Tax Abatement Committee

TAX ABATEMENT COMMITTEE DPW – ROOM 204 150 S. KENDALL STREET BATTLE CREEK, MICHIGAN JUNE 14, 2011 10:00 AM Present: Mayor Baldwin, Comm. Lynn Ward Gray Absent: Comm. Elizabeth Fulton, David Walters Staff: Ken Tsuchiyama, James Ritsema, Steven Hudson, Susan Bedsole, Eileen Wicklund Others: Cheryl Beard, Doug Voshell Call to Order: Mayor Baldwin called the meeting to order at 10:08 a.m. Public Comment: None. The Mayor asked City Manager Ken Tsuchiyama to present information regarding the proposed guidelines. Mr. Tsuchiyama explained that staff and BCU had met and discussed possible options and developed the proposed guidelines. Mr. Ritsema provided an overview of the handouts. He further reviewed the specific minimum threshold criteria for the Commercial Rehabilitation Act. Mr. Voshell explained the types of state incentives that are often available to a developer. He further explained the requirement for seeking state incentives was included because the City and BCU want the developer to go to the state first. Mr. Ritsema added often times the local incentive piggy backs off of the state incentive, therefore, there was a need for the requirement. He continued providing an explanation of the minimum criteria. Ms. Wicklund asked if there was any thought as to pre-existing infrastructure and if there would be a credit. Mr. Tsuchiyama responded there are several other City ordinances that will come into play and these guidelines are merely to put developers on notice that there are other requirements. Mr. Tsuchiyama pointed out staff used the $100,000 minimum investment because that was the minimum, but the team felt the amount should be more. Comm. Gray asked if there was an average investment for these types of projects. Mr. Voshell answered they were really all over the board. Comm. Gray questioned whether the investment was for property or personnel. Mr. Ritsema responded it was for property investment. Mayor Baldwin asked if it was real or personal property, and suggested the word “real” be included in the description. Comm. Gray asked if there was flexibility in the guideline. Mr. Ritsema answered there would be some flexibility. He then explained the last minimum threshold requirement indicating the City did not want to create blight elsewhere. Moving to the Targeted Development Area, he explained the map showed the boundaries. He then discussed the chart in the guideline and the automatic elevation in the Downtown area. Mr. Tsuchiyama explained it was only generally an automatic elevation. Each project will be reviewed by staff to determine if the elevation is warranted. Staff will verify it is a viable project before making a recommendation. Ms. Wicklund suggested noting on the guideline that it be explained the elevation is not automatic. Mr. Tsuchiyama suggested we use the word potential instead of automatic in the guidelines. 1 Mr. Ritsema explained with the different year levels there were differing investment levels. Additionally, he noted an agreement is required to be signed by the requestor setting forth all of the requirements. In the last OPRA agreement the City executed it required the job thresholds be maintained and if they were the company automatically receive the entire 12 year abatement. If the job thresholds fell below the minimum requirement, there was a provision for revocation. He further added this language would be included in all future agreements. Comm. Gray asked if the revocation language should be in the guidelines. Mr. Ritsema indicated that language will be in the agreement they sign, which is contained in the application packet the applicant receives. Mr. Hudson stated if the City doesn’t grant the maximum allowable years, state law requires the City to set forth reasons why and to provide the applicant with information showing what they need to do to receive the maximum number of years. Further, the guidelines were to help developers understand what they could get based on what they are bringing to the table. Mr. Ritsema explained there were circumstances where there is flexibility for exceptional projects. Mr. Voshell asked that the word “enhancing” be removed from the Project Elevation paragraph. He also requested it now say “elimination of blight”. Mr. Hudson explained the process an application follows once it is submitted to the City and the pre-qualification process staff follows. Mr. Ritsema reminded everyone the state has final say on its approval. He then explained the Contract and Reporting Requirements. Comm. Gray requested a copy of the full packet. Mr. Hudson stated we were looking for the Tax Abatement Committee to approve the proposed guidelines so it could be moved to the City Commission. Once the guidelines are adopted, it is easier to market and process. Comm. Gray asked if properties outside of the targeted area would be considered. Mr. Ritsema replied they would be considered. Ms. Wicklund asked at what stage was viability of the project considered. Mr. Voshell answered that both BCU and the City initially looked to see if it is viable. Even if it is determined not to be feasible, the City still has the application fee to cover costs. Ms. Wicklund asked what if you have a developer that shows on paper they meet the criteria, but the City has other data showing in the past they have not. Mr. Tsuchiyama said we want to avoid having too much specificity so that developers don’t then say “it wasn’t in the guidelines so we don’t have to follow it.” Ms. Wicklund said her suggested language isn’t particularized, but would generally put people on notice they are not automatically approved. Mayor Baldwin asked what else the developer receives in the application packet. Mr. Voshell stated the guidelines, state statutes, agreement, and application. Mayor Baldwin suggested there be a cover letter that explains the process. Ms. Wicklund said we need to make certain we are fair and equal in our granting of abatements. She further stated we simply want to put them on notice that we “may” be looking at the viability of the developer. Mr. Ritsema added with an OPRA, they are certifying that “but for” the incentive, the project would not go forward. Mayor Baldwin asked if staff had a number for the minimum investment. Mr. Tsuchiyama responded staff was looking at $250,000, $500,000, and $750,000. Mr. Hudson said the $100,000 was originally set for the IFT’s that have a different kind of investment. He added you don’t see the same kind of job creation in the commercial developments. 2 Mayor Baldwin asked what are we going to do about a small restaurant that wants to come Downtown but won’t have that much investment, maybe $100,000 is too much. Mr. Tsuchiyama responded stating we would like most projects to come in with no incentives. If we make the investment too low, a lot of people can come up with the minimum investment threshold, but they can’t make the project viable. Mr. Voshell added when we look at projects we are essentially making a four year bet. At the end of the four years we re-evaluate how the project has gone and if not successful, we don’t extend the abatement. Mr. Ritsema pointed out that even if the company doesn’t succeed at the end, the city still has a rehabilitated building because of the investment. Mr. Voshell added the tax rate is higher because of the improved property. Comm. Gray asked if there was value in keeping the lower amounts, then raising the minimums in later years. This might get a jump start on projects Downtown. Ms. Beard said this would encourage projects that aren’t viable and down the road it would actually be harmful. She added there was enough interest because of the Downtown transformation that the higher amount is warranted. Mayor Baldwin asked if we could waive some of the minimum criteria. If so, then can the Commission impose further conditions. Comm. Gray said she is looking at this as simply guidelines so that there is flexibility. She felt the Commission wanted the flexibility to impose further conditions. Mayor Baldwin clarified she can understand in situations were there was an exception the Commission would consider that, but if it’s just a simple application that meets all of the criteria, then it would simply be approved by the Commission. Comm. Gray agreed that in situations where the company has met all of the minimums, it should be approved. Mayor Baldwin said, for example, if we are talking about Baxter and competition, that’s not appropriate for consideration. Comm. Gray responded that wasn’t the entire story; there were other entities that did not have the understanding they could apply, she wanted that to change. Mayor Baldwin said something that can go along with this is good education. She further said, assuming a developer meets all of the criteria, technically the Commission should approve it automatically. She sees a problem where a commissioner may not agree with the project, and therefore vote no and questioned if the City was exposed in this situation. Ms. Wicklund said a commissioner should not vote against an applicant because they don’t like the project when it meets the requirements. The City is open to a lawsuit when it doesn’t equally apply its requirements. Comm. Gray asked how we track the annual reports. Mr. Tsuchiyama answered it is part of contract compliance. He asked Comm. Gray her preference for investment threshold. Comm. Gray responded she preferred to keep it at $100,000. Mr. Ritsema asked about next steps. Mayor Baldwin suggested one more committee meeting and meet with the absent committee members prior to the committee meeting. Mr. Tsuchiyama suggested we have a committee meeting prior to a City Commission meeting to approve the guidelines. Adjournment: Mayor Baldwin adjourned the meeting at 11:25. 3