ISSUE: To consider a Development Agreement (see Exhibit, “Development Agreement”) that would apply incremental new tax revenue from new warehouses at Rockingham Farms to fund a bond to pay for a new public interchange at Veterans Parkway and public water and sewer improvements. While the $38 million bond would become an obligation of the City of Savannah, the bond’s repayment from the incremental new tax revenue would not impact any other taxpayers nor compete against other City services. In balance, the project would generate up to $10 million for the City’s Housing Trust Fund and create from 1,500 to 2,000 new jobs.

BACKGROUND: Rockingham Farms is a 1,036.69-acre tract of land adjoining Veterans Parkway and adjacent to Hunter Army Airfield (see “Maps” in Exhibit). Located in the unincorporated area, the property is the single largest developable tract 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 petition before City Council provides a means as a condition to annexation to allow development of 10 million square feet of warehouse space, needed to serve the Port of Savannah, without cost to taxpayers or compete against other City services.

FACTS & FINDINGS: Four items on this agenda relate to Rockingham Farms—zoning approval, zoning classification, annexation and the Development Agreement. This part of the agenda relates to the Development Agreement.

1. Petition. 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).

2. Development Agreement. To construct the interchange that would serve Rockingham Farms, the petition suggests a three-party Development Agreement between the City of Savannah, the Savannah Economic Development Authority and the property owner, Rockingham Farms LLC. By the Development Agreement, SEDA would take title and collect a Payment in Lieu of Taxes (PILOT) on all new property taxes generated by the warehouses (the base tax amount of $38,000 would continue to be funded to Chatham County and School Board). The incremental new tax revenue would be used to fund annual debt service payments on a bond that the City of Savannah would issue for the infrastructure—an interchange and water and sewer extension, which would cost $38 million (estimated until after opening of competitive bids on bond).

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. Upon retiring the bond, all of the improved value of the warehouses would return to taxable value to generate future taxes for the County, School Board and City. Annual revenue in no more than 20 years to the City’s General Fund would be more than $3 million.

4. Using Incremental New Property Taxes. The key question for the City remains how quickly the property value of the new warehouses will generate enough tax revenue to fund fully the annual debt service payments on the cost of the bond for infrastructure. According to the Assessor’s Office, a 1 million SF warehouse would be valued at $55 million (2019) and generate about $990,000 in new property tax revenue (City, County, School Board). Interest-only debt service would be approximately $817,000 annually for years 1-3, with debt service payments thereafter from $3.1 million to $2.3 million for 17 years (see Exhibit, “Debt Service Projections”).

5. Determining Risk. According to financial projections (see Exhibit, “Debt Service Projections” and “PILOT Calculations”), three 1 million SF warehouses would need to be added to the property tax digest to generate enough property taxes to fund the annual payments on the bond’s debt service. The property owners state that a nationally-known warehouse developer has committed three warehouses in three years. The City’s risk for the funding obligation would be reduced in the Development Agreement by the following:

5.1 Interest Only Payments (3 Years). Structuring the bond for interest-only payments for three years. This would reduce the bond payment until the new warehouses are constructed and taxed at full value.

5.2 Personal Guarantee. Requiring the property owners to sign a Personal Guarantee for up to 5 years helps fund the difference between the annual debt service payments on the bond and the incremental new taxes generated by the warehouses.

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

6.1 Jobs. Based on employment at other warehouses, a 1 million SF warehouse would generate 150 to 200 jobs. In general, the new jobs would be fork lift operators that in this market generally earn $15 to $18 an hour to start, or $31,200 to $37,440 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 inexperienced forklift operators.

6.2 Housing Trust Fund. Despite the City’s interest in workforce housing, this use cannot be developed on this site because of zoning related to the property’s location within the Hunter Army Airfield flight zone. During the time of bond payments, the property owners have agreed to fund $500,000 annually to the City’s Housing Trust Fund. This contribution would fund up to $10 million during a 20-year bond period (up to $5 million for a 10-year period).

6.3 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 General Fund.

6.4 Ports Needs. The Port of Savannah needs 20 million square feet of warehouses within five years to meet the projected growth.

7. 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 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).

ALTERNATIVES:

1. Move forward with the public infrastructure for Rockingham Farms by authorizing the City Manager to execute the Development Agreement and related documents and request that SEDA issue the bond to fund it with the conditions as provided (bond award will return later to Council for approval).

2. Move forward with Alternative 1 but amend the Development Agreement pending agreement by the property owners.

3. 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 from job creation, contribution to Housing Trust Fund and future tax value offers substantive current and future benefit. Without the City’s participation, the property remains undeveloped.

The City Manager recommends Alternative 1.