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1 City Council Report Date: September 14, 2026 To: Mayor and Council Through: Scott Butler, City Manager From: Jaye O’Donnell, Economic Development Director Benjamin Snow, Economic Development Deputy Director Subject: A resolution making statutorily-required findings for, and authorizing the City Manager to enter into, a development agreement, which is a retail development tax incentive agreement, for the development of the project known as “Cannon Beach Hotel” generally located southeast of the southeast corner of Power Road and Warner Road. (District 6) Purpose and Recommendation The purpose of this report is to discuss the findings required per A.R.S. § 9-500.11 (version 2) (“A.R.S. § 9-500.11”) that would allow the City to enter into the development agreement with CANNON BEACH HOTEL, LLC (“Developer”), which is a retail development tax incentive agreement (the “Development Agreement”), and to discuss the approval of the Development Agreement. The Development Agreement, and the tax incentive provided therein as a reimbursement for public infrastructure, would support the hotel and restaurant portion of Cannon Beach. Staff recommends the City Council approve the Resolution. Background Cannon Beach is an approximately 37.14-acre mixed-use development project located at the southeast corner of Power Road and Warner Road, with a mix of commercial, recreational and entertainment uses. The Development Agreement only would apply only to the approximately 1.32- acre Cannon Beach Hotel portion of Cannon Beach (this portion is referenced as the “Project”). The Project would include an upscale, full-service hotel and an upscale or upscale-casual, full-service restaurant. Development of the Project requires significant investment by the Developer in public infrastructure, including improvements to Warner Road and related utility and drainage infrastructure. Without these improvements, the Project site would not be suitable for the Project. The Developer requested that the City consider a sales (transaction privilege) tax reimbursement for the public infrastructure improvements, including street improvements, streetlights, water, sewer, storm drain and retention along the south half of Warner Road adjacent to the Project site. 2 The Development Agreement would establish the development and performance requirements for the Project and provide for the reimbursement of a portion of eligible public infrastructure costs from construction transaction privilege tax and retail sales tax revenues generated by the Project. Before entering into a retail development tax incentive agreement, A.R.S. § 9-500.11 requires the City Council make findings that: (a) the proposed tax incentive will generate more revenue than the amount of the incentive given during the term of the agreement; and (b) the retail business would not locate in the City in the same time, place, or manner without the tax incentive. To verify the findings surrounding the amount of the reimbursement for the retail development tax incentive agreement being less than the amount of revenues the Project will raise, the City hired Applied Economics, an independent third party, to review the proposed development agreement and retail development tax incentive. Discussion The Project presents a significant economic benefit to the City, including job creation and increased sales (transaction privilege) tax revenue generated by construction and new commercial activity. The Project site requires a substantial investment in public infrastructure by the Developer to support development, including street improvements, streetlights, water, sewer, storm drain and retention. These improvements are essential to the Project as presented to attract the type of high-quality development that will generate long-term economic value for the City of Mesa. In recognition of these economic factors, the Developer and the City are proposing to enter into a retail development tax incentive agreement for the reimbursement to Developer of eligible costs of public infrastructure, with a maximum reimbursement of $950,000. Under the Development Agreement, the Developer would be required to install public infrastructure in accordance with applicable law (including A.R.S. Title 34) and may be reimbursed for the eligible improvements dedicated to the City. According to the economic impact analysis prepared by Applied Economics, the full build-out scenario is projected to generate $9.4 million in gross sales tax revenue during construction and the first ten years of operations after the opening of the hotel and restaurant. The Developer may receive up to $950,000 in reimbursement for public improvements dedicated to the City. If the conditions precedent are completed, the reimbursement period for construction sales tax is from the effective date of the development agreement through 60 days after completion of construction of the Project. For the retail sales tax reimbursement, upon the completion of the conditions precedent, the economic incentive period will begin upon completion of construction of the Project and will continue for ten years. Thus, the independent economic impact analysis supports the finding that the proposed Project would generate significantly more sales tax revenue than the total rebate amount. As it pertains to the finding that the retail business would locate in the City in the same time, place, or manner without the tax incentive, the Developer’s representative has maintained that, without the incentive the Cannon Beach Hotel project would not be able to locate in Mesa in the same time, place, or manner primarily because of the level of infrastructure costs necessary to support the development. The subject site requires substantial investment in public infrastructure by the Developer to facilitate the development of the site. The public improvements eligible for reimbursement include street improvements, streetlights, water, sewer, storm drain and retention on the south half of Warner Road. By receiving the tax reimbursement, Developer is able to attract new visitors to the area and meet an area need, as well as generate higher tax revenue for the City. The incentive also helped the Developer obtain a higher quality hotel for the Project 3 The purpose of the Development Agreement is to guide the future development of the Project as a high- quality project with certain economic incentives to bring new tax revenue to the City. The Development Agreement includes the following major stipulations: Public Improvements The Developer will build and dedicate street improvements to the City of Mesa on the south side of Warner Road (from Power Road to the canal), the improvements include pavement, curbs and gutters, sidewalks, driveways, streetlights, and staking and testing. All the public improvements will be dedicated to and maintained by the City. The Developer may be reimbursed for the costs of these improvements through a construction contracting and sales tax rebate of up to $950,000, based on taxes collected by the City from construction of the Project and the tax generated by the Project. Economic Incentives (Construction and Sales Tax Rebate) The City is proposing a performance-based tax rebate agreement with the Developer to support the Cannon Beach Hotel development. The rebates come from two sources of non-dedicated sales tax collected by the City: 100% of eligible construction contracting sales tax, and 50% of the eligible sales tax from taxable activities at the hotel and restaurant. To qualify for any rebate, the Developer must meet key milestones (“Conditions Precedent”) including: obtaining all necessary permits within 18 months of the Development Agreement’s effective date (“Effective Date”); completing and having the City accept the respective public improvements within 36 months of the Effective Date; making all required dedications to the City before acceptance of the public improvements; and completing and opening the hotel and restaurant within 36 months of the Effective Date. Upon completion of the Conditions Precedent, the Developer may receive as a reimbursement 100% of the non-dedicated eligible construction contracting tax for the Project received by the City from the Effective Date through 60 days after completion of construction of the Project. As for the sales tax reimbursement, following the completion of the Conditions Precedent, the economic incentive period begins upon completion of construction of the Project and continues for ten years thereafter. During the economic incentive period, the Developer will be eligible to receive 50% of the non-dedicated sales tax collected by the City that is generated from taxable activities at the Project. If the Developer fails to meet any required milestones of the Conditions Precedent, the Development Agreement will automatically terminate and no incentives will be paid. The Development Agreement supports the significant upfront investment required for the public infrastructure necessary to attract a high-quality hotel and restaurant that will bring long-term economic benefits to the City of Mesa. Alternatives The following alternatives are presented for consideration: 4 APPROVAL OF THE RESOLUTION Approval of the Resolution will demonstrate that the City made the findings required by A.R.S. § 9-500.11 prior to entering into a retail development tax incentive agreement and will authorize the City Manager to thereafter enter into the Development Agreement. The Project, if approved, will create new sales tax revenue for the City from the proposed commercial development and promote high-quality development in Southeast Mesa. NO ACTION OR NOT APPROVING THE RESOLUTION If the Council chooses not to approve the Resolution, the City will not be able to enter into the Development Agreement, a retail development tax incentive agreement, with the Developer. Without the agreement, the City would not receive the anticipated tax revenues that would be generated by the Project as presented. Staff recommends the City Council approve the Resolution making findings required by A.R.S. § 9-500.11, and authorizing the City Manager to enter into the Development Agreement. Fiscal Impact The proposed retail tax reimbursement will not exceed $950,000 and is intended to cover the cost of specific public improvements that will be completed by the Developer, then dedicated to, accepted, and controlled by the City. The independent third-party analysis required by A.R.S. § 9-500.11 (version 2) and conducted by Applied Economics indicates the full build-out scenario is projected to generate $9.4 million in City tax revenue during construction and the first ten years of operations. Coordinated With The Office of Economic Development worked closely with the City Attorney's Office, Development Services, Engineering, and Transportation on this project.