ACTION REQUESTED:
Title
Communication from the City Manager with a Request to Provide Direction Regarding the Creation of a POLICY Governing the Establishment of SALES TAX SPECIAL SERVICE AREAS for SHOPPING CENTERS. (Refer to Item No. 14-343)
Body
BACKGROUND: On June 24, 2014, the City Council approved an amendment to the Westlake Shopping Center Special Service Area (SSA) that would impose an additional 0.75% sales tax on purchases made within that shopping center. The proceeds from this additional tax would be conveyed to the shopping center owner who would use them in chief to repay a loan acquired in order to make major physical and aesthetic improvements to the shopping center. At that meeting, the City Council asked staff to return with policy recommendations to guide the future creation of similar SSAs in other parts of the City.
Staff has assembled a set of parameters that should be considered by the City Council. These recommendations are based on the position that sales tax SSAs should be created only to incentivize major capital improvements that result in physical upgrades to a shopping center rather than be a revenue source for property owners that merely wish to pay for "routine" maintenance. The improvements should be noticeable and enjoyable by both customers and the general public.
In the case of Westlake Shopping Center, the developer first started with a property tax SSA. In 2010, Westlake Limited Partnership (the developer) entered into an agreement with the City whereby an additional property tax was levied against the shopping center. The proceeds of this additional tax were transferred to the developer, who in turn used them to repay a loan that had be acquired in order to make a major investment in the property. The switch to a sales tax SSA (though still backed by a property tax levy) allowed the developer to refinance its loan on the first project and continue the improvements at the shopping center.
It would be staff's recommendation that the establishment of a property tax SSA should be a prerequisite to a sales tax SSA. The proceeds of the additional tax levy would be used, in most cases, to repay a loan that funds a major improvement (outlined below). After three years, a developer could petition to switch to a sales tax based SSA in order to continue improvements. The property tax proceeds could fund an initial phase of improvements with the sales tax proceeds supplanting the property tax for an additional phase(s) of improvements.
Below are the suggested parameters for a shopping center SSA policy.
Initial Property Tax SSA
1. The property must be a shopping center, as defined in the Zoning Code:
"A unified group of commercial establishments sharing a common building or buildings, off-street plaza, site access, signage, and/or parking area to which such commercial establishments are oriented on a site of a minimum of three (3) acres."
2. The project must be well defined. Application must include a detailed plan that becomes part of the agreement. The plan must include a cost estimate.
3. The project is limited to major capital improvements to the "public areas". Examples include, but are not limited to:
a. Façade improvements.
b. Improvements that increase sustainability, such as parking lot improvements.
c. New landscaping plan (not simply replacing existing landscaping).
d. Installation of external security cameras.
4. Proceeds cannot be used for routine operating costs and "common area maintenance." For example, the project could include the creation of a new landscaping plan but not pay for the maintenance of such landscaping.
5. There must be a minimum investment of $1,000,000, securely financed with a bank loan or cash investment by the property owner.
6. The property must be free of code violations at time of approval. Proceeds cannot be used to correct code violations.
7. The applicant cannot have any open code violations at other property within the City nor be in arrears to the City for any fees, fines, etc.
8. The applicant must submit all plans to Site Plan Review Board prior to project commencement. All work must be done with a permit, if required. The City has the right to charge a reasonable, on-going administrative fee to cover the cost of managing the program.
9. Property owner must keep records indicating work done and costs incurred that can be reviewable by the City on demand.
10. The City will charge a $5,000 non-refundable fee to process the application.
Subsequent Sales Tax SSA
1. The developer must wait at least three years after creation of property tax SSA.
2. Proceeds can be used to offset costs incurred through property tax SSA (i.e. repay initial loan) but project must include new improvements as well. These new elements must be well defined. The application must include a detailed plan that becomes part of the agreement. The plan must include a cost estimate.
3. The property owner can request a sales tax levy between 0.25% and 0.75%.
4. This additional tax can run for 20 years maximum.
5. The developer must present written proof that at least 90% of tenants approve. Further, the owner must disclose presence of SSA to any prospective tenant through the life of the SSA.
6. The initial property tax SSA will remain in place. Sales tax proceeds will abate those taxes. This allows the project to be securely financed with no recourse against the City.
7. The City will charge a $5,000 non-refundable fee to process the application. This is in addition to the application fee for the property tax SSA.
Staff will take feedback and direction provided by the Council and craft a formal policy for adoption at a future meeting. Please note that the parameters suggested do not supersede the process for creating a Special Service Area as laid out by state statute (public hearing, consent, notice, etc.)
FINANCIAL IMPACT: Sales tax SSAs are revenue neutral to the City, but the parameters as outlined include small administrative charges that will generate modest revenue.
NEIGHBORHOOD CONCERNS: Not applicable. There was no opposition to the Westlake sales tax SSA.
IMPACT IF APPROVED: Not applicable (policy discussion only).
IMPACT IF DENIED: Not applicable (policy discussion only).
ALTERNATIVES: Council can modify, delete or add other parameters to the policy.
EEO CERTIFICATION NUMBER: Not applicable (policy discussion only).
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL'S 2014 - 2029 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Attractive Neighborhoods with Character: Safe and Livable
2. Grow Peoria: Businesses, Jobs, and Population
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Grow employers and jobs.
DEPARTMENT: City Manager's Office