HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 04/03/2012 - FIRST READING OF ORDINANCE NO. 028, 2012, APPROPRIDATE: April 3, 2012
STAFF: Mike Beckstead
Josh Birks
AGENDA ITEM SUMMARY
FORT COLLINS CITY COUNCIL 11
SUBJECT
First Reading of Ordinance No. 028, 2012, Appropriating General Fund Reserves for the Purpose of Rebating Use
Tax to Hewlett Packard Company in Support of the Building Six Annex Expansion in Accordance with Resolution 2010-
029.
EXECUTIVE SUMMARY
This Ordinance appropriates $241,193 of General Revenue Funds for a Use Tax rebate approved by City Council on
May 18, 2010 (Resolution 2010-029; Vote: 4-1; Nays: Ohlson; Abstain: Poppaw; Absent: Kottwitz). The Resolution
approved an agreement between the City and Hewlett Packard Company to provide Business Investment Assistance
for the Building 6 Annex Expansion. The additional operations created approximately 100 jobs with an annual average
wage of $90,000. The City’s assistance included both a one time use tax rebate and a personal property tax rebate
on lab equipment for a total value of $1.6 million. This Ordinance appropriates $241,193 in use tax rebate, which is
substantially less that the maximum rebate approved of $600,000.
BACKGROUND / DISCUSSION
On May 18, 2010, City Council adopted a resolution approving a Business Investment Agreement (“Agreement”)
between the City and Hewlett Packard Company (“HP”) for the Building 6 Annex Expansion. HP expanded operations
at the Harmony Road facility, including construction of an Engineering Focused Lab by retrofitting 40,000 square feet
of the Building 6 Annex. The additional operations created over 100 jobs with an annual average wages of $90,000.
The expansion included two phases totaling $64.4 million in construction and equipment investment.
The Agreement includes 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 through the agreement.
HP has completed the expansion and submitted an application for Use Tax rebate under the terms of the Agreement.
The Agreement authorized a Maximum Use Tax Reimbursement of $600,000. After thorough review by the City’s
Sales Tax department, the application requests $241,193 in Use Tax rebate.
FINANCIAL / ECONOMIC IMPACTS
The Ordinance will have the following impacts on the City of Fort Collins finances:
• $241,193 of General Fund Reserves will be appropriated for the purpose of remitting a Use Tax rebate to HP.
The Use Tax was received in a prior year and is now held in reserves.
• The Sales Tax Department has validated that HP remitted at least $241,193 of Use Tax through the purchase
of eligible equipment as indicated in the Agreement.
Martin Shields, Associate Professor of Economics and Regional Economist at Colorado State University prepared an
Economic Impact Analysis (EIA) of HP’s planned expansion. The following summarizes that analysis:
April 3, 2012 -2- ITEM 11
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 Employment and 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 – Assuming HP replaces 50 percent of the $30 million investment in equipment over the
next ten years, this could result in an additional $450,000 in equipment use tax revenue.
ENVIRONMENTAL IMPACTS
The HP retrofit will impact the environment in the following ways:
• An existing building on the HP Harmony Campus will be retrofit for a productive use allowing 100 new jobs
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 great deal
of this water will not enter the waste water system due to evaporative loss.
• Annual electricity consumption will increase by 10.67 megawatts.
April 3, 2012 -3- ITEM 11
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
PUBLIC OUTREACH
Negotiations of the planned HP expansion and related Business Investment Agreement 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. Resolution 2010-029
Attachment 1
Harmony Road Site – Context Map
1
Attachment 2
Harmony Road Site – Site Map
1
1
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).
ATTACHMENT 3
2
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
$52,300.
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 ($52,300)
o Spin-off: 207 ($35,600)
o Total: 543 ($45,900)
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
1
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.
3
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 ($90,000)
o Spin-off: 124 ($32,900)
o Total: 224 ($58,300)
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
$834,340 ($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
ATTACHMENT 4
ORDINANCE NO. 028, 2012
OF THE COUNCIL OF THE CITY OF FORT COLLINS
APPROPRIATING GENERAL FUND RESERVES FOR THE PURPOSE OF
REBATING USE TAX TO HEWLETT PACKARD COMPANY IN
SUPPORT OF THE BUILDING SIX ANNEX EXPANSION
IN ACCORDANCE WITH RESOLUTION 2010-029
WHEREAS, on May 18, 2010, City Council approved Resolution 2010-029 approving a
Business Investment Agreement (“Agreement”) between the City and Hewlett Packard Company
(“HP”) for the Building 6 Annex Expansion project (the “Project”); and
WHEREAS, the Project includes retrofitting an HP building located on the Harmony Road
facility to include a 40,000 square foot expansion and lab equipment investment for an Engineering
Focused Lab facility; and
WHEREAS, the total construction and equipment investment for the Project will total
approximately $64.4 million and create over 100 high-paying, primary jobs that will provide
significant economic benefit to the community at large; and
WHEREAS, the City’s Economic Development Department has concluded that the Project
will generate an increase in tax revenue for the City, over and above the rebate amount as stated in
the Agreement, in approximately the following amounts: (i) $450,000 in additional Use Tax over
the next ten years, (ii) $150,000 in new annual Personal Property Tax in the first ten years and
$250,000 in new Property Tax in subsequent years, and (iii) $88,000 in new annual Real Property
Tax revenues; and
WHEREAS, in accord with the terms of the Agreement, HP has completed the Project and
has submitted an application for a one-time Use Tax rebate in the amount of $241,193 for the
investment of $30 million in lab equipment; and
WHEREAS, Article V, Section 9, of the City Charter permits the City Council to appropriate
by ordinance at any time during the fiscal year such funds for expenditure as may be available from
reserves accumulated in prior years, notwithstanding that such reserves were not previously
appropriated; and
WHEREAS, Article V, Section 9 of the City Charter permits the City Council to make
supplemental appropriations by ordinance at any time during the fiscal year, provided that the total
amount of such appropriations, in combination with all previous appropriations for that fiscal year,
does not exceed the current estimate of actual and anticipated revenues to be received during the
fiscal year.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT
COLLINS as follows:
Section 1. That the City Council hereby finds that providing financial assistance to HP,
upon the terms and conditions of 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 there is hereby appropriated for expenditure from reserves in the General
Fund the sum of TWO HUNDRED FORTY ONE THOUSAND AND ONE HUNDRED NINETY
THREE DOLLARS ($241,193) for the purpose of rebating Use Tax to Hewlett Packard Company
in support of the Building Six Annex Expansion project.
Introduced, considered favorably on first reading, and ordered published this 3rd day of
April, A.D. 2012, and to be presented for final passage on the 17th day of April, A.D. 2012.
_________________________________
Mayor
ATTEST:
_____________________________
Interim City Clerk
Passed and adopted on final reading on the 17th day of April, A.D. 2012.
_________________________________
Mayor
ATTEST:
_____________________________
Interim City Clerk