To: Honorable Mayor and Members of Town Council
From: David L. Corliss, Town Manager
Frank Gray, Executive Director, Castle Rock Economic Development Council
Title
Discussion/Direction: Solaray Pugs (SRP) Incentive Request
Body
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Castle Rock Business and Development Incentive Program Overview
Economic vitality is a critical factor in ensuring Castle Rock’s long-term success in achieving its vision of being a self-sufficient community; a community in which residents can live, work, play and purchase the goods and services they need; and create a tax base adequate to support provision of core Town services.
As Castle Rock faces growing regional competition, it is important to Castle Rock to create and maintain an exceptional business climate. The policy includes elements to support core Castle Rock economic development priorities including: attraction and expansion of primary employers, attraction and expansion of targeted retail and investments in projects of economic significance or serving as economic catalysts. The program is designed to create jobs, expand the tax base, encourage existing businesses to make capital investments, and spur new office, industrial, and retail expansion and development. It is critical that all incentive programs create a net positive job or economic impact on the community.
The parameters in this program are for guidance purposes and each case will be evaluated on a case-by-case basis.
Solar Ray Pugs (Background)
Solar Ray Pugs (SRP) is a two-year-old Castle Rock based company formed out of a merger in 2016 between Pugs Gear (a 15-year-old Castle Rock based company) and Solar Ray (a 45-year-old company). SRP is a full-service category manager offering a customized suite of products (i.e. sunglasses, electronics, plush, novelty, apparel). SRP serves over 45,000 convenience stores, amusement parks and hospitality retail locations. As part of the merger, SRP was acquired by Aurora Capital and has experienced double digit organic growth. In addition, over the past 18 months SRP has acquired 7 new companies. The company’s North American footprint boasts a workforce of over 1,000 employees and the Castle Rock corporate office currently supports 35 employees with an average annual salary of $85,000.
Since Pugs Gear’s inception in 2004, they have demonstrated that they are credible long-term Castle Rock investors and reliable community partners. As promised, Pugs Gear delivered on a small ($19,750) 2011 expansion agreement bringing 11 new jobs to Castle Rock. While the success of the agreement with Pugs Gear is important to mention, SRP is a separate company backed by Aurora Capital and led by the former owner and CEO of Pugs Gear, Darrin Eisley. It is SRP’s first choice to remain in Castle Rock but SRP must answer to the board of Aurora Capital with all significant financial decisions.
Economic Assistance Request
SRP has formally requested support from the Town of Castle Rock’s Business and Development Incentive Program (Attachment A). Castle Rock is one of two locations being evaluated by Aurora Capital’s Board of Directors. While expanding in Castle Rock is SRP’s first choice, it represents a significant tenant finish expense that does NOT exist with the alternative property being considered in DTC. SRP and Aurora Capital will pay a market lease rate in Castle Rock but have requested economic development assistance to account for the additional tenant finish expense. SRP has communicated to Castle Rock EDC that should Town Council support their request for assistance they are prepared to finalize the Castle Rock site and execute their expansion effective immediately.
Recommended Agreement Structure
The EDC supports the use of the Castle Rock Economic Development Fund to ensure SRP chooses Castle Rock. The expansion insures the retention of the current 35 employees and supports the creation of an additional 30-40 new primary jobs. High wage primary employment at the management level represents a “Targeted Industry” and a “Project of Economic Development Significance” as defined in the 2014 Castle Rock Business and Development Incentive Program. These are the type of primary high wage jobs that the policy intended to attract when established in 2012. The EDC is recommending a Job Creation Incentive that supports the expansion of 30-40 new primary jobs in Castle Rock. The EDC is recommending with the support of Town Council that this agreement have a not to exceed total dollar amount of $300,000 and will be solely based on job creation at $7500 per qualifying primary job. As part of this agreement SRP has agreed to waive eligibility for any reimbursement of permit and fees. The agreement will automatically expire after 4 years from the date of signature. Castle Rock EDC believes that supporting existing primary employers to expand and grow in Castle Rock is vital to the community’s long-term economic vitality.
Commitment Event
In order to secure a long-term commitment from SRP the EDC is recommending that in addition to the normal pay for performance policy that Town Council only pay out upon the confirmation of one of the following long-term commitment events:
1. SRP Companies executes their three-year lease option at The Mirage building.
In order to receive their incentives, they would have to demonstrate proof of execution of the three-year option to the Town Manager and EDC’s CEO, which would ensure a five-year commitment to Castle Rock.
2. SRP Companies purchase and occupy The Mirage building.
3. SRP builds a campus in Castle Rock. SRP would be required to demonstrate the purchase of commercial ground in the Town limits of Castle Rock and formally submit fully engineered plans for commercial development with the intent to occupy. Plans must be submitted to the Town’s Development Services Director and the Town Manager.
If none of the above commitment events take place in the 18 months following the signature of the agreement, SRP’s Economic Development agreement and thus all incentives with the Town would be null and void.
Economic Impact*
The economic impact of the current SRP operations is estimated at $30.9MM annually to the Castle Rock economy. The impact of retaining the 35 existing Castle Rock jobs and adding an estimated 30 new jobs in this industry sector is $57.3MM annually. The total payroll is $5.9 million. If SRP were to expand by 30 jobs and be in Castle Rock for three years it would result in $171.9MM in economic impact and in five years would equal $285.5MM. Castle Rock EDC firmly believes that this would be a very strong return on investment for the Town of Castle Rock. These projections do not consider any construction activity associated with the expansion just the ongoing operations.
Community Engagement
SRP is committed to be a strong part of the Castle Rock community and is committed to be an active supporter of Downtown Alliance events, The Castle Rock Chamber of Commerce and Castle Rock EDC.
Attachments
Attachment A SRP Request Letter
Attachment B Performance Fund Application
* Castle Rock EDC partners with independent economist and analyst Gary Horvath and the Economic Development Council of Colorado for economic impact analysis verification.