BOARD OF SUPERVISORS BUSINESS MEETING ACTION ITEM. Incentive Package for the Retention of Airbus Americas Customer Service Logistics Center.

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1 Date of Meeting: May 3, 2016 # 3 BOARD OF SUPERVISORS BUSINESS MEETING ACTION ITEM SUBJECT: ELECTION DISTRICT: Incentive Package for the Retention of Airbus Americas Customer Service Logistics Center Broad Run CRITICAL ACTION DATE: At the pleasure of the Board STAFF CONTACTS: Buddy Rizer, Executive Director, Economic Development Steve Hargan, Economic Development PURPOSE: To seek approval of a Loudoun County Commercial Business Incentive Fund grant for the retention of Airbus Americas Customer Service Logistics Center. RECOMMENDATION: Staff recommends the Board of Supervisors (Board) approve a Commercial Business Incentive Fund grant in the amount of $200,000, consisting of a cash grant and fee waivers, for the consolidation of Airbus Americas Satair Group subsidiary location in Atlanta with the Airbus Americas Customer Service Logistics Center in Ashburn. BACKGROUND: On February 3, 2016, Airbus Americas informed the Department of Economic Development (DED) that the Airbus Americas Customer Service Logistics Center, located at Filigree Court in Ashburn, had been selected over a competing site in Atlanta for consolidation of their Satair Group subsidiary with Airbus. The Ashburn facility supports over 1,200 commercial aircraft in the Western Hemisphere with aircraft repair parts, technical support and other services. Recently, Airbus Americas acquired Satair, a company with a similar mission for non-airbus aircraft with a facility currently located at Atlanta s Hartsfield-Jackson International Airport. The consolidation of Satair s Atlanta facility with the Airbus Americas Customer Service Logistics Center will result in a minimum of 10 additional employees added to Airbus Americas payroll in Ashburn. Airbus has also committed to an additional $1 million investment in the facility. Airbus currently owns and occupies a 150,000 square foot facility at its Ashburn location where it employs approximately 80 personnel with an average, annual salary of $70,000. This facility comprises approximately 10,000 square feet of office space with the balance being a highly specialized warehouse. Airbus Americas recently enhanced its ability to support the upcoming A350 aircraft at the Ashburn facility by modifying and expanding their loading dock capability, as well as making other interior enhancements.

2 Item 3, Incentive Package for the Retention of Airbus Americas Customer Service Logistics Center Board of Supervisors Business Meeting May 3, 2016 Page 2 Proposed Incentive Package Overview: The retention of the Airbus Americas Customer Service Logistics Center varies in some respects from the County s adopted Business Incentive Guidelines (Attachment 1). However the guidelines are at the discretion of the Board of Supervisors and the merits of varying from these guidelines are based on the benefits gained from the additional jobs and capital investment and the avoidance of the loss of the center due to: 1) consolidation with their facility in Atlanta, 2) the loss of approximately 80 jobs, and 3) a loss in real property taxes and BPPT to the County. Loudoun County provides incentives to qualified businesses that are moving to or expanding in Loudoun County. DED recommends an incentive grant of $200,000, consisting of a cash grant and fee waivers, for retention of the project in Loudoun County. This amount is based on a 3-year Return on Investment (ROI) analysis. The incentive is not a match to state level incentives as the project does not qualify for the Commonwealth Opportunity Fund (COF) due to the size of the investment and number of new jobs. The proposed incentive is intended to provide funds for training and retaining the staff necessary for efficient and effective operations. DED has conducted an analysis and developed a ROI model that considers the amount of real property tax revenue and Business and Personal Property Tax (BPPT) revenue lost over a threeyear period should the Airbus Americas Customer Service Logistics Center vacate their building in Ashburn and consolidate in Atlanta. The analysis used historical tax information paid by Airbus Americas to Loudoun County. In the case of BPPT, an annual average of the past four years of taxes paid was used to calculate the projected loss of BPPT over the next three years. In the case of the real property tax, the number calculated as the potential loss over the next three years reflects an anticipated reduction of 37.4 percent in assessed value. This reduction factor was determined by research and analysis of several similar properties that experienced loss of tenant income. Should the Board approve staff s recommendation, a Performance Agreement between the County, Economic Development Authority (EDA), and Satair must be executed. Staff has included a draft Performance Agreement agreed to in legal form by all appropriate parties (Attachment 2). The agreement includes performance targets and clawback provisions. ISSUES: Approval would constitute the initial issuance of a Loudoun County Commercial Business Incentive grant through the EDA. FISCAL IMPACT: The grant would be offered through a combination of fee waivers and a cash grant for an aggregate total of $200,000. If the agreement is approved, the County will waive up to $15,000 in permit fees related to County building and trade permits for renovations and other improvements at the facility and transfer $185,000 from the Commercial Business Incentive Fund to the EDA for distribution. The current Commercial Business Incentive Fund balance is $1,110,000. Board approval of an incentive grant to Airbus Americas Customer Service Logistics Center will result in a reduction of fund balance to $925,000. ALTERNATIVES: The Board can consider not approving a Commercial Business Incentive Fund grant in the amount of $200,000 in the form of fee waivers and cash. A loss of the Airbus

3 Item 3, Incentive Package for the Retention of Airbus Americas Customer Service Logistics Center Board of Supervisors Business Meeting May 3, 2016 Page 3 Americas Customer Service Logistics Center in Ashburn due to consolidation with their facility in Atlanta would result in a loss of approximately 80 jobs, a loss in real property taxes and BPPT to the County and a negative impact on Loudoun s industrial vacancy rate and key support businesses located near Washington Dulles International Airport. DRAFT MOTIONS: 1. I move that the Board of Supervisors approve the draft incentive agreement for Satair USA, Inc, a subsidiary of Airbus Americas Inc., in the aggregate amount of $200,000, consisting of a cash grant and fee waivers, substantially in the form provided as Attachment 2 to the Board of Supervisors May 3, 2016 Business Meeting Action Item; authorize the County Administrator to sign the final agreement in a form approved by the County Attorney; and authorize the County Administrator or his designee to exercise the rights of the County of Loudoun under the terms of the agreement. AND OR I further move that a budget adjustment of $185,000 be prepared to appropriate a Commercial Business Incentive Fund grant and transfer this revenue to the Loudoun County Economic Development Authority for distribution. 2. I move an alternate motion. ATTACHMENTS: 1. Business Incentive Guidelines 2. County of Loudoun Incentive Agreement

4 LOUDOUN COUNTY, VIRGINIA BUSINESS INCENTIVE GUIDELINES Targeted Industries At the discretion of the Loudoun County Board of Supervisors, qualified businesses that are relocating to or expanding within Loudoun County, Virginia may be offered incentives outlined in these guidelines. Incentives will be limited to U.S. or international companies in these industries: Information, Communications and Technology Aerospace Airport-Related/Air Cargo Federal Government Contracting Life Sciences Advanced Manufacturing Energy/Green Technologies Destination Retail Businesses Moving to or Expanding in Loudoun County, Virginia Loudoun County may elect to match the Virginia Governor s Development Opportunity Fund or provide cash appropriations as authorized by Virginia Code or other applicable law. Minimum Requirements The company must create a minimum of 50 new jobs, each of which pay at least 100 percent of the county s median wage. The company must make a minimum $5 million investment in buildings, land and equipment. Virginia must be competing with another state for the company s final location decision; The company must be in one of the targeted industries listed above. Incentive Guidelines Companies that meet the minimum requirements will, at the Board of Supervisors discretion, be approved for Loudoun County s Fast Track commercial development process. If the county chooses to provide a match to the Governor s Opportunity Fund with fee waivers and/or cash, then the new real estate and personal property taxes that will be paid to the county by the company over the three years following the incentive award must at a minimum be equal to the amount of the county match. ATTACHMENT 1

5 If the county match includes public infrastructure improvements, then the new real estate and personal property taxes that will be paid to the county by the company over the five years following the incentive award must at a minimum be equal to the amount of the county match. The types of incentives available to businesses moving to or expanding in Loudoun County will be limited to: 1. Public infrastructure improvements, such as roads, sidewalks, parking facilities, etc. 2. Waiving commercial development processing fees. 3. Cash appropriations as authorized by Virginia Code or other applicable law. Virginia Companies Relocating to or Expanding in Loudoun County Minimum Requirements The company must create a minimum of 50 new jobs, each of which pay at least 100 percent of the county s median wage. The company must make a minimum $5 million investment in buildings, land and equipment. The company must receive a Virginia Jobs Investment Program grant. Loudoun County must be competing with another jurisdiction for the company s final location decision. The company must be in one of Loudoun County s targeted business industries. Incentive Guidelines Companies that meet the minimum requirements will, at the Board of Supervisors discretion, be approved for the county s Fast Track commercial development process. If the county chooses to provide a match to the Virginia Jobs Investment Program with fee waivers and/or cash, then the new real estate and personal property taxes that will be paid to the county by the company over the three years following the incentive award must at a minimum be equal to the amount of the county match. If the county match includes public infrastructure improvements, then the new real estate and personal property taxes that will be paid to the county by the company over the five years following the incentive award must at a minimum be equal to the amount of the county match. The types of incentives available to Virginia companies relocating to or expanding in Loudoun County will be limited to: 1. Waiving commercial development processing fees.

6 2. Public infrastructure improvements, such as roads, sidewalks, parking facilities, etc. 3. A match of the Virginia Jobs Investment Program grant. 4. Cash appropriations as authorized by Virginia Code or other applicable law. Loudoun Companies Expanding Within Loudoun County Minimum Requirements The company must create a minimum of 25 new jobs. The company must make a minimum $2.5 million investment in buildings, land and equipment. The company must receive a Virginia Jobs Investment Program grant. Loudoun County must be competing with another jurisdiction for the company s final location decision. The company must be in one of Loudoun s targeted business industries. Incentive Guidelines Companies that meet the minimum requirements will, at the Board of Supervisors discretion, be approved for the county s Fast Track commercial development process. If the county chooses to provide a match to the Virginia Jobs Investment Program with fee waivers and/or cash, then the new real estate and personal property taxes that will be paid to the county by the company over three to five 1 years following the incentive award must at a minimum be equal to the amount of the county match. If the county match includes public infrastructure improvements, then the new real estate and personal property taxes that will be paid to the county by the company over the five years following the incentive award must at a minimum be equal to the amount of the county match. The types of incentives available to companies expanding within Loudoun County will be limited to: 1. Waiving commercial development processing fees. 2. Public infrastructure improvements, such as roads, sidewalks, parking facilities, etc. 3. A match of the Virginia Jobs Investment Program grant. 4. Cash appropriations as authorized by Virginia Code or other applicable law. 1 Number of years to be determined on a case-by-case basis dependent upon economic and ROI analysis.

7 Retention of Companies within Loudoun Minimum Requirements Company must maintain a minimum of 100% of current full-time jobs over the next five years. Company must make at least a $1,000,000 investment in the County to occur over the ROI period of no more than three years. Company must commit to remain in the County for an additional five years and for leased locations, the business must sign a written lease for a period of no less than the five-year period. Company must demonstrate that the incentive is a "material factor" remaining in Loudoun; applicants must not have signed a lease, entered into a purchase contract, or otherwise committed to a site in Loudoun prior to receiving incentive approval. Company must certify that it is not currently involved in any merger or acquisition, which would alter the nature of the corporation for the next 12 months. Loudoun County must be competing with another jurisdiction for the company s final location decision. Incentive Guideline The project will yield a positive benefit to the County with an ROI of no more than 3 years. The types of incentives available to companies expanding within Loudoun County will be limited to: 1. Waiving commercial development processing fees, if applicable. 2. Public infrastructure improvements, such as roads, sidewalks, parking facilities, etc. 3. Cash appropriations as authorized by Virginia Code or other applicable law. Amended December 3, 2014

8 COUNTY OF LOUDOUN INCENTIVE AGREEMENT This incentive agreement ( Agreement ) is made and entered this day of, 2016, by and among the County of Loudoun, Virginia (the County ), a political subdivision of the Commonwealth of Virginia; the Economic Development Authority of Loudoun County (the Authority ), a political subdivision of the Commonwealth of Virginia; and Satair USA, Inc. (the Company ), a Georgia corporation authorized to transact business in the Commonwealth of Virginia. R E C I T A L S R-1 The Company, a subsidiary of Airbus Americas, Inc. ( Airbus ), is a leading supplier of aircraft parts with operating centers in the United States, including an approximately 146,000 square foot Customer Service Logistics Center located at Filigree Court, Ashburn, Virginia (the Facility ), from which it ships aircraft parts, tools and other equipment to customers in the Americas. R-2 The Company operates a similar facility in Atlanta, Georgia and desires to consolidate the Atlanta operations with those at the Facility. R-3 As of the Effective Date, the Company, along with its Airbus affiliates, employs eighty (80) full-time personnel at the Facility ( Existing Positions ) and, upon consolidation of the Atlanta operations in Ashburn, would add ten to twelve New Jobs and make a Capital Investment of at least $1 million at the Facility. R-4 The County desires to award the Company an incentive package in the aggregate amount of Two Hundred Thousand Dollars ($200,000) to induce the Company to consolidate the Atlanta operations at the Ashburn Facility. R-5 As set forth in Section 3 of this Agreement, the County s incentive package will consist of certain permit fee waivers and a cash grant (collectively, the Incentives ). R-6 The County is willing to provide the permit fee waivers to the Company and, in accordance with applicable law, to provide a cash grant to the Authority with the expectation that the Authority will provide such funds to or for the benefit of the Company at the Facility, provided the Company promises to continue its operations at the Facility for at least three years and to meet certain criteria relating to Capital Investment and New Jobs. R-7 The Company agrees to accept the Incentives as an inducement to make a Capital Investment of at least $1 million and to create and Maintain at least ten (10) New Jobs (in addition to the Existing Positions) at the Facility over a three-year period, in accordance with the terms of this Agreement. R-8 The stimulation of tax revenue and economic activity to be generated by the retention of Company operations at the Facility, the Capital Investment and New Jobs constitutes a valid public purpose for the expenditure of public funds and is an animating purpose for the Incentives. ATTACHMENT 2

9 R-9 The County, the Authority and the Company desire to set forth their understanding and agreement as to the payout, provision and use of the Incentives; the obligations of the Company regarding continued operations at the Facility, Capital Investment, and New Job creation and maintenance; and the repayment by the Company of the Incentives under certain circumstances. NOW, THEREFORE, in consideration of the foregoing mutual benefits, promises and undertaking of the parties to this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties covenant and agree as follows: Section 1. Definitions For the purpose of this Agreement, the following terms shall have the following definitions: Average Annual Wage means the average salary (inclusive of bonuses and other performance-based compensation) for all New Jobs, as determined by dividing total payroll (W- 2 compensation) for New Jobs by the total of New Jobs. Capital Investment means a capital expenditure by or on behalf of the Company, between the Effective Date and the Performance Date, for internal modifications, renovations and other improvements at the Facility and purchase of new equipment for the Facility. The Company anticipates that the Capital Investment will be used, primarily, to pay for construction of internal improvements to Warehouse Hall 2 at the Facility. The total expected capital expenditure at the Facility of $1 million is referred to in this Agreement as the Capital Investment. Effective Date means the first date by which this Agreement has been executed by all parties as set forth in the signature blocks below. Existing Positions shall have the meaning as defined in R-3. Facility shall have the meaning as defined in R-1. Maintain means that the Existing Positions will continue without interruption from the Effective Date through the Performance Date, and the New Jobs created pursuant to the Incentives will continue without interruption from the date of creation through the Performance Date. Existing Positions and New Jobs will be treated as Maintained during the periods in which such positions are not filled due to (i) temporary reductions in the Company s employment levels and natural attrition (so long as there is active recruitment for open positions), (ii) strikes, (iii) temporary work stoppages, and (iv) reductions in force for specific business units, provided that other business units at the Facility demonstrate a one-for-one increase in employment to offset reductions. New Job means new permanent full-time employment of an indefinite duration at the Facility for which the standard fringe benefits are paid by the Company or its Airbus affiliates for the employee, and for which the Company or its Airbus affiliates pays an Average Annual

10 Wage of at least $35,000. Each New Job must require a minimum of either (i) thirty-five (35) hours of an employee s time per week for the entire normal year of the Company s operations, which normal year must consist of at least 48 weeks; or (ii) 1,680 hours per year. Seasonal or temporary positions, positions created when a job function is shifted from an existing location in the Commonwealth, and positions with construction contractors, vendors, suppliers and similar multiplier or spin-off jobs shall not qualify as New Jobs. A New Job must be a position that is filled or for which the Company or its Airbus affiliates is actively recruiting to fill. The New Jobs must be in addition to Existing Positions at the Facility as of the Effective Date. Performance Date means May 1, 2019 or any subsequent date to which the Performance Date may be extended in accordance with this paragraph. To the extent that at any time, or from time to time, after the Effective Date and before the originally scheduled Performance Date, there is negative growth in the U.S. Gross Domestic Product ("GDP") for any calendar quarter, (as published by the U.S. Department of Commerce), the Performance Date shall be extended for one calendar quarter subject to the terms prescribed herein. Not later than thirty (30) days after the date of any publication of US GDP, by the U.S. Department of Commerce, for any calendar quarter for which a negative growth number has been published, the Company may notify the County and the Authority of such publication, provide a copy thereof and, upon delivery of any such notice, the Performance Date shall be extended for one calendar quarter. The maximum aggregate extension of the Performance Date due to negative growth in the GDP shall not exceed eighteen (18) months. In addition to and not in substitution of the above, if the County deems that good faith and reasonable efforts have been made and are being made by the Company to achieve the Targets, upon request by the Company the County may, in the County s sole discretion, extend the Performance Date by up to twelve (12) months. If the Performance Date is extended pursuant to the immediately preceding sentence, the County shall send written notice of the extension to the Authority and the Company. Targets means the Company s obligations as defined in Section 2 of this Agreement. Section 2 Company Obligations (Targets) As a condition of receiving the Incentives, the Company or its Airbus affiliates shall: (i) continue to operate its Customer Service Logistics Center from the Facility through the Performance Date; (ii) make the Capital Investment of at least $1 million at the Facility between the Effective Date and the Performance Date; (iii) Maintain the Existing Positions at the Facility through the Performance Date; and (iv) and create and Maintain at least ten (10) New Jobs at the Facility by and through the Performance Date. Section 3 Disbursement and Use of Incentives (a) Permit Fee Waivers: The County will waive the fees related to County building and trade permits for renovations and other improvements at the Facility ( Permit Fee Waivers ). The aggregate amount of Permit Fee Waivers shall not exceed Fifteen Thousand Dollars ($15,000). The Permit Fee Waivers shall not apply to any application that requires legislative approval by the Board of Supervisors of Loudoun County or to any performance bonds that may be required under applicable County ordinance or regulation. The County will keep track of the

11 value of the Permit Fee Waivers provided to the Company and will report the aggregate value of the waivers to the Company, upon request. (b) Cash Grant: Within thirty (30) days after the Effective Date, the County will pay to the Authority a cash grant in the amount of One Hundred Eighty-Five Thousand Dollars ($185,000) ( Cash Grant ). Within fourteen (14) days after receiving such funds, the Authority shall disburse the Cash Grant to the Company. The Company shall use the Cash Grant to offset the cost of improvements to the Facility, or otherwise to support operations at the Facility. Section 4 Repayment Obligation (a) This Agreement requires the Company to achieve the Targets as of the Performance Date. Failure by the Company to meet and Maintain each Target by and through the Performance Date shall constitute a breach of this Agreement. In the event of such a breach, the Company shall repay the value of the Incentives, in accordance with subsections (b) and (c) below. (b) For purposes of repayment, the Incentives are to be allocated as 90% for Capital Investment ($180,000) and 10% for New Jobs ($20,000). If the Company has not met the Capital Investment and New Jobs Targets as of the Performance Date, the Company shall repay to the Authority the portion of the Incentives that is proportional to the Target or Targets for which there is a shortfall. For example, if at the Performance Date, the Capital Investment is only $750,000 and only 6 New Jobs have been created and Maintained, the Company shall repay to the Authority25% of the moneys allocated to Capital Investment ($45,000) and 40% of the moneys allocated to New Jobs ($8,000) for an aggregate repayment of $53,000. Such repayment shall be due within thirty (30) days after the Performance Date. (c) If the County determines at any time prior to the Performance Date that the Company is unable or unwilling to meet and Maintain the Targets by and through the Performance Date, the County shall promptly notify the Company of such determination ( Determination Notice ). Within thirty (30) days after receiving a Determination Notice, the Company shall cure any failure set forth in the notice. If the Company does not timely cure such failure, or if cure is not possible, the Company shall repay the aggregate value of all Incentives received in full within forty-five (45) days of receipt of the Determination Notice. The County shall base a determination made pursuant to this Section 4(c) on significant events that demonstrate the Company s inability or unwillingness to meet and Maintain the Targets, such as, without limitation, failure to Maintain the Existing Positions through the Performance Date, failure to continue operations at the Facility through the Performance Date or a substantial reduction in operations prior to the Performance Date, or liquidation of the Company. (d) If the Company repays any part of the Incentives to the Authority, within fourteen (14) days after receiving such funds from the Company, the Authority shall forward the funds to the County. (e) In the event any legal action is required to enforce the terms of this Section 4, the County shall assume responsibility for filing and prosecuting such legal action, and the Authority shall cooperate with the County s efforts to the extent necessary.

12 (f) Notwithstanding anything to the contrary, the Company s sole liability for a breach of this Agreement shall be to repay the Incentives as provided herein. Section 5 Company Reporting. The Company shall provide, at the Company s expense, detailed verification reasonably satisfactory to the County of the Company s progress on the Targets. Such progress reports shall be provided annually, starting on December 31, Further, the Company shall provide progress reports at such other times as the County may reasonably require. Section 6 Notices. Any notices required or permitted under this Agreement shall be given in writing, and shall be deemed to be received upon receipt or refusal after mailing of the same in the United States Mail by certified mail, return-receipt requested, postage fully pre-paid; or by overnight courier. Refusal shall mean return of certified mail or overnight courier package that was not accepted and/or signed for by the addressee. Notices to the Company shall be addressed as follows: Satair USA, Inc. c/o Mike Heaton Filigree Ct. Ashburn, Virginia with a copy to: Airbus Group, Inc Wasser Terrace, Suite 9100 Herndon, Virginia Attn: Head of Real Estate and Facilities Notices to the County shall be addressed as follows: County of Loudoun 1 Harrison Street, SE (5 th Floor) PO Box 7000 Leesburg, Virginia Attention: County Administrator with a copy to: County of Loudoun 1 Harrison Street, SE (5 th Floor) PO Box 7000 Leesburg, Virginia Attention: County Attorney.

13 Notices to the Authority shall be addressed as follows: Economic Development Authority of Loudoun County, Virginia P.O. Box 7 Leesburg, Virginia Attention: Chair with a copy to: Economic Development Authority of Loudoun County, Virginia 141 Woodberry Road, N.E. Leesburg, Virginia Attention: Stephen Robin, General Counsel. Section 7 Miscellaneous (a) Entire Agreement; Amendments: This Agreement constitutes the entire agreement among the parties hereto as to the Incentives and may not be amended or modified, except in writing, signed by each of the parties hereto. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Company may not assign its rights and obligations under this Agreement without prior written consent of the County. (b) Governing Law; Venue: This Agreement is made, and is intended to be performed, in the Commonwealth of Virginia and shall be construed and enforced by the laws of the Commonwealth without regard to any conflict of laws provision. Jurisdiction and venue for any litigation arising out of or involving this Agreement shall lie in the General District Court or the Circuit Court of the County of Loudoun, whichever is appropriate, and such litigation shall be brought only in such courts, so long as subject matter jurisdiction is proper. (c) Counterparts: This Agreement may be executed in one or more counterparts, each of which shall be an original, and all of which together shall be one and the same instrument. (d) Severability: If any provision of this Agreement is determined to be unenforceable, invalid or illegal, the enforceability, validity and legality of the remaining provisions will not in any way be affected or impaired, and such provision will be deemed to be restated to reflect the original intentions of the of parties as nearly as possible in accordance with applicable law. SIGNATURES ON FOLLOWING PAGE

14 IN WITNESS WHEREOF, the parties hereto have executed this Incentive Agreement, which shall be effective as of the last date indicated below. COUNTY OF LOUDOUN, VIRGINIA By: Name: Title: Date: ECONOMIC DEVELOPMENT AUTHORITY OF LOUDOUN COUNTY, VIRGINIA By: Name: Title: Date: SATAIR USA, INC. By: Name: Title: Date: