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R98-59A 05-14-01 RESOLUTION NO. R98-59A A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, CONFIRMING PASSAGE AND APPROVAL OF RESOLUTION NO. R98-59, GUIDELINES AND CRITERIA FOR GRANTING TAX ABA TEMENT IN A REINVESTMENT ZONE CREA TED IN THE CITY OF PEARl. AND, BRAZORIA COUNTY, TEXAS, FOR PURPOSES OF BRINGING IT INTO COMPLIANCE WITH CURRENT STATE LAWS; CLARIFYING THE DURATION OF TAX ABATEMENT AGREEMENTS AND THE AMOUNT OF TAXES THAT MAY BE ABATED; CHANGING THE MINIMUM CAPITAL INVESTMENT REQUIRED; AND CHANGING THE NOTICE REQUIREMENTS FOR HOLDING PUBLIC HEARINGS FOR TAX ABATEMENT; HAVING A SAVINGS CLAUSE, A REPEALER CLAUSE, AND A SEVERABILITY CLAUSE. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That Resolution No. R95-59 ("Guidelines and Criteria for Granting Tax Abatement") is hereby accepted in compliance with state law and shall read as follows: "RESOLUTION NO. R98-59 GUIDELINES AND CRITERIA FOR GRANTING TAX ABATEMENT IN A REINVESTMENT ZONE CREATED IN THE CITY OF PEARLAND, BRAZORIA COUNTY, TEXAS WHEREAS, the creation and retention of job opportunities that bring new wealth is the highest civic priority; and WHEREAS, new jobs and investment will benefit the area economy, provide needed opportunities, strengthen the real estate market and generate tax revenue to support local services; and WHEREAS, the City must compete with other localities across the nation currently offering tax inducements to attract new plant and modernization projects; and RESOLUTION NO. R98-59A WHEREAS, any tax incentives offered in the City would reduce needed tax revenue unless strictly limited in application to those new and existing industries that bring new wealth to the community; and WHEREAS, any tax incentives should not adversely affect the competitive position of existing companies operating in Pearland, Texas; and WHEREAS, the abatement of property taxes, when offered to attract primary jobs in industries which bring in money from outside a community instead of merely recirculating dollars within a community, has been shown to be an effective method of enhancing and diversifying an area's economy; and WHEREAS, effective September 1,1987, Texas law requires any eligible taxing jurisdiction to establish Guidelines and Criteria as to eligibility for tax abatement agreements prior to granting of any future tax abatement, said Guidelines and Criteria to be unchanged for a two year period unless amended by a three-quarters vote; and WHEREAS, to assure a common, coordinated effort to promote our communities' economic development, any such Guidelines and Criteria should be adopted only through the cooperation of affected governmental entities; and WHEREAS, the attached Guidelines and Criteria shall be considered as a common policy for all jurisdictions which choose to participate in tax abatement agreements; Now, therefore be it resolved that the City Council of the City of Pearland does hereby propose for consideration and adoption these Guidelines and Criteria for granting tax abatement in reinvestment zones in the City of Pearland, as amended. 2 RESOLUTION NO. Rgs-59A DEFINITIONS Section 1 (a) "Abatement" means the full or partial exemption from ad valorem taxes of certain real property in a reinvestment zone designated by the City of Pearland for economic development purposes. (b) "Affected jurisdiction" means any county and any municipality or school district, the majority of which is located in Brazoria County, that levies ad valorem taxes upon and provides services to property located within the proposed or existing reinvestment zone designated by the City of Pearland. (c) "Agreement" means a contractual agreement between a property owner and/or lessee and the City of Pearland for the purposes of tax abatement. (d) "Base year value" means the assessed value of eligible property January 1 preceding the execution of the agreement plus the agreed upon value of eligible property improvements made after January 1 but before the execution of the agreement. (e) "Deferred maintenance" means improvements necessary for continued operations which do not improve productivity or alter the process technology. (f) "Distribution Center Facility" means buildings and structures, including machinery and equipment, used or to be used primarily to receive, store, service or distribute goods or materials owned by the facility operator where a majority of the goods or services are distributed to points at least 50 miles from its location in Pearland. (g) "Expansion" means the addition of buildings, structures, machinery or equipment for purposes of increasing production capacity. (h) "Facility" means property improvements completed or in the process of construction which together compromise an integral whole. 3 RESOLUTION NO. R98-59A (i) "Manufacturing Facility" means buildings and structures, including machinery and equipment, the primary purpose of which is or will be the manufacture of tangible goods or materials or the processing of such goods or materials by physical or chemical change. (j) "Modernization" means the replacement and upgrading of existing facilities which increases the productive input or output, updates the technology or substantially lowers the unit cost of the operation. Modernization may result from the construction, alteration or installation of building, structures, fixed machinery or equipment. It shall not be for the purpose of reconditioning, refurbishing or repairing. (k) "New Facility" means a property previously undeveloped which is placed into service by means other than or in conjunction with expansion or modernization. (I) "Other Basic Industry" means buildings and structures including fixed machinery and equipment not elsewhere described, used or to be used for the production of products or services which serve a market primarily outside the Brazoria Primary Metropolitan Statistical Area and result in the creation of new permanent jobs and create new wealth in the PMSA. (m) "Productive Life" means the number of years a property improvement is expected to be in service. (n) "Regional Entertainment Facility" means buildings and structures, including machinery and equipment, used or to be used to provide entertainment through the admission of the general public where the majority of users reside at least 50 miles from its location in the City of Pearland. (o) "Research Facility" means building and structures, including machinery and equipment, used or to be used primarily for research of experimentation to improve or develop new tangible goods or materials or to improve or develop the production processes thereto. 4 RESOLUTION NO. R98-59A (p) "Regional Service Facility" means buildings and structures, including machinery and equipment, used or to be used to service goods where a majority of the goods being serviced originate at least 50 miles from the facility's location in Pearland. ABATEMENT AUTHORIZED Section 2 (a) Authorized Facility. A facility may be eligible for abatement if it is a: Manufacturing Facility, Research Facility, Distribution Center or Regional Service Facility, Regional Entertainment Facility or Other Basic Industry. (b) Creation of New Value. Abatement may only be granted for the additional value of eligible property improvements made subsequent to and specified in an abatement agreement between the City of Pearland and the property owner of lessee, subject to such limitations as the City Council may require. (c) New and Existing Facilities. Abatement may be granted for new facilities and improvements to existing facilities for purposes of modernization or expansion. (d) Eligible Property. Abatement may be extended to the value of building, structures, fixed machinery and equipment, site improvements plus that office space and related fixed improvements necessary to the operation and administration of the facility. (e) Ineligible Property. The following types of property shall be fully taxable and ineligible for abatement: land; inventories; supplies; tools; furnishings, and other forms of movable personal property; vehicles; vessels; aircraft; housing; hotel accommodations; retail facilities; deferred maintenance investments; property to be rented or leased except as provided in Section 2(f); property owned or used by the State of Texas or its political subdivisions or by any organization owned, operated or directed by political subdivision of the State of Texas. 5 RESOLUTION NO. R98-59A (f) Owned/Leased Facilities. If a leased facility is granted abatement, the agreement shall be executed with the lessor and the lessee. Publicly owned land leased to private entities shall be eligible if otherwise qualified. (g) Value and Term of Abatement. Abatement shall be granted effective with the January 1 valuation date immediately following the date of execution of the agreement. Up to one hundred percent of the value of new eligible properties shall be abated for up to two years during the period of construction and for up to eight years thereafter or one-half (1/2) the productive life of the improvement whichever is less. The abatement may be extended through an initial agreement and a subsequent agreement as may be required to comply with state law regarding the term of a reinvestment zone. If the period of construction exceeds two years the facility shall be considered completed for purposes of abatement and in no case shall the period of abatement inclusive of construction and completion exceed ten years. If a modernization project includes facility replacement, the abated value shall be the value of the new unit(s) less the value of the old unit(s). (h) Economic Qualification. In order to be eligible for designation as a reinvestment zone and receive tax abatement the planned improvement: (1) Must be reasonably expected to increase the value of the property in the amount of $500,000 or more; (2) must be expected to prevent loss of employment, retain or create employment for at least 10 people on a permanent basis in the City of Pearland; and (3) must not be expected to solely or primarily have the effect of transferring employment from one part of Pearland to another; and 6 RESOLUTION NO. R98-59A (4) must be necessary because capacity cannot be provided efficiently utilizing existing improved property. (i) Taxability. From the execution of the abatement contract to the end of the agreement period, taxes shall be payable as follows; (1) the value of ineligible property as provided in Section 2(e) shall be fully taxable; (2) the base year value of existing eligible property as determined each year shall be fully taxable; and, (3) the additional value of new eligible property shall be taxable in the manner described in Section 2(g). APPLICATION Section 3 (a) Any present or potential owner of taxable property in the City of Pearland may request the creation of a reinvestment zone and tax abatement by filing a written request with the City of Pearland. (b) The application shall consist of a completed application form accompanied by: a general description of the proposed use and the general nature and extent of the modernization, expansion or new improvements to be undertaken; a descriptive list of the improvements which will be a part of the facility; a map and property description; a time schedule for undertaking and completing the planned improvements. In the case of modernizing a statement of the assessed value of the facility, separately stated for real and personal property, shall be given for the tax year immediately preceding the application. The application form may require such financial and other information as the City Council deems appropriate for evaluating the financial capacity and other factors of the applicant. 7 RESOLUTION NO. R98-59A (c) Upon receipt of a completed application, the City Manager shall notify in writing the presiding officer of the legislative body of each affected jurisdiction of the application and a public hearing, not less than 15 days prior to the hearing. Notice of the public hearing shall also be properly posted and published in the City's official newspaper not less than 15 days prior to the hearing. Before acting upon the application, the City of Pearland shall through public hearing afford the applicant and the designated representative of any affected jurisdiction opportunity to show cause why the abatement should or should not be granted. (d) After receipt of an application for creation of a reinvestment zone and application for abatement, the City of Pearland shall prepare a feasibility study setting out the impact of the proposed reinvestment zone and tax abatement. The feasibility study shall include, but not be limited to, an estimate of the economic effect if the creation of the zone and the abatement of taxes and the benefit to the eligible jurisdiction and the property to be included in the zone. (e) The City Council shall not establish a reinvestment zone for the purpose of abatement if it finds that the request for the abatement was filed after the commencement of construction, alteration, or installation of improvements related to a proposed modernization, expansion or new facility. (f) Variance. Requests for variance from the provisions of Subsections (a), (e), and (g) of Section 2 must be made in writing to the City Manager of the City of Pearland, provided, however, the total duration of an abatement shall in no instance exceed ten years. Such request shall include a complete description of the circumstances explaining why the applicant should be granted a variance. Approval of a request for variance requires a three-fourths (3/4) vote of the City Council. 8 RESOLUTION NO. R98-59A PUBLIC HEARING Section (a) Should any affected jurisdiction be able to show cause in the public hearing why the granting of abatement will have a substantial adverse effect on its bonds, tax revenue, service capacity or the provision of service, that showing shall be reason for the City Council to deny designation of the reinvestment zone, the granting of abatement, or both. (b) Neither a reinvestment zone nor abatement agreement shall be authorized if it is determined that: (1) there would be a substantial adverse affect on the provision of government service or tax base; (2) the applicant has insufficient financial capacity; (3) planned or potential use of the property would constitute a hazard to public safety, health or morals; or (4) violation of other codes or laws. After the public hearing the City must: (1) find that the improvements sought are feasible and would be of benefit the zone after expiration of the agreement; (2) that the zone is reasonably likely to contribute to the retention or expansion of primary employment or to attract major investment in this area; and (3) the City Council must also designate property as a "reinvestment zone". 9 RESOLUTION NO. R98-59A AGREEMENT Section 5 At least 7 days before the City Council grants a tax abatement, it must deliver written notice of its intent to enter into the tax abatement agreement to the presiding officer of the legislative body of each affected jurisdiction. Said notice must include a copy of the proposed tax abatement agreement. (a) After proper notice has been given tO effected jurisdictions, the City Council shall, at a regularly scheduled meeting, adopt the tax abatement agreement by a majority vote and execute an agreement with the owner of the facility and lessee as required which shall: (1) include a list of the kind, number, and location of improvements to the property; (2) authorize inspection of the property to ensure compliance with the agreement; (3) limit the use of the property consistent with the City's development goals; and (4) provide for recapturing property tax revenues that are lost if the owner fails to make the improvements. or applicant shall be notified in writing within 60 days that his application has been disapproved. (b) § 312.205 (b) of the Tax Code contains optional provisions that City Council may also include in the tax abatement agreement. Such agreement shall be executed within 60 days after the applicant has forwarded all necessary information and documentation to the City Council. 10 RESOLUTION NO. R98-59A (c) no later than March 31 of the year a reinvestment zone has been designated or a tax abatement agreement has been executed, the City Manager must deliver a report to the State Property Tax Board and the Texas Department of Commerce, briefly describing the terms of the zone or the agreement. RECAPTURE Section 6 (a) In the event that the facility is completed and begins producing product or service, but subsequently discontinues producing product or service for any reason except fire, explosion or other casualty or accident or natural disaster for a period of one year during the abatement period, then the agreement shall terminate and so shall the abatement of taxes for the calendar year during which the facility no longer produces. The taxes otherwise abated for that calendar year shall be paid to the City of Pearland within sixty (60) days from · the date of termination. (b) Should the City Council determine that the company or individual is in default according to the terms and conditions of its agreement, the City Council shall notify the company or individual in writing at the address stated in the agreement, and if such is not cured within sixty (60) days from the date of such notice ("cure period"), then the agreement may be terminated. (c) In the event that the company or individual (1) allows its ad valorem taxes owed to any affected taxing entity to become delinquent and fails to timely and properly follow the legal procedure for their protest and/or contest, or (2) violates any of the terms and conditions of the abatement agreement and fails to cure during the Cure Period, the agreement then may be terminated and all taxes previously abated by virtue of the agreement will be recaptured and paid within sixty (60) days of the termination. 11 RESOLUTION NO. R98-59A ADMINISTRATION Section 7 (a) The local Tax Assessor/Collector shall annually determine an assessment of the real and personal property comprising a reinvestment zone. Each year, the company or individual receiving abatement shall furnish the assessor with such information as may be necessary for the abatement. Once value has been established, the Chief Appraiser shall notify the affected jurisdictions which levies taxes on the amount of the assessment. (b) The agreement shall stipulate that employees and/or designated representatives of the City of Pearland will have access to the reinvestment zone during the term of the abatement to inspect the facility to determine if the terms and conditions of the agreement are being met. All inspections will be made only after the giving of twenty-four (24) hours prior notice and will only be conducted in such manner as to not unreasonably interfere with the construction and/or operation of the facility. All inspections will be made with one or more representatives of the company or individual and in accordance with its safety standards. (c) Upon completion of construction the City of Pearland shall annually evaluate each facility and report possible violations to the contract and agreement to the City Council and its attorney, ASSIGNMENT Section 8 Abatement may be transferred and assigned by the holder to a new owner or lessee of the same facility upon the approval by resolution of the City Council subject to the financial capacity of the assignee and provided that all conditions and obligations in the abatement agreement are guaranteed by the execution of a new contractual agreement with the City of Pearland. No assignment or transfer shall be approved if the parties to the existing agreement, the new owner or new lessee are liable to any affected taxing entity for outstanding taxes or other obligations. Approval shall not be unreasonably withheld. 12 RESOLUTION NO. R98-59A SUNSET PROVISION Section 9 (a) These Guidelines and Criteria are effective upon the date of their adoption and will remain in force for two years, at which time all reinvestment zones and tax abatement contracts created pursuant to its provisions will be reviewed by the City Council to determine whether the goals have been achieved. Based on that review, the Guidelines and Criteria will be modified, renewed or eliminated providing that such actions shall not affect existing contracts. (b) This policy is mutually exclusive of existing Industrial District Contracts and owners of real property in areas deserving of special attention as agreed by the affected jurisdictions. TAX ABATEMENT GUIDELINES OBJECTIVES JOB CREATION IN EXISTING AND TARGET BASIC INDUSTRIES COMPETITIVE AMOUNTS AND TERMS OF ABATEMENT LOCAL OPTION APPLICABLE CONSENSUS OF ALL PARTICIPATING TAXING ENTITIES FLEXIBILITY THROUGH VARIANCE PROCEDURE TERMS UP TO 100% DURING MAXIMUM TWO YEAR CONSTRUCTION UP TO 100% EIGHT YEARS THEREAFTER OR Y2 USEFUL LIFE OF PROPERTY MAXIMUM TERM - TEN YEARS QUALIFYING MANUFACTURING & PROCESSING FACILITIES SERVICE & DISTRIBUTION RESEARCH & DEVELOPMENT ENTERTAINMENT (LARGE COMPLEXES) OTHER BASIC INDUSTRY N.E.C. QUALIFYING NEW PLANTS INVESTMENTS EXPANSIONS MODERNIZATIONS 13 RESOLUTION NO. R98-59A ALLOWABLE BUILDINGS AND STRUCTURES ITEMS FIXED EQUIPMENT SITE IMPROVEMENTS ADMINISTRATIVE OFFICE SPACE NON-ALLOWABLE LAND, EXISTING IMPROVEMENTS, CONSTRUCTION-IN- PROGRESS, PERSONAL PROPERTY, HOTELS, HOUSING, DEFERRED MAINTENANCE, RETAIL ECONOMIC MINIMUM 9500,000 INVESTMENT RETAIN OR CREATE AT LEAST 10 JOBS NO SERIOUS ADVERSE EFFECT ON JURISDICTIONS CANNOT REASONABLY USE EXISTING PROPERTY REVIEW AFTER TWO YEAR TEST PERIOD. ANY CONTRACTS MADE DURING THE PERIOD WILL BE ENFORCEABLE." Section 2. Savings. All rights and remedies which have accrued in favor of the City under this Chapter and amendments thereto shall be and are preserved for the benefit of the City. Section 3. Repealer. All resolutions or portions of resolutions heretofore passed in conflict with the terms hereof are specifically repealed. Section 4. Severability. If any section, subsection, sentence, clause, phrase or portion of this Resolution is for any reason held invalid, unconstitutional or otherwise unenforceable by any court of competent jurisdiction, such portion shall be deemed a separate, distinct, and independent provision and such holding shall not affect the validity of the remaining portions thereof. 14 RESOLUTION NO. R98-59A PASSED, APPROVED, AND ADOPTED this the :~4 day of May , A.D., 2001. ~ TOM REID MAYOR ATTEST: APPROVED AS TO FORM: DARRIN M. COKER CITY ATTORNEY 15