Government Property Lease Excise Tax Policy

This report requests City Council approval to amend the City's Government Property
Lease Excise Tax (GPLET) program.

THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.

Summary
GPLET is an economic development tool created by the Arizona State Legislature in
1996 at A.R.S. 42-6201 through 42-6210, as a successor to the state's possessory
interest tax program. The GPLET statutes impose an excise tax on government-owned
property, in lieu of property tax, based on the use and square footage of a building
rather than its value. Depending on the type and location of a development, the current
GPLET rates can be reduced or abated for a specific period of time, which can help to
close a funding gap that would otherwise make a development project unfinanceable.

The City's GPLET program has had a significant development and economic impact
on Downtown Phoenix. Approximately 17,800 new jobs with an approximately $995.5
million in payroll have been created as a result of utilizing the GPLET program. In
addition, $3.03 billion in construction capital investment with construction sales tax
revenue to Phoenix of $35.3 million, and an increased annual tax impact of $17 million.
Other taxing jurisdictions have seen economic returns as well, with Maricopa County
and local school districts realizing a $99.2 million total tax impact, and the State of
Arizona seeing a $250.3 million impact. At the City Council's direction, GPLET has
created other public benefits such as the inclusion of workforce housing units in
residential projects, contributions to the Phoenix Affordable Housing Trust Fund, new
public infrastructure, public open space, public parking, and the incorporation of public
art.

At the June 22, 2021 City Council Policy meeting, the City Council directed staff to
explore public benefit options and bring proposed modifications to the GPLET program
to a future City Council meeting. The new proposed GPLET program was first
presented to the Subcommittee on Oct. 26, 2022 for discussion and then again on
Nov. 1, 2022. This program will provide for a definition of two separate policies: one
that includes the area of the City that is covered by the Downtown RDA and is located


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within the City's Central Business District (Attachment A), and one that includes the
Redevelopment Areas of the City outside of the Central Business District (Attachment
B). Currently, there are 19 Redevelopment Areas that are located wholly or partially
outside of the Central Business District.

As the City continues its revitalization efforts across all areas of the City, GPLET is a
tool that can be leveraged to provide for the types of mixed-use development and
workforce housing that are in-demand, and can help to cause additional private sector
investment.

As part of the update to the GPLET policy, a development agreement with identified
public benefits will be created with each project. The additional public benefits will
include items such as:

· Affordable/Workforce Housing
· Public Open Space
· Small Business Benefit
· Historic Preservation
· Climate/Heat Readiness
· Office
· Urban Retail
· Entertainment District/Destination Entertainment

In accordance with the GPLET statutes, the property is transferred to the ownership of
the City for the period of the agreement. A land lease rate based on the financial
analysis of the project impacts will be paid annually by the developer to the City for the
term of the agreement. This money can be utilized by the City Council to cause
additional public benefits to take place around the City.

Further, as part of each development agreement with identified public benefits, staff
would propose an amount due from the developer that would represent the property
tax amount that would otherwise be paid to the City on the completed project. Staff
proposes the following amounts:

· For property that is fully within the Central Business District and an RDA: an amount
equal to 200 percent of the City's portion of property tax that otherwise would be
collected on the completed project; or
· For property that is within a RDA but outside of the Central Business District: an
amount equal to 150 percent of the City's portion of Property Tax that otherwise


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would be collected on the completed project.

These amounts would be deposited either into the City's Affordable Housing Trust
Fund to be used to create additional affordable housing, or into a separate public
benefits fund to be used for additional community benefits to be developed in the
future.

The complete policies for considering GPLET projects (1) in the Central Business
District and (2) in Redevelopment Areas outside of the Central Business District are
attached to this file. Staff would return to City Council on an annual basis to provide
updates on this policy. If approved, City staff requests that the revised GPLET policies
be used to evaluate and consider all pending requests for GPLET projects.

Concurrence/Previous Council Action
22, 2021 City Council Policy meeting. Staff presented the policy for discussion at the
Oct. 26, 2022 and Nov. 1, 2022 Economic Development and Equality Subcommittee
meetings. The Economic Development and Equality Subcommittee recommended
moving this policy forward by a vote of 4-0 on Nov 1.

Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Community
and Economic Development Department.




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ATTACHMENT A

DRAFT - City of Phoenix
Government Property Lease Excise Tax Policy
(CBD and Redevelopment Areas)

PURPOSE

This policy is to define the City’s goals and utilization of the economic
development tool known as Government Property Lease Excise Tax (GPLET).
Under state law, GPLET applies to the private use of government owned land
throughout the city. This policy is specific to the utilization of this tool in the area
located within both the City of Phoenix designated Central Business District and
a “Redevelopment Area” or “RDA,” defined as a slum or blighted area declared
by the Phoenix City Council pursuant to ARS Title 36, Chapter 12, Article 3.

BACKGROUND

GPLET is an economic development tool available to Arizona cities and counties
to incentivize development or redevelopment in specific areas. The City of
Phoenix (City) has identified City Council designated Redevelopment Areas as
the primary area in which private landowners may apply for GPLET. The
Redevelopment Area that also lies within a Central Business District (CBD)
allows for enhanced economic development benefits.

The Legislature created GPLET in 1996 at Arizona Revised Statutes sections 42-
6201 through 46-6210. GPLET allows ownership of property to be transferred
from a private entity to the City. Although government-owned property is not
subject to property tax, GPLET imposes an excise tax from private entities that
lease government-owned property or for properties located within both an RDA
and CBD, that excise tax may be abated for up to eight years.

GPLET can help to solve the financial gap for workforce or attainable housing,
infill development, and redevelopment challenges, which may include increased
design and development costs, entitlement processes, utility and infrastructure
challenges and environmental issues, as well as land assemblage.

Utilization of GPLET can strategically encourage redevelopment; help address
the housing crisis taking place in Phoenix and the rest of Arizona and the country
today, create jobs, new capital investment and tax revenues; enhance property
values and capitalize on existing public infrastructure investments; as well as




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generate excise taxes typically greater than the prior property taxes of the parcel
while the property is being leased.

Projects assisted by GPLET help the City achieve its policy and plan goals
including those in the Housing Phoenix Plan, the General Plan, and
Redevelopment Area Plans to create a thriving, diverse, inclusive, equitable,
sustainable, vibrant, and affordable community.

POLICY

The City is seeking to utilize GPLET to facilitate development and redevelopment
of our strategic and challenged areas of our community, as defined by our
Redevelopment Areas and Central Business District, by approving the careful
and considered use of this State authorized tool to assist with private
development’s financing, construction, and management of projects that
implement and further our redevelopment area plans as well as established City
policies and goals. These policies and goals include addressing the housing
crisis that is currently being faced in Phoenix, revitalization of older properties
located in our CBD and RDA’s, to further implement the City’s strategic economic
development vision, downtown strategic vision, enhance our investments in
public infrastructure including public transportation, light rail and high-capacity
transit as well as other public investments.

Projects that will be considered for GPLET treatment must be located within the
City’s single CBD, a RDA and address the following goals, where applicable:

A. Be consistent with the Downtown Strategic Plan, Phoenix Housing Plan, the
General Plan, Streets Transportation Masterplan, the Climate Action Plan,
Planning & Development Codes, Ordinances and Policies, Transit Oriented
Development and Walkable Urban Code
B. Promote dense urban mixed-use, urban retail, multi-modal and pedestrian-
friendly development
C. Support high rise office development where supported by market conditions
D. Create equitable and diverse development
E. Encourages redevelopment of older retail and other community amenities
F. Provides opportunity for retail and small business
G. Promotes sustainability and climate/heat readiness
H. Include open space, public art, placemaking with community amenities
I. Encourages the creation of an Entrainment District
J. Creation of safe and thoughtful connections between new development and
existing projects, neighborhoods, single-family residences, and businesses




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K. Protect historic structures and neighborhoods
L. Provides for true ground-floor space activation with commercial, retail,
restaurants and other types of publicly available space, where applicable
M. Creates or maximizes public parking
N. Incorporate or create a minimum of 20% workforce or affordable housing

The Community and Economic Development Department shall update the City’s
existing GPLET application and procedures to review, evaluate, and bring
forward to City Council for consideration, requests for the use of GPLET in
Redevelopment Areas. This procedure shall include the following minimum
elements for review:

a. Submittal and development parameters such as:
i. site design, mix of uses, and connectivity and transition to adjacent
communities.
ii. Amenities for both private and public users.
iii. General compliance with codes and plans.
iv. Timeliness of development
v. Inclusion of public benefits
b. Review and evaluation steps
c. Engagement and outreach to the community and impacted taxing districts
d. Engagement with the Council Office in the district of the project

If a request includes a mix of uses or has a residential component to the project,
the City will seek a minimum of 20% of the units, in a proportional mix of unit
types, for workforce housing. A workforce housing unit means a rental residential
apartment unit that will be made available for lease exclusively to households
that demonstrate current income of 80% to 120% of the Area Median Income
Limits (AMI), and Affordable Housing is defined as those unites at 80% or below
of AMI, as published annually by the U.S. Department of Housing and Urban
Development (HUD) for the Phoenix-Mesa-Chandler, AZ Metropolitan Statistical
Area (MSA). Alternatively, the City may require a developer to make a payment
in lieu of units to the City’s Affordable Housing Trust Fund in the amount of 200%
of the property tax the City would otherwise receive from the completed project
for the term of the GPLET lease or alternative Public Benefit Fund. Any payment
in lieu would be required prior to the execution of the lease. The selection
between the contribution of workforce housing or a payment to a specific Fund is
at the sole discretion of the City Council. Utilization of the Affordable Housing
Trust Fund or an alternative Public Benefit Fund would be through separate and
individual actions of the City Council.




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For the purpose of calculating rental rates, the monthly rent for a workforce
housing unit may not exceed 30% of the Income Limit for the respective
household size divided by 12, and will be adjusted annually based on changes to
the MSA listed above.

Additionally, the City will require that the developer generate to the City and other
taxing jurisdictions new revenue in the form of minimum tax payments (in the
construction of the project, other transaction privilege taxes during the lease, and
property taxes after the lease term), based on a third-party economic impact
study. If the developer fails to generate these minimum tax payments, it will be
required to make additional payments to the City to cover any shortfall.

Applicants will be required to engage in community meetings prior projects
progressing to City Council Subcommittee and Formal meetings. City staff shall
also complete all required statutory processes and notices to taxing jurisdictions.
Staff shall return to City Council for annual updates on this policy.

COMPLIANCE

Approved projects shall enter into development agreements with the City which
shall include negotiated terms and conditions including rental payments,
verifiable public benefits, and audit provisions of the terms of the agreements as
well as standard City terms and conditions. Development agreements, leases
and other contracts must also comply with State statutes and City codes.




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ATTACHMENT B

DRAFT - City of Phoenix
Government Property Lease Excise Tax Policy
(Non-CBD Redevelopment Areas)

PURPOSE

This policy is to define the City’s goals and utilization of the economic
development tool known as Government Property Lease Excise Tax (GPLET).
Under state law, GPLET applies to the private use of government owned land
throughout the city. This policy is specific to the utilization of this tool within the
area located within a “Redevelopment Area” or “RDA,” defined as a slum or
blighted area declared by the Phoenix City Council pursuant to ARS Title 36,
Chapter 12, Article 3; but not including that area also located within a Central
Business District.

BACKGROUND

GPLET is an economic development tool available to Arizona cities and counties
to incentivize development or redevelopment in specific areas. The City of
Phoenix (City) has identified City Council designated Redevelopment Areas as
the primary area in which private landowners may apply for GPLET.

The Legislature created GPLET in 1996 at Arizona Revised Statutes sections 42-
6201 through 46-6210. GPLET allows ownership of property to be transferred
from a private entity to the City. Although government-owned property is not
subject to property tax, GPLET imposes an excise tax from private entities that
lease government-owned property.

GPLET can help to solve the financial gap for workforce or attainable housing,
infill development, and redevelopment challenges, which may include increased
design and development costs, entitlement processes, utility and infrastructure
challenges and environmental issues, as well as land assemblage.

Utilization of GPLET can strategically encourage redevelopment; help address
the housing crisis taking place in Phoenix and the rest of Arizona and the country
today, create jobs, new capital investment and tax revenues; enhance property
values and capitalize on existing public infrastructure investments; as well as
generate excise taxes typically greater than the prior property taxes of the parcel
while the property is being leased.




Page 11
Projects assisted by GPLET help the City achieve its policy and plan goals
including those in the Housing Phoenix Plan, the General Plan, and
Redevelopment Area Plans to create a thriving, diverse, inclusive, equitable,
sustainable, vibrant, and affordable community.

POLICY

The City is seeking to utilize GPLET to facilitate development and redevelopment
of our strategic and challenged areas of our community, as defined by our
Redevelopment Areas, by approving the careful and considered use of this State
authorized tool to assist with private development’s financing, construction, and
management of projects that implement and further our redevelopment area
plans as well as established City policies and goals. These policies and goals
include addressing the housing crisis that is currently being faced in Phoenix,
revitalization of older properties located in RDA’s, to further implement the City’s
strategic economic development vision, enhance our investments in public
infrastructure including public transportation, light rail and high-capacity transit as
well as other public investments.

Projects that will be considered for GPLET treatment must be located within a
RDA and address the following goals, where applicable:

A. Be consistent with the Phoenix Housing Plan, the General Plan, Streets
Transportation Masterplan, the Climate Action Plan, Planning & Development
Codes, Ordinances and Policies, Transit Oriented Development and Walkable
Urban Code
B. Promote multi-modal and pedestrian-friendly neighborhoods
C. Create equitable and diverse development
D. Encourages redevelopment of older retail and other community amenities
E. Provides opportunity for retail and small business
F. Promotes sustainability and climate/heat readiness
G. Include open space, public art, placemaking with community amenities
H. Creation of safe and thoughtful connections between new development and
existing single-family residences, and businesses
I. Protect historic structures and neighborhoods
J. Creates or maximizes public parking
K. Incorporate or create a minimum of 20% workforce or affordable housing

The Community and Economic Development Department shall update the City’s
existing GPLET application and procedures to review, evaluate, and bring




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forward to City Council for consideration, requests for the use of GPLET in
Redevelopment Areas. This procedure shall include the following minimum
elements for review, however, staff shall meet with the City Council District prior
to any application. If submitted, the applications would include:

a. Submittal and development parameters such as:
i. site design, mix of uses, and connectivity and transition to adjacent
communities.
ii. Amenities for both private and public users.
iii. Provides for true ground-floor space activation, where applicable
iv. General compliance with codes and plans.
v. Timeliness of development
vi. Inclusion of public benefits
b. Review and evaluation steps
c. Engagement and outreach to the community and impacted taxing districts
d. Engagement with the Council Office in the district of the project prior to
any application submittal

If a request includes a mix of uses or has a residential component to the project,
the City will seek a minimum of 20% of the units, in a proportional mix of unit
types, for workforce housing. A workforce housing unit means a rental residential
apartment unit that will be made available for lease exclusively to households
that demonstrate current income of 80% to 120% of the Area Median Income
Limits (AMI), and Affordable Housing is defined as those unites at 80% or below
of AMI, as published annually by the U.S. Department of Housing and Urban
Development (HUD) for the Phoenix-Mesa-Chandler, AZ Metropolitan Statistical
Area (MSA). Alternatively, the City may require a developer to make a payment
in lieu of units to the City’s Affordable Housing Trust Fund in the amount of 150%
of the property tax the City would otherwise receive from the completed project
for the term of the GPLET lease or alternative Public Benefit Fund. Any payment
in lieu would be required prior to the execution of the lease. The selection
between the contribution of workforce housing or a payment to a specific Fund is
at the sole discretion of the City Council. Utilization of the Affordable Housing
Trust Fund or an alternative Public Benefit Fund would be through separate and
individual actions of the City Council.

For the purpose of calculating rental rates, the monthly rent for a workforce
housing unit may not exceed 30% of the Income Limit for the respective
household size divided by 12, and will be adjusted annually based on changes to
the MSA listed above.




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Additionally, the City will require that the developer generate to the City and other
taxing jurisdictions new revenue in the form of minimum tax payments (in the
construction of the project, other transaction privilege taxes during the lease, and
property taxes after the lease term), based on a third-party economic impact
study. If the developer fails to generate these minimum tax payments, it will be
required to make additional payments to the City to cover any shortfall.

Applicants will be required to engage in community meetings prior projects
progressing to City Council Subcommittee and Formal meetings. City staff shall
also complete all required statutory processes and notices to taxing jurisdictions.
Staff shall return to City Council for annual updates on this policy.

COMPLIANCE

Approved projects shall enter into development agreements with the City which
shall include negotiated terms and conditions including rental payments,
verifiable public benefits, and audit provisions of the terms of the agreements as
well as standard City terms and conditions. Development agreements, leases
and other contracts must also comply with State statutes and City codes.




Page 14