Put your abacus away. It works out to a total of 305 new jobs in one meeting. That’s a significant shot of economic adrenalin. But it did not come easy and it did not come without some serious soul searching from one city council member.
The "bureaucratic kerfuffle" I referred to above concerns RSI which set up shop in Kyle in 2007 on land that was owned by the city. That land was, in the words of City Manager Scott Sellers, "transitioned" from the city to RSI in 2011.
"When the property transitioned to RSI’s ownership in 2011, they reached out through their annual tax process with their CPA to pay the tax obligation to the local tax entities on the real property," Sellers told the council. "At the time they were told by the county, also probably by the city, there was indeed no tax obligation for the real property due at that time."
The same thing happened in 2012, 2013 and 2014. RSI kept asking about its tax bill and were told by the county it didn’t have a tax bill. But this year, Sellers said, the city "uncovered" the fact that, indeed, RSI not only had a tax bill for 2015 but actually owed back taxes from 2011 through to the present.
"We immediately notified Hays County and verified that a mistake had been made," Sellers said.
On its end, RSI has been bidding on large contracts that involved a significant research and development investment. "Because of that, RSI was not able to pay the full burden of the property tax they were faced with and appealed to the city for assistance," Sellers said.
Sellers indicated that during the last eight months, the city has been in meetings with Hays County to see if the back taxes could just be forgiven, since RSI was pretty much blameless in the whole mess. Sellers said the two parties could not find a way legally to do that. "The tax note, statutorily, would be due," he said. "So we tried to find a way to assist the company to remain viable with its tax note looming." Together with the Greater San Marcos Partnership, he said, they looked at "a job creation and retention incentive for the company."
RSI is bidding on a number of large contracts and if it lands any one of them it could mean a significant number of new jobs. However, RSI has facilities in many other locations and there was no guarantee those jobs would come to Kyle. So, to convince RSI to locate those 82 jobs here over the next 10 years, the county and the city have each pledged $123,000 for an incentive package.
"So what we are looking at tonight is an incentive package, combined with a direct loan to the company," Sellers said. "RSI will agree to pay the 2015 tax obligation. The additional tax obligation, while being paid by RSI, there is going to be a loan made by the city to the company. There will be a $123,000 commitment up-front from the City of Kyle, which equals $1,500 per job over the next 10 years. Hays County will match that $123,000. The incentive states that at the end of each fiscal year, the city will sit down, audit the number of jobs and insure a correct pro-rata of jobs have been created for the year. If not, the incentive is returned.
"There is also a $234,000 up front loan also being proposed as part of this package that would be an interest-free loan, payable beginning 2018 for 10 years," the city manager added.
Mayor Todd Webster acknowledged to Sellers the city "shared culpability for this error. There was some confusion around the (2010) transition of administrations from the (Tom ) Mattis period into the (Lanny) Lambert era, where there were things that just didn’t get picked up. There was the Bunton Creek PID issue and this is very much like that. But my sense is that the city bears some responsibility for the mistake. It’s not clear how such a big mistake occurred but the fact is it went on long enough that we could have lost one of the most important members of our business community. That led to me hoping you guys could come up with something to try to salvage this situation. There was a big mistake made somewhere. Whose mistake it was doesn’t matter, but I’m appreciative of the work you have done to figure out how to solve it."
Council member Travis Mitchell, who arguably had more hands-on responsibility for shaping the final agreement than any other council member, said the deal contained "three layers."
"One is an existing tax obligation," he said. "Not a tax obligation from the past, but a current bill that is now due that recognizes previous taxes were not properly billed to the employer. That’s different than saying they were billed and they chose not to pay. The second layer to it is who’s responsible. No business owner can escape culpability in that situation. However, we do have documented evidence that the property owner did try to pay the property taxes, did inquire multiple times through the years about paying those taxes and were told there was not a bill. That is an error. He did have a bill, but it was not properly given to him. The way I see it culpability lies on behalf of the business owner to know better and on the city and the county for making the error in the first place. The third layer is the incentive that’s on top of the first two issues and that incentive is our opportunity to make some of this right without putting the business in a very difficult position"
Mitchell said the ultimate result is that "RSI is getting a very small incentive to double in size in our target market with the best sector jobs that we can hope for in this town. They are also being forced to repay those taxes but are not having to do it lump sum right up front which no business of that size could afford."
The motion to pass the measure passed 5-1 on a roll call vote (council member David Wilson was out of town) with council member Daphne Tenorio casting the one dissenting vote. When council member Shane Arabie’s name was called during the vote, he paused for a considerable length of time before voting in favor of the deal. After the meeting I asked him about the pause and he told me "We’ve been negotiating for nine months and at the end the deal changed and it became something I didn’t necessarily agree with. I agree with economic development incentives, but I didn’t agree with the way it went at the end, the loan portion. I don’t agree with an up-front loan. I don’t believe we should be in the business of loaning money." In the end, however, he said he felt the positives — 82 new jobs — outweighed the negatives.
The vote came after an hour and 54-minute executive session that came at the beginning of the meeting, right after the citizen comments period. Council member Becky Selberra slipped out of the meeting shortly after the vote was taken at around 9:40 p.m., which is the reason all the subsequent votes totaled five.
The second economic development proposal involved the location of an approximately 20,000-square-foot-plus linen cleaning facility planned for the business park being developed across Kohler’s Crossing from the Home Depot. The four items on the agenda covering this project, each of which the council passed unanimously, provided for the application of a $1 million grant that would be used for the construction of a wastewater pipeline to service the facility.
In other action Tuesday night, the council:
- Received a progress report on all five road bond projects that I will write more about tomorrow after I get some much-needed sleep.
- Asked Police Chief Jeff Barnett to rethink his idea of renewing a lease on three Harley-Davidson motorcycles to determine (1) whether it would be more prudent economically to purchase and not lease, and (2) whether Harley-Davidson is really the best brand option.
- Unanimously passed on first reading amendments to those sections of the city’s code that have to do with impervious surfaces after determining that cement swimming pools are not impervious. The most interesting thing about the discussion on this issue, however, was the prediction from Mayor Webster that "sometime down the road," residential stormwater fees will be determined by the amount of impervious surface on a resident’s property.
- Unanimously passed on first reading amendments to the landscape ordinance.
- Unanimously passed on first reading an ordinance that would more equitably distribute the costs of constructing water and wastewater systems among various developers.
- Voted 4-1 (Tenorio voting "no") to contribute $10,000 to pay the city’s share for a study to determine the feasibility of constructing a regional wastewater treatment plant somewhere in the Blanco River basin.
- Unanimously approved an agreement to provide retail water and wastewater services to the Anthem Development.
- Adjourned at 11:26 p.m.
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