Memorandum

City of Lawrence

City Manager’s Office

TO:	Tom Markus, City Manager
CC:	Diane Stoddard, Assistant City Manager Casey Toomay, Assistant City Manager
FROM:	Britt Crum-Cano, Economic Development Coordinator
DATE:	October 11, 2016
RE:	City Commission Study Session: Review of Recommended Economic Development Policy Changes

For well over a year, there has been extensive review and discussion on potential economic development policy changes by the City Commission, Staff, and advisory boards.  At the April 19, 2016 City Commission meeting, the Commission referred proposed economic development policy changes to the Public Incentives Review Committee, Joint Economic Development Council, Affordable Housing Advisory Board, and Douglas County for review and recommendations.  

The below presents recommendations and suggestions from the various review entities. An addendum on the history of the meetings held to consider policy changes, with links to meeting minutes, is included at the end of the memo.

Public Incentives Review Committee (PIRC) Recommendation

PIRC held a series of five meetings to consider changes to economic develop policies and processes, three of which were held by a sub-committee created to focus on potential changes.

PIRC voted to recommend (see attached) the PIRC Sub-Committee suggestions to the City Commission, including:

• Strike the “but for” requirement on IRBs as the only cost to the city from implementation of an IRB is a loss of the city’s portion of sales tax on building materials, which is small.    
• Open up the cap on analyzing NRAs beyond the 10 year/50% level to allow the pros and cons of an individual project to be examined on its merits. Changing this policy maintains flexibility to examine projects which may contribute greatly to our community’s goals.
• Projects with under $1M in capital investment should be subject to a modest application fee (e.g. $100) to make it palatable for small projects to make requests, but still keep a flood of frivolous applications from being submitted.
• Add language on cost recovery to make it clear that any fees an applicant would be required to pay would be clearly defined upfront in an agreement with the city so that they have clear expectations and no surprises.
• For projects involving residential units, require a 10% set-aside for affordable housing which would be applicable only during the duration of the incentive period.  In cases where a fraction of a unit is specified, round down to the nearest whole unit to ensure that projects with less than 10 residential units would be excluded from the set-aside requirement. The committee has concerns about the 35% being too high with the end result being that projects are not completed and no affordable housing is created.

Joint Economic Development Council (JEDC) Recommendation

The JEDC held four meetings to discuss and provide input on potential economic development policy changes and processes. 

The JEDC recommended (see attached) the City Commission make no changes to current economic development policies, since maintaining maximum flexibility is critical in the competitive market to attract, retain, and expand businesses for job growth and enhancing tax revenue. 

Affordable Housing Advisory Board Recommendation

The Affordable Housing Advisory Board met on June 6, 2016 and provided the below suggestions regarding affordable housing provisions (see attached):

· Partnership provision: Provide additional incentives for private projects that will partner with non-profit housing agencies to manage, monitor, and maintain affordable housing units.

· Redirection of Proceeds after Expiration: After the incentives period has expired on TIF or NRA projects, redirect a portion of project-generated incremental tax revenues to the affordable housing trust fund.

· Affordable Housing Duration: Reduce the affordable housing set-aside percentage in exchange for a longer affordable housing maintenance period (e.g. 15% set aside for 30 years vs. 35% set aside for 15 years.)

Correspondence received after the affordable housing advisory meeting from Rebecca Buford, Executive Director for Tenants to Homeowners, offered her recommendations regarding income and rental limits for affordable housing.

Douglas County Input

There was consensus from the County Commissioners (see attached) that the City proceed with caution when considering adopting policy that requires developers to devote 35% of dwellings to affordable housing, as adding limitations may put the community at a competitive disadvantage.

There was interest in using NRAs to target revitalization of neighborhoods by opening up the use of the program to home owners and property owners for property needing revitalization.

Other Recommendations

The Chamber Board of Directors delivered a memo to the City Manager on June 23, 2016 stating the Chamber’s position on potential economic development policy changes.

City Staff Recommendations

• Affordable Housing Provisions— Projects having four (4) or more residential units seeking incentives shall only be considered if a portion of those units are set aside for households making 80% of the Area Median Income, as defined annually by the U.S. Department of Housing and Urban Development (HUD) for Douglas County, Kansas.

Projects shall reserve and maintain the number of dwelling units designated as affordable housing units for a period of not less than fifteen (15) years of any Certificate of Occupancy and must have a suitable management program in place to ensure affordable housing eligibility requirements are met for those units. The units set aside for affordable housing to be subject to the below parameters:

4-49 Residential Units: Not less than 10%

50+ Residential Units: Not less than 15%

• Incentives Application—
• Include NRA application fees as shown below:

Proposed NRA Application Fees

Project Capital Investment

$1,000,000 and Under: $250

$1,000,000-$10,000,000: $3,500

Over $10,000,000: $5,000

• Clearly state on application that Applicant is responsible for paying all expenses incurred by the City for professional services pertaining to the project regardless of whether or not the project is approved.   This may include costs associated with research and analytical services, legal publication notices, application fees to the Board of Tax Appeals, bond counsel and legal fees, and all other miscellaneous costs, including, but not limited to, the City's reasonable costs to process any modifications.

If request proceeds, Applicant may be asked to enter into a funding agreement to cover all costs associated with processing approval for the requested public assistance. 

• “But For” Requirement— Projects having four (4) or more residential units
• Require "but for" test for projects unrelated to primary job creation or affordable housing when NRA, TDD, or CID is requested.  City may waive "but for" requirements for non-profits seeking these incentives.  City to be reimbursed by applicant for 3rd- party "but for" analysis performed.
• No "but for" requirement on tax abatements or IRB requests.  For IRBs issued to receive only sales tax exemption (not a property tax abatement), the public purpose (i.e. affordable housing contribution) is conditioned upon the IRB origination fee.

• IRB/Property Tax Abatements—
• The applicant shall pay the City an origination fee 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 to receive only a sales tax exemption (not a property tax abatement), the public purpose (i.e. affordable housing contribution) is conditioned upon the IRB origination fee.

Staff suggested origination fees are shown below:

Rate	Amount (up to)*
0.004	First $10M
$40,000 + 0.0020	2nd $10M
$60,000 + 0.001	Over $20M

   *Maximum fee of $100,000

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

• Neighborhood Revitalization Area—

The determination of the rebate amount and duration of the NRA is at the sole discretion of the governing bodies.  Governing bodies to consider NRA rebate percentage and duration based on the merits of each project, including evaluation of need as shown through gap (but for) analysis and fiscal impacts to the taxing jurisdictions through a cost-benefit analysis.    Additional analysis governing bodies deem necessary to help make the case for supporting the NRA rebate percentage or duration period shall be provided by City selected third-party consultants, with all related expenses paid by the applicant.

Actions Requested:

Receive recommendations and input on economic development policy changes from the various advisory boards, Douglas County Commission, and Staff.

Provide direction to staff on City Commission requested changes to economic development policies, application for incentives, and fees.

—Addendum—

Economic Development (ED) Policy Changes Review Meetings

To recap the extensive review process, below is an outline of the various meetings held to consider potential changes to economic development policies, the incentives application, and fees:

6-9, 2015, City Commission Study Session: Economic Development Policies Discussion

The June 9, 2015 study session provided the City Commission an opportunity to discuss economic development topics, including the Neighborhood Revitalization Area (NRA), Industrial Revenue Bonds (IRB) and the City application for incentives. At this meeting, the Commission directed staff to outline issues related to these topics and provide a suggested review and recommendation process.  (The follow up meeting for these items was held on July 7, 2015.)

City Commission Agenda: http://lawrenceks.org/assets/agendas/cc/2015/06-09-15/06-09-15_cc_agenda.html

Materials:http://lawrenceks.org/assets/agendas/cc/2015/06-09-15/cc_workplan.html#ed

7-7-2015, City Commission Meeting:  Presentation of NRA, IRB and Incentive Application Materials

City Commission Agenda, Regular Item #5: http://lawrenceks.org/assets/agendas/cc/2015/07-07-15/07-07-15_cc_agenda.html

1-12-2016, City Commission Study Session: Economic Development Policy Discussion,  follow-up meeting from June and July 2015 meetings. 

Study Session Agenda:http://lawrenceks.org/assets/agendas/cc/2016/01-12-16/01-12-16_ssagenda.html

At this meeting, the City Commission continued follow up discussions from the June and July 2015 meetings, including Neighborhood Revitalization Area Policy, economic development analytical tools, and plan for discussion of other economic development policies.  Historical policy issues such small business eligibility under current investment and job creation thresholds in city’s property tax abatement policy and inclusion of nuisance related criteria and claw backs in city economic development performance agreements, were included but not discussed by the City Commission.   Staff Memo & Attachments

Staff consolidated City Commission direction within a memo and sent to the Commission for feedback on 1-20-16.

4-19-2016 City Commission Meeting: City Commission receives Staff’s draft changes to economic development policies and refers to PIRC, JEDC, and County for review and recommendation

City Commission Agenda: http://lawrenceks.org/assets/agendas/cc/2016/04-19-16/04-19-16_cc_agenda.html

The City Commission receives draft changes related to the economic development policies and receives the 2015 Annual Report:  Economic Development Support & Compliance and refers both items to the Public Incentives Review Committee, Joint Economic Development Council, and Douglas County for review.   Policy Staff Memo & Attachments

The following are advisory board meetings in response to the City Commission 4-19-16 meeting referrals:

Public Incentives Review Committee (PIRC) Review

5-17-2016, PIRC Review of ED Policy Changes: Meeting Minutes.

http://lawrenceks.org/boards/public-incentives-review-committee/agendas/05-17-16

5-26-2016, PIRC Sub-Committee Review (#1) of ED Policy Changes: Meeting Minutes.

http://lawrenceks.org/boards/public-incentives-review-committee/agendas/05-26-16

6-16-2016, PIRC Sub-Committee Review (#2) of ED Policy Changes: Meeting Minutes.

http://lawrenceks.org/boards/public-incentives-review-committee/agendas/06-16-16

7-14-2016, PIRC Sub-Committee Review (#3) of ED Policy Changes: Draft Meeting Minutes.

http://lawrenceks.org/boards/public-incentives-review-committee/agendas/07-14-16

8-22-2016, PIRC Review of Sub-Committee suggestions.  Draft Meeting Minutes, Sub-Committee Memo.

http://lawrenceks.org/boards/public-incentives-review-committee/agendas/08-22-16

Joint Economic Development Council (JEDC) Review:

5-2-2016, JEDC Review of ED Policy Changes: Draft Meeting Minutes.

6-6-2016, JEDC Review of ED Policy Changes. Second meeting continuing discussion of potential ED Policies Changes. Draft Meeting Minutes.

7-11-2016, JEDC Review of ED Policy Changes. Third meeting continuing discussion of potential ED Policies Changes. Draft Meeting Minutes.

8-3-2016, JEDC Review of ED Policy Changes. Fourth meeting voting on formal recommendation to City Commission on ED Policies Changes. Draft Meeting Minutes.

Affordable Housing Advisory Board Review:

6-6-2016, Affordable Housing Advisory Board. Staff presented the housing provision currently under consideration for updating ED policies. The advisory board provided three suggestions to recommend to the City Commission:  Meeting Minutes.

· Partnership provision: Provide additional incentives for private projects that will partner with non-profit housing agencies to manage, monitor, and maintain affordable housing units.

· Redirection of Proceeds after Expiration: After the incentives period has expired on TIF or NRA projects, redirect a portion of project-generated incremental tax revenues to the affordable housing trust fund.

· Affordable Housing Duration: Reduce the affordable housing set-aside percentage in exchange for a longer affordable housing maintenance period (e.g. 15% set aside for 30 years vs. 35% set aside for 15 years.)

Douglas County Input

5-18-2016, County Review of ED Policy Changes. Draft County Minutes (excerpt).