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HomeMy WebLinkAboutItem 4: Enterprise Zone Stds.EUGENE CITY COUNCIL AGENDA ITEM SUMMARY Action: Resolution 4849 Establishing Interim Local Criteria Applicable In the Proposed West Eugene Enterprise Zone and Adopting a Public Benefit Scoring System; and Repealing Resolution 4845 Meeting Date: July 18, 2005 Agenda Item Number: 4 Department: Planning and Development Staff Contact: Denny Braud www. eugette-or, gov Contact Telephone Number: 682-5536 ISSUE STATEMENT The council is being asked to consider a resolution establishing interim local criteria that would apply to tax exemptions granted in the West Eugene Enterprise Zone. BACKGROUND On June 27, 2005, the council approved Resolution No. 4845, which supported the establishment of interim local criteria applicable in the proposed West Eugene Enterprise Zone. On June 28, 2005, the City was notified that its application for designation of an enterprise zone was approved by the State of Oregon, with designation of the zone effective July 1, 2005. On June 29, 2005, the County Board of Commissioners (co-sponsors of the West Eugene Enterprise Zone) approved a version of the interim local criteria that did not include the council-supported cap on the amount of the tax exemption relative to the number of jobs created. The council subsequently, on June 29, 2005, approved a motion that directed the City Manager to withdraw the zone application, or to take steps necessary to terminate the City's sponsorship of the zone. The council also provided direction to begin working with the County on a mutually agreeable application for designation next year. A request to the State for withdrawal of the City's zone application was made on June 30, 2005. The State subsequently informed the City that the zone became effective on July 1, 2005, and encouraged the City and County to take time to discuss differences. The State requested an update on the progress of discussions between the City and County by July 15, 2005. Representatives from the City and County recently met to work on interim local criteria that would be acceptable to both parties. On July 12, 2005, Lane County Board of Commissioners approved a board order that would establish interim local criteria (Attachment A). However, the approved criteria departed from the City and County discussions leading up to the County's July 12 action. The primary point of departure is related to the inclusion of existing jobs (job retention) in the calculation of the $30,000/job cap on the tax exemption benefit, and the addition of"job retention" as one of the conditions under which the cap could be waived by the co-sponsors. Examples of how the proposed interim Public Benefit Criteria, and the proposed cap, would impact different-sized companies are included in Attachment B. The impact of the County's addition of job L:\CMO\2005 Council Agendas\M050718\S0507184.doc retention to the job cap would likely be immaterial for a majority of enterprise zone investments that would most likely meet the $30,000/job cap based solely on job creation. Companies new to the area (no existing jobs retained locally) making large capital investments with limited numbers of new jobs would likely experience the most significant reduction in the tax exemption benefit under this revised cap. Local companies that have large existing employment bases would benefit most from the revised cap. Given the opinion (see issue #4 in Attachment C) that a reduction of the tax exemption benefit by greater than one-third may not be allowed under State rules, it is possible that the proposed $30,000/job cap could only be enforced up to this limitation. The impact of the County's addition of"job retention" in the waiver provisions is not considered to be significant given that the council would be required to approve such a waiver. A summary of issues related to this agenda item is included in Attachment C. RELATED CITY POLICIES The enterprise zone tax exemption addresses the following related City policies: Sustainable Community Development - The council's Sustainable Community Development goal addresses high quality of life and a healthy economy. The availability of quality jobs is a basic quality of life issue. With a local unemployment rate that exceeds the national average, and local income levels below state and national averages, the creation of new production sector jobs is fundamental to the health of the local labor market. The creation of an enterprise zone will also provide an incentive for redevelopment, infill development, and brownfield redevelopment, which are primary sustainability goals. Growth Management - The enterprise zone advances the City's Growth Management goals by encouraging more intensive industrial development in a defined area that has been zoned accordingly, and where existing public infrastructure investments have already occurred. Fair, Stable, and Adequate Financial Resources - The long term property tax revenues that result from new investments that are encouraged by the short-term tax exemption address the council's goal for financial resources adequate to maintain and deliver municipal services. COUNCIL OPTIONS The council has several options: 1. Approve a resolution that is consistent with the July 12, 2005, Lane County Board Order. 2. Approve a resolution which would remove the inclusion of job retention in the calculation of the cap and the cap waiver provisions, and seek the County's reconsideration of its Board Order. 3. Take no action at this time, and continue working with Lane County to resolve differences related to interim criteria. 4. Take no action, and begin working with Lane County towards the establishment of permanent local criteria. 5. Proceed with City Council direction to terminate the West Eugene Enterprise Zone, and rescind direction to work towards a future zone designation. L:\CMO\2005 Council Agendas\M050718\S0507184.doc CITY MANAGER'S RECOMMENDATION The City Manager recommends that the council adopt the resolution, consistent with the July 12, 2005, Board Order approved by the Lane County Board of Commissioners, and begin working immediately with Lane County towards the establishment of permanent local criteria. SUGGESTED MOTION Move to adopt Resolution 4849 establishing interim local criteria applicable in the proposed West Eugene Enterprise Zone and adopting a public benefit scoring system; and repealing Resolution 4845. ATTACHMENTS A. July 12, 2005 County Board Order B. Tax Exemption Examples C. Summary of Issues D. Resolution No. 4849 FOR MORE INFORMATION Staff Contact: Denny Braud Telephone: 682-5536 Staff E-Mail: denny.braud~ci, eugene, or.us L:\CMO\2005 Council Agendas\M050718\S0507184.doc ATTACHMENT A IN THE BOARD OF COUNTY COMMISSIONERS OF LANE COUNTY, OREGON ) IN THE MATTER OF AMENDING RESOLUTION AND ORDER NO. 05-7-12-2 ) ORDER NO. 05-6-29-15 REGARDING ) ESTABLISHING INTERIM LOCAL ) CRITERIA APPLICABLE IN THE ) PROPOSED WEST EUGENE ) ENTERPRISE ZONE AND ADOPTING A ) PUBLIC BENEFIT SCORING SYSTEM WHEREAS, on June 29, 2005, the Board of Commissioners of Lane County adopted Order No. 05- 6-29-15 establishing interim local criteria applicable in the West Eugene Enterprise Zone and adopting a public benefit scoring system, but not including the cap of $30,000 per new full-time job created as proposed by the City of Eugene, and WHEREAS, the State of Oregon Economic and Community Development Department has approved the application from the co-sponsors and designated the West Eugene Enterprise Zone (Director's Order No. DO-05-130, dated June 28, 2005), effective July 1, 2005, and WHEREAS, further negotiations with the City of Eugene have occurred regarding the interim local criteria, and WHEREAS, the Board of Commissioners wishes to amend Order 05-6-29-15 with the addition of Sections 3 and 4 below, NOW, THEREFORE IT IS HEREBY RESOLVED AND ORDERED that the Lane County Board of Commissioners adopts as its findings the recitals stated above, and it is further ORDERED that, based on the above findings, the Board hereby establishes the following Interim Local Criteria for the proposed West Eugene Enterprise Zone: 1. Qualifying companies shall be required to make a public benefit contribution based on the following criteria: a. The extent to which the company hires from local training/referral agencies: b. The extent to which the company hires persons with barriers to employment: c. The extent to which the average compensation of new jobs is equal to or greater than the average county wage; d. The extent to which the company dedicates funds for non-mandated training and benefits; e. Whether the company is utilizing a previously developed site, including expansion of an existing site, or redevelopment of an industrial or brownfield site; f. The extent to which the assessed value of new investment exceeds $500,000 per acre; L:\CMO\2005 Council Agendas\M050718\S0507184.doc g. Whether the company is a small and/or local business or small and/or local start- up company. 2. In no event shall the amount of the contribution exceed 25% of the tax exemption. 3. NO~i~hs~anding~heP~°isi°ns°fse~i°ns ~ and2ab°ve ~he~hreeyea~ee~P~i°n ~e~ai~e~ Tax exemption benefits in excess of that amount shall be paid as a public benefit contribution. A business whose tax exemption benefit is anticipated to exceed the job cap limitation described in Section 3 shall make a public benefit contribution based on the anticipated excess, with a reconciliation of the contribution amount to occur in the third year of the exemption, based on records of actual employment. lng ~e e~i© ~esel.~ei~ i~e~iaarei, e~ ~e er_jOb i~iXen~e reeyea spe~i~i~ a PPli~an~i~ ~e ~ity n~il an h e Ba n e~e ~n~y Beard e ~e ~ ~issien e rsea~ag~ee~ e ~aie i fiCtion ~e ce sponsors ~e~isie~ ~ai~e ~ai~e ~he li~i~ s~all be base~ e n~ib~iOn pai~by e~he~ ~e~ parties in~h e wes~ E~ q e ~e E ~te~P ise zone ORDERED that the Board of Commissioners adopts the Public Benefit Criteria Scoring System contained in Exhibit A attached hereto and incorporated herein, to implement the Interim Local Criteria set forth above, for determining exemptions for future investments made by companies participating in the proposed West Eugene Enterprise Zone, and it is further ORDERED that during August 2005, Lane County and the City of Eugene will begin a process to develop and adopt permanent standards and public benefit criteria for the West Eugene Enterprise Zone. The process will begin with convening a joint City/County committee composed of two elected officials from each governing body and a total of four community representatives, two of whom shall be appointed by each governing body. The committee will meet from August, 2005 through January, 2006, as needed, to develop a proposal for permanent standards and public benefit criteria, and it will provide opportunities for stakeholder participation and community involvement, including public hearings. ORDERED that this Order shall become effective immediately upon adoption by the Board and adoption of a substantially similar resolution by the Eugene City Council. DATED this 12th day of July, 2005. Chair, Lane County Board of Commissioners L:\CMO\2005 Council Agendas\M050718\S0507184.doc ATTACHMENT B EXAMPLES A. Small Size Company · $500,000 Investment · 8 newjobs · 3 yr tax liability = $27,000 Public Benefit Criteria: Points 1. Average Wages: > 90% of County Average 0 2. Hire through Referral Agencies: > 35% 15 3. Barriers to Employment: 8% 5 4. Non mandated Training and Benefits: 3% o£payroll 5 5. Small Business: yes 10 6. Expansion/Redevelopment/Brownfields: Expansion 1 7. Investment Greater than $500,000/acre: No 0 TOTAL POINTS 36 Public Benefit Calculation: 25- (66pts/80) x 25) = 13.75 °A Public Benefit Contribution (3yr total) = $ 3,713 Exemption "Cap" Calculation Projected 3-year Exemption · $500,000/1,000 x $18 x 3yr = $27,000 Cap Calculation · $27,000/8jobs = $3,375/job Cap payment · NA: Exemption per job is les than $30,000 over 3 years B. Mid Size Company $1.5 Million Investment · 20 Jobs · 3-yr tax liability = $81,000 Public Benefit Criteria: Points 1. Average Wages: > 110% of County Average 25 2. Hire through Referral Agencies: > 35% 15 3. Barriers to Employment: 8% 5 4. Non mandated Training and Benefits: 6% of payroll 10 5. Small Business: yes 10 6. Expansion/Redevelopment/Brownfields: Expansion 1 7. Investment Greater than $500,000/acre: No 0 TOTAL POINTS 66 Public Benefit Calculation: 25- (66pts/80) x 25) = 4.375 % Public Benefit Contribution (3yr total) = $ 3,544 Exemption "Cap" Calculation Projected 3-year Exemption · $1.5 Million/1,000 x $18 x 3yr = $81,000 Cap Calculation · $81,000/20 jobs = $4,050/job Cap payment · NA: Exemption per job is les than $30,000 over 3 years C. Big Comoany · $1.4 Billion Investment · 1,000Jobs Public Benefit Criteria: Points 1. Average Wages: > 115% of County Average 40 2. Hire through Referral Agencies: > 35% 15 3. Barriers to Employment: > 10% - < 20% 10 4. Non mandated Training and Benefits: >10% of payroll 15 5. Small Business: No 0 6. Expansion/Redevelopment/Brownfields: Expansion 1 7. Investment Greater than $500,000/acre: Yes 1 TOTAL POINTS 82 Public Benefit Contribution $0 Exemption "Cap" Calculation Projected 3 year Exemption · $1.4 Billion/1,000 x $18 x 3yr = $75,600,000 Cap Calculation · $75,600,000/1,000 jobs = $75,600/job · Max. Exemption: $30,000/job · $30,000 x 1,000 jobs = $30,000,000 (40%of total exemption) Cap payment · $75,600,000 - $30,000,000 = $45,600,000 (60% of total exemption) · Payment with 1/3 limitation = $24,948,000 (33% of total exemption) ATTACHMENT C SUMMARY OF ISSUES West Eugene Enterprise Zone Agenda Item July 18, 2005 1. Termination of the Zone: Included in Council's June 29, 2005 approved motion is direction to terminate the new West Eugene Enterprise Zone, and begin working with the County towards an application for designation of a zone next year. However, if the new zone is terminated prior to its 10- year maturity date, State statutes (ORS 285C.250{2}) would not allow Eugene to apply for a zone at any time in the future. 2. Unilateral Termination of the Zone: In 1995, the City of Coburg passed a resolution in support of terminating a new enterprise zone that was jointly sponsored by Lane County. The matter was reviewed by the State Attorney General, and the State required termination resolutions from both the City of Coburg and Lane County. Based on this prior opinion, and recent confirmation from the State, it does not appear that the City of Eugene can unilaterally terminate the newly formed West Eugene Enterprise Zone. 3. Currently Active Zone: The new West Eugene Enterprise Zone was designated effective July 1, 2005 by the State of Oregon (Director Order DO-05-130). Therefore, the zone is currently operating under State statutes. Given the inability of the City and County to reach agreement on interim local criteria, the zone is currently operating without local criteria. It is important to note that companies seeking the program's tax exemption are eligible for precertification as of July 1, 2005. Tax exemptions associated with precertification applications submitted prior to the City's and County's adoption of local criteria would be subject to the State's basic eligibility criteria, but not subject to any local criteria subsequently adopted. Consistent with State statutes, the zone sponsor does not have the discretion to deny precertification of an eligible application. As of this date, the City has received one precertification application under the new West Eugene Enterprise Zone. Heli-Tech, an existing, local helicopter product manufacturer, has submitted a precertification application for a new $2 million production facility to be located at Danebo Ave. and Pacific Ave. Although the investment appears to be eligible, the City and County have not yet taken action on the application. 4. Reduction of Tax Exemption Benefit Resulting from the Cap: On April 19, 2005, staff submitted a memo to the Mayor and Council in response to questions leading up to the April 20, 2005 Council meeting. The memo included a summary of the City Attorney's response related to the legality of the proposed per-job cap on the tax exemption benefit. Although the City Attorney opinioned that such a cap appears to be legal under statutes, concerns were raised regarding scenarios in which the cap resulted in a reduction in the tax benefit of more than one-third. Oregon Administrative Rules preclude reduction of the tax exemption benefit by more than one-third. Given this limitation, the ability of the L:\CMO\2005 Council Agendas\M050718\S0507184.doc City to succeed in a legal challenge associated with enforcement of a cap that results in greater than one- third reduction in the benefit is questionable. 5. Grandfathering of Existing Companies: Although a thorough legal analysis has not yet been conducted on the implications associated with termination of the new West Eugene Enterprise Zone, it is possible that precertified companies, and companies receiving tax exemptions at the time of termination, could retain grandfathering rights under State statutes. The grandfathering provision allows companies, for a ten-year period following termination, to continue to qualify new investments for tax exemptions. Subject to interpretation of State statutes, this grandfathering may also apply to companies (Hynix and Lanz Cabinets) still receiving tax exemptions under the previous zone. L:\CMO\2005 Council Agendas\M050718\S0507184.doc ATTACHMENT D RESOLUTION NO. A RESOLUTION ESTABLISHING INTERIM LOCAL CRITERIA APPLICABLE IN THE PROPOSED WEST EUGENE ENTERPRISE ZONE AND ADOPTING A PUBLIC BENEFIT SCORING SYSTEM; AND REPEALING RESOLUTION 4845. The City Council of the City of Eugene finds that: A. On April 20, 2005 the City Council adopted Resolution No. 4832 authorizing the City Manager to make application to the State of Oregon for designation of a West Eugene Enterprise Zone. B. At the time Resolution 4832 was approved the Council directed the City Manager to bring back to the Council, prior to July 1, 2005, a resolution adopting interim local criteria consistent with the Public Benefit Criteria adopted in 1997. It was the understanding that new job quality standards would be adopted as soon as practical following notification of a successful designation application, with the intent that 25 percent of the tax exemption benefit for qualified enterprise zone investments would be subject to the job quality standards. C. On June 27, 2005, the Council approved Resolution 4845, adopting Interim Local Public Benefit Criteria and other provisions pertaining to the West Eugene Enterprise Zone in anticipation of the designation of the Zone. Resolution 4845 provided that it would become effective upon adoption by the Council and adoption of a substantially similar resolution by the Lane County Board of Commissioners. On June 28, 2005, the Board of Commissioners adopted a resolution, but it was not substantially similar to Resolution 4845. This resolution replaces Resolution 4845. D. On June 28, 2005, by Director's Order No. DO-05-130, the Oregon Economic and Community Development Department approved the application and designated the West Eugene Enterprise Zone, effective July 1, 2005. E. The Interim Local Public Benefit Criteria set forth herein consist of the 1997 Public Benefit Criteria, with the public benefit contribution of 15 percent modified to 25 percent, as directed by the Council. The Council also requested that a cap be placed on the tax exemption, and staff has recommended a cap of $30,000 per new full-time job created. F. The Public Benefit Criteria attached as Exhibit A hereto reflect the scoring system adopted by Resolution No. 4548 on December 1, 1997 with the formula for calculating the public benefit contribution adjusted to reflect the Council's desire to condition 25 percent (formerly 15 percent) of the tax exemption on the public benefit criteria. Resolution- 1 G. Retention of existing jobs and support of existing businesses are important elements of the West Eugene Enterprise Zone, and those elements shall be discussed during the development of permanent standards and public benefit criteria. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF EUGENE, a Municipal Corporation of the State of Oregon, as follows: Section 1. Based on the above findings, which are hereby adopted, the City Council hereby establishes the following Interim Local Benefit Criteria for the proposed West Eugene Enterprise Zone: (a) Qualifying companies shall be required to make a public benefit contribution based on the following criteria: 1. The extent to which the company hires from local training/referral agencies; 2. The extent to which the company hires persons with barriers to employment; 3. The extent to which the average compensation of new jobs is equal to or greater than the average county wage; 4. The extent to which the company dedicates funds for non- mandated training and benefits; 5. Whether the company is utilizing a previously developed site, including expansion of an existing site, or redevelopment of an industrial or brownfield site; 6. The extent to which the assessed value of new investment exceeds $500,000 per acre; 7. Whether the company is a small and/or local business or small and/or local start-up company. (b) Except as provided in subsection (c), in no event shall the amount of the contribution exceed 25% of the tax exemption. (c) Notwithstanding the provisions of subsections (a) and (b) of this section, the three-year tax exemption benefit shall be limited to a maximum of $30,000 (i.e., $10,000 per year) per new full-time job created or retained. Tax exemption benefits in excess of that amount shall be paid as a public benefit contribution. A business whose tax exemption benefit is anticipated to exceed the job cap limitation described in this subsection (c) shall make a public benefit contribution based on the anticipated excess, with a reconciliation of the contribution amount to occur in the third year of the exemption, based on records of actual employment. Resolution - 2 (d) During the period these Interim Criteria are in effect, the per-job limit on the three-year tax exemption benefit described in the first sentence of subsection (c) of this section may be waived or modified for a specific applicant if the City Council and the Lane County Board of Commissioners each agree to the waiver or modification. The co-sponsors' decision to waive or not to waive the limit shall be based on consideration of the applicant's proposed capital investment in the West Eugene Enterprise Zone; the anticipated job creation or retention resulting from the applicant's investment; the applicant's commitment to make other beneficial community investments; local economic conditions at the time of the application, including but not limited to the unemployment rate, market trends, and competition for attracting new businesses to the community; the co-sponsors' budget circumstances at the time of the application and the effect of reducing the public benefit contribution on the co-sponsors' ability to provide public services to their citizens; and the co-sponsors' judgment as to the reasonableness of the public benefit contribution in light of the foregoing factors and in comparison to the public benefit contribution paid by other companies in the West Eugene Enterprise Zone. Section 2. The City Council adopts the Public Benefit Criteria Scoring System contained in Exhibit A attached hereto and incorporated herein, to implement the Interim Local Criteria set forth in Section 1 of this Resolution, for determining exemptions for future investments made by companies participating in the proposed West Eugene Enterprise Zone. Section 3. During August, 2005, the City of Eugene and Lane County will begin a process to develop and adopt permanent standards and public benefit criteria for the West Eugene Enterprise Zone. The process will begin with convening a joint City/County committee composed of two elected officials from each governing body and a total of four community representatives, two of whom shall be appointed by each governing body. The committee will meet from August, 2005 through January, 2006, as needed, to develop a proposal for permanent standards and public benefit criteria, and it will provide opportunities for stakeholder participation and community involvement, including public hearings. Section 4. Resolution 4845 is repealed. Section 5. This Resolution shall become effective immediately upon adoption by the Council and adoption of a substantially similar resolution by the Lane County Board of Commissioners. The foregoing Resolution adopted the __ day of July, 2005. City Recorder Resolution - 3