City of Lawrence

City Manager’s Office

 

TO:              David L. Corliss, City Manager

CC:               Cynthia Boecker, Assistant City Manager

                   Diane Stoddard, Assistant City Manager

FROM:          Roger Zalneraitis, Economic Development Coordinator/Planner

DATE:           March 24, 2009

RE:               Proposed Policy for Cashlike Incentives and the Tax Abatement

 

Over the last several months, City staff has worked on developing a new overarching economic development policy to guide all cashlike incentives, update the existing tax abatement policy, and create an in-house benefit-cost model.  Drafts were presented at a City Commission meeting on December 16th 2008, a joint City-County study session on January 27th 2009, and the County Commission on February 25th.  We have received feedback from the Sustainability Advisory Board.  Staff has met with the City, County staff, Chamber of Commerce, and others to discuss the benefit-cost model.

 

The policies herein represent both the work staff has done and the feedback received.  Both the marked-up policies (available here) as well as a final, clean draft are available for review (here).  The City continues to welcome feedback on the policies from all concerned parties.  Barring additional changes, staff recommends that the new Economic Development policy as well as the benefit-cost model be adopted by the City Commission.

 

The most significant changes are as follows:

 

·        The in-house benefit-cost model has been updated and is ready for adoption by the City;

·        Placing the Overarching and Tax Abatement policies in a single document;

·        Addition of substantial compliance provisions that govern all cashlike incentives, including tax abatements, as well as appeals of non-compliance findings;

·        Expansion of PIRC’s role in evaluating and overseeing incentives;

·        Addition of sustainability clauses related to the benefit-cost evaluation;

·        Establishment of a “baseline” and additional criteria for tax abatements; and

·        Removal of the small and medium size business requirement in the tax abatement policy.

 

A brief discussion of these changes, as well as smaller changes in response to Commission and public comment, is below.

 

Comments from the January 27th Study Session:

 

Overarching policy will govern other policies- There was an interest in making sure that the overarching policy serves as a governing mechanism for all cashlike incentives, including abatements, to avoid confusion over applications and procedures.  Staff has done this by adding the tax abatement policy into the overarching policy, and proposes that additional cash incentive policies, if they are adopted, be added as new sections in the overarching policy ordinance.

 

Ensure an appeal process for substantial compliance- Commission expressed an interest in ensuring that a firm found to be in non-compliance has a right to appeal the decision.  This language has been added to the overarching policy (in the final document, this can be found in Section 1-2109, page 10.  All references herein will be to the final, “clean” policy).

 

Role of PIRC- Commission members suggested a broadened role for PIRC.  In the new policy, PIRC will be part of the review process for all cashlike incentives, and a new purpose has been added for PIRC that allows City Commission to call on them from time to time to address economic development issues as the Commission desires (Section 1-2108, page 8).

 

Amount of abatement offered- In response to comments about possible amounts of tax abatements, staff added language establishing a “baseline” of up to 50% for $7 million of capital investment and 30 new employees (and $5 million of capital investment and 20 new employees for local firms), with further criteria that could generate a higher abatement.  The list of additional criteria is:

 

a.      Up to 10% additional abatement for local firms,

b.      Up to 5% additional abatement for capital investments greater than $10 million,

c.      Up to 5% for “certified” or “silver” LEED capital investments, and 10% for “gold” or “platinum” LEED capital investments,

d.      Up to 5% for unique site constraints, such as steep slopes,

e.      Up to 5% if the project is deemed to be a catalyst for the community, and

f.       Up to 5% for locating in a targeted development area or existing business park.

All of these additional criteria would be contingent upon meeting wage and health care floors, and are additive (see Section 1-2114, page 15).

 

Small and mid-sized businesses- During the study session, staff mentioned that “small” and “mid-sized” businesses were unclearly defined in the abatement policy, and that there were other elements that could be contradictory toward targeting small businesses (such as large capital investments).  The new policy has removed language referring to small and mid-sized businesses.

 

How to incorporate public, County, and others into the “Two Meeting” formula- The overarching policy envisions two public meetings.  The County and other parties want to continue to have a voice in the incentive process.  Staff had originally envisioned two separate processes, one for cashlike incentives excluding abatements, and one for tax abatements.  The Commission expressed an interest in making sure all cashlike incentives were governed by the same process.  To accommodate this and prevent more than two required meetings, staff believes that the two-meeting formula as currently applied to abatements is appropriate.  This will allow the Public Incentives Review Committee (PIRC) to hold the first public meeting for all cashlike incentives (see chart, page 6).  The City Commission may wish to revisit the time for PIRC meetings on incentives to ensure that the meetings are easy for the public to attend.

 

Fees- Fees charged for tax abatements exceed the average regionally by about $600 (see analysis here).  The Commission wished to ensure that costs remain largely covered by fees.  One portion of the $1,000 application fee was designed to cover the cost-benefit analysis by the University of Kansas.  Staff recommends lower the application fee to $500, in light of the fact that the benefit-cost model will now be internal.  Staff also believes that the $250 annual charge may be higher than needed be to cover costs for the review process.  A $200 annual charge would be sufficient to cover costs given current abatement levels (Section 1-2115, page 16).

 

 

Comments from the Sustainability Advisory Board (SAB):

 

Incorporating Sustainability Into Policies- SAB recommended incorporating sustainability into incentive policies in two ways: first, in the application; and second by ensuring that environmental impact is part of the benefit-cost model.  Staff has responded by adding a question (question 25, available here) to the application offering the firm an opportunity to explain its environmental impact and any mitigation efforts they undertake.  Staff has also added a bullet to the benefit-cost model provision (Section 1-2106, page 7) to ensure that positive and negative environmental impacts are considered.

 

Request for SAB to sit on PIRC- SAB has asked to be seated on the review committee, in this case PIRC.  Staff proposes adding an eighth seat to the PIRC committee.  This seat will be occupied for three years by a Lawrence resident chosen by the Mayor and City Commission from a list of at least three people selected by the SAB.  The list could include current members of the SAB.

 

LEED Certification- Many communities are adopting more than just LEED criteria for promoting sustainability.  SAB provided links to several cities that are incorporating additional environmental goals into economic development policies.  It appears that LEED is the most common element that receives abatement consideration.  “Green collar” jobs and other environmental industries are usually addressed through the targeted industries section of the economic development plans.  LEED criteria has been added to the abatement criteria (Section 1-2114 (3.)(C), page 15), with bonuses for gold and platinum certification.

 

Comments from the County Commission (draft minutes available here):

 

Encourage local business- The County Commission wishes for the incentive policies to encourage local businesses.  This has been done by lowering the “baseline” requirements for local firms to receive abatements, and an additional 10% abatement adjustment for local firms.  Effectively, this means the “baseline” for a local firm that is expanding is up to 60%, whereas for firms relocating the baseline is up to 50% (Section 1-2114 (2.) and 1-2114 (3.)(A), page 15).

 

Meetings- The Commission expressed a continued interest in participating in the incentive consideration process.  This was addressed through incorporating PIRC into the first meeting (see chart, page 6).

 

Are additional criteria additive or exclusive- The County Commission expressed concern that it was not clear if the additional criteria listed in Section 1-2114 (3.), page 15, were additive, or exclusive.  In order to clarify that the criteria were additive, an example has been added immediately after the criteria list.

 

Which incentives would go through the abatement process- The Commission wanted to make sure that any incentive offered would go through the process as outlined in the overarching policy.  Staff noted that there was some flexibility designed in the policy, for example for small loans such as microloans, but that all large cashlike incentives would go through this process.

 

Additional Feedback  on the Benefit-Cost Model:

 

A number of recommendations have been made for the benefit-cost model.  Many of the updates were discussed in another memo (available here).   

 

Other Changes:

 

Overarching Policy:

 

·        Additional language for substantial compliance has been added.  This language describes how the reporting process will work each year, as well as how the appeal process will work.  Further, it specifies the information that an applicant must submit if they wish to appeal a finding of non-compliance (Section 1-2109, page 10).

 

Tax Abatements:

 

·        As discussed in the City Commission meeting and again at the Study Session, the current abatement penalty for violation of performance agreements is unlike any other abatement penalty reviewed.  In lieu of this penalty, this ordinance subjects tax abatements to the same performance and incentive reductions as found in the overarching policy (the new governing compliance provisions can be found in Section 1-2107, page 8).

 

·        The order of sections in the abatement policy has been changed so that information most pertinent to the applicant is in the front of the policy. Definitions have also been moved to the front of the abatement policy.

 

 

Recommended Next Steps:

 

City staff recommends adoption of the new economic development policy that governs cashlike incentives as well as tax abatements, and adopting the benefit-cost model as the official model for evaluating incentive proposals.