Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Diane Stoddard, Assistant City Manager
DATE:	October 13, 2014
CC:	Casey Toomay, Assistant City Manager
RE:	Two Economic Development Policy Issues

Please place this item on a future City Commission meeting agenda: 

Provide policy direction to staff related to small business eligibility under current investment and job creation thresholds in the city’s property tax abatement policy and inclusion of nuisance related criteria and clawbacks in city economic development performance agreements.  

Background:

During 2014, there were several economic development policy issues discussed by the City Commission.  The City Commission directed staff to seek feedback from appropriate boards and entities and bring the comments back to the City Commission for consideration. 

Property Tax Abatement Threshold Issue:

In early 2014, the City Commission discussed the issue of whether the City’s property tax abatement policy’s eligibility thresholds for minimum investment and job creation should be changed to be more favorable to small businesses. 

Context:  In 2013, Sunlite Science and Technology requested a partial 50% ten year property tax abatement on a building to which they were relocating their business and growing employment.  The firm had its start in the Bioscience and Technology Business Center (BTBC).  The company purchased 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. Sunlite estimates 40 new jobs will be created over the abatement period, with an annual average salary of $39,550.

The City’s current abatement policy has a minimum threshold of $7 million/30 new jobs for firms outside of Douglas County and $5 million/20 new jobs for firms that have been located within Douglas County for three years.  (Section 1-2123, p 17)

In the case of Sunlite’s request, the Public Incentive Review Committee recommended and the City Commission supported a waiver of this requirement related to the company’s growth from the BTBC and that it wanted to expand and invest in Douglas County.  The 50% ten year abatement was approved.  During discussion of the request, the City Commission discussed the thresholds in the policy and requested that staff prepare a report outlining the history of the abatement thresholds and provide some options regarding the threshold issue.  At the meeting at which the report was discussed, the City Commission directed staff to seek input from the various economic development advisory boards and partners on the subject. 

Possible options outlined by staff included:

1. Maintain the current policy thresholds and consider waiver of the thresholds on a case by case basis in the future as necessary/appropriate;
2. Insert language into the policy specifically creating a waiver for companies that are grown from the BTBC system;
3. Reduce or eliminate the Douglas County thresholds within the policy to make the policy friendlier to small businesses within the County that would otherwise meet the tax abatement criteria.
4. Reduce or eliminate the minimum thresholds within the policy for all companies to make the thresholds friendlier to small businesses that would otherwise meet the tax abatement policy criteria.

Comments on this policy issue were requested from the Public Incentive Review Committee (PIRC), Joint Economic Development Committee (JEDC), KU Small Business Development Center and the Bioscience and Technology Business Center (BTBC). 

The JEDC discussed the issue at its March 28, 2014 meeting.  The JEDC did not take any formal action on a recommendation on this topic.  However, the following comments were made: 

• Brad Finkeldei mentioned that the policy as written may be read by some businesses and it may not occur to them to request a waiver or know that a waiver from the thresholds may be possible.
• Jon Josserand mentioned that he thought that some special consideration would be appropriate related to BTBC businesses.

PIRC discussed this issue at its September 9, 2014 meeting.  PIRC did not take any formal action on a recommendation on this topic.  However, the following comments were made, as noted in the draft minutes from that meeting: 

Mr. Farmer stated he thought the issue was broader than just threshold minimums and suggested all the City’s economic development policies might need revision in order to consider the intangible effects of projects.  Farmer stated that in in addition to using the City’s current tools, which are primarily designed to evaluate primary job creation and capital investment impacts, other tools may be needed to help evaluate investments in light of intangible benefits.

Mr. Iverson suggested trying to design something that would help small business.  He also mentioned that the bank has policies, but they use them as a tool, not a rule.  For his industry, additional project circumstances are always considered when evaluating funding requests.

Mr. Highberger suggested that they help small businesses, but don’t set the threshold too low.

Mr. Burnside stated that the City & County have really stepped up in assisting businesses and noted that $7 million would be a very large local project.

No additional comment was received from other organizations on this policy issue. 

Nuisance Issue: 

This policy issue relates to a question posed by the City Commission during the recent discussions on the 9^th and New Hampshire Tax Increment Financing project.  The question was whether the City should include nuisance criteria/clawbacks in economic development performance agreements.  At the time, the draft language of Section 5.03 of the North project redevelopment agreement was proposed.  However, the language within this draft section was not adopted. 

Context:  Media attention about activities occurring at a nightclub located within the Oread hotel project (a tax increment financing project) raised concerns about whether nuisance criteria should be included in economic development performance agreements and whether nuisance activity should be a reason for economic development assistance to be reduced or eliminated in the event they occur during the term of the incentive.

Staff prepared a memo on this issue and the issue was forwarded to the Public Incentive Review Committee (PIRC) for discussion.  As reported in the draft minutes from the September 9, 2014 PIRC meeting, the following comments were made by PIRC members on the subject:

• Mr. Iverson stated that incentives for the Oread Hotel impacted the entire project, even though there was only one business that had experienced nuisance problems. 
• Rather than penalizing the entire project, he asked if the City has a business license that could be revoked for a particular business having problems. Mr. Corliss stated the City does not have a business license that could be revoked.  He mentioned the City can request a hearing from the Kansas Department of Alcohol Beverage Control to get a liquor license revoked.  In addition, State nuisance laws can allow a City to shut down problem businesses.  However, it is not a simple issue to shut down a business.
• Mr. Burnside stated he believes this is a law enforcement issue.   He said he can’t envision how to manage regulating nuisance behavior through an incentives agreement with the City.
• Ms. Kimball stated the best way to deal with this type of issue is through a use restriction placed on the front end.
• Ms. Jalenak stated she didn’t know how it could be enforced without being too overbearing on businesses.
• Mr. Highberger agreed with Mr. Burnside that incentive clawbacks in these issues introduces uncertainty in enforcing the agreement.
• The Mayor asked if the City Commission should consider types of project uses eligible to get incentives. Ms. Kimball stated they probably should not.

At the conclusion of the discussion, a motion was passed unanimously that PIRC recommend no action be taken by the City Commission to include clawback language in incentive agreements related to nuisance behavior.

Next Steps:

The City Commission should provide direction on these policy questions to staff.