Memorandum

City of Lawrence

City Manager’s Office

 

TO:

David L. Corliss, City Manager

CC:

Diane Stoddard, Assistant City Manager

 

Cynthia Wagner, Assistant City Manager

 

Jonathan Douglas, City Clerk

FROM:

Britt Crum-Cano, Economic Development Coordinator

DATE:

August 27, 2013

RE:

Property Tax Abatement Request for Sunlite Science & Technology, Inc.

 

 

Please place the following on the August 27, 2013 agenda:

 

Conduct a public hearing regarding the request for a fifty percent (50%) property tax abatement from Sunlite Science & Technology, Inc., on property at 4811 Quail Crest Place, Lawrence, Kansas and consider the following items related to the request:

·         Receive PIRC recommendation;

·         Consider adopting Resolution No. 7042, granting a ten year, fifty percent (50%) property tax abatement;

·         Authorize the Mayor to execute a performance agreement with Sunlite Science & Technology, Inc., setting forth the related performance requirements for the tax abatement.

 

Introduction

Sunlite Science & Technology, Inc. designs and manufactures high-efficiency LED lighting fixtures for residential and commercial uses based on the company’s propriety technology.  The company holds a patent and a patent-pending on their technology and has also achieved UL Certification for their products. The company’s website and brochure provides greater details regarding their products.  This home-grown company has been based out of Lawrence, Kansas since 1997 and is now on the verge of growing to the next phase of business development. 

 

The company’s headquarters is currently located within the Bioscience and Technology Business Center’s (BTBC) main facility, with leased warehouse space at 345 N Iowa Street.  They look to consolidate warehouse, office and eventually off-shore manufacturing operations into a facility of their own.  They will be one of the first companies to “graduate” out of the BTBC Main Facility.

 

Request

On July 30, 2013, Sunlite Science & Technology, Inc. submitted a request and Application for Economic Development Support/Incentives to the City of Lawrence.  Sunlite is asking for a 50% tax abatement on property located at 4811 Quail Crest Place.  This facility is currently vacant and bank-owned.  The company will purchase the property for $1.1M and plans to invest another $1.2M in improvements over the next 10 years, for a total investment of $2.3M.  They estimate 40 new jobs will be created over the abatement period, with an annual average salary of $39,550.

 

Eligibility Overview

The use of tax abatements is guided by the City of Lawrence Economic Development Goals, Process, and Procedures (approved March 24, 2009 and updated May 18, 2010) which outlines the guidelines for consideration of tax abatements and eligibility amounts.  The current policy is geared toward businesses making a substantial capital investment, with thresholds set at ~$5M for companies currently on the tax rolls and ~$7M for companies that are new to the community.  The policy also specifies a preferred cost-benefit ratio of 1.25.  Sunlite’s $2.3M capital investment does not meet the current policy threshold for capital investment nor the cost benefit ratio for eligibility, thus the company has asked for a waiver of these policy items. 

 

Analysis Overview

The economic impact of this investment is complicated by the fact that the property has been fully on the tax rolls for several years.  Therefore, not all the $2.3M the company is investing will be realized as net new capital investment to the community.

In order to illustrate the economic effects of a reduction in current taxes from a 50% tax abatement, two scenarios are presented.  The first shows the cost-benefit effects on taxing jurisdictions if all $2.3M were net new capital investment (i.e. Sunlite was investing in a facility that is not currently on the tax rolls).  The second shows the cost-benefit effects on taxing jurisdictions when 50% of current real property taxes are taken out of the equation. 

 

Sunlight Science & Technology: CBA Scenarios

Incentive Package (50% TA, 40 Net New Jobs)

City

County

USD

State

Total Package Value (10 Years)

Scenario 1: All New Capital Investment

1.29

1.61

4.60

7.96

$258,237

Scenario 2: Net New Capital Investment

1.15

1.28

4.01

3.66

$258,237

 

As can be seen, with a 50% tax abatement, the cost-benefit ratio for the County, State, and School District meets the preferred 1.25 ratio.  The cost-benefit ratio for the City (1.15) does not meet the preferred threshold when 50% of current property taxes are removed from the model. 

 

For additional detail, please refer to the Technical Addendum and model results.

 

Staff Recommendation

The City’s tax abatement policy places a threshold on capital investment that is sometimes difficult for small companies to meet, including those coming out of business incubators. In this case, Sunlite’s capital investment (~$2.3M) does not meet the $5M threshold set forth in the policy, and assuming a net new capital investment of $1.3M, it will not meet the suggested 1.25 cost-benefit ratio for the City.  However, given the overarching goals set forth within the policy and the fact that the City and County have invested in not only growing small businesses through the incubator, but likely would like to provide support to help these company “graduate” to the next business stage within the community, Staff thinks there is merit in Sunlite asking for a waiver of these thresholds.

 

Additionally, annual abatements should be tied to performance requirements for job growth, wages, health insurance benefits and capital investment to help minimize risk on the part of taxing jurisdictions.  (Additional details on performance agreement compliance are provide within the attached technical addendum.)

 

PIRC Recommendation

The Public Incentives Review Committee (PIRC) met on August 20, 2013 to review and discuss Sunlite’s request.  The committee voted 7-0 to recommend approving a 50%, 10-year tax abatement on the property located at 4811 Quail Crest Place, Lawrence.  In conjunction with this recommendation, PIRC members voiced the following considerations in granting a policy waiver for the preferred capital investment threshold and city cost-benefit ratio related to Sunlite’s application:

1) Environmental aspects of the company’s product.

2) The company is a graduate of the BTBC.

3) The fact that though the application falls short of the capital investment criteria, it exceeds the job creation criteria of the policy.

4) Sunlite would be occupying previously vacant space in the community.

5) Sunlite meets the benefit-cost ratio for all of the other taxing jurisdictions except the City and in the case of the City, it comes close to the ratio.

6) Sunlite’s mix of jobs (professional/technical and manufacturing).

 

Requested Action

The City Commission to receive PIRC’s recommendation; Conduct a public hearing; adopt Resolution N. 7042, authorizing a 50% property tax abatement for Sunlite Science & Technology, Inc. for property located at 4811 Quail Crest Place; and authorize the Mayor to execute a performance agreement with Sunlite Science & Technology, Inc.