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Home My WebLink About12-11-17 Community Investment O�SpUT88�� d U d W PEACE 1865 OFFICE OF THE CITY CLERK KAREEMAH FOWLER,CITY CLERK COMMUNITY INVESTMENT DECEMBER 11, 2017 3:50 P.M. Committee Members Present: Gavin Ferlic, Randy Kelly, Paul Tipps (citizen member), Will Smith(citizen member), Regina Williams-Preston (late) Committee Members Absent: Oliver Davis Other Council Present: Tim Scott,Jo M. Broden, John Voorde, Dr. David Varner, Karen White Other Council Absent: None Others Present: Kareemah Fowler, Graham Sparks, Bob Palmer Presenters: James Mueller Agenda: Overview of Tax Abatement Process-James Mueller& Staff Update-Text Amendment and changes to the Ordinance to the HPC and Interlocal Agreement-James Mueller& Staff Administration Incentives Philosophy-James Mueller& Staff Committee Chair Gavin Ferlic called to order the Community Investment Committee meeting at 3:50 p.m. He introduced members of the Committee and proceeded to give the floor to the presenters. Overview of Tax Abatement Process-James Mueller& Staff Update-Text Amendment and changes to the Ordinance to the HPC and Interlocal Agreement-James Mueller & Staff Administration Incentives Philosophy-James Mueller& Staff James Mueller, Executive Director of Community Investment with offices on the 14'h floor of the County-City Building, The Interlocal Agreement that the Council passed last meeting was passed by the County Council last Tuesday and it goes before the County Commissioners tomorrow. It passed unanimously at the County Council. There were also two (2)text amendments to the Historic Preservation Zoning Ordinance that are going to the Area Plan Commission. The first 455 County-City Building-227 W.Jefferson Boulevard•South Bend,Indiana 46601 Phone 574-235-9221 •Fax 574-235-9173•TDD 574-235-5567•www.SouthBendfN.gov JENNIFER M.COFFMAN BIANCA L.TIRADO JOSEPH MOLNAR CHIEF DEPUTY/DIRECTOR OF DEPUTY/DIRECTOR OF POLICY ORDINANCE VIOLATION CLERK OPERATIONS reading is toni ht,then it goes to Area Plan and comes back before you sometime in January. Councilmember Oliver Davis had asked for an update. Committeemember Regina Williams-Preston arrived at the meeting at 3:52 p.m. Mr. Mueller continued, We have a relatively long presentation regarding tax abatements and the administrative incentives philosophy. We recommend giving you an update on the administrative incentives and hold off on the tax abatement update until Councilmember Oliver Davis is here. Mr. Mueller then referenced the presentation (available in the City Clerk's Office). Mr. Mueller went on, When Mayor Pete was running for office in 2011,Newsweek had listed South Bend as one (1) of America's dying cities. I think it's important to keep in context that a lot of things have been going on and we have gotten a lot of momentum, but that wasn't always the case. A lot of the reason we have gotten the momentum is through the hard work and tough decisions the Council and Administration has had to make. Today I want to go through our policy goals, main development tools, a brief tax abatement strategy and finally the projects that are affected by our incentives. One (1) of the key things Community Investment is tasked with is to make sure we are growing as a City. That means growing our wage base, our municipal product, our assessed value, and our population. There are many ways we can do that. One (1) of the key questions is how we raise our per capita income. That is really a question of productivity and inclusion. I think you have seen some talks from different invited speakers the last couple years about how density is a more efficient and productive use of land. Our City limits are fixed and the more we can get out of each acre means we are being more productive with land. Another key factor is inclusion. Other priorities include place making. It is becoming more of a knowledge-based economy and is becoming more and more about people. We need to make sure we are investing in a South Bend that has a vibrant culture that attracts and retains the talent we already have as well as bringing people from the outside. We are also looking toward being longtime environmental stewards. Mr. Mueller continued, This Council knows pretty well already what our main tools are. We have Tax Incremental Financing redevelopment areas. We have the tax phases in our tax abatements. We have land,the hotel-motel tax revenue and civil city funds. Our Tax Increment Financing is when we capture the growth from the investments made in the district. He showed a slide in the presentation that depicted this formula. He went on, There is a process called the normalization process. That is if there is growth in the TIF District that occurred by other factors, not the investments, they normalize that and it would go back into the base fund. He showed a slide in the presentation that showed all things eligible for TIF funds. He continued, TIF also helps with public facilities like Fire Stations and Police Stations. If we look at our TIF expenditures over-time, some of the longer-sitting members of the Council will recognize the shift of what all the funds are going to. We are investing in our Parks, Homelessness, traditional infrastructure, our City Cemetery and affordable housing. We shifted to start funding these types of projects. Tax incentives exist to mitigate the risk to enable project financing. So when a project comes and they have a certain risk profile,they have to go to the bank and figure out how to put it all together to make it happen. Having the tax liability phase in over time can help reduce the risk and make the investors comfortable in investing. We don't live in a vacuum and 2 we know a lot of other jurisdictions do a lot of other incentives. We don't want to go chasing after companies that aren't loyal to South Bend,but we do want to make sure companies loyal to South Bend retain their competitive edge especially if they are in a highly competitive trading sector. There are a number of policy goals that we may want to incentivize with public expenditures. Mr. Mueller continued, We've been asked what happens with a five (5)year one hundred percent (100%)tax abatement versus the ten(10) year straight line. In a hypothetical $10 million investment, the five (5) year one hundred percent(100%)would abate $800,000 and produce $800,000 paid. The straight-line abatement would abate $880,000 and produce $720,000 paid. For simplicities sake, we didn't add depreciation to the asset. If that was added, these would be roughly equal in value. The other question is why someone would want a more aggressive abatement. Answered simply is the time value of money. When banks look at financing,they're wanting to see the return on investment so they discount future dollars. It is more valuable to the developer when you have it moved forward in time. He then showed another example in the presentation of the difference between the two types of abatements. He went on, We can't guarantee the assessments. If we get involved in a project, often times we've wanted to spend TIF dollars early. However if we invest TIF dollars and somehow the project gets hung up or it fails,then we've sunk our money into it and the project is just sitting there. Then we are left with the choice of investing more to get it going or tearing it down. The abatement, however, is only in effect if the project is complete, so that is another advantage of abatements over TIF funds. We've shifted our focus of TIF expenditures on different public goods while simultaneously looking at a better use of tax abatements. He then referenced the presentation which highlighted a few local examples of projects that have utilized this strategy. Committee Chair Ferlic left the meeting at 4:17 p.m. Committee Vice Chair Randy Kelly presided over the remainder of the meeting. Committee Vice Chair Kelly opened the floor to questions from the Committee and Councilmembers. Committeemember Paul Tipps asked, Why would your development community opt for anything but the money up front? Especially since the net present value is greater in that scenario. Mr. Mueller replied, It depends. On projects we are trying to get a significant incentive, you're more likely to see one hundred percent(100%). There will be less than one hundred percent (100%) but it all depends on the needs of the developer. Councilmember Dr. David Varner asked, Are there any projects you went over in the presentation that is in a TIF District? Mr. Muller replied, I'm pretty sure all of the projects I went over were in TIF Districts. Councilmember Dr. Varner followed up, I think there ought to be guidelines that are dependent on project size so it prevents everyone walking in with the one hundred percent(100%)request. i 3 With no further business, Committee Vice Chair Kelly adjourned the Community Investment Committee meeting at 4:26 p.m. Respectfully Submitted, �e ILI L Randy Kell ,Vice C airperson 4