5.0. EDSR 08-19-2002 Item # 5
City of
Elk -,
River
MEMORANDUM
TO: Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Developmen
DATE: August 19, 2002
SUBJECT: Consider City of Elk River Business Subsidy Policy - Postponed
Attachments
• Fact Sheet: 2000 Business Subsidies Law
• Developing Criteria and Stating Public Purpose for Business Subsidies
• Frequently Asked Questions About the 2000 Business Subsidies Law
1111 The 2000 MN Business Subsidy Law requires subsidy grantors to establish a "Business
Subsidy Criteria"by May 2003. Staff is preparing the draft City of Elk River Business
Subsidy Criteria for review by the EDA and eventual recommendation to the City Council.
Consideration of the draft policy is postponed until the September 9, 2002 regular EDA
meeting in order to allow sufficient time for discussion of pressing agenda items of August
19th special EDA meeting.
Information from the MN Department of Trade&Economic Development regarding
requirements of the Business Subsidies Law is attached.
110
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Trade&
FACT SHEET: 2000 Business Subsidies Law
DevelOINThalt
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;
• 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 DIED 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
S
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 requirements 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.ahat 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.
DThe 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
'� formula that will generate a specific dollar amount.
l J 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
§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.
/ 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 DIED 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 TIF 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
411 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.
MIS inarSti..t IS Intended to help agencies understand tha business subsidies taw,and
does not serve as a substitute for statute languag . Agents are responsiblefor
n Ornplyinas with Ow tow artd should view the law for questions and specific details and
▪ u ire nts fat are not outlined In this fact sheet.. Questions about the law can be
directed to O ."
Minnesota Department of TradwandTrade 'E nor evelopa t'
Analysis and Evaluation Office
O Metro Square
121 riPlace East
St.Paul,MN65101-2146
i ne-(6511296-0585 I Far(651)215-3M1 ed.hodde r? te.mn.0
www.dtedetateann.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?
S I 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
• �NNESOT
FREQUENTLY ASKED QUESTIONS
Trade &— About the 2000 Business Subsidies Law
Economic
Development Minn. Stat. §116J.993 to§116J.995
Following is a list of questions that the Department of Trade and Economic Development(DTED) 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.
• Q: What if DTED and a city/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, DTED views the state or local agency as having local 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.
Q: The law defines business subsidies as including "the principal amount of a loan at rates
below those commercially available to the recipient." Will DTED 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, DIED 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
SBusiness 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 or job 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
DIED.
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 a pre-existing loan agreement without contributing any new funds to the
project, DIED views the change as an amendment to an already existing agreement rather than as
a new 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.
Q: 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 government 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 a non-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 performed to determine whether a non-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
iESTABLISHING CRITERIA, PUBLIC PURPOSES AND WAGE AND JOB GOALS
4 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).
Q: 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 whether job 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
IPQ: 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 3rd 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 to 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 Office
500 Metro Square
121 7th Place East
St.Paul,MN 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 5 February 20,2001