Virginia Enterprise Zone Program

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Virginia Enterprise Zone Program

• June 1, 2007

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Outline of Presentation

• Purpose - The purpose of this presentation is to
  provide an overview of the Virginia Enterprise
  Zone program for localities that may not be
  familiar with it. A PowerPoint presentation
  with the details of the actual designation
  application will be available at the
  How-to-Apply workshops.
• Program Overview
• Incentives
• State and Local Roles Responsibilities
• Designation Amendment Procedures

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• Program Overview

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Overview Enterprise Zones

• Enterprise Zone
• Geographical area of county, city, or town
  designated by the Governor for 10-20 years.
• First established by General Assembly in 1982
• (Virginia Enterprise Zone Act)
• State local government partnership
• Means to stimulate job creation, private
  investment, and revitalization.

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Enterprise Zones
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EZ Statute 2005

• July 1, 2005 General Assembly passed Enterprise
  Zone Grant Act
• Transitioned program from tax credits incentives
  to grants
• Job Creation Grant
• Real Property Investment Grant

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Enterprise Zone Grant Act

• Act authorizes up to 30 zones
• Current zones run out their 20-year designation
  period
• 30 zones will be reached as current zones expire
• Initial ten-year designation period, with two
  five-year renewals

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Policy Intent

• Target zone designations -- greatest need and
  most impact
• Focus on economic situations that can best
  benefit from financial incentives -- influence
  location decisions
• Increase fiscal accountability associated with
  state incentives

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Zone Designation Process
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Designation Application Content

• Demonstration of Need
• Zone Characteristics
• Impact of Zone
• Program Implementation

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Distress Factors

• Locality-wide distress factors not zone specific
  distress criteria
• Freedom to put zone where it best fits local
  economic development needs
• 3 zones per locality
• Each zone can have 3 non-contiguous areas

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Distress Factors

• 50 percent of an applicants score is based on
  the most recent three year averages
• Average unemployment rate
• Average median adjusted gross income (all
  returns)
• Average percentage of public school students
  receiving free or reduced price lunches

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Applicants

• City or county only
• Towns can be part of county acreage
• Joint applicants can be two or more adjacent
  jurisdictions must be strategic, not just
  convenient must have mechanism to ensure shared
  benefits

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Zone Requirements

• Meet but do not exceed size limitations
• Provide a local incentive package
• Joint zones have established a mechanism to
  ensure that economic benefits of the zone are
  shared among participating jurisdictions and have
  completed a joint application agreement
• No eligibility criteria must be met in order to
  apply for zone designation

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Designation Process

• Zones must show impact, effectiveness to be
  renewed after 10 years and then after 15 years
• Performance of EZ responsibilities
• Effectiveness in creating jobs and capital
  investment
• Need
• DHCD will review performance, effectiveness with
  each zone annually and offer suggestions for
  improvement

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Designation Process Impact

• Impact of Designation on Localitys Economic
  Development Efforts
• The importance of zone designation
• What role will the zone play in overall economic
  development efforts
• Joint zones should discuss the mechanisms to be
  used to ensure benefits are shared

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Zone Termination

• Statute requires DHCD to terminate zone
  designations under the following conditions
• Failure to provide local incentives
• Failure to qualify for state incentives
• Businesses/Zone Investors that are within an
  eligibility period may continue to qualify for
  state incentives.
• Once de-designated, no new businesses can qualify

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Incentives
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State Incentives

• New performance based grants
• Job Creation Grant
• Real Property Investment Grant
• Click below for summary chart on State incentives

http//www.dhcd.virginia.gov/CommunityDevelopmentR
evitalization/PDFs/vez_state_incentives.pdf
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Job Creation Grant

• Encourages the creation of higher quality jobs
• Eligible positions
• Net new to Virginia
• Over 4 job threshold
• Permanent full-time
• Pay at least 175 of Federal minimum wage
• Provide health benefits

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Job Creation Grant Amount

• Based on wages paid for the position
• For businesses providing health benefits
• Pay at least 175 of Federal minimum wage
  (9.01/hour)
• Up to 500/position per year
• Pay at least 200 of Federal minimum wage
  (10.30/hour)
• Up to 800/position per year

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Job Creation Grant Term

• Capped at 350 positions annually
• Available for 5-consecutive year term
• Restrictions
• Retail, personal service, or food and beverage
  positions
• Units of local, state, or federal government

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Job Creation Grants Application Materials

• Zone verification
• Payroll documentation
• W-4
• First and last payroll records for base and/or
  grant
• year
• Health benefits information
• Part of positions premium paid by employer
• Health insurance waivers for those declining
  firms insurance
• W-9
• CPAs Attestation Report

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Real Property Investment Grant

• Based on qualified real property investments made
  by individual/entity to commercial, industrial,
  or mixed-use buildings in Enterprise Zones
• Applicant Zone Investor
• Owner
• Owner of space
• Tenant
• Developer
• Supplemental application material

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Real Property Investment Grant Amount

• Eligibility thresholds based on type of
  investment
• 50,000 for rehab or expansion
• 250,000 for new construction
• Up to 20 of total cost of qualified real
  property investment

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Real Property Investment Grant Term

• Capped per building/facility
• Investments less than 5 Million 125,000 per
  building or facility
• Investments of 5 Million or more 250,000 per
  building or facility
• 5-consecutive year term
• Restrictions
• Units of local, state, or federal government

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Qualified Real Property Investment

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CPAs Attestation Report

• Code requires that an independent CPA licensed
  in VA perform the agreed upon procedures
  established by DHCD and report on findings in EZ
  grant applications to DHCD

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Enterprise Zone Grant Deadlines

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Grant Awards and General Limitations

• Funds allocated annually by General Assembly
• 16.5 million in grants available grant year 2006
• Should requests exceed grants allocated, all
  qualified requests will be pro-rated
• Pro-ration was 61 percent for the 2005 grant year

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Local Incentives
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Local Incentives

• Crucial part of programs success
• Means to create an improved climate for private
  business development expansion

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Local Incentives

• Consistent with local revitalization and
  development goals (overcoming barriers to
  business operations)
• Local government may propose any type of
  incentive permissible under Federal and State Law
  (as long as zone specific)

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Local Tax Incentives

• Dos and Donts
• Constitutionality is a must!
• Article 10, Section 1, Uniformity Clause
• Taxation has to be uniform in territory, subject,
  class
• Territory refers to entire locality

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Local Tax Incentives

• Dos and Donts (cont.)
• Applies to property type taxes real estate,
  machinery tools
• Unless expressly allowed by the GA, like
  58.1-3220 3221 or
• As a grant, typically thru an IDA, for machinery
  tools tax
• Do not use words abatement, refund, rebate

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Local Tax Incentives

• Dos and Donts (cont.)
• Uniformity does not apply to BPOL, utility tax,
  permit fees
• Rebates, refunds, abatement are allowed

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Local Incentives

• Partial exemption for substantially rehabilitated
  real estate (58.1-3221, VA Code)
• Grants based on the value of machinery tool tax
• Architectural assistance grants, design
• Reduced permit and user fees
• Special rates for BPOL tax

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Local Incentives

• Special zoning districts (e.g., parking)
• Fast-track permitting
• Exemptions from local ordinances
• Infrastructure improvements
• Crime reduction measures (security audits
  assistance w/purchase cost)

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Local Incentives

• Quality vs. quantity
• Measurable and effective
• Should represent sound fiscal policy

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Roles Responsibilities
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State Role Responsibility

• Annual site visit
• Confer with you and your clients on state
  qualification, on-site and via phone
• Review advise on amendments to boundaries or
  incentives
• Provide periodic administrator meetings
• Participation in local workshops and zone
  promotion

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Zone Assessment

• Means to evaluate level of participation,
  success, and value of zone
• Offer more targeted technical assistance
• Considerations
• INCENTIVES!
• Local utilization
• State utilization
• Physical appearance of zone
• Marketing efforts
• Number of stakeholders involved

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Local Responsibilities

• Program performance evaluation
• Data Collection
• Incentive utilization
• Private Sector Investment
• Public Sector Investment
• Submit an Annual Report to DHCD (July)
• Discusses zone activity and is the basis for an
  annual report to the General Assembly. Click
  below to view a copy of the report.
• www.dhcd.virginia.gov/CommunityDevelopmentRevitali
  zation/Word/VEZ_20Annual_Program_Report.doc
• Annual site assessment visits with DHCD staff

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Local Responsibilities

• Process/Management Structure for
• Zone administration and local incentive promotion
  
• What departments are involved and what are their
  roles
• Compilation of comprehensive list of addresses
  businesses within zone
• State Incentives promotion
• Meet state requirements
• Attend how-to-qualify workshops
• Respond to questions about state incentives
• State grant forms and applications
• Zone Marketing

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Marketing

• Shouldnt be an after thought
• Develop a plan
• Point person
• Awareness vs. Target
• Everyone can help market
• Regional Partnership
• IDA
• Downtown Organizations
• Realtors/developers
• SBDC

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Zone Characteristics Size Guidelines

• Cities
• Minimum of 1/4 square mile (160 acres)
• Maximum of 1 square mile (640 acres)
• Or, 7 percent of the jurisdictions land area or
  population, whichever is largest

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Zone Characteristics Size Guidelines

• Consolidated Cities
• Minimum of 1/2 square miles (320 acres)
• Maximum of 6 square miles (3,840 acres)
• Hampton, Newport News, Richmond, Suffolk,
  Virginia Beach

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Zone Characteristics Size Guidelines

• Counties
• Minimum of 1/2 square mile (320 acres)
• Maximum of 6 square miles (3,840 acres)

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Zone Characteristics Size Guidelines

• Unincorporated Areas of County
• Minimum of 1/2 square mile (320 acres)
• Maximum of 6 square miles (3,840 acres)

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Zone Characteristics Zone Configurations

• Joint zones an enterprise zone located in two
  or more jurisdictions (cities or counties).
• Each localitys portion of the joint zone can
  consist of up to three non-contiguous geographic
  areas relative to that locality.
• One of the localitys three possible zone areas
  must be contiguous to at least one other
  participants zone area as part of the joint
  application.

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Zone Characteristics Size Configurations

• Single zone an enterprise zone located entirely
  within a single jurisdiction (city or county). A
  county zone including areas within incorporated
  town limits is considered part of the countys
  zone acreage and constitutes a single zone.
• EXAMPLE Smyth County applies for a single zone
  designation. A portion of the proposed zone
  includes part of Marions town limits. The
  acreage within the town limits counts towards
  Smyth Countys zone acreage. The town is not
  required to offer incentives (but can) and is
  considered part of the countys zone.

County limits
Portion of town limits in Countys single zone
County EZ boundaries
Town limits
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Zone Characteristics Size Configurations

• Example of a Joint Zone Configuration

Locality One
Locality Three
Contiguous joint zone areas
Non-contiguous zone areas (3 per locality)
Locality Two