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2021-039 Property Tax Abatements SummaryDate: June 25, 2021 Report No. 2021-039       INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Provide information on the 2020 City of Denton Economic Development property tax (ad valorem) incentive agreements including tax abatements and rebates. EXECUTIVE SUMMARY: In tax year 2020, the City of Denton had seven active property tax incentive agreements. This includes five Chapter 380 property tax rebate agreements and two property tax abatement agreements. In total, the value of the rebates and abatements for tax year 2020 is $1,009,472. The associated properties have a total valuation of more than $331 million and generate more than $1.2 million in net property tax revenue for the City. BACKGROUND: The City of Denton provides economic development incentives in accordance with the City’s Tax Abatement and Incentive Policy to stimulate private development and redevelopment, expand the tax base, generate jobs, and enhance the local economy. The City currently has two active property tax abatement agreements and five active Chapter 380 property tax rebate agreements. The property tax rebates are paid annually based on the terms in the individual grants. The City is authorized under various regulations and through its adopted policies to offer property tax abatements and property tax rebates.  Tax Abatements allow local governments to exempt all or a portion of the valuation increase of real and personal property taxes from a new or expanded business development for a period of up to 10 years. The statutes regulating tax abatements can be found in Chapter 312 of the Texas Property Tax Code.  Tax Increment Reinvestment Zones (TIRZ) allow local governments to finance improvements and infrastructure within a defined area in order to stimulate private development and redevelopment. A property tax valuation base is established in the first year, and the revenue from the increased valuation from subsequent years is allocated to development within the TIRZ. The statutes that regulate tax increment financing and the related zones are in Chapter 311 of the Texas Property Tax Code, also known as the Tax Increment Financing Act.  Chapter 380 of the Texas Local Government Code states that a municipality may establish and provide for the administration of one or more programs for making loans and grants of public money and providing personnel and services of the municipality, to promote state or local economic development and to stimulate business and commercial activity in the municipality.  Freeport Exemptions are an exemption from property tax on goods that have been held in the state for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. The exemption applies throughout the entire taxing jurisdiction. Date: June 25, 2021 Report No. 2021-039       A triple freeport exemption means that the three taxing jurisdictions, city, county and school district, participate. The City uses these tools to facilitate performance-based property tax incentives, taking the form of either a property tax abatement (reduction in property tax payment) or property tax rebate (reimbursement of a portion of property taxes paid). Chapter 380 agreements may also include an expansion or relocation cash grant, TIRZ grant, or job-based grant that incentivizes high-wage or knowledge-based jobs. Each year, once values are received and property tax payments are due, calculations are performed by the Denton Central Appraisal District (DCAD) and Economic Development staff. For abatements, DCAD determines the amount of an abatement for active agreements by applying the terms of the approved abatement. The corresponding company will then see a reduction in their tax bill. For property tax rebate agreements, Economic Development staff review property tax values and payments made, then calculate the amount of the rebate by applying the terms of the approved agreement. The corresponding company then receives a rebate directly from the City. For all agreements, specific valuation, job, and wage threshold requirements in the agreements are verified using a certificate of compliance, third party verification from the DCAD, and IRS documentation. The valuation, revenue, job, and incentive information is captured in the annual Net Revenue Report and tracked over time to determine the net benefits to Denton. Summary memos of the 2020 active property tax abatement agreements and property tax Chapter 380 agreements are attached. The memos include breakdowns of property valuation, including taxable values that may be ineligible under the specific terms of the applicable agreement. Because the terms vary by agreement, each payment/abatement is calculated and reviewed individually. ATTACHMENT(S): 2020 property tax abatement and rebate summary memos. STAFF CONTACT: Jessica Rogers Director of Economic Development Jessica.Rogers@cityofdenton.com (940) 349-7531 Erica Sullivan Economic Development Analyst Erica.Sullivan@cityofdenton.com (940) 349-7731 REQUESTOR: Staff initiated PARTICIPTAING DEPARTMENTS: Economic Development STAFF TIME TO COMPLETE REPORT: 2 hours Economic Development Department 401 N. Elm St., Denton, TX 76201  (940) 349-7776 OUR CORE VALUES Integrity  Fiscal Responsibility  Inclusion  Transparency  Outstanding Customer Service MEMORANDUM DATE: June 4, 2021 TO: The Honorable Mayor Hudspeth and Council Members Sara Hensley, Interim City Manager David Gaines, Assistant City Manager/Chief Financial Officer Cassandra Ogden, Director of Finance FROM: Erica Sullivan, Economic Development Analyst SUBJECT: Tax Year 2020 Mayday Manufacturing Chapter 380 Grant This is the seventh year of the ten-year agreement with Mayday Manufacturing. Under the Chapter 380 Agreement, the company will pay 100% of the property taxes owed to the City and will receive a grant equal to 75% of the increase in valuation for the building and equipment resulting from the improvements to the facility located at 3100 Jim Christal. The difference between the property tax improvements over the taxes of the 2012 base year valuation is eligible for the incentive and is deducted from the total valuation. The grant payment calculation is based on the following: Description Valuation Not Eligible Eligible Building/Improvements $6,568,689 $1,579,926 $4,988,763 Land $1,380,111 $1,380,111 $0 Equipment $7,238,302 $3,047,908 $4,190,394 Inventory Less Freeport $1,880,924 $1,880,924 $0 Totals $17,068,026 $7,888,869 $9,179,157 Since Mayday Manufacturing and American Realty Capital Properties (ARCP) met the $5 million threshold of the grant agreement, once they have paid their property taxes, the City will issue a grant payment in the amount of $40,649. The net property tax payment to the City will equal $60,130. If you have any questions, please do not hesitate to contact me at 349-7731. cc: Jake Clerihew, Denton Central Appraisal District Tom Shaw, Mayday Manufacturing Torry Peoples, Mayday Manufacturing Economic Development Department 401 N. Elm St., Denton, TX 76201  (940) 349-7776 OUR CORE VALUES Integrity  Fiscal Responsibility  Inclusion  Transparency  Outstanding Customer Service MEMORANDUM DATE: June 4, 2021 TO: The Honorable Mayor Hudspeth and Council Members Sara Hensley, Interim City Manager David Gaines, Assistant City Manager/Chief Financial Officer Cassandra Ogden, Director of Finance FROM: Erica Sullivan, Economic Development Analyst SUBJECT: Tax Year 2020 West Gate Business Park Chapter 380 Grant This is the fifth year of the City of Denton’s ten-year Chapter 380 agreement with West Gate Business Park (WGBP). The Agreement provides a 70% rebate on the valuation of the real property improvements for building/Lot 1. Description Valuation Not Eligible Eligible Building/Improvements $8,723,336 $0 $8,723,336 Land $838,094 $838,094 $0 Equipment $0 $0 $0 Inventory less Freeport $0 $0 $0 Totals $9,561,430 $838,094 $8,723,336 Since WGBP met their $3 million threshold, they will receive the full 70% rebate in the amount of $36,055. Net City ad valorem taxes owed by WGBP (total less the rebate) is $20,401. If you have any questions, please do not hesitate to contact me at 349-7731. cc: Jake Clerihew, Denton Central Appraisal District Brandon Martino, WGBP Investments, LTD. Economic Development Department 401 N. Elm St., Denton, TX 76201  (940) 349-7776 OUR CORE VALUES Integrity  Fiscal Responsibility  Inclusion  Transparency  Outstanding Customer Service MEMORANDUM DATE: June 4, 2021 TO: The Honorable Mayor Hudspeth and Council Members Sara Hensley, Interim City Manager David Gaines, Assistant City Manager/Chief Financial Officer Cassandra Ogden, Director of Finance FROM: Erica Sullivan, Economic Development Analyst SUBJECT: Tax Year 2020 WinCo Foods Chapter 380 Grant This is the third year of the agreement for WinCo Foods. Under the Chapter 380 Agreement, WinCo Foods will pay 100% of City property taxes and will receive a grant equal to 60% of the building and equipment valuation of the distribution center (excluding inventory, vehicles and supplies). WinCo will receive 60% of the ad valorem tax, 40% of the ad valorem contribution into Tax Increment Reinvestment Zone No. Two by the project until the construction costs for Phase I public improvements have been reimbursed. It is anticipated that full reimbursement will occur in approximately ten years, depending on how the zone develops. The first year after full reimbursement, the second term of the grant agreement shall commence, and will include a 60% rebate of the City’s ad valorem revenue for a period of four years. The ad valorem grant payment calculation is based on the following: Description Valuation Not Eligible Eligible Building/Improvements $55,454,968 $0 $55,454,968 Land $5,045,032 $5,045,032 $0 Equipment $21,175,530 $725,640 $20,449,890 Inventory Less Freeport $21,260,528 $21,260,528 $0 Totals $102,936,058 $27,031,200 $75,904,858 The Agreement thresholds require a minimum valuation of $50 million in real property improvements and business personal property value. Since WinCo met their threshold requirements, they will receive an ad valorem grant payment equal to 60% of the eligible amount. The total project costs for Phase I amounted to $7,154,641.55. Once WinCo has paid their property taxes, the City will issue a payment in the amount of $268,910. WinCo Foods’ net payment to the City less the rebate was $338,880. If you have any questions, please do not hesitate to contact me at 349-7776. cc: Jake Clerihew, Denton Central Appraisal District Lori Gilbertson, WinCo Foods Economic Development Department 401 N. Elm St., Denton, TX 76201  (940) 349-7776 OUR CORE VALUES Integrity  Fiscal Responsibility  Inclusion  Transparency  Outstanding Customer Service MEMORANDUM DATE: June 4, 2021 TO: The Honorable Mayor Hudspeth and Council Members Sara Hensley, Interim City Manager David Gaines, Assistant City Manager/Chief Financial Officer Cassandra Ogden, Director of Finance FROM: Erica Sullivan, Economic Development Analyst SUBJECT: Tax Year 2020 WinCo Foods Chapter 380 TIRZ No. Two Grant This is the third year of the agreement for WinCo Foods. Under the Chapter 380 Agreement, WinCo Foods will pay 100% of the property taxes owed to the City and County and will receive a grant equal to 40% of the contribution of the City and County into the Tax Increment Fund (land and improvements) from the distribution center. Both entities participate in Tax Increment Reinvestment Zone (TIRZ) at a rate of 40%. Business personal property (equipment) is not included in the TIRZ contribution. WinCo will receive 40% of the ad valorem tax contribution (land and improvements) into the Tax Increment Fund from the City and County, 60% of the City’s portion of the ad valorem by the project (excluding land, inventory, vehicles and supplies) until the construction costs for Phase I public improvements are reimbursed. The anticipated full reimbursement will occur in approximately ten years, depending on how the zone develops. The first year after full reimbursement, the second term of the grant agreement shall commence, and will include only the 60% rebate of the City’s ad valorem revenue for a period of four years. The ad valorem TIRZ grant payment calculation is based on the following: Description Valuation Not Eligible Eligible Building/Improvements $55,454,968 $0 $55,454,968 Land $5,045,032 $0 $5,045,032 Equipment $21,175,530 $21,175,530 $0 Inventory Less Freeport $21,260,528 $21,260,528 $0 Totals $102,936,058 $42,436,058 $60,500,000 2 The Agreement thresholds require a minimum valuation of $50 million in real property improvements and business personal property value. Since WinCo Foods met their threshold requirements, they will receive an ad valorem grant payment equal to 60% of the eligible amount. The total project costs for Phase I amounted to $7,154,641.55. Once WinCo has paid their City and County property taxes, the City will issue an incentive grant payment in the amount of $197,336. WinCo Foods’ net property tax payment to the City less the rebate was $100,226. If you have any questions, please do not hesitate to contact me at 349-7776. cc: Jake Clerihew, Denton Central Appraisal District Lori Gilbertson, WinCo Foods Economic Development Department 215 E. McKinney St., Denton, TX 76201  (940) 349-7776 DATE: May 17, 2021 TO: Mayor and City Council Members Sara Hensley, Interim City Manager David Gaines, Assistant City Manager/Chief Financial Officer Cassandra Ogden, Director of Finance FROM: Erica Sullivan, Economic Development Analyst SUBJECT: O’Reilly Hotel Partners Denton Chapter 380 Grant for 2020 This is the third year of the twenty-five year agreement for O’Reilly Hotel Partners Denton (OHPD). Under the Chapter 380 Agreement, OHPD will pay 100% of the property taxes owed to the City and will receive a grant equal to 100% of the building and equipment valuation of the hotel and convention center (excluding inventory, vehicles and supplies). OHPD will receive 100% of the ad valorem tax, hotel occupancy tax, and sales tax generated by the project for a maximum of 25 years or until the combined principal amount of $28 million and interest payment of $26 million, for a total aggregate amount of $54 million, is reached, whichever comes first. The incentive is capped at $54 million. The ad valorem grant payment calculation is based on the following: Description Valuation Not Eligible Eligible Building/Improvements $28,752,973 $0 $28,752,973 Land $6,247,027 $6,247,027 $0 Equipment $2,980,178 $31,000 $2,949,178 Totals $37,980,178 $6,278,027 $31,702,151 Table does not include the valuation for the missing Houlihan's 2019 account with an eligible valuation of 501,024. The Agreement thresholds require an investment of $80 and $20 million in real property improvements and business personal property value. Since OHPD met their threshold requirements, they will receive an ad valorem grant payment equal to 100% of the eligible amount plus a $2,958 adjustment for the Houlihan’s 2019 account that was not captured. Once they have paid their property taxes, the City will issue an incentive grant payment in the amount of $190,145. OHPD’s net property tax payment to the City less the rebate for 2020 is $37,069. If you have any questions, please do not hesitate to contact me at 349-7776. cc: Jake Clerihew, Denton Central Appraisal District Courtney Brown, O’Reilly Hospitality Management Economic Development Department 401 N. Elm St., Denton, TX 76201  (940) 349-7776 OUR CORE VALUES Integrity  Fiscal Responsibility  Inclusion  Transparency  Outstanding Customer Service MEMORANDUM DATE: June 4, 2021 TO: The Honorable Mayor Hudspeth and Council Members Sara Hensley, Interim City Manager David Gaines, Assistant City Manager/Chief Financial Officer Cassandra Ogden, Director of Finance FROM: Erica Sullivan, Economic Development Analyst SUBJECT: Tax Year 2020 Peterbilt Tax Abatement This is the fourth year in the City of Denton’s eight-year tax abatement with Peterbilt Motors. The Agreement provides a 70% abatement on the valuation of the building and equipment resulting from the expansion improvements to the existing facility building, new stand alone building, and on eligible personal property. The difference between the property tax improvements over the taxes of the 2015 base year valuation is eligible for the incentive and is deducted from the total valuation. The grant payment calculation is based on the following: Description Valuation Not Eligible Eligible Building/Improvements $22,144,000 $15,644,000 $6,500,000 Land $4,356,000 $4,356,000 $0 Equipment 114,477,526 $61,691,150 $52,786,376 Inventory Less Freeport $11,911,283 $11,911,283 $0 Totals $152,888,809 $93,602,433 $59,286,376 Since Peterbilt Motors met the $18.5 million threshold of the grant agreement, they received the full 70% abatement amount of $245,041 Net City ad valorem taxes owed by Peterbilt (total less abatement) is $657,697. If you have any questions, please do not hesitate to contact me at 349-7731. cc: Jake Clerihew, Denton Central Appraisal District Brian Roberts, Peterbilt Motors Economic Development Department 401 N. Elm St., Denton, TX 76201  (940) 349-7776 OUR CORE VALUES Integrity  Fiscal Responsibility  Inclusion  Transparency  Outstanding Customer Service MEMORANDUM DATE: June 4, 2021 TO: The Honorable Mayor Hudspeth and Council Members Sara Hensley, Interim City Manager David Gaines, Assistant City Manager/Chief Financial Officer Cassandra Ogden, Director of Finance FROM: Erica Sullivan, Economic Development Analyst SUBJECT: Tax Year 2020 West Gate Business Park Tax Abatement This is the second year of the City of Denton’s ten-year tax abatement agreement with West Gate Business Park (WGBP). The Agreement provides a 60% abatement on the valuation of the real property improvements for buildings 2/Lot 2 and 3/Lot 3 in the business park. The agreement provides an additional 10% abatement for the location of a supplier to an existing primary industry and/or an additional 5% for the location of a national headquarters for a total abatement of up to 75%. Description Valuation Not Eligible Eligible Building/Improvements $8,845,272 $0 $8,845,272 Land $1,119,492 $1,119,492 0 Equipment 0 0 0 Inventory less Freeport 0 0 0 Totals $9,964,764 $1,119,492 $8,845,272 Since WGBP met their $3 million threshold and did not have a tenant that is a supplier to an existing primary industry and/or a national headquarters, they will receive a 60% abatement in the amount of $31,336. Net City ad valorem taxes owed by WGBP (total less the abatement) is $27,501. If you have any questions, please do not hesitate to contact me at 349-7731. cc: Jake Clerihew, Denton Central Appraisal District Brandon Martino, WGBP Investments, LTD.