3.5. EDSR 12-09-2002 Item # 3 .5 .
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City of
Elk
River
MEMORANDUM
TO: Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Developmen
DATE: December 9, 2002
SUBJECT: Consider Amendment to the City of Elk River Business
Subsidies Policy
Attachments
• City of Elk River Business Subsidies Policy,Amended.
Prior to awarding any business subsidy, a City Council, HRA, and EDA must each adopt
• criteria for awarding business subsidies. The criteria must include a policy regarding the
wages to be paid for any jobs created or retained by businesses that receive subsidy
assistance.
At its November meeting the EDA held a public hearing and adopted the City of Elk River
Business Subsidies Policy. Subsequently, the HRA and City Council held public hearings
and considered adoption of the same policy. The HRA and City Council adopted the policy
with the following amendment to Section I,Paragraph 3:
EDA Adopted Policy Language:
"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."
Amended Language:
"It is the intent of the City to provide business subsidies, as well as, other incentives that the
City may deem appropriate, at the shortest term required for the project to proceed."
The concern raised by HRA and Council members was whether or not the language
conveyed a pro-business development message in a competitive environment.
Action Requested
• Staff recommends that the EDA consider adopting the above amendment to the City of Elk
River Business Subsidies Policy.
S:\EDA\BusSub sidy\DecEDA.doc
AMENDED
12/09/02
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 City 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 State Statute 1161993
(MN Business Subsidy 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 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. DEFINITION OF "BUSINESS SUBSIDY"
The following types of assistance having a value in excess of$25,000 are defined as a
"business subsidy"within the MN Business Subsidy Law:
• State and local government agency grants;
• Contributions of personal property, real property, or infrastructure;
• The principal amount of a loan that exceeds $75,000 at rates below those
commercially available;
• Reductions or deferrals of taxes or fees;
• Guarantees of any payment under any loan,lease, or other obligation; and,
• Preferential use of government facilities.
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City of Elk River Business Subsidies Policy 1
AMENDED
12/09/02
• III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES
In accordance with the MN 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/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 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/or encourage development of commercial and industrial
areas in the city that result in higher quality development or 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.
• To create opportunities for the construction, 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,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 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, 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.
City of Elk River Business Subsidies Policy 2
AMENDED
12/09/02
• 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.
V. 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 recipient will have up to
two years to meet the job and wage goals established by the City. The minimum
wage for a job to be considered a new or retained job shall be $15.00 per hour
exclusive of benefits. Deviations less than the wage floor will be considered on a
case-by-case basis and in accordance with the requirements of the MN Business
Subsidy Law.
E. Business subsidies will not be used for commercial/industrial projects that have a
history of inconsistent compliance with applicable environmental rules and
regulations.
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City of Elk River Business Subsidies Policy 3
AMENDED
12/09/02
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VI. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS
Each company receiving a business subsidy shall be subject to the subsidy agreement and
reporting provisions and requirements set forth by the MN Business Subsidy Law and
summarized below:
A. Progress Reports
The recipient shall file a report annually for two years after the receiving the
subsidy or until all goals set forth in the subsidy agreement have been met,which
ever is later. Reports shall be completed using the format drafted by the State of
Minnesota and shall be filed with the City no later than March 1 of each year for
the progress made the previous year.
B. Maintain Facility
The recipient agrees to maintain and operate its facility at the site where the
subsidy is used for a period of five years after the date the subsidy is provided.
C. Failure to Comply
Businesses failing to comply with the subsidy agreement will be subject to fines,
repayment requirements, and be deemed ineligible by the State to receive any
• loans or grants from public entities for a period of five years.
VII. SUBSIDY APPLICATION PROCESS AND PROCEDURE
A. Application for business subsidies shall be made on forms for the particular form of
assistance provided by the City of Elk River Director of Economic Development, or
designee. A fee of$ 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.
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 amount 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; and verifiable funding
sources and uses.
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City of Elk River Business Subsidies Policy 4