June 20, 2016

Resolution #16-005

Tax Abatement

RESOLUTION #16-005


NEW PROPOSED TAX ABATEMENT RESOLUTION

WHEREAS, the future economic viability of the City of Brazoria depends on the City’s ability to attract new investment through the location of new industry and the expansion and modernization of existing businesses; and

WHEREAS, the creation and retention of job opportunities that result from new economic development is the highest civic priority; and

WHEREAS, the City of Brazoria and its political subdivisions must become and remain competitive with other localities across the nation in the expansion of their existing business base and the attraction of new commercial and industrial investment; and

WHEREAS, any tax incentives offered by the City of Brazoria should be limited to those companies that created wealth within the City and its political subdivisions; and

WHEREAS, no tax incentives offered by the City of Brazoria should adversely affect the competitive position of existing companies operating in the City of Brazoria and its political subdivisions; and

WHEREAS, to assure a common, coordinated effort to promote the economic development of the city of Brazoria and its political subdivisions, and such guidelines and criteria should be adopted only through the cooperation of affected school district and the City; and

WHEREAS, effective September 1, 1987, Texas law requires counties and municipalities, which elect to establish and participate in tax abatement programs, to establish guidelines, and criteria governing the designation of reinvestment zones and tax abatement program prior to granting any future tax abatements; and

WHEREAS, the City Council recognizes the importance of maintaining superior public education within the City and the fiscal integrity of the school district located in the City; and

WHEREAS, these guidelines and criteria shall not be construed as implying or suggesting that the City of Brazoria is under an obligation to provide tax abatement or other incentive to any applicant, and all applicants shall be considered on a case-by-case basis; and

NOW, therefore be it resolved that the City of Brazoria hereby adopt the attached “Guidelines and Criteria” for granting tax abatement in reinvestment zones created within the City of Brazoria, Texas.

PASSED during City Council meeting, this the 17th of May, 2016




_________________________________
Gary Kersh, Mayor Pro-Tem

ATTEST


_________________________________
Sheila Williams, City Secretary



SECTION 1
DEFINITIONS

Abatement means the full or partial exemption from ad valorem taxes of certain new improvements of real and/or personal property in a reinvestment or enterprise zone designated for economic development purpose.

Agriculture facility means buildings, structures and major earth structure improvements, including fixed machinery and equipment, the primary purpose of which is processing, refining, packaging, and distributing food and/or fiber products in commercially marketable quantities.

Agreement means a contractual agreement between property owner and/or lessee and an eligible jurisdiction for the purpose of tax abatement.

Base Year Value means the assessed value of eligible property on 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.

Deferred Maintenance means improvements necessary for continued operations, which do not improve productivity or alter the process technology.

Economic life means the number of years a property improvement is expected to be in service in a facility. Provided, however, that in no circumstance shall the number of years exceed the depreciation allowance specified in the United States Internal Revenue Code.

Eligible Jurisdiction means City of Brazoria.

Expansion means the addition of buildings, structures, fixed machinery, equipment, and personal property for the purpose of increasing production capacity.

Facility means property improvements completed or in the process of construction which together comprise an integral whole.

Manufacturing Facility means building, structures, fixed machinery, equipment and personal property, 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.

Modernization means the upgrading of existing facilities, which increase the productive input or output, updates the technology or substantially lowers the unit cost of the operation, modernization may result from the construction, alternation, or installation of buildings, structures, fixed machinery, equipment and personal property. It shall not be for the purpose of reconditioning, refurbishing or repairing.

New Facility means a property previously undeveloped that is placed in service by means other than or in conjunction with expansions or modernization.

Other Basic Industry means building and structures including fixed machinery, equipment, and personal property not elsewhere described, used or to be used for the production of products or services, from which a majority of revenues generated by the facility are derived from outside the City of Brazoria.

Regional Distribution Facility means building and structures including fixed machinery, equipment, and personal property used or to be used primarily to receive, store, service or distribute goods or materials owned by the facility, from which a majority of revenues generated activity at the facility are derived from outside the City of Brazoria.

Regional Entertainment/Tourism Facility means buildings and structures, including fixed machinery, equipment, and personal property used or to be used to provide entertainment and /or tourism related services, from which a majority of revenues generated by the activity at the facility are derived from outside the City of Brazoria.

Regional Service Facility means buildings and structures, including fixed machinery, equipment, and personal property used or to be used to provide a service, from which a majority of revenues generated by activity at the facility are derived from outside the City of Brazoria.

Reinvestment Zone-City Designated means any area of the City of Brazoria, which has been, designated a reinvestment zone for tax abatement purposes and which is not within the tax jurisdiction of any other incorporated municipality. It is the intent of the City of Brazoria to designate such zones in a case-by-case basis.

Reinvestment Zone-Municipality Designated means any area of the City of Brazoria, which lies within the tax jurisdiction of a municipality and has been, designated a reinvestment zone by that jurisdiction for tax abatement purposes. It is the intent of the City of Brazoria to provide tax abatement within municipality designated reinvestment zones as long as the municipality granted tax abatement is in concert with the tax abatement guidelines contained herein.

Research Facility means buildings and structures, including fixed machinery, equipment, and personal property used or to be used primarily for research and experimentation to improve or develop the production process.

Enterprise Zone means an area designated as such for purpose of tax abatement and other economic incentives.

New machinery and Equipment and/or Personal Property means tangible machinery, equipment, or personal property that is securely placed or fastened and stationary within a building or structure or permanently resides in the reinvestment zone.

Commercial Office Facility means office building rented to non-retail users. These building are designed as garden, mid-rise or high-rise structures.

Retail Facility means space provided for the conducting and management of business, and the storing and selling of goods directly to the customer.

Housing means new housing designed to accommodate shelter for two or more families in separate units, within multi-family housing projects of new apartments.

Vehicles or Aircraft means any new vehicle (commercial trucking & similar vehicles based in Brazoria, Texas and rendered on Brazoria County Appraisal District Tax Rolls) or new aircraft (any aircraft production, parts production facilities or any other aviation related facility which lists Brazoria, Texas as its base and is rendered on Brazoria County Appraisal District Tax Roll).



SECTION 2
ABATEMENT AUTHORIZED

(a) Authorized Tax Abatement Categories. The following categories may be eligible for abatement:

Manufacturing Facility
Research Facility
Agriculture Facility
Regional Distribution Facility
Regional Service Facility
Regional Entertainment/Tourism Facility
Commercial Office Facility
Retail Facility
New multi-family housing projects including but not limited to duplexes, quaduplexes,
Town houses, etc or apartment structures originally designed to be occupied by a
Single family
Other Basic Industry

(b) Authorized Date. A facility shall be eligible for tax abatement if it has applied for such abatement prior to the commencement of construction.

(c) Creation of new Value. Abatement may only be granted for the additional value of eligible property improvement made subsequent to and listed in an abatement agreement between the City of Brazoria and the property owner and/or lessee, subject to such limitations as the City Council may require.

(d) New and Existing Facilities. Abatement may be granted to new facilities and improvements to existing facilities for purpose of modernization and expansion.

(e) Eligible Property. Abatement may be extended to the value of buildings, structures, fixed machinery, equipment, personal property, site improvements plus the office space and related fixed improvements necessary to the operation and administration of the facility. The economic life of the property, improvements and personal property must exceed the life of the abatement agreement.

(f) Ineligible Property. The following classes of property shall be fully taxable and ineligible for abatement:

New existing single family residential housing
Land
Inventories
Supplies
Deferred maintenance investments
Property that is associated with any activity that is illegal under federal, state, or local law
Property owned or used by the State of Texas or its political subdivisions
Property owned by any organization, which is owned, operated or directed by a political
Subdivision

(g) Leased Facilities. If an authorized facility eligible for tax abatement is leased, the agreement shall be executed with both the lessor and the lessee.

(h) 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. The value and term of abatement on new eligible property shall be determined in accordance with the following: The objective and premium criteria listed in (j) will be used to determine whether it is in the best interest of the City of Brazoria to provide tax abatement to a particular applicant. The total value of the tax abatement provided would depend upon the degree to which the specific project furthers the goals and objectives of the City of Brazoria, and the relative impact of the project. Tax abatement will be subject to the following guidelines:

(1) As a general rule, no tax abatement will be granted in an amount which exceeds the estimated costs to the City of Brazoria for support of the project. To determine these costs, a fiscal model analysis will be used.
(2) When an applicant project meets the eligible criteria specified in the Economic Qualification Subsection below and achieves a score of at least 50 points, that project may be granted tax abatement on real property. The length of time and the percentage of tax abatement will be determined according to the scoring scale found in SECTION 3: POINT CRITERIA.
(3) When an applicant project meets the eligibility criteria in Economic Qualification (j) and achieves a score of at least 350 points, the project may be granted tax abatement on both real and personal property. The length of time and the percentage of abatement will be determined according to the scoring scale found in SECTION 3: POINT CRITERIA.
(4) In some special instances, projects that meet the Economic Qualification for tax abatement may be considered for premium points for tax abatement if they cannot meet the 50 point score. These instances include:
(a) Projects that contribute significantly to specific Economic Development goals but which may be small scale.
(b) Small scale development, redevelopment or expansion projects in the city that makes a significant impact on the area.
(c) Retention of existing industry where companies are making a significant investment in new machinery and equipment in an effort to update their current technology which does not result in significant new construction to existing facility, but where the new machinery and equipment will assist in maintaining or improving their competitive advantage in the market place, thus retaining current employment levels and/or additional employees while maintaining existing tax to the City.

(i) The duration of an abatement agreement shall not exceed 5 years or one-half (1/2) the Economic Life of the eligible property, whichever is less. Further, under no circumstances shall the value of the abatement exceed 100 percent (100%) of the eligible property in a single year.

(j) Economic Qualifications. In order to be eligible to receive tax abatement, the planned expansion or modernization of an existing enterprise or the planned new facility must meet the following qualifications:

(1) Be reasonably expected to increase the appraised value of the property in the amount of not less than Fifty Thousand Dollars ($50,000) after construction is completed or three years from the commencement of construction, whichever is less.
(2) Be expected to prevent the loss of employment or create employment for not less than 1 person associated with the production of goods, and services ate the authorized facility on a full-time, permanent basis in the City of Brazoria. Two or more part-time, permanent employees totaling an average of not less than 40 hours per week may be considered as one full-time employee.
(3) Companies seeking to qualify for tax abatement on this basis of job retention shall document that without the creation of reinvestment zone and/or tax abatement, the company will either reduce or cease operations.
(4) Not be expected to solely and primarily have the effect of transferring employment from one part of the City of Brazoria to another.
(5) Companies must make every effort to use local resources (employees, materials, service, etc.)

(k) Taxability. From the execution of the abatement agreement to the end of the agreement period, taxes shall be payable as follows:

(1) The value of the ineligible property as provided in SECTION 2 (f), above, shall be taxable and,
(2) The base year value of existing eligible property as determined each year shall be full taxable and,
(3) The additional value of new eligible property shall be taxable in accordance with the terms of the tax abatement agreement.
(4) The additional value of new eligible property shall be taxable at the end of the abatement period.

(l) Tax Abatement Review. The City Council will review all applications for tax abatement and accept or reject all applications and approve all reinvestment zones.

(m) Conflict of Interest. Property that is in a reinvestment zone and that is owned or leased by a member of the governing body of the City of Brazoria or its political subdivisions shall be excluded from the property tax abatement.


SECTION 3
POINT CRITERIA

The following is an objective scoring scale designed to evaluate a number of specific components common to all applicants. Applicants are assigned points based upon comparable economic impact.

(A) How many new jobs will be created? (Assign 50 points for the first job minimum requirement and 10 points for all additional ones)
(B) How many existing jobs will be retained? (Assign 50 points for the first job minimum requirement and 10 per job for all additional ones.)
(C) How much new local annual payroll will be created? (Assign 10 points per $25,000 of payroll)
(D) How much of existing payroll will be retained? (Assign 10 points per $25,000 of payroll)
(E) How much real property tax base valuation will be added? (Assign 10 points per $25,000 in real property up to 1 million and ½ point per $25,000 above 1 million)
(F) How Much personal property tax base valuation will be added? (Assign 10 points per $25,000 in personal property up to 1 million and ½ point per $25,000 above 1 million)
POINTS REAL PROPERTY PERSONAL PROPERTY

20-49 25%-10%
50-149 50%-25%
150-199 50%-35%
200-249 50%-25%-10%
250-299 50%-35%-15%
300-349 50%-50%-25%
350-399 75%-50%-25%-10% 50%-25%-10%
400-449 75%-50%-35%-15% 50%-25%-15%
450-499 75%-50%-35%-25% 50%-50%-25%-10%
500-600 75%-50%-35%-25%-15% 50%-50%-25%-10%

Special tax abatement formulas may be negotiated for projects meeting the standard for tax abatement, which achieve a point score that exceeds 600. Projects may be granted a tax abatement on real property at 100%-75%-50%-25%-15% and personal property at 75%-50%-50%-25%-15%.

In addition to the objective criteria for which specific point values can be assigned/subtracted, several additional considerations must be evaluated to obtain premium/penalty points of up to ten points per item listed below. The applicant is asked to respond in written narrative format to the items listed below:

(A) Is the project sponsor a local Company?
(B) What types and values of public improvements, if any, will be made by the applicant?
(C) Will the occupants of the project be owners of lessees? If lessee, are occupancy commitments already existing?
(D) What positive impact will the project have on other taxing entities? (School is particular)
(E) Are the new jobs to be created likely to be filled from the City of Brazoria labor pool?
(F) Will the project substantially increase business opportunities for existing local suppliers and contractors? Please be specific.
(G) Will the project compete with existing businesses to the detriment of the local economy?
(H) Does the project pose any negative environmental, operational, visual or other impacts? (i.e. pollution, noise, traffic congestion, etc.)

This existing Resolution on tax abatements is repealed and shall no longer be a part of guidelines and criteria for tax abatement.

PASSES AND ADOPTED THIS 17TH DAY MAY 2016.



___________________________________
Gary Kersh, Mayor Pro-Tem


ATTEST:



_______________________________
Sheila Williams, City Secretary