Agenda Date: 11/18/2014
Subject:
Title
Resolution approving a General Use Tax Rebate Agreement with Foro Energy, Inc. to retain and expand operations with the City of Littleton
Body
Presented By: |
Denise Stephens, Economic Development Director |
POLICY QUESTION:
Does city council support the rebating 50% of the use tax paid on new equipment purchases by Foro Energy, Inc. over the next eight years?
BACKGROUND:
Foro Energy, Inc. opened offices in Littleton in 2009. The company opened an office with 15 employees in Houston 2011. Foro Energy developed patented innovations revolutionizing operations in the oil, natural gas, geothermal, and mining industries. As an example, its laser technology is a safer, more efficient method for locating and extracting gas and oil than current fracking methods. The company's ground-breaking technologies enable high- powered lasers to drill, complete, and decommission wells in a way previously believed scientifically impossible.
Besides industry changing technology, Foro Energy creates primary jobs. A primary job produces goods and/or services for customers predominantly outside the community. This creates new "outside" dollars for the community. Once an employer recovers its investment, it redistributes that wealth in the community through wages paid to employees and through suppliers. Foro has created and will add additional high paying jobs.
The City of Houston is offering incentives hoping Foro will locate all of its operations in Texas. The state of Colorado Office of Economic Development and International Trade (OEDIT) and Arapahoe County support retaining Foro in Littleton. The Colorado Economic Development Commission on September 11, 2014, approved $1,009,800 in performance-based Job Growth Incentive Tax Credits for Foro Energy's proposed expansion and investment project in Colorado. Approving this incentive was based on Foro Energy's commitment to create 64 new full-time, highly skilled, highly technical engineering jobs in Colorado at a projected annual average wage of $100,000. On September 23, 2014 the Arapahoe County Commissioners held a study session with Foro Energy to consider a 10-year Business Personal Property rebate and agreed to support the request.
STAFF ANALYSIS:
Providing a use tax rebate is a relatively low impact and potentially high-yield method to retain and expand a business. Although it means a reduction in use tax, it can be viewed as collecting 50% of use tax payable rather than collecting zero if the company moves to another city or state. Other states are actively recruiting companies with job growth and capital investment potential. Many company representatives, as with Foro Energy, know of this trend and ask what a city and state will do to retain them.
The state and county have invested in the process and it makes sense that the City of Littleton do so as well. Although this agreement represents an incentive not previously used by the city, any future requests can be considered with the same standards for job creation.
The use tax agreement specifically requires Foro remain in Littleton each year for the period of eight years to receive an annual 50% rebate. Use taxes will be paid in full and the rebate will be issued within 30 days of the subsequent year. This will ensure payment prior to rebate.
FISCAL IMPACTS:
Foro anticipates purchasing $12.5 million in high tech laser equipment and hiring approximately 64 high paid employees over the next eight years.
$12.5 million in taxable equipment acquisition would equal $375,000 (at 3%) in use tax for the City of Littleton. The proposed Use Tax Agreement would provide a 50% rebate in the year(s) following payment in full to the city. As an example, if Foro purchases $2.5 million in equipment in 2015 the rebate would be calculated: $2.5 million x 3% = $75,000 ÷ 2 (50%) = $37,500 rebate. If Foro purchases $12.5 million over the next eight years, the total rebate would be calculated: $12.5 million x 3% = $375,000 ÷ 2 (50%) = $187,500 rebate. These amounts may vary if more or less equipment is purchased based on expansion into the market.
Adding primary jobs influences the creation of direct, indirect and induced jobs. Indirect jobs are those created outside the regional center commercial enterprise. Examples are: suppliers or materials or independent contractors increasing the number of employees due to a project. Induced jobs are those that were created due to the economic impact made by the commercial enterprise. Denver South Economic Development Partnership and Arapahoe/Douglas Works have developed a calculator that extrapolates the effect of adding 62 primary, high paying jobs.
STAFF RECOMMENDATION:
Staff recommends approval of the General Use Tax Agreement with Foro Energy, Inc.
PROPOSED MOTION:
Proposed Motion
Motion to approve Resolution 118-201 approving the General Use Tax Rebate Agreement with Foro Energy, Inc.