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92-T-2 Tax Abatement . .. " '. ORDINANCE NO. 9~ -F- ~ 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 effective September districts to create tax abatements in the Texas Property Tax Code, Section 312, 1, 1989, allows governing units and school re-investment zones and provide ad valorem 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. 90-T-2 in its entirety and will be in effect for one year. Approved PASSED, APPROVED AND ADOPTED this the ATTEST (SEAL OF CITY) \. , , City of Schertz Guidelines and Criteria for TAX ABATEMENT AND REINVESTMENT ZONES Introduction. Under the Authority of the Property Redevelopment and Tax Abatement Act (Section 312 et. seq. Texas Tax Code), the governing body of a city, county or school district is eligible to enter into tax abatement agreements with property owners in an area designated a Reinvestment Zone to exempt from taxes all or part of the increased value in the property on the condition that the owner makes specified improvements. To be designated as a reinvestment zone, an area must meet one of the following criteria per Subsection (a) Section 3 of the Property Redevelopment and Tax Abatement Act: Criteria. (a) substantially impair or arrest the sound growth of a city or town, retard the provision of housing accommodations, or constitute an economic or social liability and be a menace to the public health, safety, morals, or welfare in it's present condition and use by reason of the presence of a substantial number of substandard, slum, deteriorated, or deteriorating structures; predominance of defective or inadequate sidewalk or street layout; faulty lot layout in relation to size, accessibility, or usefulness; unsanitary or unsafe conditions; deterioration of site or other improvements; tax or special assessment delinquency exceeding the fair value of the land; defective or unusual conditions of title; the existence of conditions that endanger life or property by fire or other cause; or any combination of these factors or conditions; (b) be predominantly open and, because of obsolete platting or deterioration of structures or site improvements, or other factors, substantially impair or arrest the sound growth of the city or town; (c) be in a federally assisted new community located within a home-rule city or in an area immediately adjacent to the federally assisted new community; <d) be located wholly within an area which meets the requirements for federal assistance under Section 119 of the Housing and Community Development Act of 1974; 1 , " . 1 ~ .;.f '. (e) encompass signs, billboards and other outdoor advertising structures designated by the governing body of the incorporated city or town for relocation, reconstruction, or removal for the purpose of enhancing the physical environment of the city or town, which the legislature hereby declares to be a public purpose; (f) be designated a local or state federal enterprise zone under the Texas Enterprise Zone Act; or (g) be reasonably likely as a result of the designation to contribute to the retention or expansion of primary employment or to attract major investment in the zone that would be a benefit to the property and that would contribute to the economic development of the city or town. Definitions. Section 1 (a) "Abatement" means the full or partial exemption from ad valorem taxes of certain real property in a reinvestment zone designated for economic development purposes. (b) "Reinvestment Zone" 1S 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 for specified real property improvements. (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, fixed machinery or equipment. It shall not be for the purpose of reconditioning, refurbishing or repairing. (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. (e) "Other City Revenue" means City municipal sales tax, personal property hotel/motel tax. from the the City revenue tax, or (f) "Manufacturirig Facility" means buildings and structures, including fixed machinery and equipment, used or to be used for the mechanical or chemical transformation of materials or substances into new products. Establ ishments engaged in assembling component parts of manufactured products are also considered manufacturing. -2- ," ~ . '. (g) "Biomedical/Biotech Research Facility" means buildings and structures, including fixed machinery and equipment, used or to be used primarily for research or experimentation to improve or develop new tangible goods or materials or to improve or develop the production process thereto. (h) "Regional Distribution Facil ity" means buildings and structures, including fixed machinery and equipment, used or to be used primarily to receive, store, service or distribute goods or materials where a majority of the goods or services are distributed to points at least 100 miles from any part of Guadalupe/Comal/Bexar County. (i) "Regional Tourist Ent~rtainment Facility" means buildings and structures, including fixed machinery and equipment, used or to be used in providing amusement/entertainment through the admission of the general public where the majority of users reside at least 100 miles from Bexar County and where the majority of users are likely to stay in the city for more than one day and will therefore likely utilize local restaurants and hotel/motel accommodations. (j) "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 result in the creation of new permanent full-time jobs and bring new wealth into the community. Abatement Authorized. Section 2 (a) Authorized Facilities. A facility may be eligible for abatement if it is a Manufacturing/Assembly Facility, Biomedical/Biotech Research Facility, Regional Distribution Facility, Regional Tourist Entertainment Facility or Other Basic Industry. (b) Creation of New Value. Abatement may only be granted for the additional value of eligible real property improvements subject to such limitations as the City of Schertz may require. The City shall not enter into an abatement agreement if (1) it finds that the Application for Tax Abatement was filed after the commencement of construction, expansion or modernization or (2) if it finds that the City was not officially notified that construction, expansion, or modernization would commence on a given date. (c) New and Existing Facilities. Abatement may be granted for new facilities and improvements to existing facilities for purposes of modernization or expansion. -3- '. (d) EI igible Property. Abatement may be extended to the value of buildings, 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) Leased Facilities. If a leased facility 1.S granted abatement, the agreement may only be executed with the lessor. In such case, lessor shall demonstrate binding contracts with the lessee to guarantee criteria included in the abatement agreement are met. Said lease shall include tax abatement agreement. (f) Value and Term of Abatement. Abatement shall be granted on a case-by-case basis effective with the January 1 valuation date immediately preceding the date of the execution of the agreement. 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). The percent of value to be abated (which ranges from 0 percent to 100 percent) is based on the capital cost of the project improvements OR the number of new permanent jobs created and sustained in each year of the abatement period. The table below establishes the specific criteria: STANDARD SIX-YEAR ABATEMENT Percent Abatement Capital Cost of the Project "Improvements" OR No. of New Permanent Jobs Created & Sus- tained in Each Year of Abatement 0% 0 - Less than double the assessed value 10% Double the assessed value or 75,000 20% 75,001 - 275,000 30% 275,001 - 500,000 40% 500,001 - 750,000 50% 750,001 - 1,000,000 60% 1,000,001 - 1,250,000 70% 1,250,001 - 1,500,000 80% 1,500,001 - 1,750,000 90% 1,750,001 - 2,000,000 100% over 2, 000 ,~OOO 0-05 6-12 13-20 21-30 31-41 42-53 54-65 66-77 78-89 90-100 over 100 -4- Additionally, tax abatement allowances are applicable if project, in addition to meeting the criteria in Section 2 also meets one of the following criteria: the ( f ) , (1) Enterprise Zones. located in a state-approved enterprise abatement can be up to 10 years; or If the zone, the project term of l.S the (2) If the project is substantial City revenue other than real municipal sales tax, personal property tax, Cost of improvements exceeds $10 million, abatement can be up to 10 years; or likely to generate property taxes (i. e. etc.), or the Capital the term of the tax (3) For Regional Tourist Entertainment Facilities, the abatement is equal to 50% of taxes net other City Revenue for up to 5 years unless the facility is an Enterprise Zone, then the abatement is equal to 75% of taxes net Other City Revenues for the first 5 years. Refer to following example. REGIONAL TOURIST ENTERTAINMENT FACILITY EXAMPLE Total Real Property Taxes: 50% Abatement Subtotal: Less Other City Revenue NET: $1,000,000 500,000 500,000 750,000 $ 250,000* *When NET < 0, then taxes = 0, thus no taxes for 5 years. (g) 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 appraised value of the improved property according to Section 2 (f); OR (2) must be expected to increase employment based on the number of permanent jobs created and sustained in each year of the abatement as per Section 2 (f); furthermore (3) should not be expected to solely or primarily 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; AND -5- , ", ,. (4) must be necessary because capacity cannot be provided efficiently utilizing existing improved property when reasonable allowance is made for necessary improvements or relevant governmental actions. (h) Taxability. From the execution of the abatement to the end of the agreement period, taxes shall be payable as follows: (1) the base year value of existing eligible property as determined each year shall be fully taxable; and (2) the additional value as a resul t of improvement shall be taxable in the manner described in Section 2 (f), Subsections (1),(2),(3), and (4). ,7 Application. Section 3 (a) Any present or potential owner of taxable property 1n the City of Schertz may request the creation of a reinvestment zone or tax abatement by filing an Application for Tax Abatement with the Director of Planning. (b) The application shall consist of a letter requesting a tax abatement or creation of a reinvestment zone accompanied by: a general description of the new improvements to be undertaken; a descriptive list of the improvements for which an abatement is requested; a list of the kind, number and location of all proposed improvements of the property; a map and property description; and, a time schedule for undertaking and completing the proposed improvements. In the case of modernization, 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 deems appropriate for evaluating the financial capacity and other factors of the applicant. (c) Upon receipt of a completed application, the Director of Planning shall notify in writing the presiding officer of the governing body of each eligible jurisdiction. Cd) The completed application will also be forwarded to appropriate City departments C Planning, Zoning, Fire, Building Inspections, Public Works) and the Economic Development Task Force for their consideration and comment. (e) Upon review by the City Manager, consideration of a reinvestment zone designation will be presented to the City Council. -6- (f) Variance. Requests for variance from the provisions of Subsections (a) and (f) of Section 2 may be made in written form to the Director of Planning. Such request shall include a complete description of the circumstances explaining why the appl icant should be granted a var iance. Approval of a request for variance requires a publ ic hearing followed by a three-fourths (3/4) vote of the City Council. Public Hearing and Approval. Section 4 (a) By State law, the governing body of a city may not adopt an ordinance, or a county a resolution, 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 clearly posted or identified on the City Council Agenda at least 7 days prior to the hearing and published in a local newspaper. The presiding officers of eligible jurisdictions shall be notified in writing at least 7 days prior to the hearing. (b) Prior to entering into a tax abatement agreement, the City of Schertz shall hold a public hearing at which interested persons shall be entitled to speak and present written materials for or against the approval of the tax abatement agreement. Notice. of the hearing shall be clearly posted or identified on the City Council Agenda at least 7 days prior to the hearing and published in a local newspaper. The presiding officers of eligible jurisdictions shall be notified in writing at least 7 days prior to the hearing. (c) In order to enter into a tax abatement agreement, the City of Schertz must find that the terms of the proposed agreement meet these Guidelines and Criteria and that: (1) there will be adverse affect on the provision of base; and no substantial long-term the City's service or tax ( 2 ) the planned use of the property wi 11 not constitute a hazard to public safety, health or morals. As a matter of policy, 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. (d) Any applicant requesting a variance under Section 3(f) shall be approved by a vote of at least three-fourths (3/4) of the City Council. No application which deviates from the requirements of these Guidelines and Criteria shall be approved unless accompanied by a request for variance as provided under Section 3(f). -7- Agreement. Section 5 (a) After approval, the City of Schertz shall formally pass an ordinance and execute an agreement with the owner of the facility which shall include: year value; (1) estimated value to be abated and the base (2) the commencement date and the termination date of abatement; (3) the proposed use of the facility, nature of construction, time schedule, map, property description and improvement list as provided in Application for Tax Abatement; ( 4) contractual obI igations 1.n 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; jobs involved; (5) amount of investment and average number of Section 2. (6) percent to be abated as provided by 1.n ~.., Such agreement shall normally be executed within 60 days after the applicant has forwarded all necessary information and documentation to the Planning Director, City of Schertz. 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 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 the 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 Schertz within sixty days from the date of termination. (b) Should the City of Schertz determine that the company or individuals is in default according to the terms and conditions of it's agreement, the City of Schertz shall notify the company or individual in writing by Certified Mail (Return Receipt Requested) at the address stated in the agreement, and if ~uch is not cured within sixty (60) days from the date of such notice ("Cure Period"), then the agreement" may be terminated. -8- . '. . ,0(,' " . . (c) In the event that the company or individual (1) allows it's ad valorem taxes owed the City of Schertz to become delinquent and fails to timely and properly follow the legal procedures for their protest and/or contest; or (2) violates any of the terms and conditions of the abatement agreement and fails to cure during Cure Period, or (3) is in default with any other City sponsored program, 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 termination. (d) In the event that the company, during the abatement period or after. the agreed upon abatement period ends, decides to relocate the company to a location outside of the designated reinvestment zone, the City of Schertz by an Ordinance adopted by City Council shall have the right to recapture a percentage of abated taxes based on the following table: YEAR (6 Year Abatement Period) TOTAL TAXES PREVIOUSLY ABATED SHALL BE MULTIPLIED BY: 1-7 8 9 10 11 12 100% 80% 60% 40% 20% 10% FORMULA: The relocation formula Shall Be: Total Taxes Abated x in Each Abatement Yr. Applicable Percentage from above Table = Amount to be Recaptured Administration. Section 7 (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 may be necessary for the abatement. Once value has been established, the Chief Appraiser shall notify the affected jurisdiction which levies taxes on the amount of the assessment. (b) The agreement shall stipulate the employees and/or designated representatives of the City of Schertz will have access to the reinvestment zone during the term.of the abatement -9- 1 \i_' , 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) Upon completion of construction, the City Manager or the City Manager's designee shall annually evaluate each facility receiving abatement to ensure compliance with the agreement and report possible violations to the contract and agreement to the City attorney. Assignment. Section 8 Tax abatement agreements may be assignable to a new owner only with City Council approval. 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 pursuant to it's provisions will be reviewed by the City of Schertz to determine whether the goals have been achieved. Based on that review, the Guidelines and Criteria may be modified, renewed or eliminated. (b) The 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 jurisdiction. This document was officially adopted by City Council Resolution No. In accordance with State law, the City of Schertz Guidelines and Criteria for Tax Abatement and Reinvestment Zones are effective for two years from the date adopted, and during that period ( ) the Guidelines and Criteria may be amended or repealed only by a vote of three-fourths of the members of the City Council. -10-