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HomeMy WebLinkAbout8A - Business Subsidy Incentives Policy PRIOR LAKE ECONOMIC DEVELOPMENT AUTHORITY MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: NOVEMBER 15, 1999 8A DONALD RYE, PLANNING DIRECTOR CONSIDER BUSINESS INCENTIVES POLICY DISCUSSION: History Minnesota Statutes 1161.993 through 116J.995 requires that, after August 1, 1999, any local government agency granting subsidies or incentives to businesses may do so only after adopting criteria for granting such incentives. A public hearing must be held on the criteria before adoption. The law allows considerable flexibility to local governments in developing these criteria but requires that subsidies must meet a public purpose. Job retention can only be used as a public purpose when the job loss is imminent and reasonably demonstrable. While the law does not require that these public purposes be addressed in the criteria, there is nothing to prevent the City from doing so and, in fact, it is probably advantageous to do so as the reasoning behind the criteria is more clear. As used in the statute, the term subsidy has a broad meaning. Subsidies include the following: · State or local agency grants to businesses. · Tax increment financing assistance. · Reduction or deferral of taxes or fees. . Tax abatement · Contributions of real or personal property. · Loan rates below commercially available rates. · Guarantees of payments under any loan or lease. · Preferential use of government facilities or property. There are 18 specific activities listed in Minnesota Statutes 116.1.993, Subd. 3 (copy attached) which are not considered subsidies. In establishing the criteria to be used in evaluating potential subsidies or incentives, the statute gives very little direction, 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER other than to require that the criteria contain a wage policy for any jobs which are created through the subsidy. As a result, the City has considerable discretion in developing the criteria and the degree of specificity of these criteria. Attached is a copy of the policy recently adopted by Scott County in response to the statutory requirements. The EDA members may recall that they reviewed the draft of this policy at the September meeting. Current Circumstances Staff believes there are 5 public purposes which can be supported by this incentive policy. These include: · Enhancing economic diversity · Assisting high quality job growth · Stabilizing the community · Increasing and enhancing the tax base · Aiding in job retention where job loss IS imminent and demonstrable Following are some suggested criteria related to each public purpose. Enhancing economic diversity The business to be assisted is part of a fast-growing industry with a proven track record of stability. The business provides essential consumer services. The assistance will enable the development of a network of local suppliers to existing businesses. Job Growth The assistance enables the creation of new jobs which pay wages at or above those for comparable jobs in the area. There is significant potential for additional job creation in the next 5 years. The jobs created have significant fringe benefits including child care, training and career advancement, health care and pensions. Stabilizing the Community The assistance will advance community goals and policies for redevelopment. Increase the Tax Base The assisted project will constitute a significant addition to the City, County and School District tax base. The assisted project has the potential to reduce individual tax bills. _,,\~NES07' ~. Q} -1 -Trade &- Economic Development FACT SHEET: 1999 Business Subsidies Law Laws of Minnesota 1999, Chapter 243, Article 12; to be codified as Minn. Stat. s116J.993 to s116J.995 What is the 1999 Business Subsidies Law? ,/ Minnesota Statutes (Minn. Stat.) S116J.993 through S116J.995 regulate business subsidy agreements signed on or after August 1,1999, and replace Minn. Stat. S116J.991. ,/ Agencies are no longer subject to reporting requirements for agreements signed under Minn. Stat. S116J.991, but businesses must still comply with agreements signed before August 1, 1999. Who does the law apply to, and for what types of subsidies? ,/ State and local government agencies with the authority to provide business subsidies with state or local government funds, and entities created or authorized by a local government with this authority, are subject to the law. The law gives a complete description of applicable agencies (Le. Ugrantors"). The law covers business subsidies to for-profit businesses, and to nonprofits with at least 100 full- time equivalent positions and a ratio of highest to lowest paid employee, determined on the basis of full-time equivalent positions, exceeding 10 to 1. Types of assistance meeting the definition of a ubusiness subsidy. include: ./ state or local government agency grants; v contributions of personal property, real property, or infrastructure; / the principal amount of a loan at rates below those commercially available; ./ reductions or deferrals of taxes or fees, including tax increment financing (TIF); ~ guarantees of any payment under any loan, lease, or other obligation; · and preferential use of government facilities. The law explicitly excludes 18 types of assistance from the definition of business subsidies, including all awards of less than $25,000. Four of the types of financial assistance excluded from the definition of business subsidies are subject to different reporting requirements under Minn. Stat. S116J.994, subdivision 7. These types of assistance include: property polluted by contaminants as defined in Minn. Stat. S116J.552, subdivision 3 (Le. brownfields); . assistance provided for the sole purpose of renovating building stock or bringing it up to code, if the assistance is 50 percent or less of the total cost; assistance for pollution control or abatement; and assistance for a TIF soils condition district as defined in Minn. Stat. 9469.174, subdivision 19. ,/ ,/ . ,/ ,/ . . . What is required in order to award a business subsidy? ,/ A business subsidy agreement may not be signed on or after August 1, 1999, until the grantor has held a public hearing on, and adopted criteria for, awarding business subsidies. The_c;(ite~rl~_must include a wage policy for iobs creCltE>n hy CI fpcipipot -- ,/ The law outlines 8 elements that must be included in business subsidy agreements: a description of the subsidy, including the amount and type of subsidy, and type of district if the subsidy is TIF; a statement of the public purposes for the subsidy; · goals for the subsidy; . a description of the financial obligation of the recipient if goals are not met; a statement of why the subsidy is needed; . a commitment to continue operations at the site where the subsidy is us~ for five years; . the name and address of the parent corporation of the recipient, if any; . and a list of all financial assistance by all grantors for the project. ,/ All business subsidy agreements must include iob and ~~gP goals with specific Qoals to be attained within two years of the benefit date. The law does not specify minimum criteria for these goals. Department of Trade and Economic Development Page 1 of4 July 27,1999 ISSUES: ALTERNATIVES: RECOMMENDED ACTION: REVIEWED BY: Job Retention The assistance will aid in retaining jobs which will demonstrably be lost without assistance. The assistance will not have an adverse impact on competing businesses in the City. The criteria listed above are not intended to be exhaustive of the possibilities which the EDA may consider for recommendation to the City Council. Rather, they are intended to indicate the types of criteria which might be adopted. Staff believes the criteria should be general in nature as they apply to any of the types of assistance noted above, inasmuch as the types of assistance are broadly defined. EDA members should review the statute, the possible criteria contained in this report and the Scott County Policy (attached) and be prepared to offer any comments at the meeting. 1. Recommend suggested criteria for incorporation in a Prior Lake policy without modification. 2. Recommend specific modifications and additions in the criteria. 3. Continue discussion to future meeting to address specific Issues or concerns. 4. Other action as determined by Commissioners. As deemed appropriate by the Commissioners. The staff will use the EDA direction to prepare a draft policy for consideration at the December meeting. Fact Sheet: 1999 Business Subsidies Law ./ With their reports, DTED will ask grantors to include a list of recipients that did not report, as well as a list of those failing to meet any goals outlined in the agreement and a description of the steps being taken to bring them into compliance or recoup the subsidy. ./ DTED will post an MBAF on DTED's website this fall and mail the form in February. If DTED has not received an MBAF by April 1 from an entity required to report, DTED must issue a warning. If DTED has still not received the MBAF by June 1, the agency in default may not award any business subsidies until the report has been filed. ./ State funds passed through local agencies to businesses (e.g. Minnesota Investment Fund awards) are reported by the state grantor. However, local agencies must report on applicable local funds awarded in conjunction with state funds and on state funds which have been repaid to and reinvested by the local agency (e.g. revolving funds). How is non-business subsidy financial assistance reported? ./ Recipients of the four types of financial assistance with different reporting requirements must provide grantors with the information outlined in Minn. Stat. 9116J.994, subdivision 7(c), and will be subject to a penalty as defined in Minn. Stat. 9116J.994, subdivision 7(d) for failing to report. ./ DTED will ask grantors to report, at a minimum, the information that Minn. Stat. 9116J.994, subdivision 7(c) requires recipients to provide to them on these four types of financial assistance. ./ DTED will determine this fall whether to develop a separate form or ask grantors to use the MBAF for reporting on these agreements. The form(s) will be posted on DTED's website this fall and mailed to agencies in February. As with their business subsidy reports, grantors will have until April 1 to file these reports with DTED. How will information reported by agencies be used? ./ DTED is required to publish a report summarizing information reported through the MBAF each year by July 1. DTED's report must include a 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. Copies of the report will be submitted to the Legislature and posted on DTED's website. Where can I find the law? ./ The business subsidies law can be found on DTED's website at http://www.dted.state.mn.us/busasst /bareport.html and may be printed from your web browser. Clarifications to the law ./ The following clarifications are in response to commonly asked questions about the law: Regarding Minn. Stat. S116J.994, subdivision 7(b), the statute's author agrees that recipients should continue reporting to the granting agency, not to DTED. The granting agency will be responsible for reporting to DTED. DTED will be collecting information only on public funds originating in Minnesota; therefore, DTED will not ask agencies to report on federal funds they administer unless the funds have been repaid to the agency and reinvested according to local policies. This fact sheet is intended to help agencies understand the 1999 business subsidies law, and does not serve as a substitute for statute language. Agencies are responsible for complying with the law and should view the law for questions and specific details and requirements that are not outlined in this fact sheet. Questions about the law can be directed to DTED: Minnesota Department of Trade and Economic Development Analysis and Evaluation Office 500 Metro Square 121 r" Place East St. Paul, MN 55101-2146 Phone: (651) 296-36461 Fax: (651) 215-38411 E-mail: caryn.mohr@state.mn.us www.dted.state.mn.us Department of Trade and Economic Development Page 3 of 4 July 27,1999 Minnesota Statutes 1999, 116J.993 Page 1 of3 Mil)n~sill.fLSt~t!Jtes J222,Iab l~_of ChaQt~[~ I~bl~_QL~Qnt~mt~ fOLCb.i!Pl~Ll16J 116J.993 Definitions. Subdivision 1. Scope. For the purposes of sections 116J.993 to 116J.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 $25,000; (2) assistance that is generally available to all businesses or to a general class of similar businesses, such as a line of business, size, location, or similar general criteria; (3) public improvements to buildings or lands owned by the state or local government that serve a public purpose and do not principally benefit a single business or defined group of businesses at the time the improvements are made; (4) redevelopment property polluted by contaminants as defined in section 116J.552, subdivision 3; (5) assistance provided for the sole purpose of renovating old or decaying building stock or bringing it up to code, provided that the assistance is equal to or less than 50 percent of the total cost; http://www.revisor.leg.state.mn.us/stats/116J/993.htm1 11/9/99 Minnesota Statutes 1999, 116J.994 Page 1 of5 MiI1D~~Qt~StCJJ!lt~$..J992-,...T~lLl~QLCllillJJ~m T~hl~_QfGQIJJ~Dl~fQICJ:un:~l~rUQ,I l16J.994 Regulating local and state business subsidies. Subdivision 1. Public purpose. A business subsidy must meet a public purpose other than increasing the tax base. Job retention may only be used as a public purpose in cases where job loss is imminent 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 must include a policy regarding the wages to be paid for the jobs created. The commissioner of trade and economic development may assist local government agencies in developing criteria. 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) 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 at the site 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. If a business subsidy is not structured as a forgivable loan, 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 http://www.revisor.leg.state.mn.us/stats/116J/994.html 11/9/99 Minnesota Statutes 1999, 116J.994 Page 2 of5 the recipient's share of the total benefits of the project. (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. 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-time or full-time jobs, or, in cases where job loss is imminent and demonstrable, goals for the number of jobs retained; and (2) wage goals for the jobs created or retained. 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 $100,000 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 must be published in the State Register. Public notice of a proposed business subsidy under this subdivision by a local government grantor 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 copy of the subsidy agreement, 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 hearing. (c) The public notice must include the date, time, and place of the hearing. (d) The public hearing by a state government grantor must be held in St. Paul. Subd. 6. Failure to meet goals. 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 provided that repayment may be prorated to reflect partial fulfillment of goals. The interest rate must be set at the implicit price deflator defined under section 275.70, subdivision 2. The grantor, after a public hearing, may extend for up to one year the period for meeting the goals provided in a subsidy agreement. A recipient that fails to meet the terms of a subsidy http://www.revisor.1eg.state.mn.us/stats/116J/994.html 11/9/99 11/10/1999 WED 14:20 FAX 6124968180 SCOTT CO. ADMIN. f41002 Economic Development Incentives Policy Introduction This Policy is adopted for purposes ofthe business subsidies act (the "Act"), which is Minnesota Statutes, Sections 116J.993 through 1161.995. Tenns used in this Policy are intended to have the same meanings as used in the Act. A business subsidy, as defined in Minn. Stat. 116J.993(3), is herein referred to as an economic development incentive. This Policy shall apply only with respect to incentives granted under the Act if and to the extent required thereby. The essence of this policy is to provide the legal and statutory framework for the County Board to utilize economic development incentives pursuant to requirements in law. The adoption of this policy is a prerequisite to determining the level of and e""1:ent of any Scott County participation in economic development incentives programs. Economic development incentives seek to realize goals that benefit the community, such as the creation or retention of good paying jobs. Economic development projects may also achieve other worthwhile goals. For instance, some projects provide value to the community in the fonns of infrastructure improvements, stabilization of business district~ or neighborhoods, or concentration of selected industries. While job creation and retention goals will be required for any economic development project seeking incentives pursuant to this Policy, the County can require that a project seek to achieve additional goals. Scott County provides economic development incentives in order to create a diverse and sustainable economic base. A diverse economic base by the development and attraction of businesses complementary to existing industries. A sustainable economic base is achieved in part through the creation of quality, higher paying jobs. A diverse and sustainable economy offer~ opportunity for improved quality of life for the residents of Scott County. The goals that economic development projects must pursue to receive incentives under this policy may include one or more of the following: · job creation/retention, · living wages, · job training, · public infrastructure investment, · stable communities, and · redevelopment and/or blight. Specific goal targets for individual projects will be determined and agreed to between the County and the requestor prior to approval ofthe economic development incentives by the County Board. Minnesota Statutes 1999, 1161.995 Minn~1?Qt!!S.t~till~~1222,_I~b 1 e of_Ch~pJ~I~ I!!.bJ~_QL~_Qnt~nl~LfQL.Gl:umter 116.J 116J.995 Economic grants. An appropriation rider in an appropriation to the department of trade 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, wages paid, and the tax revenue increases due to the grant. HIST: 1999 c 243 art 12 s 3 Copyright 1999 by the Office of Revisor of Statutes, State of Minnesota. http://www.revisor.leg.state.mn.us/stats/116J/995 .html :" Page 1 of 1 11/9/99 - - 1~/10/1999 WED 14:21 FAX 6124968180 SCOTT CO. ADMIN. ~003 Policies and Procedures 1. The applicant will complete the County's Economic Development Incentives application form (Exhibit 1) and submit a minimum deposit in the amount of $2,500 to cover County administrative costs. The deposit will be refunded upon execution of a contract for private development. If the project is executed with the support of the Municipality or Township, the Municipality or Township will submit a letter of intent to the County. 2. The requestor and the County will draft an economic development incentive agreement for consideration by the County Board. The incentive agreement will specity the terms and conditions of the agreement. The ultimate amount of the incentive may not be equivalent to the maximum amount aUowable by this Policy_ 3. The County Board will consider approval for an economic development incentive project only if the Municipality or Township has also approved a similar economic incentive instrument. The County Board will consider approval of the economic incentive for the project only after the Municipality or Township has given approval for similar incentives for the project. The Municipality or Township and the County will determine the share of the economic incentive borne by both jurisdictions. 4. The agreement will include target goals that coincide to the economic development goals identified in this policy. The recipient will report on the progress in achieving agreement goals as prescribed by the business subsidies act. Determination of Goal Targets With respect to incentives, the following principles and criteria shall guide the detennination of goal targets: · Each project shall be evaluated on a case by case basis, recogruzmg its importance and benefit to the community from all perspectives, including created or retained employment positions, infrastmcture improvements, stabilization of communities, and industry type. · If a particular project does not involve the creation of jobs. but is nonethele~~ found to be worthy of support and subsidy, it may be approved without any specific job or wage goals, as may be pennitted by applicable law. · In cases where the objective is the retention of existing jobs, the recipient of the subsidy shall be required to provide reasonably demonstrable evidence that the loss ofthose jobs is inuninent. 2 11/10/1999 WED 14:21 FAX 6124968180 SCOTT CO. ADMIN. I4J oq4 . The County will not provide economic incentives for the relocation of jobs within the County unless there are compelling economic reasons indicating that the failure to relocate will lead to economic hardship to the area. Compelling economic reasons may include the potential loss of jobs and tax base to the area. This and any other evidence must be documented. . The setting of wage and job goals must be sensitive to prevailing wage rates, local economic conditions, external economic forces over which neither the County or the recipient of the subsidy has control, the individual financial resources of the recipient and the competitive environment in which the recipient's business exists. Fiscal Limitations . Total County contribution will be limited; the proposed project in addition to prior financial cotnJl1itments made pursuant to this Policy or previous econnmic development policies is not to exceed five percent (5%) of the County's annual net spread levy at time of application. The net spread levy is the property tax levy less HACA and Fiscal Disparities. . If the incentive is a tax abatement, the abatement will be on the taxes collected on the value of the improvements (buildings) to the property; taxes collected on the value of the land will not be abated. The County reserves the right to cap the dollars of the value to be abated. Because it is not possible to anticipate every type of project which may in its context and time present desirable community building or preservation goals and objectives, Scott County retains the right pursuant to statute in its sole discretion to approve projects and subsidies which may vary from the principles and criteria of the Policy. Adopted by: Scott County Board of Commissioners Date of adoption: October 12, 1999 Date of public hearing: October 5, 1999 3 --- . Let Minnesota Statutes 1999, 1161.994 Page 4 of5 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: (1) the type, public purpose, and amount of the financial assistance, and type of district if the subsidy is tax increment financing; (2) progress towards meeting goals stated in the subsidy agreement and the public purpose of the assistance; (3) the hourly wage of each job created with separate bands of wages; (4) the sum 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 local government agency must include a list of recipients that did not complete the report and of recipients that have not met 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 commissioner of trade and economic development must provide information on reporting requirements to state and local government agencies. Subd. 9. Compilation and summary report. The department of trade and economic development must publish a compilation and summary of the results of the reports for the previous calendar year by July 1 of each year. The reports of the government agencies to the department and the compilation and summary report of the department must be made available to http://www.revisor.leg.state.mn.us/stats/116J/994.html 11/9/99 Minnesota Statutes 1999, 116J.994 the public. 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 statej (2) distribution of business subsidy amounts by size of the business subsidYj (3) distribution of business subsidy amounts by time category, such as monthly or quarterlYj (4) distribution of subsidies by type and by public purposej (5) percent of all business subsidies that reached their goalsj (6) percent of business subsidies that did not reach their goals by two years from the benefit datej (7) total dollar amount of business subsidies that did not meet their goals after two years from the benefit datej (8) percent of subsidies that did not meet their goals and that did not receive repaymentj (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 obligationsj (10) number of part-time and full-time jobs within separate bands of wagesj and (11) benefits paid within separate bands of wages. HIST: 1999 c 243 art 12 s 2 Copyright 1999 by the Office of Revisor of Statutes, State of Minnesota. http://www.revisor.leg.state.mn.us/stats/116J/994.html Page 5 of5 11/9/99