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15 Amended Amended Item # 15 for Nov. 6th City Council meeting - CITY OF CUPEIUINO City Hall 10300 Torre Avenue Cupertino, CA 95014-3255 Telephone: (408) 777-3220 Ii,,}\., (466) 7n-3366 DEPARTMENT OF ADMINISTRATIVE SERVICES SUMMARY Agenda Item No: 15 Meeting Date: November 6, 2006 SUBJECT AND ISSUE Consider adopting Resolution No. N~/8~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 /5'-/ Printed on Recycled Paper C 'd d . R I . N 0& 18uh, . h ./.'. h h . ../.'. I" f onsl er a optmg eso utlOn o. _, w IC sets lort t e cntena lor app lcatlOn 0 General Plan Policy 2-42 "Revenue Analysis of Office Developments ". November 6, 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 covenant 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 $1/square foot and would be applicd 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. 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 above policy but consider whether current benefits already meet the above criteria. In those rare cases, staff will present thcir analysis to the Council and may propose an alternative to the above. / S' - 2.. Consider adopting Resolution No. C b - f ~. ~hich sets forth the criteria for application of General Plan Policy 2-42 "Revenue Analysis of Office Developments ". November 6,2006 Page 3 RECOMMENDATION Db . t €^ {,.! Staff recommends that the City Council adopt Resolution No. _, which sets forth the criteria for application of General Plan Policy 2-42 "Revenue Ana(vsis of Office Developments ". Submitted by: G;Ii L IflfZ. a t1lufl+ocV Carol A. Atwood Director of Administrative Scrvices Approved for submission: ~Knapp City Manager Steve Piasecki Director of Community Development G!adl11in services/strategic plan/sales tax in lieu - all appJications,doc /5",- 3 DRAFT RESOLUTION NO. 06-186 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO IMPLEMENTING GENERAL PLAN POLICY 2-42 ESTABLISHING IN LIEU FEES FOR OFFICE DEVELOPMENT EXCEEDING 50,000 SQUARE FEET Whereas, General Plan Policy 2-42 provides 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 onc of these or similar benefits are provided; and Whereas, the City will suffer a significant decrease in its general revenue in cases where large new office developments (exceeding 50,000 square feet) are proposed on land upon which existing or potential uses generate, or would generate, significant sales tax revenue; and Whereas, the City's Finance Department has analyzed the potential loss of revenue which would occur due to large new office development; NOW, IT IS THEREFORE RESOLVED: 1) There is hereby established an in lieu fee imposed as a condition to the approval of all new office development exceeding 50,000 square feet within the City of Cupertino; 2) Said fee is cstablished as follows: a. For properties generating sales tax immediately prior to the filing of an application for development as offices, the in lieu fee equals ten years of average sales tax generated from all Cupertino retail businesses for the ten years immediately preceding the redevelopmcnt application. The average sales tax generated from all Cupertino as of the effective date of this resolution is $2/square foot. b. For properties not generating sales tax immediately prior to the filing of an application for redevelopment as offices, the in lieu fee equals ten years of average sales tax generated from all Cupertino business to business establishments for the ten years immediately preceding the redevelopment application. The average sales tax gcnerated from all Cupertino business-to-business establishments as of the effective date of this resolution is $1 /square foot. 3) The terms of payment for in lieu fees described above are as follows: a. All in lieu fees shall be paid in either a lump sum prior to issuance of building permits or in equal annual installments over a ten-year period. /5-;f b. Should the applicant elect to pay the in lieu fee in a lump sum, said amount shall be reduced based upon present value calculated using a 6% per annum interest rate over a ten-year period. c, Should the applicant elect to pay in annual installments, a covenant running with the land encumbering the subject property shall be executed and recorded with the Santa Clara County Recorder's Office evidencing the above described payment plan. 4) Should at any time during the ten year period after occupancy of the subject office development, sales tax revenue is generated for the City, the applicant may apply to the City Finance Department for a refund of all, or any portion of the in-lieu fee, in an amount equal to the sales tax paid to the city from sales activities on the subject property. 5) Appeals Any aggrieved owner or leaseholder of the land which is subject to any in lieu fee provided in this rcsolution may appeal the City Manager's determination of the in lieu fees owned hereunder to the City Council. Should the City Council find that the in-lieu fce is unfair, inequitable, or unlawful, then it may by resolution, agreement, or otherwise reduce, modify, or delete the fee. PASSED AND ADOPTED at a rcgular 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 2 1.5-5"