STRATEGIC PRIORITY: Economic and Neighborhood Vitality
AGENDA DATE: August 12, 2020
COUNCIL DISTRICT(S): 2
DEPARTMENT: Office of Economic Development
EXECUTIVE: Dr. Eric A. Johnson
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SUBJECT
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Authorize City of Dallas nomination of Southwest Airlines 2195 Research Row Project to receive designation as an Enterprise Zone Project under the Texas Enterprise Zone Act, as amended (Texas Government Code, Chapter 2303) to the Office of the Governor, Economic Development and Tourism division, through the Economic Development Bank - Financing: No cost consideration to the City
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BACKGROUND
Founded in 1967, Dallas-headquartered Southwest Airlines (“Southwest” or “Company”) has become a significant fixture in the low-cost domestic travel market and has been the leading US domestic air carrier since 2003. Southwest employs more than 12,000 in the Dallas area, and recently invested $700 million in its corporate headquarters on Denton Drive, directly to the west of Love Field Airport, including state of the art training facilities, aircraft simulators, office space, and parking facilities.
A significant reduction in travel due to COVID-19 has resulted in an unprecedented economic impact to the aviation industry. Per a company announcement on July 24, Southwest has lost approximately $1.6 billion year-to-date (with 95% of that loss occurring in Quarter 2 2020). The company is losing approximately $20 million every day, equating to a billion dollar loss every two months. To compensate, the company has cut projects, cut shareholder returns, worked with the United States (US) government to secure $3.2 billion in funds via the CARES Act, sold $2.2 billion in company stock to investors, and borrowed more than $12 million from lenders. Nearly 17,000 Southwest employees have taken voluntary separation packages and extended time off from the company, at a cost of $1.7 billion.
Accordingly, to mitigate its losses and maintain its goal of no layoffs or furloughs due to the pandemic, Southwest is looking for strategies to retain employees during the remainder of the pandemic, and has approached the city for assistance in applying for state incentives.
Southwest has requested, and Office of Economic Development staff recommends, City Council consideration of City of Dallas nomination of two of the company’s upcoming capital investment projects as Texas Enterprise Zone (“TEZ”) projects.
This nomination would allow Southwest to receive a refund of the state portion of sales and use taxes paid as part of the capital investment. TEZ funds are paid solely by the State of Texas - the incentive does not involve any City of Dallas funding. The next application date is September 1, 2020. The TEZ program requires that each nominated project retain a minimum of 500 jobs.
The project under consideration for nomination will be located at the Leadership and Aircrew Development (LEAD) Center of the Southwest Airlines Wings facility located at 2195 Research Row in Dallas. This facility is not located on airport property.
The minimum $5 million in improvements will continue the ongoing expansion of the facility to accommodate additional flight simulators. This expansion includes a 127,558 square foot structure that will house eight additional flight simulators; raft, self-defense, and fire extinguisher training areas; uniform shops for Inflight and Flight Ops; office space; conference space, and classrooms.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
City Council was briefed in Executive Session to discuss the offer of a financial or other incentive for Southwest Airlines 2195 Research Row Project under Section 551.087 of the Texas Government Code on August 3, 2020.
FISCAL INFORMATION
No cost consideration to the City.