DEPARTMENT: Economic Development Department
DEPARTMENT HEAD: Rene Dominguez
COUNCIL DISTRICTS IMPACTED: 2
SUBJECT:
United Parcel Service, Inc. (UPS) Tax Abatement Agreement, the establishment of a UPS Reinvestment Zone, and nomination as a Texas Enterprise Project.
SUMMARY:
This item includes: (A) A Public Hearing and Ordinance designating the United Parcel Service Reinvestment Zone located at 6400 Seven States Boulevard near the intersection of Gibbs Sprawl and Rittiman Roads in San Antonio, Texas in Council District 2; (B) An Ordinance approving a 6-year, 40% Tax Abatement Agreement with UPS on its planned investment of approximately $85 million in real and personal property improvements, and the creation of at least 25 new full-time jobs and the retention of 600 existing full-time jobs; and (C) A Resolution nominating UPS for consideration and designation as a Texas Enterprise Project.
BACKGROUND INFORMATION:
Founded in 1907, UPS is the world's largest package delivery company and a leading global provider of specialized transportation and logistics services, dealing with approximately 9 million customers on a daily basis. Headquartered in Atlanta, Georgia, UPS employs approximately 400,000 people nationwide, and in 2013 earned $4.37 billion in revenue. UPS currently has a training facility in San Antonio located at 5313 Summit Parkway in Council District 7, which employs 80 people full-time. UPS also has an existing site in Council District 2 for its Hub operations, which is the site of the proposed expansion. This site currently employs 639 people full-time and 776 people part-time. Overall, UPS employs 971 people full-time through its various San Antonio locations.
This new UPS project involves the expansion of UPS's Hub operations at the existing site located at 6400 Seven States Boulevard in Council District 2. This expansion will result in the creation of an automated Hub facility, the creation of at least 25 new full-time jobs and the retention of 600 existing full-time jobs, and a total capital investment of approximately $85 million. An automated package-handling hub consists of a large scale advanced logistics supercomputer that has the capacity to process late-arriving shipments, while still maintaining on-time departures. This advanced hub has the ability to recover and maintain service during natural disasters and weather events, such as hurricanes and snowstorms. San Antonio is competing with Houston and Dallas for this project, two communities where UPS also has a significant presence.
In order to secure this proposed expansion at the San Antonio site, staff recommends a 6-year, 40% tax abatement valued at approximately $742,441 over 6 years based on a total capital investment of approximately $85 million in real and personal property over 3 years. In accordance with the City's Tax Abatement Guidelines, the jobs at the project site will exceed the current minimum hourly "living wage" of at least $11.47 and, within one year, more than 70% of its employees will meet or exceed the $14.44 hourly median all industry wage. UPS estimates it will pay its new employees an average annual salary of $69,000, and will provide all employees and their dependents health care benefits. Staff also recommends nominating the project as a Texas Enterprise Zone, which could potentially result in a refund of state sales and use taxes on qualified expenditures of up to $1.25 million over 5 years (based on a refund of $2,500 for each of the new and retained employees, up to the maximum amount of 500). The City of San Antonio receives an allotment of 9 potential Enterprise Project designations every biennium (which commenced on September 1, 2013). If this Enterprise Project designation is approved, the City will have 7 of its Enterprise Project designations remaining for the remainder of the biennium (ending on August 31, 2015).
UPS is also committing to holding 2 jobs fairs in the Eastside Promise Zone in coordination with Workforce Solutions Alamo.
ISSUE:
Before the City may enter into a Tax Abatement Agreement with UPS, the City is required to designate the UPS project site as a "Reinvestment Zone." This designation requires a Public Hearing and a finding by City Council that designation of the zone is reasonably likely to contribute to the retention or expansion of primary employment, or to attract major investment to the zone. The designation of the Reinvestment Zone is supported by this project resulting in the creation and retention of 25 new high paying full-time jobs and the retention of 600 existing full-time jobs for at least 10 years, and a capital investment of approximately $85 million over 3 years.
The UPS project is located in non-ICRIP area, which, pursuant to the City's Tax Abatement Guidelines, qualifies it for a 6-year, 40% tax abatement based on UPS' capital investment and job creation and retention commitments.
ALTERNATIVES:
Based on the City's offer to UPS of the incentives set forth above, the company chose to expand its facility in San Antonio for the new automated Hub. City Council could choose not to approve this Ordinance, which could deter UPS from selecting San Antonio for the expansion and creation of its automated Hub.
FISCAL IMPACT:
Staff conducted a cost-benefit analysis evaluating the City's estimated costs from the tax abatement and the City's estimated revenues from incremental sales taxes from construction costs and new jobs, property taxes, and CPS Energy revenues over a term of 12 years. Staff estimates this project will have a net fiscal benefit to the City over a 12-year period of $3,711,103. The following table summarizes the costs, revenues, and net fiscal benefits from the UPS project:
12-Year Net Fiscal Impact from the UPS Project
|
A |
B |
C |
YEARS |
Revenues to City (CPS Energy 14%, Property Taxes, Sales Taxes from New Jobs) |
Costs to City (6-Year, 40% Tax Abatement) |
Net Fiscal Benefit (Present Value) C = (A - B) |
1-6 |
$2,577,789 |
$742,441 |
$1,835,348 |
7-12 |
$1,875,755 |
$0 |
$1,875,755 |
Totals |
$4,453,544 |
$742,441 |
$3,711,103 |
RECOMMENDATION:
Staff recommends approval of an Ordinance designating the United Parcel Service Reinvestment Zone, an Ordinance approving a 6-year, 40% Tax Abatement Agreement on real and personal property, and a Resolution nominating UPS for consideration and designation as a Texas Enterprise Project.