Title
Enter into Intergovernmental Agreement with Arizona Department of Revenue for Distribution of Revenue under A.R.S. 42-5032.02 to Reimburse City for Public Infrastructure Improvements (Ordinance S-47768)
Description
Request authorization for the City Manager, or his designee, to enter into an Intergovernmental Agreement (IGA) with Arizona Department of Revenue for the distribution of revenue under A.R.S. 42-5032.02 to reimburse the City for public infrastructure improvements necessary to support the Taiwanese Semiconductor Manufacturing Company’s (TSMC) development of a semiconductor manufacturing campus in the City of Phoenix. Further request to authorize the City Controller to receive and disburse all funds related to the IGA.
Report
Summary
In May 2020, TSMC announced its intention to build and operate an advanced semiconductor manufacturing facility in Phoenix after a national search. TSMC intends to invest $12 billion into the new Phoenix manufacturing campus (Project) resulting in approximately 1,900 new full-time jobs to be phased in over a five-year period. On Nov. 18, 2020, the Phoenix City Council approved a Development Agreement with TSMC to support the Project, and on March 31, 2021, the City signed the Development Agreement with TSMC’s U.S. affiliate, TSMC Arizona Corporation (TSMC Arizona).
The Development Agreement approved by the City Council will result in substantial economic impacts to the City and region from TSMC’s expansion into Phoenix. Staff estimates that over a 20-year period this company will directly create an estimated $38.2 billion in economic output and $314 million in annual personal income. TSMC Arizona agreed to complete construction of the Project within five years from execution of the Development Agreement with production starting in 2024. In order to support this timeline, the City agreed to construct and install regional public improvements including streets, water and wastewater infrastructure.
As authorized by the City Council, the cost of the public infrastructure improvements will not exceed a total of $205 million. This includes up to $144 million for water and wastewater infrastructure and up to $61 million for street construction. The public infrastructure improvements will be funded through a combination of funding sources. One potential funding source for the public infrastructure improvements includes revenues distributed from the Arizona Department of Revenue under A.R.S. 42-5032.02 (Attachment A).
Under A.R.S. 42-5032.02, the Arizona State Treasurer is authorized to direct up to $50 million in transaction privilege tax (TPT) revenue collected from contractors engaged in the construction of improvements at a qualified manufacturing facility and related public infrastructure improvements. This revenue can reimburse a city, town or county for up to 80 percent of the cost of the public infrastructure improvements associated to the qualified manufacturing facility. TSMC Arizona’s Phoenix facility meets these qualifications.
Additionally, pursuant to A.R.S. 42-5032.02, TSMC Arizona has submitted a sworn certification to the Arizona Commerce Authority stating it will exceed the minimum statutory requirement for reimbursement of $500 million in capital investments at its new manufacturing campus in northern Phoenix. Staff and TSMC Arizona's representatives have identified the public infrastructure improvements necessary to support TSMC Arizona’s Phoenix facility that will be submitted to the Department of Revenue for reimbursement (Attachment B). In order to obtain reimbursement of TPT revenue for these public infrastructure improvements the City must enter into an IGA with the Arizona Department of Revenue.
The IGA between the City of Phoenix and the Arizona Department of Revenue for the distribution of revenues under A.R.S. 42-5032.02 will contain the terms and conditions necessary to facilitate the distribution of funds to the City. The City of Phoenix will provide the Arizona Department of Revenue with a list of all prime contractors for both the construction of the TSMC Arizona manufacturing facilities in Phoenix as well as those prime contractors for the public infrastructure improvements that the City constructs pursuant to the Development Agreement with TSMC Arizona. The City will provide direction to all prime contractors as to which portion of the contractor’s income shall be separately identified to the Arizona Department of Revenue pursuant to A.R.S. 42-5075, Subsection H.
Contract Term
The term of the IGA is limited by the statute to either the date which the total maximum reimbursement of $50 million is reached for all qualifying manufacturing facilities in the state, or Sept. 30, 2033, whichever occurs first.
Financial Impact
There is no direct financial impact of the IGA. This IGA will provide the opportunity for the City to be reimbursed by revenues distributed from the Arizona Department of Revenue for public infrastructure costs incurred by the City related to the TSMC development.
Concurrence/Previous Council Action
The City Council approved a Development Agreement with Taiwan Semiconductor Manufacturing Company (Ordinance S-47129) on Nov. 18, 2020.
Location
The location of the TSMC Arizona’s Phoenix campus is located in the area known as Biscuit Flats, in north Phoenix. This area is west of I-17 from Loop 303 to Carefree Highway.
Council Districts: 1 and 2
Department
Responsible Department
This item is submitted by City Manager Ed Zuercher and the Finance and Community and Economic Development departments.