HomeMy WebLinkAboutHEDRA 04-09-09 IV a. Land Credit FormulaApril 2, 2009
TO: HEDRA Board
FROl\I: John Crrossman
RE: Land Credit adjustment
Hastings established its Land Credit Program in 1996 because competing cities
subsidized the cost of their industrial property to attract businesses. The principle of this
program is to treat all applicants the same by defining how the land price is "earned".
The method is to sell the land for $1.00/acre and defer the balance of the price (like a
loan) thereby allowing the business to complete a building and establish a workforce.
Five years later the assessor's value of the building, and the value of the annual payroll
are credited against the deferred price using a formula. The benefit of this program is its
flexibility. It seems to work for a large variety of projects. See the enclosed summary-
To secure the desired outcome the formula needs to be adjusted when the land price
changes: the combination of building value and payroll is expected to generate credits
that equal or exceed the land price. The formula rewards desirable projects by factoring
in:
1. The land price. The existing formula was designed for $1.00 sq-ft. The price is
now $1.65 sq.ft., requiring this adjustment.
2. The size of the building. The formula rewinds 20% or more lot coverage, which
with parking and drives leaves little unused land or "excess" subsidy.
3. The value of the building. The h~pe of building required under the city
appearance standards should contribute around 50% of dte credits.
4. Jobs and the wages. The annual payroll is divided by $27,000 ($13.00 an hour -
considered living wage). The resulting "job equivalents" is multiplied by a factor.
With a factor of $12,000, three jobs per acre should contribute around 50% of the
credits.
This formula emphasizes job creation a little more than the previous formula. To account
for the higher land price while preserving the desired outcome, the multiplier for each job
is changed from $5,400 to $12,000. The examples sho~nn on the next page indicate that
the change adjusts for the higher land price.
.ACTION: Approve the attached Land Credit Program for future use.
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SUMMARY OF LAND CREDIT PROGRAM
This is a brief outline of the program under which the City (Council and HEDRA) considers a
request to sell Industrial Pork land at a price below the market to encourage development. The
City has the stahttory authority to do so (465.035; 469.101). The value of dte difference between
the market price and the city price is a business subsidy. The Hastings program takes dte form of
deferring full payment for the land for five years and deducting credits based on building value,
jobs and wages from the deferred land price.
A. LOCATION AND TYPE OF BUSINESS. Land credits can be used when the City owns the
land as in the Industrial Park. The business has to be permitted in an industrial zone, such as
manufacturing, processing or wholesaling. Businesses that need a special use permit to locate in
the Industrial Park can be considered for the land price subsidy.
B. TYPE OF BUILDING. The Economic Development Commission advises all applicants for
the land price program that building has to meet the design standards adopted for the type and
location.
C. AMOUNT OF SUBSIDY. The price of the land is set by the City Council. At this time it is
$1.65 a sq.ft. or $71,874 per acre. The development agreement stipulates that the purchaser will
pay a nominal price, $1.00 an acre, and the balance will be deterred for five years. For one acre,
flee subsidy would be $71,873.
D. BUSINESS SUBSIDY REQUIREMENTS. The City and HEDRA have adopted criteria for
the approval of business subsidies, including land price reductions, required by the Business
Subsidy Act (1167.933-955). The grant of a business subsidy requires public notice, public
hearing and approval at a public meeting. The current threshold of a business subsidy is a value
of $150,000.
The recipient of a subsidy has to sign a subsidy agreement stating specific job and wage goals
and making a commitment to remain in operation in the Cily for five years or repay a prorated
portion of the subsidy. The recipient agrees to report progress to the City annually. Failure to
meet the goals requires reimbursement of a prorated amount of the subsidy.
E. SECURITY. The purchaser executes a development agreement recorded on the land title. If
the developer/owner does not complete construction of the building, meet its job and wage goals
as reported to flte state, defaults on the development agreement, or the city credits do not cover
the subsidy, a prorated amount of the subsidy will have to be paid to the City. The purchaser's
lender will have to acknowledge the purchaser's obligation to the City. The agreement gives the
City the right to assess the reimbursement against flte property.
F. CALCULATION OF CITY CREDITS. The purchasers propose to construct buildings on the
site of a given assessor's value and propose an estimated annual payroll of a given value at the
site by a date five years after hansfer of the property. The proposal will be used to estimate the
land price credit for the agreement. However, the actual value of the credits will be calculated
no later than the "benefit date": the fifth annivers:uy of the release of the Certification of
Occupancy.
1. The constuction credit is the value of the buildings on the site, excluding land value. The
assessor's market value fiom the January preceding, is divided by 10 for the vuount of the credit.
Example: building valued by the county assessor at ~~700, 000 divided by 10 = $7Q 000 credit.
2. The jobs credit is based on the amount of the payroll for the last 12 months or most recent four
quarters, documented by the business' 1\IDES-1 forms. Adjustments maybe made for the payroll
at the time of the sale and for the owner's compensation. Divide the payroll by $27,000 (a full
time job at $13.00 an hour) for the number ofjob equivalents. Multiply job equivalents by
$12,000 for the amount of the credit. Example: 1 ~ month payroll of $~OQ 000 divided by $2?
000 = 7job equivale~xts; ZY~'I2,000 = $84,000 credit.
3. The value of both credits is subtracted from the amount of the subsidv. If they exceed the
subsidy, and all other terms are met, the City will certify that the purchaser has completed the
conditions of the development agreement. Upon certification of construction credits and job
credits a satisfaction will be recorded releasing the purchaser from those repayment obligations.
Example: The owner received title to two acres. The s~sbsidy is valued at $143, 746. Five years
later, the credits shown above total $154, 000. The owner does not owe the Cil_y because Llxe
credit exceeds floe land value.
4. If the credits exceed the subsidy, the owner receives a Certification of Satisfaction to be
recorded. If the credits do not equal or exceed the value of the land, the prorated balance is due
and payable to the City. If the company does not pay the Cily, that balance will be assessed
against the properl}- in the same manner as public improvements. The balance would also be due
immediately if the owners default on the agreement or sell the property prior to receiving a
certification of satisfaction.
G. The law also requires that subsidy agreements and the agreed goals are reported to the state.
The report will include the number ofjobs created by the purchaser of the land or by the tenants
on the site, the hourly wage and the hourly value of medical insurance. The City will provide
reporting forms in early February which must be returned by Much 1~ annually until the goals
are met. A job is considered a full time equivalent, or 2080 hours of work per year.
Landaeditsununan-.doc1-09
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Compai7son of the Land Credit Program and the Business Subsidy Law
YEAR CITY LAND CREDIT STATE BUSINESS
PROGRAM SUBSIDY LAW
Close land sale -this is the Development Agreement Business Subsidy .Agreement
benefit date in the agreement recorded: payment of full recorded: developer commits
for the land credits. land value is deferred for five to job & wage goals and
years at which time building commits to continue
Certificate of Occupancy - and payroll credits u'e operations at the site for five
this is the starting date for calculated and subtracted vein's.
State wage and job goals. from the balance due on the
land.
1st anniversary of benefit nfay have met job & wage
date. goals per subsidy agreement.
2°`~ anniversary When the assessor has valued lAfust have met job & wage
the new building and the
g°als unless request for one
business has twelve months ye:u' extension is granted.
of payroll records for the uew
site, may request the City to
calculate whether the credits
exceed the subsidy.
3"~ anniversary same as above A,fust have met job & wage
goals or pay back pro rata
share of land value.
4~~' anniversay same as above Must still be in operation to
this date or pay back pro rata
share of land value.
5~~' anniversary Credits must be calculated as lAfust still be in operation to
of this date if not already this date or pay back pro rata
done. If credits do not sh:n'e of land value.
exceed the full value of the
land, developer must pay
back the balance.
SUMMARY: Fulfilling the conditions of the land credit program does not exempt the developer
from the conditions of the business subsidy act, or vice-versa. The terms of both agreements
have to be met or a prorate Share of the land value will have to be paid to the City.
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