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MEMORANDUM
To'. Mayor, City Council, City Manager
From: Mark T. Sokolow, City Attorney /~ ~
Subject: P.R. No. 1157S; Special Council Meeting of January 15, 2002
Date: January 11, 2002
Attached is P.R. No. 11575 which approves the Guidelines for
Performance-Based Incentive Policy as recommended by the Cornerstone Group as
it relates to the Port Arthur Section 4A Economic Development Corporation.
This item was on the November 27, 2001 Council meeting and it was
removed from the agenda pending the review thereof by a committee. A copy of the
minutes as to this matter is attached.
This item was requested to be put on the Agenda by the Mayor.
MTS/ts
Attachment
CC:
Ike Mills, Interim Executive Director, EDC
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The Mayor introduced the above-mentioned Resolution.
The motion was made by Councilmember Henderson and seconded by
Councilmember Bowers that Proposed Resolution No. 11576 be adopted.
Mr. Terry Metreyon, Nederland, Texas, President of M&M Industrial Services,
appeared before the City Council and listed the many services that his
fabrication facility could offer besides servicing rigs.
The following roll call vote was taken on the motion to adopt Proposed
Resolution No. 11576:
Mayor Pro Tem Barker
Councilmember Bowers
Councilmember Chaisson
Councilmember Gillam
Councilmember Hannah
Councilmember Henderson
Councilmember Linden
Mayor Ortiz
"No"
"No" '
"No"
"Yes"
"No"
"No"
"No"
The motion to adopt Proposed Resolution No. 11576 failed to carry.
($)
P. R. No. '11577 - A Resolution Pertaining To The
Cornerstone Recommendations For Restructuring The
Section 4A Economic Development Corporation.
The Mayor introduced the above-mentioned Resolution.
Upon the motion of Councilmember Linden, seconded by Councilmember
Gl[lam, and carried unanimously, Proposed Resolution No. 11577 was removed
from the agenda and the Mayor authorized to appoint a committee of three
Councilmembers and two Economic Development Corporation Directors to
review and discuss the proposed recommendations.
The Mayor appointed the following persons to serve with him on the above-
mentioned committee:
Councilmembers Linden and Bowers and EDC Directors Paula
Richardson and R. L. EIdridge
(6)
P, R. No. 11578 - A Resolution Authorizing The City
Attorney To Purchase Lots 13 & 14, Block 1, Schmyser
3, And To Execute The Necessary Closing Documents.
Upon the motion of Councilmember Bowers, seconded by Councilmember
Henderson, and carried, Proposed Resolution No. 11578 was adopted,
becoming Resolution No. 01-337.
Voting Yes: Mayor Ortiz; Mayor Pro Tem Barker; Councilmembers Hannah,
Henderson, Gillam, Bowers and Chaisson.
Voting No: None.
The caption of Resolution No. 01-337 reads as follows:
RESOLUTION NO. 01-337
A RESOLUTION AUTHORIZING THE CITY
ATTORNEY TO PURCHASE LOTS 13 & 14,
P. R. No. 11575
01/11/02 ts
RESOLUTION NO.
A RESOLUTION APPROVING THE GUIDELINES
FOR A PERFORMANCE-BASED INCENTIVE
POLICY AS RECOMMENDED BY THE
CORNERSTONE GROUP AS IT RELATES TO THE
PORT ARTHUR SECTION 4A ECONOMIC
DEVELOPMENT CORPORATION
WHEREAS, the City of Port Arthur Section 4A Economic Development
Corporation approved the Guidelines for a Performance-Based Incentive Policy as
recommended by the Cornerstone Group, attached hereto as Exhibit "A"; and
WHEREAS, thc vote for the ncw policy was 3 to 1 at thc September 18, 2001
Board Meeting; and
WHEREAS, it is necessary for the City of Port Arthur to approve policies for
program administration pursuant to Section 8.19 of the Economic Development
Corporation bylaws.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF
THE CITY OF PORT ARTHUR, TEXAS:
Section 1. That the facts and opinions in the preamble are true and correct.
Section 2. That the Cornerstonc Guidelines for a Performance-Based Incentive
z.pr11575_2
Policy is approved as it pertains to Economic Development Corporation incentive
programs.
Section 3. That thc policy as it relates to City programs is not approved at this
time, until it can be fully evaluated by the City Manager or his designee.
Section 4. That a copy of thc caption of this resolution be spread upon thc
Minutes of thc City Council.
READ, ADOPTED AND APPROVED on this __
day of ,
A.D., 2001, at a Regular Meeting of the City Council of the City of Port Arthur, Texas,
Councilmembers
by thc following vote: AYES: Mayor ,
; NOES:
ATTEST:
MAYOR
CITY SECRETARY
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APPROVED AS TO FORM:
CITY ATTORNEY
APPROVED FOR ADMINISTRATION:
CITY MANAGER
z.prl1575_2
EXHIBIT "A"
GUIDELINES FOR A PERFORIglANCE-BASED
INCENTIVE POLICY
For the City of Port Arthur mid
The Port Arthur Economic Development Council
Recommendations Submitted To:
City Council of the City of Port Arthur
Board of the Port Arthur Economic Development Corporation
Submitted by the
Incentive Policy Committee
AUGUST 2001
Facilitated by
The Cornerstone Group
306 W. 7'" Street, Suite 401
Fort Worth, TX 76102
817/332-8906
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MEMBERS OF THE INCENTIVE POLICY COMMITTEE
City of Port Arttmr
Mayor Oscar Ortiz
Bob Bowers, Council Member
Craig Hannah, Council Member
Port Arthur Economic Development Corporation
Malcolm Clark, Board Member
Rondo Hawkins, Board Member
Small Business Development Center
Lamar State University - Port Arthur
Conrad Cooper, Business Advisor
Port Arthur Chamber of Commerce
Verna Rutherford, President
The Cornerstone Group
Bill R. Shelton, Facilitator
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INTRODUCTION
The Incentive Policy Committee recommends these policy guidelines to the City Council of the City
of Port Arthur (City) and the Board of the Port Arthur Economic Development Corporation'(PAEDC)
for the administration and implementation of a performance-based abatement and incenti,~ policy to
attract, retain and expand business in Port Arthur.
As with any guidelines, these policies are designed tO apply in the majority of cases but can be
modified as necessary in specific cases. Additional levels of incentives may be granted for values or
benefits received. Levels may be lower for certain projects that have less impact or value to the city.
CONTENTS
Parts ' Page
I. Administration of Incentive Policy ......................... ... 1
II. Application Process ...................................... 2
III. Aligning Incentives with Benefits Derived ........................ 3
IV. Eligibility Criteria to be Considered for Incentives .................. 5
V. Performance Requirements ................................ 11
PART I. ADMINISTRATION OF INCENTIVE POLICY
Public incentives are an important economic development tool used to influence the attraction and
expansion business. Handled responsibly, incentives can result in economic and social benefits greater
than the dollar value of the incentive. The purpose of this performance-based incentive policy is to
establish guidelines that will ensure that Port Artl~ur receives value and benefits 'from any public
incentive granted.
A successful incentive policy may not win every business location or-expansion, but it will win'projects
that are good for Port Arthur. The important elements of this policy are:
1. Contains safeguards to protect Port Arthur's interest
Establishes a procedure for quicker response and approval. The board of the PAEDC will
assume the role of the Grant Incentive Committee thereby eliminating one step in the
review process.
3. Pre-set thresholds for investment and employment.
4. Contains a process for evaluation of benefits
5. Establishes monitoring and evaluation processes
Administrative Processes
The City Council has the ultimate authority to approve the use of public incentives.
Initially, all public incentives should be presented to the Council for processing and
consideration. As confidence develops in the incentive guidelines, the Council may allow
the Board of the PAEDC approval authority at certain levels and within certain parameters.
2. Applications for Industrial District (Agreement Not to Annex) ','..'ill be processed through
the City Manager's office and will not be reviewed by the Board of the PAEDC.
3. The City Council, from time to time, may desire to revitalize certain neighborhoods by
establishing Neighborhood Empowerment Zones. The terms and conditions for property
and sales tax rebates and the waving of permit and special fees will be set for each Zone
by the Council depending on circumstances.
The adoption of these guidelines will require modifications of Port Arthur's Abatement
Policy and PAEDC's Incentive Application forms.
Monitoring and evaluation of is an ongoing function for the P,.\EDC requiring detailed
record maintenance. The City Council should be presented an an,real report and evaluation
of ail active public incentives. It is recommended that this report and evaluation be
conducted by the City's Finance Department and be on the Council's agenda in March of
each year.
Incentives should be negotiated. Before negotiations begin, a cap or maximum'amount of
incentives offered should be set. The community's focus on benefits and performance
keeps the perspective on the company and what it can do for Port Arthur.
PART II. THE APPLICATION PROCESS
The purposes of the application process is to (1) put the company on record as an applicant; (2) provide
the necessary information to determine if the applicant is qualified to be considered for incentives; and
(3) provide information to determine level of incentives to be offered.
The following process is designed to minimize the time required to evaluate the desirability of a
project:
[,
A business desiring to be considered for an abatement or lncenm ~ will submit a Letter.of
Intent" to the Board of the PAEDC. The Letter must show the applicant meets the general
eligibility requirements as detailed in Part IV.
If the Letter of Intent is complete, the PAEDC will provide the company with "An
Acknowledgment of Receipt" of the letter, an application and an "information requested
checklist."
When the application and attachments are returned, it will be reviewed by the PAEDC staff
for completeness and analysis. No later than two weeks from the date of receipt of the
application, the applicant will be advised by letter that: (1) additional information is
required or (2) the date the Board will consider the request.
4. If the application is for an abatement from the City, a copy of the application will be
submitted to the City Manager for review and comment.
Tile PAEDC Board will review the application based on procedures that follow and make
a recommendation to the Council. The applicant will be notified by mail that the
recommendation has gone to the Council and the date the Council wilI consider it.
6. Tile Council will consider the Board's recommendation, and approve, reject or send it back
to the Board for additional information.
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7. From the time the application is accepted to the Council's consideration should normally
be no more than six weeks. The process canbe fast-tracked by the Board and the Council
holding called rather than regular meetings.
8. The staff of the PAEDC will maintain a log of each application with dates of ail activities.
9. The application form should contain these statements:
9.1 "The City of Port Arthur and the Board of the Port Arthur Economic.
· Development Corporation are required by the Texas Open Meetings and Public
Information Acts to make certain records and financial information open to the
public. Before confidential information is submitted with this application, an
attorney's ruling should be obtained to determine if the information can be
considered confidential or may be made public."
9.2 Acknowledge that the City and PAEDC be granted access to property and/or
records for review to ensure compliance with the agreement and that the company
will provide requested information and data during the terms of the agreement.
III. ALIGNING INCENTIVES WITH BENEFITS DERIVED
Measuring the values that a community may derive from a business is complex and subjective. There
are no known formulas or models that can guarantee success. Yet, the core of an incentive policy is
to determine potential benefits that can be derived and aligning the amount of incentives that will be
provided to secure the benefits.
Publicized failure of communities that have had bad incentive experiences can often be attributed to:
1. The lack of control procedures to assess the viability of a project;
2. The absence of a system to measure the potential benefits of a project to the community;
and
3. Failure to monitor and evaluate the project.
Public incentives must be considered as an investment in the community. An investment is a
transaction that has inherent risk. While it can be argued that community economic development
funding must take more risk ihan commercial institutions, there are levels of unacceptable risk. The
following are designed to minimize Port Arthur's risk when providing incentives:
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Condnct a Business Evahmtion
The first screening of an applicant for incentives should be a business cvaluatlon. By establishing due
diligence review procedures, the PAEDC board should first make a determination if an applicant has
the experience, history and capital to dedicated to the project so it can operate on a sound financial
basis and has the prospects of repayment ability. With this review, the board can make a determination
to proceed with the application or reject it.
Qualifying Benefit Levels . .
Any. system of measuring benefits levels is difficult and subjective. A good measuring system has
these major objectives:
· It should take into consideration a number of important factors and it should assign weights
to the factors based on importance.
· It should take into consideration the desired results that the community wants.
· It must take into consideration that many factors cannot be qualified or quantified.
· It should be simple to administer.
· It must be flexible enough that factors and their respective importance can 6hange due to
changing circumstances.
The review process should examine the costs and benefits of a project. Entergy, as community service,
provides a cost/benefit analysis that will aid in the review process. This analysis can be an extremely
valuable tool and should be used in conjunction with other measurements to assess a project's impact.
Following is a recommended matrix to be used by the PAEDC board to help qualify the benefits from
a project and to help quantify the level of incentive to be provided. It is suggested that each member
of the board would complete the matrix and the scores of ali members would be averaged to determine
the benefit level.
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QUALIFYING BENEFITS FOR LEVELS OF INCENTIVES
]Benefit or
' ' ' :. :':}'. """~ '. ':':' '. ::i' .':' [' :": ~'" Beneficial Beneficial Benefit Ufikfiown
· ' i ' - (' · Relevancy Weight
1. ~obs Created, Number 3
2. Wages/Benefits Paid 3
3. Cost/Benefit Analysis 2
4. Valuation Added to Tax Role 2
5. Attraction of Other Businesses 1
7. Elevates Port Arthur Profile 1
Total Benefit Score
BENEFIT SCALE
Total Score Level of Incentive
35 plus Level A - 75 to 100%
25 - 34 Level B - 50 to 74%
15 - 24 Level C - 25 to 49%
0 - 14 No incentive
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Monitor and Evaluate Results
To ensure that a company is performing as agreed, it is essential that a formal monitoring process be
in place. Periodic review, at least once a year, also be should be performed to evaluate the
effectiveness of incentive policies and to recommend appropriate changes.
It is recommended that the review be assigned to the Finance Department of the city and that it takes
· place ever year in early spring before budget planning takes precedence.
"' ]PART IV. ]ELIGIBILITY CRITERIA TO BE
CONSIDERED FOR ~NCENTIVES
General Eligibility Criteria for Tax Abatement or Incentive
To be eligible for a tax abatement or incentives from the City or the PAEDC an applicant must meet
all five of the following:
1. Be a private, for-profit firm, including corporations, partnerships, sole proprietorship or
cooperative organized to conduct business.
2. Be in a basic business or a producer/service firm that derives at least 75 % of its revenues from
. outside of Port Arthur.
3. Proceeds will be used to expand, upgrade or relocate an operation within the city limits °f the
City of Port Arthur.
4. Have not received a building permit for the project.
5. Submit a " Letter of lntent" to the Port Arthur Ec°n°mic Devel°pment C°rp°rati°n that st~/es :
5.1 The applicant meets all four of the first four requirements above
5.2 What benefits will accrue to Port Arthur
5.3 That the project would not happen without tile abatement or incentive
5.4 If the project includes an abatement and is not located in an established Enterprise
Zone must request that the City establish an Reinvestment Zone.
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s~r~ecific Eligibility Criteria
Tax Abatements or Industrial District Agreements
In addition to the applicant meeting all of the five requirements list above, an applicant of an abatement
must meet the following requirements. Applicants for Industrial District Agreements (Agreement Not
to Annex) which are companies located in Port Arthur's Extra Territorial Jurisdiction (ETJ) must also
meet the following:
Company New to Port Arthnr
I. Minimum Capital Investment - $100 Million
Minimum Job Creations - 50
Three years after opening 25 % of the permanent positions must be Port Arthur residents
An application fee of $1,000
Company Operating in Port Arthur for at Least Five Years
1. Minimum Capital Investment - $75 Million
2. Minimum Job Creation- 37
3. Three years after opening 19% of the permanent positions must be Port Arthur residents
4. An application fee of $750
Eligible Projects For Abatements
2.
3.
4.
Real Property
Tangible Personal Property
Machinery and Equipment
Infrastructure Improvement or Upgrades
Conditions and Terms of Abatements
Abatements can only be considered for the increased valuation above the existing valuation and
the amount and terms will be determined by the costs and. benefits to the City of Port Arthur.
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If approved, the abatements would be phased-in under the following schedule:
Taxes Paid
Year LeveIA LevelB Level C
1 10% 15% 20%
2 20% 25% 33%
3 30% 55% 66%
4 50% 66% 100%
5 75% 85%
6 85% 100%
7 100%
Abatements granted for a project will normally become effective on January I of the year
following the issuance of a Certificate of Occupancy unless otherwise specified in the tax
abatement agreement. Abatements may be considered during construction for a maximum or
two years. The maximum number of years for an abatement from the City of Port Arthur will
not exceed a total of seven.
3. If a project is not completed as specified, or if the terms of the agreement are not met, the City
of Port Arthur has the right to cancel or amend the abatement agreement.
If the construction on the project is begun within one year from the date of the application, the
application fee shall be credited to any permit, impact or inspection fee required by the City
of Port Arthur. If the project is not constructed or begun after the one year period, the
application fee is not refunded or credited.
Specific Eligibility Criteria
Incentives from the PAEDC
Tile following guidelines apply to incentives from the PAEDC which are expected to be directly
recovered through loan payments and incentive funds which are expected to be indirectly recovered:
The PAEDC seeks to fill financing gaps that exist in public and private funding sources by
funding projects that will create an above average number of jobs and provide a clear and
positive benefit to the community. The funds can be used for new qualified businesses or
expansion of existing businesses within the city. To ensure that funds and incentives are used
properly, any funding will be subject to interest rate adjustment or the loan called if
performance requirements do not occur.
2. The maximum amount of funds that can be allocated to one project in one year will be limited
to 15% of PAEDC's projected sales tax revenues for the year. Commitments beyond one
year are subject to annual review which takes into consideration funding availability and
benefits of the project.
3. The maximum PAEDC participation in any project wilI not exceed 50% of the project costs.
The PAEDC will review the various cost elements of a project in order to establish the basis
for establishing the amount of PAEDC participation. A cornmerc-ial lending institution.may
be required to participate in the project. The PAEDC prefers not to be the lendei' of last
· ~:resort.
4. All loans will require full collateral coverage and fill collateralized assets must have full
insurance coverage.
5. Security for a loan may require personal guaranties by the principals.
6. Any loan granted a project will become effective on the day the issuance of a Certificate of
Occupancy (CO) for the new or expanded facility unless otherwise specified in the
performance agreement.
Eligible Projects for Incentives
1. Acquisition or construction of facilities
2. Site purchase and development to include infrastructure
3. Leasehold improvements or upgrade
4. Machinery and equipment
Ineligible Projects
1. Venture or equity capital
2. Working capital
3. Personal loans
4. Inventories, supplies and tools
5. Property with an economic life of less than 15 years
6. Vehicles, aircraR
7. Deferred maintenance
8. Housing
9. Debt service
Incentive Programs
Level A.
For companies whose benefits level is A, the following incentives could apply:
1.
Loan of up to 50% of the cost of the project amortized over five years with the possibility of
these terms based upon agreed performance:
1. I Interest and principle payment deferred for up to two years
1.2 Interest rate 3 % lower than prime at time of closing
1.3 At end of five year period, the interest and all or a part of the princip'Ie paid may be
rebated depending on the company exceeding agreed performance levels
Level B.
For companies whose benefits level is B, the following incentives could apply:
2. Loan of up to 50 % of the cost of the project amortized over four :.,ears with the possibility of
these terms based upon agreed performance:
2.1 Interest and principle payment deferred for up to one year
2.2 Interest rates 2% lower than prime at time of closing
2.3 At end of four year period, the interest paid may be rebated depending on the company
exceeding agreed performance levels
2.4 A personal guaranty by the principals in the project may be required
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Level C.
For companies xvhose benefits level is C the following incentives could apply:
Loan of up to 50% of the cost of the project amortized over th~'ce years with tl~e possibility
of these terms bases upon agreed performance:
3.1 Interest payment deferred for up to one year
'"~.2 Interest rate 1% lower than prime at time of closing
3.3 At end of three year period, one-half of the interest paid ma3' be rebated depending on
the company exceeding agreed performance levels
3.4 A personal guaranty by the principals will be required
Workforce Training for Levels A, B and C
In addition to other incentives provided, the PAEDC will consider workforce training grants of up to
50% of the company's contribution for formal workforce training programs undertaken in a state
approved program.
Enterprise Challenge Program
The PAEDC will contribute up to $75,000 annually for a competition for new and small businesses
to compete for grants up to $25,000. The business must have an approved business plan to enter the
competition. Special consideration will be given to basic businesses. The PAEDC can establish the
rules and enter into negotiations for the Small Business Development Center at Lamar State University-
Port Arthur to conduct the competition.
Small Business Interest Rebate Program
The PAEDC ~ill rebate a part of an expansion loan to a qualified Port Arthur business that obtains the
loan from a bank or financial institution. To qualify the business must employ less than 25 and the
expansion will add jobs due to the expansion. If the company maintains the level of employment and
wages agreed on, the first year's interest will be rebated in full and one-half of interest for the next four
years for a maximum of $25',000. The PAEDC must approve the transaction prior to the closing of
the loan.
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V. PERFORMANCE REQUIREMENTS
Any incentive provided to a company should be targeted to achieve either Port Arthur's
economic and social goals.
If the business is not of sufficient quality or thb terms of the deal c{f sufficient quality, your
perspective and judgement will be challenged. Obviously, prospective businesses have to
be screened, but there must also be a mechanism to detail what is expected of the recipient
of any incentive. -This mechanism is a performance agreement. ' '
As long as the incentives are in force there should be a performance agreement that details
the company's responsibilities and the obligations that they assume by taking the incentive.
This should be an executed agreement that details the incentives provided and the
performance requirements for the company.
There must also be a system in place to monitor the company to confirm compliance. If
the company does not or cannot comply, the incentive should cease or if agreed be paid
back (Clawback provision).
Normally, these performance agreements will be part of the incentive negotiations. By
demanding performance levels, it helps to define the quality of the transaction.
6. If the project is not good for Port Arthur, there must be the ability to walk away.
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