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CITY COUNCIL AGENDA REPORT
MEETING DATE: August 12, 2013
AGENDA #: 5D
PREPARED BY: Casey McCabe, Community Development Specialist
AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION ADOPTING AMENDMENTS
TO THE CITY OF PRIOR LAKE BUSINESS SUBSIDIES POLICY.
DISCUSSION: Introduction
The purpose of this item is to considering proposed amendments to the City
of Prior Lake Business Subsidies Policy, adopted by the City Council on Octo-
ber 18, 2004.
H i StOry
In 1999, the State Legislature adopted the "Business Subsidy Act" (Minnesota
Statutes, Section 116J.993-995). The act authorizes any statutory or home
rule charter city to offer a business subsidy to a business so long as that sub-
sidy serves a public purpose. This public purpose may be increasing the tax
base, but other public purposes generally related to economic development
are also valid. '
Under the act, a business subsidy means a state or local government agency
grant, contribution of personal property, real property, infrastructure, the prin-
cipal amount of a loan at rates below those commercially available to the re-
cipient, 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 act, as amended, provides for certain exceptions identified in the statute,
most notable of which is 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 prior to the amended law.
The key provisions of the Business Subsidies Policy are:
➢ 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 may consider; to clarify that sub-
sidies must be the minimum necessary assistance to allow the project to
proceed; and to provide that the city witl 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, includ-
ing such things as: a demonstrated increase in tax base; reduction of
blight; increase in employment; retention of jobs; specific wage and job
goals; etc.
➢ Required content for Business Subsidy Agreements.
➢ Reporting requirements, application process and procedure.
Current Circumstances
On June 24, 2013, the Prior Lake City Council approved Resolution 13-076,
directing the Economic Development Authority (EDA) to hold a Public Hearing
on Amending the Business Subsidies Policy.
The EDA held a public hearing on July 15, 2013 to review and discuss possible
amendments to the current City of Prior Lake Business Subsidies Policy; no
public comments were received during the hearing. The EDA recommended
the City Council approve of the proposed amendments to the Business Subsi-
dies Policy.
The purpose of the proposed amendments to the Business Subsidies Policy
is to ensure compliance with State Stature requirements and to eliminate un-
necessary reporting requirements. The proposed amendments are attached
for Council review; major amendments include:
➢ A definition section was added so key terms used within the policy have a
clear definition.
➢ Removal of the references to the "but for" test. The reference to but for is
a term typically used only in reference to TIF districts; the development
would not occur but for the use of TIF (or other financial support). These
references were removed because the term but for does not appear in the
State Statute regulating local and state business subsidies.
➢ An Intent to Retain Flexibility section was added. This section clarifies that
the city has the option, as allowed by State Statute, to amend or waive
sections of the policy when it is determined to be necessary and/or appro-
priate.
➢ The policy was amended to provide that any subsidy of $150,000 or more
would be considered a business subsidy. The Business Subsidies Policy
currently defines any financial assistance of $25,000 or more as a business
subsidy. This amendment is proposed to mirror the State Statute definition
of a business subsidy.
➢ The policy was amended to clarify that any subsidy provided by the city of
$150,000 or more would require the recipient to enter into a business sub-
sidy agreement and comply with reporting requirements in accordance with
State Statute. Presently, any subsidy of any amount provided by the city is
considered a business subsidy requiring the recipient to enter into a sub-
sidy agreement and meet the reporting requirements. State Statute only
requires a recipient enter into a subsidy agreement and meet the reporting
requirements if the subsidy is $150,000 or more. The proposed amend-
ment does reserve the right for the city to require recipients of a subsidy of
less than $150,000 to be subject to the subsidy agreement and reporting
requirements. This amendment is proposed to mirror State Stature require-
ments and improve the city's competitiveness with surrounding communi-
ties.
➢ The definition of Business Subsidy was amended to match the definition in
State Statute.
2
➢ The amended policy identifies forms of financial assistance which are not
considered a business subsidy in State Statute. This information was
added to provide clarification on what the city considers and does not con-
sider a business subsidy.
➢ The minimum wage for a job to be considered a new or retained job was
previously set at $13.00/hour, exclusive of benefits. Staff amended the
wage language so the minimum wage will adjust based on cost of living
and inflation modifications and will adjust annually without the need to
amend the policy. The revised minimum wage requirement for a job to be
considered a new or retained job is proposed to be established at 120% of
the federal 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 federal poverty level has increased by an average of 2.5%
each year over the past ten years.
➢ The Business Subsidy Agreement language was amended to mirror the
language in MN State Statute.
➢ The Reporting Requirements section was amended to mirror the language
in MN State Statute.
➢ References to specific fees based on the type of application received were
deleted. Instead staff has proposed to include language stating a fee,
based on the City of Prior Lake Official Fee Schedule, which is adopted
annually, shall accompany any TIF, tax abatement, and loan or grant re-
quest application to cover the city's initial legal, administrative and planning
costs. Because the fees are not specified in the policy, the EDA and City
Council will have the option to amend these fees annually without the need
to amend the Business Subsidies Policy.
Conclusion
The City Council should review the proposed amendments to the Business
Subsidies Policy and recommend revisions as it deems appropriate. The EDA
recommended approval of the proposed amendments to the Business Subsi-
dies Policy after public hearing on July 15, 2013.
ISSUES: The EDA and City Council have expended considerable time and effort to iden-
tify ordinance requirements in Prior Lake which exceed the standards in other
communities and in doing so make Prior Lake less competitive for economic
development. This review of our business subsidies policy may be viewed as
analogous. The business subsidies policy should not contain needless provi-
sions which render Prior Lake less competitive than its neighbors in the area
of economic development.
The proposed amendments are intended to accomplish various objectives.
Some are to ensure that the Business Subsidies Policy corresponds with cur-
rent statutory guidelines while others liberalize some of the city's guidelines,
such as the city's present interpretation that a business subsidy of virtually any
3
amount must comply with business subsidy agreement and reporting require-
ments (while the State Statute only has this requirements for assistance of
$150,000 or more).
The amended Business Subsidies Policy does not specify specific application
fees. The amended policy states a fee, based on the City of Prior Lake Official
Fee Schedule, which is adopted annually, shall accompany any TIF, tax abate-
ment, and loan or grant request application to cover the city's initial legal, ad-
ministrative and planning costs. The Council may wish to further evaluate ap-
plication fees when the 2014 fee schedule is adopted.
FINANCIAL Less staff time will be spent on meeting reporting requirements of the State.
IMPACT: The policy will be clearer and help Prior Lake compete with other communities
resulting in greater tax base and jobs in the city.
ALTERNATIVES: 1. Motion and a second to approve the proposed amendments to the City of
Prior Lake Business Subsidies Policy as proposed, or with changes spec-
ified by the City Council.
2. Motion and a second denying the proposed amendments to the City of
Prior Lake Business Subsidies Policy based on specific findings.
3. Motion and a second to table or continue discussion of the item for a spe-
cific purpose.
RECOMMENDED Staff recommends Alternative #1
MOTION: � •
ATTACHMENTS: 1. City of Prior Lake Business Subsidies Policy (Redline)
2. City of Prior Lake Business Subsidies Policy (Clean)
4
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4646 Dakota Street SE
'�Nr„�so'��' Prior Lake, MN 55372
RESOLUTION 13-xxx
A RESOLUTION ADOPTING AMENDMENTS TO THE
CITY OF PRIOR LAKE BUSINESS SUBSIDIES POLICY
Motion By: Second By:
WHEREAS, In 1999, the Minnesota State Legislature adopted the Business Subsidy Act (Minnesota
Statutes, Section 116J.993-995); and
WHEREAS, The Business Subsidy Act authorizes any statutory or home rule charter city to offer a
business subsidy to a business so long as that subsidy serves a public purpose; and
WHEREAS, The Prior Lake City Council adopted the City of Prior Lake Business Subsidies Policy on
October 18, 2004; and
WHEREAS, The Prior Lake Economic Development Authority held a public hearing to review
proposed amendments to the Business Subsidies Policy on July 15, 2013 followed by a
recommendation to approve the proposed amendments; and
WHEREAS, The Prior Lake City Council reviewed the proposed amendments to the Business
Subsidies Policy on August 12, 2013.
NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE,
MINNESOTA as follows:
1. The recitals set forth above are incorporated herein.
2. The proposed amendments to the City of Prior Lake Business Subsidies Policy are hereby adopted.
PASSED AND ADOPTED THIS 12th DAY OF AUGUST, 2013.
YES NO
Hedbe Hedbe
Keene Keene
McGuire McGuire
Morton Morton
Souku Souku
Frank Boyles, City Manager
http://splash/teamslamlQctober4 2010/August 12, 20131Business Subsidies Policy - Res.docx
City of Prior Lake, Minnesota
Business Subsidies Policy
Adopted; Date:
Prior Lake City Council Oct. 18, 2004
I Amended: Date:
Prior Lake Citv Council
City of Prior Lake
I 4646 Dakota Street SE .
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Prior Lake, MN 55372
I (952) 447-98138a
CITY OF PRIOR LAKE
POLICY AND PROCEDURES RELATING TO
THE USE OF BUSINESS SUBSIDIES
I. DEFINITIONS
Terms used in this Policv are intended to have the same meaninq as used in the MN
Business Subsidv Law and this Policv shall apply only with respect to subsidies qranted
under MN Business Subsidv Law if and to the extent required therebv. For the purposes
of this document the following definitions apply:
Benefit Date "Benefit Date" means the date that the recipient receives the business
subsidv If the business subsidy involves the purchase lease or donation of physical
equipment then the benefit date beqins when the recipient puts the equipment into
service If the business subsidv is for improvements to propertv then the benefit date
refers to the earliest date of either:
(1) When the improvements are finished for the entire proiect; or
(2) When a business occupies the propertv If a business occupies the property and
the subsidv grantor expects that other businesses will also occupv the same
property the qrantor mav assiqn a separate benefit date for each business when_
it first occupies the property.
Citv "Citv" includes the Prior Lake Citv Council and/or Prior Lake Economic Development
Authoritv.
Grantor "Grantor" means any state or local qovernment aqencv with the authoritv to qrant
a business subsidy.
Recipient "Recipient" means any for-profit or nonprofit business entitv that receives a
business subsidv Only nonprofit entities with at least 100 full-time equivalent positions
and with a ratio of hiqhest to lowest paid emplovee that exceeds ten to one, determined
on the basis of full-time equivalent positions are included in this definition.
State "State" means anv State of Minnesota aqencv that has the authoritv to award
business subsidies.
PURPOSE
This policy establishes guidelines and criteria regarding the use of business subsidies,
� such as tax increment financing ("TIF"), tax abatement, loans 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 — 116J.995 ("MN Business Subsidy Law") and policies and
guidelines with respect to any particular form of subsidy.
The fundamental purpose of providinq business subsidies in the City of Prior Lake is to
encourage desirable development or redevelopment that ma not otherwise occuri
"� ����"�I�e-as�is���-s ° ���"����� �^ ��+ ����++., not to enhance the return on
investment for individual projects �a��ea'�—or"�r�i�e e��r�—��r—�e f°-�°�
� Anyone �'°��°'^�°r 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 shatl 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.
While it is recoqnized that the creation of qood payinq lobs is a desirable qoal that benefits
the citY it must also be recoqnized that not all proiects assisted with business sub�idies
derive their public purposes solely bv virtue of lob creation. The Citv believes that each
economic development opportunitv offers its own unique benefit to the city, whether it be
retail commercial or industrial in nature These benefits mav be in the form of added tax
base new or retained iobs hiqher incomes overall investment in the area, business
diversification and/or increased economic activitv and vitality. It is the desire of the Citv to
promote iob creation redevelopment and investment in the city as well as to expand the
city's tax base and diversify the citv's industrial commercial and retail base.
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.
-°::;E�. INTENT TO RETAIN FLEXIBILITY
Because it is not possible to anticipate everv tvpe of proiect that may provide benefit to
the City of Prior Lake the CitY shall retain the option to amend or waive sections of this
policy when it is determined to be necessary and/or appropriate. Minnesota Statute
116J 994 Subd 2 allows the Citv to deviate from its criteria bv documentinq in wntinq the
I reason for the deviation and attachinq a copy of the document to its next annual report to
the State.
=''-'` DEFINITION OF "BUSINESS SUBSIDY"
� The following types of assistance ' , . re defined as a"business
subsidy" within the MN Business Subsidy Law:
• A�state or,a� local government agency grants;
• Contributions of personal property, real property, or infrastructure;
• The principal amount of a loan at rates below those commercially available to the
recipient; �
��
• A��reductions or deferrals of a�taxes or fee�;
• A�6guarantees of any payment under any loan, lease, or other obligation; or
. A��preferential use of government facilities aiven to a business.
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.
Minnesota Statute 116J 993 Subd. 3 as amended from time_to time, identifies forms of
financial assistance which are not considered a business subsidv; includinq: �
(1) A business subsidv of less than $150,000;
(2} Assistance that is qenerallv available to all businesses or to a qeneral class of
similar businesses such as a line of business size location, or similar qeneral
criteria;
(3) Public improvements to buildinqs or lands owned by the state or local qovernment
that serve a public purpose and do not principally benefit a sinqle business or
defined qroup of businesses at the time the improvements are made;
I (4) Redevelopment property polluted bv contaminants as defined in Minnesota
Statute 116J.552, subd. 3;
(5) Assistance provided for the sole purpose of renovatinq old or decavinq buildinq
stock or brinqinq it up to code and assistance provided for desiqnated historic
�reservation districts provided that the assistance is equal to or less than 50
percent of the total cost;
I (6) Assistance to provide iob readiness and traininq services if the sole purpose of
the assistance is to provide those services;
(7) Assistance for housinq;
(8) Assistance for pollution control or abatement includinq assistance for a tax
increment financinq hazardous substance subdistrict as defined under Minnesota
Statute 469.174, subd. 23;
I (9) Assistance for enerqy conservation;
I (10) Tax reductions resultinq from conformitv with federal tax law;
I (11) Workers' compensation and unemployment insurance;
� (12) Benefits derived from requlation;
I (13) Indirect benefits derived from assistance to educational institutions;
(14) Funds from bonds allocated under Minnesota Statute chapter 474A, bonds
issued to refund outstandinq bonds and bonds issued for the benefit of an
orqanization described in section 501(c)(3) of the Internal Revenue Code of 1986,
as amended throuqh December 31, 1999;
(15) Assistance for a collaboration between a Minnesota hiqher education institution
I and a business;
(16) Assistance for a tax increment financinq soils condition district as defined under
I Minnesota Statute 469.174, subd. 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;
I (18) General chanqes in tax increment financinq law and other qeneral tax law
chanqes of a principallv technical nature;
I (19) Federal assistance until the assistance has been repaid to, and reinvested bv,
the state or local qovernment aqency;
� (20) Funds from dock and wharf bonds issued by a seaway port authoritv;
I (21) Business loans and loan quarantees of $150,000 or less;
I (22) Federal loan funds provided throuqh the United States Department of Commerce,
Economic Development Administration; and
(23) Propertv tax abatements qranted under Minnesota Statute 469.1813 to propertv
that is subiect to valuation under Minnesota Rules, chapter 8100.
, . ,
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;'�' `:'. 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. If the stated public
purpose is to retain jobs, R°�����° ?± ic rorY�iirorJ h" the MN Business Subsidy Law
�_. __ _,
requires ,� , 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 a#es�effect and other unsubsidized -
businesses will locate to the area.
� • To achieve development on sites that ma v�e�-I� 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.
-- . 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 recipient�e� 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. Anyone �'°���� 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. An applicant �'°��-�;� 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.
I . +ho r�+., o
G. If requested by the City or its consultants, ��-�����sr-+�, t e
applicant�eue�e�e-� 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 applicantde�eEepe-� 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.
� I. If requested by the City, or its consultants, the applicant�°"� 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.
�
- e . 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/or a significant improvement in quality employment.
B. The project must be consistent with the City's Comprehensive Plan, Land Use
Plan, and Zoning Ordinances.
G` Tho r; -��o�± .�,��+ ro����f_;n +►,o proiects that result in the retention of existing jobs
that may v�e-��e lost without�e-F the proposed development, or result in an
increase and diversification in local jobs that ma _not otherwise occur
without, °"� �--p�" the proposed development will be stronqly considered.
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 after the Benefit Date to meet the job and wage goals established by
the City. The City's qoal in this area is to assist in the creation of iobs at waqe and
b enefit levels that will support families. The minimum wage for a job to be
considered a new or retained job shall be established at 120% of the federal
poverty level for a family of four as determined annually by the U. S. Department
of Health and Human Services . , 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.
In projects where a business subsidv provided by the City is secondarv to a
business subsidy provided bv another qrantinq agencv such as the State or
federal qovernment the waqe quidelines set by that aqency shall be used.
E. Business subsidies will not be given to commercial/industrial projects or
I applicants�°��°a '�� 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.
���.',;`, BUSINESS SUBSIDY AGREEMENT
qnyone �^^" �'�����^^ . receiving a business subsidy of $150,000 or more r°^°r�„°°°
�r.�,,. ,.;�,. �.F +h�,+ �„h ;.�,,, shall be subject to the subsidy agreement set forth by the MN
nrJ i imm�+ri�orl holn�ei
Business Subsidy Law. �,........ The Citv reserves the riqht to require
anyone receivinp a business subsidy of less than $150 000 to be subiect to the subsidy
aqreement set forth bv the MN Business Subsidv Law and summarized below:
�1) A description of the subsidv includinq the amount and tvpe of subsidv, and tvpe
of district if the subsidy is tax increment financinq;
(2) A statement of the public purposes for the subsidv;
(3) Measurable specific and tanqible qoals for the subsidv. At a minimum, the
aqreement will outline the number of iobs created or retained and the waqe qoals
for each of those jobs. ,
(4) A description of the financial obliqation of the recipient if the qoals are not met;
�5) A statement of whv the subsidv is needed;
( 6) A commitment to continue operations in the jurisdiction where the subsidv is used
for at least five vears 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 proiect.
Business subsidies in the form of grants will be structured as forqivable loans. For other
tvpes of business subsidies the aareement will state the fair market value of the subsidy
to the recipient includinq the value of convevinq propertv at less than a fair market price,
or other in-kind benefits to the recipient.
If a business subsidy benefits more than one recipient the City will assiqn a proportion of
the business subsidy to each recipient that siqns a subsidv aqreement. The proportion
assessed to each recipient will reflect a reasonable estimate of the recipient's share of
the total benefits of the proiect.
The subsidy aqreement will specify the recipient's obliqation if the recipient does not fulfill
the aqreement At a minimum the aqreement will require a recipient failin4 to meet
subsidv aqreement qoals to paY back the assistance plus interest to the Citv, provided
that repayment mav be prorated to reflect partial fulfillment of qoals. The interest rate
must be set at no less than the implicit price deflator for qovernment consumption
expenditures and qross investment for state and local qovernments prepared by the
Bureau of Economic Analvsis of the United States Department of Commerce for the_12-
month period endinq March 31 of the previous vear The City after a public hearinq, may
extend for up to one vear the period for meetinq the waqe and iob qoals provided in the
subsidy aqreement The City mav extend the period for meetinq other qoals bv
documentinq in writinq the reason for the extension and attachinq a copv of the document
to its next annual report to the State.
A recipient that fails to meet the terms of a subsidy aqreement mav not receive a business
subsidv from anv Grantor for a period of five vears from the date of failure o u ntil a
recipient satisfies its repayment obliqation under this subdivision whichever occurs first.
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°.'-� � :' REPORTING REQUIREMENTS
Anyone �^^" �'°��°'^^°r receiving a business subsidy of $150,000 or more , r°^��
„f +,�� c nf +h -.+ � shall be subject to the subsidy reporting requirements set forth
by the MN Business Subsidy Law The City reserves the riqht to require anvone receivinq
a business subsidy of less than $150 000 to be subiect to the subsidy reportinq
requirements set forth by the MN Business Subsidy Law and summarized below:
A recipient must provide information reqardinq qoals and results for two vears after the
Benefit Date or until the qoals are met whichever is later. If the qoals are not met, the
recipient must continue to provide information on the subsidv until the subsidv is repaid.
The information must be filed on forms approved by the City. The report must include:
(1) The tvpe public purpose and amount of subsidies and tvpe of district, if the
subsidy is tax increment financinq;
(2) The hourly waqe of each lob created with separate bands of waqes;
(3) The sum of the hourly waqes and cost of health insurance provided bv the
employer with separate bands of waqes�
�4) The date the iob and waqe qoals will be reached;
�5) A statement of qoals identified in the subsidv aqreement and an update on
achievement of those qoals;
(6) The location of the recipient prior to receivinq the business subsidy;
(7) The number of employees who ceased to be emploved bY the recipient if the
recipient relocated to become eliqible for the business subsidy;
(8) Whv the recipient did not complete the proiect outlined in the subsidv aqreement
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 proiect; and
(11) Other information the City or State may request.
A report must be filed no later than March 1 of each vear for the previous vear. The Citv
must forward copies of the reports received bv recipients to the State by April 1, or as
may otherwise be required bv the State.
If the recipient does not submit its report the Citv must mail the recipient a warninq within
one week of the required filinq date If after 14 davs of the postmarked date of the
warninq the recipient fails to provide a report the recipient must pay to the City a penalty
I of $100 for each subsequent day until the report is filed. The maximum penalty shall not
exceed $1,000.
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:x:,-'."� 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 & Economic
Development Director, or designee. A fee based on the City of Prior Lake Official
Fee Schedule, which is adopted annually, , . shall accompany any Tax
Increment Finance, Tax Abatement, loan or grant 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.
BUSINESS SUBSIDIES POLICY
Adopted October 18, 2004
Amended August 12, 2013
DEFINITIONS
Terms used in this Policy are intended to have the same meaning as used in the MN Business Subsidy Law
and this Policy shall apply only with respect to subsidies granted under MN Business Subsidy Law if and to
the extent required thereby. For the purposes of this document, the following definitions apply:
Benefit Date. "Bene�t 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 i
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.
City. "City" includes the Prior Lake City Council and/or Prior Lake Economic Development Authority.
Grantor. "Grantor" means any state or local government agency with the authority to grant a business
subsidy. �
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.
State. "State" means any State of Minnesota agency that has the authority to award business subsidies.
PURPOSE
This policy establishes guidelines and criteria regarding the use of business subsidies, such as tax
increment financing ("TIF"), tax abatement, loans 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 —116J.995 ("MN Business Subsidy
Law") and policies and guidelines with respect to any particular form of subsidy.
The fundamental purpose of providing business subsidies in the City of Prior Lake is to encourage desirable
development or redevelopment that may not otherwise occur; not to enhance the return on investment
for individual projects.
Anyone 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
City of Prior Lake
Business Subsidies Policy
1
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.
While it is recognized that the creation of good paying jobs is a desirable goal that benefits the city, it
must also be recognized that not all projects assisted with business subsidies derive their public purposes
solely by virtue of job creation. The City believes that each economic development opportunity offers its
own unique benefit to the city, whether it be retail, commercial or industrial in nature. These benefits
may be in the form of added tax base, new or retained jobs, and higher incomes, overall investment in
the area, business diversification and/or increased economic activity and vitality. It is the desire ofthe City ,
to promote job creation, redevelopment and investment in the city as well as to expand the city's tax base �'
and diversify the city's industrial, commercial and retail base.
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.
INTENT TO RETAIN FLEXIBILITY
Because it is not possible to anticipate every type of project that may provide benefit to the City of Prior
Lake, the City shall retain the option to amend or waive sections of this policy when it is determined to be
necessary and/or appropriate. Minnesota Statute 116J.994, Subd. 2 allows the City to 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 State.
DEFINITION OF "BUSINESS SUBSIDY"
The following types of assistance are defined as a"business subsidy" within the MN Business Subsidy Law:
1. A state or local government agency grant;
2. Contribution of personal property, real property, or infrastructure;
3. The principal amount of a loan at rates below those commercially available to the recipient;
4. Any reduction or deferral of any tax or fee;
5. Any guarantee of any payment under any loan, lease, or other obligation; or
6. Any preferential use of government facilities given to a business.
In any case where the value of the business subsidy is indeterminate, the City witl make a good faith
determination of the value of the subsidy.
City of Prior Lake
Business Subsidies Policy
2
Minnesota Statute 116J.993, Subd. 3, as amended from time to time, identifies forms of financial
assistance which are not considered a business subsidy; including:
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 Minnesota Statute 116J.552, ,
subd. 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 Minnesota Statute 469.174, subd. 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;
14. Funds from bonds allocated under Minnesota Statute, 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 Minnesota
Statute 469.174, subd. 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 through the United States Department of Commerce, Economic
Development Administration; and
23. Property tax abatements granted under Minnesota Statute 469.1813 to property that is subject
to valuation under Minnesota Rules, chapter 8100.
City of Prior Lake
eusiness Subsidies Policy
3
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:
1. To retain local jobs and/or increase the number and diversity of jobs that offer stable employment
and/or attractive wages and benefits. If the stated public purpose is to retain jobs, the MN
Business Subsidy Law requires there must be a showing that job loss in the affected area is specific
and demonstrable. '
2. To enhance and diversify the City of Prior Lake's tax base. '
3. 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 effect
and other unsubsidized businesses will locate to the area.
4. To achieve development on sites that may not be developed without business subsidies
assistance.
5. 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.
6. To offset increased costs of development of specific properties when the unique physical
characteristics of the site may otherwise preclude private investment.
GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES
A. Business subsidy assistance will be provided from the City, by a"pey-as-you-go" note method, to the
recipient 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. Anyone 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 normalty be
where the acquisition price is more than 10% in excess of market value as determined by an
independent appraiser.
D. An applicant 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.
City of Prior lake
Business Subsidies Policy
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G. If requested by the City, or its consultants, the applicant 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 applicant 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. I
I. If requested by the City, or its consultants, the applicant 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.
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/or 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. Projects that result in the retention of existing jobs that may be lost without the proposed
development, or result in an increase and diversification in local jobs that may not otherwise occur
without the proposed development will be strongly considered.
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 after the Benefit Date to meet the job and wage
goals established by the City. The City's goal in this area is to assist in the creation of jobs at wage and
bene�t levels that will support families. The minimum wage for a job to be considered a new or
retained job shall be established at 120% of the federal poverty level for a family of four, as
determined annually by the U. S. Department of Health and Human Services, 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.
In projects where a business subsidy provided by the City is secondary to a business subsidy provided
by another granting agency, such as the State or federal government, the wage guidelines set by that
agency shall be used.
E. Business subsidies will not be given to commercial/industrial projects or applicants 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.
City of Prior Lake
Business Subsidies Policy
5
BUSINESS SUBSIDY AGREEMENT
Anyone receiving a business subsidy of $150,000 or more shall be subject to the subsidy agreement set
forth by the MN Business Subsidy Law. The City reserves the right to require anyone receiving a business
subsidy of less than $150,000 to be subject to the subsidy agreement set forth by the MN Business Subsidy
Law and summarized below:
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 forthe subsidy. At a minimum, the agreement will outline
the number of jobs created or retained and the wage goals for each of those jobs.
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.
Business subsidies in the form of grants will be structured as forgivable loans. For other types of business
subsidies, the agreement will 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.
If a business subsidy benefits more than one recipient, the City will assign a proportion of the business
subsidy to each recipient that signs a subsidy agreement. The proportion assessed to each recipient will
reflect a reasonable estimate of the recipient's share of the total benefits of the project.
The subsidy agreement will specify the recipient's obligation if the recipient does not fulfill the agreement.
At a minimum, the agreement will require a recipient failing to meet subsidy agreement goals to pay back
the assistance plus interest to the City, 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 City, after a public hearing, may extend for up to one year the period
for meeting the wage and job goals provided in the subsidy agreement. The City may extend the period
for meeting other goals by documenting in writing the reason for the extension and attaching a copy of
the document to its next annual report to the State.
A recipient that fails to meet the terms of a subsidy agreement may 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.
REPORTING REQUIREMENTS
Anyone receiving a business subsidy of $150,000 or more shall be subject to the subsidy reporting
requirements set forth by the MN Business Subsidy Law. The City reserves the right to require anyone
receiving a business subsidy of less than $150,000 to be subject to the subsidy reporting requirements set
forth by the MN Business Subsidy Law and summarized below:
City of Prior Lake
Business Subsidies Policy
6
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 approved
by the City. 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 if the recipient relocated
to become eligible for the business subsidy;
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 City or State may request.
A report must be filed no later than March 1 of each year for the previous year. The City must forward
copies of the reports received by recipients to the State by April 1, or as may otherwise be required�by
the State.
If the recipient does not submit its report, the City 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 City a penalty of $100 for each subsequent day until the
report is filed. The maximum penalty shall not exceed $1,000.
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 & Economic Development Director, or designee. A fee,
based on the City of Prior Lake Official Fee Schedule, which is adopted annually, shall accompany any
Tax Increment Finance, Tax Abatement, and loan or grant 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.
Ciry of Prior Lake
Business Subsidies Policy
7