2014 2:00:00 PM

Monday, November 24, 2014 2:00 PM
Council Chambers, Legislative Bldg., 745 4th St., Sparks

General Business: 9.5

Title: Consideration and possible approval of a Termination Agreement (AC-5104) with Red Hawk Land Company, LLC regarding Residential Construction Tax Credit Agreement (A-2571).

Petitioner/Presenter: Doug Thornley/Doug Thornley

Recommendation: The City Attorney’s Office recommends that the City Council terminate the Residential Construction Tax Credit Agreement (A-2571) subject to the terms outlined above. The City Attorney’s Office takes no position with respect to the payment schedule proposed by Red Hawk Land Company.

Financial Impact: The City will receive $200,000, land and water rights.

Business Impact (Per NRS 237):
A Business Impact Statement is not required because this is not a rule.

Agenda Item Brief:

Over the course of the last 18 months, at the direction of the City Council, the City Attorney's Office has negotiated with Red Hawk Land Company concerning an alleged breach of Residential Construction Tax Credit Agreement (A-2571). This agenda item addresses a possible resolution to that conflict.

Background:

On May 17, 2012, the Sparks Planning Commission considered PCN12010, which encompasses various requests by Red Hawk Land Company to amend both the Sparks Master Plan and the Wingfield Springs Planned Development Handbook. The public hearing produced a significant amount of testimony from residents of Wingfield Springs concerning the completion of the parks, timing of landscaping improvements, the loss of open space, and water and irrigation issues. The Sparks City Council considered the matter on April 8, 2013, and voted to table the issue in order to give City Staff and representatives of Red Hawk Land Company further opportunity to resolve the instant dispute.

Two agreements concerning the Wingfield Springs Development exist with respect to the completion of parks funded by the collection of a residential construction tax;¹ both agreements were approved by the City Council on June 14, 1999 and recorded against the subject property on July 6, 1999.²

The first agreement, Number A-2570 (the “Reimbursement Agreement”) contemplates reimbursement for the actual cost of constructing and dedicating two parks in the Wingfield Springs Development up to a maximum amount of $750,000. The second agreement, Number A-2571 (the “Credit Agreement”) provides for $1,450,000 of credit in lieu of collection of the Residential Construction Tax in exchange for the construction and dedication of three more parks in the Development.

Over the last twelve years, Red Hawk has claimed credit under the Agreement in the amount of $1,199,222.07, but has not technically “dedicated” a single park that satisfies the requirements of the Credit Agreement to the City.³ As a result, Red Hawk was notified in September of 2012 that the City had concluded that the Credit Agreement had been breached by Red Hawk. The parties engaged in a series of discussions that resulted in an impasse with respect to resolution but served to distill the issues of the dispute, which centers on the status of Pelican Park - the first park contemplated by the Credit Agreement and the third park overall in the Wingfield Springs Planned Development. The position adopted by Red Hawk Land Company, as we understand it, is that the mere existence of Pelican Park satisfies Red Hawk’s obligation to construct and dedicate a park pursuant to the Credit Agreement and therefore Red Hawk has not defaulted on the Agreement. The City disagrees for two reasons: one, the City gained ownership of the park by tax sale on March 9, 2012, rather than through the dedication process, and two, Red Hawk did not complete construction of the park which required the City to expend $131,911.75 in order to render the facility suitable for public use.

Nevertheless, the parties are committed to resolving this issue. To that end, we propose the following solution to our collective disagreement: termination of the credit agreement. Red Hawk will immediately dedicate the land proposed to become Silverton Shores Park and the unnamed fifth park to the City, deed the water rights associated with Pelican Park to the City, and reimburse the City $200,000 (a negotiated sum that is based on the $1,199,222.07 of claimed credit less the amount expended by Red Hawk related to the partial construction of Pelican Park and the fair market value of the parcels allocated to Silverton Shores Park and the fifth park, the established value of the Pelican Park water rights, and the $131,911.75 paid by the City in relation to the acquisition of Pelican Park). The City will assume the responsibility for the completion of future parks in Wingfield Springs – as the balance of the Park District Three account allows, in the view of the City Council, but without a defined schedule - and the residential construction tax will be collected upon the issuance of any future building permit in the development.

¹ Under Nevada law, a city that has adopted a master plan which includes future or present sites for parks and playgrounds may impose a residential construction tax on the privilege of constructing certain residential dwellings within the city. NRS 278.4985. The rate of the residential construction tax is limited to the lesser of: (1) one percent of the valuation of each building permit issued; or (2) $1000 per residential dwelling unit. NRS 278.4983. Revenue collected via this mechanism must only be expended for the acquisition, improvement, or expansion of neighborhood parks, or the installation of facilities in existing parks. Id. When a developer of a planned unit development is required to dedicate land for parks and playgrounds as set forth in NRS 278.4979, the developer may receive a credit against the amount of residential construction tax imposed for the “amount and value of developed open space within the planned unit development.” NRS 278.4985. The City of Sparks has imposed a residential construction tax, and has allowed for credit to be taken against the tax in exchange for dedication of developed open space. See generally SMC 15.12; SMC 15.12.0060.

² The Agreements were made between the City of Sparks and Loeb Enterprises, LLC, but provide that they are binding upon the successors of the respective parties. Loeb Enterprises changed its corporate name to Red Hawk Land Company, LLC on November 5, 2004.

³ The parks owed to the City under the Reimbursement Agreement - Poco Rey/Red Hawk Park and Rose Garden Park - have been dedicated to and accepted by the City. We consider the Reimbursement Agreement complete.

Analysis:

The framework of the Termination Agreement (AC-5104) now before the Council represents a negotiated resolution between the parties. It is not an admission of fault or obligation by either of the entities. The Agreement offers an expeditious path forward for the completion of the Wingfield Springs Planned Development, and a pragmatic solution to a difficult problem. On that basis, the City Attorney’s Office recommends that the City Council terminate the Residential Construction Tax Credit Agreement (A-2571) subject to the terms outlined above. The City Attorney’s Office takes no position with respect to the payment schedule proposed by Red Hawk Land Company.

Alternatives:

The City Council may attempt to negotiate different terms with Red Hawk Land Company.
The City Council may vote to not approve the Termination Agreement (AC-5104) leaving the existing Residential Construction Tax Credit Agreement (A-2571) in effect. Red Hawk Land Company would remain responsible for the construction of two additional parks in the Wingfield Springs development upon the issuance of the 2,000 and 2,200 building permits, respectively.

Recommended Motion:

Due to the City Attorney's Office's neutral position with respect to the payment schedule there is no recommended motion.

Attached Files:

AC5104 Term Agreement with Red Hawk.pdf

A-2570.pdf

A-2571.pdf

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