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HomeMy WebLinkAboutR-2002-104 Commercial Revitalization Tax Deduction Procedures (re: Federal Renewal Communities Program)RESOLUTION NO. R-2002- 104 A RESOLUTION identifying and establishing certain procedures for the administration by the City of Yakima of the Commercial Revitalization Tax Deductions element of the federal Renewal Communities Program. WHEREAS, the City of Yakima has been formally designated a Renewal Community under the Renewal Communities Program by the federal government; and WHEREAS, the Renewal Communities Program includes, in part, an opportunity for Renewal Communities to participate in a Commercial Revitalization Tax Deductions plan whereby certain local development projects (including certain rehabilitation of existing development) may qualify for accelerated partial deduction of development costs by way of enhanced federal income tax deductibility; and WHEREAS, under the Commercial Revitalization Tax Deductions plan, the City of Yakima has the responsibility for developing and administering locally a Qualified Allocation Plan for evaluating eligible development activities within the community; and WHEREAS, the attached "Commercial Revitalization Deduction Program Guidelines and Ranking Criteria" is intended to constitute such a Qualified Allocation Plan and establishes specific and objectively -based criteria for determining whether any particular project meets a base level of qualification for use of the Commercial Revitalization Tax Deduction and also establishes a fair procedure for assigning priority between competing projects; and WHEREAS, a public hearing is to be held for the purpose of ensuring public comment and participation to the fullest possible extent in the design and implementation of the Commercial Revitalization Deduction Program Guidelines and Ranking Criteria; and WHEREAS, the Yakima City Council finds and determines that it is in the public interest to identify and establish the criteria set forth in the Page -1 "Commercial Revitalization Deduction Program Guidelines and Ranking Criteria"; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: The City Council hereby identifies and establishes the criteria set forth in the attached and incorporated "Commercial Revitalization Deduction Program Guidelines and Ranking Criteria." ADOPTED BY THE CITY COUNCIL this 20th day of August, 2002 ATTEST: By Ka% -r- P—o--(A-) City Clerk Page -2 ary Place, Mayor COMMERCIAL REVITALIZATION DEDUCTION PROGRAM GUIDELINES & RANKING CRITERIA Program Description The CRD is intended to increase economic development in fedrally designated Renewal Communities. The incentive is a deduction from income before calculating Federal income tax liability, and provides a way to deduct costs on an accelerated basis. The amount of deduction is subject to a state limitation of up to $12 million of "Commercial Revitalization Expenditures" (CRE's) for each Renewal Community (RC) located within a state. CRE's for a particular building cannot exceed the actual qualifying costs and there is an overall limit per building of $10 million. CRE's include the depreciable costs of a new building or the costs associated with an existing building that is substantially rehabilitated. Substantial rehabilitation means that, within a 24 month period, rehabilitation expenditures exceed the lesser of the adjusted basis of the building (and its structural components) or $5000. Rehabilitation expenditures do not include enlarging a building. If the substantial rehabilitation test is met (without taking into account the costs of expansion), the cost of expanding the building could qualify as a CRE. A taxpayer can include the costs of the building acquisition in taking a CRD, but only to the extent that the acquisition cost does not exceed 30 percent of the aggregate qualifying CRE's (determined without regard to the acquisition cost.). For example, if the building cost $500,000 to acquire and renovations eligible for CRE's $1 million, up to $300,000 of the acquisition cost could qualify as a CRE. The CRD is permitted only for the cost of acquiring a building and rehabilitating it, not for land costs. Acquisition of land for speculation would not qualify. The building must have been placed in service after December 31, 2001. If the building was purchased before RC designation in 2002, but the renovation was not completed until after RC designation, the renovation expenditures would be treated as a separate building for purposes of determining when it was placed in service and could qualify for the CRD on that basis. Eligibility Criteria Businesses that construct or rehabilitate commercial property in Renewal communities can deduct a portion of the costs of acquisition and rehabilitation over a shorter penod of time than permitted under standard depreciation rules. A business can elect a deduction of one-half of "qualifying revitalization expenditures " up to $10 million for any one project in the year the building is placed in service or can deduct all QRE pro rata over 10 years. The project must receive an allocation from the state. Businesses must be located in RC, but are not required to meet the Renewal Community Business definition (i.e. their employees may perform services outside the RC, the business does not have to meet the 35% RC resident employee requirement, and the business is not limited by how much of its gross income is earned outside the RC). Business must, at the time of application, certify that the project meets all applicable requirements and eligibility criteria specified by the City of Yakima, the state of Washington, the federal Renewal Community Act, Code of Federal Regulations, and the federal Internal Revenue Code. Not eligible Projects that do not create a federal income tax liability, and therefore not expected to take advantage of accelerated depreciation Residential rental projects Land speculation purchases Building acquisitions that do not involve substantial renovation expenditures. Massage parlors Tanning salons Businesses whose primary activity is the sale of alcoholic beverages for consumption.. PRIORITIZATION & RANKING CRITERIA (50 point scale) Jobs created/Quality of Jobs: 20 points The City supports projects with tangible job creation. Applicants should strive to create at least one new job for every $250,000 of CRD credits. Job retention can count toward this goal if the applicant demonstrates jobs would be lost to Yakima if the project does not occur. Project viability and Readiness to Proceed: 15 points The City wants to invest CRE credits behind projects with a high probability of success. It will evaluate the strength or experience of the applicant, the nature of the project, and other factors to determine the project's chances for success. Applicants must demonstrate that permits can be obtained and proposed development or redevelopment project can start within six months. (For 2002 allocation, the means the project must be in service before December 31, 2002) Need for deduction/financing: 5 points Applicants should demonstrate the need for CRE credits. Since these credits are limited, the City wants to ensure that the CRE credits are necessary or important for the project's success. Elimination of blight/re-use of vacant building/historic preservation: 5 points The City will place priority on redevelopment of vacant or historic structures within the RC. Community impact/benefit: 5 points The City will place a priority on projects that will hire residents of the RC or employ individuals from disadvantaged backgrounds. Applicants should also demonstrate how the project will tap into or leverage other RC incentives or other programs such as State Community Empowerment Zone benefits and SBA HUB Zone benefits. APPLICATION CATEGORIES Funding categories: CRD Projects greater than $2 million CRD available: $10 million CRD Projects $2 million or less CRD available: $2 million Allocation categories: Application for current year commitment Application for future year reservation REVIEW TEAM COMPOSITION Local Certified Public Accountant Commercial Banking Rep Yakima County Development Association Rep HUD Seattle Office Rep City Council Economic Development Cmte. Rep Downtown Business Rep Neighborhood Rep IMPLEMENTATION PROCESS 2002 Abbreviated cycle September 1, 2002 -- Governor designates state Community Revitalization Agency Applications available September 30, 2002 -Applications due to local RC October 11, 2002 -- Local selection committee completes review and rankings. October 15, 2002 -- Rankings ratified by City Council October 15, 2002 -- Funding list submitted to state CRA for concurrence and processing. November 22, 2002 --State CRA provides certification. BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No.: For Meeting of: August 20, 2002 ITEM TITLE: Consideration of Resolutions: A) establishing procedures for the administration of the Federal Commercial Revitalization Tax Deduction Program available within areas of the City of Yakima, and B) authorizing and directing the City Manager to execute a Memorandum of Understanding between the City of Yakima and the State of Washington Department of Community Trade and Economic Development ("CTED") identifying responsibilities for the magement of this program. i SUBMITTED BY: iam Cook, Director of Community and Economic Development CONTACT PERSON/TELEPHONE: William Cook (575-6113) SUMMARY EXPLANATION: Included with the federal income tax incentives provided through the Renewal Community Program, the City of Yakima may recommend projects to the State of Washington for receipt of federal commercial revitalization tax deductions. These tax deductions for capital investments within the City of Yakima's Renewal Community boundaries are only available for projects recommended by City Council and approved by the State of Washington. Beginning in 2002, and for an eight year period, $12 million dollars per year or (total of $96 million) in tax deductions are available for capital investments within the City's Renewal Community. Such capital investments include new construction and substantial rehabilitation of existing buildings. To access this important incentive opportunity, the City of Yakima must establish procedures and criteria for evaluating and selecting projects for recommendation to the State. In addition, to operationalize the commercial revitalization tax deduction component of the Renewal Community Program a Memorandum of Understanding is required between the City of Yakima and the State of Washington outlining responsibilities of each partner. Attached are Resolutions to A) establish local procedures for administering this program and B) authorize the City Manager to execute a Memorandum of Understanding with the State of Washington. Resolution X Understanding. Ordinance Contract X Other Specify Memorandum of Funding Source: APPROVAL FOR SUBMITTAL: Aeh City Manager STAFF RECOMMENDATION: Approve Resolutions A and B. BOARD/COMMISSION RECOMMENDATION: COUNCIL ACTION: (A) Resolution adopted. RESOLUTION NO. R-2002-104 (procedures) (B) Resolution as amended, was adopted. RESOLUTION NO. R-42002-105 (interlocal agreement) Please note that we have also attached, as a reminder, a copy of the City's Boards and Commissions Application form. It is our hope to bring back to the Council at their September 3 meeting, recommendations for appointments to the seven member Commercial Revitalization Deduction Review Committee identified in the attached program guidelines. The Council Economic Development Committee reviewed these items at their meeting on August 14, 2002 and recommends Council approval.