FROM:
Administrative Services
SUBJECT:
Title
Sika Corporation - Operating Covenant Agreement
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RECOMMENDATION:
Recommendation
1. Adopt Resolution No. 2025-086, accepting the Economic Development Subsidy Report prepared pursuant to Government Code Section 53083.1 and approve the Operating Covenant Agreement and authorize the City Manager or his designee to execute the Agreement with Sika Corporation.
2. Direct City Staff to file a Notice of Exemption based upon the City Council’s finding that the impacts for this Agreement is not a project and subject to environmental review and that there is no possibility that the activity in question may have a significant effect on the environment.
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COUNCIL GOALS:
• Promote economic development by concentrating on job creation.
• Promote economic development by pursuing business attraction, retention, and expansion.
• Promote economic development by being business friendly at all levels and striving to constantly improve the city's competitiveness.
DISCUSSION:
Sika Corporation, a manufacturer and retailer of adhesives and sealants for the construction and industrial industries primarily, has entered into a lease for a facility at 14090 Slover Ave, Fontana, CA 92335 for seven (7) years with an option to renew for two additional five (5) year terms, for a total of seventeen (17) years. Sika Corporation intends to package and distribute their products from this Fontana based facility.
Sika Corporation intends to employ approximately 40 full time employees at their new Fontana facility investing more than $30 Million over the term of their lease on facility improvements and employee wages and benefits.
In order to ensure Sika Corporation remains in business and maintains their operations in the City of Fontana, an Operating Covenant Agreement (OCA) has been proposed. To that end, Staff and representatives from Sika Corporation have negotiated an OCA with the following main deal points:
• Sika Corporation intends to maintain operations at 14090 Slover Ave., in the City of Fontana for the duration of their lease, up to 17 years.
• Sika Corporation will be eligible to receive quarterly Operating Covenant payments based on the level of sales recorded as generated in the City of Fontana.
• The Operating Covenant payment is contingent on Sika Corporation achieving and maintaining taxable sales at a minimum rate of $50 Million per year. Once the initial $50 Million in taxable sales is achieved, Sika Corporation will be eligible for retroactive Operating Covenant payments for the prior four (4) quarters. After this initial $50 Million in taxable sales is achieved Sika Corporation will be eligible for Operating Covenant payments quarterly as long as taxable sales is maintained at a $50 Million annual rate.
• The Operating Covenant payment will be equal to 50% of the Bradley-Burns sales tax generated on sales made by Sika Corporation from within the City of Fontana.
Approval of the Operating Covenant Agreement will help ensure that the Sika Corporation will remain in business and maintain their operations in the City of Fontana for a period of up to seventeen (17) years.
FISCAL IMPACT:
At a minimum sales level of $50,000,000 annually the City will receive $500,000 in Bradley-Burns sales tax, 50% would be paid to Sika Corporation, making the City’s share $250,000 and Sika’s share $250,000. At a sales level of $125 Million annually the City and Sika would each receive $625,000 per year.
MOTION:
Adopt Staff’s recommendation.