ECONOMIC DEVELOPMENT SUBSIDY REPORT Pursuant to Government Code Section 53083 Prepared By: KOSMONT COMPANIES 865 S. Figueroa Street, #3500 Los Angeles, CA 90017 Telephone: (213) 417-3300 www.kosmont.com December 31, 2015
Table of Contents 1.0 Introduction... 3 1.1 Economic Development Subsidy Overview... 3 A. B. C. Background & Purpose... 3 Description of Agreement & Related Requirements... 3 Additional Considerations... 4 1.2 Legal Requirements... 5 2.0 Economic Development Subsidy Report... 7 2.1 Reporting Requirements... 7 A. B. C. D. E. F. Name and Address of Corporation... 7 Subsidy Schedule... 7 Subsidy Description... 8 Statement of Public Purpose for Subsidy... 11 Projected Tax Revenue to City of Pico Rivera... 12 Estimated Number of Jobs... 12 Page 2 of 12
1.0 Introduction 1.1 Economic Development Subsidy Overview With the adoption of Assembly Bill 562 ( AB 562 ), adding Government Code Section 53083, the Governor and Legislature acknowledged the need for cities, counties and the State, to encourage economic development in order to increase employment, maintain its existing tax base, and attract and retain certain businesses, by allowing for the provision of economic development subsidies. To that end, the City of Pico Rivera ( City ) and Rush Truck Centers of California, Inc., a Delaware Corporation ( Rush California ) propose to enter into an Agreement re Operating Covenant and Restrictive Covenants (the Agreement ) as it relates to the property located at 8830 E Slauson Avenue, Pico Rivera, CA 90660 (Los Angeles County Assessor Parcel Numbers ( APNs ): 6368-005-043, 6368-005-044, and 6368-005-046) ( Property ). Government Code Section 53083 provides that on and after January 1, 2014, each local agency shall, before approving any economic development subsidy in an amount of $100,000 or more within its jurisdiction, conduct a public hearing and provide specific information in written form to the public prior to approving an economic development subsidy. The preparation of this Report is meant to satisfy the aforementioned requirements under Government Code Section 53083, which is to be made available to the public prior to the approval of the proposed Agreement and economic development subsidy. A. Background & Purpose Redevelopment was a powerful local economic development program that was eliminated in California in 2012 with the adoption of ABx1 26 and the decision of the California Supreme Court in CRA v. Matosantos. In response to the loss of redevelopment, the City finds it necessary to develop alternative strategies for economic development, which includes, but is not limited to, entering into certain operating and restrictive covenants that serve to retain and attract growing businesses, create jobs, and promote a sustainable and growing tax base in the City applying, as appropriate, certain tax and revenue reimbursement methods based on performance once operations are installed as required. B. Description of Agreement & Related Requirements The provisions in the Agreement between Rush California and the City require Rush California to adhere to certain Operating and Restrictive Covenants ( Covenant Requirements ). The Covenant Requirements generally stipulate that Rush California: (i) remain in operation in the City for a twelve (12) year term (January 1, 2016 to December 31, 2027) ( Operating Period ); (ii) employ a minimum of sixty (60) employees, and (iii) comply with all applicable federal, state and local occupational safety and health laws, rules, regulations and standards, applicable state and labor standards, applicable prevailing wage requirements, building, plumbing, mechanical and electrical codes, as they apply to the Property. Page 3 of 12
In exchange for satisfying the aforementioned Covenant Requirements, the City shall make a payment of a Covenants Consideration ( Economic Development Subsidy ) not to exceed $3,280,000 over the duration of the Operating Period. The payment of which will be subject to certain performance based standards during the Operating Period, whereby Rush California would be required to meet and/or exceed annual sales tax revenue thresholds in order to receive a mutually agreed upon percentage share of an amount equal to certain sales tax revenue generated by Rush California s operations, which is described in greater detail in subsequent sections of this Report. The Agreement also identifies specific conditions prior to Rush California s receipt of the Economic Development Subsidy ( Conditions Precedent ). Eligibility for the Economic Development Subsidy is triggered subsequent to Rush California achieving Conditions Precedent such as acquisition of the Property in fee interest (subject to verification by the City) as well as compliance with any applicable entitlements and possession of a valid business license. C. Additional Considerations Rush California has operated its business in the City for over 20 years, which consists of new and used heavy- and medium-duty commercial truck sales, leasing, financing, parts, and repair/maintenance. Rush California is one of the City s top ten principal employers with an estimated number of 103 full-time employees and generates approximately $700,000 in average annual sales tax for the City. A loss or relocation of Rush California out of the City would negatively impact the City s efforts to facilitate its economic recovery, maintain a stable tax base, and foster a business environment that may attract additional businesses and investment in the community, which is critical to achieving the goals and objectives outlined in the City s General Plan. Therefore, the City has found that it is to the benefit of the City and its residents to retain Rush California within the City to continue their business operations. The Agreement with Rush California serves to assist and promote economic development opportunities in the City, including expansion of the City s employment base as well as its tax base (e.g. property and sales tax revenue), which the City uses to fund vital public services and infrastructure improvements as well as increase/retain/attract local businesses. Page 4 of 12
1.2 Legal Requirements Pursuant to Government Code Section 53083, all of the following information must be provided in written form available to the public, and through its Internet website, if applicable, prior to the approval of the Economic Development Subsidy: A. The name and address of all corporations or any other business entities, except for sole proprietorships, that are the beneficiary of the economic development subsidy, if applicable; B. The start and end dates and schedule, if applicable, for the economic development subsidy; C. A description of the economic development subsidy, including the estimated total amount of the expenditure of public funds by, or of revenues lost to, the local agency as a result of the economic development subsidy; D. A statement of the public purpose for the economic development subsidy; E. Projected tax revenue to the local agency as a result of the economic development subsidy; and F. Estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions. In compliance with Government Code Section 53083, the following sections of this Report provide the aforementioned required information, which detail the aspects of the Agreement by and between the City and Rush California and the analysis necessary to determine the projected revenue generated by Rush California to the City as part of its ongoing economic development goals and objectives. Exhibit 1, which follows, provides an aerial of the location of the subject Property currently occupied by Rush California. Page 5 of 12
Exhibit 1: Site Aerial Map Sources: Google Earth (2015) and Los Angeles County Assessor. Note: Property boundary is approximated. Page 6 of 12
2.0 Economic Development Subsidy Report 2.1 Reporting Requirements In accordance with Government Code Section 53083, the following subsections provide the information and details of the Agreement by and between the City and Rush California. The Report shall remain available to the public and posted on the City s website until the end date of the Agreement, which is more fully described herein. A. Name and Address of Corporation The name and address of all corporations or any other business entities, except for sole proprietorships, that are the beneficiary of the economic development subsidy. Corporation Name: Rush Truck Centers of California, Inc. Corporation Address: Headquarters: 555 IH-35 South, Suite 500, New Braunfels, TX 78130 Pico Rivera: 8830 E Slauson Avenue, Pico Rivera, CA 90660 (APNs: 6368-005-043, 6368-005-044, and 6368-005-046) Affiliated Companies: B. Subsidy Schedule Rush Truck Leasing, Inc. Truck and Trailer Finance, Inc. Advance Premium Finance, Inc. Associated Acceptance, Inc. The start and end dates and schedule, if applicable, for the economic development subsidy. Pursuant to the Agreement, if approved, the commencement date for the provision of the Economic Development Subsidy to Rush California shall be on the day in which the Conditions Precedent are satisfied as described in greater detail herein. The Economic Development Subsidy that the City will provide to Rush California will conclude at the end of the Agreement s Operating Period or when the subsidy amount provided to Rush California totals $3,280,000, whichever occurs first. Page 7 of 12
C. Subsidy Description A description of the economic development subsidy, including the estimated total amount of the expenditure of public funds by, or of revenues lost to, the local agency as a result of the economic development subsidy. Overview The Agreement by and between the City and Rush California describes the Economic Development Subsidy as an amount not to exceed $3,280,000 throughout the duration of the Operating Period, the eligibility for which is premised on the execution of the Covenant Requirements described herein. The amount of the Economic Development Subsidy payment due to Rush California is based upon the total sales tax revenues paid and received by the City as shown below ( Sales Tax Revenues ): 1. The Bradley-Burns Uniform Local Sales and Use Tax Law, commencing with Section 7200 of the Revenue and Taxation Code of the State of California, as amended and Use Tax Law (commending with Section 6000 of the California Revenue and Taxation Code); 2. The City Transaction and Use Tax approved by voters on November 4, 2008 (and adopted and codified under Pico Rivera Municipal Code Chapter 3.32 entitled Transaction and Use Tax); and/or 3. Any successor law(s) or amendment(s) thereto, that arises from, including but not limited to, taxable sales, services, and lease transactions generated. Covenant Requirements Pursuant to the provisions in the Agreement, Rush California must adhere to the Covenant Requirements, generally described below, throughout the duration of the Operating Period: 1. Continuously use and operate, or shall cause and allow for the continuous use and operation of, Rush California s business ( Business ) on the Property; 2. Allow for the Business to operate with inventory and sales personnel sufficient to satisfy and respond to customer demand and, to the maximum extent permitted by law, and in compliance with Government Code 53084.5, shall designate the Property on its sales tax statements as the point-of-sale for all sales transactions arising out of or generated from the Business conducted on the Property; 3. Shall employ a minimum of sixty (60) employees at the Business, during the Operating Period, and use its best efforts to hire and employ qualified City residents at the Business through targeted recruiting and/or advertising efforts within the City; 4. During the entire Operating Period, Rush California, at its sole cost and expense, shall maintain, or shall cause the maintenance of, the Property; Page 8 of 12
5. Rush California shall not abandon, or allow for the abandonment of, any portion of the Property or leave the Property unguarded or unprotected, and shall not otherwise act or fail to act in such a way as to unreasonably increase the risk of any damage to the Property or of any other impairment of City s interest set forth in the Agreement; 6. Rush California shall carry out the operation of the Business in substantial conformity with all applicable laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the State of California, the County of Los Angeles, the City or any other political subdivision in which the Property is located, and of any other political subdivision; and 7. Rush California shall: (i) use the Property for its Business and for no other purpose, in compliance with this Agreement, applicable entitlements, and applicable provisions of the City s Municipal Code; (ii) keep and maintain the Property and the improvements thereon and all facilities appurtenant thereto, in good order and repair and safe condition, and the whole of the Property, in a clean, sanitary, and orderly condition free from debris, graffiti and waste materials, and (iii) comply with provisions of Sections 5, 12 and 14 of the Agreement. Conditions Precedent As mentioned previously in this Report, eligibility for economic assistance is subsequent to occupancy with Rush California having achieved the Conditions Precedent, generally described below: 1. Acquisition of the subject Property in fee interest. Rush California is also required to provide the City with documentation reasonably necessary to confirm the acquisition price of the Property; 2. Possession of a valid business license as required under Chapter 5 of the Pico Rivera Municipal Code; and 3. Compliance with any applicable entitlements, which shall mean those discretionary City land use permits and approvals (including all conditions of approval therein) required to authorize any construction, use, and operation of any improvements made on the Property, as the same may be amended from time to time; provided, however, that the City shall advise Rush California immediately in the event it is aware of, or has reason to believe there is, any existing noncompliance with applicable entitlements. Post Occupancy Performance Based Requirements & Subsidy Calculation The Agreement stipulates that the City agrees to pay to Rush California an amount equal to (i) Twenty-five Percent (25%) of Sales Tax Revenues below or equal to a certain base of sales tax revenues ( Sales Tax Revenue Threshold ) each year during the Operating Period; and (ii) Fifty-five Percent (55%) of Sales Tax Revenue in excess of a Sales Tax Revenue Threshold during the Operating Period payable annually on or before July 30th of each year for the preceding calendar year during the Operating Period. Page 9 of 12
The City provided historical sale tax revenue receipts for Rush California s operations within the City, which were used to derive the aforementioned Sales Tax Revenue Threshold amounts. After the Sales Tax Revenue Thresholds were determined, projections of revenue generation from sales tax collections directly attributable to Rush California were estimated over the post occupancy Operating Period (12 years) and calculated utilizing the aforementioned percentages (25% and 55%) in accordance with the Agreement to derive the Economic Development Subsidy amounts. The Sales Tax Revenue Threshold amounts are presented in the following table: Calendar Year Sales Tax Revenue Threshold 2016 $600,000 2017 $630,000 2018 $661,500 2019 $694,575 2020 $729,304 2021 $765,769 2022 $804,057 2023 $844,260 2024 $886,473 2025 $930,797 2026 $977,337 2027 $1,026,204 Assuming that Rush California s gross sales generated on the Property in Calendar Year 2016 is $61,621,913 and the Sales Tax Revenue is equal to 1.14% of gross sales ($702,490), which includes all applicable Sales Tax Revenues as defined herein. In that event, the Economic Development Subsidy in Calendar Year 2016 would be $206,369, which is 25% of the amount of the Sales Tax Revenues below or equal to the Sales Tax Revenue Threshold plus 55% of the Sales Tax Revenues in excess of the Sales Tax Revenue Threshold. In the event that any payment to Rush California required under the Agreement covers less than a full annual period, then the amount of the Economic Development Subsidy for said partial annual period shall be calculated by multiplying the total Sales Tax Revenues equivalency for the entire annual period (assuming that Rush California was entitled to receive Sales Tax Revenues for the annual period) by a fraction in which the numerator equals the number of days in such semi-annual period included within the period of City s payment obligation and in which the denominator is 365. Page 10 of 12
D. Statement of Public Purpose for Subsidy The Economic Development Subsidy that the City intends to provide to Rush California, pursuant to the terms of the Agreement, constitutes a valid public purpose that is consistent with the following goals and objectives of the Economic Prosperity Element of the City s General Plan: Create additional job opportunities to maintain City s local employment base; Promote the retention and growth of existing businesses and the improvement of various commercial premises; Maintain and increase current sales tax base in order to provide future City public services and fund capital projects and programs that enrich the quality of life of residents and workers; and Maintain and enhance a cost effective and business-friendly environment. The Economic Development Subsidy is one such economic development tool that will help facilitate the continued operation and accelerated acquisition, improvement, and expansion of Rush California s operations in the City, thereby creating the potential for increased sales tax revenues and employment opportunities for local residents. Rush California s continued investment and operation in the City will help retain one of the City s top ten principal employers and help encourage increased investment and improvement opportunities for existing surrounding commercial and industrial businesses as well as increase and create a sustainable stream of revenue, namely property and sales tax revenue, to support the City s General Fund and provide critical public infrastructure and civic services to the community as well as encourage business expansion to further enhance the City s key employment areas. With the dissolution of redevelopment agencies across the State in 2012, a primary economic development tool and stream of revenue to fund the City s revitalization efforts in physically and economically blighted areas within the community was eliminated. The retention of Rush s business operations in the City would help address the City s desire to provide a stable local economy through direct retail sales and on-site employment as well as any potential indirect retail sales from adjacent local businesses to help advance the City s economic development goals and objectives. Page 11 of 12
Estimated Sales Tax Revenue Receipts E. Projected Tax Revenue to City of Pico Rivera Based upon a review and evaluation of historic gross sales tax revenue figures and estimates of projected growth in Rush California s operations over the term of the Operating Period, it is estimated that the City will retain $7,900,000 over the term of the Operating Period net of the Economic Development Subsidy, which correlates to an average estimated annual inflow of $658,000 in projected sales tax revenue. See the following chart, labeled Exhibit 2, which provides further detail as to the City s estimated annual sales tax receipts throughout the duration of the Operating Period. Exhibit 2: Estimated City Sales Tax Revenue Share (Net of Economic Development Subsidy) $ 900,000 $ 800,000 $ 700,000 $ 600,000 $ 500,000 $849K $808K $770K $733K $665K $698K $633K $603K $574K $547K $521K $496K $ 400,000 $ 300,000 $ 200,000 $ 100,000-2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Calendar Year F. Estimated Number of Jobs As required by the Agreement, Rush California shall employ a minimum of 60 employees on the Property and use its best efforts to hire and employ qualified City residents at the Property through targeted recruiting and/or advertising efforts within the City. However, it should be noted that Rush California currently employs 103 full-time employees and anticipates adding an additional 32 full-time employees within the next 18 months. Further, Rush California projects an annual growth in their employee base of at least 5% throughout the duration of the Operating Period. Page 12 of 12