notice of public joint study session pinal ......economic impacts •$32.3 billion total output...

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NOTICE OF PUBLIC JOINT STUDY SESSION PINAL COUNTY BOARD OF SUPERVISORS

JOINT STUDY SESSION AGENDA WITH CASA GRANDE CITY COUNCIL

THURSDAY, OCTOBER 11, 2018- 2:00 PM

CASA GRANDE CITY COUNCIL CHAMBERS 510 E. FLORENCE BOULEVARD

CASA GRANDE, AZ

1. Presentation and Discussion on an Update by Lucid Motors on the ProposedManufacturing Project in Casa Grande - City and County Managers

2. Presentation and Discussion on a Proposed Development Agreement betweenPinal County, City of Casa Grande, and Lucid Motors - City and CountyManagers

3. Presentation and Discussion on the Economic Impact Analysis Conducted byApplied Economic LLC on Lucid Motors - City and County Managers

(SUPPORTING DOCUMENTS ARE AVAILABLE AT THE BOARD OF SUPERVISORS' OFFICE)

AGENDA ITEM NO. 1

October 11, 2018CASA GRANDE CITY COUNCIL CHAMBERS

510 E. FLORENCE BOULEVARDCASA GRANDE, AZ

BRIEF DESCRIPTION OF AGENDA ITEM:

Presentation and Discussion on an Update by Lucid Motors on the Proposed Manufacturing Project in Casa Grande - City and County Managers

ATTACHMENTS:

NONE

AGENDA ITEM NO. 2




Presentation and Discussion on a Proposed Development Agreement between Pinal County, City of Casa Grande, and Lucid Motors - City and County Managers

ATTACHMENTS:

NONE

AGENDA ITEM NO. 3




Presentation and Discussion on the Economic Impact Analysis Conducted by Applied Economic LLC on Lucid Motors - City and County Managers

ATTACHMENTS:

1. Presentation2. Impact Analysis

ECONOMIC AND REVENUE

IMPACTS OF LUCID MOTORS

OCTOBER 11, 2018

Development Assumptions

Phase New Jobs Real

Property

Investment

Equipment

Investment

Phase I

(2019-2021)

745 $82M $168M

Phase II

(2021-2023)

670 $85M $160M

Phase II

(2023-2025)

770 $60M $120M

Total 2,185 $227M $448M

Construction Impacts

• Based on construction expenditures, economic impacts

measure total increase in jobs, personal income and

output in the region

• Projected building construction plus equipment installation

of $316.6 million for all three phases combined

• Total construction impact of $364.1 million in Casa

Grande and Pinal County over five years

• 3,230 direct and indirect construction jobs

• $135.9 million in personal income

Economic Impacts

• $32.3 billion total output impact in Casa Grande and Pinal

County over 20 years

• 4,800 direct and indirect jobs

• $3.5 billion in total personal income

• Impacts reflect gradual increases in the share of supplier

demand being met locally over the next 10 years

• 58% increase in manufacturing employment in Pinal

County over next 7 years based on direct jobs only with

additional gains from indirect jobs

Direct Revenue Impacts

2019-2038• Total tax revenues of $33.5M to city and county and

$22.2M to school districts over 20 years, before incentives

• $12.9M in revenues to city and county from Phase I only

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

City/CountyProperty Tax

City/CountySales Tax

FranchiseFees

Permit Fees ROWDedication

Phase I All Phases

Employee Revenue Impacts

2019-2038

• $25.9M in city/county property taxes and $52.0M in

school property taxes

• $22.5M in city/county sales taxes

• Includes taxes from direct and indirect employees

adjusted for percent living in Casa Grande and Pinal

County

Incentive Terms

• Phase I only (total $2.1 million)• $1.3M city construction sales tax reimbursement

• City workforce training grant of $500,000

• County BAP grant of $200,000

• County fee reimbursement of $113,891

• All Phases Combined (total $8.2 million)• $6.4M city construction sales tax reimbursement

• City workforce training grant of $1.5M

• County BAP grant of $200,000

• County fee reimbursement of $113,891

• Other Incentives• City and County road improvement projects, already in CIP

• Land lease from county to Lucid, no net impact to county

Incentive Evaluation

• Although incentives associated with Phases II and III

would not be paid unless additional job creation and

capital investment occurs, gift clause requires comparison

of revenues from Phase I to incentives for all phases

➢Revenues from Phase I - $12.9M

➢Incentives for Phases I, II and III - $8.2M

➢Revenues based on minimum improvements exceed

maximum incentives by $4.7M

➢City/County revenues from all phases - $33.5M

Summary

• 58% increase in manufacturing jobs in Casa Grande and

Pinal County and 30% increase in GDP

• One-time construction impacts also create thousands of

local jobs

• New jobs bring increased housing demand and consumer

spending

• Introduction of electric vehicle industry in Pinal County will

result in development of a new supplier base over time

• Will also raise visibility of the region and seed additional

economic development in other industries

ECONOMIC AND REVENUE IMPACTS OF LUCID MOTORS

ON THE CITY OF CASA GRANDE AND PINAL COUNTY

OCTOBER 2018

Economic & Fiscal Impact Demographic Analysis Economic Development

TABLE OF CONTENTS 1.0 INTRODUCTION ................................................................................................................. 1 2.0 PROJECT DESCRIPTION AND SUMMARY OF IMPACTS ....................................................... 2 3.0 IMPACT METHODOLOGY .................................................................................................. 6

4.0 ECONOMIC IMPACT ANALYSIS .......................................................................................... 7 4.1 Construction Impacts ................................................................................................ 7 4.2 Operations Impacts ................................................................................................... 7 5.0 Revenue Impacts ................................................................................................................ 11 5.1 Direct Tax Revenues .................................................................................................. 11 5.2 Employee Tax Revenues ............................................................................................ 13 6.0 Value of Incentives ............................................................................................................. 15 Disclaimer: The information and observations contained in this report are based on our present knowledge of the components of development, and of the current physical, socioeconomic and fiscal conditions of the affected areas. Estimates made in this analysis are based on hypothetical assumptions, current tax policies, and the current economic structure of the region. However, even if the assumptions outlined in this report were to occur, there will usually be differences between the estimates and the actual results because events and circumstances frequently do not occur as expected. This analysis is based on the best available information and is intended to aid the City of Casa Grande and Pinal County in quantifying the impacts of Lucid Motors on the local economy. In no way will Applied Economics LLC be held responsible or have any liability or be subject to damages as a result of this analysis. This report may be used only for the purposes that it was intended.

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1.0 INTRODUCTION Applied Economics has been contracted by the City of Casa Grande and Pinal County to perform a third party economic analysis of a planned Lucid Motors auto manufacturing facility in Casa Grande. The analysis quantifies the impacts of their operations on the city and county relative to the amount of financial incentives being offered. It also provides a framework for understanding both the economic and revenue impacts of the company’s proposed location in Pinal County. This analysis is based on information on projected employment, payroll and capital investment for each phase of development provided by Lucid Motors. The City of Casa Grande and Pinal County provided estimates of construction and other permit fees for each phase of the project that were subject to reimbursement and the value of right of way dedications. The county provided information on the appraised lease rate and sales price for the land. Arizona Public Service Company provided estimated utility costs that were used in the sales tax and franchise fee calculations. The city also provided a copy of the draft development agreement as a reference in preparing this analysis. Lucid would make a significant capital investment and generate a large number of new jobs that would provide economic and tax benefits to the region. They would also support improvements in road infrastructure that would enhance the competitiveness of Casa Grande and Pinal County for future industrial projects. As the first large‐scale auto manufacturing site in Arizona, they will diversify the economy of the region and the state by adding high quality primary jobs in advanced manufacturing. All of the jobs created by the company would be net new jobs, thereby growing the economy both locally and regionally. In addition to the direct impacts, the attraction of this company to Casa Grande and Pinal County would also support significant additional economic activity, jobs and personal income at related local supplier and consumer businesses.

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2.0 PROJECT DESCRIPTION AND SUMMARY OF IMPACTS Based on the assumptions used in this analysis, the company would create an estimated 2,185 jobs within the next seven years including assemblers, process and quality assurance engineers, maintenance and repair workers, auto body and paint technicians, supervisors and managers. They would build out in phases beginning in 2019 and ramping up to approximately 745 jobs by the end of Phase I in 2021. In Phase II, they are projecting to add 670 additional jobs by 2023, and in Phase III they are projecting to add 770 jobs by 2025, for a total of 2,185 jobs. In addition to jobs, the company would invest approximately $82 million in real property improvements and $168 million in equipment over the next two years in Phase I of the development. Only Phase I capital investment is required in the development agreement. However, this analysis also includes capital investment associated with Phase II of approximately $85 million in real property improvements and $160 million in equipment, and Phase III of approximately $60 million in real property improvements and $120 million in equipment. The land would be leased from the county for up to four years. During the lease term, the company would have an option to purchase the land at a cost of approximately $29.5 million. Economic Impacts

• Construction Impacts. Construction jobs are not permanent and should therefore be viewed as a “person‐year” equivalent. About 2,100 direct construction jobs and 290 additional indirect jobs would be created in Pinal County in the next four years through the new construction activity associated with the building and site improvements for Phases I and II. This level of construction activity would result in a one‐time economic impact of $267.5 million. These construction impacts are in addition to the operations impacts detailed below. There would also be regional construction impacts associated with road extensions, signal upgrades and rail improvements that are not included here.

• Operations Impacts. All total, Phases I, II and III of Lucid Motors’ operations is estimated to create an annual economic impact of $2.1 billion at stabilized levels, or $32.3 billion total over the next twenty years. Lucid is estimated to directly and indirectly support an estimated 4,800 total jobs (based on 2,185 direct jobs) and $240.2 million in annual personal income, or $3.5 billion in personal income over the twenty‐year period. At these operational levels, the company would increase current annual gross regional product in Pinal County by 30 percent based on the projected annual impact in year eleven which represents a stabilized level.

• Overall Stabilized Impacts. Based on the construction and operations impacts combined, Lucid is estimated to generate overall impacts of $32.6 billion over twenty years.

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• Jobs and Income. At the end of Phase III, the facility is anticipated to directly employ 2,185 people with an estimated annual payroll or personal income of $89.9 million. Through the multiplier effect, approximately 2,600 additional jobs and $150.3 million in annual personal income could be supported at other local businesses, based on the estimated level of supplier demand that could be met locally by 2029. The additional jobs and personal income at other local businesses stem from supplier demand created by the auto manufacturing facility and consumer demand created by its employees.

Supported Population. The 2,185 direct jobs and the estimated 2,600 indirect and

induced jobs associated with Lucid’s operations would support a local population (including families) of about 10,500 people. This estimate assumes that approximately 60 percent of the workforce would live in Casa Grande, based on current commuting patterns, and an additional 22 percent would live elsewhere in Pinal County.

Revenue Impacts

• Direct Revenue Impacts. Lucid’s planned capital investment of $704.4 million in land, buildings and equipment would generate an estimated $643,000 in average annual property tax revenues to the city and county, and $1.2 million in average annual property taxes to the school district and other special districts. There would be $430,000 in on‐going annual sales taxes to the city and county and $239,000 in annual city franchise fees. In addition, there would be one‐time building permit fees and right‐of‐way dedications to the city of $1.7 million. All total, the company is projected to generate $55.8 million in direct local revenues the next twenty years (before incentives), of which $33.5 million would go to the city and county government.

• Employee Revenue Impacts. In addition to direct revenues, employees of Lucid, and supported employees at other local businesses from whom purchases are made, would generate indirect property and sales tax revenues through employee spending and property ownership. Indirect revenues are estimated at $6.8 million per year at stabilized annual levels, or $100.4 million over twenty years, based on the level of economic impacts and the total number of direct, indirect and induced employees that are projected to be supported by Lucid.

• Value of Incentives. Over the twenty‐year period, the company is projected to generate $33.5 million in direct revenues to the City of Casa Grande and Pinal County from Phases I, II and III, before any reimbursements or other incentives (including $12.9 million from Phase I). The proposed package of reimbursements and grants offered by the city and county would total $8.2 million over twenty years, including incentives for all three phases. Local incentives include a reimbursement of 55 percent of city construction sales tax up to the amount of development‐related fees associated with the project, estimated at $1.3 million for Phase I, $1.6 million for Phase II and $3.5 million for Phase III; a $1.5 million grant for workforce training;

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a county Business Assistance Program grant of $200,000 for relocation expenses; and reimbursement of county air quality permit fees for ten years at an estimated value of $114,000. In addition to these financial incentives, there would be public infrastructure constructed and owned by the city or county. Since this infrastructure construction includes projects already included in the city and county capital improvement plans, or improvements that would be completed in the normal course of operations, it is not included in the incentive valuation. The details of all the incentives included in the development agreement are described in Section 6.0.

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TABLE 1 SUMMARY OF KEY FINDINGS – PHASES I, II AND III

Jobs and Income Created Jobs

Annual

Personal Income Average Wage

Direct 2,185 $89.9 million $19.78

Indirect 2,618 $150.3 million $27.60

Total 4,803 $240.2 million $24.04

Economic Impact Stabilized Annual 20 Year

Direct $1.4 billion $23.9 billion

Indirect $0.6 billion $8.3 billion

Total $2.1 billion $32.3 billion

Construction Impact (2019 to 2023) Total

Direct Jobs 2,835

Indirect Jobs 396

Total 3,231

One-Time Economic Impact $364.1 million

Capital Investment Total

Direct Construction $227.0 million

Equipment $448.0 million

Land $30.4 million

Total $705.4 million

Tax Revenue Impact Stabilized Annual 20 Year

Direct

City and County $1.3 million $33.5 million

School District $1.2 million $22.2 million

Total $2.5 million $55.8 million

Indirect (Employee)




Total




Value of Reimbursements and Grants (All Phases) 20 Year

City and County na $8.2 million

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3.0 IMPACT METHODOLOGY

The development and operations of Lucid Motors in Casa Grande would provide a variety of economic impacts to the city and county. The economic impacts include jobs, personal income, and economic activity, or output, that would be generated directly and indirectly by the auto manufacturing facility based on personal income, production value and purchasing. Economic impacts measure the effects of economic stimuli, or expenditures, in the local economy. These impacts include direct, indirect and induced jobs, personal income and output that are anticipated to be generated by Lucid. Indirect and induced impacts are the result of the multiplier effect and capture supported supplier and consumer businesses and their employees that would benefit from this facility. Since no similar manufacturing facility currently exists in the region, this analysis utilizes a graduated scenario to develop the economic impacts shown here. Our approach uses multipliers based on the current economy of Pinal County in the short term, and then reflects a moderate expansion of the local supplier base over time. Local multipliers are applied for the first four years and then there is gradual increase in years five to ten, up to 25 percent of the national multiplier level for output. The indirect and induced jobs and personal income multipliers are adjusted proportionally to reflect national ratios for indirect and induced output per job and income per job by year ten. However, the magnitude of indirect and induced jobs and income impacts are maintained at 25 percent of national levels in order to present a conservative estimate. Note that the national multipliers reflect a high level of supplier availability that is consistent with the most developed auto industry clusters in the country in metropolitan areas such as Detroit, Kokomo or Chicago. Given the overall size of the company’s operations in Casa Grande and propensity for co‐locating suppliers in the auto industry, it is expected that over the longer term a cluster of local suppliers will develop. This type of clustering is often observed in the auto industry in other parts of the country. The impact scenario shown here assumes that economic base changes will occur over the next ten years in Pinal County and in Casa Grande in response to supply chain demand.

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4.0 ECONOMIC IMPACT ANALYSIS The economic benefits resulting from the attraction of Lucid Motors to Casa Grande can be measured in terms of both the one‐time construction impacts and on‐going operations impacts. These impacts include direct and indirect jobs, personal income and output that would be generated by the project. Indirect impacts are the result of the multiplier effect and capture other businesses and employees in Casa Grande and Pinal County that would benefit from the new facility.

4.1 Construction Impacts Total personal income, or earnings, from construction and the total increase in economic activity from new construction expenditures are shown in Table 2. Improvements required for Phases I, II and III of this project would result in direct construction and equipment installation expenditures of about $316.6 million over five years. The multiplier effect of this spending would generate a total increase in economic activity of about $364.1 million. The approximately 3,200 direct and indirect jobs created in the county by the construction would result in more than $135.9 million in total personal income over the five‐year period.

TABLE 2 CONSTRUCTION IMPACTS OF LUCID MOTORS

Construction Personal PersonalYear Expenditures Jobs Income Output Jobs IncomePhase I $115,600,000 1,035 $46,240,000 $132,934,645 1,180 $49,605,0262019 $53,000,000 475 $21,200,000 $60,947,545 541 $22,742,7892020 $62,600,000 560 $25,040,000 $71,987,100 639 $26,862,237

Phase II $117,000,000 1,048 $46,800,000 $134,544,580 1,194 $50,205,7792021 $55,600,000 498 $22,240,000 $63,937,424 567 $23,858,4732022 $61,400,000 550 $24,560,000 $70,607,156 627 $26,347,306

Phase III $84,000,000 752 $33,600,000 $96,596,109 857 $36,045,1752021 $3,000,000 27 $1,200,000 $3,449,861 31 $1,287,3282022 $35,200,000 315 $14,080,000 $40,478,369 359 $15,104,6452023 $45,800,000 410 $18,320,000 $52,667,878 467 $19,653,202

Total $316,600,000 2,835 $126,640,000 $364,075,334 3,231 $135,855,980

Direct Total

Note: Construction expenditures include labor associated with equipment installation which is assumed to be 20 percent of total equipment cost based on information provided by Lucid Motors.

4.2 Operations Impacts For the operations impact, this analysis presents a scenario that reflects gradual future changes in the economic base. The methodology projects the level of impacts that could occur over time based on an increasing share of supplier demand being met locally, and the corresponding level of indirect and induced jobs and employee income that are projected. The on‐going economic impacts from Lucid’s operations over the next twenty years are shown in Table 3.

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TABLE 3 ANNUAL OPERATIONS IMPACT OF LUCID MOTORS

ON PINAL COUNTY (Millions of Dollars)

Personal Personal Personal PersonalYear Output Jobs Income Output Jobs Income Output Jobs Income Output Jobs Income

2019 $69.96 75 $4.40 $0.48 4 $0.11 $1.17 9 $0.22 $71.61 88 $4.732020 $420.05 545 $26.42 $2.88 22 $0.68 $7.04 56 $1.32 $429.98 623 $28.422021 $550.74 745 $34.64 $3.78 29 $0.90 $9.23 74 $1.73 $563.75 848 $37.272022 $716.09 1,015 $45.04 $4.91 38 $1.17 $12.00 96 $2.25 $733.01 1,148 $48.462023 $961.26 1,415 $60.46 $48.11 180 $10.70 $32.48 225 $7.67 $1,041.85 1,820 $78.832024 $1,217.87 1,835 $76.60 $113.56 392 $25.13 $61.89 408 $15.62 $1,393.31 2,634 $117.352025 $1,429.01 2,185 $89.88 $194.96 652 $43.06 $96.95 622 $25.24 $1,720.92 3,459 $158.192026 $1,429.01 2,185 $89.88 $256.68 844 $56.64 $121.29 766 $32.16 $1,806.98 3,795 $178.682027 $1,429.01 2,185 $89.88 $318.40 1,036 $70.22 $145.63 910 $39.07 $1,893.03 4,131 $199.182028 $1,429.01 2,185 $89.88 $380.12 1,228 $83.80 $169.96 1,054 $45.99 $1,979.09 4,467 $219.672029 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172030 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172031 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172032 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172033 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172034 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172035 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172036 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172037 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.172038 $1,429.01 2,185 $89.88 $441.83 1,420 $97.38 $194.30 1,197 $52.91 $2,065.14 4,803 $240.17

20 Yr Total $23,942.09 2,185 $1,505.88 $5,742.22 1,420 $1,266.22 $2,600.63 1,197 $700.35 $32,284.94 4,803 $3,472.45

Direct Indirect Induced Total

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The company is anticipated to open with about 75 jobs and $4.4 million in personal income or payroll in 2019. By 2021, they are projected to expand to an estimated 745 jobs and $26.4 million in personal income. By 2023, they are projected to expand to 1,415 jobs and $60.5 million in personal income. By 2025, a third expansion to reach an estimated 2,185 total jobs and $89.9 million in annual personal income is also planned. Through their local supplier purchases, as well as employee spending, Lucid is anticipated to create an annual economic impact of $2.07 billion by 2029 from all three phases of their operations. The company is estimated to indirectly support an estimated 2,600 additional jobs and $150.3 million in annual personal income at other local businesses in Casa Grande and Pinal County on an on‐going basis. The multiplier effect of the auto manufacturing operations on the region is projected to result in a total economic impact of $32.3 billion over the next twenty years, based on direct employment of 2,185 jobs by 2025 and an estimated annual personal income of $89.9 million. Should the number of jobs or the amount of personal income increase, the economic impacts would increase proportionally.

The new jobs generated directly and indirectly by Lucid are projected to support a total local population of approximately 7,700 people in Casa Grande, and an estimated 2,800 additional people living elsewhere in Pinal County. This includes families of direct employees, as well as families of employees at related supplier and consumer businesses supported through the multiplier effect. The supported population estimate assumes that about 60 percent of the employees will work and live in Casa Grande, and an additional 22 percent will live elsewhere in Pinal County. The secondary or indirect impacts described here are called multiplier effects. Multiplier effects are a way of representing the larger economic effects on the local economy. The multiplier effects translate an increase in output (loosely defined as wages plus supply costs plus profits) into a corresponding increase in jobs and personal income. In essence, the multiplier effect represents the recycling of local spending. This recycling process creates new business opportunities. In looking at the differences between the local multipliers and the scenario represented here, it is evident that both the indirect (supplier) and induced (employee spending) impacts will likely increase over time. However, the impacts shown here yield much lower indirect and induced impacts than a scenario based on national multipliers where almost all supplier demand is being met locally. In the regional growth scenario, it is assumed that the local economy adjusts over time to the presence of this new industry, but some supplier demand will continue to be met by non‐local providers. In terms of the induced impacts, it is likely that most employee spending will be captured locally, however, as the number of indirect jobs and personal income increases, so does the level of aggregate employee spending, and hence the increase in induced impacts.

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The multipliers used in this analysis are from IMPLAN, a national vendor of economic impact software. Industry specific multipliers for auto manufacturing as well as commercial construction were used in the analysis. The output multiplier used here is 1.45 by year eleven with an average jobs multiplier of 2.20. This means that for every $1 million of output created by the company, an additional $450,000 in economic activity is generated in the county economy, and for every one direct job created by the company, an additional 1.20 indirect jobs are generated in Casa Grande and Pinal County.

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5.0 REVENUE IMPACTS In addition to supporting jobs and output at related businesses in the area through multiplier effects, Lucid and its employees would also generate tax revenues to Casa Grande, Pinal County and other local taxing jurisdictions. All total, the company is estimated to generate $156.1 million in new direct and employee tax revenues over the next twenty years from Phases I, II and III, before incentives.

5.1 Direct Tax Revenues Local revenues generated by the company include property tax, sales tax, franchise fees and permit fees. Property taxes are estimated at $12.1 million to the city and county over twenty years, plus an additional $22.2 million to the school district and other local taxing districts, assuming the site qualifies for Foreign Trade Zone (FTZ) status (Figure 4A).1 Sales taxes to the city and county, including construction sales tax and on‐going taxes on electric utilities are estimated at $15.6 million over twenty years, while city franchise fees are estimated at $4.1 million. The city would also collect permit fees related to construction (excluding development impact fees) of approximately $849,000, and the company would make a right of way dedication to the city with an estimated value of $819,039. Note that these revenues include all three phases of the development, although only Phase I capital investment is required in the development agreement. Revenues to the city and county over twenty years from Phase I only are estimated at $12.9 million. Real property taxes are based on a capital investment of $227.0 million in facilities between 2019 and 2023, and land value of $30.4 million beginning in 2023. (For the purpose of this analysis, it is assumed that the land would be leased to Lucid by Pinal County through the end of 2022 and would not be subject to tax until it was privately owned.) Real property taxes on new construction are lagged two years and begin to accrue in 2021. The value of improvements is assessed at 5 percent in Figure 4A to reflect the FTZ property tax reductions for which the company is applying. Figure 4B shows direct tax revenues without the FTZ which would increase the assessment ratio to 18 percent, thereby increasing real property taxes by 260 percent. In the property tax calculations, construction cost is multiplied by 80 percent to estimate full cash value, and then by 87.7 percent to convert to limited property value, which is the basis for property taxes in Arizona. The company’s equipment investment of $448.0 million is depreciated assuming a ten‐year usable life based on the year of purchase. As a conservative measure, no replacement equipment is assumed after year ten. Accelerated depreciation is included for all personal property. A tax rate of 15.3481 percent is applied, based on the 2018 rate for this site.

1 FTZ status is unrelated to the incentives outlined in the development agreement.

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Sales taxes include taxable construction materials in 2019 through 2023, estimated at 65 percent of construction cost and a tax rate of 5.6 percent for the city and county combined. There are also on‐going sales taxes on annual utility costs of $4.3 million in Phase I, $8.5 million in Phase II, and $12.0 million in Phase III, which are taxed at 3.6 percent. City franchise fees of 2 percent also apply to utility costs. Permit fees include building permits and building plan check fees estimated at $849,234 for all three phases. There would be additional development impacts fees for all three phases that are not included in the revenue estimates. Finally, the company would dedicate 12.6 acres of right of way to the city if they purchase the land from the county at the end of the lease in 2023. Based on the average appraised value per acre for the site as a whole, the value of 12.6 acres dedicated to the city is estimated at $819,039.

TABLE 4A DIRECT LOCAL REVENUES FROM LUCID WITH FOREIGN TRADE ZONE

BEFORE INCENTIVES AND REIMBURSEMENTS

School/OtherProperty Franchise Right of Way Property Total Direct

Year Tax 1 Sales Tax Fee Permit Fees2 Dedication3 Tax 1 Revenues2019 $230,160 $1,346,800 $0 $132,665 $0 $421,415 $2,131,0402020 $329,422 $1,792,101 $85,612 $161,350 $0 $603,161 $2,971,6452021 $559,164 $1,755,701 $85,612 $133,123 $0 $1,023,811 $3,557,4102022 $773,123 $3,037,042 $170,579 $146,110 $0 $1,415,565 $5,542,4192023 $739,142 $1,253,442 $170,579 $156,392 $819,039 $1,353,346 $4,491,9392024 $889,074 $430,352 $239,084 $119,594 $0 $1,627,868 $3,305,9722025 $893,839 $430,352 $239,084 $0 $0 $1,636,593 $3,199,8682026 $863,217 $430,352 $239,084 $0 $0 $1,580,524 $3,113,1782027 $801,992 $430,352 $239,084 $0 $0 $1,468,423 $2,939,8522028 $718,631 $430,352 $239,084 $0 $0 $1,315,791 $2,703,8582029 $638,016 $430,352 $239,084 $0 $0 $1,168,188 $2,475,6412030 $575,382 $430,352 $239,084 $0 $0 $1,053,508 $2,298,3272031 $531,994 $430,352 $239,084 $0 $0 $974,065 $2,175,4952032 $513,806 $430,352 $239,084 $0 $0 $940,762 $2,124,0042033 $513,802 $430,352 $239,084 $0 $0 $940,755 $2,123,9932034 $513,798 $430,352 $239,084 $0 $0 $940,748 $2,123,9822035 $513,793 $430,352 $239,084 $0 $0 $940,740 $2,123,9702036 $513,789 $430,352 $239,084 $0 $0 $940,732 $2,123,9572037 $513,784 $430,352 $239,084 $0 $0 $940,723 $2,123,9442038 $513,780 $430,352 $239,084 $0 $0 $940,715 $2,123,931

Total $12,139,708 $15,640,364 $4,098,647 $849,234 $819,039 $22,227,432 $55,774,424

City/County

3 Value of right of way dedication based on October 2018 appraisal of land value.

2 Permit fees include only unrestricted construction‐related fees in the city's general fund and do not include development impact fees which are a restricted revenue and must be used for infrastructure construction.

1 Property tax calculation assumes 5% assessment ratio. Personal property is taxed beginning in year purchased and accelerated depreciation is applied. Real property is lagged 2 years between construction cost and first tax year.

Note: All figures are in constant 2018 dollars.

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TABLE 4B DIRECT LOCAL REVENUES FROM LUCID WITHOUT FOREIGN TRADE ZONE

BEFORE INCENTIVES AND REIMBURSEMENTS

School/OtherProperty Franchise Right of Way Property Total Direct

Year Tax 1 Sales Tax Fee Permit Fees2 Dedication3 Tax 1 Revenues2019 $828,574 $1,346,800 $0 $132,665 $0 $1,517,094 $3,825,1332020 $1,185,918 $1,792,101 $85,612 $161,350 $0 $2,171,380 $5,396,3612021 $2,012,989 $1,755,701 $85,612 $133,123 $0 $3,685,720 $7,673,1442022 $2,783,244 $3,037,042 $170,579 $146,110 $0 $5,096,034 $11,233,0092023 $2,660,910 $1,253,442 $170,579 $156,392 $819,039 $4,872,044 $9,932,4052024 $3,200,667 $430,352 $239,084 $119,594 $0 $5,860,324 $9,850,0212025 $3,217,822 $430,352 $239,084 $0 $0 $5,891,733 $9,778,9922026 $3,107,582 $430,352 $239,084 $0 $0 $5,689,887 $9,466,9052027 $2,887,173 $430,352 $239,084 $0 $0 $5,286,324 $8,842,9332028 $2,587,071 $430,352 $239,084 $0 $0 $4,736,847 $7,993,3552029 $2,296,859 $430,352 $239,084 $0 $0 $4,205,477 $7,171,7722030 $2,071,377 $430,352 $239,084 $0 $0 $3,792,628 $6,533,4412031 $1,915,179 $430,352 $239,084 $0 $0 $3,506,633 $6,091,2482032 $1,849,700 $430,352 $239,084 $0 $0 $3,386,744 $5,905,8812033 $1,849,686 $430,352 $239,084 $0 $0 $3,386,718 $5,905,8412034 $1,849,671 $430,352 $239,084 $0 $0 $3,386,692 $5,905,7992035 $1,849,656 $430,352 $239,084 $0 $0 $3,386,664 $5,905,7562036 $1,849,640 $430,352 $239,084 $0 $0 $3,386,635 $5,905,7112037 $1,849,624 $430,352 $239,084 $0 $0 $3,386,604 $5,905,6642038 $1,849,607 $430,352 $239,084 $0 $0 $3,386,573 $5,905,616

Total $43,702,948 $15,640,364 $4,098,647 $849,234 $819,039 $80,018,756 $145,128,989

3 Value of right of way dedication based on October 2018 appraisal of land value.

Note: All figures are in constant 2018 dollars.

1 Property tax calculation assumes 18% assessment ratio. Personal property is taxed beginning in year purchased and accelerated depreciation is applied. Real property is lagged 2 years between construction cost and first tax year.2 Permit fees include only unrestricted construction‐related fees in the city's general fund and do not include development impact fees which are a restricted revenue and must be used for infrastructure construction.

City/County

5.2 Employee Tax Revenues

Along with the direct taxes paid by the company, there would also be employee taxes generated by direct and indirect employees. Using the results from the economic impact analysis, it is possible to estimate employee tax impacts. All total, the direct and indirect employees associated with this project are expected to generate $100.4 million in local revenues over the next twenty years. Employee property tax revenues are based on residential assessed value per capita in Pinal County times the supported population living in the county, times a county average property tax rate of 15.46 percent. The model assumes that 82 percent of the supported population would live in Pinal County, and 60 percent would live in Casa Grande. Employee property taxes are estimated at $1.7 million per year to the city and county, and $3.5 million to the school

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district and other local taxing districts by 2029 (Table 5). Impacts increase over time as the number of indirect and induced jobs increases. All total, the employees are expected to generate about $77.9 million in indirect property tax revenues to all jurisdictions combined over twenty years.

TABLE 5 EMPLOYEE REVENUE IMPACT FROM LUCID

School/Other Total

Property Property EmployeeYear Tax Sales Tax Tax Revenues2019 $32,058 $30,610 $64,485 $127,1532020 $226,963 $183,800 $456,544 $867,3062021 $308,661 $240,985 $620,882 $1,170,5272022 $418,201 $313,336 $841,226 $1,572,7622023 $662,786 $509,759 $1,333,219 $2,505,7642024 $959,367 $758,788 $1,929,802 $3,647,9572025 $1,259,629 $1,022,866 $2,533,790 $4,816,2862026 $1,381,963 $1,155,395 $2,779,868 $5,317,2252027 $1,504,296 $1,287,924 $3,025,945 $5,818,1642028 $1,626,629 $1,420,452 $3,272,022 $6,319,1042029 $1,748,962 $1,552,981 $3,518,100 $6,820,0432030 $1,748,962 $1,552,981 $3,518,100 $6,820,0432031 $1,748,962 $1,552,981 $3,518,100 $6,820,0432032 $1,748,962 $1,552,981 $3,518,100 $6,820,0432033 $1,748,962 $1,552,981 $3,518,100 $6,820,0432034 $1,748,962 $1,552,981 $3,518,100 $6,820,0432035 $1,748,962 $1,552,981 $3,518,100 $6,820,0432036 $1,748,962 $1,552,981 $3,518,100 $6,820,0432037 $1,748,962 $1,552,981 $3,518,100 $6,820,0432038 $1,748,962 $1,552,981 $3,518,100 $6,820,043

Total $25,870,169 $22,453,725 $52,038,782 $100,362,675Note: All figures are in constant 2018 dollars.

City/County

Indirect sales tax revenues include sales taxes from direct employees and employees at supported local businesses. They are estimated by multiplying total personal income from the economic impact times 30 percent (share of taxable expenditures), times a residency ratio of 60 percent for Casa Grande, times the local sales tax rate.2 Indirect sales taxes are estimated at about $1.6 million per year to the city and county by 2029. All total the direct, indirect and induced employees associated with Lucid’s operations are expected to generate about $22.5 million in city and county sales tax revenues over twenty years.

2 According to the Census Bureau Consumer Expenditure Survey, persons in the median income range spend about 30 percent of their income on taxable goods.

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6.0 VALUE OF INCENTIVES

In total, Lucid is anticipated to generate an estimated $156.1 million in direct and indirect (employee) tax revenues to local governments over twenty years, based on all three phases of the planned manufacturing facility and assuming an FTZ. Table 6A shows the value of the reimbursements and other incentives that would be provided by the city and county for Phase I totaling $2.1 million. There would be additional construction sales tax credits and workforce training grant funds associated with Phase II that are shown in Table 6B, totaling $4.2 million for Phases I and II combined. Finally, the additional construction sales tax credit associated with Phase III is shown in Table 6C for a total of $8.2 million for all three phases combined.

TABLE 6A SUMMARY OF REIMBURSEMENTS AND OTHER INCENTIVES

PHASE I

City Construction Workforce Bsns Assistance County Fee TotalYear Sales Tax Credit Training Grant Program Grant Reimbursement Incentives2019 $529,100 $0 $0 $0 $529,1002020 $747,768 $250,000 $200,000 $0 $1,197,7682021 $0 $250,000 $0 $0 $250,0002022 $0 $0 $0 $68,547 $68,5472023 $0 $0 $0 $11,336 $11,3362024 $0 $0 $0 $11,336 $11,3362025 $0 $0 $0 $11,336 $11,3362026 $0 $0 $0 $11,336 $11,3362027 $0 $0 $0 $0 $02028 $0 $0 $0 $0 $0

Total $1,276,868 $500,000 $200,000 $113,891 $2,090,759

Incentives

TABLE 6B SUMMARY OF REIMBURSEMENTS AND OTHER INCENTIVES

PHASE I AND II

City Construction Workforce Bsns Assistance County Fee TotalYear Sales Tax Credit Training Grant Program Grant Reimbursement Incentives2019 $529,100 $0 $0 $0 $529,1002020 $747,768 $250,000 $200,000 $0 $1,197,7682021 $629,200 $250,000 $0 $0 $879,2002022 $998,303 $250,000 $0 $68,547 $1,316,8502023 $0 $250,000 $0 $11,336 $261,3362024 $0 $0 $0 $11,336 $11,3362025 $0 $0 $0 $11,336 $11,3362026 $0 $0 $0 $11,336 $11,3362027 $0 $0 $0 $0 $02028 $0 $0 $0 $0 $0

Total $2,904,371 $1,000,000 $200,000 $113,891 $4,218,262

Incentives

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TABLE 6C SUMMARY OF REIMBURSEMENTS AND OTHER INCENTIVES

PHASE I, II AND III

City Construction Workforce Bsns Assistance County Fee TotalYear Sales Tax Credit Training Grant Program Grant Reimbursement Incentives2019 $529,100 $0 $0 $0 $529,1002020 $747,768 $250,000 $200,000 $0 $1,197,7682021 $629,200 $250,000 $0 $0 $879,2002022 $998,303 $250,000 $0 $68,547 $1,316,8502023 $3,481,166 $250,000 $0 $11,336 $3,742,5022024 $0 $250,000 $0 $11,336 $261,3362025 $0 $250,000 $0 $11,336 $261,3362026 $0 $0 $0 $11,336 $11,3362027 $0 $0 $0 $0 $02028 $0 $0 $0 $0 $0

Total $6,385,537 $1,500,000 $200,000 $113,891 $8,199,428

Incentives

The city would offer a reimbursement of 55 percent of construction sales tax against the value of permit, plan check, landscape plan, application fees, inspection fees, impact fees, sewer connection fees and any other fees imposed by the city related to construction. The construction sales tax rate in Casa Grande is currently 4 percent, of which 55 percent, or 2.2 percent, would be reimbursed to the developer. Total city construction sales tax for Phases I, II and III is estimated at $5.9 million, yielding a reimbursement of $3.3 million. However, city permitting fees for Phases I, II and III are estimated at $6.4 million. The development agreement provides for “true‐up” payments at the end of each phase that are estimated at $3.1 million and are included in the city construction sales tax credit figures in Figures 6A, 6B and 6C in 2020, 2022 and 2023. The county would offer a reimbursement of fees for air quality and dust permits. Since air quality permits are paid annually, the reimbursement would cover a ten year period. The amount of the reimbursement is based on additional real property tax generated by the horizontal and vertical improvements, over and above the current base of $38,935. Although some permit fees have already been paid, the reimbursement would not begin until real property tax revenues begin to accrue. This analysis assumes a two year lag between the year of construction and the first year of real property tax revenues. Based on this assumption, county fee reimbursements would begin in 2022. The first year reimbursement would cover all fees generated to date, and additional reimbursements would cover air quality permit fees in the remaining years. Total reimbursements are estimated at $113,891 over ten years. The city would offer a Workforce Training Facility grant equal to $1.5 million spread over six years. A new workforce training facility may be constructed, or existing space may be repurposed in conjunction with Central Arizona College. It would initially be used by Lucid for the screening and evaluation of employees, but is ultimately a public facility that will be leased to other parties going forward. The grant can be applied to any fees charged to the developer associated with the use of the Workforce Training Facility. The grant would be paid out in six

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installments, contingent on the company meeting annual employment targets. If the company does not meet these targets, they would receive a pro‐rated amount and the difference would be paid if the target is met within the six year period. In this case, payments are assumed to begin in 2020. The projected employment schedule is above the target employment levels throughout the six year period. In return for this $1.5 million investment by the city, there is significant long term value to the region in having a trained manufacturing workforce, regardless of whether these workers continue to work for Lucid, or move on to other manufacturing jobs in the region. The final incentive included here is a Business Assistance Program (BAP) grant of $200,000 provided by the county. The Business Assistance Program is an existing discretionary incentive program that is available to any new or expanding company in Pinal County that meets the program criteria based on job creation, capital investment, term of operation in the county, and return on investment to the county general fund. The grant can be used to cover relocation costs for employees and equipment, as well as utility connection costs. The BAP grant for Lucid is contingent on the company hiring 233 full‐time employees within the first four years. It is assumed that the grant would be paid out in late 2019 or in 2020. Both the city and county will also commit to construction of road projects including the expansion of Thornton Road from two to four lanes, the expansion of Selma Road between Thornton Road and the project site, additional traffic signals at intersections on Thornton Road and additional improvements on Thornton Road. However, all of these public infrastructure projects are consistent with the city or county Capital Improvement Plans, or are improvements that would be constructed in the normal course of operations. The agreement with Lucid will also include a land lease. The county will issue bonds to acquire 473 acres at the SEC of Peters Road and Thornton Road, and lease the land to the company for up to four years at an appraised lease rate. The company will have the option to purchase the property during the term of the lease. Lease payments are anticipated to substantially cover the debt service on the bonds, however that will depend on the actual interest rate when the bond issue is offered to the market. Regardless of the interest rate, there is not expected to be any financial impact to the county because any additional debt service would be made up at the time of purchase under the lease option. If the lease option is not exercised, the county will retain newly improved property including additional improvements valued at approximately $5.0 million. Over the next twenty years, Lucid is projected to generate $12.9 million in direct revenues to the City of Casa Grande and Pinal County from their Phase I investment (which is required by the development agreement) and an additional $20.6 million from Phases II and III, for a total of $33.5 million between 2019 and 2038. The tax revenue generated by the company during the term of the agreement from Phase I investment alone exceeds the $8.2 million incentive that is being proposed by the city and county for all three phases combined. The proposed incentive will allow the city and county to attract a major manufacturer to the region that is projected to increase the county’s gross regional product by 30 percent. Lucid also represents a

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new type of innovative, high‐technology industry for Arizona that will diversify the state’s economy and attract new supplier industries.

Summary The operations of Lucid Motors, based on the operating parameters described in this analysis, would create significant economic benefits for Casa Grande and Pinal County. The company would not only create new advanced manufacturing jobs and payroll, but would also create additional demand for other local businesses based on supplier purchases and employee spending. The number of direct jobs created by Lucid would increase manufacturing employment in the county by 58 percent for the full 2,185 jobs that are projected. The expansion of the region’s employment base as a result of Lucid would also result in new employee housing demand and consumer spending that would generate additional sales and property taxes. Furthermore, it is likely that attracting this size of manufacturer to Casa Grande will seed additional related economic development activity locally and throughout the region. The company would also generate property and sales tax revenues to local governments in Pinal County in proportion to the value of proposed financial incentives over the next twenty years. This incentive analysis represents the most conservative standard in that the city and county revenues from Phase I investment only (which Lucid is required to construction under the terms of the development agreement) are more than sufficient to offset projected value of incentives for all three phases combined.

notice of public joint study session pinal ......economic impacts •$32.3 billion total output...

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