PRESENTER: Presenter
Jared Werner, Assistant City Manager
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SUBJECT: Title
Public hearing, discussion, and possible action approving a Third Amendment to the Contract between the New Braunfels Economic Development Corporation (NBEDC) and HD Supply Facilities Maintenance, Ltd., to modify the percentage of sales taxes rebated and extend the existing contract term, pursuant to Section 501.101 of the Texas Local Government Code.
DEPARTMENT: Economic and Community Development
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COUNCIL DISTRICTS IMPACTED: 4
BACKGROUND INFORMATION:
In January 2005, The Home Depot Supply, Inc. entered into a Performance Agreement with the NBEDC (formerly the NBIDC) which promised creation of 120 jobs within the first year of operation in New Braunfels and increasing to 343 jobs after ten years. In December 2006, the parties amended the contract to increase the number of jobs required after ten years to 390 and to revise the company’s name to HD Supply Facilities Maintenance, Ltd. In December 2016, the agreement automatically renewed for an additional ten years and the NBEDC planned to continue rebating sales tax until December 2026. The parties again amended the agreement a second time in 2020. The amendment allowed the NBEDC to assume a portion of the City’s sales tax rebate obligation for the City to launch and fund a COVID-19 Small Business Resource Grant Program to assist a multitude of community small business during the pandemic.
In addition to the new positions created and located in New Braunfels, another significant benefit to the arrangement was the sourcing of all the company’s Texas-based transactions to New Braunfels. This resulted in a substantial amount of sales tax accruing to the City and NBEDC, of which the parties agreed to a sales tax sharing arrangement. The City and NBEDC agreed to rebate fifty percent (50%) of the total sales tax collected to HD Supply during the agreement’s terms.
In late 2021, HD supply, after being acquired by The Home Depot, made some business model modifications that resulted in sales taxes no longer being sourced to the New Braunfels location. This change abated certain obligations of both parties- principally the rebate of collected sales tax- via a contract second amendment. The agreement and rebate have been dormant since. However, recent conversations with the Company indicated a potential opportunity to implement internal process changes which would allow for most of the intrastate sales to be sourced to the New Braunfels center. As such, the parties agree that a Third Amendment is required to reactivate the agreement.
The Third Amendment includes:
- Extending the Contract to December 5, 2036
- Increase of the NBEDC sales tax rebate from 50% to 100% which allows for the City’s general fund rebate to be decreased from 50% to 33.3%
o Reducing the City’s rebate obligation results in additional sales tax proceeds for the City’s General Fund to enhance overall City services
ISSUE:
HD Supply’s recent business process changes now allow for sales to be sourced to New Braunfels and a Third Amendment is required to reactivate and extent a prior agreement between the parties.
STRATEGIC PLAN REFERENCE:
☒Economic Mobility ☐Enhanced Connectivity ☐Community Identity
☐Organizational Excellence ☐Community Well-Being ☐N/A
FISCAL IMPACT:
The NBEDC has appropriate reserves and revenue to forgo the sales taxes collected due to the agreement. The NBEDC is forgoing the collection of revenue, as opposed to making a direct expenditure. By increasing its rebate amount to 100%, the NBEDC assists the City fulfill the terms of the agreement, which is to rebate 50% of the sales tax collected. This reduces the rebate from the City’s general fund from 50% to 33.3%.
Recommendation
RECOMMENDATION:
Staff recommends approval of the Third Amendment to the Contract between the NBEDC and HD Supply Facilities Maintenance, Ltd.