Memorandum

City of Lawrence

City Manager’s Office

 

TO:

Thomas M. Markus, City Manager

FROM:

Diane Stoddard, Assistant City Manager

Britt Crum-Cano, Economic Development Coordinator

CC:

Casey Toomay, Assistant City Manager

DATE:

April 14, 2016

RE:

Economic Development Policy Revisions

 

Background

The City Commission has held two study session to discuss City economic development tools and potential policy updates for those tools.  At the June 9, 2015 study session, the City Commission discussed potential changes to the Neighborhood Revitalization Area (NRA) policy, the use of Industrial Revenue Bonds, and changes to the City’s application for public assistance. Follow up information for this study session was provided by staff at the July 7, 2015 City Commission Meeting.

 

The City Commission held a second study session on 1-12-16 to further discuss their ideas for use of the economic development tools and possible policy changes.  The below is a summary of cumulative direction given to staff, along with highlighted notes and references:

 

Overall:

·         No changes regarding support for primary job creation

 

Incentives Application & Application Fees:  

·         Application Fees: Examine application fees in all policies related to fees in neighboring communities.  Staff contacted several neighboring communities and collected their fee information (see Fees Comparison Table) so the Commission can consider fee updates within the context of what other communities charge.

 

Note that NRA fees were discussed by the City Commission during their 2015 study sessions.  The redlined version of the Assistance Application reflects potential NRA application fees, but does not address changes in other program fees.

 

Staff would suggest the City Commission consider charging service fees when in-house, “but for” analysis is performed.  Based on an estimated 35-40 hours of in-house staff time (pre-authorization) for meetings, data collection, analysis and report generation, Staff would suggest an in-house service fee of $2000.

 

Additionally, Staff suggests the applicant be required to cover the costs of third-party services utilized in accessing and processing the request.  The redlined version of the application contains suggested language.

 

·         Public Benefits: The redline version of the application also shows a “benefits” checklist coversheet, as was suggested previously.

 

·         Ownership Details: The redline version of the application incorporates a suggested Commissioner change to capture more detailed ownership data from the applicant.  (This change has been incorporated into the existing application and is shown redlined for reference.)

 

Tax Abatement:

·         Heath Insurance Provision: Look at language on health insurance requirement to see what other communities require.  There was a specific question regarding the City tax abatement policy’s ability to add a dollar premium to the wage floor to avoid health insurance requirement.  Staff contacted several neighboring communities and collected information on their healthcare requirements (see Healthcare Provisions Table).

 

·         Affordable Housing Provision: In support of the Commission goal to increase community affordable housing, Staff suggests a set-aside requirement for any project requesting public assistance that will have four (4) or more residential units.  General language was added to the Overarching policy under Economic Development Objectives, Section 1-2103.  Specific language was added within IRB, NRA, TIF, and TDD policies.

 

IRBs: 

 

·         Affordable Housing Definition: Current definition in the policy is requirement that multi-family or senior housing projects have 35% of all housing units set aside for households making 80% of the Area Median Income, or less.  Staff understands that other advisory boards (i.e. Affordable Housing) may be working on a definition of affordable housing and suggests that economic development policy language be aligned with their adopted definition. Until that time, staff would suggest maintaining current language as per Policy Section 1-2112.

 

·         Affordable Housing Provision: Policy language was added under IRB Policy, Section 1-2112.

 

·         PILOT or Initiation Fees:  Add policy language that discusses PILOTs (payments in lieu of taxes).  Staff contacted Gilmore & Bell for legal information.  Gilmore & Bell would not suggest adding a PILOT, but rather a fee (sometimes referred to as a service, origination, issuance, or initiation fee).  Below are related conversation notes.

 

·         IRB statute specifies that any payment-in-lieu of taxes (PILOT) has to be distributed to all taxing jurisdictions on a pro rata basis. (i.e. The share that each taxing jurisdiction is normally due). It should be noted that City policy currently address PILOTs when a property tax abatement is less than 100%.  (See Section 1-2126 of IRB policy.)

·         Most communities charge an issuance or administration fee instead of PILOTs.  State law requires the fund from these fees be used for “economic development purposes”.  Although this is typically not challenged, as the term has broad meaning.

·         Most communities don’t direct the fees to a specific fund, but rather they go into the general fund.

·         Suggest City Commission define what “economic development purposes” means prior to charging these fees to avoid any legal challenges.

·         City can charge whatever they want for issuance/origination fees, but you don’t want fees to be so high that the community isn’t competitive.  (From a developer perspective, these fees add to the cost of doing business.  If the cost of doing business is too high in one community, they will go elsewhere.)

·         May want to consider different fees based on cost of project, non-profit project vs. private project, etc.

·         Usually deciding fees is a community effort—engage County, PIRC, JEDC, Chamber, building community, etc., for their input.

 

Based on the technical definition of PILOTs, Staff would suggest the City charge an IRB “origination” fee rather than PILOTs. Staff contacted neighboring communities for information on their IRB origination fees (see IRB Fees-Comparison Table).  Taking into consideration those rates, and the desire to remain regionally competitive, Staff would suggest the following IRB policy language.

 

1-2116  ORIGINATION AND OTHER FEES

 

At the time the IRBs are issued, the applicant shall pay all fees associated with the issuance of the IRBs, including the City’s origination fee.

 

The applicant shall pay the City an origination fee of 0.0010 of the par amount of bonds being issued on behalf of a for-profit company, unless the project will create primary jobs or add affordable housing to the community.  If the project is anticipated to create primary jobs or add affordable housing to the community, the City will not charge an origination fee.

 

For IRBs issued on behalf of not-for-profit organizations, the City will not charge an origination fee.

 

See IRB Fees Example.

 

NRA:

·       Update application fee to new schedule, depending upon capital investment thresholds.  Staff suggests having a smaller application fee for smaller projects and larger application fee for larger projects.

 

 

 

 

 

 

 

Note: Application fees in other communities are typically applied to NRAs used in larger geographic areas. That is not how NRAs have been used in Lawrence, which has targeted individual-tract projects.

 

·       Change policy language to have the maximum rebate level for analysis set at a 50%, ten-year threshold.  The City Commission could direct other analysis be done and the applicant could still request more in appropriate cases. See NRA Policy Redline, Section 4.

 

·         Affordable Housing Provision: Policy language was added under NRA Policy, Section 3, paragraph 2B.

 

TDD: 

·         Require updated audit language.

Legal Staff has advised that specific audit language be implemented within agreements[1] and tailored to the project, rather than within policies.  A general statement on audit language was added to TDD Policy Section 4, paragraph 4.

 

·         Require “but-for” analysis related to non-primary job creating or affordable housing projects. See TDD Policy Section 4, paragraph 1 revised.

 

·         Affordable Housing Provision: Policy language was added under TDD Policy, Section 2.

 

 

CID:

·         Require updated audit language.

Legal Staff has advised that specific audit language be implemented within agreements  and tailored to the project, rather than within policies.  A general statement on audit language was added to CID Policy Section 5, paragraph 3.

 

·         Require “but-for” analysis related to non-primary job creating or affordable housing projects. See CID Policy Section 5, paragraph 1 revised.

 

·         Affordable Housing Provision: Policy language was added under CID Policy, Section 2.

 

TIF: 

·         Require updated audit language.

Legal Staff has advised that specific audit language be implemented within agreements  and tailored to the project, rather than within policies.  A general statement on audit language was added to TIF Policy Section 4, paragraph 4 revised.

 

·         Require “but-for” analysis related to non-primary job creating or affordable housing projects.  TIF policy already includes “but-for” analysis requirement as part of the required feasibility analysis.

 

·         Affordable Housing Provision: Policy language was added under TIF Policy, Section 3, paragraph 7.

 

Next Steps

Staff believes that the next steps for these policy items are review and recommendation from the city’s economic development advisory boards, the Public Incentive Review Committee and the Joint Economic Development Council, and Douglas County. Additionally, the City Commission may wish to direct staff to have other boards review the policy changes.  Meetings for these reviews will be set soon.

 

The Commission may also wish to have more focused discussions relating to use of these tools to incent affordable housing in the community.  While this has been discussed in relation to several policies, more discussion may be needed. 

 


[1] Audit language should be tailored to fit the particular agreement and include:

 

1.     Language granting the City the right to perform discretionary audits and the records to be audited (e.g., invoices in a construction project, sales invoices in a TIF or TDD, etc.).

2.     The length of time that the records should be maintained (basically the length of the contract) and that they be maintained in accordance with sound accounting principles.

3.     That the right-to-audit language be included in all subcontracts, leases, etc., depending on the nature of the underlying agreement, and be made applicable thereby to the subcontractor, lessee, etc.

4.     That the City will bear the costs of any audit, unless the audit identifies that the City has been substantially shorted funds, in which case the developer, contractor, etc., would bear the costs of the audit.

5.     General language that the right to audit does not abridge any other rights that the City may have, which may arise out of federal, state, or local law, including the right to audit.