Economic development incentives are getting a makeover by city and county leaders looking for more protection in a pay-to-play atmosphere where communities are competing for new businesses.
Competition for jobs is a reality “whether you like it or not,” Wichita economic development director Allen Bell told City Council members at a workshop Tuesday.
Companies are seeking a helping hand — or, as opponents believe, a handout — and go where the incentives are, leaders said.
The city hasn’t updated its economic development policies since 2004, Bell said.
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A joint city-county draft policy would tighten rules and expand opportunities for some businesses.
Among major changes is a move to block businesses from incentive-shopping and then moving after a tax abatement expires.
Under current policy, city economic development analyst Tim Goodpasture said, there is no penalty to companies that leave at the end of a 10-year tax abatement. Under the proposed changes, companies would have to repay the city and county under “clawback” provisions. If a company received a 10-year tax abatement and then left the area the first year after the incentive expired, it would have to repay 100 percent of the last 10 years of taxes that were abated. If the company left in the second year, it would have to repay 80 percent. Each the company stayed after the tax abatement expired, the amount of repayment would go down 20 percent.
“The concern is if you recruit a company from outside the community and a 10-year tax abatement is one of the incentives offered, are they going to leave a community after 10 years and go to another community where they can get an abatement?” Goodpasture said.
He said that hasn’t been “much of a problem” for the area but could be as competition increases.
Other changes involve return on investment. Cost-benefit analyses are done for every incentive request, and the return on investment is set at $1.30 for every $1. That means if the city or county kicks in $1, the company has to show public benefit of $1.30. The revised policy would specify exceptions under which businesses can receive an incentive even if they don’t meet the desired return on investment of $1.30 to $1.
“Periodically we get companies that come forward and appear to be very good projects but didn’t cross that threshold of 1.3 to 1. In the past, those could be brought forward for consideration with a request for an exception to the policy,” said economic development analyst Tim Goodpasture.
The proposed new policy would outline three mitigating factors that could be considered if a project doesn’t meet the ratio. At least two of the three would have to be met for an incentive to be approved. And the ratio could never dip below $1 to $1.
City Council member Jeff Longwell said if return on investment doesn’t meet the $1.30 to $1 ratio, incentives should be reviewed annually instead of every five years.
“I’m not that excited about dropping from 1.3 to 1,” Longwell said. “Rather than going out five years for the first review, if we make a change to those exceptions, it should be reviewed every year. If it gets dangerously close to a 1 to 1 return, five years is too long to let that happen.”
The proposed policy also adds “speculative industrial buildings” to the types of businesses that could qualify for incentives.
Goodpasture said the Greater Wichita Economic Development Coalition, which works to bring companies to the area, often hears that the area lacks buildings of large scale and height. To try to encourage developers to invest in such buildings, the city and county would allow incentives based on size. If a developer were to build a 50,000-square-foot structure, for example, it could receive a 50 percent tax exemption under the proposed policy.
Incentives for such developers would only be offered until 2014 unless extended by the City Council, Goodpasture said.
“We’re trying to see if we can get someone to do something now,” he said.