M&C Review


COUNCIL ACTION:  Approved on 12/4/2018 

DATE: 12/4/2018 REFERENCE NO.: **C-28937 LOG NAME: 17ED_AMEND1SMITH&NEPHEW
CODE: C TYPE: CONSENT PUBLIC HEARING: NO
SUBJECT:  

Authorize Amendment to Economic Development Program Agreement with Smith & Nephew, Inc., (City Secretary Contract No. 49605) for Development of a Medical Technology Facility at 5600 Clearfork Main Street  to Revise Economic Development Grant Calculations and Termination Rights (COUNCIL DISTRICT 9)


RECOMMENDATION:

It is recommended that the City Council authorize the City Manager to execute an amendment to the City's Economic Development Program Agreement with Smith & Nephew, Inc., (City Secretary Contract No. 49605) for development of a medical technology facility at 5600 Clearfork Main Street to revise the method in which Economic Development Program Grants are calculated and adjust termination rights under the Agreement.

 
DISCUSSION:
On July 28, 2015, (M&C C-27397) the City Council authorized the execution of an Economic Development Program Agreement (City Secretary Contract No. 49605) with Smith and Nephew, Inc., (Company) to lease 55,000 square feet in a new build−to−suit facility located at 5600 Clearfork Main Street that had an estimated capital investment of $35 million. The Company, a global leader in the medical technology industry, with a presence in more than 90 countries around the world, leased a portion of the building and moved its Advanced Wound Care Division to Fort Worth to consolidate with existing operations.

Per the Agreement, the Company was required to have $2.8 million in business personal property located at the site as of January 1, 2017, retain 170 full−time employees (FTEs), and create 20 new full−time positions (FTEs) by December 31, 2016, increasing to 60 new FTEs by December 31, 2021. The Company is required to fill a minimum of 40 percent of all FTEs with Fort Worth residents and a minimum of 20 percent of all FTEs with Fort Worth Central City residents. The average salary of all FTEs must be a minimum of $85,000.00 annually.

In return, the City agreed to pay the Company five annual Economic Development Program grants, as authorized by Chapter 380, Texas Local Government Code, equal to a proportional share of Company's ad valorem real property taxes from the site plus its business personal property taxes, capped at an amount not to exceed $50,000.00 in any year.

Current terms of the Agreement state that failure to meet minimum investment or any annual job number commitments will result in a default under the Agreement, giving the City the right to terminate without further obligation. In addition, the Company will forfeit the annual grant in any year that the average salary of employees is below $85,000.00 or the total real and personal property appraisal for all property located on the platted property is below $25,000,000.00.

The Company has met the overall investment and employee salary requirements. However, due to an error by Company in filing the Business Personal Property Taxable Value Rendition with Tarrant Appraisal District, Company's personal property valuation did not appear in tax records until 2018. In addition, due to the specialized nature of the positions at the Company, meeting the local employment requirements has proved  more difficult than anticipated

Because overall the intent of the Agreement has been met, Company has asked the City to consider amending the Agreement to remove the termination rights associated with the business personal property valuation and employment commitments, and instead agree to reductions in the Program Grant amounts based on the extent to which Company might fail to meet those commitments.  This structure is commonly utilized in most of the City's economic development incentive agreements.  As a result, City staff concurs with Company's request, and would propose that the Agreement be amended to weight each of Company's commitments, and to provide for proportional reductions to the Program Grant amounts to the extent any of those commitments are not met, as provided in the following chart:

Requirement

Max Grant

Completion of Project by 12/31/16

25%

$2.8 Million BPP by 01/01/17

25%

Overall Employment = 190 FTE

20%

Fort Worth Employment = 40% of Total

15%

FW Central City Empl. = 20% of Total

15%

Avg Annual FTE Salary $85,000

Payment Forfeited in Any Year Not Met

Taxable Value of Site + BPP + Improvements = $25 million min.

Payment Forfeited in Any Year Not Met

TOTAL

100%

The maximum annual Program Grant payments will continue to be capped at $50,000.00, and the forfeitures for failure to meet the minimum annual average salary amount and minimum taxable value amount will remain in place. The first Program Grant payment under the Agreement (2018) will be forfeited since the Company did not meet the terms of the Agreement as stated at that time.

This project is located in COUNCIL DISTRICT 9.     

 
FISCAL INFORMATION/CERTIFICATION:

The Director of Finance certifies that approval of this agreement will have no material effect on the Fiscal Year 2019 Budget. While no current year impact is anticipated from this action, any effect on expenditures and revenues will be budgeted in future Fiscal Years and will be included in the long-term financial forecast.

TO
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FROM
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Program Activity Budget
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Submitted for City Manager's Office by:
Susan Alanis (5804)
Originating Department Head:
Robert Sturns (2663)
Additional Information Contact:
Carol Griffith (6027)

 
 
ATTACHMENTS
  181213_form1295.pdf