DEPARTMENT: Economic Development
DEPARTMENT HEAD: Rene Dominguez
COUNCIL DISTRICTS IMPACTED: District 8
SUBJECT:
Amendment of a Chapter 380 Grant Agreement with MiniMed Distribution Corporation
SUMMARY:
Staff is recommending an amendment to the City's Economic Development Grant Agreement (the "Agreement") with MiniMed Distribution Corporation (MiniMed) which was approved by City Council on May 21, 2009.
The Agreement requires a $23 million property investment and the creation of 1,300 new full-time jobs for the disbursement of economic development grant funds in the cumulative amount of $2.33 million over a five year period, and the rebate of 100% of property taxes over a 10 year period. The total $2.33 million grant equates to $1,792 per job created and maintained for the 1,300 required jobs.
To date, the company has exceeded its capital investment requirement and has created and maintained more than 1,100 new full-time jobs. Prior to the next reporting cycle, MiniMed contacted City representatives to discuss options for amending the Agreement to reduce the required number of full-time jobs to 1,116, due to adjustments in the company's headcount projections. The original projections were done over 6 years ago, and the company is providing this updated guidance based on its current outlook inclusive of today's changing healthcare landscape. The reduction in the jobs creation and retention requirement will result in the City retaining the final grant payment of $330,000 to MiniMed.
BACKGROUND INFORMATION:
MiniMed is a subsidiary of Medtronic, Inc., a global leader in medical technology that was founded in 1949 and currently employs over 38,000 people worldwide. MiniMed is a world leader in integrated diabetes management systems, insulin pump therapy, continuous glucose monitoring systems and therapy management.
In 2009, under the terms and conditions of the Agreement, the City, as part of an economic development incentive package, awarded MiniMed $2.3 million in economic development grant funds to locate its National Diabetes Therapy Management and Education Center at 18302 Talavera Ridge in City Council District 8. The Agreement required MiniMed to invest $23 million in property improvements and to create 1,300 full-time jobs over four years.
Despite the operational challenges and customary employee retention issues, MiniMed expects to create the required 1,300 full-time jobs, however under a delayed timeframe from that which is specified in the Agreement. Therefore, MiniMed has asked the City to consider an amendment to the Agreement that would reduce the number of full-time jobs to 1,116, which would result in the City retaining the final $330,000 grant disbursement. This amount represents the final payment to the company for reaching the final job creation benchmark of 1,300 employees required under the Agreement. The reduction of the full-time job requirement by 184 jobs equates to the final grant disbursement of $330,000 being withheld ($1,792 x 184). The company successfully completed all other job creation and financial investment requirements.
ISSUE:
The Agreement provides for the City and MiniMed to mutually agree to amend its terms and conditions. By doing so, the City and MiniMed will continue their contractual relationship, including the Agreement's job retention requirements and the City's grant payment recapture remedies. In addition, the City would add to the agreement limits to property tax rebates in proportion to the actual number of jobs retained and the original 1,300 required.
ALTERNATIVES:
City Council could choose to not approve the Ordinance to authorize the amendment of the Agreement, and the City could then exercise its rights of termination under Section 9 of the Agreement, which would result in: (1) the company being placed under a 60 day cure period; and (2) in the event the company failed to cure the job requirement within the 60 day period, terminate the Agreement and suspend and recapture disbursements, on terms which are less favorable to the City than those contained in the proposed amendment to the Agreement.
FISCAL IMPACT:
The fiscal impact to amending the Agreement provides more favorable grant recovery and reduced property tax rebate remedies for the City than could be achieved by termination of the Agreement.
RECOMMENDATION:
Staff recommends approval of an Ordinance authorizing the amendment of the Agreement.