Consideration and Approval of: Second Amendment to the Business Accelerator and Business Incubator Master Leases  (Amending Tax Rate Listed In Sublease Agreements with Northern Arizona Center for Entrepreneurship and Technology (NACET))

The Landlord (City) and Provider (NACET), both acknowledge that the rental tax rate has changed since the parties entered into the Business Accelerator/Incubator Master Lease(s) and the parties now desire to amend the Master Leases' terms and conditions contained in this Second Amendment to provide increased flexibility in the tax rate charged to sublessees under that Agreement.

The following administrative changes are for Exhibit "A" Sublease Agreement for the Business Incubator:

• Remove the specific rental tax percentage (2.051%) from section 4. As tax rates fluctuate, this change will provide increased flexibility in the tax rate charged to sublessees under the Agreement.  The new language simply references the current rental tax.

The following administrative changes are for Exhibit "A" Sublease Agreement for the Business Accelerator:

• Remove the specific rental tax percentage (2.051%) from section 4. As tax rates fluctuate, this change will provide increased flexibility in the tax rate charged to sublessees under the Agreement.  The new language simply references the current rental tax.

This change will have no financial impact on the City of Flagstaff.  It will allow NACET to collect the .3% rental tax increase implemented by Coconino County, and to adjust to future tax changes.

The City of Flagstaff received funding through the Economic Development Administration (EDA), Arizona Commerce Authority (ACA), and Northern Arizona University (NAU) for the design and construction of the Business Incubator and Accelerator. 

Council Goal
Economic Development: Grow and Strengthen a more equitable and resilient economy.

Strategic Plan
Strategic Priority 3.2: Deliver outstanding services through a healthy environment, resources and infrastructure.
Strategic Priority 3.3: Support sustainable economic development and its practices.

Yes, in September 2008, City Council authorized the master leases for both the Business Incubator and Accelerator, as well as subsequent amendments to the master leases in January 2015.  City Council also previously approved the EDA grant application, grant award and the design and construction contracts for the Business Accelerator.

Options and Alternatives:

1. Approve amendments to exhibit "A" sublease agreement for both master leases.
2. Do not approve amendments to exhibit "A" sublease agreement for both master leases and provide direction for a preferred method to incorporate changes to rental tax rates. 
    

The Science and Technology Park was conceived in 2003.  In 2004, bonds in the amount of $61.2m were approved by the voters to advance the project.  The debt is to be paid with lease revenue and not secondary property taxes.  McMillan Mesa was chosen as an ideal site due to the existing USGS campus. A Science Park Master Plan was developed around 2005 and determined the need for Business Incubator for entrepreneurs and business start-ups. 

The Business Incubator was constructed in 2008 and the Accelerator was followed in 2014.  Both facilities are currently operated by Northern Arizona Center for Entrepreneurship and Technology (NACET).  The Business Accelerator also serves as an alternate emergency operations center for first responders to efficiently deliver vital services to communities and tribal nations during emergent incidents. 

Coconino County imposed an additional .3% tax on the activity of leasing real property beginning January 1, 2015, collected by Arizona Department of Revenue.  Due to the wording of the current Agreement, this tax has not been passed on to the sublessees and has been incurred by NACET.