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Approval of Economic Development Incentive Agreement (NetApp, Inc.)

Approval of Economic Development Incentive Agreement (NetApp, Inc.)

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Published by Bob Weeks
Approval of Economic Development Incentive Agreement (NetApp, Inc.)
Approval of Economic Development Incentive Agreement (NetApp, Inc.)

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Published by: Bob Weeks on Sep 08, 2012
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09/08/2012

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Agenda Item No. IV-3City of WichitaCity Council MeetingSeptember 11, 2012TO:
Mayor and City Council
SUBJECT:
Approval of Economic Development Incentive Agreement (NetApp, Inc.)(District II)
INITIATED BY:
Office of Urban Development
AGENDA:
New Business
Recommendation:
Approve the Economic Development Grant Agreement and place the Home RuleOrdinance on first reading.
Background:
NetApp is one of the fastest growing global data storage and management providers in theworld, with its headquarters located in Sunnyvale, California. NetApp creates efficient and flexiblestorage and data management hardware and software solutions that help customers accelerate business breakthroughs and achieve cost efficiency. NetApp offers a broad portfolio of solutions for businessapplications, storage for virtual servers, disk-to-disk backup and more.The company acquired LSI including its facility located at 37th Street North and Rock Road in Wichita,in May 2011, and shortly thereafter began analyzing the opportunities to expand its operations in Wichita.Working with the Greater Wichita Economic Development Coalition and the State of Kansas, the City of Wichita and Sedgwick County have developed an incentive package that includes a grant for the creationof a customer support center within the Wichita facility. The company is asking for approval of theEconomic Development Grant Agreement at this time.
Analysis:
NetApp was founded in 1992, and currently employs 13,000 globally and has revenues of $5.1 billion. NetApp has 439 employees in Wichita with a total payroll of $41,000,000, and operates facilitiesin Beaverton OR, Boulder CO, Cranberry Township PA, Hillsboro OR, Research Triangle Park NC,Vancouver BC, Waltham MA, as well as in India and the Netherlands.Due to increased demand for its products and services, NetApp intends to add 418 new customer service positions and invest approximately $86,000,000 in new equipment. The company has considered locatingthose jobs at its existing facility in either Wichita or Research Triangle Park, North Carolina. The City of Wichita and Sedgwick County have offered to NetApp a cash incentive in the form of a grant up to$836,000, $418,000 each, subject to formal approval of the grant agreements by the governing bodies.The grant agreements will have a five-year term. If the incentive is approved, NetApp has agreed tocreate the jobs at its Wichita, Kansas facility.Under the terms of the attached grant agreement, NetApp would be issued an annual grant payment of $312 per year during the 5-year term of the agreement for each employee in excess of 439 baseemployees, but in no event will the sum of all grant payments exceed $418,000. The grant paymentwould be made after a review of the previous year job creation. Therefore, there is no need for aclawback provision if the company falls short of projections because the payment is based upon actual jobcreation.If the actual salary paid is below the projected average annually salary as stated below, the annual amount paid for each net new job would be reduced by an amount proportionate to the actual average annual
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Approval of NetApp Grant AgreementSeptember 11, 2012Page 2
salary versus the projected average annual salary. Similarly, if the actual salary is above the projectedamount, the funds paid will be increased by a proportional amount. Funds will be distributed after verification of job creation and retention from the prior year on an annual basis. New employment will bemeasured from a base of 439 employees as of May 1, 2012.
Financial Considerations:
Each year’s grant installment will be funded by the City’s annual EconomicDevelopment Incentive Fund appropriation and is subject to annual appropriations.As part of GWEDC’s due diligence for this project, the return-on-investment was calculated for the proposed incentive package.City of Wichita 3.93 to oneGeneral Fund 1.97 to oneDebt Service NASedgwick County 1.98 to oneUSD 259 NAState of Kansas NA
Goal Impact:
Economic Vitality and Affordable Living. The use of economic development incentivesto ensure the expansion of the region’s information technology cluster provides economic diversity andgrowth.
Legal Considerations:
The Law Department has approved the documents as to form. The City’sexercise of home rule authority is necessary to provide the cash incentive; this requires the adoption of anordinance for approval. Compliance with cash basis and budget laws will require adoption of subsequentresolutions, under the home rule ordinance, to authorize disbursement of future-year grant funds.
Recommendations/Actions:
It is recommended that the City Council approve the EconomicDevelopment Grant Agreement with NetApp, Inc., place the Home Rule Ordinance approving theagreement on First Reading and authorize the necessary signatures.
Attachments:
Economic Development Grant Agreement, Ordinance
Year Net NewEmploymentNet NewWagesTotalEmploymentTotal Wages
2013 118 @ $70,000 $8,260,000 557 $42,941,0002014 75 @ $71,400 $5,355,000 632 $49,154,8202015 75 @ $73,500 $5,512,500 707 $55,780,1122016 75 @ 75,750 $5,681,250 782 $62,786,0052017 75 @ $78,000 $5,850,000 857 $70,143,830
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1
ECONOMIC DEVELOPMENT GRANT AGREEMENT
This Grant Agreement (the “Agreement”), effective this day of May 2012, is entered into between thefollowing parties:Grantor: City of Wichita, Kansas (“Grantor”)455 N. MainWichita, Kansas 67202Contact Person/Title: Allen Bell, Urban Development Director Phone: 316-268-4524 FAX: 316-858-7890Grantee: NetApp, Inc. (“Grantee”)7301 Kit Creek RoadResearch Triangle Park, NC 27709Contact Person/Title: Mark Skiff, Senior Director Tech SitesPhone: 919.476.5297FEIN: ______________ WHEREAS, it has been determined by the Grantor that an economic emergency or unique opportunity existswhich warrants funding to secure economic benefits or avoid or remedy economic losses; andWHEREAS, the Grantee has specified that this funding will be used to reimburse Grantee for the acquisitionof new lab equipment, furniture and fixtures for its facility generally located in the vicinity of Rock Road and 37
th
Street North in Wichita, Sedgwick County, Kansas; andWHEREAS, the Grantor finds that said funding will promote the public purpose of economic development inWichita, Sedgwick County and therefore has authorized an expenditure not-to-exceed $418,000 for the purpose of making a grant to the Grantee under the terms and conditions of this Agreement. NOW THEREFORE, in consideration of the mutual promises, covenants and agreements, the parties agree asfollows:1)
Grant Amount and Terms
: Subject to the terms and conditions of the Agreement, the Grantor herebyagrees to provide the Grantee with a grant sum amount not-to-exceed $418,000 over a five (5) year period, payableas provided in Exhibit A, which is attached to and part of this Agreement. This grant is not transferable.2)
Grantee promises.a. Employment.
Grantee agrees to increase the number of people employed at its facilities in Wichita,Sedgwick County, Kansas, above the number of 439 who were employed on May 1, 2012. Grantee further agrees to maintain a current average annual wage of $79,000 for the 439 existing employees and $71,000for all employees in excess of 439. Grantee estimates that employment and wages paid will be as is shownin the following schedule. Grantee and Grantor agree that grant payments will be based on these estimates,that actual employment and wages may be more or less than the estimate, and that grant payments will bemore or less than estimated but will not in aggregate exceed $418,000.
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