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07-11-2023 EDC Agenda PacketA.5:30 P.M. - CALL TO ORDER B.APPROVAL OF AGENDA Commissioners may add or delete items at this time. C.APPROVAL OF MINUTES C.1 Approve Economic Development Commission Minutes of June 13, 2023. D.VISITOR PRESENTATIONS E.DISCUSSION / GENERAL BUSINESS ITEMS E.1 Updating the City's Business Subsidy Policy F.DIRECTOR'S REPORT G.ADJOURNMENT AGENDA CHANHASSEN ECONOMIC DEVELOPMENT COMMISSION TUESDAY, JULY 11, 2023 CITY COUNCIL CHAMBERS, 7700 MARKET BOULEVARD 1 Economic Development Commission Item July 11, 2023 Subject Approve Economic Development Commission Minutes of June 13, 2023. Section APPROVAL OF MINUTES Item No: C.1 Prepared By Amy Weidman, Admin Support Specialist File No: SUMMARY BACKGROUND DISCUSSION RECOMMENDATION Staff recommends that the Economic Development Commission approve the June 13, 2023 Commission minutes. ATTACHMENTS EDC meeting minutes dated June 13, 2023 2 CHANHASSEN ECONOMIC DEVELOPMENT COMMISSION REGULAR MEETING JUNE 13, 2023 Chairman Anderson called the meeting to order at 5:30 p.m. MEMBERS PRESENT: Chair Eric Anderson, Commissioners Duke Zurek, Chris Freeman, Stacy Goff, Luke Bame, and Cohen Lee MEMBERS ABSENT: None. STAFF PRESENT: Samantha DiMaggio, Economic Development Manager PUBLIC PRESENT: None. Member Goff moved, Member Zurek seconded to approve the agenda. All voted in favor and the motion carried unanimously with a vote of 5 to 0. APPROVAL OF MINUTES: APPROVE ECONOMIC DEVELOPMENT COMMISSION MINUTES DATED May 9, 2023 Member Zurek moved, Member Bame seconded to approve the Minutes of the Economic Development Commission meeting dated May 9, 2023 as presented. All voted in favor and the motion carried unanimously with a vote of 5 to 0. DISCUSSION/GENERAL BUSINESS ITEMS: 1. REVIEW THE STATE OF MINNESOTA’S BUSINESS SUBSIDY REGULATIONS Economic Development Manager DiMaggio explained the background of the business subsidy regulations and provided a copy of the city’s business subsidy regulations for commissioners to read for the next meeting. Ms. DiMaggio explained the requirements needed for funding to be considered a business subsidy. She laid out the criteria needed to meet business subsidy regulations. Ms. DiMaggio shared the Economic Development Commission’s need to develop a wage floor for the business subsidy requirements. Ms. DiMaggio shared that in the business subsidy agreement, there needs to be the purpose of the subsidy, the public purpose, measurable job goals, expectations if a company does not meet 3 Economic Development Commission – XX, 2023 2 goals, and commitment to jurisdiction for five years after the benefit date, statement of parent company, and the list of financial granters. There must be a public hearing with business subsidy agreements. If businesses fail to meet goals, they must pay the government back with interest. Ms. DiMaggio shared that the Economic Development Commission will make changes to their business subsidy agreements together next meeting. The Commission will consider the average wage in town and the cost of living in Chanhassen. NEW BUSINESS: None. ADMINISTRATIVE PRESENTATION: None. CORRESPONDENCE DISCUSSION: None. DIRECTOR’S REPORT: Economic Development Manager DiMaggio shared that there is redevelopment occurring downtown and they are considering additional funding sources. The final adopted legislation regarding the Local Option Sales Tax is under review by the guiding authorities. More information will be shared with the EDC at a future meeting. There will be a City Hall meeting in September. Commissioners are encouraged to attend the meeting. ADJOURNMENT: Member Freeman moved, Member Bame seconded to adjourn the meeting. All voted in favor and the motion carried unanimously with a vote of 5 to 0. The Economic Development Commission meeting was adjourned the meeting at 6:48 p.m. Submitted by Samantha DiMaggio Economic Development Manager Prepared by Amy Weidman Administrative Support Specialist 4 Economic Development Commission Item July 11, 2023 Subject Updating the City's Business Subsidy Policy Section DISCUSSION / GENERAL BUSINESS ITEMS Item No: E.1 Prepared By Sam DiMaggio, Economic Development Manager File No: SUMMARY The current Business Subsidy Policy was last amended on September 24, 2018. Staff is recommending an update to the policy based on the economic changes which have occurred over the past five years. BACKGROUND The purpose of a Business Subsidy Policy is to establish criteria and provide guidelines for granting businesses subsidies, including assistance such as Tax Increment Financing (TIF) and Tax Abatement. In addition to our local Business Subsidy Policy, the requirements and limitations established through Minnesota State Statute Sections 116J.993 through 116J.995, as amended, shall be followed. The Business Subsidy Policy will be used as a guide when reviewing an application submitted to the city for a business subsidy. In addition to the Business Subsidy Policy, all other city policies will be used when reviewing a business subsidy application. The city has the right to deviate from its Business Subsidy Policy. A business subsidy is defined as: A local government agency grant, contribution of personal property, real property, infrastructure, the principal amount of a loan at rates below those commercially available to the recipient, any reduction or deferral of any tax or any fee, any guarantee of any payment under any loan, lease, or other obligation, or any preferential use of government facilities given to a business, and as defined by the Business Subsidy statute M.S. §116J.993 - 116J.995. MN Statute 116J.994, Sub. 2 requires that prior to awarding a financial subsidy to a business, a set of criteria needs to be developed by the grantor. Subd. 2. Developing a set of criteria. A business subsidy may not be granted until the grantor has adopted criteria after a public hearing for awarding business subsidies that comply with this section. The criteria may not be adopted on a case-by-case basis. The criteria must set specific minimum requirements that recipients must meet in order to be eligible to receive business subsidies. The criteria 5 must include a specific wage floor for the wages to be paid for the jobs created. The wage floor may be stated as a specific dollar amount or may be stated as a formula that will generate a specific dollar amount. A grantor may deviate from its criteria by documenting in writing the reason for the deviation and attaching a copy of the document to its next annual report to the department. DISCUSSION RECOMMENDATION The EDA should review and recommend changes to the proposed Business Subsidy Policy prior to recommending it's approval and the scheduling of a public hearing. ATTACHMENTS City of Chanhassen Draft Policy 2023 Business Subsidy Guideline 2018 6 pg. 1 Business Subsidy Policy Amended: XXX, 2023 Last Amended: September 24, 2018 Originally Adopted: October 11, 1999 For the purposes of this document, the term “city” includes the Chanhassen City Council, the Chanhassen Economic Development Authority (EDA), the Chanhassen Economic Development Commission, city staff, financial consultant, and legal counsel. I. PURPOSE The purpose of the Chanhassen Business Subsidy Policy is to establish criteria for the gran�ng of business subsidies, including financial assistance, through Tax Increment Financing (TIF), Tax Abatement, or other programs that may become available through the city or the Minnesota Department of Employment & Economic Development (DEED). This policy will be used as criteria for providing subsidies, in addi�on to the requirements and limita�ons set forth by provision of Minnesota Statutes Sec�on 116J.993 through 116J.995, as amended, the Business Subsidy Act (the act). Any applicant who is not in good standing with the city regarding licenses, fees, code viola�ons, or other city issues will not be considered for a business subsidy. The criteria set forth in this Business Subsidy Policy shall be used as a guide in processing and reviewing the applica�on and will be used in conjunc�on with other relevant policies of the city. The city reserves the right to approve or reject projects on a case-by-case basis, taking into considera�on current polices, project criteria, and demand on city services or infrastructure in rela�on to the poten�al benefits from the project. Mee�ng this policy criteria does not guarantee the award of business assistance for the project. The city also has the right to deviate from this policy at any �me. Approval or denial of one project is not intended to set precedent for approval or denial of another project. The City may amend this policy at any �me. Amendments are subject to public hearing requirements contained in the act. II. TYPES OF BUSINESS SUBSIDY A Business Subsidy, as further defined herein and in the Act shall include, but not be limited to one of the following types of subsidies provided by the City and/or DEED: 1. Loan 7 pg. 2 2. Grant 3. Tax Abatement 4. Tax Increment Financing (TIF) or other tax reduc�on or deferral 5. Guarantee of payment 6. Contribu�on of property or infrastructure 7. Preferen�al use of government facili�es 8. Land contribu�on, or 9. Another specified subsidy III. Business Subsidy Criteria The following criteria will be u�lized in evalua�ng a request for a business subsidy. 1. Public Purpose. A business subsidy must be used to meet a public purpose. The public purpose may include, but may not be limited to, increasing the tax base. Job reten�on may only be used as a public purpose in cases where job loss is specific and demonstrable. 2. Increase Tax Base. The act provides that an increase in tax base cannot be the sole basis for genera�ng a business subsidy. However, the city considers an increase in tax base to be a cri�cal factor in gran�ng a business subsidy. 3. Wage & Job Creation. The project provided a business subsidy must create a minimum of ten full-�me equivalent job paying at least 200% of the State minimum wage in effect at the �me the subsidy is granted. If, a�er a public hearing, the city determines that the crea�on or reten�on of jobs not a goal of the project, the job crea�on goal may be set at zero (0). The maximum assistance provided per job created or maintained will be $25,000/job. 4. "But-For" Test . When there is a substan�al likelihood that the project would not go forward or would not go forward in the same capacity without the business subsidy. This criterion may be met based solely on representa�on of the recipient of the business subsidy. 5. Other Economic or Redevelopment Goals. If crea�on of jobs is determined not to be a goal of a project (and by extension wages) the proposed business subsidy must achieve specific, tangible, and measurable goals related to one or more of the following: a. To encourage addi�onal unsubsidized private development in the area, either directly or indirectly through “spin off” development. b. To remove blight and/or encourage development of commercial and industrial areas in the city that result in higher quality development and private investment. c. To support a project that will improve the quality of life in the city by providing a desirable good or service and addressing an unmet demand in the community. d. To pro mote revitaliza�on and redevelopment within the city, especially within the Downtown. e. Focus on the crea�on of wealth through “high value investment” rather than on the number of jobs created. In gran�ng a business subsidy, the city may deviate from the criteria outlined above if: a. The reason for the devia�on is documented in wri�ng, and b. Reported to the DEED pursuant to the act. 8 pg. 3 IV. APPLICATION PROCESS The applicant will complete and submit the city's Business Subsidy Applica�on, the required applica�on fee (refer to the current year's adopted fee schedule), and any addi�onal informa�on requested by the city pertaining to the project. The applica�on fee covers the cost of the city's outside financial analysis and the development of a business subsidy agreement by legal counsel. The applicant will be liable for any addi�onal costs beyond the ini�al applica�on fee. All materials submited to the city in connec�on with a business subsidy applica�on shall become the property of the city and is subject to data privacy law. The review process shall involve at least the following: 1. The city shall review the applica�on materials to ensure: a. The completeness of the applica�on, and b. Whether the applica�on meets the goals and criteria of this policy. 2. If the city determines the applica�on is complete, a public hearing will be set. 3. At the �me of the scheduled public hearing, staff will make a final recommenda�on to the city regarding the approval or denial of the business subsidy applica�on. This recommenda�on will be based on: a. Applicable credit analysis. b. Financial structure of the proposed project/applica�on. c. Legal compliance of the project/applica�on. 4. The city will conduct the public hearing, during which they will take ci�zen comment on the issuance of the business subsidy. A�er the public hearing is closed, the city will either approve or deny the business subsidy request. If the subsidy is approved, the business and the city will enter into a Business Subsidy Agreement. V. BUSINESS SUBSIDY AGREEMENT The following terms are specified under MN Statute 116J.994, Subd.3 Subsidy Agreement: 1. A recipient must enter into a subsidy agreement with the grantor of the subsidy that includes: a. A descrip�on of the subsidy, including the amount and type of subsidy, and type of district if the subsidy is tax increment financing. b. A statement of the public purposes for the subsidy. c. Measurable, specific, and tangible goals for the subsidy. d. A descrip�on of the financial obliga�on of the recipient if the goals are not met. e. A statement of why the subsidy is needed. f. A commitment to con�nue opera�ons in the jurisdic�on where the subsidy is used for at least five years a�er the benefit date. g. The name and address of the parent corpora�on of the recipient, if any. h. A list of all financial assistance by all grantors for the project. 2. A business subsidy in the form of grants must be structured as a forgivable loan. For other types of business subsidies, the agreement must state the fair market value of the subsidy to the recipient, including the value of conveying property at less than a fair market price, or other in-kind benefits to the recipient. 3. If a business subsidy benefits more than one recipient, the grantor must assign a propor�on of the business subsidy to each recipient that signs a subsidy agreement. The propor�on assessed to each recipient must reflect a reasonable es�mate of the recipient's share of the total benefits of the project. 4. The city and the recipient must both sign the subsidy agreement, and the agreement must be approved by the local elected governing body. 5. Notwithstanding the provision in V.1. clause f. of this agreement which states: A commitment to con�nue opera�ons in the jurisdic�on where the subsidy is used for at least five years a�er the benefit date. 9 pg. 4 A recipient may be authorized to move from the jurisdic�on where the subsidy is used within the five-year period a�er the benefit date if, a�er a public hearing, the grantor approves the recipient's request to move. VI. COMPLIANCE AND REPORTING 1. Any assistance that does not meet the defini�on of a “business subsidy” will be excluded from the requirement of holding a public hearing prior to gran�ng a business subsidy. All assistance that meets the defini�on shall be subject to the requirement of a public hearing. 2. Every recipient of a business subsidy must enter into a business subsidy agreement with the city. This agreement must fulfill the requirements of the act. 3. Both the recipient and the city must comply with the business subsidy repor�ng and monitoring requirements of the act. 4. If a recipient fails within two (2) years of the benefit date as defined in the act to meet the job and wage goals set forth in the business subsidy agreement, the recipient or its successors and assigns shall be liable to repay to the city the assistance plus interest. The city may prorate repayment to reflect par�al fulfillment of the goals set forth in the business subsidy agreement. The rate of interest charged must be set at no less than the implicit price deflator for government consump�on expenditures and gross investment for local governments prepared by the Bureau of Economic Analysis of the United States Department of Commerce. 5. The city may, a�er holding a public hearing, extend the �me for compliance with the business subsidy agreement job and wage goals by up to one (1) year. VII. Defini�ons “Benefit date" means the date that the recipient receives the business subsidy. If the business subsidy involves the purchase, lease, or dona�on of physical equipment, then the benefit date begins when the recipient puts the equipment into service. If the business subsidy is for improvements to property, then the benefit date refers to the earliest date of either: a) When the improvements are finished for the en�re project; or b) When a business occupies the property. If a business occupies the property and the subsidy grantor expects that other businesses will also occupy the same property, the grantor may assign a separate benefit date for each business when it first occupies the property. “Business Subsidy” or “Subsidy” means a state or local government agency grant, contribu�on of personal property, real property, infrastructure, the principal amount of a loan at rates below those commercially available to the recipient, any reduc�on or deferral of any tax or any fee, any guarantee of any payment under any loan, lease, or other obliga�on, or any preferen�al use of government facili�es given to a business. “The Act” means the Business Subsidy Act, Minnesota Statutes Sec�on 116J.993 through 116J.995, as amended. “Business Subsidy Report” means the annual reports submited each year for each business receiving a business subsidy in the community. The report is submited by the local government unit in order to comply with M.S. §116J.994 Subd. 7. (b). “Criteria” means the equitably applied, uniform standards by which the City bases its decision to award any business subsidy to a private business or development project establishing a business and crea�ng jobs in the City of Chanhassen. “DEED” means Minnesota Department of Employment and Economic Development. 10 pg. 5 “Full-Time Equivalent Job” The number does not reflect headcount, but rather all annual hours recorded by the employer divided by 40 hours per week. “Grantor” means the city department, city atorney, local or regional economic development agency or other authorized en�ty that is empowered to solicit, nego�ate, and form business subsidy agreements on behalf of the City of Chanhassen. “High Value Investment” will create jobs for highly skilled workers to operate the facility and o�en includes expensive equipment that is very difficult and costly to move and o�en requires customized buildings and building designs. “Local Government Agency” Includes a statutory or home rule charter city, housing and redevelopment authority, town, county, port authority, economic development authority, community development agency, nonprofit en�ty created by a local government agency, or any other en�ty created by or authorized by a local government with authority to provide business subsidies. “Public Purpose” A business subsidy must meet a public purpose which may include, but may not be limited to, increasing the tax base. Job reten�on may only be used as a public purpose in cases where job loss is specific and demonstrable. “Recipient” means any for-profit or nonprofit business en�ty that receives a business subsidy. Only nonprofit en��es with at least 100 full-�me equivalent posi�ons and with a ra�o of highest to lowest paid employee, that exceeds ten to one, determined on the basis of full-�me equivalent posi�ons, are included in this defini�on. VIII. FINANCIAL ASSISTANCE NOT CONSIDERED A BUSINESS SUBSIDY The following forms of financial assistance are not considered business subsidy under MN Statute 116J.993, Subd.3 Business Subsidy: 1. A business subsidy of less than $150,000. 2. Assistance that is generally available to all businesses or to a general class of similar businesses, such as a line of business, size, loca�on, or similar general criteria. 3. Public improvements to buildings or lands owned by the state or local government that serve a public purpose and do not principally benefit a single business or defined group of businesses at the �me the improvements are made. 4. Redevelopment property polluted by contaminants as defined in 116J.552, subdivision 3. 5. Assistance provided for the sole purpose of renova�ng old or decaying building stock or bringing it up to code and assistance provided for designated historic preserva�on districts, provided that the assistance is equal to or less than 50 percent of the total cost. 6. Assistance to provide job readiness and training services if the sole purpose of the assistance is to provide those services. 7. Assistance for housing. 8. Assistance for pollu�on control or abatement, including assistance for a tax increment financing hazardous substance sub-district as defined under M.S. §469.174, subdivision 23; 9. Assistance for energy conserva�on. 10. Tax reduc�ons resul�ng from conformity with federal tax law. 11. Workers' compensa�on and unemployment insurance. 12. Benefits derived from regula�on. 13. Indirect benefits derived from assistance to educa�onal ins�tu�ons. 11 pg. 6 14. Funds from bonds allocated under chapter 474A, bonds issued to refund outstanding bonds, and bonds issued for the benefit of an organiza�on described in sec�on 501(c)(3) of the Internal Revenue Code of 1986, as amended through December 31, 1999. 15. Assistance for a collabora�on between a Minnesota higher educa�on ins�tu�on and a business. 16. Assistance for a tax increment financing soils condi�on district as defined under sec�on 469.174, subdivision 19. 17. Redevelopment when the recipient's investment in the purchase of the site and in site prepara�on is 70 percent or more of the assessor's current years es�mated market value. 18. General changes in tax increment financing law and other general tax law changes of a principally technical nature. 19. Federal assistance un�l the assistance has been repaid to, and reinvested by, the state or local government agency. 20. Funds from dock and wharf bonds issued by a seaway port authority. 21. Business loans and loan guarantees of $150,000 or less. 22. Federal loan funds provided through the United States Department of Commerce, Economic Development Administra�on. 23. Property tax abatements granted under M.S. §469.1813 to property that is subject to valua�on under Minnesota Rules, chapter 8100. 12 City of Chanhassen Business Subsidy Guidelines Approved October 11, 1999 Amended April 28, 2003 Amended September 24, 2018 13 1 CITY OF CHANHASSEN BUSINESS SUBSIDY GUIDELINES GENERAL PURPOSE Economic development incentives are financial tools that enable the City of Chanhassen to provide opportunities and benefits for its businesses and residents. Incentives can take a variety of forms, including, but not limited to: grants, tax increment financing, tax abatement, and sewer access credits. The City of Chanhassen provides economic development incentives in order to achieve its long-range vision of creating a diverse and sustainable economic base. This is achieved in part through the creation and retention of quality, high paying jobs. A diverse and sustainable economy offers opportunity for improved quality of life for the residents of Chanhassen. Economic development projects may also achieve other worthwhile goals. For instance, some projects provide value to the community in the forms of infrastructure improvements, stabilization of business districts or neighborhoods, or concentration of selected industries. The City of Chanhassen reserves the right to approve or reject subsidies for 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 the guidelines in this document 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. The City of Chanhassen can deviate from these guidelines for projects that supersede the objectives identified herein. Any applicant who is not in good standing with the City, in regards to licenses, fees or other specific charges, will not be considered for business subsidies. OBJECTIVES The City of Chanhassen may consider offering a business subsidy or incentive in order for a project to achieve one or more of the following objectives: • To increase the City’s tax base. • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits. Preference will be given to higher paying jobs that also provide benefits such as health care coverage. • To support projects that provide value in the forms of needed transportation and other utility infrastructure improvements that would be completed in conjunction with the project. • To encourage additional unsubsidized private development in the area, either directly or indirectly through “spin off” development. • To facilitate the development process and to achieve development on sites which would not otherwise be developed but for the use of a business subsidy. • To remove blight and/or encourage redevelopment of commercial and industrial areas that will result in high-quality redevelopment and private reinvestment. 14 2 • To offset increased costs of redevelopment (i.e. contaminated site clean-up) over and above the costs normally incurred in development. • To create opportunities for a diversification of housing stock available within the community. • To support a project that will improve the quality of life in the City by providing a desirable good or service and addressing an unmet demand in the community. • To contribute to the implementation of other public policies, as adopted by the City from time to time, such as the promotion of energy conservation, and decreasing capital and/or operating costs of local government. • To support the retention and/or adaptive re-use of buildings of historical or architectural significance. ECONOMIC DEVELOPMENT INCENTIVE PROGRAMS The application and subsequent use of these programs is at the discretion of the Chanhassen City Council, and may include additional applications, policies, and procedures. 1) Tax Abatement: The City of Chanhassen is granted the power to utilize tax abatement by the State of Minnesota. The fundamental purpose of tax abatement is to encourage desirable development or redevelopment that would not otherwise occur but for the assistance provided through the tax abatement. The City utilizes “Pay-As-You-Go” Tax Abatement, which relies on the developer to pay for the up-front project costs with reimbursement from tax abatement. 2) Tax Increment Financing: The City of Chanhassen is granted the power to utilize tax increment financing (TIF) by the State of Minnesota. The fundamental purpose of TIF is to encourage desirable development or redevelopment that would not otherwise occur but for the assistance provided through TIF. The City utilizes “Pay-As-You-Go” TIF, which relies on the developer to pay for the up-front project costs with reimbursement from tax increment. 3) MN DEED Programs: There are a variety of programs available through the State of Minnesota DEED division. They include the Job Creation Fund and Minnesota Investment Fund, among others. In order for a business to utilize these programs it is typical for MN DEED to ask for support and cooperation from the city. Chanhassen has worked with MN DEED in the past on projects and would consider the use of these programs in the future on a case-by-case basis. APPLICATION PROCESS 1. The City reserves the right to: a) Request additional information. b) Deny any application. c) Select a third party administrator to assist in the management of the process. 15 3 2. Applicant should retain and be assisted by qualified financial consultants and/or underwriters, and legal counsel. 3. Construction of the project shall not be commenced until the City has given preliminary approval to the application for financing. Any advanced planning or construction completed will be done at the sole risk of the applicant. 4. Applicants should complete the appropriate planning application, and include a plans and/or narratives that outline the following: a) The specific request (program, amount) b) The reasoning and need for assistance c) Description of the company d) A concept plan and description of the project e) The number of jobs created and total compensation (breakdown of wages and benefits) f) Impact to the tax base g) Other impacts to the community h) Traffic demands i) Infrastructure demands and/or needs j) Any additional information that would be helpful to staff and City Council 5. Development must be of the highest quality with high quality building materials and landscaping as agreed between the City and the Developer. 6. If establishing a TIF district, the developer must pay all costs of establishing the district unless the City agrees to allow costs to come out of the district. 7. All projects must be consistent with Chanhassen’s Comprehensive Plan and any other similar plan or guide for development of the community. ADDITIONAL INFORMATION 1. City staff will review the data and make preliminary recommendations to the City Council as to compliance of the application and proposed project with City objectives, and business subsidy criteria, and Comp Plan. 2. After evaluation of the formal recommendation, the City Council will consider approval of the establishment of the Business Subsidy and hold the appropriate hearings. 3. All applications and supporting materials and documents shall become the property of the City. g:\admin\cp\economic development\business subsidy\business subsidy guidelines - 2018 final.docx 16