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HomeMy WebLinkAbout03 18 2013 EDA 8B Business Subsidies Policy Discussion O� PR1O,p h i 4646 Dakota Street SE Prior Lake. MN 55372 ECONOMIC DEVELOPMENT AUTHORITY AGENDA REPORT MEETING DATE: March 18, 2013 AGENDA #: 8B PREPARED BY: Casey McCabe, Community Development Specialist AGENDA ITEM: BUSINESS SUBSIDIES POLICY DISCUSSION DISCUSSION: Introduction The purpose of this agenda item is to discuss possible amendments to the City of Prior Lake Business Subsidies Policy, adopted by the City Council on October 18, 2004. History In 1999, the State Legislature adopted the "Business Subsidy Act;" a summary of the law is at- tached to this report. Under the law, a business subsidy means a state or local government agency grant, contribution of personal property, real property, infrastructure, the principal amount of a loan at rates below those commercially available to the recipient, any reduction or deferral of any tax or any fee, any guarantee of any payment under any loan, lease, or other obligation, or any preferential use of government facilities given to a business. The Law, as amended in 2008, provides for certain exceptions identified in the statute, most nota- ble of which are the exemption from regulation of any subsidy of less than $150,000. The city's Business Subsidies Policy was written to facilitate city compliance with the Business Subsidies Act. The key provisions of the policy are: > The purpose of the policy is to: establish guidelines and criteria regarding the use of business subsidies for private development projects within the City of Prior Lake; to define the types of business subsidy which the City Council may consider; to clarify that subsidies must be the minimum necessary assistance to allow the prospect to proceed; and to provide that the City will review each application on a case by case basis. > Business subsidies are defined in accordance with the law. ➢ Business subsidies must achieve one or more "public purpose." ➢ Specific guidelines are provided for commercial /industrial projects, including such things as: a demonstrated increase in tax base; reduction of blight; increase in employment; retention of jobs; specific wage and job goals; and the like. ➢ Required content for Business Subsidy Agreements. ➢ Reporting requirements, application process and procedure. Current Circumstances Staff is proposing to update the city's Business Subsidies Policy and would appreciate EDA direc- tion related to the following items: • "But For" Clause Consider removal of the references to "but for" in Section 1 and Section 5. The reference to "but for" is a term typically used in reference to TIF districts; the development would not occur but for the use of TIF (or other financial support). The term but for does not appear in the Minnesota Statute regulating local and state business subsidies. The but for test would still apply to TIF districts but this test may be difficult to meet when de- velopers or property owners apply for other types of incentives offered by the City, such as a below market lease or the sewer and water fee deferral program. • Establish Minimum Standards to be Considered a Business Subsidy Although a business subsidy of Tess than $150,000 is exempt from the Act, the City of Prior Lake has previously required all business subsidies, regardless of size, to comply with all of the requirements of the Act to be eligible for funds. The EDA may wish to consider amending the Business Subsidies Policy to mirror State Statute requirements. Staff anticipates future subsidies in the form of micro - enterprise loans, Sewer and Water Fee Deferral Program loans, Technology Village and City owned property leases, or other incen- tives with a value of less than $150,000. Staff believes these types of incentives would be required to comply with the reporting requirements under the current policy and would not be required to comply with the same requirements if the policy were amended to mirror State Statute requirements. • Wage Requirements The current minimum wage requirement for a job to be considered a new or retained job is established in Section 5. D. at $13.00 per hour, exclusive of benefits. Staff recommends the EDA consider amending this language so the minimum wage will adjust based on cost of liv- ing and inflation modifications. Recommended language may be, "The minimum wage re- quirement for a job to be considered a new or retained job is established at 120% of the fed- eral poverty level for a family of four, as determined annually by the U. S. Department of Health and Human Services, exclusive of benefits." If amended, the current minimum wage requirement would be $13.59 per hour and the poverty level has increased by an average of 2.5% each year over the past ten years. • Identify Loan and Incentive Programs The EDA may wish to include a list of current City of Prior Lake tools and incentives within the Business Subsidies Policy (Agenda Item 8A). • Application Fees The EDA should provide direction to staff related to application fees. Section 8 of the Busi- ness Subsidies Policy currently states, "A fee of $2,500 shall accompany any Tax Increment Finance, Tax Abatement, or grant request application to cover the City's initial legal, adminis- trative, and planning costs." The official 2013 fee schedule identifies a preliminary TIF appli- cation fee of $2,500, a TIF escrow deposit of $12,000 and a conduit bond financing origina- tion fee of $50,000. The official fee schedule does not identify a fee for tax abatements or other loan and grant programs. Conclusion The EDA should review the city's existing Business Subsidies Policy in Tight of comments noted above and in light of State Statutes, and then provide direction to staff. City staff anticipates pre- senting a revised Business Subsidies Policy to the EDA during its April 2013 meeting followed by a City Council review during a public hearing in May 2013. ISSUES: The EDA should provide direction to staff related to the city's Business Subsidies Policy and any proposed amendments in comparison to State Statute requirements. Historically the city has been very diligent in assuring that the developer pays any and all cost associated with the business incentive. The fee schedule above has a dampening effect upon potential users. If the EDA is uncomfortable with a certain type of incentive it should consider whether the incentive should be 2 eliminated or more narrowly defined. The city's development efforts are not furthered if we say that certain incentives are available and then the process or approval is very, protracted or froght with friction. The EDA should also consider that the city council plays a large role in the issuance of these incentives. There may be some value in reviewing this topic with the council at a work session. FINANCIAL Amendments to these guidelines could increase city exposure and costs but could also improve IMPACT: the likelihodd that economic development projects take place here.. ALTERNATIVES: 1. Motion and Second directing City staff to amend the City of Prior Lake Business Subsidies Policy based on the recommendations of the EDA. 2. Provide direction to staff and continue discussion at a future meeting. 3. Direct the staff to arrange a work session with the city council to further discuss business in- centives in hopes of reaching philosophical agreement. RECOMMENDED As determined by the EDA. MOTION: ATTACHMENTS: 1. MN Statutes 116J.993 through 116J.995 2. City of Prior Lake Business Subsidies Policy (Current) 3 • 1 MINNESOTA STATUTES 2012 1161.993 116J.993 DEFINITIONS. Subdivision 1. Scope. For the purposes of sections 116J.993 to 116 .1.995, the terms defined in this section have the meanings given them. Subd. 2. Benefit date. "Benefit date" means the date that the recipient receives the business subsidy. If the business subsidy involves the purchase, lease, or donation of physical equipment, then the benefit date begins when the recipient puts the equipment into service. If the business subsidy is for improvements to property, then the benefit date refers to the earliest date of either: (1) when the improvements are finished for the entire project; or (2) when a business occupies the property. If a business occupies the property and the subsidy grantor expects that other businesses will also occupy the same property, the grantor may assign a separate benefit date for each business when it first occupies the property. Subd. 3. Business subsidy. "Business subsidy" or "subsidy" means a state or local government agency grant, contribution of personal property, real property, infrastructure, the principal amount of a loan at rates below those commercially available to the recipient, any . reduction or deferral of any tax or any fee, any guarantee of any payment under any loan, lease, or other obligation, or any preferential use of government facilities given to a business. The following forms of financial assistance are not a business subsidy: (1) a business subsidy of less than $150,000; (2) assistance that is generally available to all businesses or to a general class of similar businesses, such as a line of business, size, location, or similar general criteria; (3) public improvements to buildings or lands owned by the state or local government that serve a public purpose and do not principally benefit a single business or defined group of businesses at the time the improvements are made; (4) redevelopment property polluted by contaminants as defined in section 1161.552, subdivision 3; (5) assistance provided for the sole purpose of renovating old or decaying building stock or bringing it up to code and assistance provided for designated historic preservation districts, provided that the assistance is equal to or less than 50 percent of the total cost; (6) assistance to provide job readiness and training services if the sole purpose'of the assistance is to provide those services; (7) assistance for housing; (8) assistance for pollution control or abatement, including assistance for a tax increment financing hazardous substance subdistrict as defined under section 469.174, subdivision 23; (9) assistance for energy conservation; (10) tax reductions resulting from conformity with federal tax law; (11) workers' compensation and unemployment insurance; (12) benefits derived from regulation; (13) indirect benefits derived from assistance to educational institutions; Copyright 0 2012 by the Office of the Revisor of Statutes, State of Minnesota. All Rights Reserved. 2 MINNESOTA STATUTES 2012 1163.993 (14) finds from bonds allocated under chapter 474A, bonds issued to refund outstanding bonds, and bonds issued for the benefit of an organization described in section 501(c)(3) of the Internal Revenue Code of 1986, as amended through December 31, 1999; (15) assistance for a collaboration between a Minnesota higher education institution and a business; (16) assistance for a tax increment financing soils condition district as defined under section 469.174, subdivision 19; (17) redevelopment when the recipient's investment in the purchase of the site and in site preparation is 70 percent or more of the assessor's current year's estimated market value; (18) general changes in tax increment financing law and other general tax law changes of a principally technical nature; (19) federal assistance until the assistance has been repaid to, and reinvested by, the state or local government agency; (20) funds from dock and wharf bonds issued by a seaway port authority; (21) business loans and loan guarantees of $150,000 or less; (22) federal loan funds provided though the United States Department of Commerce, Economic Development Administration; and (23) property tax abatements granted under section 469.1813 to property that is subject to valuation under Minnesota Rules, chapter 8100. Subd. 4. Grantor. "Grantor" means any state or local government agency with the authority to grant a business subsidy. Subd. 5. Local government agency. "Local govertunent agency" includes a statutory or home rule charter city; housing and redevelopment authority, town, county, port authority, economic development authority, community development agency, nonprofit entity created by a local government agency, or any other entity created by or authorized by a local government with authority to provide business subsidies. Subd. 6. Recipient. "Recipient" means any for -profit or nonprofit business entity that receives a business subsidy. Only nonprofit entities with at least 100 full -time equivalent positions and with a ratio of highest to lowest paid employee, that exceeds ten to one, determined on the basis of full -time equivalent positions, are included in this definition. Subd. 6a. Residence. "Residence" means the place where an individual has established a permanent home from which the individual has no present intention of moving. Subd. 7. State government agency. "State government agency" means any state agency that has the authority to award business subsidies. History: 1999 c 243 art 12 s 1; 2000 c 482 s 1; 2004 c 206 s 52; 1 Sp2005 c 3 art 7 s 1; 2006 c259 art 4s1; 2008c366art5s2 • Copyright ® 2012 by the Office of the Revisor of Statutes, State of Minnesota All Rights Reserved. 1 MINNESOTA STATUTES 2012 116J.994 116J.994 REGULATING LOCAL AND STATE BUSINESS SUBSIDIES. Subdivision 1. Public purpose. A business subsidy must meet a public purpose which may include, but may not be limited to, increasing the tax base. Job retention may only be used as a public purpose in cases where job loss is specific and demonstrable. Subd. 2. Developing a set of criteria. A business subsidy may not be granted until the grantor has adopted criteria after a public hearing for awarding business subsidies that comply with this section. The criteria may not be adopted on a case -by -case basis. The criteria must set specific minimum requirements that recipients must meet in order to be eligible to receive business subsidies. The criteria must include a specific wage floor for the wages to be paid for the jobs created. The wage floor may be stated as a specific dollar amount or may be stated as a formula that will generate a specific dollar amount. A grantor may deviate from its criteria by documenting in writing the reason for the deviation and attaching a copy of the document to its next annual report to the department. The commissioner of employment and economic development may assist local government agencies in developing criteria. A copy of the criteria must be submitted to the Department of Employment and Economic Development along with the first annual report following May 15, 2000, or with the first annual report after it has adopted criteria, whichever is earlier, Notwithstanding section 1167.993, subdivision 3, clauses (1) and (21), for the purpose of this subdivision, "business subsidies" as defined under section 1167.993 includes the following forms of financial assistance: (1) a business subsidy of $25,000 or snore; and (2) business loans and guarantees of $75,000 or more. Subd. 3. Subsidy agreement. (a) A recipient must enter into a subsidy agreement with the grantor of the subsidy that includes: (1) a description of the subsidy, including the amount and type of subsidy, and type of district if the subsidy is tax increment financing; (2) a statement of the public purposes for the subsidy; (3) measurable, specific, and tangible goals for the subsidy; (4) a description of the financial obligation of the recipient if the goals are not met; (5) a statement of why the subsidy is needed; (6) a commitment to continue operations in the jurisdiction where the subsidy is used for at least five years after the benefit date; (7) the name and address of the parent corporation of the recipient, if any; and (8) a list of all financial assistance by all grantors for the project. (b) Business subsidies in the form of grants must be structured as forgivable loans. For other types of business subsidies, the agreement must state the fair market value of the subsidy to the recipient, including the value of conveying property at less than a fair market price, or • other in -kind benefits to the recipient. (c) If a business subsidy benefits more than one recipient, the grantor must assign a • proportion of the business subsidy to each recipient that signs a subsidy agreement. The • proportion assessed to each recipient must reflect a reasonable estimate of the recipient's share of the total benefits of the project. • Copyright 0 2012 by the Office of the Revisor of Statutes, State of Minnesota. All Rights Reserved. • • • 2 MINNESOTA STATUTES 2012 1167.994 (d) The state or local government agency and the recipient must both sign the subsidy agreement and, if the grantor is a local government agency, the agreement must be approved by the local elected governing body, except for the St. Paul Port Authority and a seaway port authority. (e) Notwithstanding the provision in paragraph (a), clause (6), a recipient may be authorized to trove from the jurisdiction where the subsidy is used within the five -year period after the benefit date if, after a public hearing, the grantor approves the recipient's request to move. For the purpose of this paragraph, if the grantor is a state government agency other than the Iron Range Resources and Rehabilitation Board; "jurisdiction" means a city or township. Subd. 4. Wage and job goals. The subsidy agreement, in addition to any other goals, must • include: (1) goals for the number of jobs created, which may include separate goals for the number of part -tune or full -time jobs, or, in cases where job loss is specific and demonstrable, goals for the number of jobs retained; (2) wage goals for any jobs created or retained; and (3) wage goals for any jobs to be enhanced through increased wages. After a public hearing, if the creation or retention of jobs is determined not to be a goal, the wage and job goals may be set • at zero. The goals for the number of jobs to be created or retained must result in job creation or retention by the recipient within the granting jurisdiction overall. In addition to other specific goal time frames, the wage and job goals must contain specific goals to be attained within two years of the benefit date. Subd. 5. Public notice and hearing. (a) Before granting a business subsidy that exceeds $500,000 for a state government grantor and $150,000 for a local government grantor, the grantor must provide public notice and a hearing on the subsidy. A public hearing and notice under this subdivision is not required if a hearing and notice on the subsidy is otherwise required by law. (b) Public notice of a proposed business subsidy under this subdivision by a state government grantor, other than the Iron Range Resources and Rehabilitation Board, must be published in the State Register. Public notice of a proposed business subsidy under this subdivision by a local government grantor or the Iron Range Resources and Rehabilitation Board must be published in a local newspaper of general circulation. The public notice must identify the location at which information about the business subsidy, including a summary of the terms of the subsidy, is available. Published notice should be sufficiently conspicuous in size and placement to distinguish the notice from the surrounding text. The grantor must make the information available in printed paper copies and, if possible, on the Internet. The government agency must provide at least a ten -day notice for the public Bearing. (c) The public notice must include the date, time, and place of the hearing. (d) The public hearing by a state government grantor other than the Iron Range Resources and Rehabilitation Board must be held in St. Paul. (e) If more than one nonstate grantor provides a business subsidy to the same recipient, the nonstate grantors may designate one nonstate grantor to hold a single public hearing regarding the business subsidies provided by all nonstate grantors. For the purposes of this paragraph, "nonstate grantor" includes the iron range resources and rehabilitation board. (f) The public notice of any public meeting about a business subsidy agreement, including those required by this subdivision and by subdivision 4, must include notice that a person with residence in or the owner of taxable property in the granting jurisdiction may file a written complaint with the grantor if the grantor fails to comply with sections 1167.993 to 1161995, Copyright 0 2012 by the Mee of the Revisor of Statutes, State of Minnesota. All Rights Reserved. 3 MINNESOTA STATUTES 2012 116J.994 and that no action may be filed against the grantor for the failure to comply unless a written complaint is filed. Subd. 6. Failure to meet goals. (a) The subsidy agreement must specify the recipient's obligation if the recipient does not fulfill the agreement. At a minimum, the agreement must require a recipient failing to meet subsidy agreement goals to pay back the assistance plus interest to the grantor or, at the grantor's option, to the account created under section 1161551 provided that repayment may be prorated to reflect partial fulfillment of goals. The interest rate must be set at no less than the implicit price deflator for government consumption expenditures and gross investment for state and local governments prepared by the Bureau of Economic Analysis of the United States Department of Commerce for the 12 -month period ending March 31 of the previous year. The grantor, after a public hearing, may extend for up to one year the period for meeting the wage and job goals under subdivision 4 provided in a subsidy agreement. A grantor may extend the period for meeting other goals under subdivision 3, paragraph (a), clause (3), by documenting in writing the reason for the extension and attaching a copy of the document to its next annual report to the department. (b) A recipient that fails to meet the terms of a subsidy agreement niay not receive a business subsidy from any grantor for a period of five years from the date of failure or until a recipient satisfies its repayment obligation under this subdivision, whichever occurs first. (c) Before a grantor signs a business subsidy agreement, the grantor must check with the compilation and summary report required by this section to determine if the recipient is eligible to receive a business subsidy. Subd. 7. Reports by recipients to grantors. (a) A business subsidy grantor must monitor the progress by the recipient in achieving agreement goals. (b) A recipient must provide information regarding goals and results for two years after the benefit date or until the goals are met, whichever is later. If the goals are not met, the recipient must continue to provide information on the subsidy until the subsidy is repaid. The information must be filed on forms developed by the commissioner in cooperation with representatives of local government. Copies of the completed forms must be sent to the local government agency that provided the subsidy or to the commissioner if the grantor is a state agency. If the Iron Range Resources and Rehabilitation Board is the grantor, the copies must be sent to the board. The report must include: (1) the type, public purpose, and amount of subsidies and type of district, if the subsidy is tax increment financing; (2) the hourly wage of each job created with separate bands of wages; (3) the sum of the hourly wages and cost of health insurance provided by the employer with separate bands of wages; (4) the date the job and wage goals will be reached; (5) a statement of goals identified in the subsidy agreement and an update on achievement of those goals; (6) the location of the recipient prior to receiving the business subsidy; (7) the number of employees who ceased to be employed by the recipient when the recipient relocated to become eligible for the business subsidy; Copyright 4) 2012 by the Office of the Revisor of Statutes, State of Minnesota. All Rights Reserved. 4 MINNESOTA STATUTES 2012 1161994 (8) why the recipient did not complete the project outlined in the subsidy agreement at their previous location, if the recipient was previously located at another site in Minnesota; (9) the name and address of the parent corporation of the recipient, if any; (10) a list of all financial assistance by all grantors for the project; and (11) other information the commissioner may request. A report must be filed no later than March 1 of each year for the previous year. The local agency and the Iron Range Resources and Rehabilitation Board must forward copies of the reports received by recipients to the commissioner by April 1. (c) Financial assistance that is excluded from the definition of "business subsidy" by section 1161993, subdivision 3, clauses (4), (5), (8), and (16), is subject to the reporting requirements of this subdivision, except that the report of the recipient must include instead: (1) the type, public purpose, and amount of the financial assistance, and type of district if the assistance is tax increment financing; (2) progress towards meeting goals stated in the assistance agreement and the public purpose of the assistance; (3) if the agreement includes job creation, the hourly wage of each job created with separate bands of wages; (4) if the agreement includes job creation, the sure of the hourly wages and cost of health insurance provided by the employer with separate bands of wages; (5) the location of the recipient prior to receiving the assistance; and (6) other information the grantor requests. (d) If the recipient does not submit its report, the local government agency must mail the recipient a warning within one week of the required filing date. If, after 14 days of the postmarked date of the warning, the recipient fails to provide a report, the recipient must pay to the grantor a penalty of $100 for each subsequent day until the report is filed. The maximum penalty shall not exceed $1,000. Subd. 8. Reports by grantors, (a) Local government agencies of a Local government with a population of more than 2,500 and state government agencies, regardless of whether or not they have awarded any business subsidies, must file a report by April 1 of each year with the commissioner. Local government agencies of a local government with a population of 2,500 or less are exempt from filing this report if they have not awarded a business subsidy in the past five years. The report must include a list of recipients that did not complete the recipient report required under subdivision 7 and a list of recipients that have not niet their job and wage goals within two years and the steps being taken to bring them into compliance or to recoup the subsidy. If the commissioner has not received the report by April 1 from an entity required to report, the commissioner shall issue a warning to the government agency. If the commissioner has still not received the report by June 1 of that same year from an entity required to report, then that government agency may not award any business subsidies until the report has been filed. (b) The report required under paragraph (a) is also required for financial assistance of $25,000 and greater that is excluded from the definition of "business subsidy" by section 116J.993, subdivision 3, clause (1), and of $75,000 and greater that is excluded from the definition of • Copyright 0 2012 by the Office of the Revisor of Statutes, State of Minnesota. All Rights Reserved. • • 5 MINNESOTA STATUTES 2012 116J.994 • "business subsidy" by section 116J.993, subdivision 3, clause (21). The report for the financial • assistance under this paragraph must be completed within one year of the granting of the financial • • assistance. The report required for financial assistance under this paragraph must include: (1) the name of the recipient, its organizational structure, its address and contact information, • and its industry sector; (2) a description of the amount and use of the financial assistance and the total project budget, including a list of all financial assistance by all grantors for the project and the private sources of financial assistance; (3) the public purpose of the financial assistance, the job goals associated with both the financial assistance and the total project in which the financial assistance is included, the hourly wage of each job created, and the cost of health insurance provided by the employer; (4) the date the project will be completed; (5) the name and address of the parent corporation of the recipient, Warty; and (6) any other information the commissioner may request. (c) Within one year of completing a report under paragraph (b), the local government agency must report to the commissioner on progress in achieving the purposes and goals under • paragraph (b), clause (3). (d) The commissioner of employment and economic development must provide information on reporting requirements to state and local government agencies. Subd. 9. Compilation and sumniaty report. The Department of Employment and Economic Development must publish a compilation and summary of the results of the reports • for the previous two calendar years by December 1 of 2004 and every other year thereafter. The reports of the government agencies to the department and the compilation and summary report of the department must be made available to the public. The commissioner must make copies of all business subsidy reports submitted by local and state granting agencies available on the department's Web site by October 1 of the year in which they were submitted. The commissioner must coordinate the production of reports so that useful comparisons across time periods and across grantors can be made. The commissioner may add other information to the report as the commissioner deems necessary to evaluate business subsidies. Among the information in the summary and compilation report, the commissioner must include: (1) total amount of subsidies awarded in each development region of the state; (2) distribution of business subsidy amounts by size of the business subsidy; (3) distribution of business subsidy amounts by time category; (4) distribution of subsidies by type and by public purpose; • (5) percent of all business subsidies that reached their goals; • (6) percent of business subsidies that did not reach their goals by two years from the benefit date; • (7) total dollar amount of business subsidies that did not meet their goals after two years from the benefit date; Copyright 0 2012 by the Office of the Revisor of Statutes, State of Minnesota. All Rights Reserved. 6 MINNESOTA STATUTES 2012 116J.994 (8) percent of subsidies that did not meet their goals and that did not receive repayment; (9) List of recipients that have failed to meet the terms of a subsidy agreement in the past five years and have not satisfied their repayment obligations; (10) number of part -tithe and full -time jobs within separate bands of tvages for the entire state and for each development region of the state; (11) benefits paid within separate bands of wages for the entire state and for each development region of the state; and (12) number of employees in the entire state and in each development region of the state who ceased to be employed because their employers relocated to become eligible for a business subsidy. Subd. 10. Compilation. The Department of Employment and Economic Development must publish a compilation of granting agencies' criteria policies adopted in the previous two calendar years by December 1 of 2004 and every other year thereafter. Subd. 11. Enforcement. (a) A person with residence in or an owner of taxable property located in the jurisdiction of the grantor may bring an action for equitable relief arising out of the failure of the grantor to comply with sections 116J.993 to 116J.995. The court may award a prevailing party in an action under this subdivision costs and reasonable attorney fees. (b) Prior to bringing an action, the party must file a written complaint with the grantor stating the alleged violation and proposing a remedy. The grantor has up to 30 days to reply to the complaint in writing and may take action to comply with sections 116J.993 to 116J.995. (c) The written complaint under this subdivision for failure to comply with subdivisions 1 to 5, must be filed with the grantor within 180 days after approval of the subsidy agreement under subdivision 3, paragraph (d). An action under this subdivision must be commenced within 30 days following receipt of the grantor's reply, or within 180 days after approval of the subsidy agreement under subdivision 3, paragraph (d), whichever is later. History: 1999 c 243 art 12 s 2; 2000 c 482 s 2 -11; 2001 c 7 s 28; 2003 c 128 art 13 s 24 -26; 1Sp2003 c o s 1; 2004 c 206 s 24,25; 1Sp2005 c 1 art 4 s 23,24; 1Sp2005 c 3 ari 7 s 2 -5; 2008 c 366 an 5 s 3 -5 i s Copyright 0 2012 by the Office of the Revisor of Statutes, State of Minnesota. All Rights Reserved. 1 MINNESOTA STATUTES 2012 116J.995 116J.995 ECONOMIC GRANTS. An appropriation rider in an appropriation to the Department of Employment and Economic Development that specifies that the appropriation be granted to a particular business or class of businesses must contain a statement of the expected benefits associated with the grant. At a minimum, the statement must include goals for the number of jobs created or enhanced, wages paid, and the tax revenue increases due to the grant. The wage and job goals must contain specific goals to be attained within two years of the benefit date. The statement must specify the recipient's obligation if the recipient does not attain the goals. At a minimum, the statement must require a recipient failing to meet the job and wage goals to pay back the assistance plus interest to the Department of Employment and Economic Development provided that repayment may be prorated to reflect partial fulfillment of goals. The interest rate must be set at no less than the implicit price deflator as defined under section 110.994, subdivision 6. The legislature, after a public hearing, may extend for up to one year the period for meeting the goals provided in the statement. History: 1999 c 243 an 12 s 3; 2000 c 482 s 12; 2001 c 7 s 29; 2003 c 128 art 13 s 27; 1Sp2003c4s1 • Copyright © 2012 by the Office of the Revisor of Statutes, State of Minnesota. All Rights Reserved. City of Prior Lake, Minnesota Business Subsidies Policy Adopted: DATE: Prior Lake City Council Oct. 18, 2004 Amended: City of Prior Lake 16200 Eagle Creek Avenue, S.E. Prior Lake, MN 55372 (952) 447 -9805 DN: 230703 CITY OF PRIOR LAKE POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES I. PURPOSE For the purposes of this document, the term "City" includes the Prior Lake City Council and Economic Development Authority. This policy establishes guidelines and criteria regarding the use of business subsidies, such as tax increment financing ("TIF"), tax abatement and other business subsidies for private development projects within the City of Prior Lake. These guidelines and criteria are in addition to the requirements and limitations set forth by provisions of Minnesota Statute 116J.993 ( "MN Business Subsidy Law "), and policies and guidelines with respect to any particular form of subsidy. The fundamental purpose of business subsidies in the City is to encourage desirable development or redevelopment that would not otherwise occur "but for" the assistance. Business subsidies do not exist to enhance the return on investment for projects that would otherwise occur, but to facilitate development that would not otherwise occur. Any developer that applies for business subsidy assistance may look to these guidelines for guidance regarding the criterion the City will use in evaluating an application. However, whether a particular project meets the criterion and serves the City's present needs shall be the City's decision. The guidelines are instructive only and do not have the force of law. if the City finds that its present needs require one project to be given priority over another, then the City's judgment will ultimately prevail. The City will provide subsidies and incentives in the most limited fashion possible to assure that the project will proceed. The City reserves the right to approve or reject projects on a case -by -case basis, taking into account established policies, specific project criteria, and demand on city services in relation to the potential benefits to be achieved from a proposed project. This process is inherently subjective, and whether a project receives a business subsidy may be as much a function of the City's budget as the merit of the project. The City will work to maximize the subsidies to those projects that, in the City's judgment, will address the most pressing public purpose. The ability to demonstrate that the project will most likely achieve its stated goals and therefore address the most pressing public purpose will be the primary factor in determining whether a project receives a business subsidy. Meeting these policy guidelines does not guarantee that a business subsidy will be awarded. Furthermore, the approval or denial of one project should not be construed as setting a precedent that another similar project should be approved or denied. The City cannot possibly approve a business subsidy for every worthy project. Whenever possible, it is the City's intent to coordinate the use of business subsidies with other applicable taxing jurisdictions. ON: 230703 2 II. DEFINITION OF "BUSINESS SUBSIDY" The following types of assistance in excess of $25,000.00 are defined as a "business subsidy" within the MN Business Subsidy Law: • State and local government agency grants; • Contributions of personal property, real property, or infrastructure; • Any loan that has a principal amount in excess of $75,000 for which interest accrues at a rate below those commercially available for loans of that risk profile; • Reductions or deferrals of taxes or fees; • Guarantees of any payment under any loan, lease, or other obligation; • Preferential use of government facilities. In any case where the value of the business subsidy is indeterminate, the City will make a good faith determination of the value of the subsidy. Although only assistance in excess of $25,000.00 is subject to the law, the City of Prior Lake has a policy requiring all developers that request business subsidies to comply with the requirements imposed by the MN Business Subsidy Law, regardless of the size of the grant or loan. Therefore, although they are not strictly subject to the act, developers requesting subsidies under $25,000.00 must agree to comply with all the requirements of the Act to be eligible. Ill, PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES In accordance with the MN Business Subsidy Law, the City will consider using business subsidies to assist private development projects in an attempt to achieve one or more of the following public purpose objectives: • To retain local jobs and /or increase the number and diversity of jobs that offer stable employment and /or attractive wages and benefits. Because it is required by the Business Subsidy Law, if the stated public purpose is to retain jobs, there must be a showing that job loss in the affected area is specific and demonstrable. • To enhance and diversify the City of Prior Lake's tax base. • To encourage additional unsubsidized private development in the area, either directly or indirectly, through "spin off" development. In this case, a business subsidy may be given to an "anchor" property in the hopes that one business locating in the area will create a domino affect and other unsubsidized businesses will locate to the area. • To achieve development on sites that would not be developed without business subsidies assistance. • To remove blight and /or encourage development of commercial and industrial areas in the city that result in higher quality development or redevelopment and private investment. • To offset increased costs of development of specific properties when the unique physical characteristics of the site may otherwise preclude private investment. DN: 230703 3 IV. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES A. Business subsidy assistance will be provided from the City, by a "pay - as- you -go" note method, to the developer if the business subsidy is tax increment financing or tax abatement. Requests for up front financing will be considered on a case -by -case basis. However, the MN Business Subsidies Law requires that any up front grant financing be given in the form of forgivable loans. This means that any grants will be documented as loans that will be forgiven if the specific goals of the subsidy are met. B. A developer requesting business subsidy assistance must demonstrate, to the satisfaction of the City, sufficient cash equity investment in the project as required within the City's policy for the particular form of subsidy. The City will assure that the business will be adequately capitalized to guarantee it will continue as a going concern for many years. C. Business subsidies will not be provided in circumstances where land and /or property price is demonstrated by the County Assessor to be in excess of fair market value. This would normally be where the acquisition price is more than 10% in excess of market value as determined by an independent appraiser. D. A developer must be able to demonstrate to the City, or, if applicable, to the underwriting authority, market demand for a proposed project. E. Business subsidies will not be given if the subsidy would create an unfair and significant competitive financial advantage over other similar projects in the area. F. Business subsidies will not be given to projects that would place extraordinary demands on city infrastructure and services. G. If the City requests it, the developer will provide adequate financial guarantees to ensure completion of the project, including, but not limited to: assessment agreements, letters of credit, cash escrows, personal guaranties, mortgages, and other securities. H. Each developer must be able to demonstrate to the City's satisfaction an ability to construct, operate, and maintain the proposed project based on past experience, general reputation, and credit history. 1. If requested by the City, or its consultants, the developer shall provide sufficient market, financial, environmental, or other data relative to the successful operation of the project. J. Projects receiving business subsidy approval from other affected taxing jurisdictions will be more favorably received by the City. DN: 230703 4 V. GUIDELINES FOR COMMERCIAL /INDUSTRIAL BUSINESS SUBSIDIES A. Business subsidies will not be used for on -site retail or service business unless it is a redevelopment project that demonstrates that it will result in a substantial increase in tax base and a significant improvement in quality employment. B. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. C. The project must result in the retention of existing jobs that would be lost "but for" the proposed development, or result in an increase and diversification in local jobs that would not otherwise occur, "but for" the proposed development. D. The City will determine the specific wage and job goals giving consideration to the particular form of the subsidy, nature of the development, the purpose of the subsidy, local economic conditions and similar factors. The recipient will have up to two years to meet the job and wage goals established by the City. The minimum wage for a job to be considered a new or retained job shall be $93.00 per hour, exclusive of benefits. Deviations less than the wage floor will be considered on a case -by -case basis and in accordance with the requirements of the MN Business Subsidy Law. E. Business subsidies will not be given to commercial /industrial projects or developers that have a history of inconsistent compliance with applicable environmental rules and regulations, or failure to comply with State and Federal Regulations regarding Equal Opportunity and Occupational Safety Standards. VI. BUSINESS SUBSIDY AGREEMENT Each developer receiving a business subsidy, regardless of the size of that subsidy, shall be subject to the subsidy agreement set forth by the MN Business Subsidy Law and summarized below: A. A Statement of the Public Purpose. The recipient must state the public purpose the subsidy will address. B. Goals of the Subsidy. The recipient will state the specific and tangible wage goals that will be achieved by the subsidy. Specifically, the agreement will outline the number of jobs created and the wage goals for each of those jobs. Although it is possible that the job and wage goals may be set at zero, there must then be a public hearing that addresses what the public purpose for the subsidy will be. C. Need. The recipient will state in the Business Subsidy Agreement why the subsidy is necessary and describe why the economic development would not occur without the subsidy. ON: 230703 5 D. Maintain Facility. The recipient agrees to maintain and operate its facility at the site where the subsidy is used for a period of five years after the date the subsidy is provided. E. Failure to Comply Business. Failing to comply with the subsidy agreement will be subject to fines, repayment requirements, and be deemed Ineligible by the state to receive any loans or grants from public entities for a period of five years. VII, REPORTING REQUIREMENTS Each developer receiving a business subsidy, regardless of the size of that subsidy, shall be subject to the subsidy reporting requirements set forth by the MN Business Subsidy Law and summarized below: A. Responsibility to Report. Any developer receiving a business subsidy will provide information regarding the goals and results for two years after the subsidy is granted, or until the goals are met, whichever is later. If the goals go unmet beyond two years, then the developer will provide reports until the subsidy is fully repaid. B. Public Purpose. The developer will restate in each report the public purpose of the subsidy. C. Wages. The developer will report on the hourly wage of each job created by the subsidy. D. Benefits. The developer will report on the sum of hourly wages and any health insurance provided by the developer. E. Goal Date. Each year the developer will reassess the date it expects to meet its specific job and wage goals and report what that date is. F. Update. Each year the developer will provide an informal update on the likelihood that the goals will be achieved and indicate the progress made during the year toward achieving the stated goals. G. Recipient Information. Each year the recipient developer will report its name, address of itself and any parent corporation. Furthermore, the report will include a summary of all financial assistance received from the Authority or any other organization and any other information the Commissioner of Employment and Economic Development may request. VIII. SUBSIDY APPLICATION PROCESS AND PROCEDURE A. Application for business subsidies shall be made on forms for the particular form of assistance provided by the City of Prior Lake Community Development Director, or designee. A fee of $2,500.00 shall accompany any Tax Increment Finance, Tax Abatement, or grant DH: 230703 6 request application to cover the City's initial legal, administrative, and planning costs. B. Following a review by appropriate City Staff the application shall be referred to either the Economic Development Authority or City Council for further action. C. The application for business subsidies shall request information required within the City's policies on the particular form of subsidy, including, but not limited to: a detailed description of the project; a preliminary site plan; the amount of business subsidy requested; the public purpose of the project; the number and types of jobs to be created; the wages and benefits to be paid new employees; and verifiable funding sources and uses. DN: 230703 7 CITY OF PRIOR LAKE ECONOMIC DEVELOPMENT AUTHORITY TAX INCREMENT FINANCING POLICY ADOPTED BY THE CITY COUNCIL APRIL 16, 2001 PURPOSE This policy is established to outline the City's position on the use of tax increment financing ( "TIF ") policy for private development. This policy will be used as a guide in processing and reviewing applications for tax increment financing assistance. In accordance with the TIF policy, TIF requests must comply with applicable state statutes. The City of Prior Lake is governed by the limitations established in Minnesota Statutes Chapter 469.174, the Minnesota Tax Increment Financing Act, for all districts created after August 1, 1979. PROGRAM GOALS This program exists to achieve the following goals: 1. To promote commercial, industrial and residential development under special circumstances that would otherwise not occur. 2. To increase and diversify the long -term tax base of the City in order to ensure the ability of the City to provide adequate services for its residents while lessening reliance on the residential property tax. 3. To improve the City's economic vitality through the creation and expansion of employment opportunities. 4. To remove blight and encourage redevelopment in the commercial and industrial areas of the City in order to encourage high levels of property maintenance and private reinvestment in those areas. 5. To assure that projects are constructed and maintained at a level of quality consistent with the goals of the City of Prior Lake. 6. To retain local jobs, increase the local job base and provide economic diversity in that job base. The Program will only be used to retain jobs in those situations when job loss has been documented and specific and demonstrable. 7. To assist in achieving other goals contained in adopted public policies as may be adopted by the City Council from time -to -time, including, without limitation, quality design and construction, energy conservation and reductions in the capital and operating costs of government. 8. To provide high density housing in the Downtown (C -3) zoning district and to assist in the development of other housing in the community that is consistent with City goals and policies and is generally not being provided by the private sector. DN: 230703 1 PROGRAM ELIGIBILITY CRITERIA Qualified projects should meet or exceed the following criteria to be eligible for TIF assistance. These criteria are being adopted to meet the requirements of Minnesota Statutes Annotated § 116J.994 Subdivision 2. Meeting the threshold of eligibility does not guarantee approval of the project by the City. Final approval of any project will be made by the City Council. 1. The project must be consistent with the City's Comprehensive Plan, zoning ordinance and other applicable City ordinances as well as applicable state statutes. 2. The project shall meet at least one of the Program Goals listed above. 3. The applicant must be willing to enter into a development or redevelopment agreement satisfactory to the City. 4. It must be demonstrated that the project would not be financially feasible but for the public assistance to be provided. The level of TIF financing shall be reduced to the lowest possible level. 5. The project must comply with all applicable environmental regulations. 6. The applicant must submit all of the materials required in the application. 7. The applicant must agree to provide surety to the City to cover all costs paid by the increment, unless the project is a "pay -as- you -go" agreement. These may include assessment agreements, letters of credit, personal deficiency guarantees, guaranteed maximum cost contracts and minimum payment agreements. 8. The applicant/developer must provide a minimum of 10% equity in the project. 9 The City Council will favor owner - occupied projects over projects that will be leased. 10. For projects in an Economic Development District, a maximum of $10,000 of public money will be invested for each full -time equivalent position created or retained. 11. For projects in Redevelopment Districts, those that remove or prevent blight will be favored. 12. For projects in Redevelopment Districts, a ratio of taxes paid before and after redevelopment of 1:2 is desired. 13. TIF will not be used in projects that would give: a significant competitive financial advantage over similar projects in the area. Developers will provide information to demonstrate that this criterion is met. 14. The developer should be able to provide market data, letters of intent or financial statements that illustrate the market potential or demand for the project. The applicant for assistance must complete an Application for TIF Assistance pursuant to the procedures outlined in the Application. PROJECT COSTS ELIGIBLE FOR TIF ASSISTANCE Project costs that qualify for TIF assistance include the following: • Property acquisition • Land clearance • Relocation and demolition of structures • Site preparation DN: 230703 2 • Soils correction • Removal of hazardous wastes or remediation of site contamination • Installation of Utilities • Construction of public or private improvements • Administrative costs directly related to the identified parcels • Design fees • Surveys • Environmental studies • Relocation of building occupants • Rehabilitation of structures • Special assessments • Other costs allowed by Minnesota Statutes DN: 230703 3