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Home My WebLink About08-23-04 La Porte Development Corporation Minutes MINUTES Q.V THE LA PORTE DEVELOPMENT PQRPORA TION August 23, 2004 1. Call to Order President Pat Muston called the meeting to order at 5:00 p.m. Members Present: Ed Matuszak, Chuck Engelken, Pat Muston and Deborah Johnson Members Absent: Bill Love and Peter Griffiths Staff Present: City Secretary Martha Gillett, Assistant City Manager Cynthia Alexander, Assistant City Manager John Joerns and Assistant Finance Director Michael Dolby Council Members Present: Mike Clausen, Tommy Moser and Mayor Alton E. Porter Citizens Present: Bobby Schlenk, Charlie Doug Boyle and Sue Gale Mock Kooken 2. There was a discussion regarding Bruce Meismer's vacant position. 3. Motion was made by Chuck Engelken to approve the minutes as presented. Second by Ed Matuszak. Motion carried unanimously. Ayes: Pat Muston, Chuck Engelken, Ed Matuszak and Deborah Johnson Nays: None Abstain: None 4. Public Hearing to discuss previously approved Bay Area Boulevard and Canada Road Paving and Drainage Projects Open Public Hearing - President Muston opened the Public Hearing at 5: 11 p.m. Charlie Doug Boyle hopes these projects will help lighten the heavy traffic. Bay Area Boulevard Project - Assistant City Manager John Joerns explained how legislation has changed and requires a Public Hearing on proposed projects. Although not required on this project, the Development Corporation thought it would be good to have public input. The plan is to move forward on this project in coordination with Harris County. Review by Staff - Assistant City Manager Cynthia Alexander spoke of the costs of the projects, with Bay Area Project being approximately $4.4 million and the Canada Road project being approximately $1.9 million, total being approximately $7 million. Bonds will be issued prior to the end of the year. Staff recommends moving forward with approval of projects and financing. The Public Hearing closed at 5:20 p.m. Ed Matuszak made a motion to close the Public Hearing. Deborah Johnson seconded the motion. The motion carried. Open Public Hearing - President Muston opened the Public Hearing at 5:20 p.m. Public Input - Gary Williams of Second Baptist Church stated the church members fully support the Canada Road construction. La Porte Development Corpol ation - 8/23/04 - Page 2 Review by Staff - Canada Road Paving and Drainage Project - Assistant City Manager John Joerns reported the need to purchase additional property, file a taking resolution; most other properties have been done. Mr. Joerns clarified the right-of-way for East Boulevard has already been acquired, and he explained the transition of building the road. Ed Matuszak made a motion to close the Public Hearing at 5:22 p.m. Deborah Johnson seconded the motion. The motion carried. 5. The Corporation to consider approval or other options regarding Annual Proposed Budget of La Porte Development Corporation. Assistant City Manager Cynthia Alexander gave an overview of the budget provided in the packet. Motion was made by Chuck Engelken to approve the proposed budget as presented by Ms. Alexander. Second by Ed Matuszak. Motion carried. Ayes: Pat Muston, Ed Matuszak, Chuck Engelken and Deborah Johnson Nays: None Abstain: None 6. Discuss Development Corporation Opportunities for Main Street District Assistant City Manager Cynthia Alexander provided legislation on projects and the use of them to review for what the Board can do. Ms. Alexander is still researching marinas and requested a definition of marinas. Ms. Muston suggested we pursue a target where the Bay Area is expanding. Ms. Alexander will bring back retail opportunities. Mr. Engelken would like to see how legislators can help. 7. Administrative Reports The next La Porte Development Corporation will be held on Monday, September 27, 2004. 8. Board Comments Bay Area Boulevard and Canada Road projects on Team Industries, information will be updated at the next meeting. The Public Hearing on Team Industries needs to be posted by Friday, September 10, 2004. 9. Adjournment There being no further business to come before the Development Corporation made a motion to adjourn. The meeting was duly adjourned at 5:40 P.M. Respectfully submitted, Y11aaJt{,~ #/dttj Martha A. Gillett City Secretary/La Porte Development Corporation Secretary La Porte Development CorpOlation - 8/23/04 - Page 3 Passed and approved on this 27th day of September 2004. ~4~ CITY OF LA PORTE PUBLIC WORKS DEPARTMENT Memo To: Debra Feazelle, City Manager From: Steve Gillett, Director of Public Works CC: John Joerns, Assistant City Manager Cynthia Alexander, Assistant City Manager Date: 9/20/2004 Re: CIP Status Report - Bay Area Blvd. and Canada Road The following is a brief status report of the projects funded by Section 4B Sales Tax (Fund 38). Bay Area Blvd. - The design for this Project is complete. Harris County is responsible for construction of roadway and drainage improvements, including adjustment of pipelines. The City is responsible for acquisition of all right of way and drainage easements. Acquisition of all ROWand easements has been completed. Harris County has issued work orders for pipeline adjustments. Harris County anticipates bid award for construction in October. However, this timeline could slip, depending on timing of the pipeline adjustments. · Bay Area Blvd. Trunk Sewer - This Project is approximately 50% complete. Anticipate completion by late November. · Canada Road - All design is complete, and Harris County is currently reviewing plans. A cost- sharing agreement has been approved by both parties, with the County participation up to $1.87M. Nine (9) contractors have been prequalified for the Project. Once the Agreement with Harris County is executed, the City will advertise for bids, with bid award expected in early November 2004. Two pipelines, as well as electrical transmissions facilities, require relocation. Relocation ios complete for one company (Kinder-Morgan) and currently underway for the other (ExxonMobil). Completion is expected by early October 2004. Electrical transmission relocation will not begin until the contract for construction is awarded, to take advantage of survey and clearing for construction. If you have any questions, please advise. . Page 1 Chamber of Commerce Economic Development Committee Minutes: October 21, 2004 September 9, 2004 August 19, 2004 09/27/2004 11:26 28147117Hl LA PORTE CHAMBER PAGE 02 When you receive this notice, please call the Chamber office at 281-471. 1123 to let us know if you will be attending so that we can order food for the meeting. AGENDA ECONOMIC DEVELOPMENT COMMITTEE OCTOBER 21, 2004 1. Welcome by Chairman Bruce Meismer and self-introductions 2. Discuss Information Package 3 Old Business 4. New Business 5. Next meeting November 18 at 12 noon. 6. Adjourn -----------------------------..-------------------- PRESENT: SUMMARY ECONOMIC DEVELOPMENT COMMITTEE September 9, 2004 Martha Gillett. City of La Porte Reggie Jackson, Professional Service Industries Diane Klingman. Comfort Suites Kathleen Lemon. CPA Barbra Lewis, Senator Mike Jackson's office Barbara Lunday, Du Pont La Porte Federal Credit Union Deborah Lundin Bruce Meismer, Project Specialists Gerald Metcalf, A.G. Edwards Pat Mock. Mock Clinic Bonnie Natole, Natole Turbine Enterprises Beth Rickert, La Porte ISD Charlcya Wheeler, Dr. Ruede Wheeler's Office 1. Chairman Bruce Melsmer welcomed the committee and self introductions were made. 2. Gillett stated elections are over and the Information Package will be em ailed to the Chamber office in the next few days. 3. Following discussion regarding railroad issues, it was agreed that Barbara Lewis will check on the status of the issue before the committee decides how to proceed. Following lengthy discussion, Meismer suggested adopting procedures regarding follow up for soliciting businesses to locate in La Porte. 09/27/2004 11:26 2814711710 LA PORTE CHAMBER PAGE 03 If the business expresses no interest in locating to our area the procedure would be as follows: Initial contact Follow up in 1 to 3 months Final follow-up in 6 months Annual follow-up If the business seems to be Interested the procedure would be: Initial contact Follow-up Face to face The committee will ask Feazelle to report back to the committee and update changes as necessary. The committee will help in assisting her as needed. Dan Blanchard also submitted a sample of a tracking system to determine what strategies work. Meismer then suggested committee members bring suggestions to next meeting regarding specific steps to take. 4. After lengthy discussion is was suggested that the committee should suggest to the city that an economIc development specialist be hired, however no action was taken. Meismer then stated the mind set of the community needs to change In order to successfully implement economic development. Rickert stated we should be positive and respect our community. 5. The next meeting will be held on October 21 at 12 noon. 6. Meeting adjourned. 09/27/2004 11:25 2814711 710 LA PORTE CHAMBER PAGE 04 ., When you receive this notice, please call the Chamber office at 281-471- 1123 to let us know If you will be attending so that we can order food for the meeting. AGENDA ECONOMIC DEVELOPMENT COMMITTEE SEPTE:MBER 9. 2004 1. Welcome by Chairman Bruce Meismer and self.introductions 2. Discuss Information Package 3 Old Business 4. New Business 5. Remaining meeting dates for 2004 are October 21 and November 18 at 12 noon. 6. Adjourn -----.-------..-------------....-----------.------------- SUMMARY ECONOMIC DEVELOPMENT COMMITTEE July 15. 2004 PRESENT: Dan Blachard. City of Shore acres Debra Dye. City of La Porte Debra Feazelle, City of La porte Martha Gillett, City of La Porte Zachal)' Hodge, Edward Jones Investments Reggie Jackson, Professional Service Industries Diane Klingman, Comfort Suites Kathleen Lemon, CPA Barbra Lewis. Senator Mike Jackson's office Deborah Lundin Gerald Metcalf,A.G. .Edwards Bonnie Natole, Natole Turbine Enterprises Beth RIckert, La Porte ISD Judson Robinson. Professional Service Industries 1. In Chairman Meismer's absence, Colleen Hicks welcomed the committee and self introductions were made. 2. Gillett stated that we are, once again, waiting for the outcome of the upcoming elections before completing the Information Package. 3. Following lengthy discussion, the committee agreed that the follow-up procedure for soliciting businesses to locate in La Porte Is as follows; When City Manager Debbie Feazelle requires assistance she will feel free to call on the Chamber as well as on individual committee members to write letters of support or attend meetings to show support. It was noted that very often there will be short notice to provide the needed support. 09/27/2004 11:25 2814711710 LA PORTE CHAMBER PAGE 05 4. Hicks distributed copies of 2 articles from the Houston Chronicle which discussed the problems that local industry is having with rail transportation. Following brief discussion. it was agreed that committee members will study the articles prior to the next meeting. A decision will then be made at that meeting regarding what action if any should be taken. Robinson suggested having tent cards available so that new committee members know who Is speaking. 5. The next meeting will be held on August 19 at 12 noon. 6. Meeting adjourned. THE AUGUST MEETING WAS CANCELLED DUE TO LACK OF ATTENDANCE. 09/27/2004 11:26 2814711710 LA PORTE CHAMBER PAGE 06 When you receive this notice, please call the Chamber office at 281-471- 1123 to let us know if you will be attending so that we can order food for the meeUng. 1. AGENDA ECONOMIC DEVELOPMENT COMMITTEE August 19,2004 Welcome by Chairman Bruce Meismer and self-introductions Discuss Information Package 2. 3 Old Business 5. New Business Next meeting date is September 9, 12 noon. Agenda items for next meeting? 4. 6. Adjourn --------------------------------...---------------------.--- SUMMARY ECONOMIC DEVELOPMENT COMMITTEE July 15. 2004 PRESENT: Dan Blachard, City of Shoreacres Debra Dye, City of La Porte Debra Feazelle, City of La Porte Martha Gillett, City of La Porte Zachary Hodge, Edward Jones Investments Reggie Jackson, Professional Service Industries Diane Klingman, Comfort Suites Kathleen Lemon, CPA Barbra LewIs, Senator Mike Jackson's office Deborah Lundin Gerald Metcalf, A.G. Edwards Bonnie Natole, Natole Turbine Enterprises Beth Rickert, La Porte ISD Judson Robinson, ProfesSional Service Industries 1. In Chairman Meismer's absence, Colleen Hicks welcomed the committee and self introductions were made. 2. Gillett stated that we are, once again, waiting for the outcome of the upcoming elections before completing the Information Package. 3. Following lengthy discussion, the committee agreed that the follow-up procedure for SOliciting businesses to locate in La Porte is as follows: When City Manager Debbie Feazelle requires assistance she will feel free to call on the Chamber as well as on individual committee members to write letters of support or attend meetings to show support. It was noted that very often there will be short notice to provide the needed support. 89/27/2884 11:26 2814711718 LA PORTE CHAMBER PAGE 87 4. Hicks distributed copies of 2 articles from the Houston Chronicle which discussed the problems that local industry is having with rail transportation. Following brief discussion, it was agreed that committee members will study the articles prior to the next meeting. A decision will then be made at that meeting regarding what action if any should be taken. Robinson suggested having tent cards available so that new committee members know who is speaking. 5. The next meeting will be held on August 19 at 12 noon. 6. Meeting adjourned. Texas Economic Development Incentives 2003 Page I of 29 \\t\"l.tO\VO\ Snl1~ GO\1:RN~lE~T C:\RClE Ki:;:r:J\ STlUYH(!R\ T.:-.\s (":,mr::cll.:-:' ,,-,:' )1.1',<:':\':': ....1:: b SEARCH ... Spedal 1~ep({Wt 'texas E..Q.Ql1Qmk 12~Y_ek>P1lLentJm::~Iltiy~s March, 2003 CHAPTER 3: Public Economic Development Corporations Since 1979, Texas law has allowed cities to form economic development corporations to attract businesses and create job opportunities. The 1989 Legislature amended the Development Corporation Act of 1979 to allow eligible cities the option of adopting a dedicated sales and use tax to fund industrial development projects. Further legislation in 1991 provided cities with a second form of sales tax to improve their appeal as places to reside, work and visit. These local sales and use taxes are known as the economic development sales taxes commonly referred to as the 4A and 4B taxes.LlJ The ~4A Economic Development Sales Tax The ~4A tax, authorized in 1989, is limited in use to industrial and manufacturing facilities, recycling facilities, distribution centers, small warehouse facilities, closed or realigned military bases and some commercial business development, business airport facilities and port-related facilities. The 1997 Legislature adopted H.B. 1525, which allows ~4A corporations to undertake projects previously only eligible under ~4B. A city must first obtain voter approval to become eligible for a ~4B type project without having to switch from a ~4A corporation to a ~4B corporation. At the end of fiscal 2001, 199 cities had adopted the ~4A economic development sales tax. [2] The largest city to adopt this tax was Corpus Christi, with a population of more than 277,000. The smallest city is Westlake, with a population of207. The average population of ~4A cities is 13,627. At least one city, Pampa, repealed its ~4A tax. Voters in Hollywood Park opted to reduce their ~4A sales tax from 0.5 cents to 0.25 cents to adopt a street maintenance tax. The ~4B Economic Development Sales Tax The 1991 Legislature added ~4B to the act. It allows greater flexibility in the use of http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3.html 9/27/2004 Texas Economic Development .~centives 2003 Page 2 of 29 revenues. Generally, S4B expenditures are those available under S4A and projects that contribute to the quality of life in the community. Such projects include building park- related facilities, professional and amateur sports and athletic facilities, tourism and entertainment facilities, affordable housing and any other improvement or facility that promotes new or expanded business enterprises. The 1999 Legislature added job training, targeted infrastructure, job creation and retention, and educational facilities to the definition of project. This expanded the allowable uses of economic development sales tax revenues. At the end of fiscal 2001, 324 cities had S4B economic development corporations. [3] The largest S4B city is Fort Worth, with a population of more than half a million.[4] The smallest S4B city is Primera, with a population of 52. The average population of S4B cities is 13,405. At least three cities, Arlington, Celeste and Kirbyville, have notified the Comptroller's office that they wish to stop collecting the S4B sales tax. The city of Arlington collected $22 million in S4B sales tax revenues in fiscal 2001. This represented slightly more than 10 percent of all S4B corporations. Annual Reports to the Comptroller In 1997, H.B. 1410 added S4C to the Act. Section 4C requires all S4A and S4B development corporations to file an annual report with the Comptroller's office by February 1. The report is based on the corporation's previous fiscal year and is limited to one page in length. The Comptroller's office developed a one-page form used by development corporations to fulfill the reporting requirements. In 2002, the report was made available on the Comptroller's office Web site, at http://www.window.state.tx.us/lga/edcform.html. The report requires the corporation to include the primary economic development objectives, total revenues and expenditures for the preceding fiscal year, types of revenues and expenditures, and a list of the corporation's capital assets. The first report was submitted to the 1998 Legislature and contained fiscal 1997 data. The second report to the Legislature was prepared in 2000 and contained data for fiscal 1998 and 1999. The 2002 report to contains data from the corporations' fiscal 2000 and 2001JS] In December 2000 and 2001, the Comptroller's office mailed out reporting forms to all current ~4A and S4B corporations, as well as to cities that held successful elections for the adoption of a sales tax in the previous year. All 490 corporations returned completed forms to the Comptroller's office for fiscal 2000. All 523 corporations surveyed for fiscal 2001 submitted their reports as well. This marks five straight years of 100 percent compliance by the development corporations. Every year since the adoption of the economic development sales tax, the number of cities adopting the tax has increased. In fiscal 2000, 490 corporations returned completed report http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 3 of 29 forms to the Comptroller's office, compared with 446 the previous year. By fiscal 2001, that number jumped to 523 corporations. Cities report that job creation and retention are the preferred activity for these corporations with infrastructure projects a close second. In fiscal 2000, 290 corporations reported "job creation/job retention" as a primary economic development objective; 229 corporations listed "infrastructure/projects"; 91 listed "sports facilities/recreation"; 89 listed "tourism"; and 78 listed "other." For fiscal 2001, 286 corporations listed "job creation/job retention" as a primary economic development objective; 283 corporations listed "infrastructure projects"; 106 listed "sports facilities/ recreation"; 99 listed "tourism"; and 117 listed "other." Many corporations had more than one primary objective, so the total number of primary objectives is more than the number of corporations reporting. In fiscal 2001, 523 corporations reported a total of$493.7 million in funds available for economic development purposes, for an average of $944,0 11 per corporation. That was an increase of $82.6 million from fiscal 2000 funds, which totaled $411.1 million. Total fiscal 2001 funds available for the 199 ~4A corporations amounted to $164 million, compared with $329.7 million for the 324 ~4B corporations. The average ~4A corporation in 2001 took in $824,372, up from $753,561 for the 189 corporations in 2000. Section 4B corporations reflected the largest increase in funds per corporation. The average ~4B corporation in fiscal 2000 raised $892,810, compared with average funding of$l million in 2001. The ~4B increase is largely attributable to a marked increase in bond proceeds and loans. From an accounting standpoint, bond proceeds and loans are not considered revenue. They are included here because they are a significant part of the funds available to corporations in their economic development efforts. In fiscal 2000, 490 corporations reported outlays of$366.9 million. Fiscal 2001 showed a decrease from 2000 with 523 corporations reporting total disbursements of $350.1 million. Capital acquisitions were the largest costs for corporations in both fiscal years with $153.3 million reflected in 2000 and $121.3 million for 2001. Next came debt service, with $80.7 million for fiscal 2000 and $73.1 million for fiscal 2001. Capital acquisitions and debt service are not expenditures in the accounting sense, but are included here to show how the economic development corporations use available funds. Coming in third was direct business incentives, with $49.3 million being reported for fiscal 2000 and increasing to $64.2 million for fiscal 2001. Evaluating ~4A and ~4B Activities from ~4C Reports Efforts to evaluate the effectiveness of economic development expenditures by ~4A and ~4B corporations have proven difficult. The corporations are not required to file information on the actual or expected impact of their activities, thus providing no measure of their impact on local economic growth. The Research Division of the Comptroller's office contacted MGT of America, Inc. in June 2002 to discuss possible approaches to determining the impact of local economic development corporations' use of tax revenues on efficiently and effectively promoting local economic growth. As a result of these preliminary discussions, it was determined that http://www.window.state.tx.us/specia1rpt/ ecodev03/06ch3 .html 9/27/2004 Texas Economic Development IJlcentives 2003 Page 4 of 29 the database of information currently collected on these local economic development corporations was too limited to address this issue. In July 2002, the Comptroller's office contracted with MGT to develop case studies of four economic development corporations. [6] The case studies focus on the use of financial incentives funded with economic development sales tax revenues. MGT was asked to deduce from this limited sample, best practices and policy options that may (1) help policymakers assess the impact of these corporations in the future, and (2) help these corporations maximize effectiveness in promoting economic development. MGT worked with the Texas Economic Development Council, a statewide professional organization of nearly 900 economic development practitioners, to identify four communities that represent a diverse sample in terms of population, geography and economic development sales tax revenues. Two of the selected economic development corporations (Abilene and Taylor) collect the ~4A sales tax, while the two others (New Braunfels and Victoria) collect the ~4B tax. Revenues raised by the ~4A tax may be used to fund projects specifically related to manufacturing and industrial development. The ~4B tax, authorized in 1991, may be spent on infrastructure and quality of life improvements, as well as traditional economic development. Figure 3-1 illustrates the population breakdown of cities that impose either the ~4A or ~4B tax. Figure 3-1: What Size Cities Levy the ~4A and ~4B Economic Development Sales Tax? 50,000 fa gun Papulatian 10,000104',999 3% Populalion 20% --_~~_:_~_---------.." .' 100,000 PapalallDn Dr Mar. 2% Under 1.000 Po p u lalian 12% 5.000 la g,ggg Papulalia n 16% - ~---- l,DDD 10 4,999 --._.._ Populalian --...- 47'Y. Source: Comptroller of Public Accounts The case studies are intended to provide the Comptroller's office with an understanding of the activities undertaken by the corporations, with an emphasis on their results , and an analysis of their practices. The case studies are not intended to assess whether ~4A or ~4B tax revenues have been spent appropriately or to evaluate the operations of the individual corporations. Given the limited scope of this research, it is important to note that general conclusions about the effectiveness of the economic development sales tax based on four case studies is not possible; however, these case studies do provide an example of common practices. Best Practices All of the economic developers interviewed were interested to learn about "best practices" http://www.window.state.tx.us/specialrptlecodev03/06ch3 .html 9/27/2004 Texas Economic Development ,wcentives 2003 Page 5 of 29 related to administering the economic development sales tax. The case study communities generated a number of practices that could be labeled "best practices." These include: . Written incentive guidelines. The Development Corporation of Abilene (DCOA) has adopted written guidelines for financial assistance. These written guidelines are not overly prescriptive and strike a good balance between flexibility and clear standards, policies and procedures. . Descriptive annual reporting. All of the economic development corporations reviewed for this project report their activities to the City Council on a regular basis. The DCOA for example, produces a semi-annual report that describes in considerable detail how the previous six months' activities have helped further its six strategic goals. The report also provides an update on businesses that have defaulted on their incentive contracts, if any. The City of New Braunfels provides a detailed accounting of expenses. . Estimating economic and fiscal impacts. All of the economic development corporations interviewed conduct varying levels of economic impact/return on investment analysis before awarding businesses a significant financial incentive. But, several impact analyses issues should be addressed: Impact assessment procedures should be standardized to ensure similar decisions are made by corporations in Texas. Impact analyses should assess statewide impacts, in addition to local and regional. Evaluation of an "investment" of public funds should be equivalent for both new and existing businesses. Analysis of public investments like infrastructure or job training programs should be conducted similar to those for projects involving direct financial incentives to new or existing businesses. The City of New Braunfels retained a consultant to develop a guidebook for estimating economic and fiscal impacts. The guidebook helps decision-makers better assess the net fiscal impact of a new project or relocation. This deliberate and focused approach to measuring economic impact is a "best practice" that could serve as the basis for additional training on economic impact analysis. . Ongoing analysis and benchmarking of social and economic trends. The Taylor Economic Development Corporation regularly tracks socio-economic trends in the region, such as per capita income and educational attainment. The TEDC also conducts benchmarking to compare itself to peers and the state as a whole. . Supporting work force development initiatives. A common trend found in the communities was a commitment to improving the local work force. Numerous communities have used economic development sales tax dollars to fund skills surveys, labor market analyses, as well as bricks and mortar type projects focused on work force development, such as Temple College at Taylor and the Central Texas Technology Center in New Braunfels. In Victoria, economic development sales tax http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 6 of 29 funds were used to establish a special training program in a high-demand industry sector. . Clear delineation of economic development roles and responsibilities. Most communities have multiple interest groups in the economic development arena, which can be a problem when there is little coordination or communication. The City of Victoria, through its strategic economic planning process, has clearly delineated in writing, the roles of each and every economic development organization. The Victoria Economic Development Corporation also facilitated the creation of an oversight commission designed to provide policy oversight and communications among Victoria's economic development players. This practice helps establish clear expectations and helps avoid duplication of efforts and unproductive turf wars. . Providing performance-based incentives. Several of the communities that provide financial incentives to new or existing businesses link the assistance to specific job creation goals. The City of Taylor offers financial assistance loans, which become grants when performance criteria are met. This practice helps protect the public's investment. . Limiting financial exposure and risk. The Development Corporation of Abilene assists some businesses through loan participation. Using this approach, DCOA funds are used to help lower the interest rate charged by a private lending institution. Although there is no "one-size-fits-all" approach to structuring incentive packages, the use of loan participation or guarantees helps limit the city's financial exposure and risk. Policy Issues Texas lawmakers have expressed an interest in receiving more information about the effectiveness of the economic development sales tax and other business incentives. Currently reporting requirements for the economic development sales tax are limited and do not provide the information necessary to evaluate the effectiveness of the tax as a tool for promoting and sustaining economic growth in local Texas communities. The reporting requirements provide basic information on the general objectives of the economic development corporation, and the corporation's revenues and expenditures. The mandatory reporting, which is by law no longer than one page in length, does not ask for information on economic development outcomes, such as jobs created or retained. As a result of this analysis, a range of policy options exists, which lawmakers may wish to consider. There is no definitive approach to assessing the effectiveness of the economic development sales tax. Indeed, most of the evidence showing the positive effects of the tax is qualitative or anecdotal. One or more of the following policy options may help improve the effectiveness of the tax in fostering economic development, while also providing local communities with the tools they need to maximize the use of this important economic development incentive. Policy Options . Conduct performance reviews of economic development corporations. Following the model ~fthe Texas School Performance Review, Texas lawmakers could direct http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 7 of 29 performance reviews of economic development corporations (after developing an appropriate methodology). As in the case of the Texas School Performance Review, such involvement could be initiated at the request of the economic development corporation itself or by some involved elected official. Voluntary performance reviews would provide lawmakers with a more detailed understanding of the uses of the economic development sales tax, while affording local economic development corporations an opportunity to receive a third-party perspective on their operations and outcomes. . Conduct statewide best practice survey and review. The Comptroller's office has developed a widely respected database of school district best practices called AIMS (A+ Ideas for Managing Schools). Texas lawmakers may wish to consider conducting a statewide survey of economic development corporations with an eye towards identifying innovative practices and developing a similar Internet-based database. This type of review would provide local economic developers with new information and ideas about how to attract new jobs, structure incentive packages and track performance outcomes. . Self-certified performance reviews. Another alternative would be to develop a checklist of appropriate policies for economic development corporations based on a review of existing practices and in consultation with the practitioners. Each corporation could review this list of policies and procedures and self-certify that it is in compliance with these policies and procedures. . Modify state reporting requirements. As described above, the current state reporting requirements for ~4A and ~4B corporations are limited. The legislative intent was to minimize the administrative burden placed on local economic development corporations. Some changes lawmakers may wish to consider include: (1) developing a separate reporting form for ~4A and ~4B corporations to reflect their different objectives; (2) adding "work force and education" as an expenditure category given the growing importance of this type of economic development activity; (3) requiring economic development corporations to provide the Comptroller with the employer identification number of businesses that have received financial incentives during the past twelve months; and (4) requiring economic development corporations to provide more detailed information on the form and terms of incentives offered, such as grants, loans, loan guarantees, etc. . Continue and enhance mandatory training. HB 3178 (200 1 Legislature) requires that certain individuals (e.g., city attorney, city clerk, executive director of the corporation) complete a seminar on the proper and legal administration of the economic development sales tax. The Texas Economic Development Council was contracted by the Texas Department of Economic Development to conduct the training, which is being offered across the state. This training provides a valuable service. Prior to electric deregulation, most utility companies had an active economic development staff that worked closely with local economic developers to pursue new jobs and investments, as well as analyze the economic impact of offering incentives. Since electric deregulation, the number of economic developers working for electric utilities has dropped dramatically. For example, prior to deregulation, American Electric Power (AEP) had eight full-time economic developers on staff. Today, the company has only one for the entire state. http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 8 of 29 In the future, specialized, in-depth seminars on topics like economic impact analysis and performance measurement could be developed. While these topics are included as part of the current training curriculum offered by the Texas Economic Development Council, increased emphasis appears warranted. . Maintain the status quo. It can be argued that Texas lawmakers should retain current reporting requirements and not take any further steps, especially in light of the fact that the economic development sales tax is a local option tax. Many economic developers would argue that local policymakers are held accountable for the expenditure of these funds, and the state role should remain limited. On the other hand, the economic development corporations are creations of the state and should be responsive in supporting rational and non-conflicting economic development policies within the state. Case Studies The case studies that follow are based on the information provided to the Comptroller's office by the individual economic development corporations. The information provided was not audited for accuracy. The discussions were qualitative and in no way represent a statistically valid representative "universe" of economic development corporations. ABILENE, TEXAS Overview The Comptroller's office contract staff contacted Lisa Hughes, Director of Economic Development for the City of Abilene, and Kim Terrant, Contracts Administrator for the City of Abilene Department of Economic Development, on August 30, 2002. Additional follow- up via phone calls and e-mails with Abilene city staff clarified some responses. Community Snapshot Abilene is a medium-sized community with strong military ties and an active economic development program. In 1989, Abilene was the first Texas city to pass the economic development sales tax. ABILENE, TEXAS Type of Tax S4A Year Passed 1989 S4A Revenues (Fiscal Year Ending 2001) $6,272,643 City Population (2000) 115,930 City Population (1990) 106,654 Population Growth (1990-2000) 8.7% Sources: Comptroller of Public Accounts, U.S. Census Bureau, 2000 Census. http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3.html 9/27/2004 Texas Economic Development Incentives 2003 Page 9 of 29 Tax Origins Abilene voters passed a half-cent ~4A sales tax in 1989, in combination with the sales tax for property tax reduction. In 1989, Abilene sought a dedicated funding source for business incentives, after the community experienced a number of job losses in its traditional job sectors of agriculture, oil and gas. Mission/Focus The mission of the Development Corporation of Abilene is to use sales tax revenue to effectively stimulate Abilene's economic growth. This is done by assessing the community's economic development needs, developing a plan to meet those needs, coordinating community economic development efforts and supporting targeted activities that enhance the quality of life in the community and maximize the public's return on invested tax dollars. The mission statement provides the DCOA with a clear set of directives that guide the allocation of ~4A tax revenues. The DCOA has also identified six goals for the City of Abilene's economic development efforts: . to make Abilene competitive in the attraction of business and industry in order to create new, sustainable jobs; . to create new jobs and retain existing jobs by providing assistance to existing and emerging businesses; . to strengthen and expand the skills of the Abilene labor force; . to strengthen and revitalize downtown Abilene; . to increase the number and size of minority- and women-owned businesses in Abilene; and . to effectively administer the sales tax revenue. According to the annual report filed with the Comptroller's office as required by HB 1410, 1997 Legislature, the major focus of the DCOA is job creation. Organization and Staffing The DCOA is a non-profit corporation established under Section ~4A of the Development Corporation Act of 1979, as amended. The DCOA has a five-member board, which is appointed by the mayor and city council. The board meets on a monthly basis to determine funding for all sales-tax funded projects, and also approves all incentive packages by written resolution. The DCOA publishes an "Annual Report of Activities" that documents in considerable detail specific projects funded with ~4A revenues, as well as an update on projects that have defaulted on their incentive contracts, if any. Over the years, the reports have become more detailed. In the last few years, the report has specifically outlined the progress made toward reaching DCOA's six adopted goals. In 2002, a semi-annual report was developed. These reports help provide the board and the general public with a useful snap-shot of ~4A expenditures and their results. The DCOA has no staff of its own. Rather than duplicate the efforts of existing http://www.window.state.tx.us/specialrptlecodev03/06ch3 .html 9/27/2004 Texas Economic Development I~~entives 2003 Page 10 of 29 organizations, the DCOA has decided to use existing community organizations to fulfill its major functions. To this end, it has executed a number of contracts to fulfill necessary administrative and programmatic functions. These contracts include: . City of Abilene. The DCOA contracts with the City of Abilene to administer the S4A tax, and operate the Abilene Regional Business and Education Center (ARBEC). The Abilene Department of Economic Development provides the majority of assistance, and other city departments provide DCOA with legal, administrative and financial services. In fiscal 2001, the DCOA received $365,880 from the city to perform business services and $21,154 for ARBEC operations. . Abilene Industrial Foundation. The DCOA has an annual contract with the Abilene Industrial Foundation to provide marketing and business development services. In fiscal 2002, the contract was for $808,770, which included $411,120 for operations, $175,000 for marketing plans and $222,650 for military consultants. The foundation produces the city's collateral materials, arranges marketing trips and promotional events, and is actively involved in military related activities. . Small Business Development Center (SBDC). The DCOA has a $135,000 contract with the SBDC to provide counseling services to Abilene area residents and businesses. Counseling services include business plan development and government procurement counseling. . Abilene Chamber of Commerce. DCOA also contracts with the Abilene Chamber of Commerce for approximately $40,000 to pay for military affairs-related travel, host trips and visits, with a goal to help protect and maintain missions in the area. The use of contracts with existing organizations, as opposed to creating a new full-service entity, appears to be appropriate in a larger community such as Abilene that already has a number of organizations staffed by full-time economic development professionals. Budget and Expenditures For fiscal 2001, the S4A sales tax generated approximately $6.2 million in Abilene. Approximately 25 percent of this amount was spent on operations, including personnel, advertising, marketing, legal services, planning and research. The remaining funds, approximately 75 percent, were spent on direct projects or incentives. In the past, most S4A sales tax revenues were spent on direct incentives for companies relocating or expanding in Abilene. Recently, funds have been targeted to support the development of the Five Points Business Park (see "community projects" below for more details). According to the annual report filed with the Comptroller's office for fiscal 2001, the DCOA spent approximately $1.7 million on direct business incentives. Financial Incentives The DCOA does not offer companies seeking to relocate or expand in Abilene a "fixed menu" of incentives, although it does have a written policy statement on incentives called http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development!.!?:centives 2003 Page 11 of29 "Guidelines for Financial Assistance." The guidelines outline the type of activities that may be considered for assistance by the DCOA. According to the current guidelines, these activities include infrastructure improvements; land purchases, leasehold improvements and construction; and financing. . The guidelines also include the following noteworthy condition: "As a general rule, the DCOA will not provide funding support to anyone individual or organization, which, when added to the financial assistance already being received from any other source associated with the City of Abilene, totals more than 50 percent of the total investment required for a project." The guidelines also require that at least one permanent job be created for each $20,000 of total public assistance. The DCOA guidelines do not restrict the type of businesses that may qualify for incentives (such as requiring a minimum wage or that the company provide employer health insurance). The only restrictions that currently exist are informal. For example, according to the City's Director of Economic Development, the city of Abilene does not generally recruit major water users or provide incentive funds to "start-up" companies. The written guidelines spell out in considerable detail the types of loans available, the conditions under which they are offered and the materials that must be presented in an application for a loan or other financial assistance. The DCOA's written guidelines for financial assistance strike a good balance between clear standards, policies, and procedures and flexibility. Of particular value is the provision highlighted above that limits the value of any city-funded incentive package to 50 percent of the total investment made by the company. This provision constitutes good public policy, and helps ensure that the community can reap some immediate economic benefits, besides the new jobs. Abilene offers financial assistance in a variety of forms, including: . Low interest loans. Acting in a capacity similar to the federal Small Business Administration, the DCOA provides low interest loans to new companies. . Loan participation. The DCOA also works with local lending institutions to help obtain a lower interest rate for a new company seeking a loan. This type of approach minimizes the DCOA's financial risk and can help generate a bigger "bang for the buck. " . Earnable grants. These grants provide up-front cash payment for items like infrastructure or job training, and are "earned" as specific job targets are met. According to the city of Abilene's Director of Economic Development, the DCOA typically awards businesses a combination of grants and loans. In the past, cash grants were awarded to businesses without true claw-backs (the ability to recoup cash grants or incentives granted if promised economic activity does not occur), but this practice has been replaced by the use of earnable grants. http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 12 of29 Table 3-1 below lists the companies that have received financial incentives funded with .. economic development sales tax revenue in 1998-99. According to Abilene's Director of Economic Development, the DCOA generally provides businesses a combination of loans and grants. Table 3-1: Companies Receiving Economic Development Sales Tax Funded Financial Assistance in Abilene, 1998-99 Incentive Amount Company Year and Type Description The DCOA provided loan participations Rentech Boiler Systems, Inc 1998 $304,975 and training dollars for the expansion of existing operation, which involved 40 new jobs. R.D. Hartmann, Inc. dba The DCOA provided loan participations Torco 1998 $74,250 for the company's expansion of existing operation, which involved eight new jobs. The DCOA awarded funds to pay for the Eagle Aviation Services, Inc 1998 $1,750,000 construction of an industrial hangar at the airport to house regional jet maintenance. The project involved 86 new jobs. The DCOA awarded funds for the BlueCross/BlueShield of 1998 $1,700,000 renovation and associated costs for Texas Affiliate building additional space for 275 new jobs. DCOA released funds for relocation and LenStar Corporation 1998 $35,000 training expenses, involving 10 new jobs. Lenstar defaulted on this contract. Phillips Driscopipe (now DCOA provided a loan for the relocation Performance Pipe, a division of equipment, training, leasehold of Chevron Phillips 1999 $432,000 improvements. The loan is payable at the Chemical Company) end of three years, and involved the creation of 31 new jobs. DCOA provided a loan to purchase real Jack and Becky Rentz and 1999 $450,000 estate and equip-ment. The incentive Rentech Boiler Systems package involved the creation of 40 new jobs, and the retention of 50 jobs. DCOA provided a loan to cover the costs of architectural and engineering fees, relocation costs, the installation of Aerobotics Industries, Inc 1999 $3,200,000 equipment from Euless, building renovations and equipment for an expansion into Abilene. The incentive involved the creation of 250 new jobs over a three-year period. http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 13 of 29 DCOA provided funding for relocation U.S. Brass Corporation 1999 $1 590000 costs, equipment and real estate. The , , incentive involved the creation of 129 new jobs over a three-year period. Source: City of Abilene, Department of Economic Development. Oversight and Due Diligence The city's legal staff generally prepares performance-based contracts for financial assistance, although the DCOA uses outside counsel for certain real estate transactions. In order to be considered for financial assistance, a company must provide the DCOA with certain information, including audited financial statements for the past three years, and a business plan. In addition, the Abilene Department of Economic Development conducts an informal economic analysis to determine the appropriate level of incentives. This analysis is currently conducted internally, although economic development staff may request the assistance of various local businesspersons when conducting these analyses. The lack of a formal process to evaluate the costs and benefits of granting incentives in Abilene is surprising, given the generally high level of sophistication in the city's economic development efforts and the significant number of incentive projects that have been funded over the years. When evaluating applications for financial assistance, the DCOA considers the following criteria: . number of full-time, permanent jobs created or retained; . skill and salary range of jobs; and . length of time the company commits to staying in Abilene. Each year, a Contracts Administrator with the City of Abilene sends companies ajob certification letter. The letter requires that the company provide the following information: . a complete list of employment positions, including names of each person employed at the Abilene facility, city of residence, total number of regular hours worked during the preceding l2-month period and the total payroll for the Abilene operation; and . certification that a set percentage (as indicated in the contract) has been made available to residents of Abilene. The Director of Human Resources is required to certify the information and send it back to the DCOA for review. Companies are also required to supply financial information on an annual basis. If a company is in financial trouble, this information must be submitted on a quarterly basis. According to the Contracts Administrator, the DCOA does not use employment data from the Texas Workforce Commission (TWC) for several reasons. One major reason is that the TWC data does not specify whether or not the employee is an Abilene resident, an important consideration for the DCOA. The DCOA has not tracked appraisal value added by companies that have received financial assistance since 1995. In 2001, the DCOA began collecting appraised value reports to use in future calculations to track increases in the tax base. The DCOA is developing a database to track and report this type of information. http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 14 of29 Community Projects In recent years, the DCOA has turned its focus to the development of the Five Point Business Park. The DCOA purchased the Abilene Industrial District in 1995, which consisted of about 660 acres of undeveloped land in west Abilene. Today, the Five Point Business Park has two buildings, both of which are occupied. DCOA funds have been used to purchase land, fund master planning and design studies, and to pay for construction and infrastructure (road, drainage, and utilities) costs related to the construction of the initial buildings and roads. Abilene, like the other communities surveyed as part of this project, has invested substantial amounts of ~4A dollars in work force development projects. For instance, DCOA funded the renovation of an airport hangar for Texas State Technical College (TSTC), and has helped create an air maintenance technician program through a partnership with Eagle Aviation. DCOA also partnered with Texas Tech University's Tech-Center for Excellence Graduate Program in software engineering. Economic Development Results According to an analysis compiled by the DCOA of active projects, since Abilene's ~4A tax passed in 1989, approximately 5,000 new jobs have been committed, while 3,770 jobs have actually been created. According to the same analysis: . DCOA has provided a total of $42 million in incentives to active projects; . companies receiving DCOA funds invested an estimated $189 million in Abilene; . the average cost per job created (including repayable loans) is approximately $8,400; and . the average cost per job created (grants only) is approximately $4,100. None of the information above is reported to the Comptroller's office as part of the mandatory annual report. A business relocation and expansion that Abilene is particularly proud of is Blue Cross/Blue Shield of Texas. The company relocated from Richardson, Texas, to Abilene in 1994-95 because of high levels of employee turnover. The DCOA initially provided $400,000 in funding to renovate a city-owned building, and awarded an additional $1.7 million in 1998 to pay for building renovations to accommodate the creation of new jobs. Since 1995, employment at Blue Cross/Blue Shield has grown from 200 to 1000 jobs. NEW BRAUNFELS, TEXAS Overview Comptroller contract staff visited New Braunfels, Texas, on August 14,2002, and met with Michael Meek, President of the New Braunfels Chamber of Commerce, Rusty Brockman, Director of Economic Development for the New Braunfels Chamber, and Monroe Miller, Chair of the ~4B Economic Development Corporation Board (officially called the Infrastructure. and Improvements Corporation). http://www.window.state.tx.us/specialrptlecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 15 of29 Community Snapshot New Braunfels is a small community located between Austin and San Antonio. The city's current economic development strategy is to modernize its work force and infrastructure. Business incentives are not the cornerstone of New Braunfels' economic development strategy . NEW BRAUNFELS, TEXAS Type of Tax ~4B Year Passed 1995 ~4B Revenues (Fiscal Year Ending 2001) $2,205,128* City Population (2000) 27,334 City Population (1990) 36,494 Population Growth (1990-2000) 25.1% Sources: Comptroller of Public Accounts, U.S. Census Bureau. *Amount includes g4A and g4B revenues. Tax Origins In May 1995, New Braunfels citizens passed a ~4A and ~4B tax, as well as a sales tax for property tax reduction. All three taxes were included on the same ballot proposition. Four years earlier, in 1991, New Braunfels voted against the passage of a "stand-alone" ~4A economic development sales tax. In November 2000, New Braunfels citizens voted to abolish the ~4A board and form a single ~4B board. The 1/8 cent previously dedicated to the ~4A Corporation was transferred to the ~4B corporation. The November 2000 ballot proposition specified that economic development sales tax revenues could be used for projects and expenses allowable under both the ~4A and ~4B law. M issionl Focus The New Braunfels Infrastructure and Improvements Corporation have not adopted an official mission statement. According to the city's economic development leaders, the orientation of the corporation and its current board is to make strategic infrastructure investments, particularly in the areas of work force and education. Developing a written mission statement along with clearly defined goals might be a valuable exercise for the corporation to undertake in the future. This mission statement should be aligned, to the greatest extent possible, with the city's new strategic economic development plan. According to the annual report filed with the Comptroller's office as required by HB 1410, 1997 Legislature, the major focus of the New Braunfels Infrastructure Improvement Corporation is job creation/retention, sports facilities/recreation, infrastructure projects and other. Organization and Staffing http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 16 of29 The ~4B Corporation relies on city staff to perform core functions related to the administration of the ~4B sales tax. The city secretary takes minutes at board meetings, the city attorney reviews all incentive contracts and the city finance director maintains the board's budget. The seven-member 94B board is appointed by the New Braunfels City Council and meets monthly or bi-monthly. Each board meeting is spent listening to funding requests. For example, the August 2002 meeting focused on a request for funding from the city's parks department. The board does not have a formal procedure or method for evaluating infrastructure proposals, although the city has adopted guidelines for assessing applications for incentives for business related projects. The ~4B board also uses the city's comprehensive plan to help guide expenditures and identify priorities; however, this process is informal, and the city's comprehensive plan is not binding on the 94B board. The New Braunfels Chamber of Commerce is the city's major economic development organization, and is under contract to the 94B corporation to perform marketing and provide site location assistance to new businesses. Budget and Expenditures For the fiscal 2001, the economic development sales tax generated approximately $2.2 million in New Braunfels. According to the chamber, less than ten percent of its annual budget is spent on operations, including staff salaries, advertising, marketing, legal services and various research studies. The remaining funds are spent on projects. Figure 3-2 illustrates how the 94B Board proposes to spend economic development tax revenues during the upcoming fiscal year. Figure 3-2: Breakdown of Proposed ~4B Expenditures in New Braunfels AlIlllllt Full ftl.. I !"lib ~ Mallclll.. Ind "l1IrtuID.II S8",ICII 8% Illsinllu D_I......... 12" -..~-. EdllCilCial\lll & Jab ............... Tr,lnlng ......... .~ . -. --./f---~~ .- / ,/ Publi. F..lIIty Impmlmen' ._mi . \, \ InlrlltRlclure \. Itllpl'O'llmenls "-i'''' Source: New Braunfels Infrastructure and Improvements Board. According to the annual report filed with the Comptroller of Public Accounts for the fiscal year ending September 2001, the New Braunfels Infrastructure and Improvement Corporation spent no funds on direct business incentives. Financial Incentives Business incentives are not the emphasis of New Braunfels' economic development http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 17 of29 strategy. In fact, no incentives were granted to new or existing businesses in 2001 or 2002. City economic development leaders characterize New Braunfels as a conservative community not known for "doling out money." As a result, the S4B corporation does not offer a "fixed menu" of incentives, nor has it adopted a written incentive policy. Rather, the chamber and S4B board work with each business prospect and customize incentive packages to meet the company's needs. Companies seeking financial assistance must present their case before the S4B board. Although the Corporation has no formal eligibility standards, it does have an informal policy to not grant incentives to companies that would compete with existing companies, pay low wages or pollute the environment. These informal policies are not stated anywhere in writing. In the future, the corporation may find it useful to adopt written incentive guidelines, or amend its bylaws to clarify the type of companies that are ineligible for financial assistance. The lack of a written policy appears to be commonplace among economic development corporations. To date, all of the incentives offered to relocating or expanding companies have been in the form of low-interest loans. According to the S4B corporation president, the New Braunfels City Attorney draws up all incentive contracts, and inserts claw-back provisions to protect the public interest. Table 3-2 below lists the companies that have received financial incentives funded with economic development sales tax revenue. Table 3-2: Companies Receiving Economic Development Sales Tax Funded Financial Assistance in New Braunfels Company Year Incentive Awarded The S4A board awarded Simpson Race Products a $198,000 low- Simpson interest (5 percent) loan approved in August 1996. Under the terms of Race 1996 the contract, 25 per-cent of the loan would be forgiven if job and Products investment goals were met (300 jobs). The loan was paid back in quarterly payments over a three-year period. The S4A board awarded Great American Products a $105,000 below Great market inter-est rate loan. Under the terms of the contract, 25 percent American 1997 of the principal would be forgiven if the specified job and investment Products goals were met. Loan proceeds were to be used for the relocation of equipment and personnel. Source: New Braunfels Chamber of Commerce. According to the New Braunfels Chamber of Commerce, both loans (above) have been paid, and both companies met and exceeded their job and investment commitments. Great American Products recently purchased another company and relocated it to New Braunfels, and expanded their existing facility by 10,000 square feet. No incentives were provided for this expansion of 40 new jobs. Simpson Race Products reportedly still employs approximately 300 persons. Community Projects The majority of economic development sales tax revenues in New Braunfels are used to fund physical infrastructure improvements to roads, bridges, public recreational facilities and municipal buildings. Annual reports provided to the New Braunfels City Council detail http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 18 of29 how economic development sales tax funds have been spent. The economic development sales tax also has been invested in various community-oriented projects including the construction of a new central public library and a $105,000 grant to the Wests ide Community Center, which provides social and educational services to low- income residents. The Central Texas Technology Center, which is expected to break ground in January 2003, is the culmination of an eight-year community effort. Alamo Community College District will provide curriculum and instruction. The technical training area will focus on automotive and welding technologies, while the academic training facility will include classrooms, ESL construction, and course offerings in science, math, history, English, government and writing. In addition, the Alamo Workforce Development Board will establish a "one-stop" center on site that will offer job search placement assistance. The center is expected to be open for classes in January 2004, and enrollment is expected to reach between 800-1200 students during the first semester, serving students from Comal, Guadalupe and Hays counties. The center is characterized by economic development leaders as the most exciting project in New Braunfels. The center is funded through a variety of sources, including a $1.25 million grant from the Federal Economic Development Administration, the New Braunfels Infrastructure and Improvements Corporation ($939,000), and the City of Seguin ($463,000). The ~4B Corporation will own the facility. Performance Measures and Oversight The city's recent strategic plan includes written guidelines for estimating the economic and fiscal impacts of a new project or relocation. The ~4B board will conduct a Return on Investment analysis on all business related projects, and will review salary and benefits offered by any company that requests financial assistance, as well as their planned level of capital investment. According to the ~4B chair, the city conducts an annual review of incentives granted to businesses to ensure that they are in compliance with the terms of their agreement. The 4B board might wish to consider amending its bylaws to require such a review be performed, identify a specific process for conducting the review and provide that the results be shared with the full board on a yearly or biannual basis. Economic Development Results The New Braunfels Chamber of Commerce has analyzed data from the 2000 U.S. Census to highlight changes in major social and economic conditions in the community between 1990 and 2000. According to the Chamber, household and per capita income growth exceeded the state average, and the percentage of high school graduates rose from 26.6 percent of the population to 30 percent of the population, while the percent of residents with Bachelors degrees increased from 12.6 percent to 16.7 percent. While it is important for a community to monitor and analyze census and other accessible social and economic data, it is impossible to establish a causal relationship between social and economic trends and the economic development sales tax. http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/2712004 Texas Economic Development Incentives 2003 Page 19 of29 Given that the majority of economic development funds were spent on physical infrastructure improvements, it is difficult to quantify the value or return of the g4B funds. This is a challenge for local economic developers, particularly for g4B corporations. In the area of incentives, New Braunfels gained or retained approximately 380 new jobs for a small financial investment of g4B revenue. The average cost per job created was less than $800. Table 3-3: Summary of Incentives Funded with Economic Development Sales Tax Dollars in New Braunfels (1995-Dresent) Number of companies 2 Total Value of Incentive $303,000 Total Company Investment $6 million Appraisal Value Added $5.5 million Jobs CreatedlRetained 380 Average Hourly Pay $8 Source: New Braunfels Chamber of Commerce. TAYLOR, TEXAS Overview Comptroller contract staff visited Taylor, Texas, on August 22,2002, and met with the John Nelson, executive director of the Taylor Economic Development Corporation, Frank Salvato, city manager of Taylor, Vicki Phelps, Taylor Independent School District superintendent and Ella Jez, president of the Taylor Chamber of Commerce. Community Snapshot Taylor is a small community located less than one hour from Austin. The community has strong agricultural ties and a growing number of manufacturing jobs. TAYLOR, TEXAS Type of Tax g4A Year Passed 1993 g4A Revenues (Fiscal Year Ending 2001) $608,766 City Population (2000) 13,575 City Population (1990) 11,4 72 Population Growth (1990-2000) 18% Sources: Comptroller of Public Accounts, U.S. Census Bureau, 2000 Census. Tax Origins The driving force behind the passage of the g4A economic development sales tax in Taylor http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Development!ncentives 2003 Page 20 of 29 was the Taylor Chamber of Commerce, which sought dedicated funding for incentives for job creation and retention. The city of Taylor passed the 94A economic development sales tax in November 1993, which became effective April 1, 1994. Taylor voters passed the half cent economic development sales tax for economic development, along with a half-cent sales tax for property tax reduction. Missionl Focus The Taylor Economic Development Corporation serves as a catalyst to build wealth for all Taylor citizens by assisting local and new industries to increase revenues generated in this area. TEDC measures success by job creation and retention, tax base increases and other important indices. According to the annual report filed with the Comptroller's office as required by HB 1410, 1997 Legislature, the major focus of the TEDC is job creation and retention. As in most Texas communities, multiple organizations are involved in economic development. In Taylor, the TEDC focuses on manufacturing and industrial development, while the chamber of commerce focuses on retail and tourism. Such a delineation of economic development roles and responsibilities is common across Texas, and helps avoid duplication of effort. Organization and Staffing The TEDC is an independent organization with two full-time, and one part-time employees. The TEDC board is composed of five members who are appointed by the City Commission. The City Commission approves TEDC's annual budget. The Taylor Economic Development Corporation has existed since 1995 and has had the same executive director, John Nelson, since its inception. Budget and Expenditures For fiscal 2001, the 94A sales tax generated about $609,000 in Taylor. According to the TEDC, approximately half of its annual budget is spent on operations, including staff salaries, advertising, marketing, legal services and various research studies (e.g., skills survey, economic analysis). The remaining funds are spent directly on projects and incentives. According to the annual report filed with the Comptroller's office for fiscal 2001, the TEDC spent $153,813 on direct business incentives. Financial Incentives TEDC awards a variety of financial assistance to relocating or expanding companies. Examples include: . direct cash payments for new construction, renovation or equipment; . land at reduced or no cost for building a facility; . payment of city fees for building; and http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Developmen!_lncentives 2003 Page 21 of29 . installation of critical infrastructure such as roads and large water lines. As a general rule, the TEDC strives to spend money on physical infrastructure. All incentive contracts are in the form of a loan; however, if performance criteria are met, the loan is forgiven and it becomes a grant. This practice helps protect the public's investment. On the cost side, incentives generally range between $500-$2000 per job created. No specific formula is used to determine the incentive package offered; however, the higher cost incentives are generally offered to companies that pay higher wages and offer excellent employee benefits. The TEDC has not established specific eligibility criteria that companies must meet to qualify for incentive assistance. Community Projects The TEDC also has invested in various community projects ranging from relatively small projects (e.g., strategic economic development planning, study of Taylor work force, job fairs, Taylor Library) to larger undertakings (e.g., Taylor Industrial Park, Temple College at Taylor, Taylor Airport). A major development for Taylor citizens is the new campus of Temple College located in downtown Taylor. The TEDC was a major catalyst and supporter ofthe Temple College at Taylor (TCAT) effort. Before this campus was established in downtown Taylor, Temple College offered only a handful of community college level courses at the local high school. The president of Temple College told community leaders that the college would be able to do more if they had a stand-alone facility. In response, a coalition of community organizations and leaders formed a 50lc(3) organization called TTCAT to find a facility for Temple College. The TEDC identified a site at an abandoned downtown building that had previously housed an HEB grocery store. Following an aggressive community letter writing campaign to the company, HEB sold the building to the TEDC for $200,000 in 1996. The building was eventually purchased by TCA T in 1997, after receiving a grant from the Meadows Foundation. In 1997, TCAT received a zero-interest loan from the Texas Capital Fund to renovate the old HEB building, and the IBM Corporation donated all of the furnishings for the campus. Enrollment at Temple College at Taylor has boomed over the last five years. In September 1996, Temple College at Taylor had 136 students; today enrollment exceeds 400 students. The campus makes college level courses more accessible to Taylor citizens, which should have a positive economic development impact. Performance Measures and Oversight The TEDC retains outside legal counsel to develop and review incentive contracts. All contracts are performance-based and include claw-back provisions. The TEDC asks prospects seeking incentives to complete a special form called a "TEDC Assistance" form. The information provided in the form is used to determine the level of assistance, and forms as the basis for the language in the incentive contract. In addition, the TEDC hires an outside consultant to conduct a formal economic impact analysis of any project where the assistance level exceeds $50,000 or if other special circumstances warrant a study. Requiring a formal economic impact analysis under certain clearly stated conditions is a http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3 .html 9/2712004 Texas Economic Developmentlncentives 2003 Page 22 of 29 strong business practice. These analyses project the secondary effects of the business relocation or expansion. The TEDC uses Internal Revenue Service forms to monitor the payroll of companies that have received financial incentives. While this source of data may provide some accounting legitimacy, as an ongoing data source for monitoring performance, other data sources such as Texas Workforce Commission reports may be more appropriate since they are available on a much more timely basis. According to the TEDC executive director, forms from the TWC are not used because several small employers have expressed concerns regarding the disclosure of individual salary information. If the economic development corporation were to obtain the data directly from TWC, they would be under the same disclosure restrictions as TWC. In addition, TEDC staff monitors property values to track tax base increases using information from the local appraisal district. Economic Development Results The TEDC uses the following performance measures to evaluate requests for incentive dollars, and to assess overall success in reaching goals for the city of Taylor. . Job Creation. The TEDC evaluates the number of jobs created, as well as the quality of those jobs as measured by skill level, pay range and potential for advancement. . Tax Roll Impact. The TEDC evaluates increases in school, city and county-assessed property values, as well as increases in direct sales tax collections (although manufacturing machinery and equipment is exempt from the sales tax). . Quality of Life Issues. When reviewing requests for financial assistance, the TEDC also looks at secondary issues such as a company's support for education, community involvement and environmental impacts. . Broad Measurement in Census Data. The TEDC has generated analyses using Census data that compare the economic and social conditions in Taylor between 1990 and 2000. The TEDC has also generated analyses that compare Taylor to the state of Texas and small communities surrounding Austin. The indicators listed above do a good job measuring economic progress and performance. One critical indicator is job quality as measured by wages and skill levels. Health insurance and other fringe benefits should also be considered when reviewing applications for financial assistance. The TEDC is wise to monitor census and other data to track broad changes in the community, although direct linkages between the ~4A tax and changes in per capita income or other socio-economic indicators cannot be established. The TEDC has compiled data from the U.S. Census to analyze changes in major social and economic conditions in the community between 1990 and 2000. It is important to note that the TEDC was not established until 1995. In addition, no causal connections can be made between aggregate economic trend data and TEDC investments and projects. Table 3-4: Demo ra http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 ,.,..".... Page 23 of 29 Demographic: Population 11,472 13,575 Median Household Income $21,160 $38,549 Individual Below Poverty Level 21.9% 14.2% Educational Attainment: H.S. Graduates + 59.8% 68.1% H.S. Graduates Only 29.6% 32.0% Some college/associate 18.7% 22.9% Bachelor's 11.4% 13.3% Source: Taylor Economic Development Council. The TEDC conducted a return on investment (ROI) analysis to quantify the economic benefit Taylor citizens have received from the economic development sales tax. According to the analysis, the TEDC has identified 1,000 jobs that have been created or retained with the assistance of the economic development sales tax. The ROI used by the TEDC is a simple, yet conservative, effort to quantify the benefit of the ~4A tax in Taylor since the tax became effective. Table 3-5: Analvsis of TEDC Incentives (1995-2001) Number of companies 28 TEDC Total Company Investment $955,919 Appraisal Value Added $77,107,837 Jobs Created/Retained 1073 Average Hourly Pay $13.87 Investment/Jobs $890 per job Appraisal Value Added per company $2.75 million Source: Taylor Economic Development Corporation. VICTORIA, TEXAS Overview Comptroller contract staff visited Victoria on August 23,2002, and met with Dale Fowler, executive director of the Victoria Economic Development Corporation (VEDC); Wayne Watkins, president of the Victoria Sales Tax Corporation and City Council Member; Dan Pedone, Vice President of the VEDC Board; and Lee Keeling, VEDC Board Member. Community Snapshot Victoria is a medium-sized community, with deep economic roots in agriculture, oil and gas. In many ways, it is a "bedroom community," because a large number of Victoria' s residents commute to nearby oil refineries. Victoria has focused on upgrading its http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/2712004 Texas Economic Development}ncentives 2003 Page 24 of 29 infrastructure so that it has a better "product to sell." Incentives have been used relatively sparingly. VICTORIA, TEXAS Type of Tax ~4B Year Passed 1996 ~4B Revenues (Fiscal Year Ending 2001) $4,802,314 City Population (2000) 60,603 City Population (1990) 55,076 Population Growth (1990-2000) 10% Sources: Comptroller of Public Accounts, U.S. Census Bureau, 2000 Census. Tax Origins The City of Victoria passed the ~4B economic development sales tax on its second try in 1996. The tax was passed to improve the city's aging infrastructure, which has remained the primary focus of the ~4B board during the first few years of its existence. The tax was proposed in response to poor economic conditions in Victoria, and was reportedly pushed by a coalition of Victoria business, community and local government leaders. Mission/Focus The Sales Tax Corporation of Victoria has not adopted an official mission statement. The Victoria Economic Development Corporation (see below) coordinated a comprehensive strategic planning process beginning in January of2000 for the entire community. The planning process was guided by a 27-member Oversight Committee, which included two members from the Victoria Sales Tax Corporation, as well as representatives from local government, education, the medical community and a wide range of other entities. Victoria's Economic Vision Statement is as follows: In the year 2010 Victoria's economy is... Positioned to exceed the state average of job creation and income growth because of our commitment to excel in these areas: . Education. Victoria's citizens are able to seek employment opportunities and careers in an information-based economy with steeply rising academic standards. . Training. By offering training in technology relevant subjects, Victoria's citizens have skills to meet the needs of businesses and to reach their full potential. . Business Viability. Public policies are designed and implemented to encourage expansion of local companies and to form public/private sector partnerships. http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3 .html 9/27/2004 Texas Economic Development2,ncentives 2003 Page 25 of 29 . Business Recruitment. Aggressive marketing programs attract companies that advance incomes, employment choices and quality of life. . Quality of Life. By adopting smart growth policies, Victoria is able to both develop and improve its quality of life. This economic vision statement was the result of a broad-based community process, and could be used to guide the actions and spending of the g4B board. According to the president of the g4B Board, the economic development tax has been largely dedicated to upgrading the city's infrastructure to make room for economic development. The board will reportedly begin to shift focus towards business attraction and incentives, since many infrastructure improvements have been made and plans are in the works to build an industrial park. The annual report filed with the Comptroller as required by HB 1410, 1997 Legislature, identifies the major focus of the Victoria Sales Tax Corporation as job creation and infrastructure. Organization and Staffing The Sales Tax Corporation of Victoria is governed by a seven-member board, which is appointed by the city council, and meets quarterly. Three of the seven members also sit on the city council. The board decides how to spend revenues and assembles an annual allocation plan. The corporation's bylaws prohibit the issuance of debt. The corporation has no staff of its own and utilizes existing city staff, such as the city secretary, attorney and finance director to perform core functions related to the administration of the sales tax. This arrangement minimizes operational expenses, and requires a very active and committed board of directors. The Victoria Economic Development Corporation is a public/private partnership established more than two decades ago. Private partners include various businesses in the Victoria area. The VEDC is funded by a combination of city, county and private sector funds and serves a number of vital economic development functions, including: . coordinating and implementing financial and incentive policies; . planning and implementing a business attraction marketing program, and a business retention program; . coordinating Victoria's business climate improvement efforts; and . maintaining Victoria's economic development strategic plan. The VEDC is under contract with the city of Victoria to administer the city's property tax abatement program. In this capacity, VEDC staff accept and review applications for tax abatement submitted by companies, conduct economic impact analyses, and present the applications to the Victoria City Council. The VEDC also has a $75,000 contract with the Victoria Sales Tax Corporation to provide marketing and business attraction services (this fee also covers administration ofthe tax abatement program). The Victoria Chamber of Commerce focuses on retail and tourism development. http://www.window.state.tx.us/specialrptlecodev03/06ch3 .html 9/27/2004 Texas Economic Development_~centives 2003 Page 26 of 29 Budget and Expenditures For fiscal 2001, the ~4B sales tax generated approximately $4.8 million. According to the president of the ~4B board, less than two percent of tax revenues are spent on operations, including staff salaries, advertising, marketing, legal services and research. Approximately 98 percent of funds raised through the tax are spent directly on projects. According to the annual report filed with the Comptroller's office for the fiscal 2001, the Victoria Sales Tax Corporation spent no funds on direct business incentives. In 2002, the board set aside $300,000 for business incentives. Financial Incentives Like the other communities reviewed for this project, the Victoria Sales Tax Corporation does not offer companies seeking to relocate or expand in Victoria a "fixed menu" of incentives. Rather, incentive packages are customized to meet the individual needs of companies. Financial assistance provided to companies can include cash payments, land purchases, training dollars and loans. The Victoria Sales Tax Corporation has not established specific criteria for the type of company eligible for financial assistance. The Victoria Sales Tax Corporation follows the minimum investment and job standards contained in the city and county's Tax Abatement Guidelines and Criteria (minimum 10 new jobs and $500,000 capital investment). This informal practice helps align the two incentive programs, and provides companies with a clear understanding of what is required in order to qualify for assistance. Victoria's economic development strategy also calls for a focus on attracting jobs that pay above the state average wage. The Sales Tax Corporation has an informal policy of targeting jobs that pay at least $10 per hour. The Sales Tax Corporation and the VEDC have not adopted a formal wage restriction because they do not want to lock themselves out of certain opportunities, such as a company making a large capital investment that will substantially boost local tax rolls. According to the VEDC, economic impact analysis is regularly performed by an outside consultant to determine the impact of proposed developments, with a special focus on changes in payroll and tax base. Prior to the implementation of electric restructuring, the VEDC worked closely with the economic development staff at the local utility-American Electric Power. An AEP economist conducted impact analyses for the VEDC on proposed projects free of charge. Today, the VEDC hires a private consultant (former AEP staff) to conduct these studies for a fee. Table 3-6 below lists the companies that have received economic development sales tax- funded incentives in Victoria since 1995, as well as the specific incentive packages provided. Table 3-6: Com anies Receivine l 4B funded incentives in Victoria. Texas Incentive Amount Company Year and Type Description Johnson 2000 $150,000 The Sales Tax Corporation provided $150,000 to VEDC http://www.window.state.tx.us/specialrptlecodev03/06ch3 .html 9/27/2004 Texas Economic Development Incentives 2003 Page 27 of29 Manufacturing cash grant to release to Johnson Manufacturing for the purchase of a building to locate a duct, stack and structural steel manufacturing plant at a new industrial park adjacent to FM 185 in Victoria County, Texas. Under the terms of the grant, Johnson was required to create and continuously maintain employment of at least 40 full- time positions for a period of not less than one year. Tejas 2002 $20,000 The Victoria Sales Tax Development Corporation Production cash grant awarded Tejas Production Services, Inc. a $20,000 cash Services grant to purchase overhead cranes for their new manufacturing facility located in the Victoria International Commerce Airpark. Tejas Production is a locally grown company that manufacturers oil field equipment. Tejas agreed to create 12 new positions for a total of24 employees by the end of their second year of operation at the new location and maintain those 24 employees for a period of one year. Average annual salary estimates for the new positions are $25,000 plus benefits. Hanover 2000 Leverage The Victoria Sales Tax Corporation helped leverage a Compressor, $261,000 Texas Capital Fund Grant for infrastructure. Inc. The grant was used to provide water and sewer infrastructure to help with Hanover's expansion, which created 28 new jobs. The Sales Tax Corporation served as the guarantor of the Texas Capital Fund grant, and would have been forced to pay the grant back if the jobs were not created. Source: Victoria Economic Development Corporation. Performance Measures and Oversight The City of Victoria's legal department reportedly develops performance-based contracts with companies that receive ~4B-funded incentives. To ensure compliance, the VEDC requires companies that receive financial assistance funded with ~4B revenues to report job counts to VEDC or directly to the Sales Tax Corporation. Companies are required to submit a "Verification of Compliance" on company letterhead, signed by an officer of the corporation. The VEDC does not currently verify the accuracy of these statements, or review Texas Workforce Commission employment information. Community Projects Victoria's strategic economic development plan highlighted the need to develop a product marketable to businesses. Victoria has adequate raw land, but lacks industrial or commercial sites with good transportation access and utilities needed to attract business. Several years ago, the Sales Tax Corporation purchased 220 acres ofland with ~4B revenues with the intention of building an industrial park. On behalf of the city of Victoria http://www.window.state.tx.us/specialrpt/ ecodev03/06ch3 .html 9/27/2004 Texas Economic Development.!ncentives 2003 Page 28 of 29 and the Victoria Sales Tax Development Board, the VEDC applied to the Federal Economic Development Agency for grant funding. In June 2002, the City was awarded a $1.6 million grant for project infrastructure with the Sales Tax Development Corporation allocating matching funds in excess of $1.6 million. The VEDC is in the process of developing the industrial park, which will target light manufacturing and distribution. The goal of the industrial park is to attract jobs that pay above the average state wage. In addition, the VEDC is in the process of determining the appropriate levels of incentives to offer businesses (e.g., cost per job). The VEDC has stated that it will conduct economic impact analysis to determine what type and what level of incentives are appropriate for a specific type of investment. The Victoria Sales Tax Development Corporation has also invested approximately $475,000 on work force education projects at Victoria College. These investments include approximately $143,435 to assist Victoria College implement the "Work Keys" skills assessment project. The goal of this project is to assess the current skill levels of the Victoria work force as they relate to specific jobs, to identify any skill gaps in the current work force and to develop appropriate training in areas where the current work force is deficient. Economic development sales tax dollars ($325,000) were also allocated to Victoria College to help build a facility and purchase equipment for work force training particularly in the areas of heating, ventilation and air-conditioning. Economic Development Results The VEDC measures its success in terms of job creation and tax base increases. The VEDC is in the process of establishing baseline information so that it can track its progress over time. Currently, neither the VEDC nor the ~4B corporation has developed quantifiable performance targets or goals. Table 3-7: Companies Receiving Economic Development Sales Tax Funded Financial Assistance in Victoria Texas ., Number of companies receiving direct 2 incentives Total value of incentives $170,000 Appraisal Value Added $3 million Jobs CreatedlRetained 52 Average Hourly Pay $10 per hour Source: Victoria Economic Development Corporation. Endnotes [1] The authority to enact the sales and use tax for economic development is found in Vernon's Ann. Civ. St. art 5190.6 ~4A, ~4B. http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/27/2004 Texas Economic Developmentlncentives 2003 Page 29 of 29 [2] For a complete list of these cities see http://www.window.state.tx.us/taxinfo/addit.html. L3J For a complete list of these cities see htt)2://www.window.state.tx.us/taxinfo/addit.html. [4] It should be noted, however, that while Fort Worth has established a S4B corporation, it does not levy a S4B tax. [~] The Comptroller's office provides a free copy of this report to all S4A and S4B corporations and is also available on the Comptroller's office Web site at http~LL~-,-wiI)dQw,staJe-,-t~,usjlgal ed~J"OQQJL. [61 The MOT analysis focused on economic development corporations that collect the economic development sales tax as authorized by Article 5190.6, Vernon's Civil Statutes. Carole Keeton Strayhorn Texas Comptroller of Public Accounts WiOQQWQO Stat~GQY~mment Contact Us PJj'{i;!<;_Y' and Sec_urity_pQ[j<;)' http://www.window.state.tx.us/specialrpt/ecodev03/06ch3 .html 9/2712004