HomeMy WebLinkAbout7A - Business Subsidy Policy
16200 Eagle Creek Avenue S.E.
Prior Lake, MN 55372-1714
CITY COUNCIL AGENDA REPORT
MEETING DATE:
AGENDA #:
PREPARED BY:
August 16, 2004
7A
John Sullivan, Community Development Director
AGENDA ITEM:
PUBLIC HEARING TO CONSIDER ADOPTION OF BUSINESS SUBSIDY
POLICY
DISCUSSION:
Historv: The 2020 Vision and Strategic Plan emphasizes community development
as one of the vision elements. Accordingly, in 2004 the City Council added to the
city's community development resources by hiring a Community Development
Director whose primary mission is to work with businesses to promote retention
and new development.
Over the last six months, in addition to working on almost two dozen business
deals, I have been evaluating the city's community development policies. My
findings are that the Tax Increment Financing Policy needs to be updated. A
separate agenda item addresses the Tax Increment Finance Policy. The city
does not presently have a Business Subsidy Policy. The adoption of such a
policy is important and is the purpose of this agenda report.
In 1999 the State Legislature adopted the "Business Subsidy Act". Under the law,
the city is providing a business subsidy when it: contributes personal property,
real property, infrastructure, a loan at rates below those commercially available, a
reduction or deferral of any tax or fee, any guarantee to pay all or a portion of any
loan, lease or other obligation or preferential use of any government facility.
There are 18 exceptions enumerated by the statute. Four of them are noteworthy.
A business subsidy does not include: 1. a contribution valued at $25,000 or less;
2. assistance for housing; 3. assistance for energy conservation and; 4. tax
increment financing for a soil conservation district.
Current Circumstances: I believe that to improve our economic development
efforts we will need to offer business subsidies as defined by the law.
Accordingly, it will be necessary for the Prior Lake Economic Development
Authority (EDA) and the City Council to consider and adopt a Business Subsidy
Policy.
The key provisions of the Business Subsidy Policy (attached) are:
1. The purpose of the policy is to establish guidelines and criteria for providing a
business subsidy; to define the types of business subsidy which the City Council
may consider; to clarify that subsidies are needed to be the minimum necessary
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Report. DOC www.ciiyofpriorlake.com
Phone 952.447.4230 / Fax 952.447.4245
assistance to allow the prospect to proceed; and to provide that the City Council
will review each application on a case by case basis.
2. Business subsidies are defined in accordance with the law.
3. Clarifies that business subsidies must achieve one or more of the "public
purposes" defined in this section.
4. A section defines general policies for use of business subsidies. For example,
"pay as you go" tax increment is preferred. Petitioners are expected to
demonstrate a significant cash equity position in subsidized projects. Petitioners
must be able to demonstrate the marketability of the proposed project; that it will
not create an unfair advantage over similar existing projects; and that the project
will not negatively affect city infrastructure, etc.
5. 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; and the like.
6. The last two sections of the policy outline the Business Subsidy Agreement,
reporting requirements and process and procedures for considering such
applications.
Conclusion: The City Council should conduct a public hearing on the proposed
Business Subsidies Policy and refine the policy as appropriate.
ISSUES:
The proposed policy has been written to facilitate city compliance with the
Business Subsidies Act while maintaining the status quo with respect to the types
of subsidy. The Council has been comfortable with this in the past. If the City
Council believes that elements of the policy do not achieve these objectives, they
should be discussed at the public hearing.
The policy is written to allow the City Council to consider subsidies on a case by
case basis. The policy is written to prohibit certain kinds of impacts. For example,
if a subsidy request is received which will clearly create competition from an
existing non-subsidized business, or one which places a significant demand upon
infrastructure, both are prohibited from consideration from this policy. Is the
Council comfortable with this approach? Should other prohibitions be included?
The policy could be revised to "standardize" the amount of Tax Increment offered.
As written, the policy allows the Council flexibility to consider appropriateness on a
case by case basis. The Council may wish to address this issue.
The policy, as written, would require a party requesting a subsidy to reguide or
rezone property where necessary, before submitting a subsidy request. This
provision will encourage projects in conformance with the comprehensive plan
and zoning ordinance but will discourage those that require changes. Is the
Council comfortable with this approach?
ALTERNATIVES:
1. Adopt the policy as proposed.
2. Adopt the policy with modifications.
3. Close the public hearing and refer the policy back to the Prior Lake EDA for
additional discussion and input.
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4. Take no action.
RECOMMENDED
MOTION:
Since this policy is intended to be used both by the City and EDA, it would be
appropriate to refer the policy to the EDA for input. Once the EDA has reviewed
and commented upon the pol' y, the City Council could adopt it at a September
2004 meeting.
REVIEWED BY:
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City of Prior Lake, Minnesota
DRAFT #1
Business Subsidies Policy
Adopted:
Economic Development Authority
Prior Lake City Council
DATE:
Amended:
City of Prior Lake
16200 Eagle Creek Avenue S.E.
Prior Lake, :MN 55372
(952) 447-4230
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" shall include the Prior Lake City Coumil and Emnomic
Development Authority.
The purpose of this policy is to establish guidelines and criteria regarding the use of business
subsidies, such as tax increment fmancing (TIF), tax abatement, and other business subsidies
for private development projects within the City of Prior Lake and shall be in addition to the
requirements and limitations set forth by provisions of Minnesota State Statute 116J.993
(MN Business Subsidy Law), and by the City's policy and guidelines of the particular form of
subsidy.
These guidelines shall be used in processing and reviewing applications requesting business
subsidies assistance. 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 provided through business subsidies.
It is the intent of the City to provide business subsidies, as well as other incentives that the
City may deem appropriate, at the shortest term required for the project to 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 received from a proposed project. Meeting policy guidelines
or other criteria does not guarantee the award of business subsidies. Furthermore, the
approval or denial of one project is not intended to set precedent for approval or denial of
another project.
Whenever possible it is the City's intent to coordinate the use of business subsidies with
other applicable taxing jurisdictions.
II. DEFINITION OF "BUSINESS SUBSIDY"
The following types of assistance having a value in excess of $25,000 are defmed as a
"business subsidy" within the MN Business Subsidy Law:
. State and local government agency grants;
. Contributions of personal property, real property, or infrastructure;
City of Prior Lake Business Subsidies Policy
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· The principal amount of a loan that exceeds $75,000 at rates below those
commercially available;
. Reductions or deferrals of taxes or fees;
. Guarantees of any payment under any loan, lease, or other obligation; and,
. Preferential use of government facilities.
III. 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 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.
. To enhance and diversify the City of Prior Lake's tax base.
. To encourage additional unsubsidized private development in the area, either
direcdy or indirecdy through "spin off" development.
. To achieve development on sites which 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.
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"
method, to the developer if the business subsidy is tax increment fmancing or tax
abatement. Requests for up front fmancing will be considered on a case-by-case
basis, but are to be considered the exception rather than the rule.
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.
C. Business subsidy 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 100/0 in excess of
market value, but the City has the right to use discretion in determining value and
the overall project impacts/benefits will be considered..
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D. A developer must be able to demonstrate to the City, or, if applicable, to the
underwriting authority, a market-demand for a proposed project. Such market
demand demonstration can consist of market studies supporting the development
proposal, pre-leasing or leasing commitments for at least 500/0 of the proposed
project, other forms of research/ study that documents the need, or other evidence
that may be acceptable to the City.
E. Business subsidy will not be used in cases where the subsidy would create an unfair
and significant competitive fmancial advantage over other similar projects in the area.
F. Business subsidy will not be used for projects that would place extraordinary
demands on city infrastructure and services.
G. If requested by the City, the developer shall provide adequate financial guarantees to
ensure completion of the project, including, but not limited to: assessment
agreements, letters of credit, cash escrows, and personal guaranties.
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.
I. If requested by the City, or its consultants, the developer shall provide sufficient
fmancial, 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.
v. GUIDELINES FOR COMMERCIAUINDUSTRIAL BUSINESS
SUBSIDIES
A. Business subsidies will not be used for on-site retail or service businesses 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 development, a reduction of
blight, and/or an increase in employment.
B. The project must be consistent with the City's Comprehensive Plan, Land Use Plan,
and Zoning Ordinances. If the project is not consistent at the time of application
for Business Subsidy, the applicant must first obtain approval from the City of any
required zoning or comprehensive plan amendments, changes, variances, etc. If the
developer is successful in gaining approvals, then the developer may be eligible to
receive a business subsidy from the city.
C. The project must result in the retention of existing jobs that would be lost "but for"
the proposed development or result an increase and diversification in local jobs.
Business retention jobs will be considered on a one-for-one match to job creation
City of Prior Lake Business Subsidies Policyi
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only in cases where job loss is specific and demonstrable in accordance with the MN
Business Subsidy Law.
D. Specific wage and job goals will be determined by the City 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 $9.00 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 used for commercial/industrial projects that have a
history of inconsistent compliance with applicable environmental rules and
regulations.
VI. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS
Each company receiving a business subsidy shall be subject to a business subsidy agreement
with the City as well as the State of Minnesota and reporting provisions and requirements set
forth by the MN Business Subsidy Law and summarized below:
A. Progress Reports
The recipient shall file a report annually for two years after the receiving the
subsidy or until all goals set forth in the subsidy agreement have been met, which
ever is later. Reports shall be completed using the format drafted by the State of
Minnesota and shall be filed with the City no later than March 1 of each year for
the progress made the previous year.
B. 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.
C. Failure to Comply
Businesses failing to comply with the subsidy agreement will be subject to fmes,
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. 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. A fee of $1,500.00 shall accompany any Tax
Abatement, or grant request to cover the City's legal, administrative, and planning
costs. The fee for Tax Increment Finance subsidy shall be $12,000. If additional
amounts are required to reimburse the city for its costs, the applicant shall be
City of Prior Lake Business Subsidies Policy
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responsible for those costs. If there is an unused portion of the $12,000 fee, the City
will reimburse the applicant for any unused costs at its discretion.
Following a review by appropriate City Staff, the application shall be referred to the
either the Economic Development Authority or City Council for further action.
B. 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.
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