City council members adopted an economic development incentive policy during an April 20 meeting. The policy will serve as a tool kit of sorts, providing developers with a list of 13 potential incentives and city officials with guidelines for using those incentive tools.
Herb Hardwick, a consultant hired to assist in drafting an incentive policy, outlined 13 incentives the city can use to entice development.
The tools include several incentives the city has used previously, like abatements and tax increment financing (TIF). It also includes enticements Gardner has never used like STAR bonds.
Incentives are used to reduce or redirect taxes in exchange for specific desirable outcomes and investments in the city. For example, the city offered the Coleman warehouse developer a 10-year, 50 percent abatement of its property taxes.
Under the new policy, new projects would require at least a $750,000 investment to be eligible for an abatement. Existing businesses in town would need to invest at least $350,000 in an expansion project to be considered for an abatement.
The city’s new incentive policy will allow abatements of up to 60 percent. Previously, officials had set a 50 percent abatement cap.
“We’re pushing the envelope on this,” Hardwick told council members. “Gardner is going through a process to, in effect, reinvent itself. Developers have shied away because you’re not user friendly. Now we’re transitioning or transforming from a re-development standpoint… The thinking was, let’s see if we can enhance this a little bit — make it interesting.”
The city offered Walmart a TIF, which uses ad valorem and sales taxes from the property to fund infrastructure related to the Walmart development.
When TIFs are used to fund a project, typically, 100 percent of the sales and ad valorem taxes, or the increment, are folded back into the project and related infrastructure. Kansas law does not require that, however. Hardwick proposed that the baseline or starting point for future TIFs would be 25 percent of the increment is put back into the project.
“You may increase the amount of the increment for the project,” he said. “If you start with a lower amount, it gives us flexibility.”
Under the new policy, the city would consider using Community Improvement Districts to finance public or private facilities within an area designated. The CID incentive would use revenue from a sales tax or property assessment initiated by property owners in the designated area.
The new policy would allow the incentive for new projects valued at $2 million and for existing business expansion or improvements worth $1 million.
Hardwick said CIDs are typically used for large-scale infrastructure projects.
The new policy also allows the council to use incentives like a Transportation Development District (TDD), a separate political division that may be created for the purpose of issuing bonds, levying taxes and applying special assessments to finance transportation-related projects. TDDs can be used in conjunction with other incentives. Other tools listed in the city’s incentive policy include STAR (sales tax revenue) bonds, special taxing districts, Neighborhood Revitalization Act rebates — similar to an earlier Gardner downtown enhancement incentive, Kansas Downtown Redevelopment Act incentive, high performance incentive program — which assists capital investment in existing companies so they can remain competitive, and two matching funds, one for loans and one for venture capital.
“The city of Gardner will strategically and responsibly consider employing one or more incentives for development projects which meet its economic development goals and desired objectives by the city council,” Hardwick told council.
The incentive policy merely sets the groundwork for offering incentives. Council members will have additional work to do to determine how the policy is implemented.
Greg Martinette, president of Southwest Johnson County Economic Development Council, said an incentive policy is a small piece of the puzzle when developers are considering a new location.
Council members should look at the big picture.
“Just because you offer incentives, that doesn’t make you business friendly,” Martinette said.
Every project is so different from another one, he said. Some developers might want a site that’s fully developed. Others may want a site upon which they can start from scratch.
“My opinion is, I don’t think we should give (100 percent) for a warehouse,” Martinette said. “But we may want to give a 100 percent abatement to a technology company. There are so many things you’ve got to weigh, but it’s good to say, here’s a starting point.”
Just because the city has the incentive tools available, that doesn’t mean it has to offer them to every project.
Every project must be considered individually, and the cost-benefit analysis must show that the project will benefit the city, Hardwick said.
The incentive strategy lists general development policies. The strategy suggests that abatements only be used when a developer wouldn’t be able to make a development work without incentives. Hardwick called it the “but for” test.
“All incentives must be subject to a ‘but for’ test,” he said. “To comply with the criteria of a ‘but for’ test, the governing body must find that without the incentive, the proposed project would not occur, would only occur on a significantly smaller scale, would not be financially feasible or stable, would not result in an appropriate internal rate of return for the developer, thus deterring desirable economic development opportunities consistent with the city’s strategic vision and plan.”
Council adopts incentives policy