Memorandum

City of Lawrence

City Manager’s Office

 

TO:

David L. Corliss, City Manager

 

FROM:

Diane Stoddard, Assistant City Manager

Britt Crum-Cano, Economic Development Coordinator

Date:

 

CC:

 

September 4, 2013

 

Cynthia Wagner, Assistant City Manager

RE:

Property Tax Abatement Policy History Regarding Investment Thresholds

 

Background:

At its August 20, 2013 meeting, the City Commission had a discussion about the City’s tax abatement policy, specifically the investment thresholds established in the policy.  The City Commission requested that staff provide a review of the City’s tax abatement policies to see if it could be determined why the investment/job creation thresholds were established at the levels they are in the current policy.

 

Discussion:

The City’s tax abatement policy history goes back to 1989, when the first property tax abatement policy was adopted.  Below is a chart that summarizes the history of property tax abatement policy discussions and links to the resolutions or ordinances adopted and the minutes from the meetings at which they were adopted. In reviewing the minutes associated with these changes, there is little discussion regarding the investment thresholds.  However, the policy history shows that a basic schedule outlining a $30 million threshold was established with the 1991 policy. This was decreased to $20 million with the 2001 policy and further decreased to the current policy thresholds of $7 million in adjusted 2009 dollars and 30 new jobs for firms outside Douglas County and $5 million in adjusted 2008 dollars and 20 jobs for companies that have been located within Douglas County for 3 years.

 

Based upon the summary of the meeting that appears in the March 24, 2009 staff memo, it appears that during the January 2009 joint City-County study session, there was discussion about the thresholds. Minutes of study sessions are not maintained so the exact discussion cannot be summarized.  However, the staff memo also summarizes discussion at the February 25, 2009 County Commission meeting.  The County Commission’s input was that they wished to encourage local business with the policy.  That was accomplished by lowering the thresholds and also providing some additional abatement percentage related to local firms.  As a result of the discussions at these various input meetings, the thresholds were adjusted to a lower level than had been established in previous policy dating back to 2001.

 

 

 

Date/Link to Minutes

Resolution/Ordinance

Link

Investment Thresholds in Policy

March 21, 1989

Res. 5228

No specific investment or job creation thresholds

September 11, 1991

Res. 5431

Established a basic schedule outlining a 50% abatement for investments less than $30 million and potentially larger abatements for investments over $30 million

November 13, 2001

Res. 6343

Established a basic schedule outlining a 50% abatement for investments less than $20 million in adjusted 2001 dollars and potentially larger abatements for investment over $20 million

October 28, 2003

Ord. 7706

Maintained basic schedule established in 2001 policy- guideline of 50% abatement for investments less than $20 million in adjusted 2001 dollars, and potentially larger abatements for investments over $20 million

April 7, 2009

March 24, 2009

March 24, 2009 Staff Memo

Ord. 8384

Established a basic schedule outlining up to a 50% abatement for investments greater than $7 million in adjusted 2009 dollars and a minimum of 30 new jobs that meet wage requirements for firms outside of Douglas County; for firms within Douglas County for more than 3 years, outlines up to a 50% abatement for investments greater than $5 million in adjusted 2008 dollars and a minimum of 20 new jobs that meet wage requirements. 

May 18, 2010

Ord. 8522

Maintained investment and job creation threshold established with 2009 policy

 

During the discussion at the Public Incentive Review Committee (PIRC)
meeting relating to the Sunlite tax abatement request, PIRC listed several specific reasons for making its positive recommendation on the request, although Sunlite’s investment was below the investment threshold in the policy.  These reasons were as follows: 1) the environmental aspects of the company’s product, 2) that 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) that Sunlite would be occupying previously vacant space in the community, 5) that Sunlite meets 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, and 6) Sunlite’s mix of jobs (professional/technical and manufacturing).

 

Also, it is important to note that companies that receive tax abatements are required to enter into a performance agreement with the City.  Per the City’s policy that was updated a few years ago, this performance agreement now includes various annual performance targets- such as capital investment, employment and wages.  Compliance with the agreement is determined by measuring actual performance with targeted performance in these areas on an annual basis.  The company has to perform before they receive the tax abatement benefit.  If the company is not in compliance, the tax abatement benefit may be reduced or eliminated, depending upon the extent of non-compliance.  Non-compliance is reported to PIRC and the City Commission and a company would have the ability to appeal the non-compliance to the City Commission if they choose.  If a company goes out of business entirely, the property is returned to the tax rolls. 

 

Possible Next Steps:

The City Commission may wish to pursue any or all of the following possible next steps regarding possible changes to the investment thresholds in the tax abatement policy:

1)     Based upon the reasons outlined by PIRC, direct staff to draft language to create a specific lower threshold for graduates firms of the Bioscience Technology Business Center (BTBC) and discuss this language at a future City Commission meeting.

2)    Refer the item to the Public Incentive Review Committee and the Joint Economic Development Council (JEDC) for further discussion and a recommendation to the City Commission.  One of the benefits of this option would be to gather the opinions of the other taxing jurisdictions (Douglas County and USD 497) that are represented on those boards, along with other stakeholders with an interest in economic development.

3)    Other process the City Commission may direct.