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7.4. EDSR 10-19-2020 ��i City of Elk ' Request for Action River To Item Number Economic Development Authori 7.4 Agenda Section Meeting Date Prepared by General Business October 19, 2020 Colleen Eddy, Economic Development Specialist Item Description Reviewed by Together Elk River Campaign Update Cal Portner, City Administrator Reviewed by Action Requested Approve,by motion the Together Elk River Subcommittee. Background/Discussion The Together Elk River subcommittee continues to make strides in helping the Elk River business community. They recently created a Brand Ambassador group to help promote and support the campaign, as well as offer input and ideas on how the group can continue to grow and support the program. The Brand Ambassador Kick-off meeting is scheduled for October 21, 2020, from 12-1:00 pm at the multipurpose facility. With recent staff changes at the city and Chamber,the Authority may wish to consider the appointment of new members to the committee. The Together Elk River Subcommittee included the following: Jennifer Wagner,EDA commissioner and City Council member Charlie Blesener, EDA commissioner Debbi Rydberg, Executive Director Elk River Area Chamber of Commerce Amanda Othoudt,EDA Executive Director Colleen Eddy, Economic Development Specialist City of Elk River Kaylin Clement, Sr. Communications Coordinator Chamber representative With the resignation of Amanda Othoudt and the Chamber representative and Kaylin Clement on maternity leaven, there are currently three vacancies. Financial Impact At their April 29, 2020, meeting,the EDA re-allocated $9,000 from the 2020 marketing, conference, and travel budgets that will go unspent due to the COVID-19 pandemic to this marketing initiative. Mission/Policy/Goal Together Elk Diver is a community initiative to encourage, engage, and support local businesses,non-profits, and neighbors in need through challenging times. Attachments ■ Gift Card Promotion ■ EDA Memo re: Gift Card Reimbursement The Elk River Vision A welcoming community with revolutionary and siirited resourcefulness,exnptional service,and community engagement p 0 N E R E k that encourages and ins_iires prossierity ® i GIFT CARD DISCOUNT& REBATE PROMOTION Discussion with the EDA about allocating dollars to "rebate" Elk River 132C businesses who participate in gift card discount program. Commissioner Wagner was approached by a Together Elk River brand ambassador about a gift card program she had seen where a group of businesses offered 20% off gift cards as a promotion. Understanding the current economic difficulties facing retailers, restaurants, and others, Commissioner Wagner would like to discuss a similar approach through the Together Elk River initiative to encourage "SHOP LOCAL" during this holiday buying season. GOAL: Influx the local economy with immediate cash to continue supporting businesses and the Elk River economy during an unprecedented pandemic holiday shopping season. By offering a rebate it takes part of the burden off the businesses who are already struggling with capacity restrictions, etc. EXAMPLE: If, during the promotional period, Business A sells $2000 in gift cards at 20% off face value, Business A would request to the EDA a rebate of 10% of total gift card sales. In this example it would be $200, leaving the business responsible for only a 10% discount on their goods/services. EXECUTION OF PROGRAM: If this promotion is approved, Commissioner Wagner will bring it to the Together Elk River Brand Ambassadors at their October 21 meeting and engage the group to help promote and support the initiative. The ambassadors will be asked to help establish parameters such as: • Start and end dates of gift card sales • Redemption parameters • Ideas to encourage local businesses to purchase gift cards for staff giveaways, etc • Help with social media blasts and dissemination within networks of promotion CONSIDERATIONS: • Does the EDA want to establish a maximum rebate amount per business? • Does the EDA want to establish a maximum rebate program budget? • Staff time will be needed to assist with graphics and social media promotion. • The Elk River Area Chamber of Commerce would continue to be a partner through the Together Elk River initiative and advertise and promote through their channels and networks. GIFT CARD DISCOUNT& REBATE PROMOTION Discussion with the EDA about allocating dollars to "rebate" Elk River 132C businesses who participate in gift card discount program. Commissioner Wagner was approached by a Together Elk River brand ambassador about a gift card program she had seen where a group of businesses offered 20% off gift cards as a promotion. Understanding the current economic difficulties facing retailers, restaurants, and others, Commissioner Wagner would like to discuss a similar approach through the Together Elk River initiative to encourage "SHOP LOCAL" during this holiday buying season. GOAL: Influx the local economy with immediate cash to continue supporting businesses and the Elk River economy during an unprecedented pandemic holiday shopping season. By offering a rebate it takes part of the burden off the businesses who are already struggling with capacity restrictions, etc. EXAMPLE: If, during the promotional period, Business A sells $2000 in gift cards at 20% off face value, Business A would request to the EDA a rebate of 10% of total gift card sales. In this example it would be $200, leaving the business responsible for only a 10% discount on their goods/services. EXECUTION OF PROGRAM: If this promotion is approved, Commissioner Wagner will bring it to the Together Elk River Brand Ambassadors at their October 21 meeting and engage the group to help promote and support the initiative. The ambassadors will be asked to help establish parameters such as: • Start and end dates of gift card sales • Redemption parameters • Ideas to encourage local businesses to purchase gift cards for staff giveaways, etc • Help with social media blasts and dissemination within networks of promotion CONSIDERATIONS: • Does the EDA want to establish a maximum rebate amount per business? • Does the EDA want to establish a maximum rebate program budget? • Staff time will be needed to assist with graphics and social media promotion. • The Elk River Area Chamber of Commerce would continue to be a partner through the Together Elk River initiative and advertise and promote through their channels and networks. Offices in 470 U.S. Sixth Kennedy Sixth Street 200 South SiStreet Minneapolis Minneapolis MN 55402 Saint Paul (612)337-9300 telephone Graven (612)337-9310 fax St.Cloud www.kennedy-graven.com C H A R T E R E D Affirmative Action Equal opportunity Employer MEMORANDUM TO: Colleen Eddy, Economic Development Specialist Cal Portner, City Administrator FROM: Gina Fiorini, Kennedy & Graven, Chartered DATE: October 15, 2020 RE: Use of EDA funds for Gift Card Rebate Program You have requested our analysis regarding whether the Economic Development Authority of the City of Elk River ("EDA") may use general fund revenues raised under the EDA's tax levy authorized under Minnesota Statutes, Section 469.107 (the "EDA Levy") to pay a portion of a gift card rebate program. Under the proposal, the EDA would reimburse local businesses for the cost of half of a 20% gift card discount in order to spur holiday shopping at businesses located within the City of Elk River, Minnesota (the "City") who may be struggling due to the COVID- 19 pandemic (the "Gift Card Program"). Generally speaking, a government entity can only expend public funds when it is for a public purpose authorized by specific statutory authority. Economic development authorities are governed by Minnesota Statutes, Sections 469.090 to 469.1081, as amended (the "EDA Act"). Under the EDA Act, the EDA is authorized to undertake and expend funds for various activities for economic development purposes. For example, the EDA can expend funds to buy land, "join an official, industrial, commercial, or trade association, or another organization," "carry out other public relations activities to promote the city and its economic development," and provide loans to businesses. See Minnesota Statutes, Sections 469.101 and 469.192. Providing assistance for the Gift Card Program does not fit clearly into any of the enumerated powers provided to economic development authorities under the EDA Act. The EDA could argue that expenditures for the Gift Card Program are authorized to "carry out other public relations activities to promote the city and its economic development." Minnesota Statutes, Section 469.101, subd. 16. Public relations activities are not defined in the EDA Act. In the past, we have concluded that attendance at trade shows, billboards and general advertising to attract new businesses to the City fit under this category. The Gift Card Program does not include a marketing component for new development or expansion and presents an expansion of what we have traditionally viewed as "public relations." Rather than a public relations activity, we view the Gift Card Program as akin to a subsidy because it is providing direct financial assistance to a business rather than promoting the City as an attractive place to locate a business. The Gift Card Program is not structured as a loan like the EDA's other business subsidy programs as directly authorized under Minnesota Statutes, Section 469.192. Moreover, the EL185-13-680890.vl proposal is not narrowly tailored to specific businesses that have demonstrated a need for the assistance like other subsidy programs that the EDA has created in the past. For instance, under the EDA's microloan programs, businesses must individually apply for funds, explain why the assistance is necessary, and demonstrate how the specific amount of funds requested will help the business. In contrast, the Gift Card Program provides a blanket subsidy to all local businesses. The Gift Card Program could be modified to require each business to apply for funding and explain how its profits have suffered due to the COVID-19 pandemic (potentially by submitting profit/loss statements for the year) which could help justify the necessity of the program to help businesses survive during the COVID-19 pandemic, but we still have concerns that the program is not structured as a loan. Structuring the program as a loan or a forgivable loan would be impractical because the likely cost to administer the loans would be more than the actual subsidy. Moreover, unlike other business subsidies, the Gift Card Program would not be reimbursing the business for an actual expense, such as building construction or site improvements. Additionally, we are concerned that the Gift Card Program is providing a subsidy to consumers rather than businesses. The Gift Card Program benefits consumers directly in the form of 20% increased gift card amount while the benefit provided to businesses is indirect in the form of a potential increase in overall sales. No authority exists under the EDA Act to provide assistance to consumers to spur demand for local businesses. While the EDA could potentially argue that funding the Gift Card Program is an authorized expenditure for public relations under Section 469.101 of the EDA Act, relying on this argument to finance the program creates a risk for the EDA. The expenditure of EDA and City funds is subject to review by the Office of the State Auditor (the "OSA"). While review of local expenditures by the OSA is rare, in our experience, the OSA strictly construes the need for statutory authority for the use of public money for an expenditure. Due to the lack of clear statutory authority for the use of public funds for the Gift Card Program, we are concerned that the OSA would view the expenditure as unauthorized. If you have further questions on this matter, please give me a call. EL185-13-680890.vl