25K - AGMT - ECONOMIC DEVELOPMENT RELOCATION

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Economic Development Agreement with IPC August 5, 2013 Page 2 At the meeting, the company's representatives inquired about consideration of returning some City's benefits to them for their commitment to relocate and stay in the City for 15 years, until the year 2028. Their proposal is as follows: a 50 percent sharing for the existing level of local sales tax generation of $1.4 million dollars; plus a 70 percent (IPC) and 30 percent (City) sharing of sales tax generation above the $1.4 million level; a 15-year term starting upon commencement of operations in the City, which they estimate to be approximately January 1, 2014; the term to be subject to termination upon 180 days notice; and the City is to take reasonable steps to help expedite tenant improvement and occupancy permitting. In considering their request, the City Manager and City Attorney's staffs have researched California cities that have similar types of agreements with businesses for sharing the equivalent of sales tax, in order to assist in the analysis of the costs and benefits of IPC request. The following provides information on the key components of the proposal: • 50/50 percent sharing: As indicated by IPC, 50/50 percent sharing of the estimated $1.4 million annual sales tax would be equivalent to approximately $700,000 annual additional revenue to the City for the next 15 years if an agreement is executed and in effect. It is solely IPC business decision to locate in the City. This is major benefit to the City. • 70 percent/30 percent sharing above the $1.4 million sales tax: According to IPC, to increase their competiveness in the market, the company intends to acquire additional businesses that would add to their inventory of products for the wholesale and distribution to retail establishments. IPC proposes that the additional sales tax generated by the an increase in business or the acquisition of new businesses will have a 70 percent (I PC) and 30 percent (City) sharing. Although the percentage shared by the City is at the 30 percent rate, this proposal is a benefit to the City as it increases the existing revenues. As an example, if the annual local sales tax generated by IPC is $1.7 million; the additional sales tax of $300,000 would be the portion that is subject to the 70/30 percent sharing. City will have an additional 30 percent of the $300,000, which is $90,000. Through its research staff obtained information from the cities of La Palma and Hawthorne which show similar percentages in the sharing of amounts measured by a portion of the sales tax were a part of the negotiations in those cities. • Relocation Agreement: The City Attorney has reviewed the IPC proposal and worked with the company's attorney on the agreement to solidify the deal points and the benefits to the City. Furthermore, Finance & Management Services staff has reviewed the calculation, payment schedule and procedures contain in the agreement and determined that the City has enough mechanisms to verify the amount of sales tax generated. The City Attorney has also included legal language in the agreement where IPC will defend the agreement at their cost. 25K-2