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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 05/18/2010 - RESOLUTION 2010-029 APPROVING AN AGREEMENT BETWEEN DATE: May 18, 2010 STAFF: Darin Atteberry, Mike Freeman Josh Birks Resolution 2010-029 Approving an Agreement Between the City and Hewlett Packard Company to Provide Business Investment Assistance for the Building 6 Annex Expansion. EXECUTIVE SUMMARY The Hewlett-Packard Company is expanding operations at its Harmony Road facility. The expansion plan includes constructing an Engineering Focused Lab by retrofitting 40,000 square feet of the Building 6 Annex. The additional operations will create over 100jobs,with an annual average wages of$90,000. The expansion will include two phases totaling $64.4 million in construction and equipment investment. The City proposes offering a Business Investment Agreement, including two performance based investments: (1) a one-time use tax rebate on the lab equipment purchased at installation, and (2) a personal property tax rebate on the same lab equipment for ten years. Both investments relate to revenues the City would not otherwise collect if the expansion did not occur. The total investment package has a value of$1.6 million over ten years. During the same time period, the City will receive$2.0 million in revenues, net of the investments made. BACKGROUND/ DISCUSSION In 2005, the Economic Action Plan was adopted to provide staff focus and direction regarding efforts to enhance the local economy. The Action Plan contains four key strategies: (1)job creation through business retention, expansion, incubation,and attraction, (2)be proactive on economic issues, (3)build partnerships,and(4)diversify the economy. Furthermore,Council has given consistent and clear direction that all investment agreements be performance based. The Business Investment Agreement being offered to the Hewlett-Packard Company(HP)is consistent with both the Action Plan strategies and City Council direction. Performance Based Agreement • Council has consistently requested performance based business investment agreements. The proposed Business Investment Agreement relates to revenues generated by the project; without the project these revenues would not be received by the City. The level of investment corresponds to the level of investment made by HP with maximum amounts set for both use and personal property tax rebates. Therefore, the City expends revenue out of the General Fund that is directly generated by the project only. Business Retention and Expansion • The Economic Action Plan identifies both business retention and expansion as the two primary goals for the City's job creation efforts over business attraction. Attraction efforts were recommended to be focused on identified Target Industry Clusters. • The proposed expansion of HP supports this goal and recommendation by focusing investments on existing business expansion. Diversify the Economy • The Economic Action Plan called for the completion of a Target Industry Cluster study. The study identified six key target clusters. HP is a strong member of the mature Chip Design cluster. • The Target Industry Cluster study recommended supporting the Chip Design cluster through retention efforts and to encourage expansion when possible. May 18, 2010 -2- ITEM 24 • The proposed expansion of HP with the additional Engineering Focused Laboratory supports this goal and recommendation. PROJECT DESCRIPTION HP plans to expand operations at the Harmony Road facility located at 3404 East Harmony Road, shown in Attachment 1. The expansion plan includes constructing an Engineering Focused Lab by retrofitting 40,000 square feet of the Building 6 Annex, as shown in Attachment 2. The project will develop in two phases including: • Phase 1 -$34.4 million in retrofit of the existing building • Phase 2 -$30.0 million in equipment. As a result of the expansion, the HP property will require additional water and power above existing usage. This additional usage includes: • 8.0 million gallons in annual water use • 10.67 megawatts of electric capacity. The retrofit project will create several key aspects, including: • A 40,000 square foot Engineering Focused Laboratory • A"sustainable data center'for technology testing • Energy Efficiency improvements • Office space for researchers. The proposed expansion will add over 1 00 jobs to the community,with approximately 50 percent relocated from out-of- state, earning an average wage of$90,000. BUSINESS INVESTMENT AGREEMENT The City of Fort Collins uses a variety of customized investments to assist primary employers with expansion efforts. The City does not employ a"one size fits all'approach to developing investment packages. Instead,the City chooses to work collaboratively with each primary employer and build a package that is specific to the individual needs. This approach typically results in a better outcome for all parties. The Business Investment Agreement contains two aspects contingent upon City Council approval including: (1) a one-time use tax rebate on the lab equipment purchased at installation and (2) a personal property tax rebate on the same lab equipment for ten years. Both investments relate to revenues the City would not otherwise collect if the expansion did not occur. The complete Business Investment Agreement includes the following items: Items That Require City Council Approval • A maximum of $600,000 in the form of a one-time eligible equipment use tax rebate on the initial lab equipment purchased at installation of the project; and • A maximum of$1.0 million in personal property tax rebate on the same lab equipment over a 10 year period. Available without City Council Approval • $400,000 in Colorado FIRST Customized Job Training Funds; and • Expedited review and commitment by City staff to HP's desired timeline. When compared against forecast City revenues for a ten-year period, the value of the expansion exceeds the cost of the proposed investment package, generating net revenue to the City of approximately$2.0 million. May 18, 2010 -3- ITEM 24 Amou nt Investments One Time Equipment Use Tax' $600,000 Total One Time Investments $600,000 Value of Investment 0 n-Goi ng Annual 10 Y ears Personal Property Tax Rebate(City Portion) $100,000 1 000000 Total On-Going Investments $100,000 $1,000,000 Total City Investments $1,600,000 Revenues One Time Construction Use Tax $620,000 Building Permit Fees $150.000 Total One Time Revenues $770,000 Value of Revenue O fl-Goi na Annual 10 Years Real Property Tax(City Portion)z $88,000 $880,000 Personal Property Tax(City Portion) $150,000 $1,500,000 Replacement Equipment Use Tax' $Q $450000 Total On-Going Revenues $238,000 $2,830,000 Total City Revenues $3,600,000 Summary Total City Revenues $3,600,000 Total City Investments $1,600,000 Net Value/(Cost)of the Investment Package' $2,000,000 Contingent upo n City Council approval l Calculated by City Economic Health Staff Source:CSU Regional Economist;City of Fort Collins-Economic Health FINANCIAL IMPACT The proposed Business Investment Agreement will result in the City forgoing both use tax and personal property tax revenues to assist the HP expansion. The revenues foregone by this Agreement relate to taxes that would not otherwise be collected by the City if HP does not expand its operations. Staff believes that this approach, therefore, is consistent with City Council direction to make these types of agreements performance based. The forgone revenues include: • Use Tax—A maximum of$600,000 in use tax revenue associated with equipment purchased to complete the installation of an Engineering Focused Lab in the Building 6 Annex. • Personal Property Tax -Up to 50 percent of the personal property tax collected on the equipment in the Engineering Focused Lab annually for ten years. The rebate is capped at$100,000 annually and$1.0 million over the ten years. The City will earn revenues from the construction of the proposed expansion of operations, including: • One-Time Revenues — Construction use tax of approximately $620,000 and building permit fees of approximately$150,000 from the retrofit of the Building 6 Annex,for a total of approximately$770,000 in one- time revenues. May 18, 2010 -4- ITEM 24 • On-Going Revenues—Real property tax of approximately$88,000, personal property tax of approximately $150,000, and use tax on replacement of equipment over the next ten years of $450,000, for a total of approximately$2,830,000 in on-going revenues over the next ten years. SUSTAINABILITY: ECONOMIC, ENVIRONMENTAL AND SOCIAL IMPACTS ECONOMIC IMPACTS The HP retrofit includes a$64.4 million construction budget. The proposed project will have potential impacts on local employment and income and City revenue. The proposed expansion includes an additional 100 jobs,with an average wage of$90,000. The average annual pay for a Larimer County job is$40,141. Between December 2007 and December 2008, the Professional, Scientific, and Technical Services industry, which includes HP, lost 743 jobs. Therefore, the proposed expansion will regain approximately 17 percent of that sectoral job loss (Source: CSU Regional Economist). Construction Benefits/Impacts • Direct Employment and Income—Based on a$34.4 million budget for retrofit, the proposed expansion will directly support approximately 336 construction jobs during the construction phase,earning an average wage of$52,300 (Source: IMPLAN, CSU Regional Economist). • Spin-off Employmentand Income-The construction jobs will support approximately 207 spin-off jobs during the construction phase earning an average wage of$35,600 (Source: IMPLAN, CSU Regional Economist). • Total Employment—The project will support a total of 543 direct and spin-off jobs during construction,with an average annual compensation of$45,900(Source: IMPLAN, CSU Regional Economist). • Construction Use Tax — Based on an investment of $34.4 million in retrofit, the City will receive approximately$620,000 in construction use tax. The calculation assumes 60 percent of the investment is in materials and 40 percent in labor. (Source: Insight Fiscal Impact Model; CSU Regional Economist) Operations Benefits/Impacts • Direct Employment and Income — Per HP, 100 positions will be created after the retrofit of Building 6, earning an average wage of$90,000. Total payroll including benefits is approximately$12.6 million (based on an assumption of 40 percent of gross pay in benefits). • Spin-off Employment and Income— Based on the anticipated job growth supported by the expansion of Research and Laboratory space at HP,the 100 direct jobs will support an additional 124 spin-off positions in Larimer County with an average wage of approximately$32,900(Source:IMPLAN, CSU Regional Economist). • Total Employment—The proposed expansion will support a total of 224 direct and spin-off jobs (Source: IMPLAN, CSU Regional Economist). • On-going Real Property Taxes — Based on a $24 million investment in Building 6, it is likely the Real Property Taxes will increase after completion. This increase in value could generate an additional $88,000 annually in property tax revenue to the City or$880,000 over ten years. • On-going Use Tax—This could result in an additional$450,000 in equipment use tax revenue,assuming HP replaces 50 percent of the$30 million investment in equipment over the next ten years. May 18, 2010 -5- ITEM 24 ENVIRONMENTAL IMPACTS The HP retrofit will impact the environment in the following ways: • An existing building on the HP Harmony Campus will be retrofited fora productive use, allowing 100 newjobs to be added to the community without consuming additional raw land. The stated goal of the facility is to develop an Engineering Focused Laboratory with a"sustainable data center" and provide additional energy efficiency improvements. • HP has and remains a strong ClimateWise partner. Energy efficiency projects to-date have included lighting upgrades,chiller plant expansion and upgrade,air handling unit upgrades,a building tune-up,and ice thermal storage. The total power savings equals 6.2 million kilowatt hours annually and a reduction in demand of 1,641 kilowatts. • Annual water consumption will increase by 8.0 million gallons as a result of cooling operations. A large amount of this water will not enter the waste water system due to evaporative loss. • Annual electricity consumption will increase by 10.67 megawatts. SOCIAL IMPACTS The HP expansion of operations will add over 100 additional jobs to the community. Approximately 50 percent of these positions will be relocated from out-of-state. These transfers will have an impact on City, County,and Poudre School District services. STAFF RECOMMENDATION Staff recommends adoption of the Resolution. PUBLIC OUTREACH Negotiations of the proposed HP Employment Expansion Investment Package were conducted confidentially. ATTACHMENTS 1. Area Context Map— Identifies the HP Harmony Road Facility 2. Site Map— Identifies HP Harmony Road Facility- Building 6 Annex 3. Hewlett Packard's Building 6 Retrofit Economic Impact Analysis, Prepared for the City of Fort Collins by Martin Shields, Associate Professor of Economics and Michael Marturana, Research Economist, Colorado State University 4. PowerPoint presentation Pi I Oil NOV . � Vs` TTV LIS SJsr �LF ins _-rl Hewlett- Packard Harmony Road Campus Jy OWN NI INS LOON fig OL'O LL Wei LI jI ALI FILL , • _ 1 m . e " • .i�. 9 '� .� ' may' ` ;+SOIL 0 ILL ri'" c- • � � ` Legend - • 406 Hewlett- Packard Harmony Road Campus P. F ILL . IL ILL r y. ' 44v ! :=zyr , t Attachment 2 Harmony Road Site — Site Map Hewlett - Packard Harmony Road Campus fog gill off goo go r. Y' _ — � JIr . �.•1gow off�, a •`' / I go a _ or �. !v • . \ — a . goo 3 Y 1/ Jl J _ , ` Bldg 4 ' L s Bldg 2 Bldg6 i Bldg 5 w �C Annexgoo, ' ;_ t — Zi - Bldg 1 g. Bldg 3 ♦t {' . ,�► 0 � A� i� � y" tilf� z '� • A� oft off. _: _ - H RAC H RA MONY ROAD' - - Legend Miles - Business Expansion Site go Noo Colo 0 University Hewlett Packard ' s Building 6 Retrofit Economic Impact Analysis Prepared for the City of Fort Collins Martin Shields, Associate Professor of Economics Michael Marturana, Research Economist Colorado State University 6 May 2010 Hewlett Packard (HP) is considering retrofitting Building 6 of its Fort Collins campus to allow for a research and laboratory expansion. The proposed expansion has a $64 .4 million construction budget. In this report we use information provided by HP to estimate the potential impacts of the proposed project on 1 ) local employment and income, and 2) city revenue. The analysis below is broken into two parts (I) Construction and (II) Operations. Construction purchases are onetime expenses for building renovations and the purchase of new capital (e. g. computer equipment) — the City will collect use taxes on these purchases. Once the retrofit is operational, HP is expected to create 100 new FTE positions at their Harmony campus . According to HP these jobs will have an average compensation of approximately $90,000. By comparison, the average annual pay for a Larimer County job is $40, 141 . The proposed project will help stem recent job losses in the region. Using data from the state ' s Quarterly Census of Employment and Wages (QCEW), the Professional, scientific, and technical services industry (NAICS 541 , the same has HP) lost 743 jobs from December 2007 to December 2008 in Larimer County. The 100 new jobs at HP would regain 17 percent of last year' s sectoral job loss . It is expected that half of the positions associated with the proposed project will go to residents already living in the region. According to a study published in October 2007 by the Pathfinders entitled The Northern/Upstate Colorado Area Labor Availability Report, northern Colorado had 24, 800 underemployed workers . Approximately 23 percent (or 5 ,648) of these underemployed workers have skills pertaining to the technology or engineering industry. I. Construction The construction phase of the Building 6 retrofit contains two categories : ( 1 ) the purchase of new equipment and (2) the physical modification of the building itself. 1 . New Equipment HP is expecting to spend $30 million on new capital for Building 6 . The City of Fort Collins will collect $900,000 in use tax on this equipment ($30 million x 3 percent use tax). 1 Colo 0 University City_ of Fort Collins Use Tax Collection • Planned Capital Expenses : $30 million • Use Tax Rate : 3 percent • Fort Collins Tax Collection o $900,000 Source : Authors ' calculations using budget information from HP 2 . Building Modification To estimate employment impacts for the physical building changes we use the Larimer County version of the IMPLAN model (www. IMPLAN. com). IMPLAN is a widely used input-output model that estimates how changes in final demand (i. e. , output) ultimately translate into changes in employment (i . e. , inputs) as well as associated wages . The IMPLAN modeling system allows users to look at both direct and secondary — or spin-off — impacts . Direct impacts are those directly attributable to spending on the project itself. Using HP budget data, we "shock" the IMPLAN model with $34 .4 million in planned expenditures for the building modification. The results suggest that the proposed project will directly support 336 FTE jobs in Larimer County during the construction phase, with an average annual compensation of $525300 , But the potential impacts are more substantial. The IMPLAN model also allows us to estimate spin-off impacts . These are the jobs created by expenditures of intermediate input suppliers and their employees (e. g. dining out) . HP ' s modification to Building 6 is expected to support 207 spin-off jobs in Larimer County during the construction phase. These jobs are estimated to earn $35 ,600 in average yearly compensation. Overall, the retrofit is expected to support a total of 543 positions in Larimer County during the construction phase, with an average yearly compensation of $45 ,900 . One Year Full Time Equivalent Jobs ($ Average Compensation per Worker) • Planned Expenditures on Building Modification: $34 .4 million • Larimer County: o Direct: 336 ($ 525300) o Spin-off. 207 ($35 ,600) o Total: 543 ($459900) Source : Authors ' calculations using IMPLAN using HP ' s budget information The City of Fort Collins will see additional revenue during the construction phase. This will be due to use taxes paid on building materials . We do not have information on how much of the $34.4 million construction budget will be subject to the local use tax; therefore, we use the Insight model ' s ' default value to assume 60 percent of construction costs will be spent on materials subject to the use tax. 1 The Insight model is a fiscal impact model originally developed for the state by Arthur Andersen. 2 Colo 0 University The values calculated below assume 60 percent of the $34 .4 million construction budget ($20 . 6 million) will be spent on materials subject to the use tax. These values also assume that the full $20 . 6 million will be spent in the City of Fort Collins. City_ of Fort Collins Use Tax Collection • Planned Construction Expenses : $34.4 million • Insight Model ' s Default Materials Subject to Use Tax : 60 percent • Expenses Subject to the Use Tax : $20. 6 million • Use Tax Rate : 3 percent • Fort Collins Use Tax Collection on Construction o $619,200 Source : Authors ' calculations using budget information from HP and Insight assumptions II. Operations Per HP, 100 positions (with an average compensation of $90,000) will be created after the retrofit is completed. Using the IMPLAN model we estimate that these jobs will support an additional 124 spin-off positions in Larimer County. The average yearly compensation of these spin-off jobs is about $32,900 . Combining the HP and spin-off impacts, 224 jobs are expected to be supported in Larimer County, with an average compensation of $ 58 ,300 . One Year Full Time Equivalent Jobs ($ Average Compensation per Worker) • Larimer County: o Direct: 100 ($905000) o Spin-off. 124 ($32 ,900) o Total. 224 ($589300) Source : Authors ' calculations using IMPLAN based on hiring forecast from HP Fort Collins will also collect tax revenue from these employees and business property tax. We calculated the following figures using the Insight model, assuming a 2 percent wage growth rate, with a 10-year outlook. We estimate only those tax impacts from the new HP positions themselves (i. e. , direct impacts) . The figures below detail additional tax revenue to the City. City of Fort Collins Sales and Property Tax Collection • Employee Wage (Year 1 ) : $90 ,000 • Wage Growth Rate : 2 percent • Income Spent on Retail Sales : 44 percent • Retail Sales Purchases Made in the City: 60 percent • Cumulative Estimate : 10 years • Fort Collins Tax Collection o City Sales Tax Revenue Supported by Retail Sales to HP Employees ■ $ 8349340 ($ 83 ,340 per year) o Tax Revenue from Personal Property Taxes During Operations ■ $249,620 ($24,962 per year) Source : Authors ' calculations using the Insight model 3 Attachment 4 - Staff Presentation Hewlett - Packard Building 6 Annex Retrofit & Operations Expansion Prepared by : Mike Freeman , and Josh Birks ory o+ olhns o Outline • Background • Project Description • Business Investment Agreement • Financial Impacts • Sustainability • Staff Recommendation of 2 Fort, `� lhns 1 Attachment 4 - Staff Presentation Economic Action Plan • Four Key Strategies — Job creation through business retention , expansion , incubation , and attraction — Be proactive on economic issues — Build partnerships — Diversify the economy 3 Fs Performance Based Agreement • City Council has consistently requested performance based business investment agreements • Agreement = Performance Based — Revenues dedicated to project would not be received by the City without the project — The level of public investment corresponds to the private investment (subject to maximums ) — Requires continuous operation of the facility to remain eligible for on -going rebate CKY of 4 Forte ns 2 Attachment 4 - Staff Presentation Hewlett- Packard Harmony Road Campus G o ` ! _ - DRAGC ROAD HORSETOOiH ROAD - � w , "s k w MARdOJYRDAD �— a • I, w \ \� { w .• . ti ' ' Y.E._ HitR ROAD _ Legend C._ r7 i HP.vIFttG.9�.F 9ry Harm.>ry F 31 � ampu• a ��! a y of ort Collins 5 K Hewlett-Packard Harmony Road Campus 1 v � Bldg 6 of - Bldg , - � I' ! a � Bldg BItl96 �A MI ♦I l = Bldg t - - Bldg 3 � l 't f i - ..,, M1Y..:. '�"'i•� '+�� � i. .mot HARMONY ROAD Legend - - City of .-Fort Collis 6 3 Attachment 4 - Staff Presentation Project Description • 40 , 000 SF retrofit of Building 6 Annex — " Sustainable data center" — Energy efficiency improvements — Office space for Engineers and Researchers • Phase 1 - $ 34 . 4 million in retrofit costs • Phase 2 - $ 30 . 0 million in equipment costs of 7 Fort, ` tins Business Investment Agreement • Require City Council Approval — Maximum $600 , 000 one -time rebate of Use Tax on eligible equipment — Maximum of $ 1 . 0 million Personal Property Tax rebate ( up to $ 100 , 000 annually ) based on 50 percent of tax received by City on eligible equipment • Do not require City Council Approval — $400 , 000 Colorado FIRST Job Training funds — Expedited review $ Fort, `KY alm 4 Attachment 4 - Staff Presentation Financial Impacts Revenue One-Time ( Use Tax & Building Permit Fees ) $770 , 000 On-Going ( Real & Personal Property Tax) $278307000 Revenue Total $3 , 600 , 000 Investments Use Tax ( Maximum Shown ) $600 , 000 Personal Property Tax ( Maximum Shown ) $ 170007000 Investment Total $ 1 , 600 , 000 Net Surplus/( Deficit) $2 , 000 , 000 9 Fort`"Y,�Ins Sustainability : Economic • Construction — 336 construction jobs at $52 , 300 annual wage — 207 spin-off jobs at $35 , 600 annual wage — $620 , 000 in construction Use Tax (not rebated ) • Operations — 100 engineer/research jobs at $90 , 000 annual wage — 124 spin-off jobs at $32 , 900 annual wage — $88 , 000 in on-going Real Property Tax revenues — $450 , 000 in Use Tax revenue on replacement equipment (over next ten years) of 10 CollinFort���s 5 Attachment 4 - Staff Presentation Sustainability : Environmental • 100 new jobs added to City without consuming additional raw land • HP remains a strong ClimateWise partner; 6 . 2 million Kilowatt Hours and 1 , 641 Kilowatts in capacity reduced already • Increase in annual water consumption of 8 . 0 million gallons • Increase in electric consumption of 10 . 67 megawatts of 11 Fortes Collins Sustainability : Social • Addition of 100 jobs — 50 percent relocated from out-of-state — Transfers will impact City , County , and Poudre School District services • Supporting 124 spin -off jobs — Employees from within the community of 12 FortCollins 6 Attachment 4 - Staff Presentation Staff Recommendation • Staff recommends adoption of the Resolution of 13 Forts 7 RESOLUTION 2010-029 OF THE COUNCIL OF THE CITY OF FORT COLLINS APPROVING AN AGREEMENT BETWEEN THE CITY AND HEWLETT PACKARD COMPANY TO PROVIDE BUSINESS INVESTMENT ASSISTANCE FOR THE BUILDING 6 ANNEX EXPANSION WHEREAS, the Hewlett Packard Company ("HP") will be expanding and retrofitting Building 6 Annex, a building located on its business campus, by approximately 40,000 square feet for use as an engineering focus laboratory facility (the "Project"); and WHEREAS,the development of the Project will enable the City to better maintain and attract high-paying primary jobs in the City; and WHEREAS, HP estimates that it will invest over $64 million in the Project; and WHEREAS, HP anticipates that the Project will create over 100 jobs paying an annual average salary of$90,00, which would provide significant economic development benefit for the community at large; and WHEREAS,according to preliminary estimates,HP will also pay City fees and taxes related to the construction of the Project in the approximate amount of$582,000; and WHEREAS, the Project is anticipated to increase annual tax revenue for the City by approximately $138,000; and WHEREAS, City staff has been working with HP to discuss ways in which the City can provide financial assistance to the Project that will enhance the likelihood that the Project will be pursued; and WHEREAS, the City Council has determined that providing financial assistance to the Project is in the best interests of the City and will serve the important public purposes of increasing employment in the City, stabilizing and improving the long term tax base of the City and providing additional economic development benefits to the City; and WHEREAS, City staff has prepared for City Council's consideration an agreement between the City and HP(the"Agreement"),which Agreement sets forth the terms and conditions upon which financial assistance will be provided to HP by the City; and WHEREAS, the City Council believes that the Agreement is in the best interests in the City. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby finds that providing financial assistance to Hewlett Packard Company,upon the terms and conditions contained in the Agreement, is in the best interests of the City and serves the important public purposes of increasing employment within the City, stabilizing and improving the long-term tax base of the City, and promoting economic development within the City. Section 2. That the Agreement,in substantially the form contained in Exhibit"A" attached hereto and incorporated herein by this reference, is hereby approved by the City Council, subject to such modifications as may be deemed necessary by the City Manager, in consultation with the City Attorney, in order to further the purposes of the Agreement. Section 3. That the City Manager is hereby authorized to execute the Agreement on behalf of the City. Passed and adopted at a regular meeting of the Council of the City of Fort Collins this 18th day of May A.D. 2010. Mayor ATTEST: City Clerk EXHIBIT A BUSINESS INVESTMENT AGREEMENT FOR ECONOMIC DEVELOPMENT RELATED TO HEWLETT PACKARD'S BUILDING 6 ANNEX RETROFIT THIS AGREEMENT is entered into this day of 2010,by and between the City of Fort Collins,Colorado, a home rule municipal corporation(the"City"), and Hewlett Packard,Company,a Delaware Corporation("HP"). RECITALS WHEREAS,HP is the owner of property located at 3404 East Harmony Road in the City that is more fully described in Exhibit A and incorporated herein by this reference(the "Property'); and WHEREAS,HP has committed to redeveloping the Property by retrofitting one of the buildings on the Property to include a 40,000 square foot expansion for an Engineering Focused lab facility within that building(the"Project"); and WHEREAS, the building on the Property to be retrofitted is known as Building 6 Annex ("Building 6");and WHEREAS, the Project will consist of a construction expansion and remodel in addition to an investment in equipment;and WHEREAS,Project will enable the City to better maintain its place as the regional retail and business center of Northern Colorado in the face of competing facilities that could otherwise draw significant employment opportunities and retail sales revenues out of the Fort Collins community;and WHEREAS,HP estimates that the total investment in the Project will total more than$64 million and create over 100 jobs earning an annual average salary of$90,000, and that will provide significant economic benefit to the community at large;and WHEREAS,HP will pay an estimated$582,000 in City fees and taxes related to the Project;and WHEREAS,the City's Economic Development Department has concluded that the Project will generate a substantial increase in tax revenue for the City consisting of approximately(i)$450,000 in additional use tax over the next ten years;(ii)$150,000 annually in new personal property tax in the first ten years and$300,000 in new property tax in the subsequent years;and (iii)$88,000 in new annual real property tax revenues;and WHEREAS, according to the Economic Development Department, the Project will prevent high-paying primary jobs from leaving Fort Collins to other sites in Northern Colorado and elsewhere; and WHEREAS,HP has requested that the City enter into a business investment agreement for economic development; and WHEREAS,based on HP's representations that the Project will(i)be a high quality research laboratory that will be owned and operated by HP, (ii) generate new primary jobs, and (iii)have a reasonable expectation of long-term operations in the City;and WHEREAS,in order to encourage the Project, the City Council has determined,through the adoption of Resolution 2010-_on 2010,that it is in the best interests of the City to provide a package of financial assistance for the Project consisting of two components: the rebate of new use tax revenues generated by the Project and the rebate of personal property tax on new Eligible Equipment installed in Building 6 as part of the Project; and WHEREAS, the City Council has further determined, through the adoption of Resolution 2010-_that providing the financial assistance described in this Agreement to HP will serve the important public purposes of increasing employment in the City, stabilizing and improving the long term tax base of the City, and providing additional economic development benefits to the City. NOW,THEREFORE, in consideration of the promises contained in this Agreement,and other good and valuable consideration,the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows. SECTION 1. DEFINITIONS Application for Use Tax Rebate means the application process for a use tax rebate using City approved forms consistent with the form attached as Exhibit B. Building 6 means that building located at 3404 East Harmony Road,Building 6 Annex. Certificate of Occupancy has the same meaning as set forth in the Code of the City of Fort Collins. Charter means the Home Rule Charter of the City. CLty means the City of Fort Collins,Colorado, a home rule municipal corporation. Code means the Code of the City of Fort Collins. 2 Countv Assessor means the Latimer County Assessor. Eligible Equipment means electronic equipment, including computers,network equipment, other computing equipment,and any new equipment necessary for the construction and operation of the Project. Engineering Focused Lab Facility and Facili mean a lab facility built as a result of the Project. HP means Hewlett-Packard,Company, a Delaware Corporation. Land Use Code means the Fort Collins Land Use Code. Project means HP's retrofit and expansion of existing Building 6 by 40,000 square feet for use as an engineering focused lab facility with a"sustainable data center"and other improvements that provide significant energy savings. SECTION 2. REPRESENTATIONS AND COVENANTS 2.1. The City represents and covenants that: 2.1.1. The City is a home rule municipal corporation of the State of Colorado. 2.1.2. There is no litigation or administrative proceeding pending or, to the knowledge of the City, threatened,seeking to question the authority of the City to enter into or perform this Agreement. 2.1.3. The City reasonably believes that it has the authority, and assuming such authority, the City Council has properly and regularly authorized the City to enter into the Agreement. 2.2. HP represents and covenants that: 2.2.1. HP is a corporation,duly organized and validly existing under the laws of the State of Colorado,is authorized to do business in the State of Colorado,is not in violation of any provisions of its organizational documents or, to its knowledge, the laws of the State of Colorado. 2.2.2. HP has the power and legal right to enter into the Agreement and has duly authorized the execution, delivery and performance of this Agreement by proper action,which Agreement will be enforceable against HP in accordance with its terms. 2.2.3. The consummation of transaction contemplated by this Agreement will not violate any provision of the governing documents of HP or,to its knowledge, 3 constitute a default or result in the breach of any term or provision of any contract or agreement to which HP is a party or by which it is bound. 2.2.4. To its knowledge, there is no litigation,proceeding, or investigation contesting the power of authority of HP with respect to the Project or this Agreement,and HP is unaware of that any such litigation, proceeding,or investigation has been threatened. 2.2.5. HP will submit a Site Plan to the City in accordance with all applicable procedures set forth in the Land Use Code. HP will redevelop the Property with appropriate care and diligence and cause the Project to be constructed in a manner consistent with the Site Plan,as approved in accordance with the Land Use Code. 2.2.6. In redeveloping the Property and Building 6, HP will comply with all applicable zoning and land use requirements and other applicable federal, state,county, and City statutes, rules,regulations and ordinances. 2.2.7. HP will operate, or cause to operate,Building 6 as an Engineering Focused Lab Facility for a period of not less than ten years following the earlier date of the issuance of a Certificate of Occupancy or December 31,2011. 2.2.8. HP will cooperate with the City in taking reasonable actions to defend against any litigation brought by a third party concerning the Project or this Agreement. SECTION 3. REIMBURSEMENT OF USE TAX REVENUES 3.1. The City will collect the Use Tax Revenues from HP's initial Eligible Equipment investment associated with the Project and retrofit of Building 6 in a manner consistent with the City's overall efforts to collect use tax revenues. Nothing in this Agreement will be construed as imposing upon the City any obligation to exert special efforts in the collection of these revenues. 3.2. To the extent permitted by the constitution and laws of the State of Colorado and the Charter, the City will rebate to HP a portion of the Use Tax Revenues under the terms and conditions set forth in paragraph 3.3.1 and 3.3.2 below. If, as presently contemplated by the parties,the contingencies described in those paragraphs are satisfied, the total amount of Use Tax Revenues to be paid by the City will not exceed Six Hundred Thousand Dollars($600,000) (the"Maximum Use Tax Reimbursement")for the period beginning with the execution of this Agreement and ending on December 31,2011. The Application for the Use Tax Rebate on Eligible Equipment shall be filed between August 1 and December 31 of each year for which a rebate eligible. 4 3.3. The payments of Use Tax Revenues referenced in paragraph 3.2 above will be made by the City to HP after the City issues a certificate of occupancy for the Project and HP has actually generated and remitted to the City use tax revenues for the minimum periods of time specified below. If either of these contingencies has not been satisfied on or before the dates specified, the payments will not be made. 3.3.1. A payment will be due and payable on March 31,2011 (the"First Payment") based upon an Application for Use Tax Rebate made by HP for use tax revenues remitted by HP to the City between the execution of this Agreement and December 31,2010,provided,however that if HP has not remitted use tax revenues to the City during this period, the First Payment will not be made. 3:3.2. A payment will be due and payable on March 31,2012(the"Final Payment") based upon an Application for Use Tax Rebate made by HP for use tax revenues remitted by HP to the City between January 1,2011 and December 31,2011, provided,however that if HP has not remitted use tax revenues to the City during this period, the Final Payment will not be made. 3.4. The City,in its sole discretion,may pre-pay any amount of Use Tax Revenues without prepayment penalties. 3.5. The City's payment obligation under this Section shall be limited to the amount of the Use Tax Revenues indicated above. HP agrees to assume the entire risk that the Project will be unable to begin and remit use tax on new manufacturing equipment invested in the Project by December 31,2011 to qualify for the Maximum Use Tax Reimbursement. 3.6. Interest earned, if any, on Use Tax Revenues held by the City until payment is made to HP will belong to the City. 3.7. Notwithstanding the Maximum Use Tax Reimbursement,the City will not be required to pay to HP any Use Tax Revenues greater than that actually collected and remitted to the City. HP acknowledges that the generation of Use Tax Revenues is entirely dependent on HP's investment of Eligible Equipment in the Project and Building 6 and agrees that the City is in no way responsible for the amount of Use Tax Revenue actually collected. 5 3.8. The parties agree that the obligations of the City do not constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation or provision. The obligations of the City for payment of the Use Tax Revenues under this Agreement are from year to year only and do not constitute a mandatory payment obligation of the City in any fiscal year beyond the present fiscal year. This Agreement does not directly or indirectly obligate the City to make any payments of Use Tax Revenues beyond those appropriated for any fiscal year in which this Agreement is in effect. The City Manager(or any other officer or employee at the time charged with the responsibility of formulating budget proposals) is hereby directed to include in the budget proposals and appropriation ordinances submitted to the City Council,in each year prior to expiration of this Agreement,amounts sufficient to meet its obligations hereunder,but only if it receives such amounts in the form of Use Tax Revenues,it being the intent,however, that the decision as to whether to appropriate such amounts is in the discretion of the City Council. SECTION 4. REIMBURSEMENT OF PERSONAL PROPERTY TAX REVENUES 4.1. The City shall collect the Personal Property Tax Revenues from the Project in a manner consistent with the City's overall efforts to collect personal property tax revenues. Nothing in this Agreement will be construed as imposing upon the City any obligation to exert special efforts in the collection of these revenues. 4.2. To the extent permitted by the constitution and laws of the State of Colorado and the Charter,the City will pay HP a portion of the Personal Property Tax Revenues under the terms and conditions set forth in paragraph 4.3 below. If, as presently contemplated by the parties, the contingencies described in paragraph 4.3 are satisfied as to each of the ten payments provided for therein, the total amount of Personal Property Tax Revenues to be paid by the City will not exceed One Million Dollars($1,000,000)and the annual payments will not exceed One Hundred Thousand Dollars($100,000). 4.3. The payments of Personal Property Tax Revenues referenced in paragraph 4.2 above will be made by the City to HP as follows: 4.3.1. The assessed personal property value certified by the County Assessor for tax year 2009 will be the baseline measurement("Baseline Personal Property Tax"). 4.3.2. For ten consecutive years,beginning with tax year 2010, fifty percent of any increase in the assessed personal property certified by the County Assessor for the then current year over the Baseline Personal Property Tax will be reimbursed by the City to HP. 4.3.3. The payments contemplated by this Section will be paid by December 31 of each year, starting in 2011,for the previous tax year. 6 4.3.4. The Personal Property Tax Revenues will only be eligible for reimbursement as described above if HP continuously operates Building 6 as an Engineering Focused Lab Facility as described in this Agreement and has actually generated and remitted to the City personal property tax revenues for Building 6. 4.4. The parties agree that no less than twice a year the City may require HP to make available to the City all documents that verify the purchase of personal property installed in Building 6, including the County Assessor's certification of value.The City agrees that such documents constitute privileged information and confidential financial data within the meaning of the Colorado Open Records Act,and, to the extent permitted by law, the City shall deny the right of inspection of such documents to any third party without the consent of HP. 4.5. The City,in its sole discretion,may pre-pay any amount of Personal Property Tax Revenues without prepayment penalties. 4.6. The City's payment obligation under this Section shall be limited to the amount of the Personal Property Tax Revenues indicated above. HP agrees to assume the entire risk that the Project will be unable to begin and maintain operations at the levels sufficient to generate the level of personal property tax identified above and that one or more payments will be forfeited unless the requirements of this Agreement have been satisfied. 4.7. Interest earned, if any, on Personal Property Tax Revenues held by the City until payment is made to HP will belong to the City. 4.8. The parties agree that the obligations of the City hereunder do not constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation or provision. The obligations of the City for payment of the Personal Property Tax Revenues under this Agreement are from year to year only and do not constitute a mandatory payment obligation of the City in any fiscal year beyond the present fiscal year. This Agreement does not directly or indirectly obligate the City to make any payments of Personal Property Tax Revenues beyond those appropriated for any fiscal year in which this Agreement is in effect. The City Manager(or any other officer or employee at the time charged with the responsibility of formulating budget proposals)is hereby directed to include in the budget proposals and appropriation ordinances submitted to the City Council, in each year prior to expiration of this Agreement, amounts sufficient to meet its obligations hereunder,but only if it receives such amounts in the form of Personal Property Tax Revenues, it being the intent,however, that the decision as to whether to appropriate such amounts is in the discretion of the City Council. SECTION 5. CITY'S RIGHT TO WITHHOLD OR OFFSET PAYMENTS 5.1. HP agrees to comply with all City codes,ordinances,resolutions and regulations, and to pay all taxes,fees and expenses due to the City under the Code,the City's Land Use Code or r this Agreement, subject to any variances or modifications of standards that may be granted to HP under the Code or the City's Land Use Code,and to comply with the terms and conditions of the Development Agreement. If HP is in violation of the provisions of the Code, the City's Land Use Code, this Agreement or the Development Agreement, the City will provide written notice to the Developer of such violation,and allow the HP a period of ninety (90)days in which to cure such violation. The City may thereafter withhold any payments of Use Tax Revenues or Personal Property Tax Revenues due to HP under this Agreement until such time as the violations are cured or abated. 5.2. In addition to the foregoing, the City, at its option,may,after the notice and after the expiration of the cure period if such violations have not been cured or abated, apply any Use Tax Revenues or Personal Property Tax Revenues that would otherwise be payable to HP under this Agreement to any unpaid amounts theretofore due and payable to the City by HP under this Agreement, the Code, the Land Use Code, or the Development Agreement,in which event HP will be credited with the full amount of any such payments. SECTION 6. RECORDS AND AUDITS 6.1. HP must keep true,accurate and complete records of all equipment installed and operated in Building 6,which records will be available for inspection by the City without unreasonable delay and without expense. HP agrees that the City has the right,through its duly authorized agents or representatives, to examine all such records upon ten(10) days notice at all reasonable times, for the purpose of determining the accuracy and propriety of the financial representations which have been made by HP. This right of review terminates upon termination of the later of the City's payments of Use Tax Revenues as provided in Section 3 of this Agreement and the payments of Personal Property Tax Revenues as provided in Section 4 of this Agreement. In the event that the City becomes the custodian of any such records which may contain trade secrets or confidential or proprietary information, and are so marked,the City will,to the extent permitted by law,protect the confidentiality of such information and deny any request for inspection of such records. 6.2. The City will keep, or cause to be kept,true,accurate and complete records of all calculations relating to the Sales Tax Revenues;the Personal Property Tax Revenues;interest credited to these amounts;and such other calculations, allocations and payments required by this Agreement,and will make such records available for inspection by HP upon ten(10)days notice at all reasonable times, to the extent permitted by law. SECTION 7. RESTRICTIONS ON ASSIGNMENT 7.1. The qualifications of HP are of particular concern to the City. Therefore,no voluntary or involuntary successor in interest of HP shall acquire any rights or powers under this Agreement 8 except as expressly set forth herein and HP will not assign all or any part of this Agreement except as follows: 7.1.1. with the prior written approval of the City Council;or 7.1.2. to Affiliates as defined herein;or 7.1.3. as collateral to a lender in connection with the financing of the Project;or 7.1.4. after the City's payment obligations as described in Sections 3 and 4 of this Agreement have terminated. 7.2. HP must notify the City within fifteen(15)days of any and all changes whatsoever in the identity of the parties in control of HP,or the degree thereof, of which it or any of its officers have been notified or otherwise have knowledge or information. SECTION 8. EVENTS OF DEFAULT;REMEDIES 8.1. Default or an event of default by HP mean one or more of the following events: 8.1.1. HP assigns or attempts to assign this Agreement in violation of Section 7 of this Agreement;or 8.1.2. HP fails to substantially observe or perform any other material covenant, obligation or agreement required under this Agreement. 8.2. Upon the occurrence of any event of default,the City shall provide written notice to HP. HP must immediately proceed to cure or remedy such default, and in any event,such default shall be cured within thirty(30)days after receipt of the notice, or such longer time as the City and HP agree in writing. Upon the failure of HP to so cure any such default,the City shall have all remedies available to it,in law or in equity,including,but not limited to,specific performance. 8.3. Default or an event of default by the City shall mean one or more of the following events: 8.3.1. Any representation or warranty made in this Agreement by the City was materially inaccurate when made or shall prove to be materially inaccurate; 8.3.2. The City fails to pay the proceeds of the Sales Tax Revenues or the Personal Property Tax Revenues as and when provided in this Agreement(except to the extent such failure is the result of the action, inaction or failure of HP to document liability for,collect, account for or pay the Sales Tax Revenues or Personal Property Tax Revenues). 9 8.3.3. The City fails to pay or perform any other material covenant, obligation or agreement required of it under this Agreement. 8.4. Upon the occurrence of any event of default,HP will provide written notice to the City. The City must immediately proceed to cure or remedy such default, and in any event, such default shall be cured within thirty(30)days after receipt of the notice, or such longer time as the City and HP agree in writing. Upon the failure of the City to so cure any such default,HP will have all remedies available to it, in law or in equity, including,but not limited to,specific performance. SECTION 9. NOTICES 9.1. All notices required or permitted hereunder shall be in writing and shall be effective upon mailing,deposited in the United States Mail,postage prepaid,and addressed to the intended recipient as follows. Any party can change its address by written notice to the other given in accordance with this paragraph. 9.1.1. City of Fort Collins: City of Fort Collins Attention:City Manager 300 LaPorte Avenue, PO Box 580 Fort Collins,CO 80522-0580 9.1.2. With a copy to: City of Fort Collins Attention:City Attorney 300 LaPorte Avenue, PO Box 580 Fort Collins,CO 80522-0580 9.1.3. HP: Hewlett Packard Attention:General Counsel Frank Pedraza Senior Counsel Hewlett--Packard Company 3000 Hanover Street Palo Alto,CA 94304 9.1.4. With a copy to: Steve Stiesmeyer Colorado Operations Manager 3404 East Harmony Road Fort Collins,CO 80528 10 SECTION 10. MISCELLANEOUS 10.1. Binding Effect. This Agreement inures to the benefit of and is binding upon the City and HP and HP's assignees which are permitted pursuant to Section 7 of this Agreement. 10.2. No Third Party Beneficiaries.The City is not obligated or liable under the terms of this Agreement to any person or entity not a party hereto except any assignee permitted pursuant to Section 7 of this Agreement. Further,the City is not bound by any contracts or conditions that HP may negotiate with third parties related to the Project. 10.3. Interpretation,Jurisdiction and Venue. This Agreement is being executed and delivered and is intended to be performed in the State of Colorado,and the laws of Colorado govern the validity,construction,enforcement and interpretation of this Agreement. Exclusive jurisdiction and venue for resolution of any dispute arising hereunder will be in the Larimer County,Colorado District Court. 10.4. Entire Agreement. This Agreement embodies the whole agreement of the parties concerning financial assistance by the City the Project. Although it is anticipated there will be at least one other agreement governing general development issues related to the Village, there are no promises,terms,conditions, or obligations other than those contained herein exist with respect to the financial assistance package. This Agreement supersedes all provisions, communications,representations, or agreement,either verbal or written,between the parties with respect to the financial assistance package. 10.5. Waiver of Breach. A written waiver by either party to this Agreement of the breach of any term or provision of this Agreement will not operate or be construed as a waiver or any subsequent breach by another party. 10.6. Article and Section Captions.The captions of the articles and sections of this Agreement are set forth only for the convenience and reference of the parties and are not intended in any way to define,limit,or describe the scope or intent of this Agreement. 10.7. Ci!y and HP Not Partners. Notwithstanding any language in this Agreement, the City is not a member,partner,or joint venturer of HP,and the City shall not be responsible for any debt or liability of HP or its contractors or agents. HP is not responsible for any debt or liability of the City or their contractors or agents. 11 10.8. Severability. If any portion or portions of this Agreement are determined to be illegal or unenforceable, the remainder of this Agreement will not be affected thereby and will remain in full force and effect as if such illegal or unenforceable portion or portions did not exist. If all or any portion of the payments required by the terms of this Agreement are determined,by a court of competent jurisdiction in a final non-appealable judgment, to be contrary to public policy or otherwise precluded,and if the decision of such court clearly indicates how the payments may be made differently and in a manner that is legal,valid and enforceable, then the Parties will utilize their reasonable,best, good faith efforts to promptly restructure and/or amend this Agreement in accordance with such court decision, or to enter into a new agreement, to assure,to the extent legally permissible, that all payments are made to HP as contemplated by this Agreement. 10.9. Originals. This Agreement may be simultaneously executed in any number of counterparts, each of which will be deemed original but all of which constitute one and the same Agreement. 10.10. Toint Draft. The parties agree they drafted this Agreement jointly with each having the advice of legal counsel and an equal opportunity to contribute to its content. IN WITNESS WHEREOF,the City and HP have executed this Agreement as of the date first above written. Signatures on following page. 12 CITY OF FORT COLLINS,COLORADO a municipal corporation By: Darin A.Atteberry,City Manager Attest: City Clerk Approved as to form: Assistant City Attorney HEWLETT PACKARD COMPANY a Delaware corporation By: Name and title State of ) )ss. County of ) The foregoing was acknowledged before me this day of 2010,by as Hewlett Packard Company,a Delaware corporation. Witness my hand and official seal. My commission expires: Notary Public 13 EXHIBIT A Lot 1 of the Preston-Kelley 2°d Subdivision. A tract of land being part of Preston-Kelley subdivision and Harmony Annexation No. 5 and located in the South Half of Section 33, Township 7 North, Range 68 West of the 6`h Principal Meridian,City of Fort Collins,County of Larimer, State of Colorado. 14 EXHIBIT B City of Fort Collins Economic Development - Use Tax Rebate Application 2010 Company Name Phone Number Mailing Address Fort Collins License Number Contact Person The following information is mandatory for the rebate process. All financial information contained in this application will be confidential. Project Informaton:' ri �, Date Project Operations began in Foil Collins Briefly describe project operations? Square footage of Project facility Square footage of entire Fort Collins facility 2008 property tax valuation 2008 personal property tax valuation 2009 property tax valuation 2009 personal property tax valuation Who is your natural gas provider? Annual Gas Consumption 6riployee Information lid a x� Number of full time equivalent employees as of January 1,2010 Median Annual Wage Number of full time equivalent employees as of December 31,2010 Median Annual Wage Number of temp.,seasonal&contract employees as of 12131/10 Median Annual Wage a Rebate Purchase price of Eligible Equipment purchased in 2010: Amount of rebate requested: I hereby authorize the City to review and consider sales and use tax records,vendor records,contract and other information available regarding the company's eligibllity for a rebate under this program. I further authorize the City to release to the public information contained In this application,as well as information regarding any rebates issued to the company under this rebate program. I certify that the company requesting this rebate is In compliance with all Federal State and local laws and regulations for the manufacturing facility located in Fort Collins. I also certify that the company is current with all City of Fart Collins contractual,payment and sales and use tax obligations. I declare under penalty of perjury that this claim(including any accompanying schedules and statements)has been examined by me and to the best of my knowledge and belief is true and made in good faith for the stated purpose. Further,1 represent and warrant that I have the necessary authority to execute this application on behalf of the company,and to make the above cartTcations,authorizations,and declaration. A claim by an agent must be accompanied by power of aftomey. Signature of Taxpayer Tap Date 15 OTHER INFORMATION You must provide a list of the Eligible Equipment purchased that includes the following: 1. Invoice number 2. Invoice date 3. Vendor name 4. Description of machinery purchased 5. Intended use of the machinery 6. Date the use tax was paid to the City of Fort Collins 7. Purchase price of the equipment 8. Amount of purchase subject to Fort Collins tax 9. Amount of Fort Collins use tax paid You are not required to submit copies of the invoices for which the rebate is requested. However,in the event that there are questions regarding the eligibility of certain equipment,supporting documentation,including invoices,will be required. Application may be submitted between August 31,2010 and December 31,2010 Submit applications and list of equipment purchased to: City of Fort Collins Financial Services P.O.Box 580 Fort Collins,CO 80522-0580 For specific questions regarding the rebate program or general sales and use tax questions, call the Sales Tax Office at(970)221-6780. 16