HomeMy WebLinkAboutAgenda Statement 1985/03/21 Item 3 INDUSTRIAL DEVELOPMENT AUTHORITY
AGENDA STATEMENT
Item 3
Meeting Date 3/21/85
ITEM TITLE: Report: Request from The Home Depot for $5 million in
Commercial Development Bond financing
SUBMITTED BY: Community Development Directo ell,(5ths Vote: Yes No x )
REVIEWED BY: Executive Director
The Home Depot is planning to locate an 80,000 square foot facility within
the proposed shopping center at 1-805 and H Street. The City recently
approved an agreement with The Home Depot for a sharing of the cost of removal
of an electric utility line to allow construction of the new store. Staff has
recently received a letter from Home Depot requesting that the City consider
tax-exempt commercial development bond financing under the City's Charter
powers. A copy of the letter is attached.
RECOMMENDATION: That the Authority consider the request by Home Depot and
not approve commercial development bond financing in an amount not to exceed
$5 million.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
The Home Depot operates a chain of 31 stores located in the states of Georgia,
Florida, Louisiana, Arizona, and Texas. They are currently developing four
new stores in Southern California, including one in Oceanside, La Mesa, Kearny
Mesa, and Chula Vista.
The benefits to the City from the development of a Home Depot store are listed
below.
1. The Home Depot plans to create from 120-130 job opportunities at the Chula
Vista store. Ninety percent of these new employees will be full-time
workers. The jobs range from check-out clerks through store management
positions and involve considerable training and advancement opportunities.
2. The City of Chula Vista will benefit from substantial sales taxes
generated from the operation of the store. Annual sales are estimated to
be between $15-20 million within three years of operation.
3. The residents of the City of Chula Vista may benefit from the increased
availability of goods and services at competitive prices.
Page 2, Item 3
Meeting Date 3/21/85
The Home Depot has requested that the City approve an inducement resolution
for commercial development bond financing no later than March 26, 1985. This
will enable them to incorporate their site purchase and development expenses
as part of the bond issue.
The City of Chula Vista has issued numerous industrial and commercial
development bonds for projects associated with redevelopment within approved
redevelopment project areas. The proposed project, however, raises several
questions concerning the responsible use of commercial development bonds.
First, this project would be precedent-setting in the funding of a commercial
project not within a redevelopment project area. Secondly, there is a
potential issue of fostering unfair competition by providing low-cost
financing to one major retailer. And finally, the proposed bond issue may
utilize all of the City's bonding capacity for 1985 and preclude financing any
industrial projects which may be proposed later this year.
In response to the first concern, the proposed project falls under general
economic development within the City. Because of difficult site conditions
and design restrictions, the construction of the proposed facility will be the
most expensive store to develop in the entire chain. Since Home Depot is
basically an off-price retailer, development costs are a major consideration
in choosing new sites. Furthermore, Home Depot has assumed the agreements and
obligations of a previous developer (Sutherland Lumber) two weeks before the
scheduled land closing. These obligations involved higher expenses than would
normally be acceptable to Home Depot for a new facility. The sales volume and
subsequent sales taxes which would accrue to the City are in a category which
would warrant special consideration. However costly, these circumstances do
not relate directly to the extraordinary use of public sponsorship of
tax-exempt bonds.
In response to the issue of the creation of unfair competition, Home Depot
stores state that they have the unique attribute of actually increasing the
sales of their competitors when they locate within a new market area. This
has been confirmed with representatives of Ole's Home Improvement Center and
commercial real estate brokers. This is probably due, for the most part, to
an aggressive advertising and marketing campaign through local media which
makes people more aware of home improvement products, maintenance, and repairs
in general. If, however, tax-exempt bonds were used to finance this project,
then a precedent would be set and the City would have a difficult problem in
not accepting other retailers.
Approval of the Home Depot project would utilize most, if not all , of the
City's 1985 allocations. Although the City's adopted selection criteria for
IDB financing authorizes commercial projects such as The Home Depot, the
primary use of these funds has always been to support industrial development.
We currently have received no industrial development proposals for IDB
financing. However, with the current interest in the Otay Valley, we can
realistically anticipate applications later this year. Approving any
additional requests for financing would entail borrowing allocation capacity
from the County or State. There are no guarantees that additional capacity
will be available from these sources.
Page 3, Item 3
Meeting Date i/z1/b5
If the Authority feels that the benefits outweigh the negative aspects of the
sponsorship of tax-exempt financing, then a resolution is available for
approval by the Council this afternoon.
FISCAL IMPACT:
The City of Chula Vista currently has an allocation of $4,649,000 in
state-authorized bonding authority and would have to borrow an additional
$351 ,000 in capacity from the County or the State in order to provide a total
of $5 million in bonding.
WPC 1459H
°` 3\ ` i 6300 Powers Ferry Rd. • Atlanta, Georgia 30339 • 404 952-5504
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, , , RECEIVED
MAR 12 1985
March 11, 1985
Community Development Dept.
Mr. Paul Desrochers
276 4th Avenue
Chula Vista, California
Dear Sir:
The purpose of this letter is to seek consideration from the City of
Chula Vista to issue Industrial Development Bonds for The Home Depot,
Inc. The Home Depot, Inc. desires that the City of Chula Vista issue
it bonds in an aggregate principal amount not to exceed $5 million,
to provide financing for the acquiring, constructing and equipping of
an 80,000 sq. ft. retail home improvement facility to be located within
the City of Chula Vista.
The Home Depot currently operates a chain of 31 stores located in the
states of Georgia, Florida, Louisiana, Arizona and Texas. We operate
no-frills stores geared to the do-it-yourselfer and offer an extensive
selection of name-brand merchandise sold at promotional prices and with
superior customer service. Enclosed is a copy of our 1983 Annual Report,
Third Quarter 1984 Report and a press release dated February 13, 1985 for
your review.
The benefits to the City of Chula Vista from the presence of a Home Depot
store are substantial. We would expect to create jobs for 120-130 employ-
ees at the Chula Vista store, 90% of whom will be full-time workers. The
City of Chula Vista will benefit from the sales taxes generated by the
operation -of our store since annual sales at the store is estimated to be
between $15-20 million. The residents of the city will benefit from our
low prices and in-store service.
In order to take advantage of the proposed bonds, we would require an In-
ducement Letter from the City no later than March 26, 1985.
We are very excited to be entering into the California market, and I am
positive that the City, its citizens and The Home Depot will mutually
`° Mr. Paul Desrochers
March 11, 1985
N' 141
Page Two
lFy
benefit from the issuance of the bonds.
Your prompt action is sincerely appreciated.
Very u y rs,
renc A. Smith
Assistant Secretary
LAS/ljm
Enclosures (3)
1 9 ) , 6300 Powers Ferry Rd. • Atlanta, Georgia 30339 • 404 952-5504
to 'T A'� {�,+,,,i
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41400. February 13, 1985
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THE HOME DEPOT REPORTS 42% GAIN IN FOURTH QUARTER SALES
70% IMPROVEMENT FOR THE FISCAL YEAR
ATLANTA, GEORGIA -- The Home Depot , Inc. today reported net
sales of $117, 380, 000 for its fiscal 1984 fourth quarter (the
fourteen weeks ended February 3, 1985) , a 42% increase over
$82, 495, 000 in the fourth quarter of fiscal year 1983 (the
thirteen weeks ended January 29, 1984) . Sales for the 1984
fiscal year were $432 , 779, 000, an increase of 70% over the
sales of $256, 184, 000 for fiscal 1983.
"The advance in The Home Depot ' s sales for both the quarter
(fourteen weeks) and the year (fifty-three weeks) reflects our
significant internal expansion activity, as well as additional
sales of $9, 775, 000 resulting from the acquisition of Bowater
Home Centers in December. The increase also reflects the gains
in our existing stores, which registered a 15% improvement in
comparable store sales for the fourth quarter and a 14%
increase for the year," said Bernard Marcus , Chairman and Chief
Executive Officer of The Home Depot.
The Home Depot currently operates 31 retail warehouse stores ,
located throughout the sunbelt , which sell a wide variety of
building materials and home improvement products for the
do-it-yourself and home remodeling markets. The Company' s
stock is traded on the New York Stock Exchange under the symbol
"HD. "
* * * * * * * * * *
Contact : Ronald M. Brill Lawrence A. Rand
Sr. Vice President Kekst $ Co.
( 404) 952-5504 ( 212) 593-2655