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HomeMy WebLinkAbout7.1 Sales Tax Reimb~~ -~ \~/~:' CITY CLERK File # ^~ 7^~-0~ AGENDA STATEMENT CITY COUNCIL MEETING DATE: January 6, 2009 SUBJECT: Economic Incentive Program -Sales Tax Reimbursement Program Report Prepared by.' Christopher L. Foss, Assistant City Manager ATTACHMENTS: 1. Government Code Section 53084 2. Labor Code Section 1720. 3. A Resolution of the City Council of the City of Dublin Approving the Sales Tax Reimbursement Program RECOMMENDATION: That the City Council adopt a Resolution of the City Council of the City of Dublin approving the Sales Tax Reimbursement Program or provide Staff with direction on the program. FINANCIAL STATEMENT: The proposed program would be revenue positive to the City. DESCRIPTION: At the December 2, 2008 City Council meeting, the City Council discussed the creation of a Economic Incentive program for Fiscal Year 2008-09. During the discussion, Mayor Sbranti outlined a number of ideas including: Fee Deferral Program, Priority Permit Processing, Tenant Improvement (Loans/Grants), Low Interest Loans and Tax Sharing Agreements. During the discussion of the item, Staff was also given direction to return with elements of the program as they become available. This item will provide background on a proposed Sales Tax Reimbursement program and will request City Council direction on this matter. For decades, state and local government have used Economic development incentives to attract or retain jobs and/or. improve a local tax base. The Government Finance Officers Association (GFOA) has recommended that any proposed incentive program has specific goals and criteria that serve to define the economic benefit to both the government and the entities receiving the incentives expect to gain from the incentives, the conditions under which the incentives are to be granted, and the actions to be taken should the actual benefits differ from the planned benefits. The proposed Sales Tax Reimbursement program has been designed with the GFOA guidelines in mind. It should be toted that some factors are already in place which provide businesses considering relocation or establishment of new outlets unique opportunities. Those factors include: Dublin's location at the COPY TO: Page 1 of 4 ITEM NO. / F:\Council\Agenda Statements\2008-2009\sales tax reimb program.l.DOC intersection of Interstate 580 and .680; available space; access to a desirable workforce; a wide range of housing opportunities; and a low $50 annual Business Registration in lieu of more costly Business License taxes imposed by other cities. Despite these positive attributes, it may be appropriate to consider other programs that would support additional economic growth. The current worldwide economic slowdown has impacted the City of Dublin's revenues, and in an attempt to attract new businesses that will provide additional jobs and generate additional tax revenues for the City, Staff is requesting City Council consideration of a program to stimulate reinvestment in the community through a Sales Tax Reimbursement Program The objective of the proposed Sales Tax Reimbursement program would be to improve the aesthetic nature and physical appearance of existing buildings and promote site improvements to commercial properties in the existing commercial/office/industrial areas of Dublin. The program would be targeted at existing buildings throughout the community with the goal of improving the existing building stock and also lowering long-term vacancy rates in the community. The program would use the concept of reimbursement through sales tax revenues to assist and encourage property owners/tenants to reinvest in, reconstruct, rehabilitate and renovate their properties. Program Description: The proposed program would allow property owners and/or tenants, through a written agreement with the City, to recover over time a portion of the cost of improvements (internal and external) made to the property. The amount recovered would be related to a percentage of the new sales tax revenues generated on the property after improvements are completed. Staff would propose that the business would first enter into an agreement which establishes pre-approved improvement costs. The reimbursement would be limited to the actual costs incurred by the owner/tenant for improvements to structures and the property site. Eligible costs would include exterior improvements (painting, facade repair, replacement signage), interior improvements (tenant improvements), and site improvements (parking lots, driveways, landscaping, etc.). Staff would also consider reimbursement for demolition of existing buildings and replacement with new buildings. Land acquisition costs would be excluded from eligible expenses. At this point, Staff would propose that the program be put in place for a period of two (2) years. At the end of the two-year period, Staff would propose that the City Council re-visit the program and determine if the program should be continued or discontinued given the economic circumstances at that point. Program Criteria: Staff would recommend that the proposed program be targeted at retail/office/industrial sites which have existing buildings. There are a number of existing sites/buildings that are either vacant now (ex: Golfsmith and former Good Guys) or are expected to be vacated soon (ex: Circuit City) that would benefit from the program. There are also existing offices throughout the community with vacant space that would also benefit from the program. Staff would suggest that the proposed program be made available, at this point, to businesses that would generate over $100,000 in new sales tax each year (this requires annual taxable sales of $10 million). Businesses would need to certify, by providing copies of sales tax returns to the State Board of Equalization (SBOE) that based on previous operations that this threshold has been met. Staff would recommend that the proposed program be made available to new, not existing businesses. Staff would also recommend that an exception would be considered for existing Dublin businesses that °P 1# might relocate /expand within the City, if their move /expansion results in additional sales tax revenues that would meet the target ($100,000 or more) established for the program. Staff would recommend that the Sales Tax Reimbursement would only be made for capital improvements (interior and exterior) to a property. Staff would also recommend that all improvements considered under this program must be approved by the City and subject to all laws and regulations. Reimbursement: Staff would propose that the Reimbursement would be calculated and distributed as follows: 1. The amount of eligible improvements will be established and certified with documentation of the expenses. 2. Once retail sales begin to be paid based on reported sales transactions at a location within the City of Dublin, no more thari fifty percent (50%) of the net new sales tax would be calculated and considered as the amount of reimbursement subject to the following. limitations: a. The cumulative maximum reimbursements paid to the business cannot exceed the total established in number 1 above. b. Reimbursements would be made on an annual basis. c. Reimbursements would continue until the full amount in number 1 above was reimbursed or for a period five (5) years, whichever occurs first. Staff would propose that the Sales Tax Reimbursement agreements would be negotiated by Staff and approved by the City Council. The proposed program has been reviewed by all appropriate departments/offices (City Manager's Office, City Attorney's Office, and Administrative Services). The City Attorney's Office believes the City Council has the authority to adopt such a program without violating the California Constitution's prohibition on the gift of public funds. To not violate the gift of public funds provision of the Constitution, the Council must be able to find, each time it enters into a Sales Tax Reimbursement agreement with a new tenant, that the reimbursement of sales tax will benefit the residents of Dublin even though the tenant will be incidentally benefitted. The Council could find, for example, that residents will benefit from new businesses locating in existing vacant buildings by virtue of increased tax revenues (both sales taxes and property taxes), new jobs and a more attractive environment. In addition, the program must comply with Government Code section 53084 (Attachment 1), which prohibits a city from providing any financial assistance to a "big box" retailer or car dealer, or the owner of the property where either would locate, if the retailer or car dealer is relocating from another jurisdiction within 25 miles (for a retailer) or 40 miles (for a car dealer) within 365 days and the store is more than 75,000 square feet of gross buildable area. At this time, this prohibition would only affect assistance to a potential relocated tenant to the site of the existing Mervyn's store, as that is the only store over 75,000 square feet that is scheduled to be vacated in the near future. Section 53084 does not apply to office uses and therefore would not affect potential office users of the proposed program. Staff will keep ~?~4 the prohibitions outlined in Government Code section 53084 in mind when considering potential applicants for the Sales Tax Reimbursement Program. Finally, the Staff will need to tailor each Sales Tax Reimbursement Agreement to fit the specific improvements. In some instances, the reimbursement of sales taxes to the tenant will require the tenant to pay prevailing wages. Prevailing wages may be required for just the improvements on public property or they may be required for all the improvements. In each situation, Staff will review the provisions of Labor Code section 1720 (Attachment 2), which was amended in 2003, to determine its applicability. That section requires certain projects that receive financial assistance from a city to pay prevailing wages. For example, if a business applicant merely constructs exterior building improvements (painting, facade improvements, and signage) and interior improvements (tenant improvements) on private property, the requirement to pay prevailing wages arguably does not apply. However, if a business constructs site improvements that alter the public right of way, then the requirement to pay prevailing wages will likely apply. The prevailing wage rules are complicated and will require staff to review applications on a case- by-case basis in consultation with the City Attorney's Office. Staff believes that a healthy business community, through the creation and retention of jobs and revenues, is a major element in allowing the City to carry out its various responsibilities and function. Sales and Property Tax revenues generated by the business community combine to create a quality of life standard the Dublin residents have come to expect. Staff believes that the proposed Sales Tax Reimbursement program would help to further the City's goals. RECOMMENDATION: That the City Council adopt the proposed Resolution of the City Council of the City of Dublin approving the proposed Sales Tax Reimbursement Program or provide Staff with direction on the program. ~ ~ ~+ u~ ~ GOVERNMENT CODE SECTION 53084 53084. (a) Notwithstanding any other provision of this part, a local agency shall not provide any form of financial assistance to a vehicle dealer or big box retailer, or a business entity that sells or leases land to a vehicle dealer or big box retailer, that is relocating from the territorial jurisdiction of one local agency to the territorial jurisdiction of another local agency but within the same market area. (b) As used in this section: (1) "Big box retailer" means a store of greater than 75,000 square feet of gross buildable area that will generate sales or use tax pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200) of Division 2 of the Revenue and Taxation Code). (2) "Local agency" means a chartered or general law city, a chartered or general law county, or a city and county. "Local agency" does not include a redevelopment agency that is subject to Section 33426.7 of the Health and Safety Code. (3) "Financial assistance" includes, but is not limited to, any of the following: (A) Any appropriation of public funds, including loans, grants, or subsidies or the payment for or construction of parking improvements. (B) Any tax incentive, including tax exemptions, rebates, reductions, or moratoria of a tax, including any rebate or payment based upon the amount of sales tax generated from the vehicle dealer or big box retailer. (C) The sale or lease of real property at a cost that is less than fair market value. (D) Payment for, forgiveness of, or reduction of fees. (4) (A) "Market area" means a geographical area that is described in independent and recognized commercial trade literature, recognized and established business or manufacturing policies or practices, or publications of recognized independent research organizations as being an area that is large enough to support the location of the specific vehicle dealer or the specific big box retailer that is relocating. (B) With respect to a vehicle dealer, a "market area" shall not extend further than 40 miles, as measured by the most reasonable route on roads between two points, starting from the location from which the vehicle dealer is relocating and ending at the location to which the vehicle dealer is relocating. (C) With respect to a big box retailer, a "market area" shall not extend further than 25 miles, as measured by the most reasonable route on roads between two points, starting from the location from ATTACHMENT 1 o~~ which the big box retailer is relocating and ending at the location to which the big box retailer is relocating. (5) "Relocating" means the closing of a vehicle dealer or big box retailer in one location and the opening of a vehicle dealer or big box retailer in another location within a 365-day period when a person or business entity has an ownership interest in both the vehicle dealer or big box retailer that has closed or will close and the one that is opening. "Relocating" does not mean and shall not include the closing of a vehicle dealer or big box retailer because the vehicle dealer or big box retailer has been or will be acquired or has been or will be closed as a result of the use of eminent domain. (6) "Vehicle dealer" means a retailer that is also a dealer as defined by Section 285 of the Vehicle Code. (c) This section does not apply to local agency assistance in the construction of public improvements that serve all or a portion of the jurisdiction of the local agency and that are not required to be constructed as a condition of approval of the vehicle dealer or big box retailer. This section also does not prohibit assistance in the construction of public improvements that are being constructed for a development other than the vehicle dealer or big box retailer. (d) This section shall not apply to any financial assistance provided by a local agency pursuant to a lease, contract, agreement, or other enforceable written instrument entered into between the local agency and a vehicle dealer, big box retailer, or a business entity that sells or leases land to a vehicle dealer or big box retailer, if the lease, contract, agreement, or other enforceable written instrument was entered into prior to December 31, 1999. 3~~ LABOR CODE SECTION 1720 1720. (a) As used in this chapter, "public works" means: (1) Construction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds, except work done directly by any public utility company pursuant to order of the Public Utilities Commission or other public authority. For purposes of this paragraph, "construction" includes work performed during the design and preconstruction phases of construction including, but not limited to, inspection and land surveying work. (2) Work done for irrigation, utility, reclamation, and improvement districts, and other districts of this type. "Public work" does not include the operation of the irrigation or drainage system of any irrigation or reclamation district, except as used in Section 1778 relating to retaining wages. (3) Street, sewer, or other improvement work done under the direction and supervision or by the authority of any officer or public body of the state, or of any political subdivision or district thereof, whether the political subdivision or district operates under a freeholder's charter or not. (4) The laying of carpet done under a building lease-maintenance contract and paid for out of public funds. (5) The laying of carpet in a public building done under contract and paid for in whole or in part out of public funds. (6) Public transportation demonstration projects authorized pursuant to Section 143 of the Streets and Highways Code. (b) For purposes of this section, "paid for in whole or in part out of public funds" means all of the following: (1) The payment of money or the equivalent of money by the state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer. (2) Performance of construction work by the state or political subdivision in execution of the project. (3) Transfer by the state or political subdivision of an asset of value for less than fair market price. (4) Fees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be required in the execution of the contract, that are paid, reduced, charged at less than fair market value, waived, or forgiven by the state or political subdivision. (5) Money loaned by the state or political subdivision that is to be repaid on a contingent basis. (6) Credits that are applied by the state or political subdivision against repayment obligations to the state or political subdivision. ATTACHMENT 2 4~ 1 (c) Notwithstanding subdivision (b): (1) Private residential projects built on private property are not subject to the requirements of this chapter unless the projects are built pursuant to an agreement with a state agency, redevelopment agency, or local public housing authority. (2) If the state or a political subdivision requires a private developer to perform construction, alteration, demolition, installation, or repair work on a public work of improvement as a condition of regulatory approval of an otherwise private development project, and the state or political subdivision contributes no more money, or the equivalent of money, to the overall project than is required to perform this public improvement work, and the state or political subdivision maintains no proprietary interest in the overall project, then only the public improvement work shall thereby become subject to this chapter. (3) If the state or a political subdivision reimburses a private developer for costs that would normally be borne by the public, or provides directly or indirectly a public subsidy to a private development project that is de minimis in the context of the project, an otherwise private development project shall not thereby become subject to the requirements of this chapter. (4) The construction or rehabilitation of affordable housing units for low- or moderate-income persons pursuant to paragraph (5) or (7) of subdivision (e) of Section 33334.2 of the Health and Safety Code that are paid for solely with moneys from a Low and Moderate Income Housing Fund established pursuant to Section 33334.3 of the Health and Safety Code or that are paid for by a combination of private funds and funds available pursuant to Section 33334.2 or 33334.3 of the Health and Safety Code do not constitute a project that is paid for in whole or in part out of public funds. (5) "Paid for in whole or in part out of public funds" does not include tax credits provided pursuant to Section 17053.49 or 23649 of the Revenue and Taxation Code. (6) Unless otherwise required by a public funding program, the construction or rehabilitation of privately owned residential projects is not subject to the requirements of this chapter if one or more of the following conditions are met: (A) The project is a self-help housing project in which no fewer than 500 hours of construction work associated with the homes are to be performed by the homebuyers. (B) The project consists of rehabilitation or expansion work associated with a facility operated on anot-for-profit basis as temporary or transitional housing for homeless persons with a total project cost of less than twenty-five thousand dollars ($25,000). (C) Assistance is provided to a household as either mortgage assistance, downpayment assistance, or for the rehabilitation of a ~~ ~ single-family home. (D) The project consists of new construction, or expansion, or rehabilitation work associated with a facility developed by a nonprofit organization to be operated on anot-for-profit basis to provide emergency or transitional shelter and ancillary services and assistance to homeless adults and children. The nonprofit organization operating the project shall provide, at no profit, not less than 50 percent of the total project cost from nonpublic sources, excluding real property that is transferred or leased. Total project cost includes the value of donated labor, materials, architectural, and engineering services. (E) The public participation in the project that would otherwise meet the criteria of subdivision (b) is public funding in the form of below-market interest rate loans for a project in which occupancy of at least 40 percent of the units is restricted for at least 20 years, by deed or regulatory agreement, to individuals or families earning no more than 80 percent of the area median income. (d) Notwithstanding any provision of this section to the contrary, the following projects shall not, solely by reason of this section, be subject to the requirements of this chapter: (1) Qualified residential rental projects, as defined by Section 142 (d) of the Internal Revenue Code, financed in whole or in part through the issuance of bonds that receive allocation of a portion of the state ceiling pursuant to Chapter 11.8 of Division 1 (commencing with Section 8869.80) of the Government Code on or before December 31, 2003. (2) Single-family residential projects financed in whole or in part through the issuance of qualified mortgage revenue bonds or qualified veterans' mortgage bonds, as defined by Section 143 of the Internal Revenue Code, or with mortgage credit certificates under a Qualified Mortgage Credit Certificate Program, as defined by Section 25 of the Internal Revenue Code, that receive allocation of a portion of the state ceiling pursuant to Chapter 11.8 of Division 1 (commencing with Section 8869.80) of the Government Code on or before December 31, 2003. (3) Low-income housing projects that are allocated federal or state low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code, Chapter 3.6 of Division 31 (commencing with Section 50199.4) of the Health and Safety Code, or Section 12206, 17058, or 23610.5 of the Revenue and Taxation Code, on or before December 31, 2003. (e) If a statute, other than this section, or a regulation, other than a regulation adopted pursuant to this section, or an ordinance or a contract applies this chapter to a project, the exclusions set forth in subdivision (d) do not apply to that project. (f) For purposes of this section, references to the Internal 6f'~ Revenue Code mean the Internal Revenue Code of 1986, as amended, and include the corresponding predecessor sections of the Internal Revenue Code of 1954, as amended. (g) The amendments made to this section by either Chapter 938 of the Statutes of 2001 or the act adding this subdivision shall not be construed to preempt local ordinances requiring the payment of prevailing wages on housing projects. f1 RESOLUTION NO. - 09 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN APPROVING THE SALES TAX REIMBURSEMENT PROGRAM WHEREAS; the current worldwide economic slowdown has impacted the City of Dublin's revenues, and WHEREAS; for decades, state and local government have used Economic development incentives to attract or retain jobs and/or improve a local tax base, and WHEREAS; the Government Finance Officers Association (GFOA) has recommended that any proposed incentive program has specific goals and criteria that serve to define the economic benefit to both the government and the entities receiving the incentives expect to gain from the incentives, the conditions under which the incentives are to be granted, and the actions to be taken should the actual benefits differ from the planned benefits, and WHEREAS; in an attempt to attract new businesses that will provide additional jobs and generate additional tax revenues for the City, Staff is requesting City Council consideration of a program to stimulate reinvestment in the community through a Sales Tax Reimbursement Program, and WHEREAS; the objective of the proposed Sales Tax Reimbursement program would be to: (1) improve the aesthetic nature and physical appearance of existing buildings and promote site improvements to commercial properties in the existing commercial/office/industrial areas of Dublin and (2) target existing buildings throughout the community with the goal of improving the existing building stock and also lowering long-term vacancy rates in the community, and WHEREAS; the program would use the concept of reimbursement through sales tax revenues to assist and encourage property owners/tenants to reinvest in, reconstruct, rehabilitate and renovate their properties, and WHEREAS; the proposed program would allow property owners and/or tenants, through a written agreement with the City, to recover over time a portion of the cost of improvements (internal and external) made to the property. The reimbursement would be limited to the actual costs incurred by the owner/tenant for improvements to structures and the property site. Eligible costs would include exterior improvements (painting, facade repair, replacement signage), interior improvements (tenant improvements), and site improvements (parking lots, driveways, landscaping, etc.). Reimbursement for demolition of existing buildings and replacement with new buildings may be considered on a case-by-case basis. Land acquisition costs would be excluded from eligible expenses. WHEREAS; the program would be made available to businesses that would generate over $100,000 in new sales tax each year (this requires annual taxable sales of $10 million). Businesses would need to certify, by providing copies of sales tax returns to the State Board of Equalization (SBOE) that based on previous operations that this threshold has been met. WHEREAS; the program would be made available to new, not existing businesses. An exception would be considered on a case-by-case basis for existing Dublin businesses that might relocate / ATTACHMENT 3 1 ~ ~ RESOLUTION NO. - 09 /- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN APPROVING THE SALES TAX REIMBURSEMENT PROGRAM WHEREAS; the current worldwide economic slowdown has impacted the City of Dublin's revenues, and WHEREAS; for decades, state and local government have used Economic development incentives to attract or retain jobs and/or improve a local tax base, and WHEREAS; the Government Finance Officers Association (GFOA) has recommended that any proposed incentive program has specific goals and criteria that serve to define the economic benefit to both the government and the entities receiving the incentives expect to gain from the incentives, the conditions under which the incentives are to be granted, and the actions to be taken should the actual benefits differ from the planned benefits, and WHEREAS; in an attempt to attract new businesses that will provide additional jobs and generate additional tax revenues for the City, Staff is requesting City Council consideration of a program to stimulate reinvestment in the community through a Sales Tax Reimbursement Program, and WHEREAS; the objective of the proposed Sales Tax Reimbursement program would be to: (1) improve the aesthetic nature and physical appearance of existing buildings and promote site improvements to commercial properties. in the existing commercial/office/industrial areas of Dublin and (2) target existing buildings throughout the community with the goal of improving the existing building stock and also lowering long-term vacancy rates in the community, and WHEREAS; the program would use the concept of reimbursement through sales tax revenues to assist and encourage property owners/tenants to reinvest in, reconstruct, rehabilitate and renovate their properties, and WHEREAS; the proposed program would allow property owners and/or tenants, through a written agreement with the City, to recover over time a portion of the cost of improvements (internal and external) made to the property. The reimbursement would be limited to the actual costs incurred by the owner/tenant for improvements to structures and the property site. Eligible costs would include exterior improvements (painting, facade repair, replacement signage), interior improvements (tenant improvements), and site improvements (parking lots, driveways, landscaping, etc.). Reimbursement for demolition of existing buildings and replacement with new buildings may be considered on a case-by-case basis. Land acquisition costs would be excluded from eligible expenses. WHEREAS; the program would be made available to businesses that would generate over $100,000 in new sales tax each year (this requires annual taxable sales of $10 million). Businesses would need to certify, by providing copies of sales tax returns to the State Board of Equalization (SBOE) that based on previous operations that this threshold has been met. WHEREAS; the program would be made available to new, not existing businesses. An exception would be considered on a case-by-case basis for existing Dublin businesses that might relocate / 1 I expand within the City, if their move /expansion results m additional sales tax revenues that would meet the target ($100,000 or more) established for the program. WHEREAS; the program would require that all improvements considered under this program must be approved by the City and subject to all laws and regulations. WHEREAS; the program would calculate and distribute the reimbursement as follows: 1. The amount of eligible improvements will be established and certified with documentation of the expenses. 2. Once retail sales begin to be paid based on reported sales transactions at a location within the City of Dublin, no more than fifty percent (50%) of the net new sales tax would be calculated and considered as the amount of reimbursement subject to the following limitations: a. The cumulative maximum reimbursements paid to the business cannot exceed the total established in number 1 above. b. Reimbursements would be made on an annual basis. c. Reimbursements would continue until the full amount in number 1 above was reimbursed or for a period five (5) years, whichever occurs first. WHERAS; the program would require that all Sales Tax Reimbursement agreements be negotiated by Staff and approved by the City Council. NOW, THEREFORE BE IT RESOLVED that the City Council of the City of Dublin does hereby approve the Sales Tax Reimbursement Program for a period of two (2) years. BE IT FURTHER RESOLVED that the City Council of the City of Dublin will revisit the program at the end of the two-year period and determine if the program should be continued based upon the economic conditions at that time. PASSED, APPROVED AND ADOPTED this- day of January, 2009. AYES: NOES: ABSENT: ABSTAIN: ATTEST: City Clerk Mayor 2