| ITEM #: 19. DATE: 08/26/2024 AI #:2217 |
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CITY COUNCIL ACTION REPORT
| SUBJECT: | SUPPORT FOR INCLUSION OF NEW SUB-ZERO FACILITY AS A FOREIGN TRADE ZONE USER DRIVEN SITE |
| STAFF PRESENTER(S): | Darah Mann, Economic Development Deputy Director |
SUMMARY
Sub-Zero is expanding its manufacturing and distribution operations within Goodyear, and is seeking Council’s support for Foreign Trade Zone status at its new location.
STRATEGIC PLAN ALIGNMENT
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RECOMMENDATION
ADOPT RESOLUTION NO. 2024-2421 COMMITTING SUPPORT FOR THE FUTURE APPLICATION FOR THE ACTIVATION AND INCLUSION WITHIN THE BOUNDARIES OF THE FTZ NO. 277 WESTERN MARICOPA COUNTY, OF CERTAIN PROPERTY GENERALLY LOCATED AT THE SOUTHWEST CORNER OF CAMELBACK ROAD AND COTTON LANE AS A SINGLE-USER, USER DRIVEN FOREIGN TRADE ZONE SITE FOR THE OPERATION OF A MANUFACTURING FACILITY BY SUB-ZERO GROUP INC. SUBJECT TO CONDITIONS; PROVIDING AUTHORITY AND DIRECTION; AND PROVIDING FOR AN EFFECTIVE DATE. (Robert Ito, Business Development Manager)
FISCAL IMPACT
An activated Foreign Trade Zone (FTZ) site provides a property tax benefit to qualified companies, reducing the real and personal property tax assessment ratio from 16.5% to 5%. Property tax savings to companies are only realized after they are activated FTZ sites, and after the company has made significant investments, increasing the property tax base of the property. The reduction in property taxes will only apply if Sub-Zero meets the requirements for a high-wage manufacturer as set forth in the Foreign Trade Zone Policy of the City of Goodyear dated August 28, 2023, adopted by Resolution 2023-2339 (the “2023 Goodyear FTZ Policy”). If Sub-Zero fails to meet the requirements for a high wage manufacturer, Sub-Zero will make payments so that the taxing jurisdictions receive 16.5% of the assessed valuation.
BACKGROUND AND PREVIOUS ACTIONS
In 2011, Sub-Zero opened its initial 440,000 square foot facility at its Goodyear facility at 4295 No. Cotton Lane.
02/17/11 – Council approved a PILOT (Payment In Lieu of Tax) Agreement, which was needed to support the activation of this site. The PILOT Agreement outlined an annual payment in the amount of the difference between the tax rates, which the city would distribute to the various taxing jurisdictions. The FTZ Board approved the activation of this site, which resulted in the reclassification of the existing tax rate to a lower, class 6 rate.
05/22/12 – Council approved a First Amendment to the PILOT Agreement, amending the amount of the PILOT fee following a successful challenge to the 2010 Maricopa County Assessor, resulting in a revised assessed value.
06/11/15 – Council approved a Second Amendment to the PILOT Agreement, amending the amount of the PILOT fee following a successful challenge to the 2011 Maricopa County Assessor, resulting in a revised assessed value.
02/17/11 – Council approved a PILOT (Payment In Lieu of Tax) Agreement, which was needed to support the activation of this site. The PILOT Agreement outlined an annual payment in the amount of the difference between the tax rates, which the city would distribute to the various taxing jurisdictions. The FTZ Board approved the activation of this site, which resulted in the reclassification of the existing tax rate to a lower, class 6 rate.
05/22/12 – Council approved a First Amendment to the PILOT Agreement, amending the amount of the PILOT fee following a successful challenge to the 2010 Maricopa County Assessor, resulting in a revised assessed value.
06/11/15 – Council approved a Second Amendment to the PILOT Agreement, amending the amount of the PILOT fee following a successful challenge to the 2011 Maricopa County Assessor, resulting in a revised assessed value.
STAFF ANALYSIS
Sub-Zero opened their initial, 440,000 SF Goodyear facility in 2011 and expanded in 2015 at 4295 N. Cotton Lane (N of NEC Cotton Lane and Indian School Road). Sub-Zero invested $68 million in capital expenditures, relocated 288 employees to the initial facility, and hired 100 net-new employees. The initial facility was expanded by 240,000 square feet in 2015. Sub-Zero invested $34 million in capital expenditures in the expansion and hired an additional 100 employees. The initial site is located in a magnet site within FTZ No. 277 (The Greater Maricopa Foreign Trade Zone), and eventually became an activated site within this magnet site. At the time of activation, Sub-Zero entered into a Payment in Lieu of Taxes Agreement that was consistent with the city’s policy in effect at the time.
After a national site selection evaluation, Sub-Zero determined Goodyear was the best place for the development of a second facility. Sub-Zero purchased the land and has been constructing a 599,700 square foot manufacturing facility at 17255 W. Camelback Road, which is located at the southwest corner of Camelback Road and Cotton Lane. This expansion brings an estimated $117.8 million investment in land, construction, and equipment to Goodyear, and is expected to result in the creation of 143 new jobs by its fifth year of operations, with an average wage of $52,000. The city commissioned Applied Economics to conduct an economic and fiscal impact analysis of Sub-Zero’s second facility expansion. Applied Economics estimates the direct tax benefit to the city of Goodyear from the construction sales tax, permit and impact fees, personal property tax, and real property tax generated by Sub-Zero’s Goodyear operations during the first ten years of operation will be approximately $5.6 million. Additionally, Applied Economics estimates a direct, indirect, and induced economic impact of $594 million over the next ten years.
The proposed resolution provides support for the inclusion and activation of this second facility to be included as a user-driven with FTZ No. 277. This support is conditioned upon Sub-Zero and the Grantee of FTZ No. 277 Western Maricopa Greater Maricopa Foreign Trade Zone executing the Foreign Trade Zone Agreement (Payment in Lieu of Tax Fee (Pilot Fee)) attached to the Resolution. Under the terms of this agreement, Sub-Zero will pay the difference between the taxes that would have been collected at the 16.5% non-FTZ classification and the taxes collected at the 5% FTZ classification if Sub-Zero’s operations at the new location do not meet the requirements for a high-wage manufacturer as set forth in the 2023 Goodyear FTZ Policy.
Support for the inclusion of the second facility as a user drive is consistent with the 2023 Goodyear tax policy, which provides support the use of FTZ status as a tool for attracting high-wage manufacturing jobs to the city. As supported by the independent economic analysis, Sub-Zero’s development of a second facility within Goodyear, with its resulting capital investment and job creation, will provide a significant public benefit to the city and its citizens. Sub-Zero’s operations at the Goodyear facilities will have significant economic impact on the city, including but not limited to: the quantity and quality of the jobs resulting from Sub-Zero’s operations; tax revenues generated by Sub-Zero’s operations, its employees, vendors, and service providers; increased economic activity, or multiplier effect, associated with its expanded operations; the qualitative value of having a high-profile, well respected national company expand within Goodyear; and finally, the catalytic effect it will have on further development within the city, which will generate additional jobs and revenue within the City.
For the foregoing reasons, staff supports the adoption of Resolution 2024-2421 committing to support the future application for Sub-Zero’s second facility to be included and activated as a Foreign Trade Zone user-driven site.
After a national site selection evaluation, Sub-Zero determined Goodyear was the best place for the development of a second facility. Sub-Zero purchased the land and has been constructing a 599,700 square foot manufacturing facility at 17255 W. Camelback Road, which is located at the southwest corner of Camelback Road and Cotton Lane. This expansion brings an estimated $117.8 million investment in land, construction, and equipment to Goodyear, and is expected to result in the creation of 143 new jobs by its fifth year of operations, with an average wage of $52,000. The city commissioned Applied Economics to conduct an economic and fiscal impact analysis of Sub-Zero’s second facility expansion. Applied Economics estimates the direct tax benefit to the city of Goodyear from the construction sales tax, permit and impact fees, personal property tax, and real property tax generated by Sub-Zero’s Goodyear operations during the first ten years of operation will be approximately $5.6 million. Additionally, Applied Economics estimates a direct, indirect, and induced economic impact of $594 million over the next ten years.
The proposed resolution provides support for the inclusion and activation of this second facility to be included as a user-driven with FTZ No. 277. This support is conditioned upon Sub-Zero and the Grantee of FTZ No. 277 Western Maricopa Greater Maricopa Foreign Trade Zone executing the Foreign Trade Zone Agreement (Payment in Lieu of Tax Fee (Pilot Fee)) attached to the Resolution. Under the terms of this agreement, Sub-Zero will pay the difference between the taxes that would have been collected at the 16.5% non-FTZ classification and the taxes collected at the 5% FTZ classification if Sub-Zero’s operations at the new location do not meet the requirements for a high-wage manufacturer as set forth in the 2023 Goodyear FTZ Policy.
Support for the inclusion of the second facility as a user drive is consistent with the 2023 Goodyear tax policy, which provides support the use of FTZ status as a tool for attracting high-wage manufacturing jobs to the city. As supported by the independent economic analysis, Sub-Zero’s development of a second facility within Goodyear, with its resulting capital investment and job creation, will provide a significant public benefit to the city and its citizens. Sub-Zero’s operations at the Goodyear facilities will have significant economic impact on the city, including but not limited to: the quantity and quality of the jobs resulting from Sub-Zero’s operations; tax revenues generated by Sub-Zero’s operations, its employees, vendors, and service providers; increased economic activity, or multiplier effect, associated with its expanded operations; the qualitative value of having a high-profile, well respected national company expand within Goodyear; and finally, the catalytic effect it will have on further development within the city, which will generate additional jobs and revenue within the City.
For the foregoing reasons, staff supports the adoption of Resolution 2024-2421 committing to support the future application for Sub-Zero’s second facility to be included and activated as a Foreign Trade Zone user-driven site.