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#1 PresentationJanesville City Council Economic Development Study Session March 8, 2010 Economic Development Study Session Agenda Economic Development Overview Goals, Processes, Results ? Economic Development Financing ? Janesville’s TIF Policies Tax Incremental Financing -Janesville’s Policies ? Risk Considerations ? Recommendations ? Discussion ? Economic Development Overview “A Business Model” Goal:To stimulate private sector investment ? in a community to create jobs and increase the tax base. Our Objectives are to provide public sector ? support in : Economic Diversification ? Job Growth and Preservation ? Building the Local Tax Base ? Why? Primary Source of City Revenues for Growth! Economic Development:Process of bringing ? new dollars (private sector investment) into a community Private Sector Investment:Creates wealth ? and jobs = Community Cash flow Community Cash Flow:Creates tax base ? and fee generation Taxes & Fees = Programs & Services ? Bottom Line: Fundamental to a community’s ? survival and growth. “Economic Development Reality Check” Process of elimination ? A long term investment, not an expense. ? Competition is real and aggressive. ? Profitability supersedes quality of life. ? Perception is reality. ? Janesville is impacted by global economics and industry shifts ? Thinking from your customer’s perspective: a fundamental consideration What do Janesville companies need from the City? How can we effectively compete? What will our residents support? (risk factors) What does Economic Development Encompass? Planning and Land Use ? Tax Policy, State and Local ? Workforce ? Infrastructure ? Marketing, Sales and Public Relations ? Negotiations, Mediation ? Research ? Finance ? Incentives ? Why Do Companies Locate? “The same things that attract new companies also retain existing ones” Labor skills/availability ? Tax and regulatory climate (value vs. cost) ? Proximity to markets/suppliers ? Cost of doing business ? Strong and stable political leadership ? Adequate infrastructure ? 60 minutes from an airport ? Quality of life issues ? Incentives ? Economic Development Marketing Competitive Opportunity: Communicate Janesville’s attributes on the following: The Right Product, People & Place ? Value added vs. Cost ? Differentiation/Unique Selling Position ? Intangibles vs. Tangibles ? Brand = Perception plus Experience/Observation ? Business Retention/Attraction ? Targeted Marketing ? Data Intensive ? Economic Development Strategies Business Retention & Expansion ? Business Attraction ? Entrepreneurship ? Workforce Development ? Regionalism ? Rock County 5.0 Update Funds used for implementation purposes, ? only. No staffing or overhead expenditures. 18 person Advisory Board ? Past budgets = $10,000/yr. ? Branding Goal = “Speed To Market” ? (customer service) Putting the data infrastructure together. ? Strategies focus on business attraction, ? retention, entrepreneurship, workforce and real estate development. 10 Role of Incentives “No one wants to pay sticker price” Incentives are tie breakers –incentives do not make ? a bad deal good. Available to existing, growth companies as well as ? new ones. Unfortunately are reality ? Should be a win/win, an evaluation of risk/return ? Two Types of Incentives ? Direct Financial = TIF, SBA, Tax Credits etc. ? Indirect Financial = regulatory/permit timelines, ? workforce services and “certified sites”. Economic Development Financing “The Public Sector Role” Objectives ? Reduce the risk of private sector investment ? Increase cash flow for growing companies ? Reduce the potential failure due to financing ? issues. Create and/or retain jobs ? Provide access to capital ? Public Sector Financing Role “Continued” Goal: Invest in projects or business ventures where the economic and social benefits outweigh the financing risk. Benefits: Jobs, tax revenues, neighborhood ? redevelopment etc. Should not take the place of private sector ? financing. Allow the company to keep more cash on hand. ? Reduce the perceived risk of the private sector. ? Financing Challenges For Companies Growth requires cash, both access and ? affordability To much debt, not enough equity ? Commercial banks: short term lenders ? Goal: Seek to match the term of the loan to ? the life of the asset. Janesville’s TIF Policies Source:Council Policy Statement #61, Revised 11/14/2006 Creation of New Industrial TIFs on Green Field Sites. Objective: Business Attraction/Expansion ? Eligible businesses –manufacturing firms and supporting ? businesses. Must have at least $1.0 million in construction and the ? creation/retention of at least 50 jobs. Recover its costs within eight years. ? Use up to two years of projected property taxes from each ? green field TIF project to capitalize a Development Fund which can be used to assist a company when no increment is created. Janesville TIF Polices Continued Council Policy Statement #61 Creating of New TIFs on Greenfield Sites Objective: Business Retention/Expansion ? Minimum size project, $500,000 increase in ? property value and the creation of a minimum of 10 jobs. City costs to be repaid within 10 years ? Can use two years of projected property ? taxes for a Development Fund as noted on previous slide Janesville TIF Policies Continued #3 Council Policy Statement #61 TIF and Downtown Redevelopment Policies When ever possible, the City will use non-TIF funding ? sources to purchase blighted buildings prior to the creation of a TIF District. The City may use up to 15 years of property taxes for ? development incentives. The City may use up to 5 years of property taxes to ? capitalize a downtown redevelopment fund that would focus on smaller projects. Current/Active TIF Policies February 2010 Forgivable working capital loan of up to 10 ? years of a new construction increment. Forgivable working capital loan based on ? leasing industrial space of $1,000/square foot. This loan cannot exceed $10,000 per job created. Additional TIF Information Trends and Examples Janesville TIF decisions are within legal boundaries ? under state law. Communities like Madison, WI only use TIF for ? downtown redevelopment based on financial need. Future industrial property in Wisconsin is expected to ? be reassessed to lower values. TIF requests based on employment only will continue ? to increase. Wisconsin TIF Survey Summary July 2009 Survey surveyed the use of TIF incentives in 13 Wisconsin cities including Janesville. Major results are summarized as follows: TIF loans vs. grants: 6 of 13 cities preferred loans, Janesville and ? Wausau use grant/loans, Green Bay uses grants, rest is on a case by case basis. Loan interest rates: most handle on a case by case basis. Janesville ? and Green Bay charge their cost of money, Eau Claire and Madison only charge interest if the TIF agreement is broken. TIF incentives for job creation: 9 of 13 cities do not consider this. ? Janesville and Eau Claire tie jobs to forgivable loans. Priorities: job creation, blight removal, industrial development & ? redevelopment Developer focused TIFs vs. city/end user focused TIFs. ? Current Janesville TIF Concerns TIF: major focus –job creation, little evaluation of ? risk Perceived as unlimited source of funding. ? Increment funding job creation vs. non-increment ? generated job creation Economic Development Financing Suggestions Creation of a Redevelopment Authority and Housing ? Authority. Use of TIF and Community Reinvestment dollars ? from banks to create small business revolving loan fund. Rock County Business Incentive Fund ? Consider the level of financial need as well as job ? creation when making TIF incentive decisions. Public /Private partnerships with banks for downtown ? redevelopment Interest on TIf loans should reflect the current market ? rates, not the city's cost of money. Discussion: City Council’s Role in Janesville’s Economic Development Program Suggested Discussion Points: Define incentive policy guidelines? ? Define parameters for staff to act on its own? ? ID of economic development priorities and ? concerns? Provide direction on staff policy ? recommendations and specific proposals? Receive staff updates on economic ? development projects, trends and issues as needed? 23 TIF Policy Issues and Recommendations 1. Should TIF be the predominate tool in Janesville’s economic development program? Staff is seeking direction for the following: Direct staff to evaluate other economic ? development financing mechanisms including redevelopment authorities, housing authorities etc. Development of a Rock County Business ? Incentive Fund program. TIF Policy Discussion Continued #2 2. Is job creation/retention paramount or should the project’s financial risk also be considered and at what level? Examples would include: The incentive being considered is greater than the estimated ? new tax increment. The project only involves leased space and job creation, there ? is no new tax increment being generated. Recommendation: Job creation is still a very important factor, however a risk evaluation should also considered. Thus, the following questions should be asked: What are the financial risks to the TIF and City? ? Will the project increase the City’s tax base? ? TIF Policy Discussion #3 Staff Recommendations 3. Should a higher level of risk be acceptable to create more jobs? Recommendation: Financial risk should be recognized but job creation should be made a higher priority. 4. How should Janesville respond to TIF requests, particularly in the downtown area that do not expand the tax base or have significant job creation but positively impact this area? Recommendation:Continue to pursue public/private sector relationships with local banks to share the risk and reduce the TIF expenditure. TIF Discussions #4 Staff Recommendations Continued 5.Should downtown TIF loans be made under different conditions than industrial projects , particularly where there is no significant primary job creation. Recommendation:These loans should be made on a financial gap basis utilizing the “but for clause" and be considered for . “game changing” projects 6. Should Janesville continue to use TIF to support such organizations as the Janesville Design Center or restrict the use to projects that include job creation or tax base growth? Recommendation:Due to the restricted availability of funds, TIF should be used for job creation and/or for tax base growth. Comments and Discussion Questions ? Policy Concerns ? Policy Modifications ? New Ideas ? Other ?