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
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"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
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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.