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6.0. EDSR 04-10-2006ITEM # 6. ver MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic DATE: April 10, 2006 Development~~ SUBJECT: Consider Draft Amendments to City's Business Subsidies Policy Attachments • City of Elk River Business Subsidies Policy, 1" Draft Amended April 2006 • Business Subsidy Fact Sheet, MN Dept Employment & Economic Development • Frequently Asked Questions, MN Dept Employment & Economic Development Background The 2000 MN Business Subsidy Law requires subsidy grantors to establish "Business Subsidy" Criteria by May 2003 and prior to granting business subsidies. In accordance with the law the City adopted business subsidies criteria within its Tax Increment Financing, Tax Rebate Financing and Micro Loan policies in 2000. The City of Elk River Business Subsidies Policy was drafted and adopted as a separate document from the specific types of subsidies in 2002. Besides meeting the statutory requirements, the purpose of the policy is to establish a minimum wage floor fox all types of business subsidies that may be provided by the City of Elk River, in addition to the project meeting the city's specific guidelines fox each particular form of subsidy, i.e. Tax Increment Finance, Tax Abatement and Economic Development Micro-Loans. It is appropriate fox the City to review and consider amendments to the City's Business Subsidies Policy at this time. Summary The attached Business Subsidy information provided by the MN Dept of Employment & Economic Development outlines the types of business subsidies and requirements under the MN Business Subsidy Law. The City's Business Subsidies Policy includes provisions required by the MN Business Subsidy Law, including: • Specific minimum requirements that recipients must meet in order to be eligible to receive business subsidies. Beyond the minimum criteria required by law, under the City's Business Subsidy Policy recipients will also be required to meet the City's specific guidelines fox the particular form of subsidy being requested. Specific wage floor for the wages to be paid for the jobs created ox retained. The wage floor may be stated as a specific dollar amount ox may be stated as a formula that will generate a specific dollar amount In 2002 the City established a wage floor of $15.00 per hour exclusive of benefits for new or retained jobs. Issues for Discussion Staff requests the EDA's direction on the following Business Subsidy Policy issues: 1. Should the City establish a specific employment goal to qualify for a particular subsidy amount (in the form of a specific dollar amount of assistance per job created)? If so, what level of assistance the City expect fox job creation? The following employment criteria curxenfly exist within the respective city policies: • Tax Increment Finance Pohcv o Economic Development Districts -Creation of 1 full-time job per $25,000 of TIF • Tax Abatement Policy o No specific job criteria, although most recently staff has administered the Tax Abatement proposals based on a level of $25,000 of assistance (future value) per new job to be created as a result of the project. • Economic Development Micro-Loans o Industrial Incentive Pxogxam Loans up to $75,000 - 1 full-time job per $20,000 loaned with a minimum average wage of $10.00 per hour excluding benefits required by law. o Industrial Incentive Program Loans over $75,000 - Shall meet the job and wage requirements of the City's Business Subsidy Policy. o Redevelopment Program Loans up to $50,000 - Exempt from job and wage goals 2. How should the City define a "qualifying job" under the employment goals? Under the standard most recently administered by staff for Tax Abatement projects only jobs to be created (at an hourly rate of $15) as a result of the project are considered as a "qualified" new job. Any existing jobs within the company being relocated were not included. If existing jobs were to be included in addition to created jobs the level of assistance per job on these projects actually ranged from approximately $2,700 to $4,200 of subsidy per new job. Recommendation In addition to the issues fox discussion, staff requests the EDA's feedback on the draft amendments to the City's Business Subsidies Policy. Following the EDA's feedback staff will make the final revisions and prepaze the document fox EDA, HRA and City Council adoption in May. Business Subsidies Policy 1•~ Draft Amended: Apri12006 Ado ted: Economic Development Authority Housing & Redevelopment Authority City Council Amended: Economic Development Authority November 12, 2002 November 25, 2002 Novembu 25, 2002 December 9, 2002 City of Elk River 13065 Orono Parkway Elk River, b1N 55330 763.635.1040 Kiver CITY OF ELK RIVER POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES I. PURPOSE Far the purporer of fbu document, the Term "City"ball Lxrlude the Elk River Cify Coundl, Pconomu Develapmemt Authority, anti Housing autl Aerlevelapmeut Autbority~. "I'he purpose of this policy is to establish guidelines and criteria regarding the use of business subsidies, such as tax increment financing (TIF), tax abatement, and other business subsidies fox private development projects within the City of Elk River [ hts poles Shall be us< e~_;ts "Deleted: a..d crttcu t for nx`~iidu~ vy ~,~,tdi4~,,,in addition to the requirements and limitations set foxrh by __ provisions of :Minnesota State Statute 116].993 (1b1N Business' Subsidy Law), and jhe City's __ oeleted:by ~I policy and guidelines of the particular foam of subsidy. These guidelines shall be used in processing and reviewing applications requesting business _.._ _ subsidyassistance. The fundamental purpose of business substdies in [he City is to Deleted: ,~. __ _ _. encourage desirable development ox redevelopment that would not otherwise occur "but for" the assistance provided through business subsidies. It is the intent of the City to provide business subsidies, as well as other incentives that the City may deem appropriate, a[ the shortest term required fox [he project to proceed. The City reserves the right to approve ox reject projects on a case-by-case basis, taking into account established policies, specific project criteria, and demand on city services in relation to the potential benefits to be received from a proposed project. Meeting policy guidelines ox other criteria does not guarantee the award of z,business substd,;, Furthermore, the oeletedo~,r. approval ox denial of one project is not intended to set precedent fox approval ox denial of another project. Whenever possible it is the City's intent to coordinate the use of business subsidies with other applicable taxing jurisdictions. II. DEFINITION OF "BUSINESS SUBSIDY" The following types of assistance having a value in excess of $25,000 axe defined as a "business subsidy" within the :~IIQ Business Subsidy Law: • State and local govemment agency giants; • Contributions of personal property, real property, ox infrastructure; • The principal amount of a loan that exceeds $75,000 at rates below those commercially available; • Reductions or deferrals of taxes ox fees; • Guarantees of any payment under any loan, lease, ox other obligation; and, • Preferential use of government facilities. City of lilk Rivet Business Subsidies Policy 1" llraft Amended April 2006 III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES In accordance with the iVN Business Subsidy Law, the City will consider using business subsidies to assist private development projects to achieve one or more of the following public purpose objectives: • To retain local jobs and/ox increase the number and diversity of jobs that offer stable employment and/ox attractive wages and benefits. • To enhance and diversify the City of Elk River's tax base. • To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off' development. • To achieve development on sites which would not be developed without business subsidies assistance. • To remove blight and/ox encourage development of commercial and industrial areas in the city that result in higher quality development ox redevelopment and private investment. • To offset increased costs of development of specific properties when the unique physical characteristics of the site may otherwise preclude private investment. • '1"o create opportunities for the constmction, operation and maintenance of affordable housing. IV. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES A. Business subsidy assistance will be provided from the City, tl.;.~a "pay-as-you-go" Deleted: ~ note method, to the developer if the business subsidy is tax increment financing ox tax abatement. Requests fox up front financing will be considered on a case-by-case basis. B. A developer requesting business subsidy assistance must demonstrate, to the satisfaction of the City, sufficient cash equity investment in the project as required within the City's policy fox the particular form of subsidy. C. Business subsidy xy i t 3nc.e will not be provided in circumstances where land aac~/ox Deleted: pxoperry price is demonstrated by the County Assessor to be in excess of fair market value. This would normally be where the acquisition price is more than 10% in excess of market value. D. A developer must be able to demonstrate to the City, or, if applicable, to the underwriting authority, amarket-demand fox a proposed project. E. Business subsidy assistance wdl not be used in cases where the subsidy would create an unfair and significant competitive financial advantage over other similar projects in the area. F. Business subsidy assistance. will not be used for projects that would place extraordinary demands on city infrastructure and services. City of f?Ik River Business Subsidies Policy t" Draft Amended April 2006 G. I f requested by the City the developer shall provide adequate financial guarantees to ensure completion of the project, including, but not limited to: minimum assessment agreements, letters of credit, cash escrows, and personal guaranties. H. Each developer must be able to demonstrate to the City's satisfaction, an abiliTy to construct, operate, and maintain the proposed project based on past experience, general reputation, and credit history. I. If requested by the City, or its consultants, the developer shall provide sufficient market, financial, environmental, ox other data relative to the successful operation of the project. J. Projects receiving business subsidy approval from other affected taxing jurisdictions will be more favorably received by the City. V. GUIDELINES FOR COMMERCIAL/INDUSTRIAL BUSINESS SUBSIDIES A. Business subsidies will not be used foxFetail ox service businesses unless it is a redevelopment project that demonstrates that it will result in a substantial increase in tax base and a significant improvement in quality employment. B. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. C. The project must result in the retention of existing jobs that would be lost "but fox" the proposed development or result an increase and diversification in local jobs. Business retention jobs will be considered on cone-fox-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the bi1V Business Subsidy I.aw. D. Specific wage and job goals will be determined by the City giving consideration to the particular form of the subsidy, nature of the development, the purpose of [he subsidy, local economic conditions and similar factors. The recipient will have up to two years trom._thc b<ne ht date. titiluch is the d ttc_th~r the rc ci.picnt re cc tvu~s_(hg stebsid~ , to meet the job and wage goals established by the City. __ Deletetl:, Deleted: o, s a 1 The minimum wage fox a 'rob to be considered a n~v or retained job shall be 515 Uil ~ i Formattetl: Bullets and Numbering I pe{ho live of bent:fits rultuxed lay, law Decr~.nons Ic ss._tl}m the wu~ t7o ... ur, ~x~hi ....... u~ill_h_e_consde.red on ~ case-hr i ane. hasi.nnd m aacscd ince ~yirh_ibe rec}?xit<_mcttt_g, t hc_~(\. liusinc ~ubotdv S,a~q,, [~. Business subsidies will not be used for commercial/industrial projects that have a - - ~ Formatted: bullets and Numbering I history of inconsistent compliance with applicable environmental rules and regulations. City of lilk Rivice Busiuuss Subsidies Putty 1~° Draft tlmeuded Apol 2006 VI. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS -___ _ __ _ Each company receiving a business subsidy shall be subject to the subsidy agreement and reporting provisions and requirements set Eoxth by the bIN Business Subsidy Law and summarized below: A. Proeress Reports The recipient shall Eile a report annually fox two years after the receiving the subsidy or until all goals set forth in the subsidy agreement have been met, wMch ever is latex. Reports shall be completed using the format drafred by the State of Minnesota and shall be filed with the Ctty's F;cnnomi< I h•ealo~jnucnt Division no latex than March 1 of each year fox the progress made the previous yeac. B. Maintain Facility The recipient agrees to maintain and operate its facility at the site where the subsidy is used for a period of five years after the date the subsidy is provided. C. Failure to Comnlv Businesses failing to comply with the subsidy agreement will be subject to fines, repayment requixements_;gt nc~ t uc „c~t;tbhehed ruithm the AI?J Butimi ct ~.!Jhs4dy, IL=w, and be deemed ineligible by the State to receive any loans ox giants from public entities fox a period of five years. VII. SUBSIDY APPLICATION PROCESS AND PROCEDURE A. Application fox business subsidies shall be made on }h (u~'s..forms for the particular ~e of asststance, '1 he application fur brume ~. s«bsidles shed ~:eq pl;ui; t_hr unount fat busines} sitbsidt~ t_e<IuI etr d: tl7e pnbhc pur$>r»e of tkied~r<ycc_; the number aml [ypc~ of j,oba_t I bc. crcetcyl [hc u ties tnd hcn_c_fit~ «> bc. ~.td. n<u; r mnoc u•., end venlub(e hutdtnr, soutc e_a and u,cs. B. k'ollowmg a review by appropriate City Staff the apphcanon shall be referred to the either the Economic Development Authority, ox Housing and Redevelopment Authority, fox recommendation to the City Council for further action. Deleted: ll ~. a Iii Deleted:_ ( , ___ Formatted: Indent: Left: 0.25" Deleted: <u>p,o~ld~i by nc~ r „v of ~~,, Rlk lliver Dimcax oCGwnrnnk '~. D~ Iopmcm d: b c e f u~f t I [NII100 shrill rye nnv I ~ ~.~ Inacmem finvsc,"I ax 46vramuvq nr grnor gmsr appGcrfon ro ewer nc~ Gn'e mrtial legal, admhusrrndvc, nud plaeuing ' os¢. M~ceo-l.o napplicannus slu~ll ndode a f v in rho amount oC tY» o[ nc~ Inau veyucnred. 1 D¢let¢d: Il_ _'I'hc npplicxnnn &s buslmss subs~d~rs shall nyucs Intonnnuor, inquired wrchm dm Gry's poh~e.. ou nc~ parncular (nrm o[ mbs~Jy indudivg but ms lvdred m, a derailed ' duscripmn of :hc projca;nprelim~nery arcplav; rho amount of buaivcs aulaidy mque..mJ; the public purpose of Chu projaee, rbe numhx avd rypes oFjobs ~o be reams, nc~ way s nud bunefin ro be pail I urw omploycos; and ~rnlnblu funding '. iris u... City of Elk ItIVIY Rosiness Subsidies Policy g t" Drnft Amended April 2006 IIa ~1Cr1 N©ESOj\.19 ~' Trade & - ECOriOYri1C FACT SHEET: 2002 Business Subsidies Law Development What is the Business Subsidies Law? / The 2001 Minnesota Legislature amended Minn. Stat. §1167.994, subdivision 6 (Laws of Minnesota 2001, Chapter 7, Section 28) defining the implicit price deflator. No other significant changes were made to the business subsidy law. / Applies to business subsidy agreements signed on or after August 1, 1999. / Under the repealer of no effect section, agencies are subject to reporting requirements for subsidy agreements that were made between July 1, 1995 and July 31, 1999. The requirements under the law aze as follows: • a business receiving state or local government assistance for economic development orjob growth purposes must create a net increase in jobs in Minnesota two yeazs of receiving the assistance; • a government agency providing assistance must establish wage levels and job creation goals to be met by the business receiving assistance; • agencies should use the 1999 MBAF form for subsidy agreements that were made between July 1, 1995 and July 31, 1999; and, • a form should be submitted to DTED each year until the business has achieved all its goals. / For business subsidy agreements signed on or after August 1, 1999, the reporting requirements are more expansive. The law requires that a business subsidy must meet a public purpose and a business subsidy may not be granted until the grantor has adopted criteria after a public hearing. The law also requires [hat a recipient must enter into a subsidy agreement with a grantor that includes specific wage and job goals. / For agreements signed between January 1, 2002 and December 31, 2002 agencies should use the 2003 MBAF form and comply with the reporting requirements outlined in Minn. Stat. §1167.994 to §1167.995. A form should be submitted to DTED each year until the business has achieved all its goals. Copies of the MBAF forms are available on DTED's website. who does the law apply to, and for what types of subsidies? / State and local government agencies with the authority to provide business subsidies with state or local government funds, and entities created or authorized by a local government with this authority, aze subject to the law. The law gives a complete description of applicable agencies (i.e. "grantors"). / The law covers business subsidies to for-profit businesses, and to non-profits with at least 100 full- time equivalent positions and a ratio of highest to lowest paid employee, determined on the basis of full-time equivalent positions, exceeding 10 to 1. / Types of assistance meeting the definition of a'business subsidy' include: • state or local government agency grants; • contributions of personal property, real property, or infrastructure; • the principal amount of a loan at rates below those commercially available; • reductions or deferrals of taxes or fees, including tax increment financing (TIF); and, • guarantees of any payment under any loan, lease, or other obligation. / Under Minn. Stat. §1167.993, Subdivision 3; the law explicitly excludes 22 types of assistance from the definition of business subsidies, including: • bonds issued for the benefit of an organization described in Section 501 (c) (3) of the Internal Revenue Code of 1986, as amended through December 31, 1999; Deparuneo[ of Trade and Economic Development Page I of 6 January 22, 2003 • federal assistance until assistance has been repaid to, and reinvested by, the state or local government agency (once assistance has been repaid to and reinvested by a government agency it is subject to the reporting requirements outlined in the statute); • business loans and loan guazantees of $75,000 or less; and, • federal loan funds provided through the United States Departtrtent of Commerce, Economic Development Administration until assistance has been repaid to, and reinvested by, the state or local government agency (once assistance has been repaid to and reinvested by a government agency it is subject to the reporting requirements outlined in the statute). / Four of the types of financial assistance excluded from the definition of business subsidies aze subject to different reporting requirements under Minn. Stat. §1167.994, Subdivision 7. These types of assistance include: • property polluted by contaminants as defined in Minn. Stat. §1167.552, subdivision 3 (i.e. brownfields); • assistance provided for the sole purpose of renovating building stock or bringing it up to code, and assistance provided for designated historic preservation districts, if the assistance is 50 percent or less of the total cost; • assistance for pollution control or abatement, including assistance for a tax increment financing hazazdous substance subdistrict as defined under Minn. Stat. §469.174, subdivision 23; and, • assistance for a TIF soils condition district as defined in Minn. Stat. §469.174, subdivision 19. What is required in order to award a business subsidy? / A business subsidy agreement may not be signed on or after August 1, 1999, until the grantor has held a public hearing on, and adopted criteria for, awarding business subsidies. The criteria may not be adopted on a case by case basis. / The criteria must set specific minimum requirements that recipients must meet in order to be eligible to receive a business subsidy and also include a specific wage floor for wages paid for the jobs created. The wage floor may be stated as a specific dollaz amount or may be stated as a formula that will generate a specific dollaz amount. / A grantor may deviate from its criteria by documenting in writing the reason for the deviation and attaching a copy of the document to its next annual report to the department. A copy of [he criteria must be submitted to Department of Trade and Economic Development along with the firs[ annual report following the enactment of this section or with the firs[ annual report after i[ has adopted criteria, whichever is eazlier. / A granting agency that adopted criteria prior to May 1, 2000, that complied with Minn. Stat. §1167.994, Subdivision 2, has until May 1, 2003, to comply with the criteria requirements added in §1167.994, Section 3, Subdivision 2. / The law outlines 8 elements that must be included in business subsidy agreements: • a description of the subsidy, including the amount and type of subsidy, and type of district if the subsidy is TIF (calculate TIF agreements in the present value); • a statement of the public purposes for the subsidy; • measurable, specific, and tangible goals for the subsidy; • a description of the financial obligation of the recipient if goals aze not met; • a statement of why the subsidy is needed; • a commitment to continue operations in the jurisdiction where the subsidy is used for five years after the benefit date; • the name and address of the pazent corporation of the recipient, if any; and, • a list of all financial assistance by all grantors for the project. Department of Trade and Economic Development Page 2 of 6 January 22, 2003 / All subsidy agreements, in addition to other goals, must include: • goals for the number of jobs created, which may include separate goals for the number of part-time or full-time jobs, or, in cases where job loss is specific and demonstrable, goals for the number retained; and, • wage goals for the number of jobs created or retained. / Afrer a public hearing, if the creation or retention of jobs is determined not to be a goal, the wage and job goals maybe set at zero. / Business subsidies must meet a public purpose which tray include, but may not be limited to, increasing the tax base. The law specifies that job retention may only be used as a public purpose in cases where job loss is specific and demonstrable, but does not otherwise restrict allowable public purposes (see examples on page 5). / Grantors must determine that the recipient is eligible to receive assistance by reviewing DTED's list of past recipients ineligible to receive a business subsidy because they failed to meet the terms of another subsidy agreement. / Before granting a business subsidy that exceeds $500,000 for a state government grantor and $100,000 for a local government grantor, the grantor must provide public notice and hold a hearing on the subsidy unless a heazing and notice on the subsidy is otherwise required by law. / If a business subsidy benefits more than one recipient, the grantor must assign a proportion of the subsidy to each recipient signing the agreement. If the grantor is a local government agency, the agreement must be approved by the local elected governing body, except for the St. Paul Port Authority and a seaway port authority. Also, subsidies in the form of grants must be structured as forgivable loans. For other types of business subsidies, the agreement must state the fair market value of the subsidy or other in-kind benefits. / In addition to any criteria developed in compliance with this law, agencies tray be subject to additional criteria required by specific assistance programs such as the Community Development Block Grant (HUD) and Minnesota Investment Fund programs. Agencies may or may not choose to address specific program criteria in the criteria developed in compliance with this law. What happens if a recipient does not meet business subsidy goals? / Business subsidy agreements must specify the recipient's obligation if the recipient does not fulfill the agreement. At a minimum, a recipient failing to meet goals must pay back the assistance plus interest or, at the grantor's option, to the account created under Minn. Stat. §1167.551 provided that repayment may be prorated to reflect partial fulfillment of goals. The interest rate must be set at the Implicit Price Deflator rate as defined under Minn. Stat. §1167.994, Subdivision 6. DTED will provide information on the Implicit Price Deflator on its website. / Recipients failing to fulfill business subsidy agreements may not receive business subsidies from any grantor for five years or until they have satisfied their repayment obligation, whichever occurs first. Who is required to report business subsidies, and how? / Recipients must provide grantors with information on their progress towazd goals outlined in the agreement, and will be subject to a penalty as defined in Minn. Stat. §1167.994, Subdivision 7(d) for failing to report. / Grantors must submit the annual Minnesota Business Assistance Form (MBAF) to DTED for each business subsidy agreement signed on or after January 1, 2002. DTED will ask grantors to file an MBAF each year for each agreement for two years afer the benefit date or until all goals outlined in the agreement have been met, whichever is later. Department of Trade and Economic Development page 3 of 6 Ianuary 22, 2003 / Local government agencies in communities with a population of more than 2,500 and state government agencies must submit an MBAF regardless of whether they have awarded business subsidies. The form will ask agencies whether they have awarded any subsidies. Local government agencies in communities with a population of 2,500 or less are exempt from filing the MBAF if they have not awazded a subsidy in the past five years (i.e. those with a population of 2,500 or less who have not signed an agreement afrer December 31, 1998, will be exempt from reporting in 2003). / DTED modified the 2003 MBAF in October. This form will ask grantors to report, at a minimum, the information that Minn. Stat. §1167.994, Subdivision 7 requires recipients to provide to them, including: • the type, public purpose, and amount of the subsidy, and type of district if the subsidy is TIF (calculate TIF agreements in the present value); • the hourly wage of each job created with sepazate bands of wages; • the sum of the hourly wages and cost of health insurance provided by the recipient, broken down by wage level; • the date(s) by which job and wage goals will be met; • a statement of goals identified in the agreement and an update on progress towazd them; • the location of the recipient prior to receiving the business subsidy; • information on why the recipient did not complete the project outlined in the subsidy agreement at its previous location, if previously located at another site in Minnesota; • the name and address of the parent corporation of the recipient, if any; and, • a list of all financial assistance by all grantors for the project. / With their reports, DTED will ask grantors to include a list of recipients that did not report, as well as a list of those failing to meet any goals outlined in the agreement and a description of the steps being taken to bring them into compliance or recoup the subsidy. / DTED will post an MBAF on DTED's website and mail the form in March. If DTED has not received an MBAF by April 1 from an entity required to report, DTED must issue a warning. If DTED has still not received the MBAF by June 1, the agency in default may not award any business subsidies until the report has been filed. / State funds passed through local agencies to businesses (e.g. Minnesota Investment Fund awazds) aze reported by the state grantor. However, local agencies must report on applicable local funds awaded in conjunction with state funds and on state funds which have been repaid to and reinvested by the local agency (e.g. revolving funds). How is non-business subsidy financial assistance reported? / Recipients of the four types of financial assistance with different reporting requirements must provide grantors with the information outlined in Minn. Stat. §1167.994, Subdivision 7(c), and will be subject to a penalty as defined in Minn. Stat. §1167.994, Subdivision 7(d) for failing to report. / DTED will ask grantors to report, at a minimum, the information that Minn. Stat. §1167.994, Subdivision 7(c) requues recipients to provide [o them on these four types of financial assistance. / Grantors should use the MBAF for reporting on financial assistance agreements. The form(s) will be posted on DTED's website and mailed to agencies in March. As with their business subsidy reports, grantors will have until April 1 to file these reports with DTED. How will information reported by agencies be used? / DTED is required to publish a report summarizing information reported through the MBAF each yeaz by August 1. DTED's report must include a list of recipients that have failed to meet the terms of a subsidy agreement in the past five yeazs and have not satisfied their repayment obligations. Copies of the report will be submitted to the Legislature and posted on DTED's website. Department of 7Yade and Economic Development Page 4 of 6 January Z2, 2003 Where can I find the law? / The law can be found on DTED's website at www.dted.state.mn.us, click on Communities, then Business Subsidies Reporting, then the law can be printed from your web browser. Clarifications to the law / The following claziFications aze in response to commonly asked questions about the law: • Regarding Minn. Stat. §1167.994, Subdivision 7(b), the statute's author agrees that recipients should continue reporting to the granting agency, not to DTED. The granting agency will be responsible for reporting to DTED. • DTED will be collecting information only on public funds originating in Minnesota; therefore, DTED will not ask agencies to report on federal funds they administer by the United States Department of Commerce, Economic Development Administration unless the funds have been repaid to the Minnesota government agency and reinvested according to local policies. This fact sheet is intended to help agencies understand the business subsidies law, and does not serve as a substitute for statute language. Agencies are responsible for complying with the law and should view the law for questions and specific details and requirements [hat are not outlined in this fact sheet. Questions about the law can be directed to DTED: Minnesota Department of Trade and Economic Deve]opment Analysis and Evaluation Office 500 Metro Squaze 121 7`" Place East St. Pau], Minnesota 55101-2146 Phone: (651) 296-0580 ~ Fax: (651) 215-3841 ~ E-mail: ed.hodder@state.mn.us www.dted.state.mn.us Department of Trade and Economic Development Page 5 of 6 ]anuary 22, 2003 Developing Criteria and Stating Public Purposes for Business Subsidies Under Minn. Stat. §1167.993 through §1167.995, granting agencies must develop criteria for awazding business subsidies after a public hearing. In addition, each business subsidy agreement must indicate a public purpose. The law allows grantors flexibility in stating public purposes appropriate for their communities, but requires that agreements meet a public purpose which may include, but may not be limited to, increasing the tax base and that job retention be used as a public purpose only when job loss is specific and demonstrable. Although the law does not require public purposes to be addressed in the criteria, grantors may want to refer to the public purposes below for criteria ideas. The following public purposes and criteria were recommended by the legislatively established Corporate Subsidy Reform Commission. Enhancing Economic Diversity / In what ways does the project improve the mix of businesses in the azea so as to: (1) allow the area to participate in fast-growing industries; (2) protect the azea from adverse economic consequences caused by slow growth or declining industries that are dominant in the area; and (3) provide essential consumer services, or develop a network of local suppliers to businesses within the community where they otherwise do not exist? Creating High-Quality Job Growth / How many new jobs will be created, and what will they pay? / How do wages proposed to be paid compare to community wage levels? / How many jobs will be created with opportunities for career advancement, educational opportunities, or occupational training? / What aze the projections for job growth at the project over the nest period of two to five yeazs? / What aze the fringe benefits that are payable for the jobs (particularly, is there child care, health caze, and pension coverage)? Providing for Job Retention, Where Loss is Imminent and Demonstrable / After collecting the necessary documents, is there substantial evidence that the company will have to shut down involuntarily? / After collecting the necessary documents, is there substantial evidence that the company has received an offer to move to another state or community that is attractive enough that a reasonable person would seriously consider a move for business reasons? / What potential negative effect would the subsidy have on other competing businesses and overall azea job quality? Stabilizing the Community / How will the project constitute a significant investment in an azea that (1) has not historically received similaz investments; (2) is a blighted azea; or (3) is an economically depressed area? / How will the project stimulate other investment or create spinoff businesses and jobs in the azea? Increasing the Tax Base Note: The law requires business subsidies to meet a public purpose which may include, but may not be limited to, increasing the tax base, but grantors may use increasing the tax base in conjunction with another public purpose. / How will the project uniquely affect the property tax base for all taxing jurisdictions, both short term and long term and both directly and indirectly? / How will the project affect other local business and individual property tax bills? SOURCE: Corporate Subsidy Reform Commission, 1997 Corporate Subsidy Reform Cwmnission Report, February 6, 1998. Department of Trade and Economic Development Page 6 of 6 January 22, 2003 IIb ~~1N ES p~. ~`p " FREQUENTLY ASKED QUESTIONS T=ade &- About the 2000 Business Subsidies Law Economic Development Minn. Stat. 6116J.993 to S116J.995 Following is a list of questions that the Department of Trade and Economic Development (DYED) has received about Minn. Stat. §116J.993 to §116J.995, and DTED's responses to those questions. The responses reflect DTED's understanding of the law's intent as well as conversations the department has had with the Attorney General's Office. Agencies that have proceeded with business assistance projects operating under an understanding that differs from an opinion provided below should use the following clarification as they proceed with future business assistance agreements. DEFINITION OF BUSINESS SUBSIDY Q: If a grantor awards a subsidy of $15,000 for a project, and a year later awards an additional $15,000 for the same project under a new agreement, is that subsidy subject to the law or does it meet the exemption for "a business subsidy of less than $25,000"? A: If the grantor awards both subsidies for the same project, the grantor should report the subsidy based on its total amount (i.e. $30,000). Q: If more than one grantor contributes to a project that totals $25,000 or more, but each individual grantor's contribution is less than $25,000, is the project subject to the law? A: The definition of "business subsidy' applies to contributions from an individual grantor for an individual project. Therefore, if an individual grantor contributes less than $25,000 to a project, that grantor is not subject to the law's requirements for that project. l2: What if DYED and acity/county agency each provided a business loan of $40,000 to a project, would both agencies be required to report? A: Each agency would not be required to report even though the total amount of business assistance from each grantor to the project exceeds the statutory reporting requirement of $75,000. The business subsidy law applies to a state or local government agency that provides a business subsidy not project specific activities. Q: Are subsidies originating from the federal government subject to the law? A: Funds that originate from the federal government and are invested by a state or local agency are subject to the law if they have been repaid to and subsequently reinvested by the state or local agency. In these cases, DYED views the state or local agency as having total control over how those funds are invested or who receives them. Federal funds are not subject to the law the initial time they pass through a local agency. O: The law defines business subsidies as including "the principal amount of a loan at rates below those commercially available to the recipient " Will DYED establish a rate that grantors can use to make this determination? A: No, because the rate commercially available to the recipient will differ for different projects and recipients, DYED does not intend to stipulate a particular rate below which loans are not commercially available. Individual grantors are responsible for making this determination. Department of Trade and Economic Development Page 1 of 5 February 20, 2001 Business Subsidy Reporting Q: What are the reporting requirements for government agencies that provided assistance to businesses between July 1, 1995, and July 31, 1999? A: Among the significant changes in the business subsidy amendments passed in 2000 was the reinstatement of reporting requirements for subsidy agreements made between July 1, 1995 and July 31, 1999. The law requires that a government agency providing assistance must establish wage level and job creation goals to be met by the business receiving assistance. A business that receives state or local government assistance for economic development orjob growth purposes must create a net increase in jobs in Minnesota within two years of receiving assistance. Each government agency must report the wage and job goals and the results for each project in achieving those goals to DIED using the 1999 MBAF. A copy of the 1999 MBAF is located on DTED's website. Q: Who reports on subsidies awarded by state agencies but administered by a local agency? A: State funds that pass through local agencies to businesses are reported by the state grantor. An example of this is DTED's Minnesota Investment Fund; awards under this program are reported by DTED. Q: Should a city and their Economic Development Authority (EDA) or Housing Redevelopment Authority (HRA) issue separate MBAF forms when reporting business subsidies or financial assistance? A: Yes, a city and their EDA/HRA should file separate MBAF forms when reporting on business or financial assistance. Q: Is the extension of a loan a new subsidy? A: If a grantor modifies apre-existing loan agreement without contributing any new funds to the project, DTED views the change as an amendment to an already existing agreement rather than as anew agreement. Grantors should note any amendments to an agreement when they submit a Minnesota Business Assistance Form (MBAF) to DTED for that agreement. However, if a grantor modifies an already existing agreement by contributing new funds to the project, the grantor should treat the modified agreement as a new agreement that may be subject to the law. If a grantor modifies an agreement by contributing new funds to the project, and that agreement was not previously subject to the business subsidies law, the grantor should determine whether the assistance is subject to the law based on the total amount of assistance. For example, if a grantor awards a loan of $15,000 that is exempt from the business subsidies law, and a year later awards an additional $100,000 to the same recipient for the same project, the grantor should submit an MBAF for the total $115,000 in assistance and fulfill the law's requirements for business subsidies in relation to that assistance. If a grantor modifies an agreement by contributing new funds to the project, and that agreement was previously subject to the business subsidies law, the grantor should submit one MBAF for the total amount of assistance and note amendments made to the original agreement. Q: Are loans from revolving loan funds considered business subsidies? A: Yes, loans from revolving loan funds are considered business subsidies unless federal funds are involved. If federal funds are not involved, then these loans are subject to reporting under the statute. The amount subject to reporting is $25,000 and above. l2: Is enterprise zone assistance exempt from the law based on the exemption for "assistance that is generally available to all businesses or to a general class of similar businesses..."? A: No, because local government agencies have discretion over which qualifying businesses receive enterprise zone assistance, that assistance does not meet this exemption and therefore must be reported by the local government agency. Department of Trade and Economic Development Page 2 of 5 February 20, 2001 DEFINITION OF GRANTOR Q: In the definition of "local government agency," what determines whether a nonprofit, community development corporation, or other entity was "created by or authorized by a local government"? A: DTED considers a nonprofit or other entity to have been "created by or authorized by a local government" if there is a written, legal agreement with a local govemment agency explicitly authorizing the entity to provide business assistance with funding received from the local government agency. DEFINITION OF RECIPIENT Q: What kind of reporting is necessary for anon-profit with less than 100 employees but is considering a loan request for $30,000? A: Non-profits with less than 100 employees are exempt from reporting regardless of the loan amount. Q: What calculation should be pertormed to determine whether anon-profit has a ratio of highest-to lowest-paid employee that exceeds 10 to 1 determined on the basis of full-time equivalent positions? A: Compare the hourly wages (excluding benefits) of the lowest and highest paid employees. For example, if the highest-paid employee receives an annual salary and the lowest-paid employee is paid on an hourly basis, divide the annual salary of the former by 2080 (40 hours x 52 weeks = 2080) to determine an hourly wage that can be compared to the hourly wage of the part-time employee. FINANCIAL ASSISTANCE WITH SEPARATE REQUIREMENTS Q: Are the four types of financial assistance noted in Minn. Stat. §116J.994, subdivision 7(c) subject only to the separate reporting requirements and exempt from other requirements for business subsidies? A: Yes, the four types of financial assistance noted in Minn. Stat. §116J.994, Subdivision 7(c) are subject to the reporting requirements and penalties for failing to report outlined in that subdivision, and to the reporting requirements for grantors (Minn. Stat. §116J.994, Subdivision 8), but they are not subject to other requirements that pertain only to business subsidies (e.g. the requirement to hold a public hearing before awarding a business subsidy, the requirement to develop wage and job goals for business subsidies, the requirement to enter into a business subsidy agreement that includes the designated information, etc.). Q: Are the four types of financial assistance noted in Minn. Stat. §116J.994, Subdivision 7(c) as having separate reporting requirements exempt from those separate reporting requirements if they are in amounts of less than $25,000? A: Yes, if financial assistance that would have been subject to reporting under Minn. Stat. §116J.994, Subdivision 7(c) meets one of the other exemptions noted in Minn. Stat. §116J.993, Subdivision 3, it is exempt from reporting requirements. Department of Trade and Economic Development Page 3 of 5 February 20, 2001 ESTABLISHING CRITERIA ,PUBLIC PURPOSES AND WAGE AND JOB GOALS Q: What are requirements for awarding business subsidies by grantors who signed business subsidy agreements on or after August 1, 1999. A: Under the law, a business subsidy can not be granted until the grantor has adopted criteria after a public hearing in compliance with Minn. Stat. §116J.994, Section 3, Subdivision 2. The criteria may not be adopted on a case by case basis and must set specific minimum requirements that recipients must meet in order to be eligible to receive business subsidies. The criteria must include specific wage floor for the wages to be paid for the jobs created. The wage floor may be stated as a specific dollar amount i.e., $10.00 per hour or may be stated as a formula that will generate a specific dollar amount i.e., 1.5 X the federal minimum wage rate. A copy of the criteria must be submitted to DTED along with the first annual report after the agency has adopted the criteria. Also note that a granting agency that adopted criteria prior to May 1, 2000, that complied with Minn. Stat. 1999 Supplement §116J.994, Section 3, Subdivision 2, has until May 1, 2003, to comply with the criteria requirements. Q: What kind of assistance can DTED provide to agencies in developing their criteria? A: DTED does not have the resources to work on a one-on-one basis with agencies to help them develop criteria that are appropriate for their community. However, the law allows for local flexibility, and though the public hearing process, encourages communities to discuss locally appropriate criteria (see DTED's 2000 Business Assistance Report for examples of criteria submitted by local government agencies). O: How should grantors demonstrate that job loss is specific and demonstrable? A: DTED suggests that grantors use the following three criteria (excerpted from the 1997 Corporate Subsidy Reform Commission Report) to determine whetherjob loss is specific and demonstrable and to provide documentation of that determination: 1) After collecting the necessary documents, is there substantial evidence that the company will have to shut down involuntarily?; 2) After collecting the necessary documents, is there substantial evidence that the company has received an offer to move to another state or community that is attractive enough that a reasonable person would seriously consider a move for business reasons?; and 3) What potential negative effect would the subsidy have on other competing businesses and overall area job quality? APPROVAL BY ELECTED OFFICIALS Q: Are all economic development authorities and housing redevelopment authorities required to have all agreements approved by the full city council? A: Yes, even if representatives from the local elected governing body are appointed to the organization, the organization must have all business subsidy agreements approved by the full elected body. FAILURE TO FULFILL AGREEMENTS Q: If a recipient fulfills some but not all wage and job goals by the time they are to be attained and has not yet received the entire subsidy award, can assistance not yet received still go to that recipient if prorated to reflect partial goal attainment (e.g. could a business continue to receive some assistance under pay-as-you-go tax increment financing)? A: No, upon defaulting on an agreement, a recipient must fulfill repayment obligations and should not receive any additional assistance awarded under the agreement that has not yet been administered. Department of Trade and Economic Development Page 4 of 5 February 20, 2001 Q: Can repayment for recipients in default be prorated to reflect the length of time a recipient accumulated toward the requirement to continue operations at the site for at least five years after the benefit date? A: No, if a recipient defaults on an agreement, repayment can be prorated based on the recipient's progress toward goal attainment, but not based on the recipient's progress toward the five-year requirement. Any recipient who fails to fulfill the five-year requirement is considered to have defaulted on the agreement and must fulfill repayment obligations, though that repayment may be prorated to reflect partial goal fulfillment. Q: How should agencies calculate the Implicit Price Deflator rate for agreements in default? A: To determine the Implicit Price Deflator rate for an agreement in default, a grantor should calculate the percent change in the Implicit Price Deflator for government consumption expenditures and gross investment for state and local governments from the quarter subsequent to the benefit date to the quarter prior to the date of default. For example, if a recipient defaulted on a $100,000 loan in the fourth quarter of 2000 and the loan was entered into in 1998, then the calculation would be as follows: 112.20 (2000 3`tl Quarter Implicit Price Deflator) / 104.28 (1998 Implicit Price Deflator) _ approximately 1.08 (Loan amount $100,000 X 1.08 = $107,595). The Implicit Price Deflator is prepared by the Bureau of Economic Analysis of the United States Department of Commerce. Grantors will not be able to calculate a specific Implicit Price Deflator rate until a recipient has defaulted and the figure for the quarter prior to default is available. Q: If a recipient defaults on a loan given at an interest rate higher than the Implicit Price Deflator rate, can the grantor require that the recipient pay back the loan at that higher interest rate, or must they require that the loan be paid back at the lower Implicit Price Deflator rate? A: Grantors must, at a minimum, require that recipients in default of a business subsidy agreement repay the subsidy at an interest rate set to the Implicit Price Deflator rate. Grantors may require a recipient to pay back the business subsidy at a rate higher than the Implicit Price Deflator rate. Repayment obligations must be specified in the subsidy agreement This sheet is intended to inform agencies of DTED's responses fo frequently asked questions about the business subsidies law, and does not serve as a substitute for statute language. Questions about the law can be directed to DTED: Minnesota Department of Trade and Economic Development Analysis and Evaluation Offce 500 Metro Square 121 7" Place East St. Paut, MN 55101-2146 Phone: (651) 296-0580 Faz: (651) 2153841 E-mail: Ed.Hodder@state.mn.us www.dtedstate.mn.us Department of Trade and Economic Development Page 5 of 5 February 20, 2001