BACKGROUND: During the May 14 workshop, staff presented a proposal for a three-way agreement (P3) between the City of Savannah, SEDA and Rockingham Farms as an economic development project. Rockingham Farms is a 1,036.69-acre tract of land that adjoins Veterans Parkway, adjacent to Hunter Army Airfield (see “Maps” in Exhibit). Located in the unincorporated area, the property is the single largest undeveloped tract zoned manufacturing in Chatham County. Despite its potential, the property remains undeveloped largely due to lack of access from Veterans Parkway and lack of water and sewer service. The agreement before City Council would promote development of 10 million square feet of distribution warehouse space or for e-commerce fulfillment centers without cost to taxpayers or compete against other City services. As a condition, the property would be annexed into the City of Savannah.

FACTS & FINDINGS:

1. Summary. In summary, under the Development Agreement each partner in the P3 would be obligated to outlined responsibility:

• Rockingham dedicates land into public ownership, signs Completion Guarantee, pledges debt payment differential for first 5 years and sets up a sinking trust fund for future repairs/maintenance. Rockingham gains use of infrastructure (though publicly owned—interchange and water/sewer extension) to sell tracts for 10 million square feet of space for distribution warehouses and e-commerce fulfillment centers.

• SEDA accepts title to the land, issues $38 million bond to fund interchange and water/sewer extension, manages design and construction (follows state procurement law and City DBE goals), sets up state-authorized Payment In Lieu of Taxes (PILOT) and distributes revenue from PILOT annually to City. By its role, SEDA fulfills its Georgia-Constitutional mission to create investment and new jobs, up to 2,500. This project also helps GPA meet its need for 20 million SF of distribution warehouse for future port growth.

• City annexes land, co-signs bond with SEDA, uses PILOT for bond payments on public infrastructure (interchange, water/sewer) and applies balance of PILOT to fund other City needs. The City not only helps to create jobs but will also set up job training scholarships for Savannah residents (100 for every million SF of warehouse/e-commerce) and creates new revenue stream for other City projects/ programs. Assuming 10M SF of distribution warehouse/e-commerce fulfillment would be developed within 10 years, the City would receive $119 million in incremental new revenue during the course of 20 years.

2. Annexation. Under the petition, the City of Savannah would annex Rockingham Farms and confirm its zoning for manufacturing (the zoning does not allow housing since the property remains within the flightline of Hunter Army Airfield). The property does need rezoning since the manufacturing classification has remained in place for 15 years or so.
3. Financial Analysis. The PILOT calculations (see Exhibit, “Pilot Calculations”) show the financial analysis of new taxes generated by each new warehouse versus the annual debt payments to retire the bond. As can be viewed in the analysis, the break even point (i.e. sufficient tax value to fund fully the annual debt service payment) would be 3 million SF. The benchmark underscores the need for the guarantee of 3M SF of distribution warehouse/e-commerce fulfillment under construction by end of Year 3--end of capitalized interest payments. According to the Assessor’s Office, a 1 million SF warehouse would be valued at $55 million (2019) and generate about $977,000 annually in new property tax revenue (City, County, School Board). Capitalized interest payments would be approximately $873,000 annually for years 1-3, with debt service payments $2.75 million annually for 17 years.
4. Reducing Risk. According to financial projections, the first three years will be most critical. To reduce the City’s risk as much as practical, the Development Agreement provides the following safeguards:

4.1  Warehousing Commitment Agreement. Per Section 6, Rockingham Farms agrees to sign a commitment to have delivered 3 million square feet of distribution warehouse/ e-commerce fulfillment space by Year 3. As noted, the 3 million SF remains the target to cover debt service. The Year 4 debt service would be $2.75 million, but the PILOT would be $4 million.

4.2  Personal Guarantee. Per Section 10, Rockingham Farms agrees to sign a Personal Guarantee for up to 5 years that helps fund the difference between the annual debt service payments on the bond and the incremental new taxes generated by the warehouses through the PILOT payment.

4.3  Interest Only Payments (3 Years). Structuring the bond for capitalized interest payments for three years limits payments for three years during construction of the interchange and extension of the water and sewer. This would reduce the bond payment obligation until new warehouses are constructed and taxed at full value.

5.  Determining Benefit. The Development Agreement provides the only practical way to fund the public interchange and water and sewer extension to the site. This project does not move forward otherwise despite other benefits:

5.1 New Revenue Stream. SEDA would distribute net PILOT payments to the City of Savannah. City uses the PILOT payment for bond payments on the infrastructure and keeps the balance for city services and programs. Over the life of the PILOT, this would total $119 million.

5.2 Jobs. Based on employment at other warehouses, a 1 million SF warehouse would generate 250 jobs. In general, the new jobs would be fork lift operators that in this market generally earn $16/hour to $17/hour (based on survey of four distribution warehouses/e-commerce fulfillment centers, or $33,280 to $35,360 annually for a 40-hour work week. Savannah Tech offers a certification course that can be completed on a Saturday in 8 hours to train and certify forklift operators. The City would use the PILOT to fund 100 scholarships to Savannah residents for every 1 million SF (i.e. 1,000 scholarships).

5.3 Generates Future General Fund Revenue. After retirement of the bond, the Rockingham Farms property returns to full taxable value. Based on 2019 values, plus estimated annual growth, upon retirement of the bond, the aggregate development would generate future taxes of more than $3 million annually to the City’s General Fund (not increased to adjust for inflation).

5.4 Ports Needs. At the State of the Port address in 2019, the Executive Director of the Georgia Ports Authority stated that the Port of Savannah needs 20 million square feet of distribution warehouse space to meet the Port of Savannah’s projected growth.

6.Service Requirements. The Development Agreement also requires the property owners to maintain the section of Veterans Parkway that would become part of the City of Savannah after annexation. In addition, the Development Agreement requires that the PILOT would be extended an additional year for an $8 million sinking fund that would pay for future maintenance of the interchange. The proximity of Rockingham Farms to existing fire stations, three within six minutes, would not require any additional capital expense, and warehouse districts generally do not require police or other City services (water and sewer and sanitation services would be paid separately the same as by property owners).

7.  Construction. SEDA will be responsible for design and construction. SEDA agrees to follow state purchasing law to complete the project (public bidding) and follow City DBE Policy.

ALTERNATIVES:

1. Move forward with the public infrastructure for Rockingham Farms by authorizing the City Manager to execute the Development Agreement and related documents.

2. Do nothing.

POLICY ANALYSIS: 

While the City’s Charter and Georgia law that created the Savannah Economic Development Authority authorize the execution of a Development Agreement for the described purposes, the question becomes a question of policy whether to pursue. issuing a bond poses some risk, the structure lessens the risk through guarantees. The City’s participation to create jobs, new revenue source for other City programs and services and future tax value offers substantive current and future benefit. Without the City’s participation, the property remains undeveloped.

Authorize the City Manager to execute the Development Agreement and related documents