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17 - ECONOMIC DEVELOPMENT PROGRAMItem No. 17 memorandum TO: Mayor & City Council FROM: John Godwin, City Manager SUBJECT: ECONOMIC DEVELOPMENT PROGRAM DATE: August 21, 2017 BACKGROUND: The city council recently approved calling a November election to allow voters to consider eliminating the one -fourth cent Type A local sales and use tax, and substituting a local option road maintenance sales tax in an equal amount. At the same meeting during which the election was called, the council discussed that it was not the city's intention to eliminate economic development activities or staff entirely, but to fund that function from the city's general revenues. Specifically, we briefly discussed deleting the funding for road materials from the city's General Fund since road maintenance would be funded by the new road tax (if approved), and in turn funding an economic development office in an amount roughly equal to that which we are now expending on road materials ($600,000 in 2017 -18). This would have an overall neutral impact on funding, but would shift more funds from ED to road maintenance. STATUS OF ISSUE: In order to be prepared to make the change if voters approve it in November, and also to educate voters on what the city's plans are in that event, the council should discuss and consider what sort of economic development program, funding, and staffing it wants. We also recommend that if the PEDC and its board of directors are eliminated, an economic development advisory board be created and appointed in its place. Citizen input and the added expertise of such an advisory board would still be crucial to the success of ED efforts going forward. The council also needs to consider the timing of changes, since financial liabilities will require the PEDC to continue to exist for at least several months, and perhaps as long as two years after the election, regardless of its outcome. I have attached a suggested approach, possible timing restrictions, and a draft plan for a new board. BUDGET: NA. RECOMMENDATION: Provide direction to staff. ECONOMIC DEVELOPMENT PROGRAM Termination Of PEDC Board & Operations As of July 31, 2017: Operating Cash & Investments Debt Reserves & I &S Fund Total Cash & Investments Obligations: Daisy Dairy (through 2022) Potters Industries Paris Warehouse (through 2020) Paris Lakes Bond Debt Results CO Body Guard Total obligations Net amount 3,532,382.01 712,904.38 4,245,286.39 664, 300.00 16,000.00 4,580,730.29 250,000.00 695,551.50 (final payment 09/01/18) 50,000.00 25,000.00 6,281,581.79 (2,036,295.40) Current sales tax revenue is about $1.4 million per year. Operating expenses of approximately $425,000 annually are not included in the calculations above, so net revenue that can reasonably expected to be received and used against outstanding liabilities are approximately $1 million each year. This suggests that if the election does rescind the existing Type A sales tax, the PEDC itself may not be eliminated until the third quarter of 2019, by which time sufficient funds should be reserved to satisfy all debts and other financial obligations. General Fund Budget Changes Concurrent with road tax revenues beginning to be paid by the state comptroller to the city, the city council will amend its General Fund budget, deleting the line items for materials (i.e.: 01- 0405 -45, Bridges & culverts, $40,000; 01- 0406 -46, Storm sewers, $20,000; and 01- 407 -46, Street & alley repairs, $540,000) totaling in 2017 -18 $600,000, on a prorated basis. Prorated amounts will then be placed into a new Economic Development Fund, which will pay the cost of operations of a city- operated economic development office. Funds not used for operating expenses may be used for grants and other ED purposes, and /or reserved for future projects. Any funds remaining from the PEDC after all its liabilities are extinguished shall be placed into the Economic Development Fund, and set aside for ED purposes only, and thereby available for grants and other ED purposes, and /or reserved for future projects. This shall have the practical effect of funding economic development efforts at $600,000 per year, plus any additional funds reserved from the PEDC or received from other sources, such as donations and grants. Operations No sooner than 90 days after the November 2017 election but no later than 90 days prior to funding of ED operations shifting from Type A sales tax to the general revenues of the city, the city will approve and implement a plan regarding the conversion /retention of ED staff (including compensation & benefits), office and other operating expenses, and the physical location of the operations. The ED director will report directly to the city manager, consistent with the city charter. This conversion may occur at any time; state law requires an EDC to have a board, but does not require staffing. The ED director and office will broaden its responsibilities to include all types of economic development, as needed and appropriate for the city, including industrial, manufacturing, retail, office, residential, mixed use, etc., consistent with existing and future city needs, goals, and capabilities. Road maintenance tax use & need State law (Section 327.008 of the Texas Tax Code) allows municipalities to collect up to a quarter -cent sales and use tax exclusively "to maintain and repair municipal streets or sidewalks existing on the date of the election to adopt the tax." if approved and collected, this tax would be set aside in a separate Road Maintenance Fund, which would be used to pay for materials, contractors, and certain qualified types of capital equipment. The fund would be self - balancing, and any monies unexpended at the end of a fiscal year would be reserved in that fund for future qualified expenses. Anticipated revenues are approximately $1.4 million annually, so the practical effect of this change would be to increase the amount spent on city streets, alleys, and sidewalks by approximately $800,000 per year. Total street assets depreciate in an amount of approximately $1.97 million annually, which approximates the amount of money the city should spend annually on its streets. Another way of assessing street needs is the identification of $38.5 million in unfunded street repair projects (the equivalent of 27.4 years of the new tax's likely net revenues). These revenues are not the same as recently approved bond funds, which are intended for longer term capital replacement of streets instead of short-term, simple street maintenance. The optional sales tax requires voter approval every four years. Board The city shall create an Economic Development Advisory Board (see attached), which shall act in an advisory capacity to the city staff and council in matters pertaining to economic development. The board shall include seven members appointed to staggered two -year terms, and may include up to two council members, who would serve abbreviated one -year terms. The board shall be created and begin meeting no later than 90 days prior to any conversion from Type A sales tax funding to city funding. Members of the then - current PEDC board of directors shall be eligible to serve on the new advisory board, and encouraged to apply to help provide continuity. ECONOMIC DEVELOPMENT ADVISORY BOARD An Economic Development Advisory board is hereby established as follows: 1. The advisory board shall consist of seven regular, active members. 2. Members must be qualified voters of the city, reside within the city, and have no delinquent indebtedness to the city. 3. Up to two members may be appointed from out of the city council, which if appointed shall serve one -year terms. 4. Members shall serve without compensation, but may be reimbursed for actual expenses as approved by the city council. 5. Members' terms shall be for two years, limited to a maximum of three consecutive full terms. A vacancy on the board shall be filled by the city council as expeditiously as practical after the date of the vacancy. 6. If a replacement has not qualified upon the expiration of a member's term, then that member shall continue his /her membership until replaced. 7. A chairperson shall be appointed by the city council. The economic development board shall annually elect a vice - chairperson. 8. The city manager shall be an ex officio member of the board, with responsibility to participate in discussions but without the right to vote. 9. Absence from more than 25% of regular meetings shall be deemed to constitute the retirement of that member and a vacancy on the board shall thereby be created. The vacancy shall be filled by the city council within 60 days following the date the vacancy was created. 10. Members shall serve at the discretion of the city council and may be removed at the discretion of the city council. 11. The board shall normally meet monthly, or as often as needed depending on the business before it. However, in any case it shall meet a minimum of six times per year. Powers and duties The Economic Development Advisory Board shall have the following powers and perform the following duties and responsibilities: 1. The board shall act solely in an advisory capacity to the city staff and the city council in all matters pertaining to economic development; shall acquaint itself with and make a continuous study and review of the economic development needs and opportunities of the city; and shall advise with the staff and city council from time to time. 2. The members of the board shall study and review the city's development plans and programs, including the city's comprehensive plan, master land use plan, and zoning ordinances; the master parks, recreation & open space plan; the Cox Field Planned Development District ordinance; the Lake Crook Planned Development District ordinance; the downtown redevelopment plan; the Retail Economic Development Policy, the Tax Abatement Policy, and any and all other adopted economic development plans and policies of the city and the PEDC; and any extant city infrastructure development plans and programs. 3. The board shall develop and maintain, and recommend adoption by the city council of, an overall economic development plan that shall include and set forth both long- and short-term goals and objectives the board deems necessary to implement the city's overall economic development plan and vision. 4. The board may, from time to time, recommend to the city council new or revised policies and procedures for the city in the conduct of its economic development activities. 5. When in its opinion the board determines that the acquisition of certain real or personal property, including land and facilities, would aid in economic development activities, it shall make appropriate recommendations to the city staff and council. 6. The board may solicit, for the city, gifts, revenues, bequests, or endowments of money or property as donations or grants from persons, firms or corporations, subject to the guidance, approval, and acceptance by the city council. 7. The board shall review all requests and proposals for economic development agreements, grants, property tax abatements, subsidies, sales tax rebates, loans, reduced or waived permit fees, utility construction, road improvements, pedestrian improvements, lighting improvements, turn lanes, bond or other debt financing, and HOT rebates and /or financing; and make recommendations thereon to staff and or the city council. 8. Board consideration of economic development proposals shall be made in accordance with the following criteria: • Impacts the city's costs and ability to provide existing and expanded municipal services; • Impacts the local environment, housing market, and available infrastructure; • Offers potential for long -term payback in tax revenues for the city's participation; and • Likely stimulates other desirable economic development within the city. • In addition, priority shall be given to: • Businesses that directly or indirectly introduce new capital into the local economy from outside the city. • Highly unique or specialized businesses that draw from an unusually large trade area, thereby bringing new capital into the local economy. • Expansions of existing businesses that meet the above objectives. 9. The board shall develop, for the city council's review and approval, rules and regulations as may be prescribed for the conduct of the board's business. 10. The board may, from time to time, divide itself into subcommittees of less than a quorum to study and report back on certain projects or proposals. 11. The board, through its chairperson, shall make both an oral and written report annually to the city council concerning its activities during the past year and its proposals for the coming year. 12. The board's authority shall not extend to the direction, supervision, employment, or termination of employees of the economic development department. No supervisory power of the board is created by this division. 13. The board will review the proposed economic development operating budget and make any recommendations to the city council it deems necessary. However, the board is not authorized to add, delete or change in any way the budget as prepared by the city staff and city council. 14. The board does not have the power to obligate the city for any funds or expenditures or incur any debt on behalf of the city. 15. All powers and duties prescribed and delegated herein are delegated to the board as a unit and all action hereunder shall be of the board acting as a whole. No action of an individual member is authorized except through a quorum of the board or city council meeting in open session.