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RANGE OF FISCAL IMPACTS FOR AN226 BICKMAN INDUSTRIAL ANNEXATION JUNE 2021 11209 N. Tatum Boulevard, Suite 225 * Phoenix, AZ 85028 * 602-765-2400 tel * 602-765-2407 fax 1 Introduction The following summary presents the fiscal impacts of annexation for Bickman Industrial that will include approximately 71.4 gross acres of light industrial development. The Bickman Industrial property is located on the northwest corner of Glendale Avenue and Reems Road. Although it is likely that the proposed building will be leased to a single tenant, detail on the specific user is not yet known; therefore this analysis presents a range of possible impacts based on hypothetical scenarios for the type of light industrial project that could develop in this area. The potential types of uses include: 1) an unoccupied shell building; 2) leased warehouse; and 3) leased manufacturing. Various assumptions were developed for each scenario regarding employment density, lease rates and capital investment (construction and FF&E). While these assumptions are based on recent projects, as well as published sources for lease rates and construction costs, they are simply intended to show a general range of possible economic and fiscal impacts. Another potential user for light industrial space is e-commerce, specifically fulfillment centers that represent point of sale for shipments. These types of projects are highly competitive and they can yield a significant amount of sales tax revenue. However, since there are a limited number of these projects looking at the Phoenix metro area, this type of potential user was not explicitly considered in the analysis. The point of this exercise is simply to frame what each type of use could bring to the city in terms of the number and quality of jobs, as well as the fiscal impacts, and how that result could be scaled to the Bickman Industrial property. Note that there are often tradeoffs between high-quality jobs and revenue generation for light industrial uses. Project Assumptions The table below presents the results for 1 million square feet of each type of development in terms of capital investment, jobs and wage levels, annual fiscal impacts (revenues less expenditures for city operating funds), one-time fees (construction sales tax, development impact fees, estimated permit fees) and overall ranking. This is followed by the “blended average” for Bickman Industrial that includes 561,000 square feet of warehousing and 561,000 square feet of manufacturing for a total of 1.1 million square feet. The total number of square feet is consistent with the parcel size and expected building sizes for light industrial development in this area. The impacts assume that 1.25 new lane miles on Glendale Avenue and 0.63 new lane miles on Reems Road would be added to the city for on-going maintenance. COMPARATIVE IMPACTS OF POTENTIAL LIGHT INDUSTRIAL USES AND BICKMAN INDUSTRIAL BLENDED AVERAGE 2 • Capital investment is represented by a combination of building costs and FF&E, both of which generate property taxes for the city. Construction activity also results in significant one-time sales taxes. Manufacturing has higher capital investment than other uses based on the nature of their operations and the corresponding building and equipment requirements. The leased warehouse has less capital investment than manufacturing. The empty shell represents the low end with an unfinished building and no equipment, and is a temporary condition. The total construction cost for Bickman Industrial is estimated at $150.1 million for 1.1 million square feet of light industrial space. • Jobs and average wages are important not only in terms of the number of jobs created, but also the quality of jobs as represented by average wages. To the extent that workers live in Glendale, higher wages translate into more taxable spending and higher value housing. Typical warehouse operations create a limited number of jobs, and generally at lower average wages than manufacturing. Manufacturing represents a relatively high job density, among light industrial uses, with above average wages. However manufacturing wages vary significantly based on the type of product being produced. It is estimated that the light industrial development could support about 690 jobs at an average wage of $49,000. Fiscal Results • One-time fees are related to construction and are generally proportional to the construction cost because construction sales taxes make up the largest share of one-time fees. Development impact fees (DIF) are the same for all types of light industrial uses since they are based on building square footage. One-time fees also include estimated planning and permitting fees that are generally proportional to construction costs. Total one-time fees for Bickman INdustrial are estimated at $4.5 million. This number does not include any streets DIF fees or the value of any infrastructure that may be constructed by the developer. • The annual fiscal impacts represent the net value of these different types of light industrial uses to the city in terms of revenues less expenditures. These annual fiscal impacts are intended to be order of magnitude only. For each type of use, there are a variety of factors imbedded in the assumptions that will affect the magnitude of fiscal impacts for individual uses, including the level of capital investment, amount of new street lane miles added, lease rates and the presence of taxable sales. Building Use Building Square Feet Building Construction (millions) FF&E (millions) Jobs Average Wage One-Time Fees* Annual Revenues less Expenditures Overall Ranking Empty Shell 1,000,000 $77.0 $0.0 0 $0 $2,417,000 $0 Low Leased Warehouse 1,000,000 $126.9 $22.0 400 $44,486 $3,794,000 $180,000 Medium Leased Manufacturing 1,000,000 $140.4 $100.0 833 $53,177 $4,167,000 $210,000 High Bickman Industrial Blended Average (50% warehouse, 50% manufacturing) 1,123,360 $150.1 $68.5 693 $48,832 $4,472,000 $220,000 High *One Time Fees include construction sales tax, estimated planning and permitting fees and development impact fees in West Glendale. 3 The potential type(s) of light industrial users that are anticipated for Bickman Industrial could result in a net impact to the city of $220,000 per year, excluding one-time revenues. • The overall rankings show low impacts for the shell building, medium impacts for leased warehouse, and high impacts for leased manufacturing. These three scenarios represent the typical possibilities for light industrial land in Glendale. The combination of uses proposed for Bickman Industrial would produce a relatively high net impact, given the range of possibilities for light industrial users. ANNUAL FISCAL IMPACTS OF STANDARD LIGHT INDUSTRIAL USES AND BICKMAN INDUSTRIAL Summary These results frame the range of potential impacts that the Bickman Industrial annexation could have on the city budget. All of the user types shown here generate a positive net fiscal impact, but at varying magnitudes. The long-term net impacts (revenues less expenditures) for Bickman Industrial are estimated at $220,000 per year, including $410,000 in annual revenues and $190,000 in annual expenditures, excluding one-time taxes and fees. The magnitude of the impacts is proportional to the size of the development and relatively modest, although estimated annual revenues exceed expenditures by 120 percent. In summary, this analysis is intended to illustrate the range of possible impacts for development in the Bickman Industrial annexation. The actual fiscal impacts will depend on the specific tenant, as well as other factors such as capital investment, lease rates and other project details. $50,000 $320,000 $400,000 $410,000 $50,000 $140,000 $190,000 $190,000 $0 $180,000 $210,000 $220,000 $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 1M SF Shell 1M SF Warehouse 1M SF Manufacturing 1.1M SF Bickman Industrial Revenues Expenditures Net Benefit Bickman Blended Avg