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2019-139 Economic Development Incentive FundDate: July 5, 2019 Report No. 2019-139 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Economic Development Investment Fund EXECUTIVE SUMMARY: The City Council created the Economic Development Investment Fund in 2016 to increase the City’s competitiveness in the recruitment and retention of large or targeted companies. Currently, $150,000 of mixed beverage tax revenue serves as the dedicated funding source, and the Fund is projected to have a fund balance of $619,682 at the end of the current fiscal year. BACKGROUND: The concept of an economic development fund was discussed as early as 2014 during a joint meeting of the Economic Development Partnership Board (EDPB) and City Council. Following that discussion, staff brought forward additional information and accounting standards in 2015. In 2015, an Investment Action Team was formed to implement the Denton Rising: An Economic Development Action Agenda, prepared by DADCO Consulting, with one of the designated goals being to make a recommendation regarding an investment fund. Based on the feedback from the Action Team, the EDPB made a formal recommendation to City Council to create the Economic Development Investment Fund in the next fiscal year with a $1 million fund balance and with a goal to achieve a $2 million dollar fund balance within two years on August 25, 2015. While the Fund was eventually created, these parameters were not included in the authorizing ordinance. As part of the FY 2015-16 budget, the City Council approved an allocation of $150,000 for the Economic Development Investment Fund. Council chose to dedicate funding through mixed beverage tax revenue that was previously accounted for in the General Fund. At the time, the Council asked for guidelines for the Investment Fund and additional information to be brought back in 2016. The Economic Development Investment Fund was formally created by City Council on August 16, 2016, by Ordinance No. 2016-229 (attached as Exhibit 1). The Investment Fund is designed to provide a cash grant program to increase Denton’s ability to compete for large or targeted economic development projects, and the creation of the Fund established a dedicated source of revenue through which to fund those grants. The Fund is considered a tool to help accomplish Denton’s objective of locating targeted, new economic development projects in the community. Starting with FY 2015-16, the City Council authorized an annual allocation of $150,000 of mixed beverage tax revenue that flows into the Fund each year. The Fund was set up in accordance with Governmental Accounting Standards Board (GASB) Statement 54 as a Special Revenue Fund to account for specific revenue sources that are restricted or committed to expenditures for purposes other than debt service or capital projects. As a Special Revenue Fund, Date: July 5, 2019 Report No. 2019-139 any dollars not expended from the Investment Fund are rolled over and accumulated as fund balance. Table 1 summarizes the flow of funds into the Economic Development Investment Fund since its creation. As a Special Revenue Fund, the Investment Fund is included in the City’s annual budget, but is separate from the Economic Development department budget (which is funded through the General Fund). Table 1: Economic Development Investment Fund Summary Fiscal Year Revenue Expenditures Ending Fund Balance Mixed Bev. Tax Interest Income 2015-16 $150,000 $223 $0 $150,223 2016-17 $150,000 $1,867 $0 $302,090 2017-18 $150,000 $5,857 $0 $457,947 2018-191 $150,000 $11,735 (est.) $0 $619,682 (est.) 2019-202 $150,000 $5,000 (est.) $0 $774,682 (est.) To date, the City has received one application for a cash grant through the Investment Fund, but the application was withdrawn from consideration. The criteria to use the Investment Fund were established in both its authorizing ordinance (Ordinance No. 2016-229) and incorporated in the Denton Policy for Tax Abatement and Incentives (adopted by Resolution No. 18-148 and attached as Exhibit 2). According to both policies, in order to be eligible to receive a grant under this program, a company must meet at least two of the following criteria: • Provide higher-wage3 or knowledge-based jobs4; • Make a substantial capital investment5; and • Address a recruitment or supplier target6. In order to administer the grant, the City requires that grants be performance-based and made via a City Council approved Chapter 380 agreement. 1 With no planned expenditures in FY 2018-19, the estimated fund balance at the end of the current fiscal year will be $619,682. 2 Staff have included the $150,000 allocation in the proposed FY 2019-20 budget and have not proposed any expenditures at this time. Staff estimates a fund balance of $774,682 by the end of the fiscal year. 3 Higher-wage jobs are defined as having an average annual wage of $55,000 or greater for all positions or at least 25% of the positions have an annual wage of $65,000 or greater. 4 Knowledge-based jobs are defined as occupations which: require specialized and theoretical knowledge, usually acquired through a college education or through work experience or other training which provides comparable knowledge; require some research, analysis, report writing, and presentations; and, require special licensing, certification, or registration to perform the job task. 5 Substantial capital investment is defined as a minimum of $15 million. 6 Recruitment or supplier target includes aviation; advanced manufacturing; renewable energy; research and development; information technology; supply chain logistics and distribution; large consumers of municipal utilities. Date: July 5, 2019 Report No. 2019-139 DISCUSSION: Although the Investment Fund has been established and is operating as designed in terms of securing a dedicated source of revenue to be available for cash incentives, there are some additional policy considerations that Council may wish to consider moving forward. During a review of the Investment Fund history above, staff noted that the original EDPB recommendation included a targeted fund balance but the approved design of the Fund did not include that requirement. At a recent EDPB meeting, board members requested to possibly reconsider including parameters related to a minimum or targeted maximum threshold for dollars to be held in the Fund. For example, currently there is no limit of how much fund balance can be accumulated, and, should an amount of funds be granted to a company, there is no required minimum balance that the Fund must maintain. The EDPB asked that further discussion be had regarding those parameters. Also, during the June 12, 2019 Economic Development Partnership Board meeting, board members requested an assessment to determine if the current $150,000 per year funding dedication was sufficient to give the City the funds needed to be competitive. The EDPB board requested additional discussions about the possibility of increasing the funding and ensuring that a stable revenue source was identified and secured to replenish the Fund if expenditures are made. Staff plans to bring back a discussion of the Fund to the EDPB at a future meeting. If the EDPB or Council want to consider increasing the amount of dedicated funding per year, a supplemental request would need to be added for the FY 2019-20 proposed budget for consideration. One alternative funding mechanism that has been considered is dedicating dollars from incentives as they terminate. Staff conducted a 10-year analysis of expiring incentives detailed in Exhibit 3. If this method of funding was used, expiring Chapter 380 incentives (including sales tax, construction sales and use tax, and property tax) would generate $8.2 million for the fund over a 10-year period. In addition, if expiring tax abatements and TIRZ funds were included, the total would be $10.8 million. If the EDPB or Council wanted to consider amending the Investment Fund, both the Investment Fund ordinance and the Tax Abatement and Incentive Policy would need to be amended. Pursuant to the Texas Tax Code Section 312.002(c), the City’s Tax Abatement and Incentive Policy is effective for two years from the date of adoption. During that period, the guidelines and criteria may be amended or repealed by a vote of three-fourths of the members of the governing body. Since the current Policy was adopted on March 20, 2018, the Policy will need to be reviewed and possibly amended in early 2020. If EDPB or City Council would like to amend the section guiding the use of the Incentive Fund, staff can bring back that discussion either prior to or during the Incentive Policy review. Date: July 5, 2019 Report No. 2019-139 ATTACHMENT(S): Exhibit 1 – Ordinance No. 2016-229 Creating Economic Development Investment Fund Exhibit 2 – Resolution 18-148 Denton Policy for Tax Abatements and Incentives Exhibit 3 – Expiring Incentive Analysis STAFF CONTACT: Jessica Rogers Director of Economic Development (940) 349-7531Jessica.Rogers@cityofdenton.com Erica Sullivan Economic Development Analyst (940) 349-7731Erica.Sullivan@cityfodenton.com REQUESTOR: Council Member Briggs PARTICIPATING DEPARTMENTS: Economic Development, Finance (Accounting and Budget) STAFF TIME TO COMPLETE REPORT: 5 hours sAlegal\our d0CUments\ordinances\1 6\ed investment fund ord 05 191 6.doex ORDINANCE No. 2016-229, AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF DENTON, TEXAS, ESTABLISHING AN ECONOMIC DEVELOPMENT INVESTMENT FUND; DEFINING AND COMMITTING CERTAIN REVENUES OF THE CITY; PROVIDING A SEVERABILITY CLAUSE; AND PROVIDING AN EFFECTIVE D. WHEREAS, the City Council of the City of Denton elects to establish a Special Revenue Fund to be called the Economic Development Investment Fund; and WHEREAS, the Governmental Accounting Standards Board ("GASB") has adopted Statement 54, which states that Special Revenue Funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects; and WHEREAS, the City Council of the City of Denton elects to commit $150,000 annually of the mixed beverage taxes previously accounted for in the General Fund for Economic Development activities beginning with fiscal year ending September 30, 2016; and WHEREAS, the City Council of the City of Denton approved a budget of $150,000 for FY 2015-16 for Economic Development activities; and WHEREAS, the City Council of the City of Denton elects to establish the Economic Development Investment Fund in conjunction with its financial statements beginning with fiscal year ending September 30, 2016; NOW, THEREFORE, THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS: SECTION 1. The City Council hereby creates the Economic Development Investment Fund, an official fund ofthe City of Denton, Texas. SECTION 2. In order to be eligible to receive a grant under this program, a company must meet at least two of the following criteria: 1) providing higher -wage or knowledge-based jobs; 2) making a substantial capital investment; and 3) addressing a recruitment or supplier target. Higher -wage jobs are defined as having an average annual wage of $55,000 or greater for all positions or at least 25% of the positions have an annual wage of $65,000 or greater. sAlegahour documents\ordinances\16\ed investment fund ord 051916.doex Knowledge-based jobs are defined as occupations which: Require specialized and theoretical knowledge, usually acquired through a college education or through work experience or other training which provides comparable knowledge; Require some research, analysis, report writing and presentations; and e Require special licensing, certification, or registration to perform the job task. Substantial capital investment under the Economic Development Investment Fund is a minimum of $15 million. Recruitment or supplier targets include aviation; advanced manufacturing; renewable energy; research and development; information technology; supply chain logistics and distribution, and large consumers of municipal utilities. SECTION 3. If any section, subsection, paragraph, sentence, clause, phrase or word in this ordinance, or application thereof to any person or circumstances is held invalid by any court of competent jurisdiction, such holding shall not affect the validity of the remaining portions of this ordinance, and the City Council of the City of Denton, Texas hereby declares it would have enacted such remaining portions despite any such validity. SECTION 4. This Ordinance shall become effective immediately upon its passage and approval. PASSED AND APPROVED this the—A tO _day of& _72016. 41T, —A RCHRIS ATTEST: JENNIFER WALTERS, CITY SECRETARY r\ W 4BY: mA ) Al l7 AS LEGAL FORM: BY - all 111 Page 2 RESOLUTION NO. 18-148 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DENTON, TEXAS, AMENDING A POLICY FOR TAX ABATEMENT FOR THE CITY OF DENTON TO ESTABLISH POLICIES, GUIDELINES AND CRITERIA GOVERNING TAX ABATEMENTS AND INCENTIVES WHICH WILL BE KNOWN AS "DENTON POLICY FOR TAX ABATEMENTS AND INCENTIVES"; REPEALING RESOLUTION R2015-042; AND DECLARING AN EFFECTIVE DATE. WHEREAS, on June 6, 2000, the City Council approved guidelines and criteria, lcnown as the Denton Policy for Tax Abatement ("Policy"), by passing Resolution No. R2000-28; and WHEREAS, on May 1, 2001, the City Council amended the Policy to allow waiver of the five million dollar threshold and the maximum tax abatement percentage; to define professional positions; and, to make other changes as set forth in the amended Policy; and years; WHEREAS, the Texas Tax Code requires the tax abatement policies be adopted every two WHEREAS, on August 19, 2003, the City Council amended and adopted the Policy; and WHEREAS, on December 6, 2005, the City Council amended and adopted the Policy; and WHEREAS, on December 5, 2008, the City Council adopted the Policy; and WHEREAS, on Apri120, 2010, the City Council amended and adopted the Policy; and WHEREAS, on April 17, 2012, the City Council amended and adopted the Policy; and WHEREAS, on May 6, 2014, the City Council amended and adopted the Policy; and WHEREAS, on November 3, 2015, the City Council adopted Resolution R2015-042 approving a policy specifically for aircraft tax abatement and establishing guidelines and criteria governing such agreements; and WHEREAS, on April 5, 2016, the City Council amended and adopted the Policy; and WHEREAS, the Policy expires on Apri15, 2018; and WHEREAS, the City Council desires to promote economic development within Denton; and WHEREAS, providing tax abatements and incentives within the City or its extraterritorial jurisdiction will likely contribute to the economic development of Denton by encouraging major investment, the creation of jobs, and other economic development benefts; and WHEREAS, the Property Development and Tax Abatement Act, Chapter 312, Texas Tax Code, allows the City to establish its own criteria for tax abatements which the City had previously adopted guidelines for tax abatement by passing Resolution Nos. R90-18, R98-004, R2000-028, R2001-020, R2003-021, R2005-057, R2008-003, R2010-009, R2012-009, R2014-016, R2015- 042, and R2016-009; and WHEREAS, the City Council deems it in the public interest to repeal Resolution R2015- 042 approving a policy specifically for aircraft tax abatement and instead address such cases under the Policy; and WHEREAS, the City Council deems it in the public interest to continue to be eligible for participation in tax abatements and incentives and to adopt policies, guidelines, and criteria for tax abatement and incentives which will be known collectively as the "Denton Policy for Tax Abatements and Incentives"; NOW, THEREFORE, THE COUNCIL OF THE CITY OF DENTON HEREBY RESOLVES: SECTION 1. The policies, guidelines, and criteria, set forth in the attached as Exhibit which is made a part of this Resolution and incorporated herein for all purposes, is approved, and adopted and shall be known as the "Denton Policy for Tax Abatements and Incentives". SECTION 2. From and after the effective date of this Resolution, the attached Denton Policy for Tax Abatements and Incentives shall constitute the policies, guidelines and criteria for tax abatement and other incentive agreements for the City of Denton in accordance with Chapter 312 of the Texas Tax Code. SECTION 3. Resolution R2015-042 is hereby repealed. SECTION 4. Pursuant to Texas Tax Code Section 312.002(c), the Denton Policy for Tax Abatements and Incentives approved herein shall be effective for two (2) years from the date of approval of this Resolution, during which time may be amended or repealed by a vote of 3/4 of the members of the Council. SECTION 5. The City Council reasserts its decision to become eligible to participate in tax abatement and other incentives. The City Council provides certain tax abatements and incentives applicable to business enterprises in various reinvestment zones which are established in the City in accordance with the applicable provisions of Chapter 312 of the Texas Tax Code and in accordance with the Denton Policy for Tax Abatements and Incentives. SECTION 6. The Denton Policy for Tax Abatements and Incentives shall be filed in the official records with the City Secretary. SECTION 7. This resolution shall become effective immediately upon its passage and approval. PASSED AND APPROVED this the """_ day of ' f "y ' 2018. a ° ' CHRIS WATTS, MAYOR ATTEST: JENNIFER WALTERS, CITY SECRETARY AS "I) LEGAL FORM: I C)'C LEAL, CITY ATTORNEY Tyw BY: _ , .... EXHIBIT A 1', 1 . A. Denton's central location on the I-35 transportation corridor, educated population, skilled workforce, and friendly business clirnate make it a natural place for business and industry success. As the county seat of Denton County, Denton is a well-established city that is currently enjoying rapid growth as companies and individuals are drawn to the opportunities found here. The provisions of this policy apply in the city limits of the City of Denton, Texas, City) and any applicable extraterritorial jurisdiction of the City. B. The City is cornmitted to promoting economic growth and redevelopment that expands and diversifes the tax base; creates quality jobs; enhances the quality of life for residents; protects human health and the environment, and secures new customers for rnunicipal utilities. The City is a national model for public power through Denton Municipal Electric, which currently incorporates at least 40 percent renewable energy into its portfolio and has committed to obtaining 100% renewable energy by 2020. Local economic development incentives serve as a tool for the City to use in accomplishing these objectives. To provide a framework for the consideration of the use of public resources to stimulate economic activity, the City has established this policy to align the use of incentives with the City's strategic key focus areas and ensure a positive return on investment for the community, Tax incentives, as described herein, are governed by Section 312 of the Texas Property Tax Code and Chapter 380 of the Texas Local Government Code. C. While this policy is used to outline the procedures and criteria for granting incentives, nothing in this document implies that the City is under any obligation to provide an incentive to any applicant. Further, though this policy provides a framework for evaluation of incentive applications, every project will be considered on a case-by-case basis by the Economic Development Partnership Board (EDPB) and the City Council. Incentives will not be considered if a building permit for new construction has been issued, a permit for commercial alterations has been issued, or purchase of an existing building has been executed excluding existing businesses seeking to expand). D. The City has target industry sectors for recruitment that will be given priority consideration: aviation/aerospace; advanced manufacturing; renewable energy; research and development; information technology; supply chain for existing primary employers, and significant consumers of municipal utilities. While these sectors will be given priority consideration, not being in a target industry does not disqualify a business from applying for an incentive if it meets other requirements under the policy. E. Priority consideration may also be given for projects that further the following City economic goals and objectives: Promoting business and community investment Expanding and diversifying the tax base Promoting public-private partnerships in investment Increasing jobs with wages above Denton County's median wage l Increasing the percentage ofjobs paying $75,000 per year or more from 10 to 14 percent by 2020 Encouraging higher-skilled and knowledge-based jobs Causing inf ll redevelopment to reduce urban sprawl or to encourage other desirable development Encouraging start-up and small businesses to promote entrepreneurship and innovation Generating new customers for municipal utilities Engaging in sustainable practices or activities F. Only retail projects (retail stores, restaurants, shopping centers, or malls) that offer unique goods, services, or a brand that is not currently offered in the Denton city limits may be considered for incentives. This consideration is designed to help address unmet demand and minimize retail leakage from the City into the surrounding trade area. A minimum of $15 million in annual taxable sales generated is required in order to be eligible for consideration of a rebate of sales taxes. The City may rebate a portion of the sales taxes generated not to exceed 50% of the sales tax receipts. G. This policy is adopted under the authority of the Constitution and Laws of the State of Texas and the City Charter of the City of Denton, Texas. H. Applicants requesting incentives in Denton will be considered under the provisions of this policy. Projects are evaluated with regard to their return on investment and public benefit. This could include addition of ad valorem tax value, sales tax, quality jobs, or other significant public benefit. I. Every incentive agreement the City enters into is an investment for the public benefit, and each project is considered with regard to its merit to the community at large. Performance measures will be established for each project, and annual compliance reporting must be completed by incentive recipients prior to receipt of incentives. J. Projects that do not meet performance measures are subject to recapture of a portion or all of the incentive value. Should an incentive recipient fail to meet performance measures and to perform under the prescribed cures, incentives are subject to repayment to the City of Denton. K. The Denton County Tax Abatement Policy states that applicants whose projects will be located in or are currently located in a municipality within the county must have an approved and executed Tax Abatement Agreement with that municipality prior to applying for a Denton County tax abatement. Denton County will not utilize Chapter 381 of the Texas Local Government Code to administer a community and economic development program to provide grants as a form of economic development. 1 ,1 Agreement" means a contract between an Incentive recipient and the City clarifying the terms, performance measures, and obligations of the parties. 66Assessed Taxable Value" means the value of the real and business personal property, as appraised by the Denton Central Appraisal District (66DCAD99/or "District99), after any exemptions have been applied. Base Year Value" means the Assessed Taxable Value as of January 1 preceding the execution of the agreement, excluding land value, inventory, vehicles and supplies, as determined by the DCAD, Business Park" is defined as a multi-building, multi-tenant, master planned complex of approximately one million square feet or more under roof, constructed to house manufacturing, distribution, assembly, and office facilities. Business Personal Property99 means property associated with a Project other than Real Property and excluding inventory, vehicles and supplies. 66Capital Investment99 means the total actual capital cost to grantee for the acquisition of land, development, and construction of the Project, including a reasonable capital operating reserve, and the furniture and equipment installed at the Project. City" means the City of Denton, Texas, and its governing and operating bodies. City HOT Returns" means City of Denton Hotel/Motel Occupancy Tax Reports on which the grantee or other persons report and remit City of Denton hotel occupancy taxes imposed under Chapter 351 of the Texas Tax Code on amounts paid for hotel rooms in the Project. Community Support and Involvement99 may include but is not limited to monetary or active investment in local nonprofits, public institutions or community organizations. Council" is the City Council of the City of Denton, Texas. Default" is an event in which a party to an Agreement has failed to meet Performance Measures and to perform under prescribed cures. Expansion" means an investment in fixed assets that will result in an increase in occupied building areas, increased employment, or higher Assessed Value of Real Property or Business Personal Property by a frm already located in the City. Facility99 means combined Real and Business Personal Property Improvements that house an economically purposeful activity. Higher wage" means having an average annual wage of $55,000 or greater for all positions or at least 25% of the positions have an annual wage of $65,000 or greater. lmprovement" means a building, structure, or fixture erected on or affixed to land. lncentive" means any inducement for economic activity given by the City such as a tax abatement or rebate or any other incentives not prohibited by state or federal law. 66Job99 means a permanent, full-time employment position that has provided or will result in employment of at least 2,080 hours per position per year. Part-time positions may be aggregated to create a full-time position for consideration in this policy. Knowledge-based jobs" are defined as occupations which require specialized and theoretical knowledge, usually acquired through a college education or through work experience or other training which provides comparable knowledge; require some research, analysis, report writing and presentations; or require special licensing, certification, or registration to perform the job task. Leadership in Energy and Environmental Design" (LEED) certification is a voluntary internationally recognized green building certification system, with verification by a third party that a building or community was designed and built using strategies aimed at improving performance across the following metrics: energy savings, water efficiency, COZ emissions reduction, improved indoor environmental quality, and stewardship of resources. Local Contractors°' and "Local Sub-Contractors" refers to vendors that have their "principal office or place of business," as reported to the Texas Secretary of State Office, located within Denton City Limits or Extraterritorial Jurisdiction (ETJ). Modernization" means the replacement and upgrading of existing facilities which increases the productive input or output, updates the technology, or substantially lowers the unit cost of operation, and extends the economic life of the facility. Modernization may result from the construction, alteration, or installation of buildings, structures, fixed machinery, or equipment. 66performance Measures" are the performance indicators for a Project established by Agreement and reported to the City annually using a certificate of compliance provided in the Agreement or as otherwise prescribed by the Agreement. Primary Employer" refers to employers that produce products or services which are sold outside of the community or region. 66project" means the combination of proposed investment, improvements, and economic activity that is submitted in an application for an economic incentive. Real Property" means land or an improvement affixed thereto. Retai199 means the selling of consumer goods or services to customers. Retail Leakage" means that local residents are spending more for products or services than local businesses capture and indicates there is an unmet demand in the community for certain types of products. Keeping sales tax dollars in the City is the goal of minimizing retail leakage. Tax Abatement99 means the full or partial exemption of ad valorem taXes for eligible properties in a reinvestment zone designated as such for economic development purposes for new or expanded business development for a period of up to 10 years. Abatement may be granted for real property improvements and/or business personal property. Tax Rebate" means the full or partial refund of municipally imposed tax liability. Reinvestment Zone" is a geographic area designated as blighted and in need of revitalization for the purpose of granting incentives as authorized by law. Sales Tax" means the 1% general municipal sales and use taxes imposed by the City of Denton pursuant to Section 321.103(a) of Texas Tax Code and 0.5% additional municipal sales and use tax imposed by the City of Denton from property tax reduction pursuant to Section 321.103(b) of 4 the Texas Tax Code and arising (i) from any person's collection of sales taxes as a result of sales of taxable items consummated at the Project during the term of this Agreement, (ii) from any person's payments to vendors or directly to the Texas Comptroller of Public Accounts of City Sales Taxes on purchases of taxable items consummated at the Project during the term of this Agreement, and (iii) from City Sales Taxes paid by any person in connection with the construction or equipping of the Project. Sustainable materials" or products related to manufacturing may include but are not limited to: biobased; recyclable; pollution reduction equipment or systems; and reclaimed goods. 66Texas Comptroller of Public Accounts' Monthly Sales Tax Report99 means reports from the Comptroller to the City as provided in Section 321.3022 of the Texas Tax Code that identify amounts paid from the Comptroller to the City, by period, of Sales Taxes. If during the term of this Agreement, due to a change in law or policy the Comptroller ceases providing such reports with respect to the Sales Taxes, "Texas Comptroller of Public Accounts' Monthly Sales Tax Report" means alternative documentation that the Parties agree establishes the amounts of Sales Taxes received by the City. 66Construction Sales and Use Tax Grant99 This incentive involves a rebate of a portion of the local sales and use taxes for the purchase of construction materials and furniture/fixtures/equipment that would generate additional tax revenue that the City of Denton would not otherwise receive. Texas Direct Payment Permit" means that permit issued by the State of Texas authorizing Grantee to self-assess and pay applicable state and local use taxes directly to the State of Texas related to selected portions of Grantee's taxable purchases. Texas Sales and Use Tax Return" means a return or other statement in a form acceptable to the City setting forth the Grantee's collection of use tax imposed by the City and received by the City from the State of Texas, for the use of taxable items by Grantee at the Property for the applicable grant period which are to be used to determine Grantee's eligibility for a Grant, together with such supporting documentation required herein, and as the City may reasonably request. A. To ensure fairness, accountability, and compliance with all applicable regulations, every incentive request must proceed through a uniform application process. Nothing within these guidelines implies or suggests that the City is under any obligation to provide an incentive to any applicant. a. Applicant shall complete the attached Incentive Application (Exhibit A). The application will not be considered until it is administratively complete. b. Applicant shall prepare a map or other documents providing the following: precise location of the property and all roadways within 500 feet of the site; existing uses and conditions of real property; proposed improvements and uses; any proposed changes in zoning; compatibility with the Denton 2030 Plan and applicable building codes and City ordinances; a complete legal description. c. Applicant shall complete all forms and information detailed in the Incentive Application and submit all information to the Economic Development Department, City of Denton, 215 E. McKinney, Denton, TX 76201. d. All information in the application package detailed above will be reviewed for completeness and accuracy. Additional information may be requested as needed. e. The application will be distributed to the appropriate City departments for internal review and comments. Additional information may be requested as needed. Fiscal agents of the City may review the application for comment and recommendation. Additional information may be requested as needed. g. The Denton Economic Development Partnership board (EDPB) serves as an advisory body, which makes recommendations to the City Council regarding whether economic development incentives should be offered in each individual case. Its recommendation shall be based upon an evaluation of information submitted in the incentive application and any additional information requested by the EDPB or presented to the EDPB. The EDPB will consider the application at a regular or special-called meeting(s). All meetings of the EDPB shall be held in compliance with the Texas Open Meetings Act, Chapter 551 of the Texas Government Code. Additional information may be requested as needed. The recomrnendation of the EDPB will be forwarded, with all relevant materials, to the City Council. h. If the City Council decides to grant a tax abatement, it shall call a public hearing to consider establishment of a tax reinvestment zone in accordance with Section 312.201 of the Tax Code. The reinvestment zone rnust rneet one or more of the criteria of Section 312.202 of the Tax Code. i. The City Council may consider adoption of an ordinance or resolution approving the terms and conditions of a contract between the City and the applicant governing the provision of the tax abatement or incentive and the commitments of the applicant, including all the terms required by Section 312.205 of the Tax Code and such other terms and conditions as the City Council may require. j. The City reserves the authority to enter into tax abatement agreernents at differing percentages and/or terms as set forth in the guidelines of this Policy, consistent with the requirements of Chapter 312 of the Texas Tax Code. The City also reserves the authority to enter into incentive agreements under Chapter 380 of the Texas Local Governrnent Code. B. Section 312.003 of the Texas Tax Code makes confdential information provided to the City as a part of this application that describes the specific processes or business activities to be conducted or the equipment or other property to be located on the property. This information is not subject to public disclosure until the incentive agreement is executed. Section 522.131 of the Texas Government Code (Texas Public Information Act) makes confidential information which relates to economic development negotiations between the City and a business prospect that the City seeks to have locate, stay or expand in or near the territory of the City. The inforrnation must relate to a trade secret of the business prospect, commercial or financial information which the business prospect can demonstrate based on specifc factual evidence that disclosure would cause substantial competitive harm to the person from whom the information was obtained or information about a fnancial or other incentive being offered to the business prospect by the City or by another person. Information about a financial or other incentive being offered to the business prospect is required to be disclosed when an agreement is rnade with a business prospect. The City will respond to requests for disclosure as required by law and will assert exceptions to disclosure as it deems relevant. The City will make reasonable attempts to notify the applicant of the request so it may assert its own objections to the Attorney General. C. Any incentive agreement will address various issues, including but not limited to, the following: a. General description of the project b. Amount of the incentive and percent of value to be abated or rebated each year c. Method of calculating the value of the abatement d. Duration ofthe abatement, including commencement date and termination date e. Legal description of the property Kind, number, location and timetable of planned improvements g. Specific terms and conditions to be met by applicant, which will be based on the information submitted by the applicant in the Incentive Application and/or other appropriate criteria h. The proposed use of the facility and nature of construction i. Contractual obligations in the event of default, violation of terms or conditions, delinquent taxes, recapture, any decrease in valuation, administration and assignment D. Businesses receiving an incentive are asked to use diligent efforts to purchase all goods and services from Denton businesses whenever such goods and services are comparable in availability, quality and price. The City of Denton also encourages the use, if applicable, of qualified contractors, subcontractors and suppliers who are historically underutilized businesses based on information provided by the General Services Commission pursuant to Chapter 2161 of the Government Code. E. Businesses receiving an incentive are encouraged to use diligent efforts to hire local contractors and local subcontractors where possible during construction of the project. F. Businesses receiving incentives are asked to endeavor to make available, or endeavor to cause lessees or assignees to make available full-time or part-time employment for Denton residents. In this effort, the business, lessee or assignee is encouraged to recruit from the low-moderate income Census tracts as further defined by the U.S. Department of Housing and Urban Development's (HUD) Qualified Census Tracts (QCT) map shown in Figure 1. HUD defines QCTs as "census tracts in which one-half or more of the households have incomes below 60 percent of the area median income or the poverty rate is 25 percent of [or] higher. FIGURE 1: DENTON, TEXAS 2014-2015 Qualified Census Tracts IV. INCENTIVE TOOLS A. Tax Abatement: New, expanding, and modernizing businesses may be considered for a tax abatement if a minimum threshold of $5 million in ad valorem value will be created by the project. To yualify, companies must meet the minimum threshold in the first 24 months from the execution of the agreement or as specified in the tax abatement agreement. If, upon initial application, a project qualifies for tax abatement under the guidelines set forth in this Policy, the City may consider the following factors in evaluating its public benefit: The project will occupy a building that has been vacant for at least two years; The project will create knowledge based, high-skilled o r higher-paying jobs as documented by the applicant (An average wage that is above the median wage in Denton County or at least 25 percent of jobs requiring a college bachelor's degree at entry level will be used to determine eligibility); The project will involve a significant relationship with one ofthe two universities in Denton; The project will create improvements to the Denton Downtown Implementation Plan area; The project is an international or national headquarters facility; Renewable energy will be generated, stored, or utilized for the project or the project incorporates signifcant environmentally sustainable practices that include: Leadership in Energy and Environmental Design (LEED) certification, recycling initiatives, the manufacture of sustainable materials or products that support sustainable industries, or the incorporation of clean technology; The applicant is committed to actively supporting the Denton community through non-profit organizations, donations to public schools and/or public art 25% of local contractors used in construction or 25% of new jobs f lled by Denton residents All abatements are subject to final approval of the City Council. Even though a project may meet the criteria as set forth in this Policy, an application may be denied at the discretion of the City. The incentive shall not apply to any portion of the land value of the project. The City may consider the use of incentives to retain existing businesses, which propose to improve or redevelop property within the City limits. The City may also take into consideration the expansion/redevelopment of existing businesses that create new or additional higher wage or knowledge-based jobs. The incentive will only apply to the increased valuation of the improvements over the appraised value of the property prior to such improvements as same is established by the Denton Central Appraisal District the year in which the tax abatement agreement is executed. The City may also consider other tax incentives authorized by law. B. Chapter 380 Grants or Loans: The City may consider incentives to businesses utilizing its authority under Chapter 380 of the Texas Local Government Code (hereinafter referred to as "Chapter 380"). Chapter 380 states that a municipality may establish and provide for the administration of one or more programs for making loans and grants of public money and providing personnel and services of the municipality, to promote state or local economic development and to stimulate business and commercial activity in the municipality. The City of Denton rnay consider the use of grants and loans as incentives to accomplish one or more of the following economic development purposes: 0 Targeted industry cluster or supply chain recruitment initiatives Capital grants or loans for start-up and small businesses to promote entrepreneurship Grants to offset costs associated with public infrastructure improvements or impact fees Cash incentives to gain a competitive position when in direct competition for a project Increase the percentage ofjobs paying $75,000 per year or more from 10 to 14 percent by 2020 Chapter 380 incentives will be considered on a case-by-case basis, and may be considered for one or more of the following criteria: Net new jobs with wages above Denton County's median wage The relocation of a company that promotes the growth of targeted industry sectors listed in Section I.D. Incentives for businesses that cause infill redevelopment or other desirable development objectives; Any other activity which the City Council determines meets a specific public purpose for economic development. When the City determines that incentives are required to retain existing businesses that propose to improve or redevelop property within the City limits, the City Council may consider, on a case- by-case basis, and reserve the right to waive the minimum threshold and/or exceed the percentage and term included in Table 1 for a grant. The City of Denton may also take into consideration the expansion/redevelopment of existing businesses that create new or additional higher wage or knowledge-based jobs. Ad valorem rebates will only apply to the increased valuation of the improvements over the appraised value of the property prior to such improvements as same is established by the Denton Central Appraisal District the year in which the grant agreement is executed. Job-based grants may be considered for businesses creating higher-wage or knowledge-based jobs. The City may also consider other tax incentives authorized by law. C. Economic Development Investment Fund: The City may offer cash incentives and grants from the Economic Development Investment Fund (established by Ordinance No. 2016- 229) when appropriate and necessary. Such incentives require EDPB and Council approval through a Chapter 380 Agreement. To be eligible for consideration, the company must meet at least two of the following criteria: higher wage or knowledge-based jobs; substantial capital investment (minimum of $15 million); recruitment of industry sector targets, including aviation/aerospace, advanced manufacturing, renewable energy, research and development, information technology, supply chain for primary employers, or significant consumers of municipal utilities. D. Based Aircraft Incentive: Specific considerations for a based aircraft incentive will include expansion of the tax base, annual fuel consumption, and 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. Expiring Incentive Forecast Ad Valorem Grant Payment Forecast 1 2 3 4 5 6 7 8 9 10 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Expiring Total Tax Year 19 20 21 22 22 23 24 25 26 27 Total Ad Valorem $0 $0 $0 $0 $38,098 $39,241 $40,418 $89,691 $487,408 $502,031 $1,537,223 6 7 8 9 10 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Expiring Total Total Sales Tax $0 $608,940 $627,208 $646,024 $665,405 $779,353 $802,734 $826,816 $851,620 $877,169 $6,685,271 Inside Budget Expiring Total $8,222,494 Expires Outside Budget Expiring Total Schlumberger (Property Tax)FY 19-20 Tax Abatements $1,101,776 Denton Crossing (Sales Tax)FY 20-21 TIRZ $1,462,415 Mayday Manufacturing (Property Tax)FY 23-24 Total All Incentives in and Outside Budget $10,786,684 Unicorn Lake (Sales Tax)FY 24-25 West Gate Business Park (Property Tax)FY 26-27 WinCo Distribution (Property Tax)FY 27-28 Ad Valorem and Sales Tax Total Sales Tax and Sales and Use Tax for Construction Grant Payment Forecast Growth rate, beyond 5-year forecast, is set at 3%, unless noted Chapter 380s Expiring in 10-Year Period