Memorandum
City of Lawrence
Administrative Services Department
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To: |
Dave Corliss, City Manager
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From: |
Frank S. Reeb, Administrative Services Director |
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Date: |
May 3, 2007
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Re: |
Review of Recent Tax Abatement Resolutions and Ordinance
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This memo provides a response to Commissioner Chestnut’s questions following the Public Incentive Review Committee’s forwarding the 2006 Tax Abatement Report to the City Commission which included the McClure Summary of Tax Abatement Program and draft April 23, 2007 PIRC meeting minutes.
Do the ordinances stipulate 90% of the jobs being at or above the mean wage for Lawrence? How was “substantial compliance” determined as cited in the McClure Summary? Was this determined by PIRC? If so, when was it defined?
The City’s current and recent past economic development policies and procedures do not require 90% of the jobs being at or above the mean wage for Lawrence as a compliance criteria. Further, while K.S.A. 79-251, the state statute governing economic development tax abatements, requires a procedure for monitoring tax abatement compliance, that statute does not define the term “substantial compliance” and contains no general guidance for determining compliance.
Resolution 5431 the City’s economic development policy in effect at the time of 10 of the 11 tax abatements reviewed in the 2006 Tax Abatement Report also does not use the term “substantial compliance.” Section 3 of the resolution contains a general “target objective” for a new or expanding business to provide “wages and benefits that on average meet or exceed the average in the community as determined annually by the Kansas Department of Human Resources Wage Survey.” Section 3 goes on to provide that attracting a wide variety of jobs is a stated City goal and to accomplish this goal, “the governing body may determine that it is in the public interest to grant a property tax exemption to a business whose wages are less than the average in the community if the business offers good benefits to their employees and/or complements and builds on the human resources and the scientific and technological capabilities of local high school or college graduates and also of the University of Kansas.”
In addition, Section 12, containing the fifteen standards for the costs and benefits used to determine whether the abatement should be granted includes, “The number of new jobs, the earnings and the benefits that will be provided.” In terms of the number of employees and wages, Section 22 contains an Annual Review requirement to ensure the qualifying criteria continue to be “adequately satisfied.” Section 22 specifically identifies the “number of employees, salary, and payroll of employees…and other information as requested by the City Commission” as information to be included in an annual report to the City Commission as part of the annual review.
Similarly, Resolution 6343, adopted on November 13, 2001 and in effect at the time the 2002 PROSOCO abatement was approved, also contains a similar “target objective” provision as Resolution 5431 but eliminated the word “benefits” from the target objective. Specifically, the target objective provides, “average wages per employment category that meet or exceed the average in the community as determined annually by the Kansas Department of Human Resources Wage Survey.” Section 12 regarding standards for costs and benefits contains the identical provision quoted above in Resolution 5431.
Resolution 6343 also contains a Performance Agreement requirement to include specific provisions governing the situation if “an applicant fails to meet the wage, number of jobs, and/or capital investment projections set forth in the original application.” There is no substantial compliance requirement in the Performance Agreement provision.
It also contains an Annual Review for Compliance section (Section 23) setting out the review criteria, including: “the capital investment, employment, and wages.” This section also goes on to provide if the business “substantially fails to meet the expectations set forth in the application for a tax abatement, including failure to meet employment, wage, or capital investment plans in the application . . . the City Commission, after notice and a public hearing may modify the exemption by ordinance.”
There is a definitions section in the Resolution 6343 but neither the term “substantial compliance” nor the term “substantially fails” is defined.
In terms of the PIRC’s recent experience with the term “substantial compliance”, following a review of the 2004 Tax Abatement Report, the PIRC, then chaired by then Mayor Highberger, forwarded the 2004 Report to the City Commission noting it indicated some level of non-compliance among some tax abated companies and requested direction from the City Commission on the issue of identifying non compliance. After a brief discussion during its August 16, 2005 meeting, the City Commission unanimously approved referring the matter back to PIRC to provide the Commission with recommendations on how to address non-compliance among tax abated companies and on how to improve the use of public incentives.
During three meetings in the late summer/fall of 2005, the PIRC attempted to determine what “substantial compliance” should be with the goal being general recommendations and not to recommend a specific action against a particular company. The discussion began with PIRC member Kirk McClure reviewing his compliance spreadsheets using 90% as a compliance rate in analyzing capital investment, jobs, and wages. While acknowledging the 90% figure was his figure and not PIRC’s, he noted 90% was a number used in many other communities for reviewing jobs, wages, and investment. The PIRC did not formally adopt the 90% threshold number, or any threshold number for that matter, as a level of substantial compliance. PIRC members generally seemed to agree that a specific compliance formula would not be a good idea. Without a formal motion, the PIRC seemed to generally agree on a more subjective process and while PIRC requested staff send letters to certain companies requesting more information about either capital investment, employment numbers, or wages, no specific recommendation to determine or measure substantial compliance was forwarded to the City Commission.
Please confirm that Ordinance 7706 containing the living wage requirements does not apply to any of the reported abatements.
The City’s current economic development policy and procedures (Ordinance 7706) is now found in the City Code at 1-2101, et seq., does not apply to any of the 11 tax abatements reported in the 2006 Report. The current policy contains a section (1-3101) that expressly limits its application “to tax abatements approved after the adoption of the ordinance, and shall not apply retroactively to previously approved abatements and projects.” It further expressly provides, “Tax abatements granted pursuant to earlier City policies and procedures shall be governed by the City policy and procedures in effect upon the initial granting of the abatement.”
Resolutions 5431 and 6343 (Prosoco only) were in force at the time of the abatements under review. Please confirm that only employment levels and capital investment were required projections under these resolutions.
While the Standards for Costs and Benefits identified in both Resolution 5431 and 6343 contain 15 criteria for determining whether the abatement should be granted, as noted in more detail above, reviews of abatements under both policies have tended to generally focus on capital investment, employment numbers, and wages.