City Council Special Meeting - Includes Actions Taken


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    C.1       
Meeting Date: 11/09/2021  
Recommended by: Larry Rains Prepared by: Larry Rains, City Manager
Finance Director Review: Angele Ozoemelam  
City Attorney Review: Brett Wallace  
Approved by: Larry Rains Date Submitted: 11/04/2021
Type of Action Requested: Ordinance

SUBJECT:
Consideration of an Ordinance approving a development agreement between the City of Casa Grande and Kohler Co. and authorizing the negotiation and execution of the development agreement and other legal documents related to the project by the Mayor and City Manager.  
RECOMMENDATION:
Staff recommends the Mayor and City Council adopt an Ordinance approving a development agreement between the City of Casa Grande and Kohler Co. and authorize the Mayor and City Manager to execute the final development agreement and other legal documents related to the project.  
DISCUSSION:
Staff has been involved in negotiating a proposed development agreement between the City of Casa Grande and Kohler Co. for the purpose of locating and constructing a manufacturing plant on approximately 200 acres within the City's industrial corridor on property located generally south of the Casa Grande/Maricopa Hwy, west of Burris Road, and north of Clayton Road. 

Kohler Co., founded in 1873 by John Michael Kohler, is one of America's oldest privately held companies and is based in Kohler, Wisconsin.   Kohler Co. manufactures kitchen and bath products; engines and generators; cabinetry, tile, and lighting.  The company also has a position in the hospitality business and is home to international resort and golf destinations in Kohler, Wisconsin and St. Andrews, Scotland.    

This project will continue to diversify the local economy by adding high quality jobs in the manufacturing sector.  All the jobs created by the company would be net new jobs to the City, thereby growing the economy both locally and regionally.  Kohler Co. intends to construct a one million square foot facility within approximately 18 months from commencing construction.  In addition, they project creating 425 direct jobs within a 5 year time frame.   

The Greater Phoenix Economic Council (GPEC) completed an impact analysis of the project for the next 10 years to demonstrate the economic value the company will generate in the City of Casa Grande and the region.  The model calculates both economic and revenue impacts. According to the report, this project is expected to generate an estimated $11.9 million in direct tax revenues, and an additional $1.9 million in indirect tax revenues, for a total of $13.8 million in tax revenue to the City of Casa Grande over a 10-year period.  During that time this company is expected to also directly create an estimated $166.8 million of personal income, plus an additional $100.4 million in indirect personal income, for a total of $267.2 million.  Moreover, it is projected the project will create $1.1 billion in economic output, with $691.4 million in direct economic output and $397.0 million in indirect output.  

A copy of the proposed development agreement is attached for your review.  The Request for Council Action (RCA) form has been developed to summarize the commitments by the parties.  As with other agreements previously entered into by the City, these commitments were established by utilizing a performance based methodology.  This methodology is utilized because it requires the developer to perform by making capital investments, generating local tax revenues through the construction of the site and through future property taxes, as well as hiring well-paid full-time employees in order to qualify for reimbursement of impact fees collected for public infrastructure as well as trigger construction by the City of certain public infrastructure to support both the project and the Pinal Tech Park alike.  Since the agreement is lengthy and includes commitments from both parties, staff has focused on the major points of the agreement.

PERFORMANCE BASED INCENTIVES

City Construction Sales Tax Credit - The developer shall pay or cause to be paid the applicable statutory construction or contracting transaction privilege tax pursuant to the City Code which is currently 4%.  The City shall credit or reimburse developer for an aggregate amount equal to 55% of those taxes (2.2%) for or against any Development Impact Fees owed to the City by the developer. The credit is not reimbursable if it exceeds the amount of Development Impact Fees for the project.  The credit may also be reduced dollar-for-dollar if the City constructs certain off-site infrastructure (not including roadways) that the developer is otherwise responsible for constructing.  For example, the parties have agreed that the City may elect to construct the developer's portion of off-site public sewer infrastructure and, if constructed, a reduction in the construction sales tax credit will occur by an amount equal to the design and construction costs.  (If the City's cost of providing the sewer exceeds $450,000 the developer may design and build the sewer on their own or the parties would need to provide further consent prior to the City undertaking the obligation.)  

Workforce Development - The City will support and connect developer with Arizona@Work Pinal County who can assist the developer in connection with the recruitment, screening, and interviewing of potential employees.  

Orientation - Upon request of developer, the City will provide an orientation to developer's employees related to Casa Grande as it does for similarly situated companies relocating to Casa Grande. 

Marketing - The City will provide marketing support to developer to promote and market the project at local trade shows and conferences, as well as on the Economic Development website, newsletters, and social media.  

Representatives - In implementing this agreement and to expedite decisions by the City related to the project, City agrees to designate a representative to act as a liaison between the City and developer.  

Project Improvements - Developer agrees to construct a manufacturing facility, together with ancillary warehouse and office space, comprising approximately one million square feet of vertical improvements, along with on-site parking for the facility.  Commencement of construction shall occur within one year after the effective date of the Development Agreement, with completion of construction within four years after the effective date of the Development Agreement.  Developer shall also donate right-of-way for the City to complete construction of roadways adjacent to the project.

CONSTRUCTION OF PUBLIC INFRASTRUCTURE FUNDED THROUGH CAPITAL IMPROVEMENT PROGRAM IN CONJUNCTION WITH PINAL COUNTY

Ethington Road Improvements - City agrees to initially pave or double chip seal the existing two lane Ethington Road from approximately Union Pacific Railroad Crossing to Gila Bend Highway.  The construction will commence 90 days after developer has acquired fee title to the property and dedicates to the City any right of way to complete the construction.  After completion of construction of the facility and hiring of employees, City will make further improvements to Ethington Road, adjacent to property, by widening the roadway to four lanes with a median.  Construction will commence within 90 days after developer has dedicated the necessary right of way to complete the construction and has notified the City that is employs 200 full time employees for the project.  

Clayton Road Improvements - City agrees to pave or double chip seal the existing two lanes on Clayton Road from Ethington to Burris.  This work will commence within 90 days after developer acquires fee title to the property and dedicates any necessary right of way to complete the construction.  

Burris Road Improvements - City will obtain a traffic impact analysis (TIA) to determine whether additional roadway infrastructure is required on Burris Road because of future development in and around the property.  Developer shall pay the cost of the first TIA and City will pay cost of any subsequent TIA's.  If the TIA indicates that additional improvements or capacity is needed, the City will pave and/or double chip seal Burris Road from Clayton Road to Gila Bend Highway once all right of way has been dedicated.  

It should be noted that the City has included several of these public infrastructure projects in the FY2022 Capital Improvement Program.  In conjunction with Pinal County, the City has commenced planning and design of the double chip seal projects.  The current roadways in this area are currently dirt roads in both the City and the County.  The improvements that are being recommended for this project will significantly enhance the area for existing traffic and future development.  

The arrival of Kohler Co. will help continue to diversify the manufacturing footprint of the community.  Furthermore, the creation of new manufacturing makes it more likely that the region can attract new supply chain companies who serve Kohler Co. or other manufacturers.  The siting of this manufacturing plant will create significant economic benefits for Casa Grande and Pinal County.  In addition, several public infrastructure improvements will be made adjacent to the Pinal Tech Park, which continues to receive substantial interest from other industrial prospects, which can bring more jobs and development to the community.
FISCAL IMPACT:
The significant economic impacts of the Kohler Co. project are outlined above.  The development agreement requires Kohler Co. to commence construction of improvements and dedicate appropriate right of way to the City for public infrastructure.  The City incentives are performance based, which require Kohler Co. to perform through capital investment and creating and staffing new full- time jobs.  
ALTERNATIVES:
Deny the recommendation.
Attachments
Ord. 3312
Development Agreement Draft
Rights of Way Dedication Area Depictions

  

    

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