80-04 OrdinanceRECORD OF ORDINANCES
Inc.
80-04
Ordinance No. Passed 20.
AN ORDINANCE AUTHORIZING THE PROVISION
OF CERTAIN INCENTIVES FOR PURPOSES OF
ENCOURAGING FRANK GATES SERVICE
COMPANY TO RETAIN ITS WORKFORCE WITHIN
THE CITY, AND AUTHORIZING THE EXECUTION OF
AN ECONOMIC DEVELOPMENT AGREEMENT.
WHEREAS, consistent with its Economic Development Strategy (the "Strategy")
approved by Dublin City Council Resolution No. 07-94 adopted on June 20,
1994, and the updated strategy approved by Dublin City Council Resolution No.
30-04 adopted on July 6, 2004, the City desires to encourage commercial office
development and provide for the creation of employment opportunities within the
City; and
WHEREAS, Frank Gates Service Company ("Frank Gates") was successful in
retaining 300 jobs to Dublin and negotiating a 15-year lease extension in the City
of Dublin in consideration for the provision by the City of additional economic
development incentives; and
WHEREAS, this Council has determined to offer additional economic
development incentives, the terms of which are set forth in a substantially final
form of Economic Development Agreement presently on file in the office of the
Clerk of Council, to induce Frank Gates to retain its operations and workforce
within the City, to continue offering employment opportunities and to improve the
economic welfare of the people of the State of Ohio and the City, all as
authorized in Article VIII, Section 13 of the Ohio Constitution; and
WHEREAS, this Council finds that it is in the best interest of the City to provide
those economic development incentives to induce Frank Gates to retain its
operations and workforce within the City and to provide for the execution and
delivery of that Economic Development Agreement with Frank Gates; and
NOW, THEREFORE, BE IT ORDAINED by the Council of the City of Dublin,
Franklin, Union and Delaware Counties, Ohio, that:
Section 1. The Economic Development Agreement by and between the City and
Frank Gates, in the form presently on file with the Clerk of Council, providing for,
among other things, the provision of incentives to Frank Gates in consideration
for Frank Gates' agreement to retain its operations and workforce within the City,
is hereby approved and authorized with changes therein not inconsistent with this
Ordinance and not substantially adverse to this City and which shall be approved
by the City Manager and Director of Finance. The City Manager and Director of
Finance, for and in the name of this City, are hereby authorized to execute that
Economic Development Agreement, provided further that the approval of
changes thereto by those officials, and their character as not being substantially
adverse to the City, shall be evidenced conclusively by their execution thereof.
This Council further authorizes the City Manager and the Director of Finance, for
and in the name of the City, to execute any amendments to the Economic
Development Agreement, which amendments are not inconsistent with this
Ordinance and not substantially adverse to this City.
Section 2. This Council further hereby authorizes and directs the City Manager,
the Clerk of Council, the Director of Law, the Director of Finance, or other
appropriate officers of the City to prepare and sign all agreements and
instruments and to take any other actions as may be appropriate to implement this
Ordinance.
RECORD OF ORDINANCES
Blink. lnc.
Ordinance No.
80-04 Passed Pag~o 2
Section 3. This Council finds and determines that all formal actions of this
Council concerning and relating to the passage of this Ordinance were taken in
an open meeting of this Council and that all deliberations of this Council that
resulted in those formal actions were in meetings open to the public in
compliance with the law.
Section 4. This ordinance shall be effective upon the earliest date permitted by
law.
Passed this ~ IN day of , 2004.
Signed:
,.
Mayor -Presiding Officer
Attest:
Clerk of Council
I hereby certify that copies of this
Ordinance/~ were posted in the
City of Dublin in accordance with Section
731.25 of the Ohio Revised Code.
uty Clerk of Council, Dublin, Ohio
,.
Division of Economic Development
5800 Shier-Rings Road, Dublin, Ohio 43016-1236
CITY 4F DUBLIN phone: 614-410-4600 • Fax: 614-761-6506
Memo
To: Members of Dublin City Council
From: Jane S. Brautigam, City Manager~,K,,~ S. ~
Date: December 8, 2004
Initiated By: Dana L. McDaniel, Deputy City Manager/Director of Economic Development
Colleen M. Gilger, Economic Development Specialist
Re: Economic Development Incentives and "clawback" Penalties
Summary:
Per Council's request from its last meeting, this memo will address some of the issues surrounding tax incentive
and clawback clauses, Dublin's background and philosophies regarding incentives, some background on how
other surrounding communities structure clawback penalties, and position options for Council to consider.
Background
Business is about risk. It is about trust. It is about achieving something that often just hasn't been done before.
Each party can try to calculate their risk and make assertions based on what they deem to be accurate. However,
the best estimate just might not be right.
Governments are not about risk. 'They are about security. Our social contract yields certain rights, so that a
government can provide things like security, safety and other benefits to society.
To help government avoid risk, the "clawback" feature within tax incentives was created. A clawback is a tool
used by government in the incentive process to "claw back" cash (in most cases, lost tax revenue), or other
benefits with private and public companies that fail to achieve certain pre-developed criteria, like job creation,
capital investment and the like.
To date, Dublin has not had a company with an active incentive leave the community. Dublin has been fortunate
in that it constructs its incentive packages in such a way as to create awin-win environment for all parties
concerned.
Incentives in Dublin are tied to high-end job creation, continued annual growth, real estate purchases and
commitments to long-term leases. For a company to receive an incentive payment in Dublin, it must continually
meet predetermined growth targets, or agree upfront to certain time commitments to the community. In all cases,
if the annual growth target is not met in the previous calendar year, the company receives no payment, thus there
is no money for Dublin to "claw back". If the company misses its target, the City keeps 100% of the income tax
collected.
In some of our recent incentive packages, companies are receiving lump sum "grants" in the earlier years of the
incentive, primarily because staff is finding most company prefer more upfront benefits, which gives Dublin a
competitive advantage over other communities that are not in a similar financial situation. Claw back-type
provisions have been built into some of these agreements, and tie the company to commitments to repay the grant
money should they break their long-term lease commitments early or sell the real estate listed in the provisions. In
most cases the grant money is used to improve a facility, whether it's used for technology /wiring upgrades, or a
new roof or HVAC system. In these cases, regardless of the corporate tenant, the building benefits in the long-
term and remains viable in the market longer, which is a direct benefit to the community.
When it comes to offering incentive packages, Dublin is doing quite a few things the right way:
• Focus on the Quality, Not Just the Quantity, of Jobs
The central focus of Dublin's economic development efforts is boosting incomes and creating better
jobs versus "more" job. By focusing incentive offerings on companies with higher paying jobs, Dublin
takes seriously the effort to raise incomes.
• Use "Quality of Life" as an incentive tool
Corporate residents see Dublin as more than a place to work. They benefit from the levels of service
and amenities Dublin offers that are not available in other communities.
• Use non-school TIFs as incentives.
By using TIFS, the city and the company benefit by funding upgraded infrastructure around a newly
developed site. Since the schools are "made whole" they do not lose any new revenue streams in the
process.
• Reinvest corporate dollars into infrastructure
A large portion of income taxes collected goes to pay for community improvements that continue to
benefit the corporate resident and their visitors. By staying ahead in infrastructure improvements and
service levels, Dublin can continue to easily attract new businesses.
• Use Information Technology to modernize the community
DUBlink, its ties to the Columbus Fiber Net, and the upcoming WiFi rollout have kept us ahead of
other communities. Businesses have chosen Dublin because of the investment the community has made
in keeping up with technology needs and infrastructure.
Columbus Clawbacks and other municipalities
The city of Columbus has received media attention recently regarding the possibilities that it will claw back
incentives from several companies at the recommendation of the city's Tax Incentive Review Council (TIRC).
Columbus currently has no formalized clawback program, but uses its TIRC to audit current incentive packages
and make recommendations to its City Council. In all cases of proposed claw backs, the companies involved did
not fulfill their time commitment for which they received at a minimum, 10-year, 100% real estate tax
abatements, which also took a negative toll on the school district. Dublin fortunately does not offer tax abatement
as an incentive, nor do we craft incentives that adversely impact the Dublin Schools.
Other communities, specifically Westerville, Gahanna and Hilliard, have looked into the possibility of using
clawbacks. In all these cases, the communities, similar to Columbus, are faced with companies choosing to leave
the community before their granted abatements expire, or right at the end of abatement expiration. Abatements
offer companies a way to alleviate real estate taxes for a predetermined amount of time, thus these communities
and school district suffer at or near the expiration of building abatements.
Options for Dublin's Position on Clawbacks/Penalties
In many states and municipalities, companies that get incentives pay no penalty if they move out of the state or
city, or downsize/layoff, even though the state and/or city was basing its incentive package on a promised number
of jobs. For example, in Cincinnati, 14 of 85 companies that received property tax abatements for proposed
expansions failed to produce the jobs they promised. To put a stop to this, legislators could pass so-called
"clawback laws" that require companies to repay incentives if they fail to meet the objectives they agreed to in the
deal. For example, in Minnesota, businesses must repay their subsidy if they move out of state.
Some argue that this penalizes companies that might be doing poorly, but the incentives are never given just to
help companies, they were given with an expectation of a return (e.g., more jobs). If the company can't meet its
commitments, it's appropriate for the public to get its investment back.
On the opposite side of the spectrum is the belief that as long as a state or city receives more revenue indirectly
from an incentive during the course of a company's time spent within a community (income tax collection), the
deal is even, as it offers awin-win for both sides. There is belief that formalized clawback legislation creates a
negative stigma that a specific state or city is not business-friendly, thus potentially damaging future new job
growth and corporate relocation.
Conclusion:
The City of Dublin has structured its incentives in a way that ensures the City is receiving revenue and not
granting a 100% rebate/abatement. Even with the City's new grant approach in some of its incentive offerings, the
City does not give away 100% of its potential future revenue. Therefore, staff recommends the City stay with its
current approach to incentives as explained above, but monitor the clawback initiatives being taken by other
communities for future consideration by this Council.
CITY OF DUBLIN
Division of Economic Development
5800 Shier-Rings Road, Dublin, Ohio 43016-1236
Phone: 614-410-4600 • Fax: 614-761-6506
To: Members of Dublin City Council
From: Jane S. Brautigam, City Managerw: cx,~.~ 5 . ~~oc,~c,~t,~c,~.~,-/
Date: November 9, 2004 U
Memo
Initiated By: Dana L. McDaniel, Deputy City Manager/Director of Economic Development
Colleen M. Gilger, Economic Development Specialist
Re: Ordinance No. 80-04
Summary:
As City Council is aware, staff has discussed retention options with Frank Gates Service Company.
Frank Gates is nearing the end of its 15-year lease agreement at 5000 Bradenton Avenue, in one of
Dublin's older facilities; and company executives were weighing options between leasing newer space
in another community, leasing newer space in Dublin or renovating the existing building and staying.
Frank Gates employs 300 people with an average annual payroll exceeding $13 million. Ordinance No.
80-041egislates an Economic Development Agreement between the City and Frank Gates that includes
an eight-year, 16 percent income tax rebate incentive tied to job retention and a 15-year extension of the
company's lease. Over the term of this eight-year agreement, the City is estimated to receive
approximately $2 million in income tax withholdings. The building owner also plans $700,000 in
building renovations, tied to the 15-year lease extension.
Staff is comfortable with this structure because Frank Gates is prepared to make along-term
commitment to Dublin.
Conclusion:
Staff recommends the Economic Development Agreement and Ordinance No. 80-04 be accepted by City
Council on December 13, 2004.
ECONOMIC DEVELOPMENT AGREEMENT
THIS ECONOMIC DEVELOPMENT AGREEMENT (the "Agreement") is made and entered into
this day of , 2004, by and between the CITY of DUBLIN, OHIO (the "City"), a
municipal corporation duly organized and validly existing under the Constitution and the laws of
the State of Ohio (the "State") and its Charter, and Frank Gates Service Company an Ohio
corporation with its offices located in Dublin, Ohio, under the circumstances summarized in the
following recitals.
RECITALS:
WHEREAS, consistent with its Economic Development Strategy approved by Dublin City
Council Resolution No. 30-04 adopted on July 6, 2004, the City desires to encourage commercial
office development and provide for the retention of employment opportunities within the City; and
WHEREAS, Frank Gates Service Company desires to retain its operations and related
workforce of 300 employees within the City of Dublin; and
WHEREAS, the City has determined to offer economic development incentives described
herein to induce Frank Gates Service Company to retain its workforce within the City to create
employment opportunities and to improve the economic welfare of the people of the State of Ohio
and the City, all as authorized in Article VIII, Section 13 of the Ohio Constitution; and
WHEREAS, the City and Frank Gates Service Company have determined to enter into this
Agreement to provide these incentives to induce Frank Gates Service Company to retain its
operations within the City.
Now THEREFORE, the City and Frank Gates Service Company covenant agree and obligate
themselves as follows:
Section 1. Frank Gates Service Company A~eement to Retain Jobs. Frank Gates
Service Company will maintain operations in Dublin, retain employment of at least 300 employees,
and execute a new 15-year lease agreement for 5000 Bradenton Avenue. Proof of such lease will be
presented to the City of Dublin as soon as practical after execution and prior to receiving any
incentive or grant from the City of Dublin. The annual target payroll withholdings for the length of
the Agreement at a minimum shall be the actual withholdings collected in 2004, estimated to be
approximately $260,000.
Section 2. City A~eement to Provide Incentives.
(a) General. In consideration for Frank Gates Service Company' agreement to retain its
workforce and associated payroll within the City, the City agrees to provide economic
development incentives to Frank Gates Service Company in accordance with this
Section.
(b) Workforce Retention Incentive
(i) Calculation of Actual Withholdings. On or before March 15 of each of the
years 2006 through 2013 the City shall determine whether the actual payroll withholding
taxes collected during the preceding calendar year (2005 through 2012) by the City from
all Employees (the "Actual Withholdings") meet or exceed the Target Withholdings (the
actual 2004 withholding amount), all in accordance with the schedule set forth below.
For purposes of this Section 2, "Employees" shall include all individuals employed by
Frank Gates Service Company and working in the City of Dublin. Frank Gates Service
Company agrees that, in accordance with the Dublin City Code, the annual payroll
reconciliation relating to Frank Gates Service Company' Employees will be provided to
the City prior to February 28 of each calendar year.
(ii) Payments to Frank Gates Service Company. If the Actual Withholdings
meet or exceed the Target Withholdings, the City shall, on or before April 15 of the then
current calendar year, pay to Frank Gates Service Company, solely from non-tax revenues,
the incentive amount set forth in the following schedule. The Target Withholdings for the
duration of the Agreement will be equal to the Actual Withholdings from 2004, to be
calculated/determined in early 2005. Based on initial estimates, the schedule below assumes
the 2004 payroll to be $13 million at a minimum, with $260,000 in annual withholdings.
(iii) Withholdings and Incentive Payments. With respect to the Actual
Withholdings collected during each of the calendar years 2005 thru 2012, the Target
Withholdings and Incentive Payment to be paid in respect of each of those calendar years
shall be as follows:
Calendar Year Target Withholdings Incentive Payment Estimate
Estimate (based on (16% of Actual Withholdings
approximate 2004 payroll for the preceding year based
withholdings) on $13 million payroll)
2005 $260,000 $0
2006 $260,000 $41,600
2007 $260,000 $41,600
2008 $260,000 $41,600
2009 $260,000 $41,600
2010 $260,000 $41,600
2011 $260,000 $41,600
2012 $260,000 $41,600
2013 N/A $41,600
The payments provided for in this Section 2 shall be made by the City to Frank Gates
Service Company by electronic funds transfer or by such other manner as is mutually agreed to by
the City and Frank Gates Service Company.
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(c) Forfeiture of Incentive Payment. Frank Gates Service Company agrees that if the target
withholding is not met, as set forth in 2(b) above for any given year, the City is not obligated to
make any incentive payment to Frank Gates Service Company for the year in which the target was
not met. Failure to meet the withholding target in any one incentive year does not prohibit Frank
Gates Service Company from receiving an Incentive Payment for any subsequent year.
(d) City's Obligation to Make Payments Not Debt; Payments Limited to Non-tax
Revenues. Notwithstanding anything to the contrary herein, the obligations of the City pursuant
to this Agreement shall not be a general obligation debt or bonded indebtedness, or a pledge of
the general credit or taxes levied by the City, and Frank Gates Service Company shall have no
right to have excises or taxes levied by the City, the State or any other political subdivision of the
State for the performance of any obligations of the City herein. Consistent with Section 13 of
Article VIII, Ohio Constitution, any payments or advances required to be made by the City
pursuant to this Section 2 shall be payable solely from the City's non-tax revenues. Further,
since Ohio law limits the City to appropriating monies for such expenditures only on an annual
basis, the obligation of the City to make payments pursuant to this Section 2 shall be subject to
annual appropriations by the City Council and certification by the Director of Finance of the City
as to the availability of such non-tax revenues.
(e) Applicable Cit~Payroll Tax Rate. For purposes of calculating the Actual Withholdings
in each calendar year under this Section 2, the City's payroll tax rate shall be assumed to be two
percent (2%).
Section 3. Miscellaneous.
(a) Notices. Except as otherwise specifically set forth in this Agreement, all notices,
demands, requests, consents or approvals given, required or permitted to be given hereunder shall be
in writing and shall be deemed sufficiently given if actually received or ifhand-delivered or sent by
recognized, overnight delivery service or by certified mail, postage prepaid and return receipt
requested, addressed to the other party at the address set forth in this Agreement or any addendum
to or counterpart of this Agreement, or to such other address as the recipient shall have previously
notified the sender of in writing, and shall be deemed received upon actual receipt, unless sent by
certified mail, in which event such notice shall be deemed to have been received when the return
receipt is signed or refused. For purposes of this agreement, notices shall be addressed to:
(i) the City at:
City of Dublin, Ohio
5800 Shier Rings Road
Dublin, Ohio 43016-7295
Attention: Economic Development Director
(ii) Frank Gates Service Company at:
5000 Bradenton Avenue
Dublin, Ohio 43017
Attn: Gregory P. Smith, CFO
The parties, by notice given hereunder, may designate any further or different addresses to which
subsequent notices; certificates, requests or other communications shall be sent.
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(b) Extent of Provisions; No Personal Liability. All rights, remedies, representations,
warranties, covenants, agreements and obligations of the City under this Agreement shall be
effective to the extent authorized and permitted by applicable law. No representation, warranty,
covenant, agreement, obligation or stipulation contained in this Agreement shall be deemed to
constitute a representation, warranty, covenant, agreement, obligation or stipulation of any present
or future trustee, member, officer, agent or employee of the City or Frank Gates Service Company
in other than his or her official capacity. No official executing or approving the City's or Frank
Gates Service Company's participation in this Agreement shall be liable personally under this
Agreement or be subject to any personal liability or accountability by reason of the issuance thereof.
(c) Successors. This Agreement shall be binding upon and inure to the benefit of Frank
Gates Service Company and its successors and assigns.
(d) Recitals. The City and Frank Gates Service Company acknowledge and agree that the
facts and circumstances as described in the Recitals hereto are an integral part of this Agreement
and as such are incorporated herein by reference.
(e) Amendments. This Agreement may only be amended by written instrument executed
by the City and Frank Gates Service Company.
(f) Executed Counterparts. This Agreement may be executed in several counterparts, each
of which shall be regarded as an original and all of which shall constitute but one and the same
agreement. It shall not be necessary in proving this Agreement to produce or account for more than
one of those counterparts.
(g) Severability. In case any section or provision of this Agreement, or any covenant,
agreement, obligation or action, or part thereof, made, assumed, entered into or taken, or any
application thereof, is held to be illegal or invalid for any reason,
(i) that illegality or invalidity shall not affect the remainder hereof or thereof, any
other section or provision hereof, or any other covenant, agreement, obligation or action, or
part thereof, made, assumed, entered into or taken, all of which shall be construed and
enforced as if the illegal or invalid portion were not contained herein or therein,
(ii) the illegality or invalidity of any application hereof or thereof shall not affect
any legal and valid application hereof or thereof, and
(iii) each section, provision, covenant, agreement, obligation or action, or part
thereof, shall be deemed to be effective, operative, made, assumed, entered into or taken in
the manner and to the full extent permitted by law.
(h) Captions. The captions and headings in this Agreement are for convenience only and in
no way define, limit or describe the scope or intent of any provisions or sections of this Agreement.
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(i) Governing Law and Choice of Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio or applicable federal law. All claims,
counterclaims, disputes and other matters in question between the City, its agents and employees,
and Frank Gates Service Company, its employees and agents, arising out of or relating to this
Agreement or its breach will be decided in a court of competent jurisdiction within Franklin County,
Ohio.
(j) Survival of Representations and Warranties. All representations and warranties of
Frank Gates Service Company and the City in this Agreement shall survive the
execution and delivery of this Agreement.
(k) Notwithstanding any clause or provision of this Agreement to the contrary, in no
event shall City or Frank Gates Service Company be liable to each other for
punitive, special, consequential, or indirect damages of any type and regardless of
whether such damages are claimed under contract, tort (including negligence and
strict liability) or any other theory of law.
(Signature Pages to Follow)
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Itv WITNESS WHEREOF, the City and Frank Gates Service Company have caused this
Agreement to be executed in their respective names by their duly authorized representatives, all as
of the date first written above.
CITY OF DUBLIN, OHIO
By:
Printed: Jane Brautigam
Title: City Manager
By:
Printed: Marsha I. Grigsby
Title: Deput~City Mana~er/Director of Finance
Approved as to Form:
By:
Printed: Stephen J. Smith
Title: Director of Law
FRANK GATES SERVICE COMPANY
By:
Printed:
Title:
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FISCAL OFFICER'S CERTIFICATE
The undersigned, Director of Finance of the City under the foregoing Agreement, certifies
hereby that the moneys required to meet the obligations of the City under the foregoing Agreement
have been appropriated lawfully for that purpose, and are in the Treasury of the City or in the
process of collection to the credit of an appropriate fund, free from any previous encumbrances.
This Certificate is given in compliance with Sections 5705.41 and 5705.44, Ohio Revised Code.
Dated: , 2004
Marsha I. Grigsby
Deputy City Manager/Director ofFinance
City of Dublin, Ohio
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