HomeMy WebLinkAboutAgenda Statement 1985/02/26 Item 20 COUNCIL AGENDA STATEMENT
Item 20
/ Meeting Date 2/26/85
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ITEM TITLE: Resolution f Approving an agreement with Home Depot
for the relocation and undergrounding of electric utility
lines and appropriating funds therefor
SUBMITTED BY: Community Development Director 4/5ths Vote: Yes X No )
REVIEWED BY: City Manager,;
Pacific Scene has been planning the development of a shopping center at 1-805
and H Street for the past several years. This center includes major anchor
tenants such as Safeway, Longs Drugs, Marshall 's Department store, and a Home
Depot home improvement center. Because of the size of the Home Depot
building, it is necessary to acquire an adjacent parcel and relocate a 69kv
electric line which currently separates the shopping center parcel and the
additional parcel to be purchased. Relocation and undergrounding of this line
will cost approximately $230,000. The City Council is requested to approve an
agreement to provide funds to cover a portion of the cost of relocating this
line. Repayment of these funds will be guaranteed through additional sales
tax revenue accruing to the City from the Home Depot center.
RECOMMENDATION: That the City Council adopt the resolution approving the
agreement with Home Depot, Inc. and appropriate $175,000 from the City's
general fund which may be reimbursed with CDBG funds in FY 1985-86.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
Over a year ago, Home Depot expressed an interest in locating on the 1-805 and
H Street site being developed by Pacific Scene. Pacific Scene plans to
develop a shopping center on this site were approved by the City Council
within the past six weeks. The intent to include Home Depot also aroused the
interest of Marshall 's Department Store to locate in the center.
The inclusion of Home Depot, comprising approximately 80,000 square feet,
required the acquisition of an adjacent parcel which had originally been
designated for low-income housing. Upon review, the Council agreed that this
site would best be used for additional commercial use. Pacific Scene
subsequently replanned the center to include Home Depot. However, it soon
became apparent that, because of the size of the store, a 69kv electric line
which currently runs underground along the border between the two sites would
have to be relocated to allow for the construction of the large store. The
cost of relocation and undergrounding has recently been estimated not to
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Meeting Date 2r2b/85
exceed $231 ,000. The developer and the user asked if the City of Chula Vista
could provide assistance in funding the relocation and undergrounding of the
electric line since the cost of development had already been substantially
increased by the purchase of the additional parcel and design standards
required by the City. Home Depot indicated that, without assistance in
relocating the line, they would not develop on this site. The proposed store
will be the most expensive in their chain.
Negotiations with Pacific Scene and Home Depot to arrive at terms through
which public funds could be used to assist in relocation of the line have
taken place. As a result it is proposed that funds be repaid to the City
through guaranteed incremental sales tax revenue accruing from the new store.
In the course of these discussions, a second home improvements center,
Southerland's Lumber Company, approached Pacific Scene and the City to discuss
establishing a similar concept. Southerland's subsequently signed a contract
with Pacific Scene to develop a Home Mart comprising approximately 80,000 sq.
ft. In the past month, Southerland's dropped out leaving the center without a
major home improvement center and revenue-producer. Pacific Scene quickly
contacted Home Depot to ascertain whether they were still interested in
locating on the site. Home Depot is currently developing three stores in San
Diego County and is very interested in locating their proposed South Bay store
at the 1-805 and H Street location. However, they reiterated the need for
assistance in funding the relocation of the utility line in order to defray
excessive development costs. Subsequent discussions between City staff, the
developer, and Home Depot produced the proposal described below which has
recently been accepted by Home Depot in concept.
Under the proposal , the City would provide funds to assist Home Depot in
relocating and undergrounding of the 69kv electric line which presently
bisects the store site. The amount will be determined by the difference
between relocating the 69kv line with overhead lines and the cost of
undergrounding the line, since the latter is a requirement of the City. For
example, if relocating the overhead line costs $30,000 and undergrounding the
line costs $180,000, the City would participate in the project in the amount
of $150,000.
Funds provided by the City would be repaid through sales tax revenues. An
agreement with Home Depot is proposed to include the minimum gross amount of
sales they anticipate in the new store over the first three years of operation
as follows:
Year 1 $12,000,000
Year 2 $13,500,000
Year 3 $15,000,000
If the minimum gross sales are not attained, Home Depot will be required to
make a payment to the City equal to the sales tax which would normally have
accrued to the City (1% of gross sales) on the difference between the gross
sales attained and the minimum gross sales figure which had been established
for that year in the agreement. In other words, if Home Depot agreed that the
store should do a minimum of $12 million in gross sales in one year, they
would, in fact, be guaranteeing the City $120,000 in sales taxes for that
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Meeting Date 2/26/85
year. If gross sales in that year fell short, say $10 million, then Home
Depot would be required to pay the City $20,000 to make up the shortfall in
anticipated sales tax revenues. This requirement would be in effect for the
first three years of operation after the opening of the new facility. No
other payments will be due to the City.
It is staff's understanding that without financial assistance, Home Depot will
not locate on the site. If Home Depot decides to drop out, the developer
(Pacific Scene) , has an alternative site plan to accommodate the other stores
currently planning to go on the site. This would eliminate the possibility of
a major retailer locating there in the future since the remaining adjacent
parcel would be too small by itself to accommodate such a use. If this
occurs, the City will lose the opportunity to capture the additional sales tax
which would accrue from the home improvements center. Home Depot stores are
located throughout the southeast and southwest and have been strong performers
in recent years. After several years of operation, it is likely that a store
in Chula Vista will exceed $15 million in gross sales per year.
Under the agreement described above, the City will be guaranteed additional
sales tax revenues of approximately $405,000 over a three-year period. The
funds originally provided by the City would be more than recaptured in the
second year of operation of the store. Furthermore, the Home Depot stores are
heavy advertisers and a major draw which can be expected to increase sales
volumes for the other stores in the center. For these reasons, staff
recommends approval of the agreement as outlined above and requests that
Council approve the attached agreement with Home Depot Inc. and appropriate
adequate funds from the City's general fund.
FINANCIAL IMPACT:
Under the terms of the contract as outlined above, the City would be expected
to provide up to $175,000 to defray the costs of undergrounding and relocating
69kv electric line. These funds are being proposed in the 1985-86 Community
Development Block Grant budget which would be available after July 1 , 1985.
No funds are appropriated for this project in the current CDBG budget.
In order for this project to proceed at this time, it is necessary to confirm
the City's intention to defray the cost of relocation and approve the contract
so that the following steps may take place:
1 . Home Depot purchases additional parcel.
2. SDG&E removes existing line to allow grading of both sites.
3. Pacific Scene and Home Depot begin grading of shopping center site.
Unfortunately, the schedule for these actions cannot be postponed until July.
The Council is therefore requested to appropriate $175,000 in general funds
for this project to proceed at this time.
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Meeting Date 2/2b/85
Staff has proposed the inclusion of $175,000 for this project in next year's
CDBG budget subject to Council review and approval . If these funds are
approved, the City may be reimbursed in total in July. The use of CDBG funds
will require certain reporting requirements from Home Depot concerning job
creation and employee family income in order to comply with HUD's requirement
of benefiting low and moderate income persons. Also, wages paid for
relocation of the electric line will have to comply with Federal wage
guidelines.
WPC 1426H