City Council
MEETING DATE: 6/14/2017
TITLE:
Title
First Amendment to the Tax Sharing Agreement with Palm Springs Motors, LLC
End
FROM:
Leisa Lukes, Business Development Manager
RECOMMENDATION:
Recommendation
Staff recommends the City Council conduct a public hearing under Municipal Code Title 3, Chapter 3.46 and adopt a Resolution making findings and authorize an Amendment to the Sales Tax Sharing Agreement between the City and Palm Springs Motors.
Body
BACKGROUND:
Cathedral City Municipal Code Chapter 3.46 provides for economic incentive payments to a qualifying retail business in order to incentivize the expansion or renovation of that business upon determination by the City Council that providing such payments would enhance the quality of the facilities, goods, and services available to the public and the City's residents; that it would result in a desirable and attractive shopping experience; and that it would increase sales tax revenue to the City. Palm Springs Motors, LLC (Applicant), comprised of Ford, Lincoln, and Mazda brands, is requesting to amend an existing Sales Tax Sharing Agreement between the City and the Applicant to extend the length of time in which sales tax sharing will occur and to increase the amount of shared tax payments to be received by the Applicant in support of the renovation and expansion of the Mazda facility. The original Agreement was approved in 2012 to assist the Applicant in its ability to expand the Lincoln facility and to provide the Lincoln manufacturer with assurance of the City's support of that brand. The result has been an improved Lincoln showroom in Cathedral City; retaining this location as the only Lincoln dealership in the Coachella Valley; and general enhancements to the Ford customer service area and building façade. The benefit to the City has been an overall increase in sales tax flow to the City generated by the dealership.
Similarly, the currently proposed improvements and Applicant's request for an amended Sales Tax Sharing Agreement would enable the Mazda brand to remain in Cathedral City as the only Mazda dealership in the Coachella Valley. Loss of the Mazda facility at Palm Springs Motors would result in a decrease in existing sales tax revenue to the City and the loss of any future increase in tax revenue that an improved Mazda dealership would generate, as well as a potential impact in the sales of Lincoln and Ford products.
DISCUSSION:
Palm Springs Motors comprises the Ford, Lincoln, and Mazda brands into one dealership. The Sales Tax Sharing Agreement entered into between the Applicant and the City in 2012 provided the assistance necessary to allow for the renovation and expansion of the Lincoln showroom, renovation of the exterior façade and customer areas of the Ford dealership, and provided assurances to the Lincoln manufacturer of the City's support for that brand. The improvements were completed in 2014. As a result, the Cathedral City Lincoln location has been retained and secured as the singular Lincoln dealership in the Coachella Valley. In addition to preventing a drop in sales tax generation that could have resulted from a potential loss of the dealership in the City, the renovation has resulted in increased automobile, parts, and accessory sales at Palm Springs Motors. No improvements to the Mazda portion of the dealership were done at that time.
The Applicant now proposes to expand the Mazda showroom and renovate the Mazda façade at this same location for much the same reasons as the Lincoln/Ford renovation and expansion project. The Mazda manufacturer is contemplating a singular Mazda dealership in the Coachella Valley and its approval of the current location is contingent upon improvements to the facility. Improvements include an expanded showroom, customer service area, and updated façade (Attachment 1). This will allow for additional new vehicle display and improved customer-friendly environment thereby providing for the potential increase in vehicle sales and potential need for additional sales employees. The façade enhancement will provide an overall visual benefit to the dealership as viewed from the public right of way. As noted in the Sales Tax Sharing Report (Attachment 2) and summarized in Table 1 (Attachment 3), additional automobile sales are projected to translate into increased demand for parts and service, which would result in increased sales tax generation and employment opportunities. Without these improvements, Mazda proposes to relocate the facility out of Cathedral City, which would lead to a reduction in both sales and employees. The Applicant has selected KSC, Inc. to construct the improvements pending approval of the amended Agreement and all necessary City permits. During construction, local subcontractors, engineers, and vendors would be employed during the construction project. The projected cost of the design and construction of the new improvements is in excess of $1,600,000.
To assist the Applicant in implementing the improvements and to provide Mazda with the assurance of City support for the brand, the Applicant is requesting that the current Tax Sharing Agreement be amended to increase the total amount of sales tax to be shared and the amount of time in which to achieve the maximum shared amount (Attachment 4).
The current Sales Tax Sharing Agreement provides for the City to share 50 percent of the actual amount of incremental sales tax receipts received by the City and available for its use. The "incremental sales tax" is determined as the new sales tax generated over the base amount of $400,000, with the base amount determined as the historical level of pre-expansion taxes from the entirety of the Palm Springs Motors dealership pre-expansion. The Agreement has a maximum reimbursement period of five (5) years from issuance of the Certificate of Occupancy for the Lincoln/Ford improvements in 2014, and the total amount of shared sales tax increment to be reimbursed to the Applicant is capped at $400,000.
The Amendment relative to the Mazda expansion would be a continuation of the current Agreement. The City would continue to share incremental sales tax at a rate of 50 percent of the actual incremental sales tax receipts generated by Palm Springs Motors, received by the City and available for its use. The base amount in determining the incremental sales tax would remain at $400,000 per the current Agreement. The Amendment would extend the time period in which the sales tax sharing will occur to the year 2025, which is seven years following issuance of the Certificate of Occupancy for the renovated Mazda showroom, or until such time as a maximum additional share of $900,000 (a total of $1,300,000) is shared with the Applicant, whichever occurs first. The cap amount includes payments to date that have been provided in accordance with the existing Agreement. The Applicant's sales projections indicate that the additional sales tax share of $900,000 directed at the Mazda improvements will be achieved within that seven year period (Attachment 3). Retention of the original $400,000 base amount simplifies the future calculations and administration of the amended and extended Agreement.
The Applicant would be required to obtain City approval for the renovations and complete construction within one-year of the approved Amendment in order to take full advantage of the economic incentive within the timeline of the amended Agreement. The Amendment requires an agreement with the manufacturer that Mazda products would continue to be sold at that location. A material breach of the Agreement entitles the City to terminate the Agreement.
The Operating Covenants (Attachment 5) have also been amended and would be recorded against the Palm Springs Motors site. These covenants bar discrimination and require that the facility be maintained and operated as a new car dealership for a period of not less than 10 years from approval of the Amendment. The proposed Amendment was noticed in accordance with City Ordinance No. 730 and an Economic Development Subsidy Report was prepared per Government Code Section 53083 (Attachments 6 and 7). In accordance with the requirements of the City's tax sharing program, Palm Springs Motors was designated as an Approved Business through the previous adoption of a Resolution 181 in 2012.
FISCAL IMPACT:
The proposed amount of sales tax increment to be shared is based on several factors, including: 1) completion of the Project and 2) an increase in sales tax collected above the base amount. To assist the Applicant in retaining the Mazda dealership in Cathedral City, securing it as the only Mazda dealership within the Coachella Valley, and retaining and growing sales tax generation to the City, staff recommends an amendment to the previously-approved Tax Sharing Agreement with Palm Springs Motors. The amendment would allow for continued economic incentive payments capped at a total of $1,300,000 for an additional period not to exceed seven years beyond receipt of a certificate of occupancy for the renovated Mazda showroom (based on 50 percent tax sharing above the base year amount of $400,000). There would be a loss to the City of the additional projected sales tax revenue up to the maximum amount to be shared; however, since the increased sales tax does not presently exist, there would be no loss of existing revenue to the City. Alternatively, the loss of the Mazda brand would ensure a loss of all tax dollars associated with Mazda automobile/parts/service sales and could also impact overall sales of the remaining two product lines at Palm Springs Motors.
The Tax Sharing Program is performance driven so if the maximum amount of taxes to be shared is reached prior to the seven-years post completion of the Mazda dealership, the Agreement would be terminated. Once the dollar cap is achieved or the maximum number of years is reached, the City will receive 100 percent of the net sales tax revenue generated by all three Palm Springs Motors' automobile brands. The Operating Covenants require the Applicant to operate the property as intended for the duration of the amended Agreement. The Agreement is not automatically transferrable.
ATTACHMENTS:
1. Proposed Improvements
2. Sales Tax Sharing Report
3. Table 1
4. First Amendment to Sales Tax Sharing Agreement
5. First Amendment to Operating Covenants
6. Public Hearing Notice
7. Economic Development Subsidy Report
8. Resolution