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Home My WebLink AboutIR 8249 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8249 May 16, 2000 To the Mayor and Members of the City Council Pagel of4 SUBJECT: Tax Abatement Audit Report of 1999 Calendar Year Overview — All Active A2reements The City's Tax Abatement Policy requires that an annual audit be conducted on all active tax abatement agreements. The City of Fort Worth Internal Audit Department conducted the 1999 audit. As required by the abatement agreements, companies submitted employment and vendor contract information to the City's Office of Economic Development. This information was then submitted to the Internal Audit Department for a complete analysis. The following pages include an overview of the tax abatement program. This information shows overall employment and vendor contract information for all projects in aggregate. The information applies only to agreements currently active and subject to audit. Employment One of the main purposes of the City of Fort Worth's Tax Abatement Program is to increase the employment opportunities for Fort Worth residents with an emphasis on employment opportunities for "Inner city" residents. A review of the eighteen active tax abatement agreements finds that 8,062 jobs have been created xith over 2,500 of those jobs filled by Fort Worth residents. Overall, the employment numbers have exceeded those originally expected when developing the individual agreements. According to the agreement terms of all active projects, a minimum of 5,781 were committed through 1999. The actual number of jobs created through 1998 is 186% of the minimum agreement terins. When comparing the number of Fort Worth residents employed to the number committed to be employed in all active tax abatement agreements, a similar result is found. The number of jobs, in total, committed to Fort Worth residents in the active tax abatement agreements was 1,202 while the actual number of jobs held by Fort Worth residents through 1999 was 2,570. The actual number is 213% of the minimum number committed. Five of the current abatement agreements audited include the "inner city" employment requirement first instituted in the City's 1996 Tax Abatement Policy. The finding, in this area shows that while 83 jobs were committed to "inner city" residents, 164 "inner city" residents have been employed. Fort Worth Business Participation The tax abatement program requires companies that receive a tax abatement to make specific commitments to utilize Fort Worth businesses during construction and in ongoing supply and service expense spending. A review of the eighteen active tax abatement agreements shows that actual levels of spending in these areas have far exceeded the commitment levels in aggregate. Overall, Fort Worth businesses received over $238 million in construction contracts through 1999, which is significantly more than the $56 million committed to construction contracting. Additionally, Fort Worth businesses were recipients of over $33 million in supply and service spending in 1999, which is more than four times the $8 million that was committed. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8249 May 16, 2000 rlPl To the Mayor and Members of the City Council Page 2 of 4 SUBJECT: Tax Abatement Audit Report of 1999 Calendar Year Minorit y & Women Owned Business Enterprise Participation The tax abatement policy requires companies that receive a tax abatement to make specific commitments to utilize certified MJVY'BE companies during construction and in ongoing supply and service expense spending. A review of the eighteen active tax abatement agreements shows that actual levels of spending in these areas have improved compared to past years especially in regard to supply and service expense spending. In construction contracts, M/WBE expenditures have far outpaced the committed amounts. M/WBE companies have received over $70 million through 1999. While the committed amounts in aggregate were approximately $18.9 million. In supply and service expense spending, the overall findings shows that actual expenditures exceeded the committed totals. In 1999, M/WBE companies received nearly $11 million from tax abatement companies. This amount is 384% of the $2.85 million committed. Conclusion As a whole, the tax abatement program has been successful in meeting the overall objectives stated in the City's policy. Actual outcomes in all areas in which commitments are secured have far exceeded the expected results. Although the overall program has proven to be successful, there are a few individual companies that did not meet every commitment in their respective agreements. The Office of Economic oft`)evelopment will continue to offer assistance to all companies receiving tax abatements to help ensure that commitments are reached. Audit Findings The following companies have met all tax abatement agreement commitments and are in full compliance for the 1999 audit. The City Council will not need to take action on these abatement agreements. Company Abatement % Eamed in 1999 AMCOT 100.00% American Airlines 100.00% Firestone Apartments 100.00% Haggar Distribution Center 100.00% Hillside Apartments (Downtown Fort Worth Inc.) 100.00% Hillwood 100.00% Motorola 70.00% Nokia 100.00% Sundance Square Phase 1 100.00% Tech Data 25.00% Williamson-Dickie Distribution Warehouse 75.00% 0004�1 ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS -............................. INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8249 May 16, 2000 To the Mayor and Members of the City Council Page 3 of 4 AL SUBJECT: Tax Abatement Audit Report of 1999 Calendar Year Additionally, the following companies have calculated abatements based on performance: • JCPen-neys Distribution Center 46.83% • Menasco 89.00% The following companies did not meet all tax abatement agreement commitments. Details on the audit findings of each agreement and a recommendation for each are included. This information was presented to the Economic Development Conu-nittee at the April 25, 2000 meeting. The recommendations are divided into two categories: (1) no modification and (2) reduction and reflect the review of the Economic Development Cornmittee. Recommendations: No Modification Minyard Food Stores Recommendation: No action Minyard exceeded all conunitments outlined in the agreement except for M/WBE supplier commitments. The amount committed to M/WBE suppliers was $25,600 of annual expenditures. Although Minyard spent $94,361.89 with "ethnic" vendors, actual expenditures with certified M/WBE suppliers (as defined in the City's Tax Abatement Policy) in 1999 were $10,437.13. Many of the "ethnic" vendors Minyard used during 1999 are currently seeking certification with the North Central Texas Regional Certification Agency (NCTRCA). Because many of their vendors are becoming certified and because Minyard has exceeded all of its other commitments, the recommendation is that the tax abatement percentage for the 2000 tax year remain at 75%. Sundance Square Phase 11 Recommendation: No action Sundance Square Phase H exceeded all of its commitments with the exception of M/WBE supplier commitments. Sundance is $21,196 short of the committed M/WBE supplier expenditures. Sundance spent $34,624.66 with a M/WBE that allowed its certification to lapse. This M/WBE supplier is currently in the process of becoming recertified. The amount spent with this vendor exceeds the commitment amount of $27,500. Because this is the first year that Sundance has missed a commitment and because the vendor is currently becoming recertified, the recommendation is that the abatement remain at 100%. 000#11*1 ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8249 May 16, 2000 00yjarlot, To the Mayor and Members of the City Council Page 4 of 4 SUBJECT: Tax Abatement Audit Report of 1999 Calendar Year Recommendations: Reduction Southwest Office Systems (SOS) Recommendation: Reduce abatement for the 2000 tax year to 80% SOS exceeded its Fort Worth supplier commitments, but is $4,728 short of its M/WBE supplier commitment. Additionally, the company is deficient in Fort Worth resident employment commitments. This is the second year that Fort Worth employment commitments have been missed. Last year, no action was taken to reduce the abatement because the employment commitment was only deficient by 2 (company committed to 28 Fort Worth employees, but actually had 26) and because the company met all other commitments. The recommendation is that the abatement amount be reduced by 20% resulting in an abatement percentage of 80%. Star Uniform (CCC Investments) Recommendation: Reduce abatement for 2000 tax year to 20%. Star Uniform exceeded its Fort Worth supplier commitments. However, for the fourth consecutive year the company is deficient in its use of MIWBE suppliers. The City Council voted to reduce the abatement to 50% in the 1998 tax year and to reduce it to 25% in the 1999 tax year. The recominendation is that the abatement be reduced to 20% since this is the fourth consecutive year in which the M/WBE supplier commitment was not met. Bank One Recommendation: Reduce abatement for the 2000 tax year to 0% Bank One did not meet its M/WBE nor Fort Worth supplier commitments. The amount committed to M/WBE suppliers was $35,000 or 35% of annual expenditures, but actual expenditures with certified M/WBE suppliers in 1999 were $1,295. Likewise, the amount committed to Fort Worth suppliers is $35,000, but actual expenditures in 1999 were $11,966. The City Council took action to reduce the abatement percentage for the 1998 tax year from 100% abatement to 50% abatement and in the 1999 tax year from 50% to 25%. The recominendation is that the tax abatement be reduced to 0% for the 2000 tax year. This is the fourth consecutive year in which the company has been deficient in their M/WBEsupplier commitments. A epopt)of the audit will be presented to the Council at the May 16, 2000 Pre-Council meeting. BobTerrell City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS