City Council

Agenda Request

Agenda Of:

november 7, 2006

Agenda Request No:

IV A

Initiated By:

regina l. morales

Responsible Department:

economic development

Presented By:

regina l. morales

Department Head:

regina l. morales

economic dev. director

Additional Department. Head (s):

n/a

Subject / Proceeding:

consideration of tax abatement agreement between the city of sugar land, texas, sl west airport, ltd. and tramontina usa inc.

Exhibits:

standard tax abatement agreement between the city of sugar land, texas, sl west airport, ltd. and tramontina usa, inc.

Clearances

Approval

Legal:

eugenia cano, assistant city attorney

Executive Director:

joseph esch, business and intergovernmental relations

Purchasing:

n/a

Asst. City Manager:

n/a

Budget:

n/a

City Manager:

Allen Bogard/for ab

Budget

Expenditure Required: $

n/a

Amount Budgeted/Reallocation: $

n/a

Additional Appropriation: $

n/a

Recommended Action

Approval of tax abatement agreement between the City of Sugar Land, SL West Airport, LTD and Tramontina USA, Inc.

Executive Summary

Tramontina USA has been a Sugar Land success story since their corporate headquarters relocation in 1998. Tramontina is a highly diversified manufacturer and international marketer and distributor of cutlery and stainless steel cookware, flatware, serving ware and kitchen utensils. Their original facility encompassed 250,000 sq.ft. and the company has expanded to occupy 1.4 million sq.ft. through the end of 2005. Currently, total 2006 assessed values for Tramontina exceed $85 million.

The Company has received additional contracts from major retailers necessitating additional facilities. They are currently constructing an additional 175,000 sq.ft., which will bring their total Sugar Land Business Park facility occupation to approximately 1.6 million square feet. However, the additional contracts for goods and reduced opportunities within the Sugar Land Business Park have created a need to secure two sites and a proposed two-phase expansion program which ultimately add another 600,000+ sq ft to their space portfolio:

Phase One: This facility would be a build to suit, 299,346 sq. ft. facility, improvements of $8.4 million, personal property of $500,000, inventory of $13 million and 20 jobs.

Phase Two: Secure site for future expansion: 315,284 sq. ft. facility, $10 million in improvements, $500,000 in personal property, $15 million in inventory and 60 jobs. (projected to be built within 5-years).

Both Phase I and II qualify for 700% abatement. In addition, the SLDC will consider a direct incentive of $800,000 paid over four years to assist in securing a site for Phase II of this expansion program

Based on the following revenue projections for the City and the additional creation of new jobs, staff recommends a direct incentive from the SLDC of $800,000 ($200,000 per year for 4 years) and tax abatement of 100% for 7 years. The estimated net benefit from the project provided to the City - including incentives - was measured over ten years. As the revenue projection and return to the City anticipates a 10-year time frame, both the tax abatement agreement and direct incentive agreement are also ten years to maximize the opportunity for the City to receive the full value anticipated from the project.

During the 7-year abatement the Company would be providing over $85,833.00 in tax revenue based on their inventory values, which would be greater than the savings. The City would realize over $600,831.00 during the life of the abatement incentive for 7 years. The City would realize full taxed value revenues during the remaining 3-year life of the agreement, or $145,611 annually/$436,833 total. Ten-year abatement agreement tax impact for City is $1,037,664 in ad valorem revenue.

The City Council’s Business Incentive Committee has reviewed the project and concurs with staff’s recommendation.

Exhibits

TAX ABATEMENT AGREEMENT BETWEEN THE

CITY OF SUGAR LAND, TEXAS, SL W. AIRPORT, LTD

AND TRAMONTINA USA, INC.

This tax abatement agreement is made by and among the CITY OF SUGAR LAND, TEXAS, a municipal corporation of the State of Texas, SL W. AIRPORT, LTD., as Owner of the Phase I Improvements, and TRAMONTINA USA, INC., a Texas corporation, as Tenant of the Phase I Improvements and Owner of the Phase II Improvements.

AUTHORIZATION AND FINDINGS

1. Authorization and Findings. This Agreement complies with and is authorized by the Property Redevelopment and Tax Abatement Act, codified as Chapter 312 of the Texas Tax Code, as amended. The City’s city council finds that:

(a) The City has adopted Guidelines and Criteria for Granting Tax Abatement in Reinvestment Zones as required by law and the applicant's request for tax abatement conforms to those Guidelines and Criteria;

(b) The City has created Reinvestment Zone No. 2006-06, in which the property subject to tax abatement will be located;

(c) The property for which abatement is granted in this Agreement is not owned or leased by a member of the City’s city council or the planning and zoning commission; and

(d) The City’s city council approved this Agreement by an affirmative vote of a majority of its members at a regularly scheduled council meeting.

DEFINITIONS

2. Definitions. In this Agreement:

City means the City of Sugar Land, Texas.

City manager means the City’s city manager or any person designated or authorized to act for the city manager.

District means the Fort Bend County Central Appraisal District.

Phase I Employee means a person who:

(1) Is an employee of the Tenant; and

(2) Regularly works at least 40 hours a week at the site of the Phase I Improvements, excluding time

taken for holidays, vacations, sick leave, or other regular leave.

Phase II Employee means a person who:

(1) Is an employee of the Phase II Owner; and

(2) Regularly works at least 40 hours a week at the site of the Phase II Improvements, excluding time taken for holidays, vacations, sick leave, or other regular leave.

Phase I Improvements means a building to be used as a warehouse, distribution center, and light assembly facility located on the Phase I Land and containing approximately 299,346 square feet of floor space, and any sidewalks, parking lots, outdoor lighting, landscaping and other improvements to serve the building, all as shown in Exhibit A, attached to and incorporated into this Agreement by reference.

Phase II Improvements means a building to be used as a warehouse, distribution center, and light assembly facility located on the Phase II Land, and containing approximately 315,285 square feet of floor space, and any sidewalks, parking lots, outdoor lighting, landscaping and other improvements to serve the building, all as shown in Exhibit B, attached to and incorporated into this Agreement by reference.

Phase I Land means the approximate 17.665 acre tract of real property as described in Ordinance No. 1591, which created Reinvestment Zone No. 2006-06.

Phase II Land means the approximate 17.862 acre tract of real property as described in Ordinance No. 1591, which created Reinvestment Zone No. 2006-06.

Phase I Owner means SL W. Airport, LTD., the person or entity that owns the Phase I Land on the date taxes are abated for the Phase I Improvements under this Agreement or any other person or entity to which the Phase I provisions of this Agreement are assigned in accordance with this Agreement.

Phase II Owner means Tramontina USA, Inc., the person or entity that owns the Phase II Land on the date taxes are abated for the Phase II Improvements under this Agreement or any other person or entity to which the Phase II provisions of this Agreement are assigned in accordance with this Agreement.

Phase I Personal Property means any property classified as tangible personal property by the District, other than inventory or supplies, that will be located within the Phase I Improvements required to be constructed under this Agreement.

Phase II Personal Property means any property classified as tangible personal property by the District, other than inventory or supplies, that will be located within the Phase II Improvements required to be constructed under this Agreement.

Revised Phase II Tax Abatement Schedule means the revised tax abatement schedule filed with the

District under Section 6(a) of this Agreement.

Tenant means Tramontina USA, Inc. for purposes of the Phase I Improvements.

Value means the appraised value shown on the records of the District.

PHASE I IMPROVEMENTS

3. Phase I Tax Abatement.

(a) Abatement Years and Amount. In consideration of the Phase I Owner or Tenant constructing the Phase I Improvements and complying with the obligations of this Agreement, the City grants property tax abatement on the Value of the Phase I Improvements and Phase I Personal Property, as follows:

Tax Year Percentage Abatement

2008 100%

2009 100%

2010 100%

2011 100%

2012 100%

2013 100%

2014 100%

(b) Abatement Exclusions. The tax abatement granted does not apply to the Value of the Phase I Land, increases in the Value of the Phase I Land, or to inventory or supplies.

(c) District Values. The District's determination of Value of the property subject to this Agreement applies. If, with respect to the Phase I Improvements, the District's Value placed on the property is protested, the Value placed on the property after the protest is resolved under State law applies.

(d) Freeport Exemption. Article 8, Section 1-j of the Texas Constitution allows a city to exempt from taxation inventory (freeport goods), which is transported beyond the State within a specified time. As of the date of this Agreement, the City does not exempt freeport goods from taxation. Should the City exempt freeport goods from taxation during the term of this Agreement, the amount of taxes abated under this Agreement will automatically decrease in an amount equal to the taxes that would have been paid on freeport goods, if any, without the exemption on freeport goods.

4. Responsibilities of Phase I Owner and Tenant. In consideration of receiving the tax abatement granted in Section 3 above, the Phase I Owner and Tenant agree that:

(a) The Phase I Improvements constructed by the Phase I Owner will:

(1) Be completed before September 30, 2007;

(2) On January 1 of each year from January 1, 2008 through January 1, 2017 have a minimum value of at least $8,400,000 and the Phase I Personal Property, when combined with the Value of the Phase I Improvements, will have a minimum value of at least $8,900,000;

(3) Be constructed in substantial compliance with the plans shown in Exhibit A and in

conformity with the City’s ordinances; and

(4) Be leased to Tenant on or before September 30, 2007.

(b) Employees Required. Beginning on January 1, 2008, and continuing through December 31, 2017, Tenant will have and maintain at least 20 Phase I Employees at the Phase I Improvements. If the Tenant fails to comply with the requirements of this paragraph at least one time during any consecutive 90-day period during the time specified in this paragraph, the failure is an event of default for which the City may terminate the Phase I provisions of this Agreement and to which the right of the Phase I Owner or Tenant to cure the default, as provided for in paragraph 5(b), does not apply.

(c) Inventory Requirements. On January 1 of each year that taxes are abated under Section 3(a) of this Agreement, the taxable inventory located with the Phase I Improvements subject to this Agreement must have a Value of at least $13,000,000.

(d) Occupancy Required. For each year that taxes are abated under Section 3(a) of this Agreement,

the Tenant will fully occupy and use the Phase I Improvements for the purposes set forth in the Phase I Owner's application for tax abatement.

(e) Separated Contracts. The Phase I Owner will provide in any contract for the construction of the Phase I Improvements that the contract be a separated contract (under section 151.056 (b) of the Texas Tax Code and Comptroller’s Rule 3 TAC, section 291, or as the referenced law or regulation is amended, recodified, or redesignated), so that there is imposed and the contractor will be required to collect from the Phase I Owner the City’s municipal sales tax on the sales price of the materials incorporated into the Phase I Improvements. The Phase I Owner will provide, if requested by the City, documentation that verifies to the satisfaction of the City that the Phase I Owner has complied with the provisions of this paragraph.

(f) District Filing. THE PHASE I OWNER IS RESPONSIBLE FOR NOTIFYING THE DISTRICT OF THE ABATEMENT, INCLUDING FILING WITH THE DISTRICT ANY APPLICATION OR OTHER FORMS NECESSARY TO QUALIFY FOR OR RECEIVE THE ABATEMENT GRANTED.

(g) Certification and Reports. On or before May 1 of each year from calendar year 2008 through 2017, the Phase I Owner and Tenant will certify in writing to the City's city council that they are in compliance with this Agreement and that they will provide, upon the City’s request, any information reasonably necessary for the City to determine if they have complied with the Agreement. Beginning on January 1, 2008 and continuing through December 31, 2017, the Tenant will, within 30 days of the end of each quarter of the calendar year, provide to the City copies of the “Reimbursing Employer’s Quarterly Report” (or similar report by whatever name) required to be filed with the Texas Workforce Commission (or successor agency) for purposes of administering the Texas Unemployment Compensation Act. (Tex. Labor Code, Chapter 201 et. seq.).

(h) City Access. The Tenant will allow the City's employees access to the Phase I Improvements during regular business hours to determine if the terms of this Agreement are being met.

(i) Failure to Meet Minimum Values. If the requirements of paragraph 4 (a)(2) (relating to the Value of the Phase I Improvements and Value of Phase I Personal Property) or the requirements of paragraph 4 (c) (relating to the Value of Inventory) are not met for any of the specified years, the failure will not be a default of this Agreement if the Phase I Owner or Tenant pays to the City when due, in addition to all other taxes owed by Phase I Owner or Tenant, an amount equal to the taxes that would have been assessed had the minimum specified Values been met for that year.

5. Phase I Termination.

(a) The Phase I Owner is responsible for the performance of any obligation imposed upon the Tenant under this Agreement with respect to the Phase I Improvements. The City’s termination of the provisions of this Agreement relating to the Phase I Improvements applies both to Phase I Owner and Tenant. The city manager may terminate the provisions of this Agreement relating to the Phase I Improvements at any time during its term if the Phase I Owner or Tenant:

(1) Fails to comply with any term of this Agreement applicable to the Phase I Improvements;

(2) Allows ad valorem taxes on the Phase I Land, Phase I Improvements, or any property located thereon to become delinquent; or

(3) Fails to timely pay any undisputed debt owed to the City.

(b) The City will notify the Phase I Owner and Tenant of the default in writing specifying the default. If the Phase I Owner or Tenant fails to cure the default within 30 days from the date of the notice to cure, the city manager may terminate the provisions of this Agreement relating to the Phase I Improvements by written notice to the Phase I Owner and Tenant specifying the date of termination. If the city manager terminates the provisions of this Agreement relating to the Phase I Improvements as provided in this Agreement, the Phase I Owner is liable for and will pay the City within 30 days following the date of termination of the Phase I provisions of this Agreement:

(1) The amount of all property taxes abated under Section 3(a) of this Agreement;

(2) Interest on the abated amount at the rate provided for in the Tax Code for delinquent taxes; and

(3) Penalties on the amount abated in the year of default, at the rate provided for in the Tax Code for delinquent taxes; and

(4) Any money owed the City for the Tenant’s failure to make payments in lieu of taxes on inventory, plus interest thereon at the same rate imposed on delinquent taxes.

(c) The Phase I Owner's obligation upon termination of the provisions relating to the Phase I Improvements to pay to the City monies owed for taxes abated, interest and penalties thereon, and money in lieu of taxes on inventory, survives termination and the City has a lien against the Phase I Land and Phase I Improvements for the monies owed until paid.

PHASE II IMPROVEMENTS

6. Phase II Tax Abatement.

(a) Abatement Years and Amount. In consideration of the Phase II Owner constructing the Phase II Improvements and complying with the obligations of this Agreement, the City grants property tax abatement on the Value of the Phase II Improvements and Phase II Personal Property, as follows:

Tax Year Percentage Abatement

2012 100%

2013 100%

2014 100%

2015 100%

2016 100%

2017 100%

2018 100%

Provided, however, that if the Phase II Owner completes the Phase II Improvements prior to December 31, 2010, tax abatement will start in the tax year immediately following the year construction is completed and extend for seven years thereafter. In that case, the City will submit the form attached as Exhibit C to the District reflecting an adjusted schedule of the seven tax years to which the tax abatement will apply.

(b) Abatement Exclusions. The tax abatement granted does not apply to the Value of the Phase II Land, increases in the Value of the Phase II Land, or to inventory or supplies.

(c) District Values. The District's determination of Value of the property subject to this Agreement applies. If, with respect to the Phase II Improvements, the District's Value placed on the property is protested, the Value placed on the property after the protest is resolved under State law applies.

7. Responsibilities of Phase II Owner. In consideration of receiving the tax abatement granted in

Section 6 above, the Phase II Owner agrees that:

(a) The Phase II Improvements constructed by the Phase II Owner will:

(1) Be completed before December 31, 2011,

(2) on January 1 of each year for a ten year period beginning on either (i) January 1 of the first year of tax abatement shown in the Revised Phase II Tax Abatement Schedule if filed with the Fort Bend County Central Appraisal District as part of the Tax Abatement Agreement or (ii) January 1, 2012 if the Revised Phase II Tax Abatement Schedule is not filed, have a minimum value of $10,000,000 and the Phase II Personal Property, when combined with the Phase II Improvements, will have a minimum value of at least $10,5000,000;

(3) Be constructed in substantial compliance with the plans shown in Exhibit B and in

conformity with the City’s ordinances.

(b) Employees Required. Beginning on January 1, 2012, and continuing through December 31, 2021, Phase II Owner will have and maintain at least 60 Phase II Employees at the Phase II Improvements, provided, however, that if the City files a Revised Phase II Tax Abatement Schedule with the District, the beginning date will be adjusted to January 1 of the first tax abatement year shown on the schedule and continue for ten years thereafter. If the Phase II Owner fails to comply with the requirements of this paragraph at least one time during any consecutive 90-day period during the time specified in this paragraph, the failure is an event of default for which the City may terminate this Agreement and to which the right of the Phase II Owner to cure the default, as provided for in paragraph 8 (b), does not apply.

(c) Inventory Requirements. On January 1 of each year for a ten year period beginning on either (i) January 1 of the first year of tax abatement shown in the Revised Phase II Tax Abatement Schedule if filed with the Fort Bend County Central Appraisal District as part of the Tax Abatement Agreement or (ii) January 1, 2012 if the Revised Phase II Tax Abatement Schedule is not filed, the taxable inventory located with the Phase II Improvements subject to this Agreement must have a Value of at least $15,000,000.

(d) Occupancy Required. For each year that taxes are abated under Section 6(a) of this Agreement,

the Phase II Owner will fully occupy and use the Phase II Improvements for the purposes set forth in the Phase II Owner's application for tax abatement.

(e) Separated Contracts. The Phase II Owner will provide in any contract for the construction of the Phase II Improvements that the contract be a separated contract (under section 151.056 (b) of the Texas Tax Code and Comptroller’s Rule 3 TAC, section 291, or as the referenced law or regulation is amended, recodified, or redesignated), so that there is imposed and the contractor will be required to collect from the Phase II Owner the City’s municipal sales tax on the sales price of the materials incorporated into the Phase II Improvements. The Phase II Owner will provide, if requested by the City, documentation that verifies to the satisfaction of the City that the Phase II Owner has complied with the provisions of this paragraph.

(f) District Filing. THE PHASE II OWNER IS RESPONSIBLE FOR NOTIFYING THE DISTRICT OF THE ABATEMENT, INCLUDING FILING WITH THE DISTRICT ANY APPLICATION OR OTHER FORMS NECESSARY TO QUALIFY FOR OR RECEIVE THE ABATEMENT GRANTED.

(g) Certification and Reports. On or before May 1 of each year from calendar year 2008 through 2017 or, if applicable, such ten-year period commencing in the calendar year first shown on the Revised Phase II Tax Abatement Schedule, the Phase II Owner will certify in writing to the City's city council that it is in compliance with this Agreement and that it will provide, upon the City’s request, any information reasonably necessary for the City to determine if it has complied with the Agreement. Beginning on January 1, 2012 and continuing through December 31, 2021, the Phase II Owner will, within 30 days of the end of each quarter of the calendar year, provide to the City copies of the “Reimbursing Employer’s Quarterly Report” (or similar report by whatever name) required to be filed with the Texas Workforce Commission (or successor agency) for purposes of administering the Texas Unemployment Compensation Act. (Tex. Labor Code, Chapter 201 et. seq.); provided, however, that if the City files a Revised Phase II Tax Abatement Schedule with the District, the beginning date will be adjusted to January 1 of the first tax abatement year shown on the schedule and continue for ten years thereafter.

(h) City Access. The Phase II Owner will allow the City's employees access to the Phase II Improvements during regular business hours to determine if the terms of this Agreement are being met.

(i) Failure to Meet Minimum Values. If the requirements of paragraph 7 (a)(2) (relating to the Value of the Phase II Improvements and Value of Phase II Personal Property) or the requirements of paragraph 7 (c) (relating to the Value of Inventory) are not met for any of the specified years, the failure will not be a default of this Agreement if the Phase II Owner pays to the City when due, in addition to all other taxes owed by Phase II Owner, an amount equal to the taxes that would have been assessed had the minimum specified Values been met for that year.

8. Phase II Termination.

(a) The Phase II Owner is responsible for the performance of any obligation imposed upon the Phase II Owner under this Agreement with respect to the Phase II Improvements. The city manager may terminate the provisions of this Agreement relating to the Phase II Improvements at any time during its term if the Phase II Owner:

(1) Fails to comply with any term of this Agreement applicable to the Phase II Improvements;

(2) Allows ad valorem taxes on the Phase II Land, Phase II Improvements, or any property located thereon to become delinquent; or

(3) Fails to timely pay any undisputed debt owed to the City.

(b) The City will notify the Phase II Owner of the default in writing specifying the default. If the Phase II Owner fails to cure the default within 30 days from the date of the notice to cure, the city manager may terminate the provisions of this Agreement relating to the Phase II Improvem