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2019-016 Small Area GrantsDate: January 25, 2019 Report No. 2019-016 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Creation of an Economic Development Corridor/Small Area Reinvestment Grant Program EXECUTIVE SUMMARY: This Informal Staff Report was prepared in response to a request for information from Councilmember Briggs on the possible creation of an Economic Development Corridor/Small Area Reinvestment Grant Program. This ISR provides a summary of the plans underway for possible corridors/small areas, potential funding sources and requirements, and current targeted incentives offered under Council-adopted incentive policies. BACKGROUND: Plans Underway and Possible Corridors The Department of Development Services has a work plan item in the 2018/19 Strategic Plan to complete and develop an implementation plan for Oak/Gateway Small Area Plan. On January 15, 2019, City Council approved a resolution accepting the visions, goals, recommendations and implementation strategies in the Oak Gateway Area Plan. The plan area is generally located South of Panhandle Street, North of Interstate 35, East of Bonnie Brae, and West of Carroll Boulevard (Exhibit 1). This plan resulted from a culmination of the expansion of the Fry Street Small Are Plan and includes the Oak Hickory Historic District, West Oak Historic District, and the University of North Texas, spanning back to January 2016. The plan includes land use, community design, mobility, parking and services for the three sub-areas outlined in the plan. It includes recommendations for a number of catalyst projects involving: overlay districts, improvements to City parks, development of a Parking Benefit District, roadway expansion, and designating historic conservation districts. The department also has a work plan item to initiate a process to Create Gateway/Major Corridor Design and Development Standards. Economic Development has a work plan item in the 2018/19 Strategic Plan to initiate development of an economic growth plan to support the implementation plan for the Oak Gateway Small Area Plan. One of the ways that the department can help further the goals of the plan is to look at the possibility of providing a Small Area Reinvestment Grant in the Oak Gateway area or a particular sub-area in the plan. This grant could be modeled after the Downtown Reinvestment Grant Program to provide façade and utility/impact fee improvements. This could possibly be funded through mixed beverage taxes. The grant could also include real and capital improvements that fall under the Policy for Tax Abatement and Incentives, which could be performance based on a portion of the project’s ad valorem tax revenue. The department also has a work plan item to leverage business parks to attract new businesses. One of the areas the staff will be exploring is an Opportunity Zone. The Opportunity Zones Program, created in the Community Renewal Tax Cuts and Jobs Act of 2018, is a federal economic stimulus tool designed to assist distressed communities. The definition of “low income” or Date: January 25, 2019 Report No. 2019-016 “distressed communities” falls under the same section, Section 45D (e) of the Internal Revenue Service (IRS) Code, as New Market Tax Credits (NMTC). Additional rules on the program will be released later this year. The zones are designated by the governor of each state in the United States. A single Census tract, 206.02, is the zone identified in the City of Denton. The zone is generally located east of Bell Avenue, South of Mingo Road and University Drive, West of Mayhill Road, and North of McKinney Street (Exhibit 2). This tool offers a tax benefit of an investor’s capital gains into a Qualified Opportunity Fund. This program offers a capital gains tax deferral, whereby 90% is taxed after a period of 5 years, 85% is taxable for 7 years and the gain is excluded after a ten-year period.1 Unlike NMTC, investment in Opportunity Zones is unlikely if additional funds -- other than the “tax benefit” -- are not offered, according to Springsted.2 This makes an Opportunity Zone a prime location to look at incentivizing. The federal tax benefit, combined with other local funding sources and mechanisms such as a Small Area Reinvestment Grant and/or economic development tools such as Tax Increment Reinvestment Zones, may make an Opportunity Zone project feasible. Incentive Tools and Existing Targeted Incentive Programs The City Council can use the tools of property tax abatement and property or sales tax rebate when it decides to incentivize a company to locate or expand in Denton. A tax abatement (Tax Code, Chapter 312) is a local agreement between a taxpayer and a taxing unit that exempts from taxation all or part of the increase in the value of real property or business personal property. Chapter 380 of the Local Government Code gives cities the authority to provide grants or loans of city funds or services in order to promote economic development; the City of Denton structures its Chapter 380 agreements as tax rebates based on performance in generating property tax or sales tax. The purpose of tax abatements and Chapter 380 agreements are to assist cities in attracting new industries, encourage the retention and expansion of existing businesses, and promote capital investment by easing the tax burden on projects for a set period of time. The City of Denton developed its original Tax Abatement Policy in 1989. The policy has been updated and approved by Council 11 times since the original, most recently in March 2018. The current Policy for Tax Abatement and Incentives includes several targeted incentive programs outlined below.  Economic Development Investment Fund - Created in 2015 The City has the ability to offer cash incentives and grants when appropriate and necessary. Such incentives require Economic Development Partnership Board (EDPB) and Denton City Council action through a Chapter 380 Agreement. To be eligible for consideration to receive an incentive from the Economic Development Investment Fund, the company must meet at least two of the following criteria:  Be in a targeted sector for recruitment: aviation/aerospace, advanced manufacturing, renewable energy, research and development, information technology, supply chain for primary employers, or significant consumer of municipal utilities;  Provide higher wage or knowledge-based jobs;  Make a substantial capital investment (minimum of $15 million) Date: January 25, 2019 Report No. 2019-016  Based Aircraft Incentive Program - Created in 2015 This program is designed to encourage generation of ad valorem revenue with minimal new municipal infrastructure requirements. Specific considerations for a based aircraft incentive will include:  expansion of the tax base  annual fuel consumption  contribution to the growth and development of Denton Enterprise Airport (DTO). Newly based aircraft may be eligible for an incentive if a minimum of $1 million in ad valorem value will be created by the aircraft. Aircraft must be operational, air worthy, and based at DTO for a majority of the year; values may not be combined to reach the $1 million minimum.  Downtown Reinvestment Grant Program - Created in 2007 The grant program is designed to assist downtown building and business owners with projects, and it is tied to preserving the history of Denton through restoration. The program is strictly for capital improvements, not operating costs. It is set up as a single- payment reimbursement to property owners per building/business, and in some situations, tenants. Reimbursement grants are available for the following types of projects:  Facade Rehabilitation is defined as the removal of slipcovers or non-historic/added facades, repointing brick or replacing mortar joints, replacing or restoring cornices, removing paint from brick, replacing windows, restoring transom windows, roof and foundation work.  New Awnings and Signs is defined as replacing, adding or repairing awnings & signs. Signs may include signboards, projecting signs and pedestrian signage (includes window sign, hanging sign and awning/canopy sign).  Impact Fee Reimbursement is the reimbursement for City of Denton water, wastewater, and roadway impact fees  Utility Upgrades include upgrades to water, wastewater and electrical service, including interior upgrades as well as exterior service upgrades  Fire suppression, asbestos and mold remediation projects CONCLUSION: Economic Development staff will continue to pursue its work plan items under the City Strategic Plan; work with the Department of Development Services to support the Oak Gateway Area Plan; monitor the rules on Opportunity Zones; examine possible funding sources, tools and mechanisms for new targeted incentives; and explore possible areas for a Corridor/Small Area Reinvestment Grant. Staff will prepare information on small area reinvestment grant program options for Council’s consideration during the 2019-2020 budget process. STAFF CONTACT: Caroline Booth, Director Department of Economic Development Date: January 25, 2019 Report No. 2019-016 940-349-7751 or Caroline.Booth@cityofdenton.com 1 Certified Development Finance Agency’s Opportunity Zone Solutions, supported by Cohn Reznick, Online internet: https://www.cdfa.net/cdfa/cdfaweb.nsf/resourcecenters/OZ.html 2 Springsted, “Being Opportunity Zone Investment Ready,” Jan. 17, 2019.