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1997-0617_FLUIDMASTER, INC._D9_Agenda Report _,E-SUBMITTED JULY 1, 1997 AGENDA ITEM June 17, 1997 TO: George Scarborough, City Manager FROM: Douglas D. Dumhart, Senior Management Analyst II SUBJECT: Consideration of Deferral of Development Taxes & Fees Agreement - Fluidmasters, Inc. RECOMMENDATION: By motion, approve the Deferral of Development Taxes and Fees Agreement and authorize the City Manager to execute. SUMMARY: On May 7, 1996, the City Council considered a request for a deferral of development taxes and fees from the Fluidmasters, Inc. The one hundred, eighty-three thousand (183,000) square feet of development is required to pay an estimated one million, six hundred thousand dollars ($1,600,000) in development taxes and fees. These fees are collected at the time of permit issuance. Due to the scale of the project, construction is expected to take one year. The land carrying cost coupled with up front permit fees and construction costs create a large initial cash flow problem for the business until construction financing can be converted to a conventional financing package. Additionally, the cost to meet the community's high architectural control standards places a higher cost on construction. The City Council authorized the City Manager to negotiate the terms and conditions for a fee deferral. Fluidmasters has requested all development taxes and fees except plan check and inspection fees be deferred one year after issuance of Certificate of Occupancy. They will pay all permit fees at the time of permit issuance. Fluidmasters will be negotiating fee deferrals from other oversight agencies such as school, corridor and Water District. Staff has prepared the attached Agreement to guarantee future payment of fees. BACKGROUND: The Fluidmasters, Inc. project represents a corporate consolidation and relocation. The company is currently located in three separate facilities which will be combined into a corporate headquarters and manufacturing facility. The business manufactures plumbing fixtures. A project of this nature represents significant economic benefit to the community. Although the benefits of manufacturing businesses are not as readily apparent as those of retailing uses to the community coffers, there is an underlying economic benefit. The initial benefits are felt in terms of development and infrastructure fees, permit fees, and construction costs. The long-term impact will be "Business to Business" revenues, sales FOR CITY COUNCIL ACL: / 9 AGENDA ITEM - 2 - June 17, 1997 tax dollars, and wages spent in the local economy. It is our understanding that the facility will initially employee two hundred (200) workers in very diversified positions. They expect to expand to five hundred (500) employees ultimately. These positions include corporate executives, sales and marketing, research and development, technical support and engineering, finance and accounting, quality control, administrative and clerical, foreman, shipping and receiving, assembly line, and equipment operators. Their payroll has been reported to be twelve million dollars ($12,000,000) worth of wages in our community that do not currently exist. As employees of Fluidmasters spend their wages on gas, lunch, apparel and other staples, those local business in turn receive and spend these new dollars that did not previously exist creating a ripple or multiplier effect. These dollars have a typical multiplier effect of five' (5) times to the local economy, representing a forty million dollar ($60,000,000) injection to the City of San Juan Capistrano and surrounding areas. The manufacturing business itself is a consumer who engages in buying goods and services. The business needs supplies such as stationary, envelopes, copy paper, office equipment such as computers, copiers, faxes, phones, desks, etc. They procure services of printers, window washers, painters, computer technicians, janitors, florists and the like for daily operations. They also introduce business associates, clients, prospective clients to the area, placing demands for travel related services like hotels, restaurants, rental cars and agents. All of these businesses receive benefit through patronage that would not have occurred if the Fluidmasters project was not built. The City's fees can be categorized into permit fees and development taxes and fees. All permit fees are recommended to be collected at permit issuance since they include City outlay for plan check and inspection expenses. Development taxes and fees are pooled to mitigate the impacts of a development on the community. These fees include: Sewer Capacity ($2.11 per sq. ft.) $386,227 Construction Tax (.05 sq. ft.) $ 9,152 Agricultural Preservation ($1,000 per acre) $ 9,300 Drainage Area Fees ($860 per acre) $ 7,998 System Development Tax (1% Building Value) $ 85,531 * All taxes and fees contained here are estimates. Staff is recommending that City Council approve the Deferral of Development Taxes and Fees Agreement. State Employment Development Department (EDD). AGENDA ITEM - 3 - June 17, 1997 COMMISSION/BOARD REVIEW AND RECOMMENDATIONS: Not applicable. FINANCIAL CONSIDERATIONS: This is a request for deferral of development taxes and fees not a waiver or release. NOTIFICATION: Fluidmasters, Inc. ALTERNATE ACTIONS: 1. By motion, approve the Deferral of Development Taxes and Fees Agreement and authorize the City Manager to execute. 2. By motion, do not approve Deferral of Development Taxes and Fees Agreement. 3. Refer to staff for additional information. RECOMMENDATION: By motion, approve the Deferral of Development Taxes and Fees Agreement and authorize the City Manager to execute. Respectfully submitted, 4(9eacei.li7// Lr/ ' Douglas D. Dumhart Senior Management Analyst II Attachment 1. Deferral of Development Taxes and Fees Agreement C:\AGENDAS\1997\6-17FLD.AGI DEFERRAL OF DEVELOPMENT TAXES AND FEES AGREEMENT THIS AGREEMENT is made by and between the CITY OF SAN JUAN CAPISTRANO, a municipal corporation, hereinafter referred to as the "City" and Fluidmasters, Inc. a California Corporation referred to as "Developer". WITNESSETH WHEREAS, City will issue Grading Permit No. and Building Permit No. to Developer to construct 183,000 sf of corporate headquarters and manufacturing facility, hereinafter referred to as "Project", which said improvements constitute a portion of that real property at the location of Parcel 2 of Parcel Map 83-861 commonly referred to as 30800 Rancho Viejo Road; and, WHEREAS, Development taxes and permit fees are collected at time of permit issuance; and, WHEREAS, Developer as requested and City Council has approved the deferral of said taxes and fees to accommodate the projects construction; and, WHEREAS, Developer has requested deferment of taxes and fees be extended to one year after issuance of Certificate of Occupancy for the project; and WHEREAS, Developer will provide guarantee for payment of said taxes and fees as set forth herein. NOW THEREFORE, in consideration of the premises and promises hereinafter contained, City and Developer agree as follows: 1. Developer's Payment Obligations. Developer shall agree to and promise to pay the following development fees and taxes for the Project by not later than 365 days from date that a formal Certificate of Occupancy has been issued by City to Developer: Sewer Capacity ($2.11 per sq. ft.) $386,227 Construction Tax (.05 sq. ft.) $ 9,152 Agricultural Preservation ($1,000 per acre) $ 9,300 Drainage Area Fees ($860 per acre) $ 7,998 System Development Tax (1% Building Value) $ 85,531 $498,208* * This figure is an approximation and could increase by up to 5%. vU' t I be :Air c,t-LLL cL 1 Lie re IL Lt out cL (co-t 2. Types of Security that may be Posted to Guarantee Performance of Agreement Developer may choose from among the following security devices to guarantee performance of the one year obligation to pay deferred development taxes and fees to City pursuant to the terms of this Agreement. (a) Security Options (i) Letter of Credit with a major bank organized under the laws of the State of California. The letter of credit form shall be provided to developer and approved by the City Attorney; (ii) Cash bank deposit filed with a major bank authorized to do business in California. It shall be filed in the name of the City of San Juan Capistrano in a manner to allow immediate cash withdrawal by City should Developer fail to perform its one year obligation under this agreement. (iii) A corporate Surety Bond drawn a corporate surety acceptable to the City Attorney. The bond form shall be furnished and approved by the City Attorney. (b) Amount and Timing of Security (i) The amount of the security, regardless of which of the above stated options is utilized, shall be $523,108.00. (ii) The Security shall be posted at the time the building permits are obtained from the City Building Department. (c) City's Right to Call the Security City shall have the right to immediately call the cash security (in the case of the letter of credit or bank deposit), or make demand on the corporate security, upon Developer's failure to pay the deferred development taxes and fees as specified in paragraph 1 of this Agreement. 3. Term of Agreement. This Agreement shall remain in full force and effect until mutually rescinded by the Parties. 4. Attorney's Fees. Developer agrees to pay City such sum as the court may adjudge as reasonable for the legal services of an attorney representing the City in an action brought to enforce this agreement, and such sum shall be made a part of any judgment in such action against Developer if such action is determined in favor of said City. 2 5. Authorized Signatures. The parties to this Agreement hereby acknowledge and represent that the persons signing this Agreement have full legal authority to sign on behalf of each party. In witness whereof, the parties have executed this agreement as of June 17, 1997 at San Juan Capistrano, California. FLUIDMASTERS, INC. CITY OF SAN JUAN CAPISTRANO By: Robert Anderson Schoepe By: George Scarborough Senior Vice President City Manager Approved as to Form: By: John Shaw City Attorney C:\DOUGLAS\AGREEMNT\SAFLUID.AGR 6/9/97 3