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HomeMy WebLinkAbout4. Development Tools and Funding SourcesCITY OF SHAKOPEE Memorandum Shakopee Economic Development Authority Mark McNeill, Executive Director R. Michael Leek, Shakopee Community Development Director EDAC Recommendations Regarding Economic Development Tools and Funding Sources MEETING DATE: February 15, 2011 INTRODUCTION: TO: FROM: SUBJECT: In 2010 the EDAC reviewed the range of tools and funding sources available for economic development. An initial source of information regarding the available tools was the League of Minnesota Cities (LMC) material on this topic. At its December 15, 2010 and January 19, 2011 meetings the EDAC formulated recommendations regarding the tools and funding sources that it felt the City of Shakopee should focus on. These recommendations are offered for discussion by the EDA/City Council and final determination regarding the implementation of the recommendations. DISCUSSION: In reaching its recommendations, the EDAC reviewed information related to several funding tools and sources including the following; MnDEED; • Minnesota Investment Fund (MIF); • Minnesota Job Skills Partnership. Business Subsidies; • Tax increment financing (TIF); • Tax abatement; • Industrial revenue bonding. Local Tools; • The Facade Improvement Loan Program (FILP), and potential expansion to allow use of loan proceeds for interior remodeling and other site improvements; • Establishment of a local revolving loan fund (RLF) for business start-ups and expansions that are not large enough to warrant the use of tools like TIF, tax abatement or IRBs. City staff had researched other Minnesota cities, and found a number of them (e.g. Blaine, Woodbury) that do offer RLF programs. For H: \CC\2011\recommendations funding_02152011.doc 1 information, attached to this memorandum is a copy of the web page that sets forth the criteria for that city's RLF. • City acquisition and write down of sites for private redevelopment, but only in cases where the property owner voluntarily petitions the city for the acquisition. • Use of the City's website and other media outlets to market vacant buildings and sites for reuse. These are discussed in some more detail below. FUNDING TOOLS AND SOURCES: MnDEED Programs; Minnesota Investment Fund (MIF); The Minnesota Investment Fund provides grants to add new workers and retain high - quality jobs statewide. The MIF focuses on industrial, manufacturing, and technology- related industries. Gene Goddard at DEED has informed the EDAC that there is some money remaining as the result of a project that has not been implemented. However, it is not clear how much funding will be made available for the next fiscal year. In addition, staff learned recently about the following funding available for the current fiscal year. Staff will be researching their applicability to Shakopee. Greater Minnesota Business Development Public Infrastructure Grant Program Total available: $4.1 million This program provides grants to Greater Minnesota cities for up to 50 percent of the capital costs of the public infrastructure necessary to expand or retain jobs in the area, increase the tax base, or expand or create new economic development. Innovative Business Development Public Infrastructure Grant Program Total available: $3.9 million This program provides grants to local governmental units on a competitive basis statewide for up to 50 percent of the capital cost of the public infrastructure necessary to expand or retain jobs related to innovative businesses. Grants are given to local units of government who provide loans to assist expanding businesses. All projects must meet minimum criteria for private investment, number of jobs created or retained, and wages paid. The maximum grant is $500,000. Only one grant per state fiscal year can be awarded to a government unit. At least 50 percent of total project costs must be privately financed through owner equity and other lending sources, although most applications selected for funding have at least 70 percent private financing. Grant terms are for a maximum of 20 years for real estate and 10 years for H: \CC\2011\recommendations funding_02152011.doc 2 machinery and equipment. Interest rates are negotiated. Applications are accepted year - round. Minnesota Job Skills Partnership Program The Minnesota Jobs Skills Partnership Program (MJSP) helps Minnesota businesses and schools competitively train the workforce. "Grants are awarded by the Minnesota Job Skills Partnership Board to educational institutions that partner with businesses to develop new job training or retraining for existing employees. Funds may be used for training - related costs or educational infrastructure improvements necessary to support businesses located or intending to locate in Minnesota. A cash or in -kind contribution from the contributing business must match program funds on at least a one -to -one ratio. The main MJSP program is: Partnership Program - grants to provide training that businesses need for new or existing employees A Pre Development Grant may be available to assist in covering costs associated with planning a specific, large -scale project for which Partnership Program funds will subsequently be requested Other MJSP grant activities are: Special Incumbent Worker Training Program - grants to provide training to assist businesses and workers to gain new skills that are in demand in the Minnesota economy Health Care and Human Services Training Program grants to provide training to alleviate worker shortages in the health care and human services industries Pathways Program - grants to provide training for individuals making a transition from public assistance to work Low Income Worker Training Program - grants to help low- income individuals receive training to acquire additional skills in order to move up the career ladder to higher paying jobs" (Information from MnDEED site on MJSP program) Business Subsidies: Tax Increment Financing (TIF): Tax increment financing (TIF) is a planning and financing tool which has been used by local units of government since 1973. Tax increment financing was originally designed by the Minnesota Legislature to replace the federal urban renewal programs of the 1960s, which were gradually cut back and eventually eliminated. H: \CC\2011\recommendations funding_02152011.doc 3 Tax increment financing uses the increase in property taxes resulting from new development to finance qualified public improvement costs related to that development. It is this increase or difference between the current property tax on a parcel of land and the estimated property tax after development that is the tax increment. Other sources of revenues may also be classified as tax increment. Permitted uses of the tax increment generated vary according to the type of tax increment financing and the year during which the tax increment financing district was certified. There are three different types of TIF Districts; economic development, housing, and redevelopment. To the extent that the City used TIF several years ago, it appears to have been only for economic development, rather than housing and redevelopment purposes (with the possible exception of an older TIF district for the Downtown area) Tax Abatement: Tax abatement is a finance tool whereby, similar to TIF, the increase in property tax as the result of new development is used as an incentive or gap financing device for a limited number of years. With tax abatement, the business pays the increased tax, but upon demonstration that the business has met economic development, job creation or other goals, the increment of tax attributable to the new development is reimbursed to the business. In recent years tax abatement has been the most frequently used financing tool used by the City of Shakopee. Generally, the tax abatement period has been limited to six (6) years. Local Tools: Facade Improvement Loan Program (FILP): For a number of years, the City has had a program (FILP) targeted to the restoration or renovation of historic structures in the Downtown and CH 101 corridor and architectural renovation of the facades of non - historic buildings in those same areas so that they better reflect the historic flavor of these areas. Often over the years, city staff has received inquiries about using the FILP for purposes of remodeling the interior of buildings or making other site improvements. The EDAC felt that this sort of expansion of the program could be beneficial in encouraging business start-up or expansion in these areas. Land/Building Acquisition and Write Down: Consider city acquisition of sites and write down of the cost of such sites for use by private developers, but only when the property owner petitions the city to acquire the site. City investment in additional infrastructure: (sanitary sewer, water, electric, fiber, and others); H: \CC\2011\recommendations funding_02152011.doc 4 Further marketing of available buildings and sites via the City's website and other media outlets; Gap Financing: The ED Ad Hoc Committee and EDAC have both identified the need for additional gap financing" for small to medium business start-ups, expansions and relocations. One question is whether the City should be involved in such gap financing only for buildings, or should also consider working capital. Generally speaking, it would appear to be cleaner and perhaps more manageable for the City to offer such financing for building types of projects, leaving it to the business owner to address working capital needs. It is not clear what size fund should be available for gap financing, but the following might serve as guidelines to help answer that question; • Consider participation only in projects that are relatively small (e.g. $1 million or less; • Consider participation levels of about 5 -10 %; • Develop criteria for eligible projects that may help to offset the tendency of such financing to be granted on a `first come /first served' basis. Further discussion of this concept is necessary, along with a discussion of the sources of funds available to fund such a program. Staff will explore whether there are federal or state funds that could serve as the corpus of such a fund in terms of a revolving loan fund (RLF). EDAC RECOMMENDATIONS: 1. Expand the current Facade Improvement Loan Program (FILP) to allow use of loan funds to a) remodel or modify the interior of a building and b) make other site improvements, such as landscaping. Expansion of the FILP program would require a budget amendment to dedicate additional funds, as well as a revision of the guidelines for use of the fund. 2. Consider city acquisition of sites and write down of the cost of such sites for use by private developers, but only when the property owner petitions the city to acquire the site. 3. City investment in additional infrastructure (sanitary sewer, water, electric, fiber, and others); 4. Further marketing of available buildings and sites via the City's website and other media outlets; 5. Encourage Scott County to review and reconsider its policy of not participating in tax abatement as a business subsidy. 6. The City should further explore the possibility of establishing or expanding a gap financing program, perhaps in the form of an RLF. Staff understands that there is currently about $220,000.00 available in an RLF. About $100,000.00 of the funds H: \CC\2011\recommendations funding_02152011.doc 5 came from EDA funds, and the balance apparently resulted from the re- payment of a loan to Challenge Printing (now Imagine! Print Solutions). ALTERNATIVES: 1. Offer and pass a motion accepting the EDAC recommendations regarding financing tools and funding sources as presented. 2. Offer and pass a motion accepting the EDAC recommendations regarding financing tools and funding sources with revisions. 3. Offer and pass a motion providing direction to the EDAC that is different than that recommended by the EDAC. 4. Table the matter for additional information. REQUESTED ACTION: The EDAC has recommended approval of the recommendations, alternative no. 1 or 2. R. Michael Leek Community Development Director H: \CC\2011\recommendations funding_02152011.doc 6 Woodbury Minnesota Economic Development Page 1 of 1 City of Woodbury 8301 Valley Creek Road Search Our Site: M rinesoto Woodbury, MN 55125 Go! (65 714 -3500 Wednesday, March 16, 2011 Online Services pt@ .y t t u C�i K ` it Index � t Us HOMO \ \\ Online rvi T x m' t cev 4 '• b M red w m :dam• ' "gym City Vertu w,nt Par* & Recreolion Woodbury Growth Fund Meaning, Zoning inspections Program purpose: To create and retain the highest quality jobs possible with a focus on industrial and technology related companies; to increase the Economic Devetopment local tax base and improve the economic vitality for all Woodbury residents. Econ. Dev. Authority(EDA) Econ. Dev. Comm.(EDC) How it works: Loans are provided to new and expanding businesses. Community Profile Development Opportunities Customized Financing Eligible applicants: Business and industries excluding retail, retail services, Solutions passive investment and real estate development projects. Commercial Development frarmenf Minimum requirements: All projects must have a private financing match. Owner equity must be 10% or greater. Wage and job goals must be Poke & Fire + established for projects receiving financing in the amount of $25,000 or streets & Utilities 4 more. Transit + Job & Volunteerism + Eligible projects: Loans for land, buildings, machinery, equipment and Commune„ Evonts leasehold improvements Business D reery Maximum available: $250,000 lending limit to any borrower. Other funds required: At least 50% of total project costs must be privately financed through owner equity and other lending sources. Most applications approved for funding have at least 70% private financing. Interest rate: Negotiated. Terms: Real estate a maximum of 15 years; machinery and equipment a maximum of 10 years. Collateral requirements: Negotiated. Personal guarantees may be required. Applications accepted: On a year -round basis using the Woodbury Growth Fund application. Approval Time: 30 to 60 days from receipt of all information required for a complete application. Approving authority: Woodbury Economic Development Authority. Disbursement of funds: As costs are incurred but pro rated with other sources of funding. http: / /www.ci.woodbury .mn.us /econdev /growth.html 3/16/2011