Economic & Community Development Incentives Nuts & Bolts
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 Capital Investment: Generally no threshold Wages: Generally no threshold
Expansions Eligibility New Jobs: Generally no threshold Capital Investment: 30% of original costs or $2M Wages: Generally no threshold
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 Capital Investment: $2mm Wages: Lesser of $16.20/hour or county average
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%20acc ess.htm
AIDT Workforce development Businesses Job seekers www.aidt.edu/jobs Regional and mobile training centers Robotics Technology Park Also specialized centers for aviation, forest products, maritime
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 start
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 lowincome community
NMTC (cont.) Grey areas do not qualify 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-lihtcmapping-tool CDFI Fund www.cdfifund.gov/what_we_do/programs_i d.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 Authority Appalachian 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?
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.
Cooperative Dist. (cont.) Who can cooperate? Municipalities Counties IDBs or IDAs Redevelopment authorities Any other public corporation
Cooperative Dist. (cont.) 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
Cooperative Dist. (cont.) 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 State Coordinator, Alabama Historic Preservation Tax Credit Program Phone: (334) 230-2643 Email: jennifer.bailey@preserveala.org 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?
FOR MORE INFORMATION J. THOMAS LONGINO Phone: (205) 226-8713 Email: tlongino@balch.com THANK YOU