DRAFT
Public Incentives Review Committee
Meeting Minutes
April 15, 2004, 4:00 p.m.
PIRC Members Present: Mayor Mike Rundle, Commissioner Sue Hack, Kirk McClure, Bob Scherer, Jere McElhaney, Mike Maddox (Economic Development Board Representative)
Member Cindy Yulich was absent
City Staff Present: Mike Wildgen, David Corliss, Ed Mullins, Frank Reeb, Scott Wagner
Others Present: members of the public were present.
_______________________________________________________________________
Mayor Rundle called the meeting to order. Members and staff provided introductions as new members were present on the committee.
Frank Reeb, Director of Administrative Services/City Clerk, provided an overview of the draft of the 2003 Tax Abatement Report. He noted that the report contained data on only those companies that had already received an abatement and whose abatement has been approved by an order of the Board of Tax Appeals. Thus, the recent (fall 2003) abatements received by Amarr Garage Doors and Serologicals, are not included in the report. He then continued to briefly go over the main tables presented in the report as follows:
The information in Table 1 lists all 13 businesses receiving tax abatements in 2003 and contains general information about each abatement.
The information in Table 2 pertains to the number of full-time and part-time employees and compares employment projections as provided in their application to data following their receipt of an abatement. A column at the end of the table highlights whether the company is over or under projected figures at the end of 2003. Companies with differences highlighted in red on the table are below projected employment.
Table 3 contains wage information about each company. He noted in the majority of cases, the benchmark used was the mean wage as reported in the 2003 Edition of the Kansas Wage Survey for the Lawrence Metropolitan Statistical Area (MSA). Whenever a 6-digit SOC Code mean wage was not available or when a business reported 4-digit job codes, a 4-digit SOC Code mean wage was used as the benchmark. This benchmark is a weighted mean wage for all reported wages in a 4-digit SOC Code for the Lawrence MSA and is a non-standard Code that was created by the Kansas Department of Human Resources at the City’s request.
Reeb noted that as for the Microtech information, he had since received an email from a Microtech official stating that the information for sales positions was incomplete because it did not include commissions. Reeb said he reviewed the updated wage information for those positions and, based on an initial review, it likely would not change the bulleted information at the end of the table for Microtech but would get individual wage information closer to the benchmark wage.
The abated companies were asked to report the amount of real and personal property taxes paid in 2003. Companies were also asked to report the amount of any payment in lieu of tax they are required to make. Table 4 reports tax information for real and personal property related to the tax abatement(s).
Six companies have had Industrial Revenue Bonds (IRBs) issued on their behalf. Table 5 details the date of issue as well as the amount of the bonds and the date of final payout.
The questionnaire sent to tax abated firms asked companies to report what percentage of their expenditures were made in the City of Lawrence as well as the percentage of the companies’ sales made outside of the City. This table compares those expenditures to those that were projected by the company in their application.
Reeb noted that the Allen Press information in this table should be revised to indicate non local sales should be 99% and not 75% as originally reported.
The questionnaire allowed businesses to report any company achievements, particularly those in the areas of environmentally sound practices, community engagement and service, and job training. Table 7 highlights some of these accomplishments.
Reeb noted that Allen Press had since provided some information about Job Training and he would add that information for future version of the report.
The meeting then returned to the committee where discussion followed concerning the 2003 report.
Bob Scherer had questions regarding Table 1 and the phasing of improvements planned by Allen Press.
Charlie Shelton, of Allen Press was in attendance and provided that Phase II was an extension of the original project.
Bob Scherer had further questions about the amounts of the abatements initially authorized compared to those amounts actually constructed and realized through the assessed valuations as provided by the Douglas County Appraiser's office. He noted that in some instances, those differences were rather large. For example, Sauer-Danfoss has only constructed approximately 67% of the abatement authorized as valued by the county.
Kirk McClure stated that the land and improvements were valued less by the county than what the original applications indicated. He questioned whether staff had met with the county appraiser regarding their valuation methods.
Frank Reeb stated that he had met in the past with Sharon Dominick of the County Appraiser's Office. His recollection was that often times the uniqueness of a particular property makes assessing a market value difficult and also that the cost of construction, particularly for unique buildings may not always be indicate of the building’s market value.
Jere McElhaney noted that finding comparables to properties are a problem and an issue that has also been faced by the county commission.
Bob Scherer questioned whether this was something to be considered at the time of the application process - the eventual assessed valuation of properties. He continued his remarks regarding the tax abatement report and commented on Table 3. He noted that Lawrence wages of the abated companies appears to be below statewide averages in many job classifications.
Frank Reeb said that one thing to keep in mind regarding the wage data in Table 3 was that the figures presented may be impacted by staff turnover - new hire wage rates v. more experienced workers.
Jere McElhaney noted that the State sets some appraisal guidelines for arriving at market values and that the Douglas County Appraiser must follow those guidelines.
Mike Maddox added that the discrepancy in appraised values might also be due to the fact that actual construction costs may not be valued the same as its worth in the marketplace.
Jere McElhaney questioned how Lawrence was faring compared to regional standards regarding tax abatements and compliance.
Kirk McClure stated most tax abated Lawrence firms were not in substantial compliance. He provided that only 3 of 13 firms are compliant even when using a 90% threshold or target based on their application submittals. He said the problem is not transitory. The City has a problem regarding the compliance of tax abated firms.
Jere McElhaney asked what the trend was for tax abatement compliance?
Kirk McClure stated that requiring substantial compliance is the trend. He said that most communities have clawback provisions in their abatement compliance and that Lawrence is just now implementing some clawback-type measures. Lawrence is behind the times on this issue. He also said just because a city may use 100% as the substantial compliance requirement, does not mean that the city would also exercise some clawback feature in the event the business has not met that substantial compliance threshold.
Jere McElhaney asked if Lawrence has such lenient compliance standards, then why didn't we see more firms requesting abatements?
Kirk McClure replied that we have good job growth here in Douglas County according to the most recent data he has analyzed. This report is available on his website:
www.saud.ku.edu/gen/SAUD_generated_pages/McClure_Kirk_p513.html
Mike Maddox questioned whether we are outpacing statewide job growth rates with the current economic conditions.
Mayor Rundle thought that is was important that we look at the history of our abatement process.
Sue Hack said that the PIRC should note concerns and comments in the minutes and forward those on to the City Commission for their consideration. She noted that our new tax abatement policy includes clawback provisions with the requirement of companies executing performance agreements.
Mike Maddox said that one item not in the report is information on why the company is not in compliance. He thought this would be helpful information for the committee to have.
Jere McElhaney stated that we just enacted performance agreement requirements with our latest policy.
Kirk McClure replied that regardless of what is in the City’s policy, by state statute, the City can determine when a tax abated firm is in substantial compliance. He said the problems with tax abatements go beyond looking at individual businesses but indicate that the current system has failed.
Sue Hack said this debate really gets to the issue of whether you believe in tax abatements and is not one of just compliance.
Bob Scherer commented that we go through an elaborate process when a company applies for a tax abatement, however, many companies have not provided what they promised at the time of application.
Sue Hack stated that some information in the report as to why a company was in non-compliance would be helpful.
Mike Rundle noted that we could find out regional norms or standards and this would be helpful as well.
Kirk McClure responded that we have a chronic problem with non-compliance.
Sue Hack said that the discussion today had not looked at those areas where companies are over their projections.
Jere McElhaney thought that it should be one of the recommendations of the committee that we must be friendly with our business community. Our future is based on our relationships with our businesses and we must be objective when making those recommendations.
Mike Rundle said that it was important to consider those companies that do not receive an abatement. If our policy results in non-compliance, then we need to step back and reassess the tax abatement policy.
Mike Maddox said that it was easy to be a backseat driver when looking at this issue. There needs to be some common definition of non-compliance.
Dave Corliss, Director of Legal Services, noted that this issue was difficult to address and define and had been an issue with this committee in the past as mirrored by today's discussion.
Mike Rundle asked if anyone would make a motion to make a recommendation on this 2003 Tax Abatement Report.
Commissioner Hack moved, seconded by Mike Maddox, to recommend approval of the 2003 Tax Abatement Annual Report to the City Commission with the PIRC members comments and concerns as noted in the minutes. Motion passed 6-0.
The meeting adjourned at approximately 4:55 p.m.