By Keith Dahl, Municipal Advisor
Stacie Kvilvang, Senior Municipal Advisor

Assessing Requests for Public Assistance for Economic Development Projects

Communities across Minnesota and Wisconsin receive financial assistance requests from developers to construct several different types of projects. These may include affordable housing, senior housing, market rate housing, corporate offices, manufacturing warehouses, research and development facilities, and so forth. As local leaders and public employees, it’s paramount to respond to these requests in a prudent yet fiscally responsive manner…all while balancing the needs of your community and protecting local resources.

At Ehlers, we recommend three basic steps to help you generate optimal benefits from development initiatives:

1. Develop a strategic plan and policy to establish criteria and a process for consideration of providing financial assistance
2. Analyze all financial assistance requests with a keen eye towards maximizing private investment and protecting local resources
3. Identify available and appropriate funding sources to meet the specific needs of the project

Develop

When it comes to developing a strategic plan and policy, investing some time and energy upfront is one of the best ways to focus your efforts and advance your community’s vision, goals, and initiatives. This, by no means, needs to be an onerous or lengthy process, but you should answer a few questions.

• What are the specific needs within your community?

Do you want to change the current market, improve quality of life, improve housing availability and choice, create new jobs, retain existing jobs, grow and diversify your tax base, redevelop a blighted or polluted area? Or do you want to revitalize a stagnate part of your downtown? Understanding your needs is the most critical component of any strategic plan, since it communicates to developers what is most important to your community and provides staff guidance on what projects to bring before elected officials for consideration.

• Where should you concentrate limited resources?

Is there a specific sector of the market where you want to concentrate your resources or a certain type of development you want to encourage? Many times, your community needs will be greater than what local resources can support. It makes good sense to align your resources with community priorities that will generate the highest return to the community, both quantitatively and qualitatively. These benefits may include job creation or retention, higher wage opportunities, increased tax revenue, industry diversification, business retention and expansion, workforce attraction, or improved quality of life.

• What local financing tools/programs are you willing to consider?

Cities have many financing tools available to them which may include tax increment financing, tax abatement, land write-down, fee waivers, grants, and no or low interest loans that can be repaid, deferred, or forgiven.  Thoughtful consideration should go into determining which source makes the most sense to best align with a city’s financial needs. In addition, staff should review to determine what funds may have budgetary impacts and which can be recaptured, potentially with interest, to provide a long-term funding source for future projects (i.e. interfund or revolving loans).

Ultimately, an integrated development plan and funding strategy will guide how your community participates in development projects, while clearly defining requirements for potential public-private partnerships.

Analyze

The most important step in protecting local resources and truly generating an optimal benefit for your community is thoroughly analyzing every request for financial assistance. Cities need to determine what the appropriate amount of assistance is to maximize private funding, minimize public assistance, and render a project “financially feasible.”

Developers generally maximize private and other public resources before requesting assistance from local units of government but verifying this is always a good practice. Many times, requests for public assistance are simply an exercise on how much tax increment a district or project can generate, rather than what may truly be required for a development project to proceed.

When applying for public assistance relative to a proposed project, the developers requesting it should be “open book,” meaning they need to provide detailed budgets, operating proformas, projections, and other relevant information. Using the data submitted, communities and their advisors can appropriately size the amount of public assistance and avoid unduly enriching the developer.

It’s important to stress that the cost of  these due diligence efforts be borne by the developer, as well as any professional or legal costs you may incur during the review, negotiation, and completion of a development agreement for a proposed project. Since these expenses are generally unbudgeted for any community, you should receive an escrow deposit from a developer to cover them. From their perspective, it’s simply the cost of doing business when requesting public assistance for an economic development initiative.

Identify

Once a community and developer agree on an appropriate amount of public assistance for any given project, local leaders must decide what types of financial resources they want to use to successfully complete it.

There are certainly pros and cons associated with the use of any public financing tool, and there is specific, state-based legislation around how each may be applied. For these reasons, selecting specific funding source(s) often comes down to a balance between local choice and what’s allowed under state statute. Local leaders should consult with their staff, municipal advisors, and legal counsel to determine which (or which combination) of these public financing tools may be the most pragmatic option for achieving economic (re)development goals

Ehlers encourages all communities to implement these simple best practices. They will help ensure you are well positioned to prioritize the needs of your community and protect limited local resources the next time a request for public assistance comes your way.

As always, our municipal advisors are happy to help should you need assistance establishing policies and reviewing developer requests.

Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.