7.A.
City Council Meeting - FINAL
- Meeting Date:
- 02/18/2020
- Co-Submitter:
- Anja Wendel
Information
TITLE:
Consideration and Adoption of Ordinance No. 2020-04: An ordinance of the City Council of the City of Flagstaff, authorizing the City of Flagstaff to enter into the Fifth Amendment to Development Agreement with Nestle Purina Petcare Company; providing for repeal of conflicting ordinances, severability, and establishing an effective date.
STAFF RECOMMENDED ACTION:
1) Read Ordinance No. 2020-04 by title only for the final time
2) City Clerk reads Ordinance No. 2020-04 by title only (if approved above)
3) Adopt Ordinance No. 2020-04
2) City Clerk reads Ordinance No. 2020-04 by title only (if approved above)
3) Adopt Ordinance No. 2020-04
Executive Summary:
The City entered into a Development Agreement (DA) with Nestle-Purina in 2003 to facilitate reinvestment and expansion of the company’s local pet food manufacturing plant, to be financed in part through property tax relief. The expansion was a success but also resulted in additional associated odor.
The DA was amended in 2016 to facilitate an odor mitigation project, which would result in a 50% reduction of modeled ground level odor at the fence line of the Nestle-Purina property, via two Phases. Phase 1 has been completed and achieved a 44% odor reduction, exceeding the originally planned 37.5%; however, Phase 1 went over Nestle-Purina’s estimated budget by $870,000. Nestle-Purina has determined that the cost of Phase 2, as described in the DA, is prohibitive. It has the option of returning $400,000 in property tax savings without any obligation to complete Phase 2. However, Nestle-Purina remains committed to achieving the original goal of at least 50% odor reduction and has proposed a new Phase 2 at a lower cost, which is anticipated to accomplish the 50% reduction originally intended. Staff supports Nestle-Purina’s proposal.
The DA was amended in 2016 to facilitate an odor mitigation project, which would result in a 50% reduction of modeled ground level odor at the fence line of the Nestle-Purina property, via two Phases. Phase 1 has been completed and achieved a 44% odor reduction, exceeding the originally planned 37.5%; however, Phase 1 went over Nestle-Purina’s estimated budget by $870,000. Nestle-Purina has determined that the cost of Phase 2, as described in the DA, is prohibitive. It has the option of returning $400,000 in property tax savings without any obligation to complete Phase 2. However, Nestle-Purina remains committed to achieving the original goal of at least 50% odor reduction and has proposed a new Phase 2 at a lower cost, which is anticipated to accomplish the 50% reduction originally intended. Staff supports Nestle-Purina’s proposal.
Financial Impact:
Nestle-Purina currently pays the full property tax for its facility in Flagstaff, as the original Development Agreement has expired, leaving only the Fourth Amendment in place. Per the Fourth Amendment, if Nestle-Purina fails to implement Phase 2, Nestle-Purina is obligated to pay the sum of $400,000, which would be property tax allocated proportionately to the receiving entities.
Policy Impact:
N/A
Connection to Council Goal, Regional Plan, CAAP, and/or Strategic Plan:
COUNCIL GOALS:
9) Improve the economic quality of life for Flagstaff through economic diversification, and by fostering jobs and programs that grow wages and revenues.
REGIONAL PLAN:
Goal E.3. Regional economic development partners support the start up, retention, and expansion of existing business enterprises.
9) Improve the economic quality of life for Flagstaff through economic diversification, and by fostering jobs and programs that grow wages and revenues.
REGIONAL PLAN:
Goal E.3. Regional economic development partners support the start up, retention, and expansion of existing business enterprises.
Has There Been Previous Council Decision on This:
Yes. Council has approved the original development agreement plus four amendments.
Options and Alternatives:
1. Approve the Fifth Amendment and allow a new, less expensive Phase 2 odor mitigation plan, which will still achieve the 50% modeled ground level odor reduction at the Nestle-Purina fence line.
2. Reject the Fifth Amendment, and in this case Nestle-Purina will need to either implement Phase 2 as it is written in the Fourth Amendment which is budgeted at $670,000 to achieve at least a 50% modeled ground level odor reduction at the fence line or to reimburse the City and area partners $400,000 without further odor mitigation efforts at this time Alternatively, it could submit another proposal to City.
2. Reject the Fifth Amendment, and in this case Nestle-Purina will need to either implement Phase 2 as it is written in the Fourth Amendment which is budgeted at $670,000 to achieve at least a 50% modeled ground level odor reduction at the fence line or to reimburse the City and area partners $400,000 without further odor mitigation efforts at this time Alternatively, it could submit another proposal to City.
Background and History:
Nestle-Purina entered the market in 1976 and started employing approximately 150 residents of Flagstaff. During business operations, the company, originally Ralston Purina, was acquired by Nestle Corporation, thereby becoming Nestle-Purina. The transition brought questions about the ways that the Flagstaff plant would contribute to the global operations, and there was concern that the plant could close. A closure such as that would have a significant impact on Flagstaff’s resiliency as it would reduce high paying manufacturing jobs and reduce the diversity of the economy as a whole. The City of Flagstaff was concerned that Nestle-Purina would be closed and worked with Nestle-Purina and the Department of Commerce to retain the company.
The original effort was enacted through a development agreement which reduced the property tax liability for the company’s local operations in exchange for the expansion and improvement of the facility and the number of jobs in the community. Nestle Purina exceeded the goals of the original agreement and currently employs 300 individuals. The subsequent efforts intend to reduce the ground level modeled odor at their fence line.
Nestle-Purina meets regulatory thresholds for odor, as regulated by ADEQ. Nestle-Purina has voluntarily agreed to work with the City to reduce the odor impact and has provided a proposal to achieve the desired 50% reduction. The solution will have both immediate costs and, for Nestle-Purina, ongoing maintenance and energy costs to operate.
Key Considerations:
Nestle-Purina PetCare has been a long-standing community partner providing 300 Flagstaff families sustainable employment. A recent economic impact study states that NPPC provides an annual economic impact of $54 million.
Complete reduction of the odor is practically impossible if production continues. The proposed 50% reduction of odor is expected to improve the out of doors experience for the surrounding commercial and residential areas, including the regional mall.
The odor mitigation plan is a voluntary effort in an attempt to work with the City to provide a public benefit. While implementing the odor mitigation plan will add costs to NPPC, the NPPC organization is aware of the plans to improve the shopping experience in the area, and views the effort as part of being a good neighbor and part of the community.
Community Involvement:
The mountain air is a true amenity to the region, as is the opportunity for gainful employment.
Expanded Options and Alternatives:
Collaborate
Attachments
- Ord. 2019-04
- 5th Amendment
- Exhibit 1 - Legal Description
- Exhibit 5 - Proposed Phase 2
- 4th Amendment
- Purina Presentation