Item 296/2024
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Ursula Luna-Reynosa
Dept:
City Manager Dept: Economic Development and
Housing
Date: 7/9/2024
Subject: Consideration of an amendment to the Vehicle Rebate Program Participation Agreements with certain dealerships to extend the term for an additional five years. (Action Item)
OBJECTIVE
On May 14, 2019, the City Council approved the Vehicle Rebate Program (the “VRP”) for the following dealerships; Garden Grove Kia, Garden Grove Nissan, Garden Grove Hyundai, Simpson Chevrolet of Garden Grove, Toyota Place, and Volkswagen of Garden Grove (the “Participating Dealerships”). The purpose of this report is to provide information in connection with the City Council’s consideration of a n Amendment to the Vehicle Rebate Program Participation Agreements (the “Agreements”) to extend the term for an additional five-years, and conduct a Public Hearing to consider the Economic Development Subsidy Report pursuant to Government Code Section 53083 (the “Report”).
BACKGROUND
Unlike other goods where the sales tax rate is established by the local rate at the location where the sale takes place, the sales tax rate for vehicle sales is established by the local rate of where the consumer resides. When Measure O was approved by the Garden Grove voters in 2018, an additional 1% sales tax was added to the base Bradley Burns sales tax rate, effectively making the sales tax rate in Garden Grove 8.75%. As such, Garden Grove residents that desire to buy local and purchase their vehicle in Garden Grove pay 1% more in sales tax than they would if they purchase their vehicle in a different city that does not have an additional local sales tax measure. On a vehicle that costs $50,000, a n additional 1% equates to another $500 of sales tax. The VRP was established to mitigate this additional burden by providing a $500 rebate to Garden Grove residents that purchase their vehicle in Garden Grove.
This program continues to be a priority for the City as it aims to prevent sales tax leakage and promote residents to “buy local” . The Agreements included a five -year term, which expired on or about July 1, 2024. The Participating Dealerships have requested a five (5) year extension resulting in a request for the City Council to consider an amendment to the Agreements to extend the term for an additional five (5) years (the “Amended Agreements”).
All other terms remain the same as follow:
Item 296/2024
1. Eligible Participants: Any resident or business of Garden Grove purchasing a new car or truck from a participating dealership is eligible for the $500 rebate.
2. Qualifying Vehicles: The rebate applies to new cars or trucks. Motorcycles, off-road vehicles, watercraft, and fleet vehicles are not eligible.
3. Documentation Requirements: Participating dealers must document the sale or lease of the new vehicle using either the Resident Rebate or Garden Grove Business Rebate Forms.
4. Submission Process: Dealers must submit all Resident Rebate Forms and/or Business Rebate Forms, along with the required documentation, to the City of Garden Grove for reimbursement on a monthly basis. A purchase summary must be completed and attached to the rebate forms.
5. Reimbursement Timeline: The City will provide reimbursement payments to the dealers within 30 days of receiving the required forms and documentation.
6. Eligibility Verification: Dealers that issue rebates to non-Garden Grove residents or non-Garden Grove businesses will not be reimbursed by the City.
7. Proof of Residency: Dealerships must collect and submit all required documentation as proof of residency for qualified Garden Grove residents.
DISCUSSION
The VRP has provided over 2,500 Garden Grove residents with a $500 incentive for new car purchases, averaging 500 rebates per year. According to the Orange County Auto Dealer Association, new vehicle sales to Garden Grove residents only declined by 21%, compared to a forecasted 69.7% decrease without the VRP. (There has been a 68% decrease in resident vehicle lease volume which does not include the $500 rebate).
The City has the ability to implement AB 562 (codified as Government Code Section 53083), a statewide economic development tool for the purpose of allowing local jurisdictions to induce economic development for the creation and maintenance of jobs. The Ci ty and the Participating Dealerships are proposing the Amended Agreements to continue the mitigation of the additional 1% sales tax to enable the Participating Dealerships to be competitive and retain jobs. The VRP encourages residents and Garden Grove bus iness to “shop local” thus preventing sales tax leakage to other communities. As part of the City Council’s consideration of the Amended Agreements, AB 562 requires the preparation and dissemination of a Report that includes the following:
1. Information contained in the original economic development subsidy report that was prepared when the VRP was initially established;
2. Net tax revenue accruing to the local agency as a result of the subsidy;
3. Net number of jobs created by the subsidy.
Item 296/2024
In 2018, the Participating Dealerships employed 561 team members with an estimated total payroll of $38,160,000. In 2023, the dealerships employed 565 team members, with an estimated total payroll of $56,662,240.
In summary, the VRP has helped retain jobs and generated $1.8 million in total gross revenue with a distribution of over $1.3 million in vehicle rebates to Garden Grove residents and the City collecting $505,000 (See attached AB 562 report)
FINANCIAL IMPACT
It is anticipated the cost of the Amended Agreements for the Participating Dealerships is approximately one million four hundred fifty-seven thousand three hundred thirty-one dollars ($1,457,331) over the proposed extended five (5) year term . It is estimated that two hundred seventy-five thousand dollars ($275,000) will be rebated in fiscal year 2024-25 and therefore has been included in the Amended Fiscal Year 2024-25 budget and future Program funding will be requested through the budget process.
RECOMMENDATION
It is recommended that the City Council:
• Conduct a Public Hearing to consider the five (5) year term extension and the corresponding AB 562 Report; and
• Authorize the City Manager to execute an amendment to the Agreements in a form approved by the City Attorney, including any minor modifications as appropriate, and any other pertinent documents necessary to effectuate and/or implement said amendment.
By: Greg Blodgett, Deputy Director
ATTACHMENT(S)
1. AB 562 Report