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2001T09-TAX ABATEMENT CRITERIAORDINANCE NO. ~/- 7-L ~ AN ORDINANCE BY THE CITY COUNCIL OF THE CITY OF SCHERTZ, TEXAS, ADOPTING GUIDELINES AND CRITERIA FOR TAX ABATEMENT AND RE-INVESTMENT ZONES WHEREAS, the Texas Property Tax Code, Section 312, allows governing units to provide ad valorem tax abatements in the interests of economic development; and WHEREAS, the City Council desires to support the establishment of re- investment zones and provide tax abatements in the interests of economic development; NOW THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SCHERTZ, TEXAS: THAT the City Council adopts the City of Schertz Guidelines and Criteria for Tax Abatement and Re-Investment Zones, as attached and made a part hereof. THAT this ordinance replaces Ordinance No. 99-T-16 in its entirety and will be effective on 1 January 2001, and will expire on 31 December 2002, a period of two years. Approved on first reading the~~day of ~. ~-~~ 2001. PASSED, APPROVED AND ADOPTED this th of, _~./!~ _~ 2001. Mayor, City of Schertz, Texas ATTEST City Secretary, City of Schertz (SEAL OF CITY) CITY OF SCHERTZ GUIDELINES AN CRITERIA FOR TAX ABATEMENT AND REINVESTMENT ZONES 1. Introduction a. Under the Authority of the Property Redevelopment and Tax Abatement Act (Section 312 et. Seq. Texas Property Tax Code), the City of Schertz hereby establishes Guidelines and Criteria for Tax Abatements and Reinvestment Zones. b. The intent of this abatement program is to provide an incentive to current and future commercial property owners to invest in the City of Schertz. These guidelines are but a part of the overall incentive program of the City of Schertz. Abatements granted under this program must take into account any other incentives provided by the City in order to assure the overall incentive package is in the best interests of the citizens of Schertz. c. Nothing in this policy shall imply or suggest that the City of Schertz is under any obligation to provide any incentive to any applicant. All such applications for tax abatement and other economic development incentives shall be considered on an individual basis. The City Council of the City of Schertz has final apProval or disapproval on any application, at its discretion. 2. Definitions a. "Abatement" means the full or partial exemption from partial exemption from ad valorem taxes of certain real property in a reinvestment zone designated for economic development purposes. b. "Reinvestment Zone" is an area where the City has decided to influence development patterns and attract major investments that will contribute to the development of the City through the use of tax abatement. c. "Modernization" means the replacement and upgrading of existing facilities which increases the productive input or output, updates the technology or substantially lowers the cost of operation. Modernization may result from the construction, alteration, or installation of buildings, structures, f~xed machinery or equipment. It shall not be for the purpose of reconditioning, refurbishing, or repairing. d. "Base Year Value" means the assessed value of property on the 1st of January preceding the execution of the agreement. e. Manufacturing or Assembly means those companies that make goods from raw materials or assemble component parts into a final product for sale. -1- f. "Personal Property" is defined, as Capital Equipment required in the manufacture of an end product. It is not inventory that is used up in the manufacture of an end product. g. "Other City Revenue" means revenue to the City of Schertz from any other source excepting ad valorem taxes. 3. Criteria for Reinvestment Zones. To be designated a reinvestment zone; an area must meet one of the criteria per Sub-Chapter B of the Property Redevelopment and Tax Abatement Act. The fundamental criteria is based on City Council intent to create reinvestment zones where creation of such a zone would be reasonably likely to contribute to the retention or expansion of primary employment, attract investment into the zone, generally be a benefit to the property, and contribute to the economic development of the City of Schertz. 4. Impact of Municipal Tax Abatement on Other Taxing Units. a. The benefits of tax abatements may vary among taxing entities depending on whether or not the taxing jurisdiction receives benefits from an increase in business activity. These Guidelines and Criteria take into account these potential differences. b. However, Section 312.206 of the State Property Tax Code also recognizes the need for consistency in the application of tax abatements among the various taxing jurisdictions. Paragraphs 6 and 7 below, outlines the basic tax abatement to be provided for capital improvements and/or personal property. c. Paragraphs 8 and 9 are optional and special abatement provisions. Other taxing entities have the option of including or not including these provisions in the their agreements made with landowners. 5. General Abatement Criteria a. Creation of New Value. Abatement may be granted for the additional value of eligible real property improvements subject to such limitations as the City of Schertz may require, and; (1) Must be reasonably expected to increase the appraisal value of the improved property; (2) Must be expected to promote increased employment based on the number of permanent jobs and sustained in each year of the abatement. -2- (3) Should not have the effect of merely transferring existing employment from one part of the City of Schertz to another without demonstration of increased future investment (Dollars or Jobs) or unusual circumstances whereby without such a move employment is likely to be reduced. b. The City shall not enter into an abatement agreement if, the City Council finds that the Application for Tax Abatement was filed after the commencement of construction, expansion, or modernization. c. No abatement will be approved that exceeds 90% of new appraised value of capital improvements and/or personal property, or that will reduce current ad valorem revenues. d. If the computed percentage from a standard abatement in Table 1, and any additive percentage from the optional or special categories, as defined below, exceeds 90% of appraised new value, an extension of the abatement term beyond 5 years may be considered, up to a maximum of 10 years. e. No tax abatement shall be considered if the ad valorem cost/benefit ratio developed during the evaluation process is below 1.5. If necessary_, abatement percentages may be adjusted to fit the ratio. 6. Standard Abatement a. The standard tax abatement is for a period of 5 years and is based solely on capital improvements to real property. Table 1 below establishes the level of capital improvements required and the percentages to be allowed. Table 1 STANDARD FIVE-YEAR ABATEMENT Percent Abatement Capital Cost of the Projected Improvements 5% Approved Capital Improvements Under $75,000 that double the Assessed Valuation 10% $75,000 of approved Capital Improvements. 1% For each additional $50,000 of approved Capital Improvements. -3- (Note' The above percentages are not cumulative except "For each additional $50,000 of Approved Capital Improvements over the $75,000 threshold). b. The provisions of paragraph 5c above apply. 7. Personal Property Abatement. a. Abatement of personal property is considered as a special category of abatement intended for manufacturing companies. However, any applicant whose personal property is expected to exceed the cost of capital improvements to real property and also exceeds $1,000,000 may apply. Table 2 Personal Property Abatement Percent Abated Amount of Personal Property Declared 10% $1,000,000.00 1% For Each Additional $100,000 of Declared Personal Property b. A minimum of $1,000,000 in personal property is required to qualify for a personal property abatement. c. The standard term of a personal property abatement is (5) five years. d. The term of the abatement will run concurrently with any abatements approved for Capital Improvements derived from Table 1, Optional Abatements, and or Special Abatements. The term of the abatement shall not exceed the term allowed for Capital Improvements derived from Table 1, Optional Abatements, and/or Special Abatements. e. The provisions of paragraph 5c above apply. f. Changes in valuations of personal property from year to year, whether increases or decreases, will not be cause to re-negotiate increases or decreases in the approved abatement percentage. 8. Optional Abatement Additives a. Optional Criteria. The following optional abatements may also be considered with each abatement request. These optional abatements are to be -4- considered separate and apart from the standard abatement above, and may be added by the City or other taxing entities at their discretion. (1) Job creation has always been an underlying goal of economic development activity. The impact of jobs however, varies from community to community. The City of Schertz also considers jobs to be an important part of this program and will consider lower dollar value assessments in recognition of new employment growth. For each $25,000.00 of additional payroll in facilities based in Schertz, 1% will be added to the standard abatement as derived from Table 1. (2) Other Revenues. Other revenues, as defined above that inure to a taxing entity should also be considered during the incentive process. These include sales taxes, hotel/motel taxes, and any other source of revenue apart from ad valorem. Those businesses that make a substantial contribution to the "other revenue" stream may also request additive abatement percentages based on those revenues. Subject to paragraph 5c, for each $1,000 of added "other revenues" received by the City, an additional 2% will be added to the percentage established by the standard abatement in Table 1. (3) Business Retention. Current Business Retention and Growth is a key to the continued stability of the commercial tax base. Some provision to acknowledge the contribution of existing businesses should also be considered. Subject to paragraph 5c, an additional 25% will be added to the percentage established by the standard abatement in Table 1 will be included for those businesses currently based in the City of Schertz. b. In all cases, in order to be considered for the optional abatement, the applicant must meet the initial $75,00.00 capital improvement criteria of the standard abatement as outlined in Table 1. In addition, the period of the abatement of each of the optional additives will run concurrently with the approved rate from the standard criteria in Table 1, subject to paragraph $c. c. These optional abatements will be included in the terms of the abatement agreement. The agreement will provide that, other taxing entities may or may not choose to allow these abatements, in the same amounts. 9. Special Abatements a. Research has indicated the City of Schertz has special qualifications for certain industries, as well as needs for certain industries. These industries are those we believe to be critical to our future development and as such should receive special consideration. The underlying philosophy is to diversify/expand the commercial tax base. -5- (1) Hotel/Motel/Retail Operations. To qualify for this special abatement, companies must have a minimum capital investment of $500,000.00. (2) Industries in a Foreign Trade Zone. With the approval of the Tri-County Business Park as a Foreign Trade Zone, consideration should be given to increased incentives for companies that use the Foreign Trade Zone as defined below. (3) Enterprise Zones. Companies that locate in approved Enterprise Zones, that meet the requirements of a "qualified business" as defined in the Enterprise Zone Act, may qualify for the special abatement criteria as defined below. b. For companies in the broad categories above, Table 1 criteria is modified as follows' After achieving the initial $75,000 capital investment, ($500,000.00 for Hotel/Motel/Retail) and subject to paragraph 5c, a 1% abatement may be granted for each additional $25,000 of capital investment. c. These special abatements will be included in the terms of the abatement agreement. The agreement will provide that, other taxing entities may or may not choose to allow these abatements, in the same amounts. 10. Variances a. As with the creation of any definitive document, all possible circumstances are not likely to be addressed. The General Criteria established throughout this document establishes minimum criteria. If the requested abatement deviates in any substantive way from the criteria established herein, a variance is required. b. A variance is requested by including the request in the basic application, identifying, and justifying the adjustments requested. Approval of a variance request requires a three-fourths vote of City Council. In no cases shall variances be approved that exceed an abatement of 90% of new appraised value, or the term [of the abatement] exceeds 10 years. 1 1. Application Procedures a. Applicability and Eligibility. These abatement guidelines and criteria apply to any present or potential owner of taxable commercial property in the City of Schertz. b. The application shall consist of a letter requesting consideration for a tax abatement, including any optional or special abatement. The following information is required to be attached to the letter: -6- costs. (1) A general description of the project including overall project (2) Estimated values of the following: (a) Capital improvements to be made to the property; (b) Personal Property; (c) Land (may be purchase price); (d) Inventory. (3) A brief description of the kinds and number of jobs at the new facility and an estimate of payroll expenses at the new facility. (4) If an abatement percentage is based on the sales tax, briefly describe the products or services being taxed and an estimate of taxes to be collected. (5) The tax I.D. of the property. (6) A site plan that shows the building footprint, landscaping, fencing, etc. A site plan approved (or proposed) by the City of Schertz Planning and Zoning Commission will satisfy this requirement. (7) If a personal property abatement is requested, a listing of the capital equipment to be installed in the facility, and estimated costs. (c) The completed application will be presented to the City's Economic Development Department. A copy of the application will be provided to the City Manager. (d) The application may be forwarded to appropriate City departments (Planning and Zoning, Building Inspections, Fire, Public Works, Police, etc.) for staff review and comments. (e) After staff review, the City's Economic Development Commission will review the application for policy implications, and make a recommendation to the City Council (through the City Manager) to approve, modify, or disapprove the requested abatement. The Economic Development Commission may also return the application to the Economic Development Department for additional information without action. -7- (f) If the Economic Development Commission recommends approval, the City's Economic Development Department shall notify in writing the presiding officer of the governing body of each taxing jurisdiction. (g) The City Manager will forward the application to City Council with comments and/or recommendations. The City Manager may also return the application to staff or the Commission for additional information if necessary. (h) City Council will consider the application and all comments and recommendations. If the City Council concludes that the application has merit, the City Council will approve the original or modified application for abatement by ordinance and authorize City Manager to enter into an abatement agreement within the guidelines established within the ordinance. If a variance was requested, City Council must adopt the ordinance by a three- fourths vote of the entire council. (i) In order to enter into a tax abatement agreement, the City Council of 8chertz must find that the terms of the proposed agreement meet these Guidelines an Criteria and that: (1) There will be no substantial long-term adverse effect on the provision of the City's service or tax base; and (2) The planned use of the property will not constitute a hazard to public safety, health, or morals. (j) If City Council does not believe the application has merit, a motion to disapprove the application shall be considered and acted upon. (k) The City Council explicitly states that tax abatement is not applicable to projects wherein the primary purpose of the business is serving alcoholic beverages or where nudity is involved. (1) One major policy function during this review is the creation of new re- investment zones and the size of such a zone as a result of the application, unless the property is already in a re-investment zone (See paragraph 12). 12. Public Hearings a. By State law, the governing body of a city may not adopt an ordinance designating a reinvestment zone until it has held a public hearing at which interested persons are entitled to speak and present evidence for or against the designation. Notice of such hearing shall be published in a local newspaper having general circulation within the City of Schertz, at least 7 days prior to the public hearing. The presiding officers of other taxing jurisdictions shall be notified in writing at least 7 days prior to the public hearing. -8- I b. After the public heating, City Council may pass an Ordinance approving the Re-Investment Zone, or, pass a motion to disapprove. 13. Tax Abatement Agreement a. After approval of an ordinance by City Council, the City Manager shall enter into an agreement with the applicant, which may include' (1) Estimated new value to be abated and the base year value; (2) The commencement date and the termination date of the abatement for Capital Improvements; and/or a personal property abatement. (3) The proposed use of the facility, the proposed construction or modernization time schedule; description; (4) A map or approved plat of the property and a, property (5) Contractual obligations in the event of default, violation of terms or conditions, delinquent taxes, recapture, administration and assignment, or other provisions that may be required for uniformity or state law; (6) Amount of investment and average number of jobs involved; (7) Percent to be abated as provided by paragraphs 5, 6, and 7 of the Tax Abatement Guidelines and Criteria. (8) City Council may approve the Tax Abatement and the abatement agreement in a single ordinance if all other statutory and evaluation requirements have been met. b. The agreement shall stipulate the employees and/or designated representatives of the City of Schertz will have access to the applicant's property/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 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. c. The agreement shall also include, within the terms of the agreement, those portions of the abatement amounts that are optional for other taxing entities. -9- d. The agreement shall also include a statement by the company, that on or prior to January 15th of each year during the term of the abatement, they will provide the Economic Development Department a letter certifying the company meets or exceeds the criteria upon which the abatement was approved. Failure to do may constitute default by the company, and cause termination of the agreement. 14. Default and Recapture a. In the event that the facility is completed and begins producing products or services, but subsequently discontinues producing products or services for any reason excepting 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. b. Should the City of Schertz determine that the company or individuals are in default according to the terms and conditions of its agreement, the City of Schertz may terminate the agreement. Taxes will be due in full for the year in which the agreement is terminated. c. In the event that the company or individuals' (1) Allows it's ad valorem taxes owed the City of Schertz, or other taxing entities who are a party to the abatement, to become delinquent and fails to timely and properly follow the legal procedures for the protest and/or contest; or, (2) Violates any of the terms and conditions of the abatement; or, (3) Is in default with any other City sponsored program, the agreement then may be terminated; d. Taxes will be due in full for the year in which the agreement was terminated in Section 13c(1), (2), or (3) above. e. In the event that the company, during the abatement period, decides to relocate the company to a location outside of the designated reinvestment zone, or the City of Schertz, and remains in business, the City of Schertz by an Ordinance adopted by City Council shall have the right to recapture taxes abated in all previous years. 15. General Administration a. The Chief Appraiser of the Comal, Bexar, or Guadalupe Appraisal District shall annually determine an assessment of the real and personal property comprising the reinvestment zone. Each year, the company or individual receiving abatement shall furnish the Chief Appraiser with such information as necessary. Once value has been established, the Chief Appraiser shall notify the affected jurisdiction in the normal fashion. b. Each year the City Tax Assessor will review all approved abatements and determine the adjustment to ad valorem taxes based on the abatement agreement. c. The Economic Development Department shall retain administrative responsibility and control over all abatement agreements, and their administration. 16. Assignment. Tax abatement agreements may be assignable to a new owner only with City Council approval. 17. Sunset Provision. 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 pursuant to it's provisions will be reviewed by the City of Schertz to determine whether the goals of Guidelines and Criteria have been achieved and Guidelines and Criteria have been followed. Based on that review, the Guidelines will be modified, renewed or eliminated as necessary. b. During the two-year period, the Guidelines and Criteria may be amended or repealed only by a majority vote of three-fourths of the City Council. PUBLISHER'S AFFIDAVIT THE STATE OF TEXAS, County of Guadalupe %._. -_ - -_- -B ef° re me, the undersigned[t,authodty, on this date personally appeared ' ~ ~ L~-P~,C~ ~)-- knowr~?to me, who' being by me duly sworn on his oath deposes and says that he is the Publisher of The Seguin Gazette-EnterP_dse, a newspaper published in said county; that a copy of the within and foregoing notice was published in said newspaper_ ! _ time(s) before the retum day named therein, such publications being on the following dates' and a newspaper copy of which is hereto attached. -o Sworn to and subscribed before me thiS , _ day of PUBLISHER'S AFFIDAVIT THE STATE OF TEXAS, County of Guadalupe Before me, the undersigned authority, on this date personally appeared ' 7-k~ k~ known:to me who, being by me duly sworn, on his oath deposes and says' that he is the Publisher of The Seguin Gazette-EnterP.dse, a newspaper published in said county; that a copy of the within and foregoing notice was published in said newspaper, 1 time(s) before the retum day named therein, such publications being on the following dates' and a newspaper copy of which is hereto attached. ndsubscribed before this ,~r~~ay of me ... . :. ...... ~~r~0831~4 ~ N t ' · .-......' .. : ~~.~-' .. ...... ~ " . 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