation in this program, not to exceed $50,000 in any fiscal year without City Council consent. Should Company determine this method. the City will issue a check in the amount of the accrued rebate upon request. b. Business Expansion Credit: A rebate equal to 50 percent of the net new use tax generated as a result of participation in this program, not to exceed $50.000 in any fiscal year without City Council consent. Business Expansion Credits may be used for any permit or development fees for an approved project located within the City of Santa Clarita. VI. Future Use Tax Allocations. As part of Company's expansion plans, as outlined in MC 10- 008 and DR 10-001. Company shall pay all Bridge and Thoroughfare and Fire Protection District Development fees prior to issuance of building permits. City will reimburse Company those fees through the Use Tax Incentive Program, specifically the Business Expansion Credit, once those funds have been received by the City. starting with Fourth Quarter 2009 use tax payments. When Bridge and Thoroughfare and Fire Protection District Development fees are reimbursed. City and Company may reevaluate the term of this Agreement. VII. BOE Determination of Improperly Allocated Local Sales or Use Tax Revenue. If at any time during or after the Term of this Agreement, the BOE determines all or any portion of the local use tax revenues received by the City were improperly allocated and/or paid to the City. and if the BOE requires repayment of, offsets again future use tax payments, or otherwise recaptures from the City those improperly allocated and/or paid use tax revenue, then company shall, within thirty (30) calendar days after written notice from the City, repay all rebate payments (or applicable portions thereof) theretofore paid to Company which are attributable to such repaid, offset or recaptured local use tax revenue. If Company fails to make such repayment within thirty (30) calendar days after the City's written notice. then Company shall be in breach of this Agreement and such obligation shall accrue interest from the date of the City's original notice at then -maximum legal rate imposed by the California Code of Civil Procedure on prejudgment monetary obligations, compounded monthly. until paid. This section of the Agreement shall survive the expiration or termination of this Agreement. VIII. Term. This agreement shall commence on the date of the last signature and he effective until either party determines the relationship should cease to exist. VIV. Signatures. For: City of Sana Clar'ta For: Accross a e Dynamics Inter a nal AudMxrzed Rcpre emau,e .aulhunw4 Rcprrecnwunc Print Name: Kenneth R. Pulskamp Print Name: V41L.1,I AM 8. 8ARRI'fr Print Title: City Man, ger Print Title: CFO Date: �' / / ST., Date: 0(, /01 /201P CITY CLERK �13_21/�_ DAM („ USE TAX INCENTIVE PROGRAM FOR AEROSPACE DYNAMICS INTERNATIONAL Assembly Bill No. 562 Chapter 740 Section 53083 1. Aerospace Dynamics International (ADI), a subsidiary of The Marvin Group, is located at 25540 Rye Canyon Road, Santa Clarita, California 91355. 2. ADI entered into an agreement with the City of Santa Clarita to participate in the Use Tax Incentive Program on June 23, 2010. This agreement is ongoing. 3. The City of Santa Clarita receives 3% of the 1% of use tax paid by a business through the standard allocation from the State of California. Through the Use Tax Incentive Program, qualifying businesses can apply for a Direct Pay Permit that allows the full 1% of use tax paid by a business to be directed to the City of Santa Clarita. To qualify for a direct pay permit, a business must have at least $500,000 in use tax purchases in the prior year. Once a direct pay permit is secured, the business is able to execute an agreement with the City of Santa Clarita to qualify for the Use Tax Incentive Program. ADI has selected to receive a Business Expansion Credit which is a rebate equal to 50% of the net new use tax generated as a result of the participation in the program. Business Expansion Credits may be used for any permit or development fees for an approved project located within the City of Santa Clarita. To date, ADI has generated $573,782.66 in Use Tax earning them a 50% credit of $260,824.59 4. The Use Tax Incentive Program was designed to increase the partnership opportunities between the City of Santa Clarita and local businesses by incentivizing business expansion and generating increased use tax revenue to the City. Additionally, the program will assist in increasing the employment base while generating high paying jobs and growing businesses within the City's targeted industries of aerospace, biomedical, technology, and entertainment. 5. The City of Santa Clarita has received $573,782.66 in use tax revenue pursuant to the Use Tax Program agreement with ADI. On average, ADI has generated approximately $96,540 in use tax annually. 6. ADI's expansion of a new 87,888 square foot building is expected to employ an additional 200 employees with an average pay rate of $65,000 annually per employee.