9.0. HRSR 09-23-2002 Item # 9
•
City of
Elk
River
MEMORANDUM
TO: Housing & Redevelopment Authority
Mayor & City Council
FROM: Catherine Mehelich, Director of Economic Developmen 1
DATE: September 23, 2002
SUBJECT: Review First Draft of the City of Elk River Business Subsidy
Policy
Attachments
• 15`Draft, City of Elk River Business Subsidies Policy
• Fact Sheet: 2000 Business Subsidies Law
• • Information from the St. Cloud Housing&Redevelopment Authority regarding
Threshold for Economic Development Activities
Background
The 2000 MN Business Subsidy Law requires subsidy grantors to establish "Business
Subsidy" Criteria by May 2003. The attached City of Elk River Business Subsidies Policy is
the first draft for review. Besides meeting the statutory requirements, the purpose of the
policy is to establish a minimum wage floor for 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 for each particular form of subsidy,i.e. Tax Increment Finance,Tax Rebate
Finance, Economic Development Micro-Loans.
Staff proposes the following timetable for review and adoption of the city's Business Subsidy
Policy by the EDA, HRA and City Council:
• First Draft Review by the EDA, HRA and City Council September
• Review by the EDA Finance Committee October
• Second Draft Review by the EDA, HRA and City Council October
• Public Hearing by the EDA, HRA and City Council and November
Consider Adoption of the Business Subsidy Policy
• Staff submits the Policy to the MN Dept of Trade & Economic February 2003
1111 Development with annual report as required by law.
Review 1"Draft of the City of Elk River Business Subsidies Policy
September 23,2002
Page 2
• Summary
The proposed 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. Recipients will also be required to meet the City's specific
guidelines for the particular form of subsidy being requested.
• Specific wage floor for the wages to be paid for the jobs created or retained. The
wage floor may be stated as a specific dollar amount or may be stated as a formula
that will generate a specific dollar amount. Staff recommends that a minimum wage
floor be established for all types of business subsidy provided by the city. The
attached Business Subsidy Law Fact Sheet defines the types of business subsidies in
which the law applies.
The following job and wage criteria currently exists within the respective city policies:
• Tax Increment Finance Economic Development Districts
o Creation of 1 full-time job per$25,000 of TIF, no wage criteria
• Tax Rebate Finance
o No specific job and wage criteria
• Economic Development Micro-Loans
o Supplemental Financing Program (loans up to $50,000)
- 1 full-time job per$20,000 loaned with a minimum average wage of
• $8.00 per hour plus benefits.
o Industrial Incentive Program (loans up to $100,000)
- 1 full-time job per $20,000 loaned with a minimum average wage of
$10 per hour plus benefits.
o Redevelopment Financing Program (loans up to $50,000)
- No specific job and wage criteria
The proposed City of Elk River Business Subsidies Policy includes a minimum wage floor of
$15.00 per hour exclusive of benefits. The particular wage floor is proposed based upon the
average wage of industrial companies in Elk River (2002 Business Retention Report$14.94).
The city has the flexibility to deviate from its policy by documenting the reason and
providing to the MN Dept of Trade& Economic Development. In addition the city may
set the job and wage goals at zero for a particular project following a public hearing.
Or, the City may consider a formula such as the St. Cloud Housing&Redevelopment
Authority. The St. Cloud HRA established the attached"Threshold Minimum Average
Wage" to be applied to economic development projects that receive public assistance.
The policy was developed to encourage employers to pay employees a wage that would allow
them to be able to afford housing in the area based on their wages. The threshold is
annually based upon the standard definition for local incomes and rents (3-bedroom
apartment) established by the US Department of Housing and Urban Development (HUD).
410
Review Pt Draft of the City of Elk River Business Subsidies Policy
September 23,2002
Page 3
• Based on the formula adopted by St. Cloud, the City of Elk River would have the following
result:
Hourly Wage: $22.42
Annual Wage: $46,640
% allocated to shelter costs: 30%
Annual Shelter costs $13,992
Monthly Shelter costs $ 1,166 *
*Formula: Using the 2002 Fair Market Value Rent for a 3-bedroom
apartment in Sherburne County as included in the Minneapolis-St.Paul MSA.
Action Requested
The proposed Business Subsidies Policy has been reviewed by attorney,Jim O'Meara of
Briggs &Morgan, for meeting the statutory requirements of the MN Business Subsidy Law.
The draft policy was reviewed by the EDA at its regular meeting on September 9, 2002.
It was the consensus of the EDA that a specific dollar amount be used as the wage floor,
rather than a formula tied to housing. The wage floor established is the minimum wage
required for a certain number of jobs to be created or retained. It is not to be used as an
average wage for all jobs.
• Staff requests the HRA and City Council's review feedback regarding the proposed City of
Elk River Business Subsidies Policy.
, NESoz,y
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,Trade
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c FACT SHEET: 2000 Business Subsidies Law
Devekwent
What is the Business Subsidies Law?
✓ The 2000 Minnesota Legislature amended Minn. Stat. §116J.993 to§116J.995(Laws of Minnesota
2000, Chapter 482, Article 12) providing clarification to the obligation of state and local government
agencies and businesses related to certain business subsidies.
✓ 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 are as follows:
a business receiving state or local government assistance for economic development or job
growth purposes must create a net increase in jobs in Minnesota two years of receiving the
assistance;
4 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 that a recipient must enter into a subsidy agreement with a grantor that
includes specific wage and job goals.
✓ For agreements signed between August 1, 1999 and December 31, 1999 agencies should use the
2000 MBAF form and comply with the reporting requirements outlined in Minn. Stat. §116J.994 to
• §116J.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,
are 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 nonprofits 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);
• guarantees of any payment under any loan, lease, or other obligation; and,
• preferential use of government facilities.
✓ Under Minn. Stat. §116J.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;
• 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);
• funds from dock and wharf bonds issued by a seaway port authority;
business loans and loan guarantees of$75,000 or less;and,
• federal loan funds provided through the United States Department 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).
Department of Trade and Economic Development Page 1 February 15,2001
✓ Four of the types of financial assistance excluded from the definition of business subsidies are
subject to different reporting reauiremente under Minn. Stat. §116J.994, Subdivision 7. These types
• of assistance include:
• property polluted by contaminants as defined in Minn. Stat. §116J.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 hazardous 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.
„ink hat is required in order to award a business subsidy?
ilia 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.
O
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 dollar amount or may be stated as a
46 formula that will generate a specific dollar 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 the criteria
must be submitted to Department of Trade and Economic Development along with the first annual
report following the enactment of this section or with the first annual report after it has adopted
criteria, whichever is earlier.
✓ A granting agency that adopted criteria prior to May 1, 2000, that complied with Minn. Stat.
§116J.994, Subdivision 2, has until May 1,2003,to comply with the criteria requirements added in
4111 §116J.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 are 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 parent corporation of the recipient, if any; and,
• a list of all financial assistance by all grantors for the project.
✓ 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.
Cam✓ After a public hearing, if the creation or retention of jobs is determined not to be a goal,the wage
and job goals may be set at zero.
✓ Business subsidies must meet a public purpose which may 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 hearing and notice on the subsidy is otherwise required by law.
Department of Trade and Economic Development Page 2 of 5 February 15,2001
✓ 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 may 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. §116J.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 in Minn. Stat. §275.70, Subdivision 2. 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 toward goals outlined in the
agreement, and will be subject to a penalty as defined in Minn. Stat. §116J.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 1,2000. DTED will ask grantors to file an
MBAF each year for each agreement for two years after the benefit date or until all goals outlined in
the agreement have been met,whichever is later.
✓ 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 awarded a subsidy in the past five years(i.e. those with a population of
2,500 or less who have not signed an agreement after December 31, 1996,will be exempt from
reporting in 2001).
✓ DTED modified the 2001 MBAF in February. This form will ask,grantors to report, at a minimum, the
information that Minn. Stat.§116J.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 TlF agreements in the present value);
• the hourly wage of each job created with separate 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 toward 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.
Department of Trade and Economic Development Page 3 of 5 February 15,2001
✓ State funds passed through local agencies to businesses(e.g. Minnesota Investment Fund awards)
are reported by the state grantor. However, local agencies must report on applicable local funds
• awarded 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. §116J.994, Subdivision 7(c), and will be
subject to a penalty as defined in Minn. Stat. §116J.994, Subdivision 7(d)for failing to report.
✓ DTED will ask grantors to report, at a minimum,the information that Minn. Stat. §116J.994,
Subdivision 7(c)requires recipients to provide to 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
year 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 years and have not satisfied their repayment obligations.
Copies of the report will be submitted to the Legislature and posted on DTED's website.
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 clarifications are in response to commonly asked questions about the law:
• • Regarding Minn. Stat. §116J.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 spe derails and
requirements that are not outlined in this fact sheet Questions about the law can be
directed to Drat
Minnesota Department of Trade and Economic Development
Analysis and Evaluation Office
500 Metro Square
121 r Place East
St.Paul MN 55101-2146
Phone:(651)296-0580 I Fax. (651)215-38411E-mail:ed.hodder@state.mn.us
www.dted.state.m n.us
•
Department of Trade and Economic Development Page 4 of 5 February 15,2001
Developing Criteria and Stating Public Purposes
• for Business Subsidies
Under Minn. Stat. §116J.993 through §116J.995, granting agencies must develop criteria for awarding
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 area so as to: (1)allow the area
to participate in fast-growing industries; (2) protect the area 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 are the projections for job growth at the project over the nest period of two to five years?
✓ What are the fringe benefits that are payable for the jobs (particularly, is there child care, health
care, 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
area job quality?
Stabilizing the Community
✓ How will the project constitute a significant investment in an area that(1)has not historically
received similar investments; (2) is a blighted area; or(3)is an economically depressed area?
✓ How will the project stimulate other investment or create spinoff businesses and jobs in the area?
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 Commission Report,February 6, 1998.
Department of Trade and Economic Development Page 5 of 5 February 15,2001
Enclosure 4B
TO: Board of Commissioners
FROM: Marshall Weems
DATE: April 30, 2001
SUBJECT: Establishment of a Threshold for Economic Development Activities
During the past several years the HRA board has looked at what sort of wages that jobs created
by the HRA activities should pay. Most recently the Board has expressed an interest in
determining what type of wages should be paid for permanent jobs created through our
economic development activities.
Commissioner Podawiltz has suggested a "Threshold Minimum Average Wage" that ought to be
in place for Economic Development projects.
The threshold would be updated annually by the US Treasury and US Department of Housin•
and Urban Development statistics. The threshold would not apply to any projects except for ;-
economic development activities.
For instance, it would apply for a new manufacturing facility, but would not apply to a
redevelopment project or soils correction project. The reasons for undertaking the
• redevelopment or soils correction activities may be important to the community. However, the
reason for undertaking these activities are not to create permanent good paying jobs.
The threshold would establish a wage rate that would allow the employees to be able to afford
housing in St. Cloud.
The year 2001 Fair Market Rent Limits for Stearns County is as follows:
Number of Bedrooms
0 1 2 3 4
$330 427 505 637 813
• - x
90
"Threshold"
Minimum Average Wage
For Public Assistance for Economic Development
Concept: Develop a policy position for public assistance for economic development
activities that states a clear, coherent and long term"Threshold" minimum average wage
for a project to qualify for local public assistance.
Job creation fostered by public assistance that pays at or below the wage necessary to
obtain safe,standard and sanitary housing,brings with it additional public costs for living
assistance.
The use of scarce public assistance in a manner that fosters or requires additional public
assistance is uneconomical. Furthermore, it creates additional living assistance needs for
the new employees that often go unmet and as such, it is also may result in a poor quality
of life for those so affected.
The "Threshold" would be a clear public statement of the recognition of the community
of its desire to provide a minimum living standard to its citizenry.
The "Threshold" is based on the higher or the two standard definitions for local incomes
and rents. The standards are updated annually by the US Treasury and the US
Department of Housing and Urban Development.
91
• "Threshold"
Minimum Average Wage
For Public Assistance for Economic Development
Hourly wage: $12.25
Annual Wage: $25,480.00
%Allocated to Shelter Costs: 30.00%
Annual Shelter Costs $7,644
Monthly Shelter Costs $ 637
Formula:
Annual computation using the Fair Market Rent(FMR) for a three bedroom
apartment.
The Threshold Minimum Average Hourly Wage for Public Assistance for Economic
Development activities would establish a base level hourly wage, which economic
development project(projects in which the major public benefit would be job creation)
would have meet or exceed to qualify for local public financial assistance.
The use of the FMR's provides for an automatic annual adjustment based on localized
data.
92