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HomeMy WebLinkAbout2008-09-04-8:30AM-WORKSHOP BRAZOS COUNTY.- - BRYAN, TEXAS ~~ex~~~~~-a NOTICE OF MEETING AND AGENDA SI2AZOS COUNTY COMMISSIONERS COURT WORKSI30P SESSION THE COMMISSIONERS COURT OF BRAZOS COUNTY WILL MEET IN A WORKSHOP SESSION ON THURSDAY 4 SEPTEMBER 2008 AT 8:30 A_M_ IN THE COMMISSIONERS COURTROOM OF TAE COUNTY ADMINISTRATION BUILDING, 200 SOUTH TEXAS AVENUE, SUITE 106, BRYAN, TEXAS. 1. Call to Order 2_ Discussion regarding Brazos County's Economic Development Iaceatives_ 3_ Adjourn The County Administration Building is handicap accessible. Handicap parking spaces are available- Any request for sign interpretive services must be made two working days before the meeting. To make arrangements, please call (979) 361-4102_ Office of the County Judge • 200 South Texas Ave. • Suite 332 Bryan, Texas 77803 • Fax: (979) 361-4503 I loo. IIQ I of 24 COMMISSIONERS' COURT WORKSHOP SESSION September 4th, 2008 The Commissioners' Court of Brazos County, Texas met in a Workshop Session on Thursday the 4th of September, 2008 at 8:30 a.m. in the Commissioners' Courtroom of the County Administration Building, 200 South Texas Avenue, Suite 106, Bryan, Texas, 77803, with the following members of the Court present: Randy Sims, County Judge, Presiding; Lloyd Wassermann, Commissioner of Precinct 1; absent. Duane Peters, Commissioner of Precinct 2; Kenny Mallard, Commissioner of Precinct 3; Carey Cauley, Commissioner of Precinct 4; Karen McQueen, County Clerk. Attached is a list of the citizens and officials in attendance. Attached is a transcript of the meeting. Vol 0 Page I b)-, 2 of 24 BRAZOS COUNTY COMMISSIONERS COURT Brazos County Economic Development Incentives September 4th, 2008 Sims: I will call this workshop into session. The Commissioners' Court of Commissioner Cauley, Commissioner Mallard, myself and Commissioner Peters are all in attendance. It is 8:30 and this has to do with the budget of the RVP. With that in mind, I'm assuming that yall have some ...as you well know, so far, we have not put in the $300,000.00 for the incentive fund to be used here in Brazos County. So, if you will, please let me give a few instructions; please turn your cell phones off or put them on mute and when you make your presentation come up to the speakers podium so that we can get it where we can record it. Commissioners, do you have any comments to make before we start with RVP? Mallard: Judge, I appreciate it, I'm the one that kind of set up this workshop to visit. I know there have been some concerns about the incentive guidelines and how they were set up and the process so I thought it would be good to have a workshop and have members from the RVP come by and visit with us about those guidelines. I think we had some folks that wanted to speak to go over some of that and tell us about how the guidelines have worked in the past and what we're working with. So if that is ok with you. Sims: That's fine. Just give us your name and address as you come up to the speaker's podium so that we can get that on the recording. Anderson: Good morning, my name is John Anderson, I reside at 200 Fireside Circle, College Station, Brazos County, Texas. As further information, not only do I own property in College Station, but I own property in Bryan so I consider myself a citizen of Bryan and College Station. I appreciate the opportunity to be here this morning. I want to give you a little background on the Research Valley Partnership which had been in the past, the Bryan/College Station Economic Development Corporation. Prior to the establishment of what was the EDC, by some visionary people in the community, Bryan/College Station were at odds over economic development. Intercommunity strife ...this is a fact, I've seen it...caused desirable capital investors/employers to look Vol 11 a\ Page I t03 3 of 24 elsewhere. The RVP...or the EDC, at the time ...was created to help us present at unified front, to recognize that we are all in this together, and to provide the tools for coherent controls and appropriate growth. Many of us...and I'm almost 64 this month ...look back, fondly, on the good `ole days. And, yes, I was there during the good `ole days. But I also believe that these are the good `ole days. A lot of us think of the good `ole days as before growth and changes. However, there is evidence, hard evidence, that if a community does not grow, it dies. And further, because of Texas A&M University and our geographic location... we always talk about how we're three and a half hours from over 17 million people; we can not help but grow. The Research Valley Partnership's charge is to direct that growth so that more A&M graduates can remain here with attractive careers. Spouses of A&M professors and leaders can have career opportunities. And we're charged with attracting clean enterprises with high capital investment, high salaries, and employment that does not overly tax our infrastructure; that is fire departments, roads, and schools. The whole time that I have been in Bryan/College Station... 1985 is when I got here ...we have not had high unemployment. But we have had underemployment at times and, when appropriate, we addressed that. The Economic Development Corporation and the Research Valley Partnership have been good stewards of the resources with which they have been entrusted. None of our competitive successes have cost us...I mean you and me...more than half of what the competition has offered. Now, would it be better to achieve our designed growth with no incentives? Absolutely. When I was on the board of the then EDC, none of us wanted there to be great incentives... it was in no one's best interest to go overboard on incentives. And we didn't. But the world in which we live doesn't allow for us to deal in zero incentives. We use the least expensive incentives first such as tax abatement for a limited time one capital investment which would not otherwise happen. Now bottom line is that incentives are not an expense; they are an investment. Investment which has generated enormous return for Bryan, College Station, Brazos County, and our citizens of about 25% a year since 1997. We require certain performance standards by those who receive incentives and, overall, they have greatly exceeded those requirements. By any measure, the EDC/RVP has been a success. Vol I i d\ Page 10 4 of 24 We have mentioned the guidelines that we have for economic development. They are intentionally just that... guidelines. We rely on honorable, wise people to exercise good judgment and to be good stewards of those resources. The guidelines, occasionally, have been changed but they have stood us in good stead. I like to look at this process ...and it is a process ...as one that applies with the rotary four-way test. I don't know if yall are familiar with the rotary four-way test; is it the truth, is it fair to all concerned, will it build good will and better friendships, and will it be beneficial to all concerned? At least to the extent possible. I think that is what we have done. What we want here is a win, win, win, win, win...I don't know how many times you can say that but we want it to be a win for Bryan, College Station, Brazos County, our citizens, and the companies that look to us to locate to grow their businesses. Thank you. Sims: Thank you. Anyone else? McDaniel: Good morning, my name is Todd McDaniel, President and CEO of the Research Valley Partnership. And when Kenny suggested that we host this workshop... from a staff perspective, we felt that was really a great idea. What we really want to focus on and would love to hear from the Commissioners' Court and get some direction is on the guidelines. The incentive fund ...we understand the constraints that the County faces this fiscal year and we'll defer to the wisdom of the Commissioners' Court on that. We appreciate the fact that the Commissioners' Court and the budget, at present, does allow for an increase to our funds for operations. So we stand ready to work on that. There are obligations but, again, we understand the situation at hand. As it relates to the guidelines, I think John as a past chairman really kind of echoes the staff s perspective in a sense that these are guidelines. Those are the rules that we play by. So whether it's a new company or an existing industry... here are our guidelines. It's literally at the discretion of all three of our funding partners the two cities and the County to ultimately decide whether or not the incentives is a good deal, it makes sense, it's the right policy, etc.. And we try to take every project and treat it as a unique independent project. So whether it's a new company or if it's the expansion of an existing company, we're looking at what it means today versus what the opportunities are in the future. So, for example, if you look at our guidelines and take a project ...and I'll just use Weatherford Corporation as an example ...two years ago we Vol I 9~, Page I b5 5 of 24 worked to locate Weatherford into the community and they are now in the Brazos County Industrial Park which is some 30 million dollars worth of investment. Well, if you read our guidelines, they would have been eligible for an eight year tax abatement starting at 70% or 80% or whatever. We actually gave them a four year tax abatement. So we could have under the guidelines gone as high as eight years but we, through economic impact analysis and negotiation and working with our partners, felt like that was a fair and appropriate incentive package for that project. So we're looking at not only what is at some point purely negotiable but also what is in the best interest of us trying to serve our partners at the County and two cities. So we do treat these as guidelines, we work through it, we work through our Board etc.. If you review our guidelines... due to the wisdom of our past leadership... they felt like the guidelines needed to give favored treatment to our existing industry. If you think about what we do; business attraction, business retention and expansion, and our innovation efforts then I would argue that business retention and expansion is really job one. Keeping the companies here growing, thriving, moving forward, is very, very important. Frankly, it is the low cost alternative. Attraction, as you all know, if very competitive and it is also very, very expensive. Not only in terms of operation but also in terms of actual incentives. Because we do live in a hyper competitive incentive environment. You have in your packet an incentive study that we did going back to 2004 where we compared ourselves to other geographies specifically in Texas. And if you look at that and read those recommendations what you'll see is that when you compare our incentives to those in other comparable markets that we compete with... especially on the more traditional side of our economic developments efforts... Mallard: Can you tell me where that is Todd? It's not the Carter-Burgess part of it. McDaniel: That is the Carter-Burgess study, yes sir. Page two is the recommendations. The Executive Summary is on page one and the recommendations are on page three. Again, I don't want to belabor the details of the incentive study but, again, essentially as the past Chairman Anderson suggested, we traditionally are able to win projects and facilitate the expansion of existing industry at a much lower level of incentive than most of our competitors do. So, again, we're looking at a return on our investment. I would tell you that there are certainly always opportunities to review the guidelines and the policies. There are things in the policy today that may be more appropriate, whether it's threshold adjustments... quite candidly, as a professional economic developer, that I am not a big fan of in our guidelines is allowing for the either/or Vol (i ~ Page b~ 6 of 24 provision (inaudible) either capital investment or payroll. I believe that it should be both. And so that is something that is certainly open and I would encourage. What we're looking for today is more just some guidance and direction, go back and revisit it. But with that said, these are guidelines. And as a matter of police the Commissioners' Court says, `Ok, for this project, due to the level of capital investment, we really need to see some new payroll.', then so be it. And that is certainly something that we're prepared to work through on behalf of our partner and clients. To close, I would just say that I don't believe our guidelines are broken. Again, I think there are certainly opportunities to review and we should do that from time to time. So this is a very health exercise, I think. But at the same time, if you look at what our competitors do and where we stand, I would argue that we are very conservative but I think successful. And I think that we'll continue to be successful with the current structure of our guidelines. Any questions for me? Mallard: Were there some comments about existing businesses... on getting incentives or some comments on that? I don't know if there were some thoughts. Sims: No, but let me ask a couple of questions. I hear where you're coming from but as you well know, we're the only governmental entity that gives you incentives or cash incentives... let me put it that way. And over the last few years it has been $300,000.00, $300,000.00, $200,000.00, $200,000.00, $200,000.00, $200,000.00 and $300,000.00 and that is what the request is this year. I guess what I'm saying... and I understand where John came from having to do with the two cities but there an inequity there that the County is putting up these large sums of money that comes out of our budget every year. I don't see anything in the balance sheet where Bryan/College Station has given any incentive money ...is that correct? McDaniel: No sir. Not necessarily. Sims: They may run infrastructure and this type of thing but... McDaniel: There are cases where they have shared in...and TIPS is a good example where both cities are contributing from their own funds to help support the TIPS incentive package. And there is a history of that with Sanderson Farms and Reynolds and Reynolds is an example where the County contributed dollars in the incentive fund and you also have the City of College Station contributing dollars to the incentive fund. A very fair Vol 11)~ Page 10 7 of 24 point and that's something that we may want to explore as it relates to the incentive fund; is how we might be able to have a more equitable balance. What I will tell you... and again, I would ask that maybe John or Celia to address this as a Chairman but from a staff perspective, the wisdom of our leadership in working with the County to establish the incentive fund ...Brazos County, quite honestly, is neutral. So when we work a project and we're going back to what our mission is...which is to do economic development without regard to municipal jurisdiction ...when we do an incentive project, whether it's in College Station or Bryan, because we're working through Brazos County, where it is located in either city is not relevant. So that's part of the reason that if you go back and look at the history of the formation of the incentive fund why it was decided to take it to the County level. Now, over the past six years the two cities have contributed (inaudible) of $50,000.00 to our operations budget above and beyond what Brazos County does. So, yes, there is a little bit of differential there in operational budget but you're actually correct, Judge, there is no question that in terms of just the incentive fund and who actually funds it...it's Brazos County. So I do think that is something to explore and discuss with our other partners. But, to me, the incentive fund ...the history of it was really an attempt to try to address our lack of having the economic development sales tax. I think that under the circumstances I believe that we have been very prudent and that the economic development fund has been a valuable resource for Brazos County and for the two cities. Sims: Let me ask you a question, I noticed you had Abilene written down here ...Abilene does have a sales tax. McDaniel: Yes. Sims: Yes, that's what I thought. And that is independent of that county's general fund budget. McDaniel: Yes sir. Sims: And as you well know, our benefit from some of these are not near as good as the benefit to the two cities. Our half cent sales tax, whatever, we collect and have so whatever business comes in or company that comes in that has a sales tax attached to it...our half a cent goes to offset ad valorem taxes, period. Theirs does not. The last half cent they got does go to offset ad valorem taxes. But anything else, sales tax, that they get all goes to the general fund. And it certainly does make it a lot easier to keep taxes down on the citizens of the two cities as opposed to the citizens of the County. Because we are not privileged to that. That is one of the things that in looking at this, the $300,000.00 and $200,000.00 that we Vol ll Page 163 8 of 24 have given over many years here has all come out of our general fund budget. That is really difficult at times like this when people are looking at us and saying, "We don't want any more taxation." That is very difficult. I have had several people when they heard about this meeting that we were going to have that made the comment to us, "Man, if these companies can't afford to open a business here then they probably need to go some place else."...good, bad, or otherwise. As a matter of fact, I had one gentleman in my office yesterday talking about it and made the comment, "You know, I don't get any incentives and I've been a businessman in this community for the last 25 years." It makes a lot of sense. It's hard to refute it...let me put it that way Todd. It's hard to refute that. That is basically my concern ...the economics of all of it...that we're providing a substantial amount of money to the RVP. Granted, we get a little reduction of $50,000.00 in their operating expenses but $50,000.00 doesn't add up to $200,000.00 or $300,000.00. I really think that the cities have got to get passed some of this and participate in this incentive fund if we're going to continue on in that way. Say to them, "We'll put up whatever is equal to the operating expenses... we'll do our share and then whatever you're requesting for incentives then I think the cities should step up and do the same thing as we do." If you're asking for $200,000.00 from each of us then everybody put their money on the table. Regardless of whether it goes in College Station or it goes in Bryan, it'll probably equal out over a period of ten years. Bryan will get their share, Brazos County will get ours, and they would probably equal out over ten years. That is a concern of mine and I'll let the Commissioners speak for themselves. But that is a concern of mine because it is all coming out of our general revenue fund and that comes from taxes and taxes alone. Anyway, that is one of my big concerns and one of the other concerns is that since we have been the only supplier of incentive funds then I would like for us to be in control of what we are requiring these companies to do to receive incentive funds. Not that we won't listen to RVP but it shouldn't be the way of the RVP guidelines, it should be by the way of Brazos County guidelines... for an incentive fund expenditure for them But I understand and I don't think that would be too unmanageable to be honest with you. It is really difficult in this day and time ...as you well know ...with what inflation has done over the past two years with gasoline and even personnel. My concern is that in looking at the operational budget, we're hiring two new people and we're talking about incentive funds up here and the two new people are proposed to get salaries of $231,000.00. That is a little hard to swallow. As a matter of fact, not very many people that work for Brazos County make that kind of money. So with that in mind, Vol 11 Page l bq 9 of 24 that is my challenge and that is some of my concerns. So, gentlemen, if you would like to make some comments about it then please do and ask questions or whatever. McDaniel: The only thing I would say is in terms of the incentive fund, again, that is something that from a staff perspective I would say is absolutely open for exploration and I certainly understand the situation. If you look at whether it's Waco or Tyler, I believe if my memory serves that Abilene was the only city that we used that did have the economic development sales tax. McClendon County uses the general fund ...they have an incentive fund just like Brazos County does. As it relates to the guidelines, that is a slippery slope. I certainly appreciate where the County comes from in terms of working through a process and we'll do everything that we're required to do on behalf of Brazos County to do that. But if you go and look at our guidelines, I mean, literally, the heading of our guidelines says, `City of Bryan, City of College Station, Brazos County. So when we have a project, whether it's an existing industry or a new project that says, `Hey, we're looking to make new investment.', and they're looking at Bryan or College Station, the guidelines are unified. So if you say that the County is going to have a set of guidelines and the City of Bryan is going to have a set of guidelines and the city of College Station are going to have a set of guidelines, they could be completely different and that could pose some real challenges in terms of our unified effort; giving one city or the other city a competitive advantage, putting the County in a situation where it is doing something that is quite different. So again, it goes back to the unified effort of the model and what past Chairman Anderson was referring to. So, it's something to think about. Again, it's entirely... these are guidelines and the way I view it is that this isn't really a legal concern as much as this is policy and policy is applied to the law. So these are policy questions that I think the Commissioners' Court should help us and guide us. Whether it's related to existing industry and future incentives or terms or whatever it might be. That's where I think these guidelines come into play from our perspective because as I said at the very beginning; these are the rules of the game that we play by. So when an existing industry comes to us, they already know what the guidelines say. So if they are doing a new investment where we are talking about the potential of substantial capital investment that is a new investment that is associated with a new product line or whatever, they understand what the guidelines say. So our job is to take those guidelines and to work through the process, work with our partners, the appropriate city and the County to work through that process. And so, again, it's just a function of direction and policy from the Commissioners' Court. Vol ft _ Page 1-70. 10 of 24 Peters: Some of Brazos County's guidelines are based on statute. I haven't had a chance to really look at the RVP guidelines and compare them to what statute says we have to do. I know cities are a lot more liberal in the way that they can handle things. The State lays out laws about how Counties deal with tax abatements or anything else. And that is one of the things that I want to be sure of in the guidelines is that the guidelines that RVP is operating under meet Brazos County's guidelines which are based on State law. This Commissioners' Court are the ones that have to answer to the taxpayers and make sure that the money that we tax for and is used that we're the ones that are answerable for it. I'm not questioning anybody's integrity or honesty or anything but I know our County Attorney sent out a questionnaire with one of the tax abatement incentive companies that is being requested and there were some questions on there that, frankly, under statute we have to comply with. One of them was for that company to allow inspection of the property to be sure that what they say they are going to put in there, they're going to put in there. And that is in the statute. That is something that Brazos County has to do. It's part of it. I haven't had a chance to read through the whole thing and compare the two but I just want to be sure that as we move through the process that we are conforming with what State statute says. McDaniel: Sure. And to that question ...and I'd have to visit with Bob in more detail ...but as I understand it, that is a role that the Appraisal District plays very well on behalf of Brazos County. When we work through a tax abatement process and do an annual compliance, we go directly to the Appraisal District. They are the ones that give us the information relative to what the new investment was over and above. Because, remember, with tax abatement, the existing investment is not eligible for a tax abatement ...it is only new investment made. So it's that new valuation above and beyond the existing investment. And so I believe that is taken care as a matter of course through the Appraisal District and what they do every year when they go. Because they do have our tax abatement agreements and they understand what those agreements require. So some coordination between the County and the RVP and the Appraisal District is absolutely appropriate. But I'll defer to Bob because he is the one that works on it on a day to day basis. But it is our understanding that happens as a matter of default. I mean they do that on behalf of the citizens of Brazos County. Mallard: I don't think that our attorneys or our auditor or our budget officer have the expertise to go out and determine how much valuation a business has. The Appraisal District... that's what they're here for...to determine that information. To put it out there. And if they say they are putting 8 million Vol 11a Page I'll 11 of 24 dollars in there and the Appraisal District says they only put 6 then that is all they get credit for. Malaise: My name is Bob Malaise; I live in College Station at 9309 Bloomfield. In response to that question, the way Conoco responded back ...when you read the question it indicated that there was at least four different groups that could come in and audit or inspect equipment. From Conoco's standpoint... what they were looking at is; "We have no problem. We have no problem with coming in and auditing or looking at the books what so ever." Their response was that right now the tax Appraisal District in all the counties and all the states that they work with ...that's been the process. "We're happy with that." One of the concerns that they have is that there is certain equipment out there that is highly proprietary and they don't want to open it up where a half a dozen people could be coming in to every facility. They have no problem at all with having a tax appraisal or anyone else as long as they know who they are. But I will be happy to sit down with that questionnaire and go over any answers with Brazos County, Brazos County Legal if there are questions or concerns about the answers. Sims: I do think, Bob, that we are going to have to sit down and talk about that because there is an ownership question mark that we had as to who owns what out there and whether a time frame has gone by when tax abatement is no longer available to them. Malaise: Yes, I'll be happy to answer that. At the last meeting that we had down there, I believe the Court said the legal representation and we haven't looked at it and Brazos County would get together. I think some of that has happened. And I think that the questionnaire has been looked at but my understanding right now from the legal end of it is it's been resolved. There is a transfer to the warranty deed. So Conoco/Phillips Specialty Products is in ownership. To give you a little bit of background... when we went through the due diligence process, one of the things that I asked when the documents were being put together for the tax abatement in Bryan, they came back and put it in the name of Conoco/Phillips Specialty Inc. I have an email and I can give it to whomever that it says, "Is this the company that we want on the contract?" and they said, "Yes, it is." In their mind, the title had been transferred. Conoco/Phillips Specialty Inc. they owned it and, in fact, they were operating with their books in that term. So I'm not saying that is right or wrong or whatever but, basically, it was an oversight on their part. That oversight has been corrected legally. Vol 11 d~ Page l 7 12 of 24 In terms of the equipment that is there now; the equipment that they are putting in is personal property. Yes, some of it is large equipment and things like that but it is also seen by the Appraisal District as equipment... it could be taken, removed, and moved somewhere else. That's why it's personal property and not real property. Personal property ...when the property is installed, when it is finished then at that point in time it is recognized as being there. What Conoco/Phillips did was prepare at this point in time based on the questionnaire of all the equipment that was which was around 3.6 million dollars in equipment... they showed where they stood in terms of completion. There is one part of the project that has been completed and it was for around a little bit less than $400,000.00. On the proposal to go forward, that would not be subject to tax abatement. There was also one other piece in the questionnaire that they have decided right now to not go forward with. So the total recommendation or what they're asking for would be around 3 million dollars with tax abatement. In essence, what will happen is that because of going forward with the project and moving forward with the project, they're going to spend more than 3 million dollars. They're also going to create more jobs than they anticipated. I'd be happy to explain anything that is in that questionnaire that is sill at issue or if there are still questions in the Court. Peters: Bob, do you verify on the number of employees and the salaries and that sort of thing? Malaise: There are two different ways you go about it. Number one is if a company is in Bryan or Brazos County or College Station and let's say that they're not a major corporation then they have to turn a quarterly report to the Work Force Commission. And that quarterly report is turned into the State and that verifies employment. It verifies that it has Social Security numbers and it verifies the salary that they receive. So that piece of paper right there, that document, is what we use on (inaudible). If you take a large company like Conoco/Phillips then they are not going to have an accounting group that does that at a local level. It is consolidated in Houston. What they do is prepare a report basically an accounting report that would be simpler... and turn in the sum total of the gross salary (inaudible) to verify by the employment and to verify the total salary. So in this instance for the report or the questionnaire that was turned in, they turned in the four quarters of 2007 which was last quarter and if I remember, it's about 2.6 million dollars is what they're current salary is with 45 people. Vol I Page 1 13 13 of 24 What will happen then is they will show next year or at the end of 2008...let's say that they did get a tax abatement at the end of 2008, in December, I send out a letter and the letter also attaches the contract, the tax abatement agreement. But in it, it stipulates that it has the performance measures for that year that they had to attain. And then what they do is they send back verification with either the Texas Workforce Commission report for four quarters or they send, basically, an accounting summary. For instances with Reynolds and Reynolds... what they end up doing is they have 1,800 people or so and they have a report, they have a file for the last eight years that shows the employees, it shows what they made, and then the total. The question I would raise then would be, `How do you verify this?' Number one is that in this year we will have made ...if you look at the last 18 months... around probably 25 site visits. We physically go out based on business and retention responsibilities I have had... understand what is going on with these companies. And it's nothing more, sometimes, than going out and spending an hour with them. For instance with Conoco/Phillips, while you're out there we've taken plant tours, we've been talking with them for a year about the possibility about a much larger project and it looks like it's imminent. So you get a sense for who is there. You get a sense for how many people are there. So it's a matter of a relationship and actually being on the site. If you stay in the office and you're not out there looking and you really haven't done anything. If we had someone that we were concerned about then we would certainly recommend doing an audit which we have never really had to do. I hope that answers your question. Now, in terms of (inaudible). That one is just a little easier. Let's say (inaudible)... what's going to happen when they finish? They have said they are going to put in a 20 million dollar facility. What they will give is, essentially, whatever that contractor has...he will work up at the end... basically, a summary of what they spent. We will get a summary of that. But then the next piece of that ...they can send it in and they can sign it and they can say, `This is what we did.' Mary Landreth and I at least sit down and verify ...when they have to render their property, when they turn it in for verification they send me an itemized list. Maybe not every piece but enough detail that I can take that to her and see what they provide. So that's a cross check to see if it actually happened. I'll give you a for instance... probably one of the bigger projects that we have done in terms of capital requirements was Reynolds and Reynolds. What we did with them was a retention expansion. When Reynolds and Vol I I ~k Page 1,14 14 of 24 Reynolds happened, one of the concerns that we had was a possibility of losing about 450 jobs out of this community. Because Reynolds and Reynolds has spare capacity and they know how. We had been with Arlen Cooper, we understood that there would be a possibility that something could happen. We didn't know which (inaudible) could hit. So when we put it together, we made the contract very simple; from a payroll standpoint, they had to maintain... 18 million dollar payroll is where they were at...and they had to have an investment of a little over 30 million dollars. You can go to the Tax Appraisal District right now, pull it up and go back and look and see how much is out there; it was something like 35 million. So what they ended up doing ...you know, we think sometimes that the case of Conoco/Phillips or someone like that that over time this thing is going to roll down to zero ...that is not really what happens. But a company that is thriving similar to that... first of all, the real property depreciation schedule is not going to be nearly as severe as a company in IT that would have, basically, computers. They're going to depreciate in about three years and you're going to have to turn them over. But it's going to fall off. But these companies are continuing to upgrade. They're adding new businesses; Reynolds and Reynolds has several businesses. The same thing with Conoco/Phillips out there. They are going to add different things as you go forward. What we did with them is they were getting ready to make a major expansion and the possibility of having a much larger plant that would be in synergy with the current plant they had. That concept, at least temporarily when we signed this, didn't happen. But it is back on the drawing board ...the different type of facility that could happen. And that is the big target. Does that...? Peters: Yeah, that helps. Malaise: We take it very seriously. And I would say that from a tax abatement standpoint, there is only one company that I know of that has failed in their tax abatement and that was Roofing Co Industries; they built a 20 million dollar plant out at Bryan (inaudible) and it never did take off. They decided it was not a core business and two months before it was supposed to open... although it was finished... it just sat there. And they went two years before they could sell it. But they had collected some tax abatement of almost $120,000.00...I remember. We got two checks back; one for the County and one for the City because we had fallback provisions in our agreement that even though they sold the property we collected on that. We have had some contracts that (inaudible) fallback or had a proportionate share if they pick up...we got part of it...they had Vol II 3-\ Page 175, 15 of 24 collected maybe 50% of the tax abatement. But we haven't had any tax abatement that has just defaulted; they've taken the money, and then walked. Peters: When we ask for documentation, I hope yall don't feel offended and think we're questioning your integrity or your honesty or anything. But our auditor would not reimburse me for a dime if I didn't provide a receipt for what I spent it on and all of that. Malaise: Let me address that again; we take the transparency extremely serious. I will tell you one thing right now that we had set up and we can set up the same thing with Katie. We have all of our books on QuickBooks online. And we have the ability to open that up to the County. The County can have access. They can't get into it and change things. Peters: And I really wasn't talking about that necessarily, but that is great and I'm glad to hear that. I was even talking more into the tax abatement and those companies and the documentation. For instance, the personnel and the salaries and stuff, when you bring that forward, I'd like to see how you verified that that in fact happened. Malaise: I could go two ways; I've got all of the records and we can have anyone come out and look. Next year when we go through the process and receive the information back and I make a report, I'll be happy to go further to make a report that I will open up to your auditors, to anyone that wants to look at it to see the verification. I'm that comfortable with what we do. Peters: Ok. Sims: Bob, to be honest with you, as you well know, I'm very concerned with having to do with upper level management salaries verse rank and file salaries. You can have a very high salary schedule at a plant but most of it is going to the top 10 people in the company. Malaise: I can show you at Conoco/Phillips for instance I'm not sure what Greg makes ...he is the manager at their very ...they don't have a lot of managers at this particular facility. They hired an engineer in this last go around and his starting salary with several years experience was $75,000.00. The operators that they have hired are $40,000.00. These are entry level starting positions. I can sit down and show you that exactly. It doesn't just come into a lump sum, there is breakout... so you can look at that. Vol HA Page 1.7 ~ 16 of 24 Sims: I think that tax abatement is one thing but hard dollars for incentive funds is another. I can handle tax abatement a lot better than I can when I have to pull $300,000.00 or $200,000.00 out of hard dollars out of our tax revenues that funds the County. That is a little bit different ball game as far as I'm concerned. But I would recommend that we participate to the same thing that the two cities participate as far as dollars and cents to your budget out there. I notice that we're $350,000.00 and they are $400,000.00 and $400,000.00... if we put up $50,000.00 and put it into that to make us equal then I wouldn't have a problem. But that means the incentive fund is going away unless they want to participate like we do...I know we're trying to stay at the same level. And we have been hit with a lot of things that the cities charge us for this year, i.e. ambulance out in the County ...it was $175,000.00 each department last year. And one is $340,000.00 something and another one is $400,000.00 and something. So I'm not saying that they are unreasonable but I'm saying that is where some of this incentive fund could go to pay for ambulance protection out in the County. Malaise: I hear where you're coming from but let me say one thing; there has been some of what your talking about that has transpired. If you go back and look at Decision One when we sold the building ...the building was sold for a profit. As soon as that sale came back in, we returned about $460,000.00 to Brazos County. We returned the same amount to Bryan. They had contributed 50%. From that, there was maybe around $200,000.00 that remained but there was also ...one thing about Decision One is that even though they didn't ever get to the employment level that they had anticipated, there was a provision in that agreement that they would have to pay rent at a ratio where they were to the target that they were supposed to get (inaudible). What I'm getting to is at the end of the day we had a little over a million dollars... about a million one...that was our economic development fund. We had a couple of small projects that the Board used the fund. But we asked College Station to step up and match what Bryan and Brazos County had in there. And they have; they put half a million dollars in. So that is the history behind it so... Sims: That went into incentive fund or operations? Malaise: No, it went not into the incentive fund but the economic development fund. And that is how we have 1.3 million right now. Sims: Ok. Malaise: So there has been contributions equally to establish that. Vol i l a Page I J 7 17 of 24 Peters: Bob, let me ask you... for instance, this check that came back today; how does that work? Do you pay up front and then at the end of the year...? Malaise: The way that our economic development agreements are structured... and I believe we have a true professional in Patricia Maronoff who represents us. She is truly ...I mean I've worked economic development all over the State for sixteen years and she is a true economic development professional. She understands the laws and has been doing it for a long time and we're very proud to have her as our counsel and I believe, quite frankly, that by serving as our counsel that she is helping serve as Brazos County's counsel. So there needs to be, I think, a better connectivity and we'll do a good job on our end to try to make sure that happens between Patricia and the legal counsel of Brazos County. As it relates to the agreements, these are performance based agreements... so you mentioned Coke earlier. So if there is a default, then we have ability within that agreement to pursue every remedy possible to recover our dollars as being good stewards on behalf of Brazos County and the City. In the case of Tomorrow Now...a very interesting story; Tomorrow Now was acquired by SAP, one of the world's largest software companies. And Oracle sued SAP claiming that Tomorrow Now was infringing on their intellectual properties. The decision was taken by SAP, for whatever reason, to just close Tomorrow Now down all together, period. They ceased to exist as a company. So when we learned of this ...and we had been tracking it which is why we're returning $60,000.00 verses $15,000.00 and we knew that this litigation was ongoing. And Andrew Nelson who is a citizen of our community and a very proud citizen was very up front with us on making sure that we were aware of what was happening. Last year, we intentionally did not pull the trigger on the incentive. So when we learned of that, we immediately made the request to SAP, Tomorrow Now for complete reimbursement of all incentives that we provided to Tomorrow Now through Brazos County incentive fund. And within a matter of about 30 days, we received a check and we're now returning that check to Brazos County. Which we would certainly hope would go back into the incentive fund ...but, again, that is at the discretion of the Commissioners' Court. A couple of things when you talk about the incentive fund; I do think that it is important to understand and recognize the different roles. Yes, there is a $300,000.00, $200,000.00 for a few years for the incentive fund that is from the County, but recognize that the two cities also contribute in their own unique ways. Historically, the two cities on major projects have gifted land. So, for example, we'll just use Toyo Ink, the City of Bryan gifted the land to Toyo Ink and that is competitive. Again, that's how it is. Whether we like it or not that is the reality. If we're going to win a Vol (la Page 119 18 of 24 project like Toyo Ink verses a Waco or Tyler or wherever... that's the nature of the game. So in this case, the City of Bryan gifted the land per incentive agreement to Toyo Ink so you have a value of that... whatever number you want to use. In our case, we use $30,000.00 an acre. So there is a value right there. Additionally they committed funds to extend a rail spur out of the City of Bryan dollars above and beyond Brazos County. So there are cases where in addition and above and beyond using the County incentive fund, the cities step in and do their fair share. The business center in College Station is a good example. Take a company like SourceNet...again the same type of process. The City of College Station gifted the land for that project above and beyond what the County did relative to an incentive fund or tax abatement or anything else. So there are other incentives that are potentially being utilized that are not directly impacting Brazos County. So, it's important just to understand, holistically, that the framework of how this is. It's not just the County incentive fund and nothing else. In some cases it is. In those cases, it actually makes it pretty easy... it simplifies the process a great deal. When you're dealing with a project where you have free land, potentially, you have a tax abatement, you have some cash, any other type of incentive that you're trying to utilize to win a project ...then you're dealing, again, with the appropriate city and Brazos County and a variety of different mechanisms that our partners use to make these projects happen. Mallard: Also, the point is that ...as everyone on this Court knows... it's really not our money, it's not the County's money ...it's the citizen's money. And when we have this incentive fund that we set up...and that is one of the reasons why it was decided to let the County do it...because the County is the taxing entity for all the citizens of Brazos County. And if we ask the City of Bryan or the City of College Station to create and tax their citizens as well, then aren't we taxing those twice? So that was the decision at the time. I was on the committee when Judge Al Jones said, "Maybe the best way to do it is to have the County take that role and tax the citizens of Brazos County only once." So the County would have that fund. Obviously, the City does put in other things; they put in land, they put in infrastructure and all of those things. And if we tallied that up, it might even equal what we've been doing. I can't answer that and I don't know that for sure. But I know that was one other reason ...that we would only hit the citizens one time through one taxing entity for that fund. Peters: In response to that; cities have other sources of revenue other that just property taxes. They actually get a pretty good chunk out of sales taxes which, although each citizen is paying but it may be other folks outside the City and outside the County that are paying those taxes. The County's Vol 11d\ Page 17q 19 of 24 pretty much sole source of revenue is property tax. That is not the case with the cities so they may be using sales tax money rather than property tax money ...if they used it in an incentive fund. I'm just saying that it is not necessarily that we would be taxing citizens twice because they have other sources of revenue. Sims: Let me jump in there too...as you well know ...these people have to have water, sewer, gas which the cities provide at a cost to these companies that are coming in so they are also making a profit in that respect. Malaise: Absolutely. And, again, looking at this holistically ...we'll just use Toyo Ink again; in the case of Toyo Ink, the City of Bryan agreed to extend a water line so they were able to use revenues from their water utilities to be able to do that. So, again, we certainly understand the funding of the County and where it sits and why the sales tax to where it goes and as a citizen of Brazos County I'll tell you that that is not a bad thing ...to have low taxes. So I understand and sincerely appreciate. I would argue that economic development is how you keep taxes low because you're growing the tax base. That is the whole theory behind economic development. And if we're doing it right and bringing return ...I went back and sat down and I reviewed the numbers and if you look at the eleven years and you look at what we estimate the actual cost to Brazos County verses the actual net revenue ...the actual cost is about 1.2 million we estimate verses a little over 8 million in revenue. That's about a 7 million dollar differential net proceed to Brazos County. So, as I've told the Court before and we're absolutely committed to continuing this; everything that we do we believe is designed to serve as a profit center for Brazos County. Everything that we do. Even when we go out and hire somebody, Judge, that is a highly skilled professional we expect that person to do what they need to do to bring in revenue for our partners and to work in that vein. So, for example, with our Bio Research Valley initiative and the Life Sciences... massive opportunities as you well know because you work closely with me with the University and the University system. Where we are headed with is if you project out over the next ten to fifteen years, I'm very, very excited about our future there. The infrastructure is, finally, now coming into play for that. So it's a function of trying to recognize the role that we play on behalf of our partners. And, again, as it relates to the guidelines, understanding that those are guidelines and that ultimately it's a policy decision by each of the partners when you work through a process of incentives. So any other feedback on the guidelines that we can take with us...I'm not sure that the guidelines need to be amended. I think, again, that it is Vol I P\ Page 1 w 20 of 24 just a function of the Commissioners' Court discretion based on a case by case basis recognizing what we've recommended. And that is the other point I would like to make is that just because we make a proposal and our Board approves it, the companies that we work with understand that that is not the end of the line. All that is, is a recommendation to our partners. It ultimately has to be approved by the elected officials of Brazos County and the two Cities. That is the role that you play. So they understand that and you make that very clear. And we also tell them that these are guidelines and that we'll make our best recommendation and we'll make a case for the return on investment, do our economic impact and all of that but, again, ultimately it is up to the discretion of the Commissioners' Court and the two City Councils as to whether or not they want to actually approve a project. Sims: And I think that may be a fault of mine that we have not scrutinized it any closer than we have ...and we should, because we're spending the tax dollars. We're the ones that put our name on the line when we say, "Yes, we are going to put this money into incentive funds." Maybe that is my fault and we're going to probably rectify that ...we will rectify that. We will scrutinize that a lot closer than we have in the past, because that is a large chunk of money that we're providing the incentive fund. One of the things that you said ...I understand that ...of course, as you well know, Texas A&M University is to...through not doing anything right or doing any wrong... they're going to bring economic development in here to this community. I mean I've been here since 1957 and people always ask me, "How is your economy doing?" and I say, "As long as we have that big bear on the hill out there ...we're not going to have swings like other parts of the nation or the State." And that is true. It benefits them too when they start bringing investment in for research and this type of thing. So these are just some things that I just wanted to say because I do know whether we did anything or not, they're going to bring jobs in. Malaise: Absolutely. And that is why we've hitched our wagon to the University and the University system and you've helped lead that. The question in my mind is, ok sure, they're going to do that... absolutely, we know they are and we all know, we're effectively a service economy. Most of the businesses in our market are small businesses that feed and survive, quite frankly, off of Texas A&M University and the University systems. Sims: That's true. Malaise: That said, I think where the University is headed benefits us from an economic development diversification perspective. And so I'll just use Vol I I 9~ Page 1 g 21 of 24 Ann Arbor, Michigan as an example; if you look at Ann Arbor, Michigan thirty years ago, the University of Michigan ...one of the great universities in the United States, very much focused and centered around the University of Michigan... that was the economic driver. Well today, they have a very diverse economy with manufacturing and research and development and so on and so forth. And that is where we're headed and what I think, again, credit to leadership like you Judge, is that the University is finally on board with economic development beyond just economic development directly related to Texas A&M University. They understand that their future rests on their ability to have industry partners and in a perfect world, those industry partners would not be located in Houston or in San Jose, California, or in Ann Arbor, Michigan... they would be located in Bryan/College Station, Texas. And they finally, I believe, are understanding that the have a role to play in that. And that is different. That is different from years past. So, sure, we're blessed to have the University and the University system as the economic drivers of market but if we want to continue to provide economic diversification for Brazos County that adds tax base and jobs beyond just that of what Texas A&M is doing then we need to be, in my opinion, we need to be connected and partnered with the University. And we need to be working together with them on industry partnerships and on relationships with industries that bring research funds into our community. I think that is where the real long term future economic development opportunities are. I have heard this from Dr. McKinney and I think you have too that the College Station campus is about as big as it is ever going to be. I mean Texas A&M College Station ...I mean how many students can you, literally, have? It's pretty much built out. That said, there is still opportunities with the system and so forth. We recognize that. But again, it is a function of how do you connect industry and do all of those kinds of things. So you're absolutely right; the driver is the University and that's where we have focused a lot of our energy and partners. Sims: Well, my comment that I was trying to make is that we are going to grow whether we want to or not. And that is going to happen because of the University. I'm not saying we need to stop economic development... I'm not saying that at all. But we, as a Commissioners' Court have just go to look at what we spend money on because we have 160 or 170 thousand taxpayers out there too. They want a return on investment and I'm sure that these are here today to see that we are getting a return on investment through the RVP. Ok? But there are some out there that don't know RVP from Post Toasties and they want to know why we're putting $300,000.00 into something that has nothing to do with them directly or that they are benefiting from. So it is a juggling act that we go through. Vol 113(- Page I 9X 22 of 24 So with that in mind... certainly I'm not cutting this off, I would like to hear from anybody else on the Commissioners' Court or any other questions and we'll probably put together some questions that we have after we leave here because we probably forgot to ask some of them. But we would like to make sure that whatever investment we make however large or however small, that we get a return on our investment. Peters: I had one more question about this check that came in. I'm not trying to point any fingers or anything but...and that's why as we move forward... and I appreciate yall being able to get four years of those funds back ...but I've wondered and as we move forward with other companies and anything else we do...at what point does it trigger that you realize that we shouldn't pay that next year's incentive fund. In other words, it appears to me that maybe we had four years that ...and I don't know at what point that they didn't qualify but then if they pay it back then we've got four years of back payment. I wondered and I'm not trying to point any fingers at anybody or anything but as we move forward with the next one; at what point do you recognize and how do you recognize that this company is not meeting their qualifications so we don't make that next payment. McDaniel: The irony of this project is that they have blown their quality performance requirements out of the water every year. If you go back and look at the agreement compared to what they were obligated to do then it's like five times as significant. Literally. But, again, the heart of our job is to work with our existing industry on behalf of our partners and understand the dynamics at play. So whether it's a Reynolds and Reynolds where we know Reynolds and Reynolds is in the process or UCS...you remember Universal Computer Systems did a reverse acquisition of Reynolds and Reynolds out of Dayton, Ohio. Reynolds and Reynolds is a publically traded company. We were very in tune with that and knew there was exposure to Brazos County and the City of College Station that we could actually see UCS stop and be relocated. In the case of Tomorrow Now, they blew out their performance requirements but one of Bob's primary responsibilities and I have to testify ...he is sincere when he tells you how seriously he takes his job on behalf of our partners. Frankly, it is a burden to the Research Valley Partnership. In some ways it would be easier to just have our partners do that. But that is a service that we provide. So that is something that we are honored and grateful to do. Again, in the case of Tomorrow Now, their performance requirements they blew them out of the water. So every year, they were absolutely eligible for their incentive. But we happen to know that this litigation was pending and then when we got word that SAP was going to literally just shut or close down ...finish operations of Tomorrow Now, Vol 11 Page I X63 23 of 24 we immediately pulled the trigger on that agreement in order to receive reimbursement of the full value of the incentive pay by Brazos County. Peters: Ok. Malaise: There were four payments and the last payment ...you remember we got it in April or around that time ...and we did not send that payment to the company. We held on to that because we knew that something could happen within the short period of time. So that is the history behind it. As soon as the announcement was made, the day before it was made, we got word it could be happening. Once that happened, we were in contact with their senior vice president in a conference call. And at that time he said, basically, "You will be repaid." We have documentation on that. So that's how that process went. But, again, it was performance contract. They got $10,000.00 up front and then each year as they performed then they got the next $10,000.00 Peters: Ok. Thank you Bob. Sims: Any further question or comments? No? Well, nothing can be decided today. We will take this into consideration and I will close this workshop session for the Commissioners' Court at 9:41. Tape ends. Vol I I ~ Page 19 `f 24 of 24 The foregoing minutes of the Commissioners Court Workshop held September 4th, 2008, have been examined and approved in open Court this the day of %V• , 200 in Bryan, Brazos County, Texas. Lloy Wassermann Commissioner, Precinct No. 1 S: ~~~'/Q~ - " 14 Duane Peters Kenny Mall At Commissioner, Commissione , Precinct No. 2 Precinct No. 3 57 ti O Carey uley, Jr. 1k Commi sinner, Precinct 4 Attest: Karen McQueen County Clerk Vol !R Page 195 BRAZOS COUNTY COMMISSIONERS COURT MEETING ON 2008 AT Name (PLEASE PRINT) Organization/Department q p k. v e amt . r /~c L^ iL~~