economic & community development incentives · 2017-01-17 · state regional councils •...

Economic & Community Development Incentives

Nuts & Bolts

Presented November 6, 2014, Clanton, Alabama

Roadmap

What tools are available to small and medium sized cities in Alabama?• Industrial recruitment• Downtown redevelopment• Financing tools

Industrial Recruitment

Toolkit

• Local– Local economic developers– Tax Abatements– Amendment 772

• State– Capital Credit– Department of Commerce support– AIDT– ADECA

• Other resources – NMTC– State Regional Councils– Regional Federal Agencies– Electric Utility Support

Example Project

• Location: City of Montevallo• Type of Business: Manufacturing• Capital Investment: $10 million

– $1,000,000 in land acquisition costs– $9,000,000 in construction (50% towards

materials)• New Jobs Created: 25 jobs• Wages: $16.20/hour

Example Taxes

Sales taxes: 9.0%• State: 4.0% • County: 1.0%

– Educational: 0.5%– Noneducational: 0.5%

• City: 4.0%– Educational: 0.0%– Noneducational: 4.0%

• Machinery: 6.6%– Educational: 0.1875%

Property taxes: 51.0 mills• State: 6.5 mills

– Educational: 3.0 mills– Noneducational: 3.5 mills

• County: 37.5 mills– Educational: 30.0 mills– Noneducational: 7.5 mills

• City: 7.0 mills– Educational: 0.0 mills– Noneducational: 7.0 mills

Local Incentives

• Local economic developers• Tax abatements• Amendment 772

Local Economic Developers

• Key allies in recruiting industry• Skilled liason between you and industry• Know the rules and can help connect

you to resources

Contacts & More

EDAA• Jim Searcy

– Executive Director• Phone: (334) 242-1184• Email: jim@edaa.org

• www.edaa.org

Tax Abatements

• What qualifies?

• What taxes can be abated?

Eligible Industries

• Manufacturing• Merchant wholesalers• Warehousing• Publishing (except internet)• Space research & technology• Coal mining• Scientific research &

development• Computer systems design• Data processing and hosting• Logging• Petroleum pipelines• Cotton ginning• Wired telecommunications• Testing laboratories• Inbound call centers

• Processing or treatment facilities

• Headquarters facilities• Data processing centers• Renewable energy facilities• Research & development

facilities• Tourism destination

attractions• Utility-owned alternative

energy and hydroelectric facilities

• Certain affiliates of the Alabama State Port Authority

• Underground natural gas storage in the Gulf Opportunity Zone

New Project Eligibility

New Jobs:Generally

no threshold

Wages:Generally

no threshold

Capital Investment:Generally

no threshold

Expansions Eligibility

New Jobs:Generally

no threshold

Wages:Generally

no threshold

Capital Investment:30% of original costs or $2M

Sales Tax Abatements

• What does it cover? Materials purchased in constructing and equipping a project

• How long does it last? Until project placed in service

• Montevallo: – Before: 9% general / 6.6% machinery– After: 0.5% general / 0.1875% machinery

Example Project

Property Tax Abatements

• What does it cover? Real and personal property incorporated into a project

• How long does it last? Up to 10 years• Montevallo:

– Before: 51.0 mills– After: 33.0 mills

Example Project

How to Finalize Abatement

• Abatements may be granted by:– County– City – Industrial Development Board

• Notify ADOR– Form CO: CAA– Form ST-EX2– Copy of action of granting authority– Copy of abatement agreement– Proof of E-Verify enrollment

Contacts & More

Alabama Department of Revenue• Kelly Graham

– Office of the Commissioner of Revenue• Phone: (334) 242-1175• Email: kelly.graham@revenue.alabama.gov

• Ashley Moon– Office of the Commissioner of Revenue

• Phone: (334) 242-1184• Email: ashley.moon@revenue.alabama.gov

• http://revenue.alabama.gov/taxincentives/

Class 6 Municipalities

• Class 6 municipalities have extra powers– 15-year property tax exemption for city

non-educational property taxes only– May also exempt municipal educational

taxes over 20 mills if no decrease in revenue

– Exemption from occupational license fees

Amendment 772

• What’s it worth? Discretionary• How to claim? Offered by the county

and/or municipal government• Limitations? Few; Alabama

Constitution

772 Procedure

• Provide notice and hearing– Publish in local paper– Public hearing

• Governing body adopts resolution approving package

• Generally, Amendment 772 actions require court validation

Other Local Amendments

• Other areas have their own local constitutional amendment that may be used– 17 counties: Amendment 429– 18 counties: Amendment 759

• Madison: Amendment 191

The Decision

• Will the industry:– Provide quality jobs?– Generate long-term tax base?– Occur without incentives?

• Fit your workforce• Draw workers from other communities

– Provide retail benefits

Other Considerations

• Upfront vs. performance-based• Caps on incentives

– Duration– Amount

• Incentive agreement– Recapture provisions (“clawbacks”)

State Incentives

• Capital credit• Department of Commerce support• AIDT• ADECA

Capital Credit

• What’s it worth? Income tax credit equal to 5% of the capital costs of the project taken over 20 years

• How do you claim? All projects which meet statutory requirements qualify

• When does it begin? When any part of the project is placed in service

Eligible Industries

• Basically the same as abatements– Always be sure to confirm project

eligibility

Criteria for Eligibility

New Jobs:20

Wages:Lesser of

$16.20/hour or county average

Capital Investment:

Example Project

How to Qualify/Contact

• Locality must notify Commerce– Online portal:

http://notification.madeinalabama.com• Project files Form INT with Revenue

– Prior to time project placed in service• Contact

• Kelly Graham at ADOR• Phone: (334) 242-1175• Email: kelly.graham@revenue.alabama.gov

• http://revenue.alabama.gov/taxincentives/

Total Statutory Incentives

Commerce Support

• State project manager• State discretionary dollars• SIDA site preparation grants

– Department of Finance– Maximum grant $150,000

• Industrial Access Road and Bridge– ALDOT/Department of Finance– $11mm/year fund

Contacts & More

Department of Commerce• Bob Smith

– Acting Director of Business Development– Phone: (334) 242-0464– Email: bob.smith@commerce.alabama.gov

• www.madeinalabama.com/advantages

SIDA Site Preparation Grants• Sandi Taylor

– Department of Finance – Debt Management– Phone: (334) 353-1199– Email: sandi.taylor@finance.alabama.gov

Contacts & More (cont.)

Industrial Access Road and Bridge• Ed Austin

– Innovative Programs Bureau Chief– Phone: (334) 242-6751– Email: austine@dot.state.al.us

• www.dot.state.al.us/adweb/Industrial%20Access.htm

• Workforce development– Businesses– Job seekers

• www.aidt.edu/jobs

• Regional and mobile training centers• Robotics Technology Park• Also specialized centers for aviation,

forest products, maritimePresented November 6, 2014,

Clanton, Alabama

Contacts & More

Alabama Industrial Development Training• Best way to connect with AIDT is

through Commerce or your local economic developer

• www.aidt.edu

ADECA Programs

• CDBG Economic Development– Applications scored based upon the

number of jobs and benefit to low and moderate-income persons

– SIC codes 20-39 (manufacturing) or provide “significant economic benefit”

– 20% local match is required– Grant must be awarded prior to project

startPresented November 6, 2014,

Clanton, Alabama

ADECA Programs (cont.)

• Float loans – Up to $10mm– Repaid in no more than 2 years

• Economic development grants– Up to $200k

ADECA Programs (cont.)

• State Small Business Credit Initiative – Private loan guarantee program– 50% of loan wrapped up to $5mm– “Small business” has up to 500 employees– Plenty of capacity under program

Contacts & More

Alabama Department of Economic and Community Affairs• Shabbir Olia

– CED Programs Manager• Phone: (334) 242-5468• Email: shabbir.olia@adeca.alabama.gov

– http://adeca.alabama.gov/Divisions/ced/cdp/Pages/CDBG.aspx

• Howard Wills– SSBCI Coordinator

• Phone: (334) 353-5353• Email: howard.wills@adeca.alabama.gov

– http://adeca.alabama.gov/Divisions/ced/cdp/Pages/SSBCI.aspx

Other Resources

• NMTC• State Regional Councils• Regional Federal Agencies• Electric Utility Support

New Markets Tax Credits

• New markets tax credits are federal and state programs to incentivize private investment in low-income communities

• Flexible regarding eligible projects

NTMC (cont.)

• What’s it worth? Credit against federal income taxes equal to 39% of the investment in a project– Credit against state income tax of 50%

• How to claim? Apply to CDE with allocation

• Availability? Must locate in a low-income community

NMTC (cont.)

• Grey areas do notqualify

• Green and blue areas do– Blue areas most

severe distress

NMTC for Montevallo

• Block by block analysis

NMTC Problems

• Last year of authorization• Complexity• Limited availability of credits• Minimum deal size

– $5mm for nonprofit– $7mm for-profit

• Public entities cannot take direct advantage of program

Contacts & More

Experienced NMTC counsel• Thomas Longino

– Balch & Bingham LLP• Phone: (205) 226-8713• Email: tlongino@balch.com

• Online mapping tool– www.bakertilly.com/landing/nmtc-lihtc-

mapping-tool• CDFI Fund

– www.cdfifund.gov/what_we_do/programs_id.asp?programID=5

State Regional Councils

• Economic Development– Infrastructure related grants including site

preparation, industrial access, and other economic development grants

• Revolving Loan Funds– Provides gap financing to small local businesses and

industries in their start-up and expansion activities that is not available from commercial lenders, including working capital

– Up to 1/3 of the total project cost

• Geographic Information Systems

Contacts & More

Alabama Association of Regional Councils

• Phone: (334) 277-2221

• www.alarc.org/the-councils/

Regional Federal Agencies

Delta Regional AuthorityAppalachian

Regional Commission

Contacts & More

ADECA – DRA & ARC• Jimmy Lester

– ARC Program Manager (also DRA)• Phone: (334) 353-4490• Email: jimmy.lester@adeca.alabama.gov

• Also contact your local Regional Council

Delta Regional Authority• www.adeca.alabama.gov/Divisions/ced/

Pages/DRA.aspx• www.dra.gov

Appalachian Regional Commission• www.adeca.alabama.gov/divisions/ced/

pages/appalachian-regional-commission.aspx• www.arc.gov

Electric Utility Support

• Electric utilities in the state are extremely active in economic development– Project assistance– Speculative building programs

• Contact via local economic developer

Downtown Redevelopment

Challenges

• How to redevelop disused downtown properties– Alabama municipalities have limited

powers• No home rule

– Limited resources• Retail under siege

Toolkit

• Retail tax incentives• Alabama public corporations

– Redevelopment authorities– Cooperative districts

• Tax increment financings• Historic preservation tax credits

The Decision

• Will the development:– Increase quality of life?– Generate long-term tax base?– Occur without incentives?

• Cost/benefit analysis– Cannibalize existing retail?– Other uses of the site (HBU)?

• Developer’s financial commitment?Presented November 6, 2014,

Clanton, Alabama

Other Considerations

• Upfront vs. Performance Based• Caps on Incentives

– Duration– Amount

• Incentive Agreement– Recapture Provisions (“clawbacks”)

Retail Incentives

• All incentives handled on local level– Sales tax rebates– Amendment 772– Tax increment financings

Sales Tax Rebates

• Incentive payment to project based upon performance (rebate)

• Project uses funds to:– Offset costs (improve feasibility of project)– Improve infrastructure– Lure anchor tenants

Structuring Sales Tax Rebate

• 30% of municipal sales taxes generated by project for x years– County participation?

• Use Amendment 772?

Public Corporations

• Publically-owned and controlled entities which have additional powers– Redevelopment Authorities– Capital Improvement Cooperative

Districts

Redevelopment Authority

Project“Interests in land, buildings, structures,

facilities, or other improvements located or to be located within the development

area . . . all for the essential public purpose of the development of trade, commerce, industry, and employment

opportunities in the development area.”

RAs (cont.)

• Development area– Any business district of the city which is not more

than three miles from the central business district and shall include areas used predominantly for business and commercial purposes

• Powers– Acquire, construct, lease, sell or donate projects– Borrow money and make loans to private

enterprises– Accept gifts or tax revenues from a public or

private entity– Foreclose on projects

RAs (cont.)

• Caveats– Not exempt from competitive bid laws– Authority must hold public hearing prior to

expending tax revenues made available to it

– Only one authority per municipality

Cooperative Districts

Project“Any capital improvement, facility,

structure, building, property, or appurtenances thereto of any nature,

type, or description which any member is authorized by any law of the state to

own, acquire, construct or finance.”

Cooperative Dist. (cont.)

Intent“. . . to encourage and facilitate

cooperative efforts by public entities to provide projects for their own use and for the use and benefit of their citizens

and users.”

• Who can cooperate?– Municipalities– Counties– IDBs or IDAs– Redevelopment authorities– Any other public corporation

• District– Flexible; not clearly defined

• Powers– Acquire, construct, lease, sell a project– May only donate projects to public

entities– Borrow money– Accept tax revenues from a public entity– Charge rentals for use of projects

• Compare to RAs– Exempt from competitive bid laws– Has eminent domain power– Multiple districts allowed

How to Establish

• Generally, statutory authorities follow this general procedure:– Members of public apply to form authority– City council adopts resolution

• Approves articles of incorporation• Approves board members

– File articles with local judge of probate

Funding

• In general, cities and counties have the authority to transfer funds to a public corporation

Tax Increment Financings

• Designate a TIF district:– Blighted/economically distressed areas– Certain military areas

• Issue bonds to fund infrastructure improvements/project development

• Use incremental increase in tax revenue to service debt

TIF Problems

• Vehicle that captures increased property tax revenues to finance improvements to an area

• Doesn’t work well in Alabama due to low property tax rates

Historic Tax Credits

• Historic preservation tax credits are federal and state programs to incentivize rehabilitation of historic structures

• Detailed rules relating to what renovations may be undertaken

• May be stacked with NMTC

Problems

• Minimum deal size similar to NMTC• Alabama program limited to $20mm

per year– 21 applicants for 10 spots– All 10 projects were in Anniston,

Birmingham, Mobile, Montgomery or Tuscaloosa

Contacts & More

• Alabama Historical Commission– Jennifer Bailey

• Coordinator, Alabama Historic Preservation Tax Credit Program

– Phone: (334) 230-2643– Email: jennifer.bailey@preserveala.org

• State– www.preserveala.org/taxcredits.aspx?sm=i_b

• Federal– www.nps.gov/tps/tax-incentives.htm

Financing Tools

Challenge

• How to pay for improvements with limited budget

Toolkit

• Pay as you go• Public infrastructure may be financed

with tax-exempt warrants– Amendment 772 does not change result

• Public corporations may issue bonds

Problems

• No home rule• Constitutional debt limitation

– Amendment 772 helps• Practical considerations

– Low taxes– Voter disapproval of tax hikes– Educational needs

Conclusion

Summary

• There are many resources available to you

• State and its allies care about economic development

• Retail and downtown redevelopment remains a challenge in cities large and small

Questions?

THANK YOU

FOR MORE INFORMATION

J. THOMAS LONGINO

Phone: (205) 226-8713Email: tlongino@balch.com

economic & community development incentives · 2017-01-17 · state regional councils •...

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