2003 04 17 WS MinutesMINUTES OF THE WORK SESSION
OF THE CITY COUNCIL OF THE CITY OF BAYTOWN
April 17, 2003
The City Council of the City of Baytown, Texas, met in work session on April 17, 2003, at 3:30
p.m. in the Hullum Conference Room of Baytown City Hall, 2401 Market Street, Baytown, Texas,
with the following in attendance:
Ronnie Anderson
Council Member
Coleman Godwin
Council Member
Calvin Mundinger
Council Member
Don Murray
Council Member
Mercedes Renteria III
Council Member
Scott Sheley
Council Member
Pete C. Alfaro Mayor
Gary M. Jackson
City Manager
Ignacio Ramirez, Sr.
City Attorney
Gary W. Smith
City Clerk
The meeting was opened with a quorum present after which the following business was conducted:
Receive and discuss an update from the Ad Hoc Industrial District Agreement (IDA)
Committee on the background and history of the IDA policy and agreement and proposed
goals and timeline for new policy and agreements.
Gary Jackson, City Manager, reviewed the history of the industrial district agreements in Baytown.
The adoption of the annexation law in 1963 was the impetus for creating the industrial districts.
The purpose was to encourage the establishment of responsible industries near the city. The policy
of the initial agreement was to recognize that the property within the industrial districts would not
be subject to the same regulations as property within the City; to set a mechanism in place to
provide a payment in lieu of taxes; to acknowledged that the City would not annex the property
within the industrial district; and to recognize that the City would not provide services within the
industrial districts.
Under the existing agreements, payments were tiered as follows:
• Year 1 -45%
• Year 2-48%
• Years 3- 7 -50 %.
For new construction (more than $20,000,000), payments were tiered as follows:
• Years 1 -2-0%
• Year 3 -20%
• Year 4-30%
• Year 5-40%
• Years 6- 7 -50 %.
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Minutes of the Work Session — April 17, 2003
The IDA Committee's goals were as follows:
• Create a fair and equitable rate in the agreement that is competitive with other cities,
• The IDA payments are only one component of the City's fiscal strategy,
• Provide a predictable and enhanced payment formula that encourages capital investment,
• Provide language to clarify the City's right to participate in regulatory hearings and
proceedings, and
• Provide greater clarity in the language relating to the assignability of the agreements.
Mr. Jackson reviewed the City's financial outlook. The loss of the CCPD and the approval of
additional fire department staffing have a negative impact on the City's fiscal condition. The focus
must be on long -term financial solvency. Recurring expenses must be matched with recurring
revenues streams. The City has committed to financial strategic planning. We must accommodate
growth while maintaining the existing infrastructure. Mr. Jackson also reviewed the revenue and
expenditure projections.
The model industrial district agreement will:
• Provide comparable incentives to all industries,
• Avoid fluctuation in values that impact long -term planning, and
• Establish a base value for each industry.
Mr. Jackson exhibited an example of the impact of fluctuating value on the industrial district
payment. With depreciation at industrial sites, even with increased rates, less income is received.
The proposed agreement will:
• Incorporate provisions from industrial district agreements from other cities,
• Address assignability of the agreements, clarifying that the City must approve the
assignment,
• Clarify that the City has the right to participate in regulatory hearings,
• Establish a base value for each industry during the term of the agreement,
• Provide that new construction will not be added to the base value during the contract period,
and
• Increase the rates from 50% to 60% over the term of the agreement.
Mayor Alfaro noted that four members of the Council have filed an affidavit indicating a conflict of
interest with ExxonMobil and that the City Attorney has opined that the statute allows all of the
Council to participate in the discussion since a majority have filed the affidavits.
In response to an inquiry, Ignacio Ramirez, Sr., City Attorney, stated that the interim industrial
district agreement with ExxonMobil expires on May 31, 2003.
Mr. Jackson continued his explanation that the current value of the industrial property will establish
the base value and that the base value will not change during the term of the agreement. Council
Member Mundinger noted that this is an incentive to industry because improvements are not added
to the value and are not used to calculate the industrial district payments each year. Mr. Jackson
continued that the base value in a new agreement will be either the 2002 value or the then current
value, which ever is greater. Council Member Mundinger, responding to a question from Council
Member Anderson, said that industry viewed the base value provision as a benefit, but industry did
not fully support the frozen value. Mr. Jackson responded to questions and stated that inventory is
N
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Minutes of the Work Session – April 17, 2003
included in the base value in the same manner it is included and appraised for ad valorem tax
purposes. If property is exempt, then it will be excluded from the base value.
Mr. Jackson explained that the new agreement will have a tiered rate on a fixed value base as
follows:
• Year 1 -50%
Years 2- 4-55 %, and
Years 5- 7-60 %.
Mr. Jackson described the effective industrial district rate for Baytown, when compared to other
Gulf Coast cities industrial district agreement effective rates. The average rate presently, excluding
Baytown, is .3957. The current Baytown effective rate is .3685; at 55 %, it will be .4054; and at
60 %, it will be .4422. Council Member Mundinger noted that the proposed rate changes move
Baytown to the middle and projects to keep Baytown in the middle.
Mr. Jackson reviewed the projected revenues and expenditures in several scenarios:
Without change to the IDA:
2002 -2003 budget
2002 -2003 projection
2003 -2004
2004 -2005
2005 -2006
With new IDA:
2002 -2003 budget
2002 -2003 projection
2003 -2005
2004 -2006
2005 -2007
66 working days of capital
67 working days of capital
33 working days of capital
(4) working days of capital
(49) working days of capital
66 working days of capital
72 working days of capital
44 working days of capital
17 working days of capital
(19) working days of capital
With New IDA and 5% depreciation on existing contracts:
2002 -2003 budget
66 working days of capital
2002 -2003 projection
72 working days of capital
2003 -2006
41 working days of capital
2004 -2007
10 working days of capital
2005 -2008
(33) working days of capital
IDA without base value and 5% depreciation:
2002 -2003 budget
66 working days of capital
2002 -2003 projection
72 working days of capital
2003 -2007
39 working days of capital
2004 -2008
2 working days of capital
2005 -2009
(48) working days of capital
Projections may be affected by any changes in revenues and expenditures.
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Minutes of the Work Session — April 17, 2003
Mr. Ramirez stated that under the proposed agreement, if a part of an industry is sold and the new
owner signs an agreement, then the contract will be split. Council Member Mundinger said that if
no new agreement is signed, then the contract will continue under the existing terms.
Mr. Jackson continued and said that the revenue from the industrial district agreements has risen
from 20% of the general fund revenue in 1995 to 38% in 2002 -2003. However, prior to 2001, 20%
of the IDA value was carried on the tax roll and accounted as ad valorem tax; the rate increased
from 40% to 50 %; and the number of industries increased from 15 to 27 industries.
In summary the City and industries have a history of a relationship that has been for the betterment
of the whole community. Each has relied on the other for success. The tax rates for industries in
each county are compared by taxing entity, both inside the City and outside the City.
Mr. Ramirez responded to a question and related that assistance from outside counsel had been
sought in drafting the environmental provisions. The terms clarify that the City may participate in
regulatory hearings. The City may not dictate use of the property.
Council Member Mundinger said that the industries were not in total agreement with the proposed
agreement.
Council Member Sheley suggested starting the agreements at a higher percentage, rather than
continuing it at 50 %. Council Member Mundinger noted that the 50% rate was maintained because
it will generate more revenue by the deletion of the exemptions from the assessed value.
Mayor Alfaro noted that the proposed agreement is fair and equitable and is competitive. It is fair
to the industries and the citizens. It is only one component of the over -all strategy. An item will be
on the agenda for April 20 for consideration. If Council is not ready for action, then the item will
be delayed.
Council Member Renteria left the meeting at 5:19 p.m.
Brian Dunphy, ExxonMobil, thanked the committee for its courteous and professional review and
its work to satisfy the needs of both parties. The agreement will impact competitiveness.
ExxonMobil has concerns about the increases in rates and asks that the cumulative impact of all
taxes and payments be considered.
Kitty Allen, Chevron Phillips, complemented the committee for its work. She related similar
concerns to ExxonMobil's and will communicate Chevron Phillip's concerns to the Council. She
asked for more compromise and urged the comparison be broader than the Texas Gulf Coast.
Mayor Alfaro stated that he will ask the Ad Hoc Committee to assimilate and evaluate the
information obtained today, and meet a final time to address lingering concerns to industry prior to
Council consideration on April 241h
Council Member Sheley left the meeting at 5:30 p.m.
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Minutes of the Work Session — April 17, 2003
Adjourn.
There being no further business, Council Member Mundinger moved that the meeting adjourn.
Council Member Anderson seconded the motion. The vote follows:
Ayes: Council Members Anderson, Godwin, Mundinger and Murray
Mayor Alfaro
Nays: None.
The meeting adjourned at 5:31 p.m.
a// Nd
G—adj W. S ith
City Clerk