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1. Community Development Incentives*spell City of Ka Post office Box 1997 - Kalispell., Montana 59903-1997 - Telephone (406) 758-70()o Fax - (406) 758-7758 REPORT TO: Honorable Mayor and City Council FROM: Kellie Danielson, Community & Economic Development James H. Patrick, City Manager SUBJECT: Business Incentive Guidelines MEETING- DATE: January 23, 2008 BACKGROUND The Community &Economic Development Department of the City of Kalispell is undertaking marketing and promotion efforts to businesses that may have expansion opportunities. The outreach includes both internal and external (in market and out of market) business firms. Besides community information and data, the second most requested information from businesses or consultants representing business firms is what are the financial incentive opportunities from the community? The CD department would like to be able to respond with incentive guidelines that are consistent, equitable and of value to the inquiring business organization. A typical approach is to provide the incentive guidelines on the community website and include the information in marketing materials. Standard incentive elements Common factors to assess when offering financial incentives include job creation, particularly "net" new, which refers to new positions being created over and above the annual average employee base; the creation of additional capital investment; wage levels that are "livable" in a community; and incentivg those businesses that import money from outside the local service economy. Determining which Business to Incent A standard regulation or policy for business incentives include those businesses that are in the manufacturing, distribution, and/or professional and technical services sectors. Because funds are in short supply and the demand for incentives are high thresholds need to be set in order for the community to get the "biggest bang for the buck." Typical thresholds are an annual average salary for the area, number of new positions created, additional capital investment created, at least half of the businesses revenues are derived from outside of Montana, and the business must be adding value to its product. Examples are logging is not considered value added, but wood component/product manufacturing such as fence and doors are; printing is not value added but software development is considered value added. Eligible Kalispell Incentives The industrial and technology tax increment financing districts established at Cold School Station Business Park allow the TIF funds to be used for land acquisition, demolition and removal of structures, infrastructure, the plans, appraisals, title searches, surveys and studies necessary to prepare for infrastructure projects, the connection of infrastructure outside of the district, and to bonds to pay eligible costs. The deficient side of the incentives for Kalispell is if a business does not "fit" into the Old School Station Business Park what incentives are available outside of using TIF increments` The answer is not much. However is the City willing to provide infrastructure at the city's cost to other sites outside of Old School Station in order to capture new jobs and investment` The most widely used funding source for incentives from a city outside of TIF's are dedicated sales tax revenues. Typically a city will have a dedicated quarter cent or more to economic development activities. Through the Montana Board of Investments (MBOI) the City can enter into lease facility agreements with the MBOI to construct facilities to lease to expanding business. Therefore it is attractive to market the city's ability to participate with MBOI and business in leasing facilities. Suggested Incentives at Old School Station Business Park and Other Available Sites • Infrastructure development assistance • Site improvement assistance • Assistance with facilities and or land with participation from MBOI • Property tax abatement for the restoration or rehabilitation of historic buildings (already adopted) • Revolving loan fund (already adopted) Other incentives to consider on a per project basis but not necessary to document are no charge for hook up fees, fast track permitting, reduced water and/or wastewater rates for specific heavy users, reduced right of way costs, etc. RECOMMENDATION The CD Department has created a user friendly incentive document to use in marketing materials and place on the city website. The document is attached for your review and comment. It would be beneficial for CD's outreach and current discussions with both internal and external customers to have "approved" incentive guidelines from the City Council. The thresholds "set" would then determine eligibility of interested business firms. FISCAL IMPACT Today there is no ability to show impact but when the City Council is presented a project that needs approval the economic impact will be presented in the project materials. Respectively submitted, r ellie Danielson Community & Economic Development mes H Patrick ity Manager Kalispell Economic Development Incentives The City of Kalispell has created the following incentive guidelines for business seeking incentive assistance. The focus of city policymakers is directed towards those value-added businesses creating new jobs that pay at or above the County average wage, and creating additional capital investment. The 2006 County average wage is $ 3 0,004 or $14.43 /hr. The local incentives include the following: * Infrastructure development and site improvement assistance is available in tax increment financing district property (Old School Station Business Park) * with the participation of the Montana Board of Investments the City may provide assistance with facilities * Property tax abatement for the restoration or rehabilitation of historic buildings * A revolving loan fund to assist small business with gap financing Local partners with additional business resources include the Kalispell Chamber of Commerce and the Montana West Economic Development Corporation Primary ... Guidelines 1. Creation of net new jobs with wage thresholds- For new business any job that is new to Kalispell is a net new job. For expanding business net new job refers to any job created over and above the employee base, which is determined by averaging the preceding year's annual employment. A business must create 10 net new full-time positions to be eligible for infrastructure and site incentive assistance. 2. In Kalispell the average county wage is $30,004 (2006). It should be noted that average wage can include total compensation of salary, bonus and incentive pay, excluding fringe benefits and owner's compensation. However, a business must provide health benefits to its employees to be eligible for incentive assistance. 3. Capital investment is considered into the decision to provide incentives to a business. The higher the capital investment the more potential tax base exists for local government and a higher likelihood the business will have longer term presence in the community. 4. Corporate headquarters typically draw a larger annual payroll and import a majority of their revenues. A corporate headquarter firm must create 5 net new positions to be eligible for incentive assistance. 5. Emphasis is placed on businesses who sell a higher percentage of their products or services outside of the local trade area. The target is for the business to have 50% of revenues come from outside of the State of Montana. One of the primary goals of economic development is to import more dollars into the local economy than what is exported. 6. Financial risk -the city seeks businesses that are strong financially and has financing in place to fund the expansion. The amount of the incentives awarded correlate with the economic impact the project has on the local community. One Stop Assistance The City of Kalispell will work closely with representatives of a business organization as the business explores expansion opportunities in Kalispell. The City may establish a preliminary plan review committee consisting of representatives from utility service providers, planning, public works, fire marshal, and others as needed to review project plans. City representatives will work throughout the entire project with the business to ensure the project moves forward in order to meet expected completion dates. Ineli ible business op erations Businesses that do not qualify are retail, bank, S&L, or lending institutions, local commercial insurance sales, utilities, trucking firms, or any commercial enterprise deriving its revenues directly from non-commercial customers in exchange for personal services such as, but not limited to, barber shops, photo studios and funeral services. An exception is those businesses eligible for the historic rehabilitation property tax abatement.