City Council

CITY OF FREDERICKSBURG, VIRGINIA HON. THOMAS J. TOMZAK, MAYOR HON. MARY KATHERINE GREENLAW, VICE MAYOR CITY COUNCIL HON. KERRY P. DEVINE, AT-LARGE HON. BRADFORD C. ELLIS, WARD ONE HON. GEORGE C. SOLLEY, WARD TWO HON. FREDERIC N. HOWE, III, WARD THREE Council Chambers, 715 Princess Anne Street HON. BEATRICE R. PAOLUCCI, WARD FOUR Fredericksburg, Virginia 22401 Council Work Session October 25, 2011 Business Incentives & Tourism & Technology Zones The Council of the City of Fredericksburg, Virginia held a work session on Tuesday, October 25, 2011, beginning at 5:30 p.m. in City Hall Conference Room. Council Present. Mayor Thomas J. Tomzak, Presiding. Vice-Mayor Mary Katherine Greenlaw. Councilors Kerry P. Devine, Bradford C. Ellis, Frederic N. Howe, III, Beatrice R. Paolucci and George C. Solley. Also Present. City Manager Beverly R. Cameron, Assistant City Manager Mark Whitley, City Attorney Kathleen Dooley, Economic Development Director Karen Hedelt, Economic Development Manager Richard Tremblay, Planning Director Ray Ocel and Clerk of Council Tonya B. Lacey. Others Present. Sandy McNinch, General Council at Virginia Economic Development Partnership. Business Incentives. Ms. McNinch presented a PowerPoint that expanded on incentives. Incentives are recognized widely for a positive business climate and other attributes. Incentives are used to win and keep communities in the game. She said that most companies expect some level of incentives. The Virginia Economic Development Partnership (VEDP) administered discretionary incentives in nearly seven percent (7%) of their assisted projects and she said many others received tax credits or other incentives. Ms. McNinch discussed the stewardship of the State resources and said the discretionary incentives or cash grants are supported by the return-on-investment analysis. They also measure benefits versus cost and they strive for a 2-3 year payback, but it has taken some as much as 4-8 years. She 1 said that effectiveness of incentives is hard to measure. Good companies don’t just come for incentives, but some companies will not come to your area if there are not good incentives offered. Another important factor is that you must look at the relationship as a partnership, this helps when trying to bring a company to your location. She explained that the State has a good return-on-investment; the ratio is $10 to every $1 given. Ms. McNinch said there are several reasons a locality might want to have incentives and they are: the industry sector, job profiles, and they must ask if it advances the locality in the markets they want to grow, is there a supply chain, and is it a transformative opportunity. She also warned not to have too many by-right incentives and you can have upfront requirements and after performance requirements. Staff also distributed current performance agreement summaries. (see attached for more details). Tourism and Technology Zone Incentives. Economic Development Director Hedelt explained that they find incentives to be a valuable tool to use in order to reach out to prospects. She said they look at what the City’s neighbors are offering in order to be competitive. Incentives help to equalize or compensate for benefits in other localities. She said her office is working with a commercial broker that’s familiar with tourism zones and this creates an additional sales point. The incentive programs in the technology zone are rewarded after verification of the performance criteria is presented. Ms. Hedelt noted that the City’s incentive program was not a grant program, but they were awarded for proven attainment of jobs, investment and tax generation criteria. The incentives have been a significant tool in a tough economy. Currently the City has 10 active agreements. She also noted that the tourism zone enables businesses to access incentives from the state tourism incentives. Economic Development Manager Tremblay discussed the City’s technology zone boundaries and criteria. The current criteria for new businesses is to add 10 or more jobs or invest $250,000 or more in capital improvements and the current criteria for existing businesses is to add 5 or more jobs or invest $125,000 more in capital improvements. The City currently has two technology incentive agreements one with CBAIA in Eagle Village and QRC in Central Park. Each of the businesses have been open about a year and have four more years left. They have created 45 jobs, the capital investment is $560,000, the business tax revenues are $400,000, the maximum incentives are $206,000, and the payouts to date are $44,616. In the City’s Tourism Zone (Eagle Village, Celebrate Virginia South and Central Park) the criteria is the same for new and existing businesses, they must add 25 or more jobs or invest $500,000 or more in capital improvements. In the downtown/Princess Anne Street 2 tourism zone new businesses must add 10 or more jobs and invest $250,000 or more in capital improvements. The criteria for existing businesses are to add 5 or more jobs or invest $125,000 or more in capital improvements. There are eight current tourism incentive agreements with Wegmans, Capital Ale House, Kybecca, Bavarian Chef, Castiglia’s, AAA Mid-Atlantic, Buttermilk and Olde Lace, and Hyatt Place Hotel. These incentives have created 633 jobs, capital investments of $41.9 million, the business tax revenues are $17 million, the maximum incentive will be $2,375,000 and the payouts to date are $393,899. Council asked whether the cost ratio had been computed to date. Mr. Tremblay said it’s close to $10 to $1, but he said he could calculate the return-on-investment by using the state’s calculation tool. Councilor Solley stated that he would like to get the calculations regularly. Ms. Hedelt presented a few changes she would like to make to the existing zones. She proposes to add Gateway Village, Geenbrier and Westwood Shopping Centers, and Woodlyn Drive. She said these are stressed shopping centers and she felt that if they were added to the Route 3 Corridor Tourism Zone they may generate more business. Staff also proposed the addition of a Battlefield Industrial Park Technology Zone. Staff suggested reducing the Downtown tourism zone qualifications: new businesses would be required to create five jobs, or $75,000 in capital investments and existing businesses would be required to create 3 jobs or $25,000 in capital investments. Councilor Solley suggested making the criteria different for retail businesses and restaurants because it would be difficult to attract a retail business under the same qualifications that are required for restaurants. Mr. Tremblay said that could be done. In addition to reducing the Downtown Tourism zone staff suggests reducing the Technology zone: for a new business they must create 5 jobs or $75,000 capital investment or for an existing business they must have a10% expansion or create three jobs or $25,000 in capital investments. Councilor Ellis asked if the hub zones were city wide and Mr. Tremblay said no they were based on the census tracts. They cover 2/3 of City land area. Staff also suggests a change to allow the City Manager to approve agreements up to $100,000 in total value; this would be a maximum payout. This would allow a more quickly response because of legal needs. The process delay can create logistical problems. Councilor Devine said she would be more comfortable with that process. Councilor Solley stated that there were a number of Council members under the impression that the rational with the incentives would give Council some control over what businesses came to the City, but it hasn’t worked like that. He said maybe it was a 3 misunderstanding but the way the standards have been set if the applicant meets the criteria they automatically get the incentive. He asked whether City Council should be able to have some influence over a project when they are receiving incentives. An example would be the hotel in Eagle Village he said he would have liked to have been able to say they should be LEED certified. Mr. Tremblay explained that some things could be negotiated on specific projects. Councilor Ellis felt that if incentives were used in this manner applicants would get discourage. Councilor Devine suggested maybe putting certain criteria with certain projects. Ms. Hedelt stated that she like the word model and if a desired result such as employment investment return is achieved or LEED certification is achieved then there would be a certain benefit to the business. Councilor Howe mentioned that one of the things the City focuses on is how to attract a business, but he asked what the City does to retain them. He suggests that some reward program be set up for those businesses that have continued to stay 10-20 years. Ms. Hedelt said she understood but felt that new businesses bring more opportunities. Councilor Ellis asked Ms. McNinch if the state does anything like that to retain businesses. She said the state offers consulting services, but other than that they have limited resources. Councilor Devine said the main concern she has heard is about the empty buildings and shop. The businesses are saying please fill the empty shops and they know that if the empty spaces are filled it raises the bar for everyone. Councilor Paolucci said she hears a lot from the downtown business owner asking what the City is going to do for them. She also agreed that something should be done for those businesses that have stayed within the City. Vice-Mayor Greenlaw stated that the City needed to look more strongly at targeting sectors. She said she is not clear on what sectors or businesses the City wants. Ms. Hedelt suggested the City look more strategically. She said a lot of focus is put on downtown but the City need to look more strategically. Councilor Ellis asked what the City does proactively (like advertising) to go after businesses. Mr. Tremblay noted that they recently sent out postcards in the 22401 zip code advertising the technology zone incentives. Karen added that they also meet regularly with commercial brokers to exchange information. Mr. Tremblay said they also plan to send the postcards outside of the 22401 area, but it can be sensitive. Mr. Cameron asked if there was a consensus to move forward with the changes and council suggested there be a stronger incentive for retail. 4  Adjournment. There being no further business to come before the Council at this time, the meeting was declared officially adjourned at 6:48 p.m. Tonya B. Lacey Tonya B. Lacey Clerk of Council City of Fredericksburg 5