Economic Development Subsidy Reports
CITY OF REDLANDS
ECONOMIC DEVELOPMENT SUBSIDY REPORT
GOVERNMENT CODE SECTION 53803
(AB 562 REPORT)
REDLANDS CITY COUNCIL
APRIL 18, 2017
CITY OF REDLANDS
ECONOMIC DEVELOPMENT SUBSIDY REPORT
PURSUANT TO GOVERNMENT CODE SECTION 53083
With the adoption of Assembly Bill 562 in 2013, now codified as California Government Code Section 53083, the California Legislature recognized the authority of local officials to use their regulatory powers, direct spending, and tax policies to influence where, when, and how the private sector invests capital and improves real property. The Legislature also intended to promote transparency and accountability in economic development subsidies, similar to annual financial reporting and local fiscal decisions. The legislation requires that subsidies to local businesses in the amount of $100,000 or more – those intended to increase employment, enhance the local tax base, and attract or retain desirable businesses – be detailed in a written report and placed on an agenda for a public hearing at a regularly scheduled meeting. The proposed Agreement would result in a subsidy to Redlands Ford, based on a refund of a portion of the City’s sales tax to be generated, in an amount that may exceed $100,000 over ten years. Therefore, this report is intended to satisfy the requirements of Government Code 53083, and is being made available to the public prior to consideration of the proposed Agreement and authorization of the economic development subsidy.
In accordance with Government Code Section 53083, the following elements must be addressed in written form, and be made available to the public (including posting on the City’s website) prior to the approval of the proposed economic development subsidy:
1) The name and address of all corporations or any other business entities, except for sole proprietorships, that are the beneficiary of the economic development subsidy, if applicable.
2) The start and end dates and schedule, if applicable, for the economic development subsidy.
3) A description of the economic development subsidy, including the estimated total amount of the expenditure of public funds by, or of revenue lost to, the local agency as a result of the economic development subsidy.
4) A statement of the public purposes for the economic development subsidy.
5) Projected tax revenue to the local agency as a result of the economic development subsidy.
6) Estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions.
The City of Redlands, in an effort to generate additional sales tax revenue, create additional local jobs, and enhance economic vitality, proposed to provide the type of subsidy included in Government Code Section 53083. The City of Redlands (“City”) and Redlands Ford, Inc. (“Redlands Ford”) intend to enter into an Economic Development Subsidy Agreement (“Agreement”). The Agreement requires Redlands Ford to retain the subject property in Redlands, and for the City to provide a limited sharing of sales tax revenue to assist Redlands Ford in recouping its development and renovation costs to ensure its long-term viability in the City of Redlands.
AB 562 REPORTING REQUIREMENTS
This section addresses the required reporting elements of Government Code Section 53083.
A. The name and address of all corporations or any other business entities, except for sole proprietorships, that are the beneficiary of the economic development subsidy:
Redlands Ford, Inc., DBA Redlands Ford
1121 and 1141 West Colton Avenue, Redlands CA 92374
1121 West Colton Avenue, Redlands CA 92374
Property Owner’s Mailing Address:
| 1 Embarcadero Center, 26th Floor
San Francisco, CA 94111
0169-111-10-0000 and 0169-111-14-0000
B. The start and end dates and schedule, if applicable, for the economic development subsidy:
The Agreement is anticipated to commence upon execution in May, 2016, and expire after ten years in May, 2026. During the ten (10) years of the Agreement, it is anticipated that the City will provide Redlands Ford in excess $100,000 of credits in the form of shared sales tax revenue, all of which shall be used to compensate Redlands Ford for its actual construction and renovation costs. If the total cost of the improvements was certified to be $1,875,000 then in accordance with Section 3.02 of the Agreement, the maximum amount of subsidy would be capped at sixty six percent (66%) or $1,237,500.
C. A description of the economic development subsidy, including the estimated total amount of the expenditure of public funds by, or of revenue lost to, the local agency as a result of the economic development subsidy:
In furtherance of the City’s economic development strategies, specifically the generation of sales tax revenues to support essential City services, the proposed Agreement with Redlands Ford provides funds, through credits based on generated sales tax revenue, to assist the company in recouping its development and renovation costs. Specifically, Redlands Ford has constructed and completed the following on-site improvements:
• Renovated interior of the Sales showroom, plus an addition of square-footage to the front;
• Sales Department façade remodeling;
• Renovated interior of the Service Department including customer waiting room;
• New single-story office building for customer service;
• New planters, irrigation systems, and plant materials;
• On-site improvements including Americans with Disabilities Act (ADA) compliant ramps, railing, and steps; and,
• Exterior steps/landings, parking lot striping, and lighting.
During the first five (5) years of the Agreement, the City will provide an economic development subsidy to Redlands Ford in the form of fifty percent (50%) of sales tax revenue sharing as outlined in the following paragraph (50% to auto dealer/50% to City). During the second five (5) years of the Agreement, the City will provide an economic development subsidy to Redlands Ford in the form of twenty-five percent (25%) of sales tax revenue sharing as outlined in the following paragraph (25% to auto dealer/75% to City). Sales tax sharing will end after ten (10) years from the effective date of this Agreement.
Additional terms of the economic development subsidy are as follows:
1) Section 3.02 of the Agreement specifies the baseline sales tax period as the year 2015, with a baseline sales tax amount of $362,455 (the “Base Year”). Moving forward, the City’s percentage share of the increased sales tax (for any sales tax amounts exceeding $362,455 annually) would be reduced as shown below.
|City’s Share of
Sales Tax Revenue
| Percentage of
Sales Tax Subsidy
Revenue to City
No Credit to Redlands Ford
|Balance, Years 1 to 5
(amount in excess of
| City: 50%
Redlands Ford: 50%
| Balance, Years 6 to 10
(amount in excess of
| City: 75%
Redlands Ford: 25%
The amount of sales tax credits to Redlands Ford will be based on the actual annual total sales tax revenues paid and received by the City from Redlands Ford’s operations in the City pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law (Revenue & Taxation Code Section 7200 et seq.), as amended, and any successor laws or amendments thereto that arises from, including but not limited to, taxable sales and services. All sales taxes are collected by the State Board of Equalization with a local tax rate of 1% (City share) apportioned back to the City. The City share of sales tax revenue shall not include any local add-on transactions and use tax that may be imposed by the City. The credit is proposed to be calculated based on total actual annual sales from Redlands Ford’s which exceed the Base Year sales tax amount ($362,455).
2) Section 3.02 of the Agreement requires that the cost of the improvements be certified within ninety (90) days after the issuance of the Certificate of Occupancy. Such certification shall be prepared by a consultant selected by Redlands Ford, and approved by the City.
3) Section 3.02 of the Agreement states that the City shall have no obligation to make any combined payments to Redlands Ford that exceed sixty six percent (66%) of the actual costs incurred by the Developer for the construction of the improvements, as determined by the cost certification. If the certification determines that the total cost of the improvements was $1,875,000 then the maximum amount of subsidy would be $1,237,500 ($1,875,000 x 0.66 = $1,237,500).
4) Section 3.01 of the Agreement includes a requirement for an Operating Covenant that will be recorded against the property, and which would require that Redlands Ford stay in business for an additional ten (10) years after completion of the improvements. There is also a requirement that the City approve any change in ownership during that ten-year period.
5) Section 3.01 includes a local hiring provision whereby Redlands Ford is required to exert its best efforts to hire locally when filling new jobs. Redlands Ford anticipates creating seven to ten new jobs.
The term for the Agreement is ten (10) years. Redlands Ford has a proven track record throughout Southern California, and is anticipated to be one of the City’s top producers of sales tax revenue. Providing an economic development subsidy in this manner enables Redlands Ford to quickly recoup its costs for improvements to the dealership, which is expected to sell substantially more vehicles with the improved aesthetics and functionality of the property, and is ultimately essential to the company’s long-term presence and success in the City of Redlands. Failure to provide the proposed financial incentive may induce increased financial and operating costs to Redlands Ford (as a result of constructing the improvements), which may in turn jeopardize Redlands Ford’s sustained presence and viability in the City of Redlands, and could potentially result in the unnecessary closure of the business at some point in the future.
The proposed Agreement will not result in a reduction of revenue to any other jurisdiction, as Redlands Ford is currently occupying its subject property located at 1121 and 1141 West Colton Avenue (APNs 0169-111-10-0000 and 0169-111-14-0000). Redlands Ford is in possession of a valid City of Redlands Business License, as well as a Sales & Use Tax Permit from the State of California Board of Equalization.
Obligations of Redlands Ford
1. Continuously operate, or cause and allow for the continuous operation of, Redlands Ford located at the properties with site addresses of 1121 and 1141 West Colton Avenue, Redlands, California, 92374 (APNs 0169-111-10-0000 and 0169-111-14-0000, unless and until the business may be subsequently expanded to include additional properties, if any).
2. Operate with inventory and sales personnel sufficient to satisfy and respond to customer demand and, in compliance with Government Code Section 53084.5, shall designate said property on its sales tax statements as the point-of-sale for all sales transactions generated from or arising out of the business conducted on the subject property.
3. Maintain, or cause maintenance of said property to the standards and regulations of the Redlands Municipal Code, at the company’s own expense.
4. Carry out the operation of the business of retail automobile sales in substantial conformity with applicable laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the State of California, San Bernardino County, and the City of Redlands.
5. Maintain continued possession of valid City of Redlands Business License, and Sales & Use Tax Permit from the State of California Board of Equalization.
D. A statement of the public purpose for the economic development subsidy:
The proposed Agreement is consistent with City’s economic development goals and objectives, and is in the best interest of the general public. Specifically, the following public purposes are achieved:
• Ensuring increased sales for Redlands Ford and increased sales tax revenue to the City of Redlands, which ultimately funds essential City services while securing the City’s long-term financial stability.
• Create new jobs in the community, thereby stimulating further generation of sales tax revenue and increased demand for local housing, goods, and services.
• Provide enhanced and increased vitality to a highly-visible property along a commercial corridor, making it a more appealing, economically-vital destination for prospective car buyers.
The proposed Agreement will encourage the long-term viability of one of the City’s highest-grossing businesses and one of its largest producers of sales tax revenue. That revenue will support the City’s General Fund, from which the City funds essential services such as public safety, recreation, leisure, infrastructure, etc. Ford Motor Company has an established national brand which can benefit the City in future business expansion and retention. Since the dissolution of Redevelopment Agencies throughout the State of California since 2012, the City has been forced to be increasingly creative in its attempts to attract or expand new revenue-generating businesses to the community. The proposed Agreement, through its generation of sales tax revenue and creation of additional on-site employment, advances the City’s economic development goals and thus achieves a considerable public purpose.
E. Projected tax revenue to the local agency as a result of the economic development subsidy:
Specific sales tax data for individual businesses such as Redlands Ford is confidential pursuant to California Revenue & Taxation Code Section 7056. Redlands Ford has an established and long record of sales tax-generating capacity in the City. Staff has estimated that more than $2 million of local sales tax revenue will be generated to the City during the 10-year term of this Agreement. This translates into approximately $200,000 annually (on average) of sales tax revenue to be generated by additional sales at Redlands Ford, and this amount would increase annually assuming a five percent (5%) increase in sales every year. Cyclical market trends and overall economic conditions may cause sales volume to fluctuate, but over time, revenue can reasonably be expected to grow.
Over the ten-year term of the Agreement, the total subsidy to Redlands Ford could possibly exceed one million dollars ($1,000,000). Section 3.02 of the Agreement places a limit on the total amount of subsidy to Redlands Ford, and the combined refund payments are capped at sixty six percent (66%) of the actual costs incurred by Redlands Ford for the construction of the improvements. In this case, the improvements were estimated to cost $1,875,000 and if certified as such, then the maximum amount of subsidy would be no more than $1,237,500 ($1,875,000 x 0.66 = $1,237,500).
F. Estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions:
Redlands Ford anticipates creating seven to ten new jobs. Section 3.01 of the Agreement includes a local hiring provision whereby Redlands Ford is required to exert its best efforts to hire locally when filling new jobs. These well-paying jobs would not exist without the proposed economic development subsidy. As well, it is anticipated that the presence of this company with the additional jobs to be created will stimulate other sectors of the local economy (i.e., goods, services, and housing in Redlands due to the additional local employees).