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Item 8 - Consideration of Resolution Hallmark Circuits Inc ~ AGENDA REPORT SUMMARY - TO: Honorable Mayor and Members ~ City Council -- iROM: James L. Bowersox, City Mana INITIATED BY: John D. Fitch, Assistant City Manager~)1 ~arren H. Shafer, Director of Redevelopment Services DATE: April 2, 1996 SUBJECT: Consideration of a Resolution of the Industrial Development Authority of the City of Poway Approving the Application of Hallmark Circuits, Inc. ABSTRACT By adoption of Ordinance 453 on September 15, 1995, the Council created the Poway Industrial Development Authority (IDA). The IDA has received its first application for Industrial Development Bonds. The Council sits as the Board of the IDA and approval of the application is the first step in the review and approval process. Hallmark Circuits, Inc, the applicant, plans to built a 75,000 sq ft facility on three lots they purchased in Parkway Business Centre. The use of lOBs will provide financing approximately 2% below prime and is, therefore, an important economi c development incentive. ENVIRONMENTAL REVIEW This action is not subject to CEQA review. FISCAL IMPACT There is a minor cost to the City for processing the application and reports. All other costs, including the obligation to payoff the bonds, are the sole responsibility of Hallmark Circuits, Inc. ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE A copy of this report was sent to Thomas R. White, Chief Executive Officer of Hallmark Ci rcuits. RECOMMENDATION It is recommended that the City Council, acting in its capacity as the Poway IDA, adopt the resolution approving the application of Hallmark Circuits, Inc. for Industri a 1 Development Bonds, and direct staff to schedule the Public Hearing. ACTION .- II e:\clty\rda\share\hallldb.cov APR 2 1996 ITEMS 1 of 17 AGENDA REPORT CITY OF POWAY TO: Honorable Mayor and Members~e City Council FROM: James L. Bowersox, City Man 0r INITIATED BY: John D. Fitch, Assistant City Manager~ ~warren H. Shafer, Director of Redevelo ent Services DATE: April 2, 1996 SUBJECT: Consideration of a Resolution of the Industrial Development Authority of the City of Poway Approving the Application of Hallmark Circuits, Inc. BACKGROUND By adoption of Ordinance 453 on September 15, 1995, the Council created the Poway Industrial Development Authority (IDA) . The IDA has received its first application for Industrial Development Bonds (IDBs). The Council sits as the Board of the IDA and approval of the application is the first step in the review and approval process. Hallmark Circuits, Inc, the applicant, plans to built a 75,000 sq ft facility on three lots they purchased in Parkway Business Centre. FINDINGS As one of the City's efforts to encourage economic development, the City Council authorized the use of IDBs through its Industrial Development Authority. Using IDBs allows private manufacturing concerns the ability to raise capital at tax exempt rates. This program is authorized by Federal and State law and is often referred to as "conduit bond" financing. This name is derived from the fact that the City's IDA acts as the "conduit" by approv i ng the bonds, but has no obligation or requirement to repay the debt. The process requires two actions by the IDA. First is the Authority's approval of the application. This action is important since it marks the pOint at which the applicant can begin incurring costs that can be repaid with bond proceeds. The City is also required to conduct another hearing within 45 days to officially act on the application. If the City approves the application, the Authority then files the necessary appl ication with the Cal ifornia Industri al Development Financing Authority (CIDFAC) and the California Debt Advisory Commission (CDAC). After these steps, the second and final action by the Authority is the adoption of the resolutions authorizing the issuance of bonds and the necessary documents. The use of IDBs will provide financing at approximately 2% below prime and is, therefore, an important economic development incentive for Hallmark to build thei r new plant in Poway. Their plans call for a complete relocation and expansion of their business. This will include all thei r manufacturi ng APR 2 1996 ITEM 8 2 of 17 ~ - - Consideration of Resolution of IDA Approving Application of Hallmark Circuits April 2, 1996 Page 2 operations and their corporate offices. The funds will be used to cover the cost of construction, new manufacturing equipment and waste water treatment equipment. As noted, neither the City nor the IDA will incur any obligations as a result of the bonds being issued. ENVIRONMENTAL REVIEW This action is not subject to CEQA review. FISCAL IMPACT There is a minor indirect cost to the City for processing the application and reports. All other application fees and related costs, including the obligation to payoff the bonds, will be the responsibility of Hallmark Circuits, Inc. ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE A copy of this report was sent to Thomas R. White, Chief Executive Officer of Hallmark Circuits, Inc. RECOMMENDATION - It is recommended that the City Council, acting in its capacity as the Poway IDA, adopt the resolution (Attachment 1 ) approving the appl ication of Hallmark Circuits, Inc. for Industrial Development Bonds, and direct staff to schedule the Public Hearing. Attachment: (1) Resolution .:\clty\rdo\shoro\hollidb.rpt - APR 2 1996 ITEM 8 3 of 17 INDUSTRIAL DEVELOPMENT AUTHORITY OF THE CITY OF POW A Y RESOLUTION NO. RESOLUTION OF THE INDUSTRIAL DEVELOPMENT AUTHORITY OF THE CITY OF POW A Y APPROVING THE APPLICATION OF HALLMARK CIRCUITS, INC. WHEREAS, the Industrial Development Authority of the City of Poway (the" Authority" herein) has been duly activated by Ordinance No. of the City Council of the City of Poway (the "City"), and the City Council of the City has been duly authorized to act as the Board of Directors of said Authority; and WHEREAS, Hallmark Circuits, Inc., a California corporation, (the "Company" herein), has submitted its Application for the issuance of Bonds on behalf of its proposed Project as described therein, attached hereto as Exhibit A and incorporated herein by reference, all as such terms are defmed in the California Industrial Development Financing Act (California Government Code fi 91500 et seq.) (the" Act" herein) which Application complies with all authority requirements therefor; and WHEREAS, said Project is located on approximately 9.11 acres of industrial land on Danielson Street, Assessor's Parcel Nos. 317-280-2200,317-280-2300 and 317-280-53 00, in the City and consists of the construction of an approximately 75,000 square foot plant and the acquisition of equipment therefor; and WHEREAS, the Authority wishes to secure for the people of the City the public benefits which will accrue as a result of the financing of the Project and to express the preliminary intent of the Authority to issue Bonds on behalf of the Project; and WHEREAS, the economic development staff of the City has reviewed said Application and has prepared its report with regard thereto. NOW, THEREFORE, the Industrial Development Authority of the City of Poway does hereby resolve as follows: Section 1. The application of the Company for financing pursuant to the Act is hereby accepted. Section 2. The Authority hereby finds and determines with respect to said Application as follows: (a) It is likely that the undertaking of the Project by the Authority will be a substantial factor in the accrual of the employment benefits and consumer benefits which will result from the use of the facilities, all as proposed in the Application. These public APR 2 '09" ITEM 8 I~ 0 4 of 17 ~ - Resolution No. 96- Page 2 - benefits will substantially exceed any public detriment from the issuance of the Bonds in the maximum principal amount proposed in the Application. (b) The fmancing of the Project and the resultant operation of the Project will generate employment benefits for the community by increasing the number of employees of the Company within the community. The Company estimates current employment of 189 employees, which is expected to increase in the first two years of operations of the Project to 250 employees. Moreover, the Company estimates that its sales will increase substantially within two years of completion of the Project. (c) The use of the facilities to be financed pursuant to the Company's Application qualifies under Government Code A 91503(a)(1) as an industrial use for the manufacturing of automated fluid dispensing systems. (d) The Project, as proposed in the Application, is in accord with the purposes and requirements of the Act in that the proposed Project will enhance and promote economic development and increase opportunities for useful employment, all as set forth in the Application. Section 3. The Authority hereby declares its present intention to issue Bonds on behalf of the Company to fmance the acquisition and construction by the Company of the Project described in the Application and recitals hereof, in a principal amount of approximately $7,000,000 (seven million dollars), and in no event to exceed $10,000,000 (ten million dollars), .- and for the purposes described in the Application, a copy of which is on file with the City Clerk of the City. Section 4. Bonds, if any are issued, shall be issued in accordance with the Act, and shall be secured by the Project, together with any additional security necessary to ensure the marketability of the Bonds. Section 5. In no event shall the Bonds constitute a pledge of the faith and credit of the City, the State of California, or any political subdivision of the State and the City shall not be liable to make any appropriations for repayment of the Bonds. The Bonds shall constitute a mere special obligation of the Authority payable solely out of the revenues or other sources provided for in the Project Agreement and proceedings to be provided hereafter. Section 6. This resolution is adopted as official action of the Authority in order to comply with Treasury Regulation A A 1.1 03-8T and 1.150-2 and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of Authority expenditures incurred prior to the date of issue of the Obligations, is part of the Authority's official proceedings, and will be available for inspection by the general public at the main administrative office of the Authority. Section 7. Anything to the contrary herein notwithstanding, in no event shall this resolution bind the Authority in any way, shape or form to proceed with the Project and shall be - subject in all respects to the unfettered discretion of the Authority with respect to the issuance of Obligations for such Project. Moreover, the issuance of any Obligations shall be subject to compliance in all respects with all environmental, regulatory and other requirements which the PUBL:35683_11017182468.00011 2 APR 2 1996 ITEM 8 5 of 17 Resolution No. 96- Page 3 Authority is subject to or may reasonably impose, the sole purpose of this resolution being to serve as official action under Treasury Regulation Sections 1.103-8T and 1.150-2 and acceptance of the application under Government Code Section 91530(c). In any event, the Authority acknowledges it may not issue the Bonds until such time, if ever, as the State Legislature provides authority for the issuance of the Bonds for such purposes pursuant to the Act, which authority has lapsed by reason of the operation of Government Code Section 91521.3 set forth in the Act. Section 8. A copy of the Application shall be filed with the City Clerk of the City. Concurrently, a notice of acceptance of the Application and the filing with the City shall be published in the Poway News Chieftain pursuant to Section 91530(d) of the Act. Such notice shall name the Company, state the estimated maximum bond issue, and briefly summarize the proposed Project. Section 9. A notice shall be published of the public hearing to be held before the City Council of the City with respect to said Application in accordance with Section 147(f) of the Internal Revenue Code of 1986, as amended, and the Act. Section 10. All recitals in this resolution are true and correct, and this Board of Directors so finds, determines and represents. PASSED, APPROVED AND ADOPTED at a regular meeting of the Industrial Development Authority of the City of Poway this 2nd day of April 1996. Don Higginson, Chair Industrial Development Authority of the City of Poway ATTEST: Marjorie K. Wahlsten, Secretary Industrial Development Authority of the City of Poway PUBUS683_IIOI71 B2468.00011 3 APR 2 1996 ITEM 8 6 of 17 ~ - - CALIFORNIA INDUSTRIAL DEVELOPMENT FINANCING ADVISORY COMMISSION PROJECT APPLICATION Please complete the following information format. Fill in the appropriate charts on-employment, payroll, and cost information. Attach additional sheets to complete the remaining information. The complete application package must be typed. I. ISSUING AUTHORITY - Name, address, telephone number and contact person. Industrial Development Authority of the City of Poway 13325 Civic Center Drive Poway, CA 92064 (619) 748-6600 Contact: Warren Shafer Director of Redevelopment Services Tel. (619) 679-4249 II. PUBLIC JURISDICTION. Name, address, telephone number and contact person. City of Poway 13325 Civic Center Drive .- Poway, CA 92064 (619) 748-6600 Contact: Warren Shafer Director of Redevelopment Services Tel. (619) 679-4249 III. APPLICANT COMPANY - Please answer the following questions (A-F) for both the applicant (borrowing entity) and the user of the facility, if different. Comoanv Identification A. Official business name, address, telephone number, telefax number and contact person. Hallmark Circuits, Inc. 5330 Eastgate Mall Road San Diego, CA 92121-2899 Tel: (619) 453-7800 Fax: (619) 453-0360 Contact Person: Thomas R. White, COB/CEO B. Any "Doing Business As" names. No - C. Address of Applicant's headquarters, if different. I 1996 ITEM 8 ' , 7 of 17 APR 2 EXHIBIT "A" Same as above D. Other operating locations in California None ~ - E. The legal form of the Applicant, corporation, partnership, or sole proprietorship. Complete the appropriate section below. Corporation Corporation 1) Officers of the Corporation. Thomas R. White, COB/CEO Kenneth A. White, Vice President John R. White, Vice President James R. White, Vice President 2) Major Shareholders (10% or more). Thomas R. White, COB/CEO Kenneth A. White, Vice President John R. White, Vice President James R. White, Vice President 3) Date and place of incorporation. April 23, 1970, San Diego, California 4) For publicly held corporations, stock exchange on which listed. If traded over the counter, or on NASDAQ, please indicate the market makers. Not Applicable PartnershiD 1) Names and addresses of general and limited partners, and share of ownership. Pending - At this time, a separate partnership is planned for the building and land, where the partnership will lease to Hallmark Circuits, Inc. 100% of the facility. The partners will be Thomas R. White, Kenneth A. White. John R. White and James R. White who are the owners of Hallmark Circuits, Inc. 2) Date of partnership. Pending Sole Droprietorship - date and place of establishment. Not Applicable 2 APR 2 1996 ITEM 8 .. S of 17 ~ - - Business relationshins Is the Applicant or User an owner, subsidiary or affiliated directly or indirectly with any other business or organization? If so, indicate the relationship. - No Comnanv Description A. Tax Identification for APplicant and User I. IRS Office where tax returns are f1!ed Fresno, CA 2. Tax Identification Number. Federal ID # 95-2648324 B. SIC Number of company. SIC # 36 79 C. Description of principal products and/or services. Manufacturer of multilayer printed circuit boards - D. Major customers of finn's products, identifying specific companies and type of customer (i.e. discount retailer). Motorola, Tempe, AZ - Computer Manufacturer Seagate, Oklahoma City, OK - Disk Drive Manufacturer Seagate, Scotts Valley, CA - Disk Drive Manufacturer Act Manufacturing, Hudson, MA - Contract Manufacturer Applied Instruments, Annharbor, MI - Vision Systems Manufacturer Cognex, Natick, MA - Vision Systems Manufacturer E. Description of finn's present physical facilities, including size and use of facility We currently occupy 100% of a concrete tilt-up 44,000 square foot facility which is located on 2.7 acres for manufacturing of printed circuit boards. F. Other tax-exempt financing currently outstanding. None IV. DESCRIPTION OF THE PROJECT Proiect Location and Site Information A. Address and size of site (attach map or drawing) with streets. .- The property is located on Danielson Street in the City of Poway on 3 lots. - Parcel #: 317 280 22 00, Lot 10. Poway TCT # 87-13 unit # 0 I - Parcel #: 317 280 23 00. Lot II, Poway TCT # 87-13 unit # 0 I 3 APR 2 1996 11EM 8 . , 9 of 17 - Parcel #: 317 2805300, Par 12. Parcel Map No 16700 Total gross acreage is 9.11. B. Description of current improvements on the site, including age, current use and size, include pictures. - None C. Ownership 1. Does Applicant currently own site? The land is currently owned by the officers of the corporation, personally. 2. If Applicant does not own site, a description of escrow agreement, lease arrangements, options or other evidence of Applicant's permission to use site or plans to acquire site. There will be a direct lease arrangement with the applicant. D. Is the project located in a state-designated enterprise zone? If so, which zone? No ProDosed Proiect Descriotion A. Description of project, including whether it constitutes a renovation or new construction, the number of square feet to be constructed/renovated, the type of equipment being purchased, and any other pertinent information. . New 75,000 square foot building. . Additional manufacturing and waste water treatment equipment will be purchased. B. Estimated time of construction or renovation, including start date and completion date. Start date of construction - July, 1996 Completion date - January, 1997 C. Principal products, uses and activities of project, including SIC Code of activity to be fmanced. Manufacturer of multilayer printed circuit boards. Sic # 36 79 D. Estimated useful life of buildings and/or equipment. Building - 40 years Equipment - 10 years E. Brief narrative describing purpose of project, explaining the business rationale and economic benefits to be achieved from the project. 4 APR 2 1996 ITEM 8 10 of 17 ~ - .. The purpose of the project is to expand manufacturing space and capacity, aJ]ow for future growth and expansion and maintain competitiveness in a highly competitive Industry. The business rationale of the project centers on our need to remain competitive, improve our services to meet our customers needs and provide a safe work environment and growth opportunity for our employees. The primary economic benefit is to reduce the facility square foot occupancy cost. Project Elil!ibilitv Does the project meet the eligibility qualifications as defmed by Section 91503 of the Act (discussed in the earlier section under "Eligible Projects")? Please provide a brief narrative indicating how the project qualifies. The project does meet the eligibility section 91503 of the Act. . At least seventy five percent of the bond proceeds will be used for manufacturing purposes. . The overall project cost will not exceed $10,000,000. .. The project will retain and create at least one new job of every $50,000 of bonds approved, achieving a public purpose. . The documentation includes a notice to the City of San Diego of our _. intent to move and written acknowledgment from the City V. COST OF THE PROJECT State the total costs associated with the acquisition of the site and construction of the proposed project, including any utilities and proposed machinery and equipment purchases. Separate the costs based on their financing sources: the left column should total the bond amount; the sum of both columns should equal the total project costs. To Be Paid To Be Paid From All From Bond Other Proceeds Sources Acquisition of Land 1 $765,000 Acquisition of Existing Buildings Fees and other charges related to sale Rehabilitation of Existing Building(s) Site Preparation Construction of New Building(s) $4,000,000 Utilities Connection 5 ITEM APR 2 1996 8 11 of 17 Acquisition and Installation of Used Equipment Acquisition and Installation of New Equipment (a) Invoice $3,000,000 - . (b) Installation (c) Other (please explain) Engineering! Architecture Legal, Permits, etc. Bond Issuance Expenses2 (including discount) Letter of Credit or Bond Issuance Fee Interest During Construction from to Interest Income During Construction from to Other (please explain) Total Total Other Bond Amount Costs $7,000,000 $765,000 I. Only 25% of bond proceeds may be applied to the acquisition of land. This cost includes the cost of demolition of any existing buildings. 2. Total of issuance expenses paid from bond proceeds cannot exceed 2% of face amount of bonds. NOTE: Project costs may not include working capital, moving expenses, inventory or assumption, repayment or refmancing of existing indebtedness other than construction loans. VI. PUBLIC BENEFITS A. Employment Benefits - Please provide your current figures on employment payroll and sales volume and your best estimate of these figures at the completion of the project and two years after completion. Upon Two Years Completion After Currentlv of Proiect Comoletion Statewide Operations 6 APR 2 1996 ITEM 8 12 of 17 ~, - - Number of Locations I I I Total Sales Volume $18,400,00 $24,000,000 $36,000,000 Number of Employees 189 210 250 Total Payroll $5.300,000 $6,120,000 $7,300,000 Proiect Site Total Employment None 210 250 Management None 25 30 Skilled None 185 220 Unskilled None 0 0 Total Payroll None $6,120,000 $7,600,000 B. Other EtI1Ployment Infonnation. if applicable I. Will completion of project lead to increased employment and payroll among your vendors, service providers or other related companies? Yes 2. Indicate the impact of the proposed new jobs on areas of severe unemployment. Not applicable 3. Will the completion of the project enable the company to retain jobs that would otherwise be lost? Yes. In our Industry many companies which have not expanded and improved their manufacturing capabilities have suffer a loss of business and employment. If these benefits where obtainable in this jurisdiction, then we would not have to look at others. C. Resource Conservation - Discuss any benefits of resource conservation arising from the project, including mineral and energy conservation, waste reduction, improvement of recovery, and more efficient resource utilization. The new facility will include the latest technology and design to be more efficient regarding water usage, recycling and electrical energy. D. Consumer Benefits - How will this project increase the quality of or the quantity of products produced? Does the project involve the development of a new product or any particular product innovations? The design of the new facility will increase quality, quantity and cycle time of products produced. 7 ITEM 8 APR 2 1996 13 of 17 . Quantity will increase with the expansion. . Quality and cycle time will improve with an innovative manufacturing process flow design. This will create a more flexible environment in order to meet our customers changing needs. - The project will involve product innovation such that higher technology came be implemented into the manufacturing process. E. Other Public Benefits - Describe any other public benefits from the project, including, the revitalization of a depressed area, decreased public assistance payments or additional services or investment in the local community. . The expansion of the facility and growth will results in higher tax revenues for the City of Poway. . Construction jobs created. VII. PUBLIC DETRIMENTS A. Em,ployment displacement - will the completion of the project contribute to job displacements (resulting from site clearance or demise of competing firms)? No B. Environmental impact - Does construction of the project. or completion of the project. have any adverse environmental impact, including additional waste disposal? If so, describe. No C. Economic impact on the city. county and/or state - Estimate types and costs of new public services or infrastructure improvements required by the projects. including utility upgrades and street improvements. All services and utilities are already in place as part of an existing industrial subdivision. VIII. RELOCATION A. Reason for Relocation If financing is required for relocation of a facility within the State of California, document that the relocation is due to one of the following: I. An inadequacy of the existing facility. Yes. The new facility will allow for a significant expansion of manufacturing capacity. 2. A significant change in the firm's operations that would require a different location. No 8 APR 2 1996 ITEM 8 14 of 17 /""""' - .- 3. A building moratorium where the existing facility is located. No 4. Expiration of the existing lease and proof that it cannot be renewed on reasonable economic terms. - Hallmark's current building lease expires on May, 1997. In the last two years we have been negotiating with the landlord to no avail. Our lease rate is more than two times the market rate of similar facilities. 5. An economic need to move closer to the fIrm's customers or supplies. Not Applicable 6. Inability to fInd adequate expansion space in the existing community. Yes. We have looked for adequate expansion space and have been unable to locate land or an existing facility within a distance that would not create relocation and employee retention problems. 7. Other Currently, we do not have sufficient parking spaces for all employees. - B. Will the company retain its current employees at the new facility? If so, what steps will the company take to mitigate the effects of the relocation on its current employees? Examples of measures include relocation expenses or transportation assistance. Yes, the new facility will not require any existing employees to relocate nor place any unusual transportation demands on them. e. Is the relocation necessary to prevent the relocation of substantial operations of the company outside the state, or the abandonment of substantial operations of the company? If so, document. No, It is not necessary. However, Hallmark has been approached in the past from out of state jurisdictions. I X. PROPOSED BOND ISSUE A. Proposed terms of the bonds. including type of placement (private or public), fInal maturity, the mode of the bonds (that is, variable rate or fIXed rate), and whether the bond issue is being used to refund an outstanding issue. . Private placement . Maturity - 2,016, 20 years . Variable rate . Bond is not being used to refund any outstanding issues -. B. Security on the bonds - Provide a commitment letter from a bank for an irrevocable letter of credit or guarantee of bond insurance (include as attachment). 9 APR 2 i996 ITEM 8 15 of 17 Purchaser of the bond will not require outside credit enhancement. C. Identify the participants in the bond issue, including their names, addresses, telephone numbers, and contact persons: - (All to be determine) I) Underwriter 2) Bond Counsel 3) Financial Advisor 4) Applicant Counsel 5) Letter of Credit Bank 6) Trustee 7) Paying Agent 8) Other Participants X. ADDITIONAL DOCUMENTS Please submit the followin~ documents aloni with the aQplication. If not available. indicate when thev will be submitted. A. Public A%!ency Actions Provided by City of Poway 1, 2, 3 I. Resolution of Intent from the Industrial Development Authority. 2. Notice of the TEFRA hearing by the local authority. 3. If the proposed project is undertaken by a County Industrial Development Authority within the territorial jurisdiction of an incorporated city, attach ]0 ITEM 8 APR 2 1996 16 of 17 - - - - -- evidence of the required notification of the proposed project to the city. B. Financial Statements for the past three years. For public corporations, these should be the latest IOK's; for private companies, we require the highest level of fmandal statements available. Attachment C. Any other resolutions or documents relating to actions taken by the IDA and the Public Agency with respect to the application. Unknown at this time. XI. APPLICATION FEE - $1,250.00 at time of application. The general fee (1/4 of I % of the total bond amount) will be paid at the time of bond closing. - - 1 1 APR 2 1996 ITEM 8 17 of 17