Item 48: Chapter 380 Economic Development Incentive Agreement with Hill Country Group

Discuss possible reconsideration or amendment of the Chapter 380 Economic Development Incentive Agreement with Hill Country Group, LLC that was approved by city council on June 7, 2022 after holding a discussion regarding environmental concerns and economic development benefits.

Questions asked by CM Baker:

I want to clarify what might be the best way to share this information with the public to encourage helpful feed back from the community. Several field experts have suggested their willingness to conduct studies, monitor data, etc. Are we able to require additional studies or access to information, given the nature of a 380 agreement? (response below)

I think what the community is really worried about is the flow of our river and the water in the aquifer. So is there a way to monitor and better understand the exact impact of a project like this on the those outcomes, and in what ways could this project be innovative to further reduce their impact or ensure they won't use caustic chemicals on site that could pollute the aquifer. (response below)

With the protest planned and the community clearly looking to see how the City will respond, I wanna make sure that I'm helping the public know what options are available.

Also, I asked a lot of math based questions during the last consideration of this item, and further discussed some of that with Stephanie in our 1 on 1. Some things that would be helpful to clear up:

La Cima is not able to build over 20% impervious cover, but is it correct that if they continue to buy more land and add that to their agreement that the 20% would then result in more impervious cover over the whole project in terms of acreage? What are they currently at, as in what is their total acreage of the project and what is impervious cover? If this project is at 48% doesn't that just mean the impervious will be used on another part of this project, can we ensure that it is not over the aquifer?

The confusion over the M&O and I&S...Not sure if there is an easy way to explain this but it didn't seem very clear. Given that this is an option is there a way to make a chart to explain this better? (response below)

There is also the issue of what else could have been built there and what the taxes might be on a different project. As Strongtowns often points out large parking lots and single use warehouses aren't the highest tax earners for Cities. If this was mixed use CD5 with bodega style groceries and living spaces above that would likely create significant revenue for the City, is there any way to generate an estimate for comparison (like the aspire/target)? (response below)

Is this a place where we could have already teed up a conversation with the developer about all the community feedback we've gotten and clarification on their intent? For instance, it seems that while their current plan has areas dedicated as parkland, that they could theoretically come back with a different plan later to change that, right? Can we exercise restrictive covenants to require those stay parkland? (response below)

Lastly, it would be helpful to know if the developer has an end in sight, or to know how much land they intend to incorporate into their current agreement. I think it would be helpful to have a map of the aquifer with the la cima development laid over it, as well as the other impervious that is over the aquifer to give us a sense of how "at risk" this resource is.

Additional questions:
Also, it seems like we have a lot of examples of films being made in San Marcos, even recently. Is there data about the impacts those projects had on San Marcos' environment, jobs, etc?

It would also be great if staff and GSMP could acknowledge the academic research that was referenced in the previous meeting, and have some response as to how these projections are different or why we should trust the motion picture association assumptions as they relate to economic impact. (referenced academic research: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3407921 and https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3155407) (response below)

Responses to two of CM Baker's questions provided by Anna Miranda, Interim Finance Director, and Kelsee Jordan Lee, Economic and Business Development Manager:

Question: The confusion over the M&O and I&S...Not sure if there is an easy way to explain this but it didn't seem very clear. Given that this is an option is there a way to make a chart to explain this better?
A: Yes, staff has attempted to further clarify the difference below. Hopefully this conveys it in a clearer manner.

Definitions

• Interest and Sinking (I&S) Tax Rate is the tax rate levied to pay for any bond debt that may have been issued to fund the Capital Improvements Plan.

• Maintenance and Operations (M&O) Tax Rate is the tax rate levied to fund the operations of the municipality, including core services such as public safety, parks and recreation, streets, facilities, and other governmental functions.

For example, on a property with an assessed value of $1 million, tax rate at 0.6030, and incentive percentage at 100%, 75%, 67.6%, and 50%, the following is expected property tax collected, rebated, and retained.


(Sample tax scenario attached)


Question: There is also the issue of what else could have been built there and what the taxes might be on a different project. As Strongtowns often points out large parking lots and single use warehouses aren't the highest tax earners for Cities. If this was mixed use CD5 with bodega style groceries and living spaces above that would likely create significant revenue for the City, is there any way to generate an estimate for comparison (like the aspire/target)?

There is not currently a true comparable property in San Marcos with commercial use on the ground floor and residential above at such a large land size as what the La Cima property is. Using the Aspire/Target development as a baseline, the following factors must be considered that preclude the two developments from being similar in type and scale:

• The current La Cima multi-family is MF-24 which is a zoning district with a maximum building height of 4 stories, and up to 75% impervious coverage.
• The Aspire was built to 100% impervious coverage and is +/- 157 feet.
• No ground floor commercial is currently proposed with La Cima multi-family.
• The Aspire is 310 units and has ground floor commercial.
• La Cima is allowed 980 units total throughout the entire development, and 304 units are currently proposed. This leaves a remaining 676 units allowable throughout La Cima.
• The Aspire is located downtown and is not similarly situated to the La Cima property.

Response to CM Baker's question provided by Joe Pantalion, Assistant City Manager, and Kelsee Jordan Lee, Economic and Business Development Manager:

Question: It would also be great if staff and GSMP could acknowledge the academic research that was referenced in the previous meeting, and have some response as to how these projections are different or why we should trust the motion picture association assumptions as they relate to economic impact. (referenced academic research: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3407921 and https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3155407)

It would be difficult to do a direct comparison to what the author, John Bradbury, presents and what City Council considered because he only addresses incentives from the state level, primarily through tax credits which can be tied to labor and non-labor spending, while the City of San Marcos Chapter 380 incentive is local and only on property tax. If evaluating only the state-level incentives, since that is what the author looks at, one of the differences seen between the State of Georgia’s program (and others mentioned) and that of the State of Texas is that Georgia’s is done through a tax credit that can also be transferred to another entity. This looks like it could possibly dilute the exact impact of a film incentive because the incentive itself could be transferred to a non-film affiliated entity. The incentives offered through the State of Texas are rebates wherein the grant amount is paid after audited accounts of proven in-state spending have been submitted. This doesn’t appear to rely on multipliers such as those referenced by the papers below in regards to Georgia nor does it appear to be transferrable. The Texas Film Commission has compiled information (attached) showing the comparison of grant amounts to in-state spending as well as jobs by Texas residents directly associated with that production. Observing what has historically occurred when other similar ventures have taken place is one of the methods the author suggests in the article. Doing this for the Texas Moving Image Incentive Program indicates a high return on the incentive investment. Seventy percent of paid crew, cast, extras, contractors must be Texas residents and 60% of total production days must be completed in Texas, so there is a lot of opportunity for direct benefit to both individuals and to communities from projects that are using State of Texas incentives. Much of the second article also suggests money flows out of the participating states because they are going to film production companies which are assumed to not be local. Based on this, the opposite could also be partly assumed in that more funding would flow into Texas and San Marcos because it has the actual film production company and location.

It should also be noted that even if the author’s lower estimate of the Georgia film industry contributing approximately $3 billion is used, that still has a significant return compared to the $800 million he stated as granted in tax credits. Also, while the GSMP modeling software does have the ability to apply a multiplier effect, staff did not apply any multipliers in the expected benefits of property tax collection and rebate that was presented. Staff also has attached a draft document showing the known differences between the State of Georgia and State of Texas incentives.

I hope that staff can provide a list of all the acres we bought (sometimes with help from others) for greenspace and water quality protection over the last 20+ years. I know it is hundreds of acres for millions of dollars. If it cannot be completed for this agenda item due to the holiday weekend, we can wait. This would be good for the website FAQ on this topic and for the discussion on the aquifer at a future meeting.
We acquired many acres for the Wonder World Extension. I believe that some was warbler-related. Is that recharge area? I'm looking at the TCEQ map and it gets bit interesting to determine, but even buying land in the Transition Zone or Contributing Zone is helpful.
ALSO, how about the hundreds of acres we have bought for water quality. Millicam tract, Early tract, and more? I think that will go a LONG way in showing the public our commitment to water quality, and quantity.
AND, does our GIS map system have a layer that shows greenspace available? A link to that could be great!

Has the developer been made aware of my questions for them and do we expect them to be available at the meeting?

Also, I was made aware of a film studio called Las Colinas in the Dallas area. Are there any lessons or concerns that this project might provide good examples of? Part of my concern after speaking with a constituent that worked in the film production industry is now focused on the actual business model they are proposing. If the film studio proves unsuccessful, does this still turn out to be a good deal for the City? It was suggested that, given the current market for filming in Texas versus other states that studios here are struggling, and that this is actually more about a real estate transaction with a rebate to help offset the downturn in the housing market that we're expecting...Can we ask who their investors are in the project to better understand their intentions and business plan better?

Has the developer been working with any groups to increase confidence in their plans for reducing harm to the aquifer? Could we ask them to still adopt the "Environmental design toolbox" that was identified in our CAMPO plan presentation?

The 22 FTE jobs, what are their actual titles/positions? Also, what are the categories of workers included in the 1,400 contract workers? Are those people independent contractors or will this studio use Union work force?

Has the company actually said that they would not build here if they didn't get the incentive? Since they closed on the property before our vote, does that preclude us from any legal proceedings should we decide to change anything at this juncture?

Responses provided by Engineering, Legal, Planning and Development Services, and City Manager's Office staff:

Question: Are we able to require additional studies or access to information, given the nature of a 380 agreement?
Development over the Recharge Zone requires an analysis for the mitigation of the increase in stormwater runoff and the removal of pollutants caused by the development in compliance with current City code and design requirements. These studies of detention and water quality treatment would be available to the public as well as the statement of no impact by a qualified geologist. The Chapter 380 agreement does not require any studies or the provision of information other than information needed to verify compliance with the key performance measures: capital investment, square footage and taxable value, etc. Anything concerning environmental issues would be strictly voluntary outside of the 380 Agreement unless the agreement is amended.


Question: So is there a way to monitor and better understand the exact impact of a project like this on the those outcomes, and in what ways could this project be innovative to further reduce their impact or ensure they won't use caustic chemicals on site that could pollute the aquifer.
The City by code does not restrict the use of caustic chemicals, however under our MS4 program we require the use of best management practices to contain and prevent spills or discharge of hazardous chemicals. Illicit discharges of hazardous materials are prohibited and require immediate notification. Our normal process during construction is that environmental inspections occur about every 2 weeks on all our commercial site permits. During these inspections we are looking at erosion controls, tree protection fencing and ensuring the project is in compliance with their SWPPP (Storm Water Pollution Prevention Plan), etc. Based on our code of ordinances, SWPPP inspections are required weekly from the projects certified inspector and the City can request those reports at any time.

Potential voluntary or renegotiated strategies could include:

• • Include the “One Water” approach.
    • “One Water” is defined by the Water Research Foundation as an integrated planning and implementation approach to managing finite water resources for long-term resilience and reliability, meeting both community and ecosystem needs.
    • When designing the site and buildings, designers should consider how water can be conserved, reused, stored, and processed on site to maximize efficiency and water independence. Tools such as water efficient fixtures, grey water plumbing, rainwater harvesting (from roof and paved areas), and stormwater management, can be designed into the project as a whole system.
    • The One Water concept is exemplified by Wimberley’s Blue Hole Primary School https://wimberleywatershed.org/impactareas/environmental-planning-policy-advocacy/one-water/
      • The design includes rainwater and HVAC collection to service toilets and landscape irrigation, green stormwater infrastructure to mitigate nonpoint source pollution and onsite treatment and reuse of gray/black water to irrigate athletic fields. The new primary school is expected to reduce potable water demand by 90% over standard construction, helping to protect the iconic Jacob’s Well Spring and Wimberley’s Blue Hole. Operation, maintenance and infrastructure cost savings from the One Water design are estimated to top $1M over the next 25 years!
• In what ways can we ensure they won't use caustic chemicals on site that could pollute the aquifer?
  • If chemicals of concern are stored and used on-site, have proposed stormwater controls measures to include the ability to collect and hold chemical spills like Hazardous Material Traps described in TCEQ’s RG-348 Appendix A- Optional Enhanced Measures for the Protection of Water Quality in the Edwards Aquifer (Revised).
    • Hazardous Material Traps can be easily integrated with a stormwater control measure. They contain any runoff or spills for 24-hours prior to automatic release. They system includes a manual override to the automatic release so that on-scene responders to effectively contain any spills for appropriate removal and cleanup.
  • Include Integrated Pest Management.
    • Integrated pest management (IPM) is an ecological and economical approach to pest control that utilizes various strategies, including organic gardening techniques, to manage pests. An IPM integrates of mechanical, biological and chemical controls. These combined strategies are more effective in the long term than any one strategy used by itself.
• Is there a way to monitor and better understand the exact impact of a project like this?
  • The stormwater controls measures implemented for the proposed development can be designed to consider future monitoring and testing of stormwater quality. Requiring the development to monitor and test the effectiveness of the stormwater control measures would help determine their level of effectiveness. Texas State University may have the capability to perform the monitoring and convey the results.
  • The EAA is interested in setting up a stormwater control measure demonstration site on the La Cima development’s conservation area. The EAA would monitor different methods of capturing and treating stormwater including the ones used for the Film Studio development. The La Cima or Film Studio development could fund this study.

Question: Is this a place where we could have already teed up a conversation with the developer about all the community feedback we've gotten and clarification on their intent? For instance, it seems that while their current plan has areas dedicated as parkland, that they could theoretically come back with a different plan later to change that, right?
The development agreement can be amended by mutual agreement of the parties to modify the designated greenspace requirements and associated concept plans. Typically, amendments to development agreements go back to a council committee for a recommendation.


Question: Can we exercise restrictive covenants to require those stay parkland?
The development agreement can be amended to require separately recorded restrictive covenants as to future designated greenspace under which the city is the beneficiary and over which the city has enforcement rights. However, the development agreement is a recorded instrument that already restricts the property and the developer could not alter the planned dedicated parkland areas without the city’s approval. If any parkland has already been dedicated to the city, there is no need for covenants as the city is the owner and can only change the use via an election under the city charter.

Response to Mayor's questions regarding amount of greenspace/water quality protection lands provided by staff from Engineering, Parks and Recreation and IT/GIS:

This is the information that has been compiled to date. It is still in draft form and may be refined further prior to the discussion item on the aquifer at a future meeting.


Here’s a viewer focused on greenspace and City property along with the recharge zone: SMTX Greenspace Map. Staff is also working on a dashboard that would show the same information

Response provided by Destination Services staff:
Question: Also, it seems like we have a lot of examples of films being made in San Marcos, even recently. Is there data about the impacts those projects had on San Marcos' environment, jobs, etc?

Attached are a number of reports regarding filming in the area. The first is a report prepared by TXP out of Austin covering filming in Hays and Caldwell counties. The next two were prepared by City staff.

A comment was also made about filming and damage to the San Marcos River. This was an incident that happened several years ago in Martindale. Film related construction occurred adjacent to the river. It sounds like Martindale did not have the ability to regulate, and detrimental actions occurred.

Responses provided by City Manager's Office staff:

Question: Has the developer been made aware of my questions for them and do we expect them to be available at the meeting?
Yes. A representative from the La Cima development plans to be available at the meeting. Representatives from Hill Country Group will not be attending.

Question: Also, I was made aware of a film studio called Las Colinas in the Dallas area. Are there any lessons or concerns that this project might provide good examples of?
Staff is aware that there is a studio in the Dallas area that was originally called the Studios at Las Colinas and became Mercury Studios in 2013. Staff has not researched this studio for specific lessons learned.

Question: Part of my concern after speaking with a constituent that worked in the film production industry is now focused on the actual business model they are proposing. If the film studio proves unsuccessful, does this still turn out to be a good deal for the City?
The incentive is based on the anticipated increase in property valuation at the studio location which is in turn related to the amount of up front capital investment made. The incentive does not rely on sales tax.

Question: It was suggested that, given the current market for filming in Texas versus other states that studios here are struggling, and that this is actually more about a real estate transaction with a rebate to help offset the downturn in the housing market that we're expecting...Can we ask who their investors are in the project to better understand their intentions and business plan better?
The names of their investors have not been provided at this time.

Question: Has the developer been working with any groups to increase confidence in their plans for reducing harm to the aquifer?
Yes, the Hill Country Group has been open to discussing environmental protection strategies at their site and staff is aware of discussions with the San Marcos River Foundation, the Edwards Aquifer Authority and the Wimberly Valley Watershed Association.

Question: Could we ask them to still adopt the "Environmental design toolbox" that was identified in our CAMPO plan presentation?
Actual adoption of the toolbox would be voluntary unless the incentive is formally renegotiated. Staff will share the toolbox with them.

Question: The 22 FTE jobs, what are their actual titles/positions?. Also, what are the categories of workers included in the 1,400 contract workers? Are those people independent contractors or will this studio use Union work force?
This information has not been provided at this time

Question: Has the company actually said that they would not build here if they didn't get the incentive?
While they have not shared their decision making process with staff, they have indicated in the past that their decision to locate in San Marcos would be contingent in part on the granting of the incentive.

Question: Since they closed on the property before our vote, does that preclude us from any legal proceedings should we decide to change anything at this juncture?
Defer to Legal Department.

Response provided by City Manager's Office staff:

Question: La Cima is not able to build over 20% impervious cover, but is it correct that if they continue to buy more land and add that to their agreement that the 20% would then result in more impervious cover over the whole project in terms of acreage?
The maximum Impervious Cover limit for La Cima is 19%. Adding land area to the agreement would result in additional impervious cover.

Question: What are they currently at, as in what is their total acreage of the project and what is impervious cover?
The current land area included in the La Cima agreement is 3,848 acres of which 19% equates to approximately 731 acres.

Question: If this project is at 48% doesn't that just mean the impervious will be used on another part of this project, can we ensure that it is not over the aquifer?
That is correct and remaining impervious cover is allowed to be used within the project boundaries which is entirely within the recharge zone.