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Home My WebLink AboutIR 8511 INFORMAL REPORT TO CITY COUNCIL MEMBERS No- Inn Date: August 7, 2003 To the Mayor and Members of the City Council Page I of 6 SUBJECT: Tax Abatement Audit Report for the 2002 Calendar Year Overview—All Active Agreements The City's Tax Abatement Policy requires that an annual audit be conducted on all active tax abatement agreements. Eighteen tax abatements were audited for the 2002 calendar year. Companies submitted all required and relevant employment and vendor spending information to the City's Economic and Community Development Department, per the agreement. This information was then analyzed by the Internal Audit Department. Benchmarks: The City of Fort Worth's Tax Abatement Policy has three primary areas of emphasis: 1. Employment Opportunities 2. Fort Worth Business Participation 3. Minority and Woman-owned Business Enterprise (MWBE) Participation The 2002 audit reflects the following results in relation to these three areas of emphasis (limited to the eighteen agreements subject to audit): Employment % of Commitment Contractual Commitments 4,125 Actual Performance 7,431 +180% Fort Worth Resident Commitments 1,581 Actual Performance 2,336 +148% Central City Resident Commitments* 189 Actual Performance 611 +323% Eleven agreements contain this contractual requirement. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. x Date: August 7, 2003 s r To the Mayor and Members of the City Council Page 2 of 6 fey% SUBJECT: Tax Abatement Audit Report for the 2002 Calendar Year Fort Worth Business Participation Construction Component ** Fort Worth Contractual Commitments $ 83.4 million Actual Performance $280.6 million +336% Goods and Services Component Fort Worth Contractual Commitments $ 25.0 million Actual Performance $ 42.7 million +171% Minority &Woman-owned Business Enterprise Participation Construction Component ** MWBE Contractual Commitments*** $ 28.6 million Actual Performance $ 72.5 million +254% Goods and Services Component MWBE Contractual Commitments *** $ 9.7 million Actual Performance $ 9.7 million +100% ** The construction figures reflect the expenditures that occurred during the construction phase of the agreements, which was prior to the current audit period. *** For tax abatement purposes, the City of Fort Worth MWBE marketplace was a nine county area which included Tarrant, Parker, Johnson, Collin, Dallas, Denton, Ellis, Kaufman, and Rockwall. However, effective fall 2002, the City of Fort Worth MWBE marketplace became only Fort Worth. Audit Findings and Recommendations The 2002 audit findings show the following companies met all tax abatement agreement commitments and are in full compliance for the audit period. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS NO. 851 x , Date: August 7, 2003 To the Mayor and Members of the City Council Page 3 of 6 SUBJECT: Tax Abatement Audit Report for the 2002 Calendar Year Abatement Estimated Taxes Company Percentage to be Abated • American Airlines 100% $181,376 • Blackstone Hotel 100% $ 13,357 • Firestone Apartments 100% $156,866 • Haggar Clothing 100% $192,835 « Hillside Apartments 100% $ 28,620 • Minyard's Food Stores 100% $ 35,860 « Sundance West Apartments 100% $ 28,700 « Villas by the Lake 75% $ 54,208 The following companies have performance specific agreements. Abatement Abatement Estimated Taxes Company Maximum Earned to be Abated • Ben E. Keith 75% 75% $158,914 • Bell Helicopter-Textron 80% 8001/0 $243,359 • Corning Cable Systems 100% 30% $ 38,919 • JCPenney Distribution Center 90% 89.5% $804,315 • Mattel, Inc. 100% 87.5% $166,089 • Mother Parker's Tea & Coffee 80% 47.5% $ 47,835 • Tech Data 50% 0% $ 0 The audit results indicate the three companies below had performance deficiencies. During the presentation of the 2001 tax abatement audit findings in May 2002, the City Council asked staff to develop a formula for reducing tax abatement agreements that do not have a specific reduction formula provided within the agreement. The Central City Revitalization and Economic Development Committee received suggested reduction information at its July 8, 2003 meeting, and directed staff to prepare the necessary Mayor and Council Communications for reducing the tax abatement agreements. Motorola Recommendation: Reduce abatement from 70% to 64%, estimated amount taxes to be abated is the leasehold value of$467,083 ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No- .511 Date: August 7, 2003 To the Mayor and Members of the City Council Page 4 of 6 Isys SUBJECT: Tax Abatement Audit Report for the 2002 Calendar Year % Deficient Deficiency: Employment of Fort Worth Residents 840 Actual Performance 498 41% Other Relevant Information: • This is the second consecutive year the company has been deficient in this category. • The agreement was amended in December 2002 to abate the leasehold value because Motorola began leasing the property it once owned. • The company approached the Economic & Community Development Committee in December 2002 about amending the tax abatement agreement ement to reflect more accurate employment figures. The Committee, amending mending the employment commitments could be considered early in the 2003 calendar year if the company chose to pursue an amendment. • The company has two more years of abatement benefit. • The reduction calculation is below. 2002 Recommended Category Weight Performance Abatement-2003 Supply& Service-Total 14.00% 100% 14.00% Supply& Service-Fort Worth 14.00% 100% 14.00% Supply&Service-MWBE 14.00% 100% 14.00% Employment-Total 14.00% 100% 14.00% Employment- Fort Worth 14.00% 59% 8.30% Total 70% 64% Nokia Recommendation: Reduce abatement from 100% to 85%, estimated amount of taxes to be abated is $470,466 % Deficient Deficiency: Total Employment 1,500 Actual Performance 1,124 25% Deficiency: Employment of Fort Worth Residents 750 Actual Performance 358 42% ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS ~ � INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8511 NA I Date: August 7, 2003 To the Mayor and Members of the City Council Page 5 of 6 SUBJECT: Tax Abatement Audit Report for the 2002 Calendar Year Other Relevant Information: • This is the second consecutive year the company has been deficient in the employment of Fort Worth residents. • rhe company feels the method of reducing the abatement is fair and may utilize this method of reduction instead of amending its agreement. • The company has two more years of abatement benefit. • The reduction calculation is below. 2002 Recommended Cate-gory Weigh Performance Abatement-2003 Supply& Service -Total 20.00% 1010% 20.00% Supply & Service- Fort Worth 20,00% 1 O0% 20.00% Supply &Service- MWBE 20.00% 100% 20.00% Employment-Total 20.00% 75% 14.99% Employment- Fort Worth 20.00% 48% 9.55% Total 100% 85% Southwest Office Systems (SOS) Recommendation: Reduce abatement from 50% to 34%, estimated amount of Taxes to be abated is $3,154 % Deficient Deficiency: Total New Employment 97 Actual Performance 73 25% Deficiency: Employment of Fort Worth Residents 42 Actual Performance 14 67% Deficiency: Employment of Central City Residents 24 Actual Performance 7 71% Deficiency: Utilization of MWBE Companies $45,162 Actual Performance $33,114 27% Other Relevant Information: This is the fifth consecutive year the company has been deficient in the total employment and the employment of Fort Worth residents categories. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS _ _ * INFORMAL REPORT TO CITY COUNCIL MEMBERS No. .51.1 dto-Tr 2%0 To the Mayor and Members of the City Council Date: August 7, 2003 Page 6 of 6 14"S SUBJECT: Tax Abatement Audit Report for the 2002 Calendar Year • This is the second consecutive year the company has been deficient in, the utilization of MWBE companies. • The company spent over $18,000 with an MWBE that is not currently certified with the North Central Texas Regional Certification Agency. If this MWBE had been certified, SOS would have exceeded its MWBE • The company has four more years of abatement benefit. • The reduction calculation is below. 2002 Recommended Category Weigh Performance Abat2ment-2003 Supply &Service-Fort Worth 8.33% 100% 8.33% Employment-Total 8.33% 75% 6.27% Employment-Fort Worth &33% 33% 2.78% Employment-Central City 8.33% 29% 2.43% Total 50% 34% Mayor and Council Communications reducing the tax abatement agreements of Motorola, Nokia, and Southwest Office Systems, as suggested above, will be placed on the August 12, 2003 Council agenda. 4aryc on. so City anager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS