Memorandum
City of Lawrence
City Manager’s Office
TO: David L. Corliss, City Manager
CC: Diane Stoddard, Assistant City Manager
FROM: Corey Mohn, Economic Development Coordinator
DATE: May 19, 2011
RE: Summary of Economic Development Policy Criteria
Overview
At a study session on May 17, the City Commission requested that City staff compile a summary of economic development policies. Specifically, the Commission requested a review of the criteria for utilizing these programs.
Overarching Economic Development Policy
On March 24, 2009, the City Commission approved a document entitled City of Lawrence Economic Development Goals, Process and Procedures. This document was updated on May 18th, 2010. The document outlines three overarching goals for economic development in Lawrence: 1) job growth in excess of population, 2) increasing the share of the tax base coming from non-residential growth, and 3) increasing career opportunities by attracting high-skilled jobs in expanding industries.
Specific Incentive Programs
There are a number of economic development programs currently available for use in Lawrence. Below is a summary of these tools. Specific criteria for the use of the six development incentive programs listed below are included in each program’s policy document. A matrix showcasing specific City criteria for the use of each program is attached at the end of this memo.
Community Improvement Districts (CID)
CIDs are funded by implementing either a special assessment on real property or a sales tax in a designated district. A sales tax can be imposed in increments of 0.1% or 0.25% up to a total of 2.0%. The maximum term for a CID sales tax is 22 years. Eligible expenses include both public and private improvements, though public improvements are the priority. No CID projects have occurred in the City of Lawrence. The City’s CID policy was adopted in 2010.
Industrial Revenue Bonds (IRB)
IRBs allow for the issuance of bonds at favorable rates. In addition, the development project is exempt from state and local taxes on labor, materials, and equipment. IRB projects are also eligible for up to 10 years of property tax abatement. A typical term for IRBs in Kansas is 15 years, though the term can vary. IRBs can finance commercial or industrial facility expenses, both for new development and redevelopment of existing buildings. The City of Lawrence has three active IRB projects: Amarr Garage Doors, DST Systems, and PROSOCO. The latest version of the City’s IRB policy was adopted in 2010.
Neighborhood Revitalization Act (NRA)
NRAs are designated areas that qualify for up to a 100% rebate of real property tax increment. Rebates are only provided for tax payments that are in addition to the base payment made by the property owner prior to the redevelopment project commencing. There is no maximum term for an NRA, though it is common for NRA projects in Kansas to be structured with 10 year terms. Any public or private improvements in the area are eligible to be financed by NRA rebates, subject to an NRA plan. The City of Lawrence has two active NRA areas: 8th and Pennsylvania (2007) and 1040 Vermont (2011). A new NRA policy was adopted in 2011.
Tax Abatements
Tax abatements provide for a rebate of up to 100% of real and/or personal property taxes that result from development activity. The baseline amount for City abatements is 50%. Abatements have a maximum term of 10 years under Kansas law. The City has five active abatement projects: Allen Press, Amarr Garage Doors, DST Systems, PROSOCO, and Reuter Organ Company. The latest version of the City’s abatement policy was approved in 2009. The City’s 2010 Abatement report provides additional information on these projects. This report will soon be reviewed by the Public Incentives Review Committee and then will come before the City Commission for formal review.
Tax Increment Financing (TIF)
TIF allows for the dedication of up to 100% of real property tax increment, and up to 50% of sales tax increment, for the purpose of paying for public improvements in a designated district. TIF districts can be established to reimburse developers over time as incremental tax funds are generated, or these projected increments can be pledged as part of a bond issuance. TIF districts have a maximum term of 20 years in Kansas. The City of Lawrence currently has two TIF districts: 9th and New Hampshire TIF (includes the parking garage and Lawrence Arts Center) established in 2000, and the Oread TIF (Oread Hotel) established in 2008. The latest version of the City’s TIF policy was approved in 2008.
Transportation Development Districts (TDD)
TDDs are in many ways similar to CIDs, as both allow for special assessments on real property or sales taxes within the confines of a district. Like CIDs, TDD sales taxes can be issued in increments of 0.1% or 0.25%, but TDDs can only be issued for a maximum of 1.0%. There is no maximum term on a TDD sales tax, other than a TDD cannot extend past the point where all project costs have been paid, nor past the date of bond maturity. Proceeds from TDDs must go to paying for transportation related projects in the district. The City of Lawrence currently has two TDDs: Lawrence Free State (Bauer Farms) and the Oread, both established in 2008. The City’s TDD policy was established in 2008.
Other Incentives
The City has the ability to develop other ways of supporting development projects. For example, the City’s Economic Development policies provide that the City may, in cooperation with the County, utilize incentives, including loans and/or grants, among other assistance, to provide new businesses capital for job training. As an example, this Employee Training Incentive was offered to Plastikon in order to finalize the location of the business to the East Hills Business Park. The incentive totals $500 per new full-time employee.
Options Regarding Criteria
The City Commission may wish to discuss providing clarification regarding criteria for the utilization of one or more of these incentive programs. Tightening criteria will likely provide more clarification for prospective applicants regarding what projects the City is likely to consider, but will also likely reduce the flexibility the City has to accommodate development requests. Conversely, loosening criteria would provide more flexibility but less clarification. The City Commission also has the option of repealing policies on certain economic development programs and dealing with potential developments on a case-by-case basis. The only programs that require a policy be in place are those that involve tax abatements.
Recommended Actions
City staff recommends the City Commission have a discussion on potential next steps related to economic development incentive policies and criteria at a future City Commission meeting. This will provide direction to City staff regarding how to approach future development activity.
City of Lawrence Economic Development Policy Matrix
|
Incentive Program |
Project Examples |
Criteria |
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None to date. |
Project must meet the following five criteria: 1) Promote and support efforts to redevelop sites within the City; 2) attract unique commercial, office, industrial, and/or mixed use development which will enhance the economic climate of the City and diversify the economic base; 3) encourage retail projects that enhance the retail base by either attracting new sales or capturing sales that are leaking to other markets; 4) create facilities which promote the cultural, historical, or artistic elements of the region and enhance tourism and quality of life; or 5) assist in the building of infrastructure or new real property beyond what the City can require to be built or would otherwise be built. |
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Current IRBs (expiration): Amarr (2015), DST Systems (2012), PROSOCO (2019). |
Generally favor projects that bring new revenues from outside the community or enhance quality of life. Project must meet the following three criteria: 1) Qualify under Kansas law as eligible for IRB financing; 2) achieve one or more of the following public benefits: meet economic goals of the City; enhance Downtown Lawrence; promote infill development; incorporate environmentally sustainable elements; provide other public benefits; and 3) tenant shall show financial capacity to complete project and market the bonds. A benefit/cost analysis is required by statute. |
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|
8th and Pennsylvania (2007); 1040 Vermont (2011). |
Project must meet statutory requirements. Additionally, the following five criteria will be considered: 1) the opportunity to promote redevelopment activities which enhance Downtown Lawrence; 2) the opportunity to promote redevelopment activities for properties which have been vacant or significantly underutilized on sites around Lawrence; 3) the opportunity to attract unique retail and/or mixed use development which will enhance the economic climate of the City and diversify the economic base; 4) the opportunity to enhance the vitality of a neighborhood within the City as supported by the City's Comprehensive Plan and/or other sector planning documents; or 5) the opportunity to enhance the community's sustainability by supporting project which embrace energy efficiency, multi-modal transportation options, or other elements of sustainable design. The project must result in a positive benefit/cost ratio of 1.25 or greater over a 15 year period. |
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Current abatements (expiration): Allen Press (2011), Amarr (2019), DST Systems (2011), PROSOCO (2014), Reuter Organ (2011). |
Business must meet the following requirements: 1) be environmentally sound; 2) pay all employees in the abated project an average wage per employment category that meets or exceeds the average in the community as determined annually by the Kansas Department of Human Resources Wage Survey; 3) business pays all covered employees a wage at or above an amount which is equal to 130% of the federal poverty threshold for a family of three per HUD; 4) business provides an employer-sponsored health insurance policy and employer covers 70% of the policy cost, or employer pays the covered employee a wage at least $1.50 above the 130% threshold; and 5) the proposed abatement results in a combined positive benefit/cost ratio of 1.25 or greater over a 15 year period. |
|
Incentive Program |
Project Examples |
Criteria |
|
9th and New Hampshire Project (2000); Oread Project (2008). |
Generally for projects that demonstrate a substantial and significant public benefit. Specifically, eight criteria are to be used: 1) each TIF proposal must demonstrate that "but for" the use of TIF, the project would not be completed; 2) TIF proposals requesting the issuance of bonds or notes must show increment generated will provide a debt coverage factor of 1.25 times the debt service; 3) the total amount of TIF assistance provided for projects will be based on the economic payoff expectations of the project and its significance to the community; 4) each TIF proposal must include evidence in a form acceptable to the City that the applicant has the financial ability to complete and operate the proposed project; 5) projects that have at least 50% of the total redevelopment project costs paid by the applicant will be viewed more favorably; 6) the City will require satisfactory assurance that the project will be completed in a timely manner in accordance with the redevelopment project plan and redevelopment agreement; 7) TIF proposals for residential redevelopment projects may be considered for removal of blight and revitalization of older developed neighborhoods, and/or to provide for public improvements to benefit economic development and employment; and 8) TIF proposals for the redevelopment of existing residential neighborhoods, commercial and industrial areas will be viewed more favorably. Projects to stabilize current residential neighborhoods, commercial, and industrial areas that have or will likely experience deterioration will also be viewed more favorably. |
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Lawrence Free State - Bauer Farm (2008), Oread Project (2008). |
Project must meet one of the following three criteria: 1) promote and support efforts to redevelop sites within the City; 2) attract unique retail and/or mixed use development which will enhance the economic climate of the City and diversify the economic base; or 3) result in the building of transportation related infrastructure beyond what the City can require to be built or would otherwise build. |