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HomeMy WebLinkAboutItem 06.iMarch 15, 2013 Item No. TAX ABATEMENT POLICY March 18, 2013 City Council Meeting Proposed Action Staff recommends adoption of the following motion: Move to adopt the attached Tax Abatement Policy. Approval of this motion will result in the City having an updated Tax Abatement Policy. Overview One of the goals in the City Council approved 2011 -2013 Strategic Plan for Economic Development is the creation of a toolbox of incentives. An incentive tool that is being more utilized by cities in Minnesota is Tax Abatement. While this tool is similar to Tax Increment Financing, it provides this City with additional flexibility. The EDC reviewed and recommended the attached Tax Abatement Policy to the City Council at its January 22, 2013 EDC Meeting. (A copy of the minutes are attached.) The attached Tax Abatement policy attempts to include the objectives that were included in the revised overall Business Subsidy Policy adopted by the City Council in August of 2011. The primary objectives of the Tax Abatement policy are to: 1. To retain local jobs and /or increase the number and diversity of jobs that offer stable employment and /or attractive wages and benefits. 2. To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off' development. 3. To facilitate the development process and to achieve development on sites that would not otherwise be developed but /for the use of Tax Abatement. 4. To remove blight and /or encourage the redevelopment of commercial and industrial areas of the City. 5. To create opportunities for affordable housing. 6. Projects that improve the quality of life in the City by providing a desirable good or service and address an unmet demand in the community. The City Council reviewed the attached Tax Abatement Policy at the February 25, 2013 Council Work Session. Staff recommends approval of the attached Tax Abatement policy. Primary Issues to Consider • What is the benefit of having a Tax Abatement Policy? It provides staff and the Council with guidelines in evaluating requests for this type of development financing assistance. SuPPorting Information • Tax Abate nt Policy David L. Olson, Community and Economic Development Director Financial Impact: $ None Budgeted: Y/N Source: Economic Development Commission Meeting Minutes, January 22, 2013 Page 3 Mr—Beniba noted that the. Comprehensive Parks Plan should be reviewed and reevaluated if we afford" it. Mr. Mielke responded that there is a revised draft 2002 - P a Council wants 4. Review of Proposed Tax Abatement Policy Mr. Olson reviewed the EDC memo outlining the proposed tax abatement policy. He provided an overview of the recommended objectives and policies for the use of tax abatement and noted its similarities to the recommended TIF policy. Comm. Emond inquired if there have been projects that have recently requested assistance. Mr. Olson responded that there have been several recent requests for assistance. The EDC discussed the differences between tax abatement and TIF and how there needs to be a public benefit demonstrated prior to granting a tax abatement. They also went on to clarify how this will be used as an incentive or assistance versus calling it a subsidy. Mr. Olson noted that it is prudent to conduct due diligence of each individual application for assistance but this is a tool that can be used as an incentive to attract business growth. Mr. Mielke added that the "but -for' test for public assistance will be a City Council decision based on the individual project's merit. Comm. Tushie concluded that the more tools the City has in its toolbox for businesses, the better position we are in. 5. Motion Comms. Tushie /Brantly moved to recommend the draft Tax Abatement policy be forwarded to the City Council for approval. Motion carried unanimously. Discuss of Decent Cobb Counc Act;one Comm. ngie requested clarification on how the EDC motions are forwarded on to the City Cou Mr. Mielke responded tha Council receives copies of all minutes from boards and commissions on a regular is, as well as discusses recommendations at work sessions. Comm. Longie inquired about a recent approval o BG fund allocation by the City Council and why it was not brought to the EDC prior to oval. Mr. Mielke responded that not all CDBG activities are within the purview EDC and that the Council decision this year was on appropriating funds for ptrw improvements and housing initiatives. TAX ABATEMENT POLICY Policy 2.07 1) POLICY Purpose For the purposes of this document the term "City" shall include the Lakeville City Council. a) The purpose of this policy is to establish the City of Lakeville's position relating to the use of Tax Abatement for private development above and beyond the requirements and limitations set forth by State Law. This policy shall be used as a guide in the processing and review of applications requesting tax abatement assistance. It is the intent of the City to minimize the risk and amount of business assistance to a project and to leverage its public dollars to maximize private sector funding. b) The City of Lakeville (City) is granted the power to utilize Tax Abatement by Minnesota Statutes 469.1812 through 469.1815, as amended. The fundamental purpose of Tax Abatement in Lakeville is to encourage desirable development or redevelopment that would not otherwise occur but -for the assistance provided through the tax abatement. c) The City reserves the right to approve or reject projects on a case by case basis, taking into consideration established policies, project criteria, and demand on City services in relation to the potential benefits from the project. Meeting policy criteria does not guarantee the award of business assistance to the project. Approval or denial of one project is not intended to set precedent for approval or denial of another project. d) The City Council can deviate from this policy for projects that supersede the objectives identified herein. 2) OBJECTIVES OF TAX ABATEMENT a) As a matter of adopted policy, the City will consider using the use of Tax Abatement to assist private development projects that will achieve one or more of the following objectives: i. To retain local jobs and /or increase the number and diversity of jobs that offer stable employment and /or attractive wages and benefits. ii. Projects that provide value in the forms of needed transportation and other utility infrastructure improvement that would be completed in conjunction with the project. iii. To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off' development. iv. To facilitate the development process and to achieve development on sites which would not otherwise be developed but -for the use of Tax Abatement. v. To remove blight and /or encourage redevelopment of commercial and industrial areas in the City that result in high quality redevelopment and private reinvestment. vi. To offset increased costs of redevelopment (i.e. contaminated site clean -up) over and above the costs normally incurred in development. vii. To create opportunities for affordable housing. viii. Projects that improve the quality of life in the City by providing a desirable good or service and address an unmet demand in the community. ix. To contribute to the implementation of other public policies, as adopted by the City from time to time, such as the promotion of quality urban or architectural design, energy conservation, and decreasing capital and /or operating costs of local government. 3) POLICY FOR THE USE OF TAX ABATEMENT a) When possible, Tax Abatement shall be used to finance public improvements associated with the project. The priority for the use of Tax Abatement funds is: i. Public improvements, legal, administrative, and engineering costs. ii. Site preparation, site improvement, land purchase, demolition, and environmental remediation. iii. Capitalized interest, bonding costs. b) Tax Abatement assistance shall be provided to the developer upon receipt of the increment by the City, otherwise referred to as the pay -as- you -go method. Requests for up front financing will be considered on a case by case basis. c) Any developer receiving assistance shall provide a reasonable amount of cash equity investment in the project as determined by the City. The assistance shall not be used to supplant cash equity. d) The length or term of any Tax Abatement assistance will be based on need for each project as determined by the City. e) Assistance shall not be provided for reimbursement of land and /or property price that is in excess of fair market value. An appraisal by a third party, agreed upon by the City and Developer, will determine the fair market value of the land. f) The Developer shall be able to demonstrate a market demand for a proposed project. Assistance shall not be granted to support purely speculative projects. g) Business assistance shall not be utilized in cases where it would create an unfair and significant competitive financial advantage over other projects in the area. h) Business assistance shall not be provided for projects that would place extraordinary demands on City services or for projects that would generate significant environmental impacts. i) The developer must provide adequate financial guarantees to ensure completion of the project, including, but not limited to: assessment agreements, letters of credit, personal guarantees, etc. unless an exception is granted by the City. j) The developer shall adequately demonstrate, to the City's sole satisfaction, an ability to complete the proposed project based on past development experience, general reputation, and credit history, among other factors, including the size and scope of the proposed project. k) For the purposes of underwriting the proposal, the developer shall provide any requested market, financial, environmental, or other data requested by the City or its consultants. 4) PROJECT QUALIFICATIONS a) All Tax Abatement projects considered by the City of Lakeville must meet all of the following requirements: L The project shall meet at least one of the objectives set forth in Section 2, Objectives of Tax Abatement, and satisfy all of the provisions set forth in Section 3, Policy for the Use of Tax Abatement, of this document. ii. The development shall demonstrate that the project is not financially feasible but for the use of Tax Abatement. iii. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. iv. The project shall serve at least two of the following public purposes: (1) Creation of jobs with livable wages and benefits, per City's Business Subsidy Policy. (2) Increase of tax base. (3) Enhancement or diversification of the City's economic base. (4) Industrial development that will spur additional private investment in the area. (5) The project contributes to the fulfillment of the City's development or redevelopment objectives. (6) Removal of blight or the rehabilitation of a high profile or priority downtown site. 2) SUBSIDY AGREEMENT & REPORTING REQUIREMENTS a) All developers /businesses receiving tax abatement assistance from the City of Lakeville shall be subject to the provisions and requirements set forth by State Statute 116J.993 and summarized below. b) The developer /business shall file a report annually for two years after the date the benefit is received or until all goals set forth in the application and performance agreement have been met, whichever is later. Underperforming projects shall result in reduced assistance on a pro rata basis. c) Reports shall be completed using the format drafted by the State of Minnesota and shall be filed with the City of Lakeville no later than March 1 of each year for the previous calendar year. Businesses fulfilling job creation requirements must file a report to that effect with the City within 30 days of meeting the requirements. d) The developer /business will be required to attain or exceed the jobs and wages goals set forth in the Subsidy Agreement. e) In addition to attaining or exceeding the jobs and wages goals set forth in the Subsidy Agreement, the applicant shall meet the qualifications set forth in Section 4, Project Qualifications, of this document. f) Developers /businesses failing to comply with the above provisions will be subject to fines, repayment requirements, and be deemed ineligible by the State of Minnesota to receive any loans or grants from public entities for a period of five years. 3) APPLICATION PROCESS a) Applicant submits the completed application along with a nonrefundable initial application fee of $500. L City staff reviews the application and completes the Application Review Worksheet. ii. Results of the Worksheet are submitted to the appropriate governing authorities for preliminary approval of the proposal. b) If preliminary approval is granted, the applicant submits the final application fee of $3,000. The process for creating a Tax Abatement project area, including all necessary notices, resolutions and certificates prepared by City staff and /or consultants is begun. Public hearing notices are published. 3 ii. Public hearing(s) on the proposed project are held. iii. The City Council grants final approval or denial of the proposal.