15 GP Policy 2-42 Rev Analysis
City Hall
10300 Torre Avenue
Cupertino, CA 95014-3255
Telephone: (408) 777-3220
rax: (qvb) 111-.:u66
CITY OF
CUPEIUINO
DEP ARTMENT OF ADMINISTRATIVE SERVICES
SUMMARY
Agenda Item No:
Meeting Date: November 7,2006
SUBJECT AND ISSUE
Consider adopting Resolution No. ~, which sets forth the criteria for application of
General Plan Policy 2-42 "Revenue Analysis of Office Developments ".
BACKGROUND
The Council recently adopted the Fiscal Strategic Plan and the General Plan (GP). Both
documents promote enhancing our General Fund revenue base by protecting existing
revenues and promoting revenue producing land use decisions. Along those lines, GP
Policy 2-42, Revenue Analysis of the Office Development, requires new office
developments greater than 50,000 square feet to provide revenue benefits to the city.
Specific policy language is as follows:
"In reviewing office development proposals, encourage office uses and activities
that generate significant revenues to the City, such as local sales offices,
capturing point of sale Internet transactions and business-to-business tax
revenues. New office development exceeding 50,000 square feet shall be
approved only if one of these or similar benefits are provided. "
The policy provides an incentive to new office developers/owners to seek out tenants that
bring a sales tax office instead of leasing to the first or highest bidder. If they cannot find
a suitable tenant with a sales tax function, then they will have the option to provide
"similar benefits" which could include an in-lieu payment. The purpose of this memo is
to identify an appropriate implementation strategy and in-lieu payment.
The policy is also intended to "level the playing field" for varying land uses and tenants.
As the Council is aware, select office users provide significant sales tax benefits (such as
Apple Computer) while most others provide none. Most office developments provide no
sales tax benefits even though their employees use our city and sheriff services, streets,
parks and increase the demand for housing. The issue is complicated when a
development proposes to remove an opportunity for sales tax generation such as the
recent example of the former Ski Any Mountain site being replaced by an office
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Printed on Recycled Paper
Consider adopting Resolution No. _, which sets forth the criteria for application of
General Plan Policy 2-42 "Revenue Analysis of Office Developments ".
November 7.2006
Page 2
development. This policy allows the city to choose the best use for the site with the
expectation that all office uses will contribute funds to offset the cost of providing city
servIces.
Policy Implementation
Staff was asked at the August 15th Council meeting to bring back to the City Council how
GP Policy 2-42 would be applied to development projects. We propose that new office
development exceeding 50,000 square feet shall sign a development agreement to attract
a sales tax generating tenant or be assessed a fee as follows:
~ Properties currently generating sales tax: Assessment would equal ten years of an
average sales tax generated from Cupertino retail business establishments.
Current analysis of our sales tax revenues puts this number at $2/square foot
(successful retail properties generate approximately $4/square foot in this market),
and would be applied to the total square footage of the project. This amount
could be paid annually or as a lump sum, with the present value of the payment
stream calculated using a 6% interest rate.
~ Properties not currently generating sales tax: Assessment would equal ten years
of an average sales tax generated from Cupertino Business-to-Business
establishments. Current analysis of our sales tax revenues puts this number at
$l/square foot and would be applied to the total square footage of the project.
This amount could be paid annually or as a lump sum, with the present value of
the payment stream calculated using a 6% interest rate.
Staff proposes that the fees be adjusted each year based on the CPI index similar to our
schedule for other city fees. To keep the assessment as simple as possible, we do not
advocate prorating the above for a property that has been used for both retail and other
uses within the last ten years. The formula for mixed-uses with a retail component will
use the first formula assessment.
The agreement will stipulate that property owners are not required to continue paying the
fee if a sales tax producer is attracted to the site at a later date provided that the sales tax
office generates an amount at least comparable to the fee. For applicants proposing new
office development that currently provide significant sales tax benefits to the city, staff
will apply the abov~ policy but consider whether current benefits already meet the above
criteria. In those rare cases, staff will present their analysis to the Council and may
propose an alternative to the above.
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Consider adopting Resolution No. _, which sets forth the criteria for application of
General Plan Policy 2-42 "Revenue Analysis of Office Developments ".
November 7,2006
Page 3
RECOMMENDA TION
Staff recommends that the City Council adopt Resolution No. _, which sets forth the
criteria for application of General Plan Policy 2-42 "Revenue Analysis of Office
Developments ".
Submitted by:
Steve Piasecki
Director of Community Development
&/)~a ,~()f2.
Carol A. Atwood
Director of Administrative Services
Approved for submission:
D~app
City Manager
G/admin services/strategic plan/sales tax in lieu - all applications.doc
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RESOLUTION NO 06-186
D.... r~" 1\. F 1':.'
_'~1 r-i~1 J,:\1'3
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO
APPROVING GENERAL PLAN POLICY 2-42: REVENUE ANALYSIS
OF OFFICE DEVELOPMENTS
WHEREAS, General Plan Policy 2-42, Revenue Analysis of the Office Development,
requires new office developments greater than 50,000 square feet to provide revenue benefits to
the city;
NOW, THEREFORE, BE IT RESOLVED that:
1. For properties currently generating sales tax, an assessment would equal ten
years of an average sales tax generated from Cupertino retail business
establishments set at $2/square foot. This assessment shall be applied to the
total square footage of the project. This amount could be paid annually or as a
lump sum, with the present value of the payment stream calculated using a 6%
interest rate.
2. For properties not currently generating sales tax, an assessment would equal
ten years of an average sales tax generated from Cupertino Business-to-
Business establishments set at $1/square foot. This assessment shall be
applied to the total square footage of the project. This amount could be paid
annually or as a lump sum, with the present value of the payment stream
calculated using a 6% interest rate.
3. Fees shall be adjusted each year based on the CPI index.
PASSED AND ADOPTED at a regular meeting of the City Council of the City of
Cupertino this 6th day of November, 2006 by the following vote:
Vote
Members of the City Council
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
APPROVED:
City Clerk
Mayor, City of Cupertino
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