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HomeMy WebLinkAboutPublic Hearing to Consider Acceptance of the Five-Year Econo /S�rSE7�T �fM�iFF2 ,fWP0YED 3 -D City of Huntington Beach File #: 21-831 MEETING DATE: 11/16/2021 REQUEST FOR CITY COUNCIL ACTION SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Oliver Chi, City Manager PREPARED BY: Ursula Luna-Reynosa, Director of Community Development Subject: Public Hearing to consider acceptance of the Five-Year Economic Development Subsidy Report for McKenna Motors Huntington Beach, Inc. Sales Tax Sharing Agreement Statement of Issue: Government Code Section 53083 mandates certain requirements of local agencies, prior to approving economic development subsidies as well as during the term of such subsidies. One requirement is that not less than five years after the approval of an economic development subsidy, a report (the "Five-Year Subsidy Report") containing specific information shall be made available to the public via the City's website and at a City Council public hearing. In November 2016, the City approved a Sales Tax Sharing Agreement (the "Agreement") with McKenna Motors Huntington Beach, Inc. (McKenna). The Five-Year Subsidy Report is attached. Financial Impact: A fiscal impact was associated with the original action to approve the Agreement. However, there is no fiscal impact to receive and file this Five-Year Subsidy Report. Recommended Action: A) Open the public hearing and receive written and oral testimony; and, B) Receive and file the "Five-Year Economic Development Subsidy Report Pursuant to California Government Code Section 53083 for a Sales Tax Sharing Agreement by and Between the City of Huntington Beach and McKenna Motors Huntington Beach, Inc.," in compliance with Government Code Section 53083. Alternative Action(s): Do not receive and file the Five-Year Subsidy Report. Analysis: The City has used sales tax sharing agreements as an economic incentive to help attract new businesses and retain existing businesses. Danny McKenna, owner of McKenna Volkswagen (VW), approached the City in 2016 expressing interest in constructing a new Subaru showroom, retail store, City of Huntington Beach Page 1 of 3 Pnnted on 11/102021 p wereMk Legmia,^ File #: 21-831 MEETING DATE: 11/16/2021 and maintenance facility adjacent to the McKenna VW lot. In order to offset the cost of the project, originally estimated at $17 million, the City negotiated a sales tax sharing agreement (Agreement) with McKenna. The Agreement established that the sales tax portion of the original $25 million from McKenna VW in gross car sales be retained by the City. A good portion of the gross sales is not taxable (e.g. wholesale transactions for parts and used vehicles, service and labor, etc.) resulting in $15,080,000 of taxable sales with the City's portion of sales tax being one percent; therefore, the City's portion of sales tax revenue prior to the Agreement was $150,800 which amount serves as the City's base amount. The agreement provides that annually the City's portion of sales tax, in excess of the base amount, for both dealerships be split 55% to the City and 45% to McKenna. The economic subsidy enabled McKenna to expand VW operations and establish a new Subaru dealership with a private investment of S29.8 million. While the initial proposed investment by McKenna was $17 million, the final cost was higher and included $13.6 million for the purchase of land, $10.2 million to construct the new facility, and $6 million towards the purchase of the Subaru franchise. Subaru operated out of VW's dealership beginning in 2016 until construction of the new Subaru facility was completed in July 2019. Despite unprecedented economic circumstances related to the COVID-19 pandemic, the Agreement has been revenue positive and has achieved higher revenues for the City than projected. In addition to the base amount of $150,800. McKenna has generated $145,335 in annual sales tax revenue for the City, for a total of approximately 5296,000 in annual sales tax revenue. On January 1 , 2014, the State approved Assembly Bill 562 (AB 562), a law that requires local agencies to disclose certain information, make it available to the public, and conduct a public hearing prior to approving an economic development subsidy. The bill was codified as section 53083 of the Government Code and requires the following information, as applicable: 1) The name and address of all corporations or any other business entities, except for sole proprietorships, that are beneficiary of the economic development subsidy. 2) The start and end dates and schedule for economic development subsidy. 3) A description of the economic development subsidy, including the estimated total amount of the expenditure of public by, or of revenue lost to, the local agency as a result of the economic development subsidy. 4) The net tax revenue accruing to the local agency as a result of the economic development subsidy. 5) The number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions. In 2016, before approving the Agreement with McKenna, the Council held a public hearing and disclosed the information identified above. The staff report, the Agreement, and the original subsidy report from that public hearing are attached (Attachment #1). An additional requirement of the law is that a local agency that approves an economic development subsidy prepare a report and make it available to the public via the City's website and at a public hearing within five years of the approval of the economic development subsidy. The report must City of Huntington Beach Page 2 of 3 Printed on 11/102021 powert232 Leg,s:ar File #: 21-831 MEETING DATE: 11/16/2021 include the items listed above. The City has prepared the Five-Year Subsidy Report (Attachment #2) which includes the following key points: • Agreement term through December 31 , 2033; • The City has retained $1,480,673 of total sales tax revenues; • The City has provided McKenna with $594,550 in sales tax rebates; • A total of 37 full-time jobs and 305 temporary construction jobs were created from the economic subsidy. Environmental Status: Pursuant to CEQA Guidelines Section 15378(b)(4), government fiscal activities that do not result in a physical change in the environment and do not commit the lead agency to any specific project, do not constitute a project. Therefore, these activities are exempt in accordance with CEQA Guidelines Section 15060(c)(3). Strategic Plan Goal: Economic Development & Housing Attachment(s): 1. Original Staff Report, original Subsidy Report, and the Sales Tax Agreement Between the City of Huntington Beach and McKenna Motors Huntington Beach, Inc. 2. Five-Year Economic Development Subsidy Report Pursuant to Government Code Section 53083 for a Sales Tax Sharing Agreement by and Between the City of Huntington Beach and McKenna Motors Huntington Beach, Inc. City of Huntington Beach Page 3 of 3 Printed on 1 111 0/2 0 2 1 po er(233 Legsiar'- Dept. ID ED 16-35 Page 1 of 2 Meeting Date: 11/21/2016 77 -o } l CITY OF HUNTINGTON BEACH � REQUEST FOR. CITY COUNCIL ACTION MEETING DATE: 11/21/2016 SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Fred A. Wilson, City Manager PREPARED BY: Ken Domer, Assistant City Manager Kellee Fritzal, Deputy Director, Business Development SUBJECT: Approve and authorize execution of a Sales Tax Sharing Agreement between the City and McKenna Motors Huntington Beach, Inc., for the opening of a new Subaru Dealership Statement of Issue: The City Council is asked to approve a Sales Tax Sharing Agreement with McKenna Motors Huntington Beach, Inc., for the development and opening of a Subaru car dealership at 18711 Beach Boulevard. The Agreement will incentivize McKenna Motors Huntington Beach to construct the car dealership. The Agreement establishes that the sales tax portion of the first S25 million from McKenna VW in gross car sales is retained by the City and annually after $25 million, the sales tax is split 55`/o to the City and 45% to McKenna Motors Huntington Beach, LLC. ("McKenna"). Financial Impact: The proposed agreement is revenue positive for the City. The base sales tax received from McKenna Volkswagen will 100% remain with the City. The new dealership is estimated to generate S27 million in annual sales, therefore, annually the City will see an increase (after the base) of $83,700 of sales tax generated. Based upon this estimate, McKenna is projected to receive approximately S68,500 per annum and the City a total of S234,500. Recommended Action: A) Approve and authorize the Mayor and City Manager to execute the "Sales Tax Agreement Between the City of Huntington Beach and McKenna Motors Huntington Beach, Inc.'; and, B) Increase appropriation as revenue is received above the base to pay for City's share of the Sales Tax Sharing Agreement; and, C) Authorize the City Manager or designee to execute any additional documents required to further the Agreement. Alternative Action(s): Do not approve Agreement and direct Staff as necessary. Analysis: Mr. Danny McKenna owns and operates the McKenna VW on Beach Boulevard. He also owns the property that a majority of the Kia Dealership is located and operated from. Due to concerns over a pending residential project (the proposed Urban Art Lofts on the former McDonald's site) adjacent Item 13. - 1 1-1B -510- 234 Dept. to ED 16-35 Page 2 of 2 Meeting Date: 1 112 12 016 to his dealership, the future of both car dealerships (VW and Kia) had been in question. Due to the residential project being in the planning application process, the property was valued much higher than an otherwise vacant parcel. In order to continue his auto dealer business, Mr. McKenna purchased the adjacent land (former Urban Art Lofts project) from the residential developer for S6.75 million. With the purchase of the land, Mr. McKenna was presented with the opportunity to also purchase a closing Subaru dealership, which he has done. Mr. McKenna would like to expand and use the two parcels adjacent to the McKenna VW lot, of which he is the now the owner, to construct a new showroom/retail store and maintenance facility to meet Subaru's dealership image and space guidelines. The opportunity is expensive and the Agreement provides for assistance. Mr. McKenna will be investing an additional S4.5 to S5 million to construct the new dealership in addition to the purchase of the land (S6.75 million) and the purchase of the Subaru franchise ($6 million), for a total private investment by Mr. McKenna of over S17 million. The proposed economic development subsidy will enable Mr. McKenna to expand the operations of both the VW and Subaru dealerships, with annual combined sales revenues of approximately $52 million per year and potentially increasing the annual sales tax revenues to the City by an average of S148,000 per year over the existing base of $150,800 per year, or approximately by 100%. In addition, with the Agreement, Mr. McKenna will be signing a long term lease with Kia (Ken Phillips) for the continued operation of the Kia car dealership and will allow Kia to remain in Huntington Beach. Mr. Phillips is in the planning process to build a new showroom representing another large private investment which could result from this deal. Environmental Status: Not Applicable Strategic Plan Goal: Strengthen Economic and Financial Sustainability Attachment(s): 1. Sales Tax Sharing Agreement between the City of Huntington Beach and McKenna Motors Huntington Beach, LLC 2. Letter from Danny McKenna 3. Subsidy Report — Government Code Section 53083 FIB B -S 1 1- I63hi 13. - 2 ECONOMIC DEVELOPMENT SUBSIDY REPORT PURSUANT TO GOVERNMENT CODE SECTION 53083 FOR A SALES TAX SHARING AGREEMENT BY AND BETWEEN CITY OF HUNTINGTON BEACH AND MCKENNA MOTORS HUNTINGTON BEACH, INC. Pursuant to Government Code Section 53083, the City Council of the City of Huntington Beach must hold a noticed public hearing and, prior to the public hearing, provide all of the following information in written form and available to the public and through the City's website regarding a proposed economic development subsidy to be provided by the City pursuant to a Sales Tax Sharing Agreement by and between the City of Huntington Beach and McKenna Motors Huntington Beach, Inc. ("Agreement"). Notice was published on the City's website for a public hearing to be held on November 21, 2016. The purpose of this report is to provide the information required pursuant to Government Code Section 53083 in regards to the Agreement. This report shall remain available to the public and posted on the City's website until the end date of the economic development subsidy, as further described in Number 2 below. 1. The name and address of all corporations or any other business entities, except for sole proprietorships, that are the beneficiary of the economic development subsidy. The Agreement is with McKenna Motors Huntington Beach, Inc. who will construct, own and operate a new Subaru dealership that will benefit from the economic development subsidy: McKenna Motors Huntington Beach, Inc. 18711 Beach Boulevard Huntington Beach, CA 92647 2. The start and end dates and schedule, if applicable, for the economic development subsidy. If the Agreement is approved by the City Council, the start date of the economic development subsidy will commence on January 1, 2017 and the end date will be no later than 16 years after the start date, on December 31, 2033. The economic development subsidy will be paid quarterly, within 60 days of the end of each quarter. 3. A description of the economic development subsidy, including the estimated total amount of the expenditure of public funds by, or of revenue lost to, the local agency as a result of the economic development subsidy. The economic development subsidy is equal to forty-five percent (45%) of the sales tax revenue received by the City for the VW and Subaru dealerships in excess of$150,800(base year) for each year of the term. The term of the subsidy is 16 years and the estimated total amount of revenue lost to the City is estimated at 51.94 million ($121,250 average per year) in nominal dollars or approximately$987,000 in present value terms, assuming an 8%discount rate. City of Huntington Beach 1 November 2, 2016 FIB -829- Iteii§ 13. - 20 6. The estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time and temporary positions. The City anticipates the construction and operation of the new dealership will yield a minimum of 85 full- and part-time jobs and approximately 50 temporary new jobs during the construction. City of Huntington Beach 3 November 2, 2016 FlR -831- k6fi 13. - 22 SALES TAX SH.AR1NG AGREEMENT BETWEEN THE CITY OF HUNTINGTON BEACH AND McKENNA MOTORS HUNTINGTON BEACH, INC. THIS SALES TAX SHARING AGREEMENT ("Agreement") dated as of 7�tT12016 , is entered into by and between the CITY OF HUNT NGTON BEACH, a Municipal Corporation of the State of California ("City"), and MCKENNA MOTORS HUNTINGTON BEACH, INC., a California corporation ("McKenna"). RECITALS A. McKenna in the business of selling motor vehicles. McKenna's point of sale for purposes of the Uniform Local Sales and Use Tax Law is located at 18711 Beach Blvd., Huntington Beach, California 92648. B. McKenna is contemplating opening a new Subaru Dealership at 18711 Beach Blvd., in Huntington Beach. C. City recognizes that the expansion of McKenna to Huntington Beach will contribute to the economic vitality of the City, provide additional jobs, expand the City's tax base and otherwise improve economic and physical conditions in the City. D. In order to induce Mc'emta to open a new Subaru Dealership in Huntington Beach, the City is willing to provide incentive to McKenna as described in this Agreement. E. By its approval ofthis Agreement, the City Council of the City of Huntington Beach finds and determines that this Agreement serves a valid public purpose through expanding economic opportunities for businesses in the City, expanding the City's employment base, and generating Sales Tax that City can utilize to fund general governmental services such as police, fire, street maintenance, and parks and recreation programs. City and McKenna have agreed that the respective considerations are a fair exchange. P. The City has found that it is of benefit to the City and its citizens that certain obligations be imposed upon McKenna's future place of business to ensure Subaru vehicle sales and the resulting sales-tax revenues to the City. NOW, THEREFORE-, based upon the foregoing Recitals and in consideration of the mutual covenants and conditions hereinafter set forth. McKenna and City agree as follows: 1 16-5513/1468961DKO 238 DEFINITIONS. The capitalized terms and words used in this Agreement shall have the following meanings unless expressly provided to the contrary. 1.1 "Commencement Date" means first day of the month following McKenna Motors Huntington Beach, Inc.'s opening of a Subaru Dealership in 1-lunlington Beach. 1.2 "Event of Default" means any event so designated in this Agreement. 1.3 "Fiscal Year" means the City's Fiscal Year of October 1 through September 30. 1.4 "Laws" means all California State Statutes, laws, Ordinances, regulations, orders, writs,judgments, injunctions, decrees or awards of the united States or any state, county, municipality or other Govemmental Agency. 1.5 "Operatine Period" means the period beginning with the Commencement Date and expiring sixteen (16) years later. 1.6 "Party" means any party to this Agreement. The "Parties' shall be all parties to this Agreement. 1.7 "Penalty Assessments'means penalties, assessments, collection costs and other costs, fees or charges resulting from late or delinquent payment of Sales Tax and which are levied, assessed. or otherwise collected from the business on the Site owning or obligated to pay Sales Tax. 1.8 "Person"means any entity, whether an individual, trustee, corporation, partnership, trust, unincorporated organization; governmental agency or otherwise. 1.9 "Sales Tax Increment' means that portion of taxes derived and received by the City of Huntington Beach from the imposition of the Bradley Burns Uniform Local Sales And Use Tax Law, commencing with Section 7200 of the Revenue and Taxation Code of the State of California, as amended, or its equivalent, arising from all businesses and activities conducted on the Site. Sales Tax Increment shall not include Penalty Assessments, any Sales Taxes levied by, collected for or allocated to the State of California, the County of Orange, a district or any other entity, notwithstanding that such funds received by City are derived or measured by such other entity based upon Sales Taxes. The Sales l ax Increment shall not exceed one percent (1%) upon taxable sales and uses on the Site. 1.10 "Site" refers to 18711 Beach Blvd., Huntington Beach, California 92643, the property Aithin the City of Huntington Beach where McKenna will establish a Subaru Dealership. i 6-5 5 1 3114 6 896,DKO 239 1.1 1 "Sales Tax" means the tax derived from McKenna's business conducted on the Site and a portion of-which is allocated to and received by the City pursuant to the. Uniform Local Sales and Use Tax Law, commencing with California Revenue and Taxation Code Section 7200, el seq., as amended. 2. THE PARTIES 2.1 McKenna. a California corporation, whose mailing address for purposes of this Agreement is: 18711 Beach Blvd., Huntington Beach. California 92649. Wherever the tens McKenna is used in this Agreement. the term shall be deemed to refer to McKenna Motors Huntington Beach, Inc. McKenna may assign the rights and obligations of this Agreement to any other person, entity, or organization as long as the underlying business operations at the location remain an automobile dealership. By executimo this Agreement, McKenna warrants and represents to Citv that it has the full power and authority to enter into this Agreement and that all authorizations and approvals required to make this Agreement binding upon McKenna have been duly obtained. 22 The Cnv is a Municipal Corporation, duly organized and existing pursuant to its City Charter. 3. OBLIGATIONS OF MCKENNA 3. 1 Agreement. McKenna hereby covenants and agrees that they have opened a Subaru Dealership and are selling vehicles at the Site within. and to continue to use the Site as its primary Subaru Dealership business location during the Operating Period. 3.2 Site and Restrictions. McKenna shall. within a reasonable time, not to exceed three years from approval of this document by the City Council of the City of Huntington Beach, establish a Subaru Dealership at the Site. The purchase of the Site by McKenna shall result in a deed restriction on the Site, good and lasting for 16 years, which restricts the use of the Site and underlying property for new Auto Sales only. It- McKenna is unable to purchase the Site in Huntington Beach, McKenna and the City NManager or his or her designee shall help identify an alternative site within the City of Huntington Beach. If said negotiations are unsuccessful, either party may tenninate this Agreement upon thirty (30) days' written notice to the other party. 3.3 %,Ia\imizc Sales Tax. During the Operating Period, McKenna shall use its best efforts. consistent with the requirements of lacy, to designate the Site as the point of sale in all sales of its products. 3 16-5513/146896/DKO 240 1.4 Indemnification. From the Commencement Date of this Agreement through the termination date, McKenna shall indemnify, defend, and hold harmless City and its officers, employees and agents, from and against all liabilities, obligations, claims, damages, penalties, causes of action,judgments, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively "Claims") imposed upon or incurred by or asserted against City arising out of any act or omission of McKenna or its business; provided, however, that the aforesaid obligations of McKenna shall not apply to the extent any Claim results from the active negligence or intentional misconduct of City or any of City's officers, employees, agents, or contractors. in the event that any action, suit or proceeding is brought against City by reason of any such occurrence, McKenna, upon City's request, will, at McKenna's expense, defend such action, suit or proceeding at its sole cost. 3.5 Insurance. McKenna shall take out and maintain in effect through the Operating Period, at McKenna's sole cost and expense, the following insurance policies m the minimum amounts specified and in the forms provided below: (1) Comprehensive General Liability in an amount of not less than One Million Dollars (SI,000,000) combined single limits for each occurrence for bodily injury, personal injury, and property damage including contractual liability. (ii) Workers' Compensation as required by the Labor Code of the State of California and Employers' Liability insurance in an amount not less than required by California law. 3.6 Local, State and Federal Laws. McKenna shall carry out the operation of the business in conformity with all applicable local, State and Federal laws. 3.7 Anti-discrimination. McKenna shall not discriminate against any employee or applicant for employment because of age, sex, marital status, race, handicap, color, religion, reed, ancestry, of national origin. 3.8 McKenna's Representations and Warranties. McKenna makes the following representations and warranties as of the date of this Agreement and agrees that such representations and warranties shall survive and continue thereafter but shall not be remade after the date of this Agreement. 3.8.1 No Litigation. There is no litigation, action, suit, or other proceeding pending or tlueatened against McKenna or the Site that may adversely affect the validity or enforceability of this Agreement or sale of vehicles at the Site. To the best of McKenna's knowledge, McKenna is not in violation of any State Statute, Federal law, regulation or Ordinance, or of any order of any court or govcnimental entity, the effect of which would prohibit McKenna from performing its obligations hereunder. 4 i 6-55 1 3/146 S96/DKO 241 3.8.2 Authority. McKenna has complied with all governmental requirements concerning its organization, existence and transactions. McKenna has the right and power to own and operate its business as contemplated in this Agreement. 3.8.3 No Breach. To McKenna's knowledge, none of the undertakings contained in this Agreement violate any applicable govetntnental requirements, or conflicts with, or constitutes a breach or default under, any agreement by which McKenna is bound or regulated. 3.8.4 Warranty Against Payment of Consideration for Agreement. McKenna warrants that it has not paid or given, and will not pay or give, to any third person, any money or other consideration for obtaining this Agreement, other than normal costs of conducting business and costs of professional services such as accountants and attorneys. 3.9 Release of City Officials. No member, official, agent, employee, or attorney of the City shall be personally liable to McKenna, or any successor in interest of McKenna, in the event of any default or breach by the City or for any amount which may become due to McKenna or its successors, or on any obligations under the terns of this Agreement. McKenna hereby waives and releases any Claim it may have personally against the members, officials, agents, employees, consultants, or attorneys of the City with respect to any default or breach by the City or for any amount that may become due to McKenna or its successors, or on any obligations under the terms of this Agreement. 3.10 Reports. Within ten (10) days of filing each report with the State Board of Equalization, McKenna shall provide to the City true and correct copies of all reports filed by McKenna will) the State Board of Equalization in order to allow the City to preliminarily delemtine the amount of Sales Tax paid by McKenna on account of sales from the She; provided, however, that the City shall not be deemed to have received any Sales Tax until the City's actual receipt thereof. 4. OBLIGAT[OI\'S OF CITY OF HUNTTNGTON BEACH 4.1 Tax Rebate. Within thirty (30) days after the City confirms its receipt of Sales Tax paid by McKenna on account of sales from the Site during the Operating Period, the City shall pay to McKenna on a quarterly basis financial assistance in an amount equal to forty-five percent (45%) of annual Sales Tax Increment generated by McKenna within the City of Huntington Beach and actually received by the City, after the first $150,800.00 in annual gross sales. City retains all sales tax of the first $150,800.00 in annual gross sales. 42 City's Obligation to Provide Assistance Conditional on Sales Tax increment. The City's obligation to provide McKenna with assistance pursuant to 4.1 is conditioned upon McKenna producing Sales Tax Increment each Fiscal Year. To the extent McKenna does not produce Sales Tax Increment, then the tax rebate obligations herein shall be reduced to zero. 5 16.5513/146696,'DKO 242 4.3 Annual Adjustment. Promptly after each fiscal year of the City which includes a portion of the Operating Period, the City shall determine with respect to that fiscal year the aggregate amount of Sales Tax received by the City and the aggregate amount of financial assistance payments made to McKenna pursuant to Section 4.1. If for any reason (including but not limited to reporting errors or other adjustments) the aggregate amount of payments by the City with respect to that fiscal year is less than the aggregate amount payable with respect to that fiscal year, the City shall pay to McKenna an adjustment payment equal to the amount of deficiency; if for any reason (including but not limited to reporting errors or other adjustments) the aggregate amount of payments by the City with respect to that fiscal year is more than the aggregate amount payable with respect to that fiscal year; then the amount of the excess shall be applied against the next payments due under Section 4.1, except that if way unapplied excess remains after the Operating Period. McKenna shall pay the amount of the unapplied excess to the City upon demand. 4.4 Legal Challenge. Should any third party successfully challenge the validity of this Agreement through a taxpayer suit or otherwise, either party may terminate this Agreement upon thirty (30) days written notice. 4.5 Contingent Liability and Limitations. The tax rebate obligations ofthe City of Huntington Beach shall be subject to the provisions of City Charter Section 605, regarding annual budget appropriations, and will not be payable for a period in excess of the twenty-year Operating Period after relocation to the new site. 5. DEFAULTS AND REMEDIES 5.1 Events of Default. The following shall initiate the default sequence: (a) If McKenna materially breaches any of its obligations under Sections 3.1 through 3.7 of this Agreement. (b) If McKenna is found by a trier of fact, after hearing, to be in violation of any Local, State or Federal law. (c) If McKenna is found by a trier of fact, after hearing, in a final, non-appealable order orjudgment, either to be in violation of anv anti-discrimination regulation or to be liable in a suit for discrimination. (d) If:McKenna fails to provide the City with copies of the quarterly (or, if applicable, monthly) Board of Equalization reports filed by McKenna. (e) If City fails to timely pay its obligations hereunder. 6 16-5513/1468961DKO 243 When any of the initiating events described in this Section 5.1 occur, City or ,McKenna may give the other written notice to cure. Where such act or omission is not cured by the breaching Party within thirty (30) days after that Party's receipt of written notice that such obligation was not performed, it shall constitute an Event of Default, provided that, if cure cannot reasonably be effected within such 30-day period, such failure shall not be an Event of Default so long as the Party promptly (in any event, within 10 days after receipt of such notice) commences cure, and thereafter diligently (in any event within 10 days after receipt of such notice) commences cure, and thereafter diligently (in any event within a reasonable time after receipt of such notice) prosecutes such cure to completion. 5.2 Remedies upon Default. Upon the occurrence of any Event of Default, and thirty (30) days after written notice of default, and after a reasonable opportunity to cure such default, City or McKenna, as appropriate, may terminate this Agreement and file any action available in law or equity. 6. GENERAL PROVISIONS 6.1 Time of the Essence. Time is of the essence of this Agreement and all Parties' obligations hereunder. 6.2 Venue. In the event of any litigation herewder, ail such actions shall be instituted in the Superior Court of Orange, State of California, or in an appropriate municipal court in the County of Orange, State of California or an appropriate Feder-at District Court in the Central District of California. 63 Applicable Law. The laws of the State of California shall eovcrn the interpretation and enforcement of this Agreement. 6.4 Execution in Counterparts. This Agreement may be executed in two or more counterparts. each of which shall he an original, but all of which shall constitute one and the same instrument. 6.5 Attachments Incorporated. The Attachment to this Agreement is incorporated herein by this reference. 6.6 Copies. Any executed copy of this Agreement shall be deemed an original for all purposes. 6.7 Severability. If any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or wteaforccability, unless it affects the substantial rights of a party or defeats the purpose of this Agreement, shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision has not been contained herein. 7 16-3513/146396/DKO 244 6.8 Interpretation. The language in all parts of this Agreement shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against any party. When the context of this Agreement requires, the neuter gender includes the masculine, the feminine, a partnership or corporation of joint venture or other entity, and the singular includes the plural. 6.9 No Partnership or Joint Venture. The parties hereto agree that nothing contained in this Agreement shall be deemed or construed as creating a partnership,joint venture, or association between City and McKenna; or cause City or McKenna to be responsible in an), way for the debts or obligations of the other, and no other provision contained in this Agreement nor any acts the parties hereto shall be deemed to create any relationship between City and McKenna other than that of contracting parties. Further, nothing lierein shall give or is intended to give any rights of any kind to an), person not an express party hereto. 6.10 Integration. This Agreement, including the Attachments attached hereto, is.the entire Agreement between and final expression of the parties, and there are no agreements or representations between the parties except as expressed herein. All prior negotiations and agreements between City and McKenna with respect to the subject matter hereof are superseded by this Agreement. Except as otherwise provided herein, no subsequent change or addition to this Agreement shall be binding.unlcss in writing and signed by the parties hereto. 6.1 1 Nomvaiver. None of the provisions of this Agreement shall be considered waived by any party except when such waiver is given in writing. The failure of any party to insist in any one or more instances upon strict performance of any of its rights hereunder shall not be construed as a waiver of any such provisions or the relinquishment of any such rights for the future, but the same shall continue and remain in full force and effect. 6.12 Notices. Any notice,approval, demand or other communication required or desired to be given pursuant to this Agreement shall be in writing and shall be effective upon personal service (including by means of professional messenger service) or, five (5) days after mailing via United States first-class mail or two (2) days after mailing via Federal Express or other similar reputable overnight delivery service. Any notice shall be addressed as set forth below: If to City: If to McKenna: Kellee Fritzal McKenna Motors Huntington Beach, Inc. Deputy Director of Business Development Attn: Daniel J. VScKenna 111 City of Huntington Beach 18711 Beach Blvd. 2000 Main Street Huntington Beach, CA 92648 Huntington Beach, CA 92648 8 16-5513/146896/1)KO 245 With copies to (which shall not constitute Notice): Michael E. Gates, City Attorney City of I Iuniington Beach 2000 Main.Street Huntington Beach; CA 92648 and Fred Wilson, City Manager City of Huntigton Beach 2600 Main Street Huntington Beach, CA 92648 Either City or McKenna may change its respective address by giving written notice to the others in accordance with the provisions of this Section. IN WITNESS WHEREOF, due parties hereto have caused this Agreement to be executed on the dates hereinafter respectively set forth. McKenna Motors gton Beach,Inc.; a CITY OF HUNTINGTON BEACH, California corpora a municipal corporation of, to State of California By: Mayor p or name ITS: (circle one)CinirmatiMmsir entfVice 'resid IVn APPROVED AS I' By; rATED ttamey bl(2) A I APPROVED: [Hint nwnc ITS: (circle mm)SeCmimy/Clticf Financial Onker/Assi. Sccmary—Trcasumr Deputy Director of y ulsiness Development • ftEVl D APPROVED: COUNTERPART y a alter 9 16-5513/146896/DKO 246 Recorded in Official Records, Orange County Hugh Nguyen, Clerk-Recorder IIIIIIIII$I I III I[IIIIII111$1111111IJ11IIIIIII11111Jlll Jill II1111111 NO FEE = 5 R 0 0 0 8 9 0 7 5 8 9 $ 2016000618941 11:54 am 12107116 90 SC5 D02 6 RECORDING REQUESTED BY ) 0.00 0.00 o.oa 0.00 15.00 0.00 0.00 0.00 AND WHEN RECORDED MAIL TO: ) City of Huntington Beach ) 2000 Main Street ) Huntington Beach, CA 92648 ) Attn: City Clerk ) } 1 (Space above for Recorder's use) This document is exempt from recording fees pursuant to Gov=mcot Code Section 27383. AGREEMENT DECLARING CONDITIONS, COVENANTS AND RESTRICTIONS FOR PROPERTY ('N -W AUTO SALES) This Agreement Declaring Conditions, Covc�n�nts and Restrictions for Property - New Auto Sales (the"Declaration'") is made as of&i/ 22,G5�,e, 2/ . 20-16 by and between McKENNA MOTORS HUNTI.NGfON BEACH, INC., a California corporation (the "Covenantor'), and THE CITY OF HUM"ITNGTON BEACH, a California municipal corporation(tile"City'). RECITALS A. Covenantor is the owner of record of that certain real properly generally located at 18711 Beach Blvd-, Huntington Beach, California and legally described in the attached Exhibit "A" (the `Site';and B. On!- Vcm the City Council approved that certain Sales Tax Sharing Agreement with ov�authorizing a sales tax rebate incentive for the development of a new Subaru dealership on the Site; and C. The Sales Tax Sharing Agreement requires that the use of the Site be restricted to New Auto sales for a period of sixteen (16) years, and the execution and recordation of this Agreement is intended to fully satisfy these conditions. NOW, THEREFORE, the parties hereto agree and covenant as follows: 1. Use Restriction. Covenantor agrees for itself and its successors and assigns, and every successor to Covenantor's interest in the Site, or any part thereof, that the Site shall be held subject to this Declaration for sixteen (16) years from the first day Thb doarr*nt b edery for the official bueirru d(dIe City of Huntington 16-5513114(897A)KC) l Bpe�@d�1,ee�C�ontemplated under GOWTV IOnt Code Sec.6103 and ehOLdd br recorded free of charge.247 of the month following Covenantor's opening of a new Subaru Auto Dealership on the Site as follows: (a) New Auto Sales Only. Covenantor agrees that the Site will be used for purposes of New Auto sales only. As used in this Declaration, the term "Covenantor" shall mean CovenanWr, its successors and assigns, and every successor to Covenantor's interest in the Project, or any part thereof. (b) Duration. The tent of this agreement shall commence on the first day of the month following Covenantor's opening of a new Subaru Auto Dealership on the Site and will continue for sixteen (16) years thereafter(the "Tenn"). The covenant contained in this Section 1 shall run with the land and shall automaticaliv terminate and be of no further force or effect upon the expiration of the Term. 2. Covenants for Benefit of City. All covenants Athout regard to technical classification or designation shall be binding for the benefit of the City and such covenants shall run in favor of the City for the entire period during which time such covenants shall be in force and effect, without regard to whether the City is or remains an owner of any land or interest therein to which such covenants relate. The City, in the event of any breach of any such covenants, shall have the right to exercise all the rights and remedies and to maintain any such action at law or suits in equity or other proper legal proceedings to enforce and to cure such breach to which it or any other beneficiaries of these covenants may be entitled during the term specified for such covenants, except the covenants against discrimination which may be enforced at law or in equity at any time in perpetuity. I Binding on Successors and Assigns. The covenants and agreements established in this Declaration shall, without regard to technical classification and designation, be binding on Covenantor and any successor to Covenanter's right, title, and interest in and to all or any portion of the Project, for the benefit of and in favor of the City of Huntington Beach. All the covenants contained in this Declaration shall remain in effect for the Term, and shall automatically terminate and be of no further force or effect after such time. Upon expiration of the Affordability Period. City agrees to cooperate with Covenantor, at no cost to City, in removing this Declaration of record from the Site. 4. Counterparts. This Agreement may be executed in a number of counterparts, each of which shall be an original, but all of which shall constitute one and the same document. -5. applicable Law. (a) If any provision of this Agreement or portion thereof, or the application of any provision to any person or circumstances, shall to any extent be held invalid, inoperative, or unenforceable, the remainder of this Agreement, or the application of such provision or portion thereof to any outer persons or circumstances, �6ii 1�l1 a5S97/nY0 2 248 shall not be affected thereby and it shall not be deeded that any such invalid provision affects the consideration for this Agreement;and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. (b) This Agreement shall be construed in accordance with the haws of the State of California and all applicable City Codes. IN WITNESS WHERLOP, the City and Covenantor have caused this instrument to be executed on their behalf by their respective officers hereunto duly authorized as of the date set forth above: COVENANTCRS CITY: MCKENNAUNTINGTON CITY OF HUNTINGTON BEACH. BEACH,,INia corporation a Ca ifornia n i al orporation ny McKennany: XmtU1 Via'' s Katapodis ITS: (circle one)Chairnmr r Viee President nu AND City Clerk—Robin Estanislau Dann McKenna 6p: I flvyuNa riot name ITS: (cinle,o e)SecretarylChidFinmeial APPROVED A OlfcedAs 1:Seareiary—'rrcuuier 'ityAttorney J11'b\ to or-O .w COUNTERPART INITIATED AN APPROVED: Deput Director of, onomic Development RLVI = 4 APPROVED: F� Gty 9anagcr I6-5513r146897/OKO 3 249 FIVE-YEAR ECONOMIC DEVELOPMENT SUBSIDY REPORT PURSUANT TO GOVERNMENT CODE SECTION 53083 FOR A SALES TAX SHARING AGREEMENT BY AND BETWEEN THE CITY OF HUNTINGTON BEACH AND MCKENNA MOTORS HUNTINGTON BEACH, INC. The following Five Year Report has been prepared pursuant to California Government Code Section 53083. Section 53083 requires that for economic development subsidy agreements approved on or after January 1, 2014, the city must hold a public hearing within five years to provide an update on the project. As required, this report reiterates details of the Sales Tax Sharing Agreement (Agreement) and provides information on subsidy payments to date. 1. The name and address of all corporations or any other business entities, except for sole proprietorships,that are the beneficiary of the economic development subsidy. The Agreement is with McKenna Motors Huntington Beach, Inc. (McKenna), beneficiary of the economic development subsidy: McKenna Motors Huntington Beach, Inc. 18711 and 18801 Beach Boulevard Huntington Beach, CA 92647 2. The start and end dates and schedule, if applicable, for the economic development subsidy. The start date of the economic subsidy was on January 1, 2017, and it terminates 16 years later on December 31, 2033. 3. A description of the economic development subsidy, including the estimated total amount of the expenditures of public funds by, or of revenue lost to,the local agency as a result of the economic development subsidy. The economic development subsidy is equal to forty-five percent (45%) of the sales tax revenue received by the City for McKenna's Volkswagen (VW) and Subaru dealerships in excess of $150,800 (base amount) for each year of the term. To date, the full amount paid by the City to McKenna as part of the economic development subsidy is $594,550.50 over the past 4.75 years. 250 4. The net tax revenue accruing to the local agency as a result of the economic development subsidy. The Agreement has retained substantial sales tax revenue for the City. Annual taxable sales for both the VW and Subaru dealerships since 2016 is $207,522,300. Thus far, McKenna has generated $2,075,223 in sales tax revenue. As shown below, the City has retained $1,480,672.83 of the total sales tax revenue. Fiscal Year*** Sales Tax Revenue Sales Tax Rebate City's Revenue* FY 2016-2017 $401,442.00 $112,788.90 $288,653.10 FY 2017-2018 $417,421.33 $119,979.60 $297,441.73 FY 2018-2019 $387,248.00 $106,401.60 $280,846.40 FY 2019-2020 $464,822.00 $141,309.90 $323,512.10 FY 2020-2021** $404,290.00 $114,070.50 $290,219.50 TOTAL $2,075,223.33 $594,550.50 $1,480,672.83 * Includes annual base of$150,800 ** Last quarter of the S"fiscal year not received yet *** Fiscal year begins October 1—September 30 Additionally, the property value has increased due to site acquisition and improvements, with an assessed value greater than $21 million in 2020. The City's share of property taxes received by the County of Orange increased from $23,412 (FY 2015-16) to $31,866 (FY 2020-21), a difference of$8,454. S. The number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions. Subaru has hired a total of 37 full-time employees and they had approximately 300 workers onsite during construction. 251 �,�NTINGTp� 9n U = COQ Five-Year Economic Subsidy Report Pursuant to Government Code Section 53083 Sales Tax Sharing Agreement with McKenna Motors Huntington Beach, Inc. Background • McKenna Motors Huntington Beach, Inc. ��''ff',�i, approached City in 2016 for assistance- expansion of VW and the building of new Subaru Dealership—Sales Tax Agreement • $15 million in taxable sales retained by City annually, then split SS% for City and 45% McKenna in excess of base amount $150,800 • Subaru complete in July 2019—total private investment of $29.8 million Date: , JID94 AB 562 — Section 53083 • Enacted January 1, 2014 Requires local agency to provide specified s•a/� information to the public and to review, hold hearings, and report at specified ;• . intervals • ' '� 7 • Economic development subsidy - an � � • '• '"`" expenditure of public funds or loss of revenue - ($100,000 or more) for the c purpose of stimulating economic development _ i 5 Year Economic Subsidy Report 1. The name and address of all corporations or any other business entities 2. Start and end dates, and schedule for the economic development subsidy 3. Description of economic development subsidy • estimated total amount of the expenditures of public funds by, • or revenue lost to, the local agency 4. Net tax revenue accruing to City as a result of the subsidy 5. Number of jobs created Key Points of City/McKenna Agreement 11/16/2021 FiKal YNr SaNs Taa Rawnw Sala•Ta.ReGOe C Rewnw FY M18-I017 $401,44200 $112.78890 $288.653 10 FV Z017•5018 ' .r FV Z01840/8 $387.24800 S106.401 .i $260.84640 FY 2018-2020 DO 30990 $323.512 10 FV 20i8-2071S404.2W 00 r ' 90 .21950 TOTAL • Agreement term through December 2033-16 years • $2,075,233 total in Sales Tax Revenue • City has retained 51,480,673 (including base) • McKenna provided with $594,550 • 37 full-time jobs, 305 construction jobs • Assessed value of property greater than $21 million (2020) McKenna Subaru—Huntington Beach tN�NtINGTp� O n U 2 9 Qom' s►f OpUN*v CP��t Five-Year Economic Subsidy Report Pursuant to Government Code Section 53083 Sales Tax Sharing Agreement with McKenna Motors Huntington Beach, Inc.