Memorandum

City of Lawrence

City Manager’s Office

TO:	Tom Markus, City Manager
CC:	Casey Toomay, Assistant City Manager
FROM:	Britt Crum-Cano, Economic Development Coordinator Diane Stoddard, Assistant City Manager
DATE:	December 15, 2016
RE:	Economic Development Policy Changes

Since June of 2015, there has been extensive review and discussion on potential economic development policy changes by the City Commission, Staff, and advisory boards.  At the October 11, 2016 City Commission Study Session, Staff presented a composite feedback matrix and supporting memo summarizing the recommendations from Staff, the Public Incentives Review Committee, Joint Economic Development Council, Affordable Housing Advisory Board, and Douglas County. The City Commission directed Staff to revise economic policies and application as per Staff’s final recommendations.

In discussing proposed changes to the various economic development policies with legal staff, it was suggested to streamline the policies into one policy document in order to provide clarity to staff, potential applicants and the public.  The proposed Economic Development Policy provides overarching policy statements about the City’s economic tools in general and then provides a section of the resolution dedicated to each of the tools, outlining processes, fees, procedures and decision criteria.  Previously, the policies for each tool were adopted separately by resolution.  It is proposed that the new Economic Development Policy be adopted by a resolution, which also repeals the prior policies adopted by resolutions.  Additionally, staff is recommending incorporating procedures that were previously adopted in the City code within the Economic Development Policy.  Therefore, an ordinance is proposed which repeals those sections of City code now covered by the Economic Development Policy, maintaining the section in the City code establishing the Public Incentive Review Committee.

The Affordable Housing Advisory Board met on Monday, December 12 and had additional discussions on the affordable housing provisions for the economic development policies.  A memo is attached summarizing the AHAB meeting and its revised recommendations on affordable housing.  The language included in the proposed document reflects the October recommendations from AHAB.  Staff has not had a lot of time to review and consider the suggested AHAB changes but it is possible that some of the revised language may not recognize the difference between existing housing stock and new construction.  Additionally, it is likely that the requirements would also add to the project funding gap. 

Since the October 11, 2016 meeting, Staff has incorporated the following new changes within the policy:

a. On recommendation from the City Attorney’s Office, changing the NRA application fee to $500 as compared to a tiered fee structure based on capital improvement expenses, due to potential legality issues. (Section 4.3)

b. On recommendation from the City Attorney’s Office, charging the below application and administrative fees:

Application Fees		Administrative Services Fees	Policy Section
Tax Abatement	$500	$200/year	3.3, 3.10
Industrial Revenue Bonds (IRB)	$1,000	Origination Fee for sales tax only IRBs	2.3, 2.9
Community Improvement District (CID)	$2,500	For all projects involving “pay-as-you-go” financing and reimbursement through the assessment of CID sales tax collected with the CID sales tax district, it is the policy of the City to negotiate any annual administrative fee between the City and the petitioner to cover the City’s administrative costs.	7.3, 7.10
		For all other projects, the petitioner shall pay 0.5% of the funds reimbursed to the petitioner, or any successor in interest, each year for the life of the CID to cover the City’s administrative costs.
Transportation Development District (TDD)	$2,500	0.5% of the annual TDD revenues generated	6.3, 6.9
Tax Increment Financing (TIF)	$1,000	Where the applicant only seeks reimbursement of the property tax increment, the administrative service fee shall be 0.5% of the annual increment;	5.3, 5.10
		In all other cases, the administrative service fee shall be 2.5% of the annual increment.
Neighborhood Revitalization Area (NRA)	$500	None	4.3

c. On recommendation from the City Manager, adding disclosure language to identify Tax Deficiencies or Defaults. These changes are outlined below:

Topic	Final Staff Recommendation(s)	Policy/ Document Section
Delinquencies	It is the policy of the City that no economic development incentive will be granted to any applicant or petitioner who owns any financial interest in any real property, anywhere within the state of Kansas, with delinquent special assessments, delinquent ad valorem taxes, or federal or state tax liens, or who is currently delinquent or in default on any debts, responsibilities, or other obligations owed to the City.	Section 1.8.6
Ownership disclosure	List the full name(s) of each principal (partner or member) who owns (or will own) 5% or more capital of the company.  In the case of businesses owning another business (such as an umbrella LLC that is the owner of several other LLC's), the actual partners' names need to be listed, not just the registrant's name with the Secretary of State.	Application, page 9
	Are all above listed principals currently delinquent or in default on any debts, responsibilities, or other obligations owed to the City?  If delinquent or in default, provide details on property owner name, property address, current property tax status, special assessment status, and outstanding obligations owed to the City, and why delinquent or in default.	Application, page 9, Affidavit (in process*)

*Per recommendations from the City Attorney’s Office, a signed affidavit will be required as part of the application process for disclosing any delinquency status. This affidavit will be drafted later by the City Attorney’s Office and added as an attachment to the application.

Other major policy changes have been incorporated into the comprehensive policy, including:

Affordable Housing Provision
Topic	Final Staff Recommendation(s)	Policy/ Document Section
Affordable Housing Provision	It is the policy of the City that, in addition to the Performance Agreement, all affordable housing polices and standards shall apply during the term of the incentive period. The City strongly encourages the applicant or petitioner to maintain any dwelling unit, designated and set aside as affordable housing hereunder, as affordable housing, even after the expiration or termination of any economic development incentive period.	Section 1.8.3.7
	Affordable Housing Set Aside Requirements: 4-49 Residential Units: Not less than 10%	Section 1.8.3.1
	Affordable Housing Set Aside Requirements: 50+ Residential Units: Not less than 15%
Incentives Application
Topic	Final Staff Recommendation(s)	Policy/ Document Section
NRA Application Fees	$500 (per City Attorney's Office)	Section 4.3; Application, page 11
Application Fee (1/2 Refund)	If request is not considered 1/2 of the application fee would be returned to the applicant. Applicant will be responsible for reimbursement of third party analytical costs and any required publication costs.	Application, page 11
Other Fees	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.	Application, page 11
	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.
Origination Fee for Sales Tax Exemption IRBs	Unless otherwise exempted by Section 2.9.2, any applicant requesting the City to issue IRBs for the purpose of realizing the IRBs sales tax exemption, as described in Section 2.8, shall pay to the City, based on the par amount of the bonds being issued and in accordance with the table that follows, an origination fee. Origination fees are due at the time of the bond closing.	Section 2.9.1
	Where the applicant is a federally registered  not-for-profit organization, where the proposed project will create primary jobs, or where the primary purpose of the proposed project is to create affordable housing, the City may waive a portion or all of the origination fee required hereunder.	Section 2.9.2
	For IRBs issued on behalf of not-for-profit organizations, the City will not charge an origination fee.	Application, page 11
	Rates: 0.004 for first $10,000,000; $40,000 + 0.002 for 2nd $10,000,000; $60,000 + 0.001 for amounts over $20,000,000. Maximum fee of $100,000.	Section 2.9.1; Application, page 11
"But For" Requirement
Topic	Final Staff Recommendation(s)	Policy/ Document Section
"But For" test	Property Tax Abatements & IRBs: No "but for" requirement on tax abatements or IRB requests.  For IRBs issued to receive just a sales tax exemption (not a property tax abatement), the public purpose (i.e. affordable housing contribution) is conditioned upon the IRB origination fee.	IRB Origination Fees: Section 2.9
	NRA, TDD, CID:
	For those applications or petitions requesting an economic development incentive, where the proposed project is unrelated to primary job creation and does not, as a primary component of the project, provide affordable housing, or where it is required by the particular economic development incentive being sought, the applicant or petitioner shall submit to the City, together with the application or petition, a “but for” analysis demonstrating the need for the economic development incentive and the purpose for which it will be used. The analysis should establish that, “but for” the economic development incentive, the proposed project would not proceed.	Section 1.8.2.1; NRA Section 4.5.5
	As part of its “but for” analysis, the applicant or petitioner shall also submit to the City a pro forma cash flow analysis, showing the sources of funds and the proposed uses of those funds in sufficient detail to demonstrate, to the satisfaction of the City, that reasonably available conventional debt and equity financing sources will not fund the entire cost of the project and still provide the applicant or petitioner a reasonable market rate of return on the investment in the proposed project.	Section 1.8.2.2
	TIF:
	With every application for a TIF, the Governing Body shall consider the “but for” analysis provided by the applicant, and shall not create the TIF unless the applicant establishes that the proposed project would not proceed “but for” the TIF. The Governing Body shall consider the applicant’s “but for” analysis at the same time that it considers the feasibility study required by the Act.	Section 1.8.2.1; 5.5.1
	In reviewing the “but for” analysis and the feasibility study, in deciding whether to approve or disapprove an application for a TIF, the Governing Body shall consider the proposed market returns for the proposal, including the nature of the project, the location of the project, and other factors, as they may be relevant.	Section 1.8.2.1; 5.5.2
IRB/TA Specific
Topic	Final Staff Recommendation(s)	Section
Healthcare provision	No changes	Section 3.6.2
NRA Specific
Topic	Final Staff Recommendation(s)	Section
NRA Rebate Level and Duration	If the Governing Body approves an application seeking the establishment of an NRA, it shall, based on the merits of the project, the analysis performed, the recommendations of any third party consultant, and the evidence adduced at the hearing, determine the amount of any ad valorem property tax rebate (note that this is a tax rebate and not a tax abatement) and the duration of any tax rebate period.	Section 4.7
Policy Review	The “City of Lawrence, Kansas, Economic Policy” shall be subject to periodic review to ensure compliance with state law and current practices of the City and may, from time to time, be amended by a Resolution of the Governing Body to comply with state law or current practices of the City or to alter its terms.	Section 1.8.16
Disclosures & Notices
Topic	Final Staff Recommendation(s)	Policy/ Document Section
Benefits checklist	Public Official recommendation: Provide checklist at the beginning of the application where applicant can indicate the public benefits the project will provide.	Application, page 1
Ownership disclosure	List the full name(s) of each principal (partner or member) who owns (or will own) 5% or more capital of the company.  In the case of businesses owning another business (such as an umbrella LLC that is the owner of several other LLC's), the actual partners' names need to be listed, not just the registrant's name with the Secretary of State.	Application, page 9

Actions Requested:

Consider changes and proposed reorganization of the City’s Economic Development Policies.

Adopt Resolution No. 7184 adopting the City of Lawrence Economic Development Policy setting forth the City’s policies and procedures relating to economic development tools and repealing prior policy resolutions, and adopt on first reading Ordinance No. 9325 repealing sections of the City’s code that are now covered in the Economic Development Policy, if appropriate.