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6.0. EDSR 09-09-2002 Item # 6 iik River TO: Economic Development Authority FROM: MEMORANDUM Catherine Mehelich, Director of Economic Development DATE: September 9, 2002 SUBJECT: Review First Draft of the City of Elk River Business Subsidies Attachments • 1'`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 Backg 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 • 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 Development with annual report as required by law. • Review 1st Draft Business Subsidy Policy September 5,2002 Page 2 of 2 • 41111° 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. Beyond the minimum criteria required by law,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). 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). Review 1st Draft Business Subsidy Policy September 5,2002 Page 3 of 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. Staff requests the EDA's review and direction regarding revisions to the proposed City of Elk River Business Subsidies Policy. • • 1ST DRAFT 9/09/02 • CITY OF ELK RIVER POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES I. PURPOSE For the purposes of this document, the term "Ciy"shall include the Elk River Ciy Council,Economic Development Authoriy, and Housing and Redevelopment Authority. The 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 for private development projects within the City of Elk River and shall be in addition to the requirements and limitations set forth by provisions of Minnesota law, and by the City's policy and guidelines of the particular form of subsidy. These guidelines shall be used in processing and reviewing applications requesting business subsidies assistance. The fundamental purpose of business subsidies in the City is to encourage desirable development or redevelopment that would not otherwise occur "but for" the assistance provided through business subsidies. It is the intent of the City to provide a minimum amount of business subsidies, as well as other incentives that the City may deem appropriate, at the shortest term required for the project to proceed. The City reserves the right to approve or 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 or other criteria does not guarantee the award of business subsidies. Furthermore, the approval or denial of one project is not intended to set precedent for approval or 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. OBJECTIVES OF BUSINESS SUBSIDIES As a matter of policy, the City will consider using business subsidies to assist private development projects to achieve one or more of the following objectives: • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits. • To enhance and diversify the City of Elk River's economic 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/or encourage development of commercial and industrial areas in the city that result in higher quality development or redevelopment and • private investment. City of Elk River Business Subsidies Policy 1 1ST DRAFT 9/09/02 • • To offset increased costs of development of specific properties when the unique physical characteristics of the site may otherwise preclude private investment. • To create opportunities for the construction, operation and maintenance of affordable housing. III. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES A. Business subsidy assistance will be provided from the City,by a "pay-as-you-go" note method, to the developer if the business subsidy is tax increment financing or tax abatement. Requests for 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 for the particular form of subsidy. C. Business subsidy will not be provided in circumstances where land and /or property price is demonstrated by the City 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, a market-demand for a proposed project. E. Business subsidy will 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 will not be used for projects that would place extraordinary demands on city infrastructure and services. G. If requested by the City,the developer shall provide adequate financial guarantees to ensure completion of the project,including,but not limited to: 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, or 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. • City of Elk River Business Subsidies Policy 2 1ST DRAFT 9/09/02 • IV. GUIDELINES FOR COMMERCIAL/INDUSTRIAL BUSINESS SUBSIDIES A. Business subsidies will not be used for on-site retail or 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 for" the proposed development or result an increase and diversification in local jobs. Business retention jobs will be considered on a one-for-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law. 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 the subsidy,local economic conditions and similar factors. The minimum wage floor to be considered by the City shall be $15.00 per hour exclusive of benefits. E. Business subsidies will not be used for commercial/industrial projects that have a history of inconsistent compliance with applicable environmental rules and • regulations. V. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS Individuals or business developers receiving business subsidies assistance from the City shall enter into appropriate agreements that identify the reason for the subsidy, the public purpose served by the subsidy, and the specific goals to be attained. All agreements and reports, whether required by the State of Minnesota or the City, shall be timely prepared and filed. Failure to comply with any of these requirements may result in a revocation of the requested subsidy as well as fines,repayment requirements, and a determination that the individual or business is ineligible for loans or grants from public entities for a period of years. VI. SUBSIDY APPLICATION PROCESS AND PROCEDURE A. Application for business subsidies shall be made on forms for the particular form of assistance provided by the City of Elk River Director of Economic Development, or designee. A fee of$ 5,000.00 shall accompany any Tax Increment Finance,Tax Abatement, or grant request application to cover the City's initial legal, administrative, and planning costs. Micro-Loan applications shall include a fee in the amount of 1% of the loan requested. City of Elk River Business Subsidies Policy 3 DRAFT 9/09/02 • •° 1ST Following a review by appropriate City Staff the application shall be referred to the either the Economic Development Authority, or Housing and Redevelopment Authority, for recommendation to the City Council for further action. B. The application for business subsidies shall request information required within the City's policies on the particular form of subsidy including but not limited to; a detailed description of the project; a preliminary site plan; the amoynt of business subsidy requested; the public purpose of the project;the number and types of jobs to be created; the wages and benefits to be paid new employees;verifiable funding sources and uses;and a"but for" analysis which demonstrates the need for public assistance. City of Elk River Business Subsidies Policy 4 .4,,\14N ESO2 Trate • Econorni c FACT SHEET: 2000 Business Subsidies Law Developmaut 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 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 assistanee,rneeting 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 ✓ 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. DIED 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 • 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 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 '47� 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 IIIredevelopment 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 ell 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: Annual Wage: Formula: $25,480.00 Allocated to Shelter Costs: 30.00% Annual Shelter Costs $12.25 $7,644 Monthly Shelter Costs $ 637 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