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Public Hearing and Tax Exemption Request (Mojack Holdings, LLC/Mojack Distributors, LLC)

Public Hearing and Tax Exemption Request (Mojack Holdings, LLC/Mojack Distributors, LLC)

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Published by Bob Weeks

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Published by: Bob Weeks on Sep 29, 2012
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11/30/2012

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Agenda Item No. IV-2City of WichitaCity Council MeetingOctober 2, 2012TO:
Mayor and City Council
SUBJECT:
Public Hearing and Tax Exemption Request (Mojack Holdings, LLC/Mojack Distributors, LLC) (District I)
INITIATED BY:
Office of Urban Development
AGENDA:
New Business _________________________________________________________________________________ 
Recommendation:
Close the public hearing and place the Ordinance on first reading.
Background:
Mojack Holdings, LLC/Mojack Distributors, LLC (“Mojack”) was founded in 2007 whenthe company purchased the product rights of a device that safely lifts the front end of riding lawn mowersfor maintenance work from a group of southeast Kansas farmers who had invented the product.The Greater Wichita Economic Development Coalition (GWEDC) worked with MoJack to assist in its plans to expand production and relocate its operations to 3535 N. Rock Road in east Wichita. GWEDCcoordinated the development of an incentive package with City, County and State officials, whichincluded a $35,000 forgivable loan from the City and County each and consideration of property taxexemption on the portion of the Rock Road facility utilized by Mojack, subject to City Council approval.On February 8, 2011, the City Council approved a forgivable loan in the amount of $35,000 for Mojack toretain and expand its footprint in Wichita. Mojack is now requesting formal approval of an EconomicDevelopment Tax Exemption (“EDX”) for its new facility.
Analysis:
In 2007, Mojack completed the initial fabrication of its products and sold a couple of hundredunits the first year. Today the company has grown to the point that it now sells its products in over 1,000Home Depot stores and through Tractor Supply Co., Northern Tool and at 600 independent dealersnationally. Mojack Holdings, LLC has purchased a facility at 3535 N. Rock Road, in northeast Wichita,and leases 65,900 square feet to Mojack Distributors, LLC, a related company. The new facility is utilizedfor final assembly work and warehousing/distribution for Mojack products. The space occupied byMojack was vacant two and one-half years prior to its acquisition which meets the two year requirement per the economic development policy.Under state law, EDX exemptions are not allowed for leased property unless the company qualifying for EDX is related to the landlord by ownership. The Kansas Court of Tax Appeals (COTA) has determinedthat in those circumstances, an EDX exemption must also be granted on property owned by the qualifyingcompany for the same term. Although business machinery and equipment is already exempt, COTAallows cities to separately exempt specified equipment in order to satisfy this requirement. Therefore,certain equipment, furniture and an alarm system belonging to Mojack Distributors will also be exemptedunder this project.As a result of this expansion, Mojack plans to add at least 26 new employees to its workforce at a startingaverage wage of $44,000. In June 2012, Mojack repaid the forgivable loan because it had been based onan earlier estimate that 53 new jobs would be created, which was not realistic.
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Mojack EDX RequestOctober 2, 2012Page 2Based upon capital investment and revised job creation and salary projections, Mojack qualifies for a78%, five-plus-five year tax exemption under the City’s economic development incentive policy. Mojack Holdings also leases space in its facility to OfficeMax, which space is not eligible for property taxabatement.
Financial Considerations
: Based on the 2011 mill levy, the estimated taxable value of exempted property for the first full year is approximately $49,944. The value of the 78% real property taxexemption as applicable to taxing jurisdictions is:City $13,434 State $ 622County $12,217 USD 259 $23,671Wichita State University’s Center for Economic Development and Business Research performed a cost- benefit analysis indicating benefit-to-cost ratios, which are as follows:City of Wichita General Fund 1.98 to oneCity of Wichita General Fund 1.84 to oneCity of Wichita Debt Service Fund 2.22 to oneSedgwick County 1.68 to oneUSD 259 1.36 to oneState of Kansas 16.01 to one
Goal Impact
: Economic Vitality and Affordable Living. Granting an ad valorem property tax exemptionwill encourage the business to create new job opportunities and stimulate economic growth for the City of Wichita and Sedgwick County.
Legal Considerations
: The Law Department has reviewed and approved the attached Ordinance andEconomic Development Incentive Agreement as to form.
Recommendations/Actions
: It is recommended that the City Council close the public hearing andapprove first reading of the ordinance granting Mojack Holdings, LLC/Mojack Distributors, LLC a 78%tax exemption on the identified property for a five year term, plus a 78% tax exemption for a second five-year term, subject to City Council review.
Attachments
: Ordinance, Economic Development Incentive Agreement
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1
Economic Development Incentive Agreement
THIS ECONOMIC DEVELOPMENT INCENTIVE AGREEMENT
(the“Agreement”) is made and entered into on this ____ day of _____________, 2012, by and between the City of Wichita, Kansas, hereinafter referred to as the “City,” and Mojack Holdings,LLC and Mojack Distributors, LLC hereinafter referred to as the “Companies.”
WHEREAS
, the Companies currently operate a facility in Wichita, Kansas, for manufacturing and warehousing/distribution of lawn mower lifts and, as of December 31, 2011will have completed an expansion by acquiring and equipping a building; and
WHEREAS
, both the City and the Companies desire for the Companies to continueoperating in Wichita, Kansas; and
WHEREAS
, the City desires to increase employment opportunities for the citizens of Wichita, Kansas, and to further the other goals advanced by its economic development incentive policy; and
WHEREAS
, the Companies warrant that they are capable of, and desire to, increase thenumber of employment positions at their Wichita, Kansas facility; and
WHEREAS
, the City has designed an economic development incentive program toaccomplish its goal of increasing employment opportunities in Wichita, Kansas; and
WHEREAS
, the purpose of this Agreement is to state the terms and conditions under which the City will cooperate in furnishing said economic development incentives.
NOW, THEREFORE
, in consideration of the mutual conditions, covenants and promises contained herein, the parties hereto agree as follows:1.
THE COMPANIES.
The Companies agree (to the extent not already hitherto performed) that they shall do the following:A. Between November 5, 2010 and December 31, 2011, the Companies willhave completed the acquisition and equipping of a manufacturing andwarehousing/distribution building, located at 3535 N. Rock Road,Wichita, Kansas, at a cost of $2,126,187, to be used exclusively for the purposes of manufacturing and warehousing/distribution of articles of commerce;B. Maintain, throughout the period from the date of this Agreement toDecember 31, 2017 employment of not less than eight (8) employees atthe existing manufacturing and warehousing/distribution facility;
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