Virginia Enterprise Zone Program


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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.

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Virginia Enterprise Zone Program

  1. 1. Virginia Enterprise Zone Program June 1, 2007
  2. 2. Outline of Presentation <ul><li>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. </li></ul><ul><li>Program Overview </li></ul><ul><li>Incentives </li></ul><ul><li>State and Local Roles & Responsibilities </li></ul><ul><li>Designation Amendment Procedures </li></ul>
  3. 3. Program Overview
  4. 4. Overview: Enterprise Zones <ul><li>Enterprise Zone </li></ul><ul><ul><li>Geographical area of county, city, or town designated by the Governor for 10-20 years. </li></ul></ul><ul><li>First established by General Assembly in 1982 </li></ul><ul><li>(Virginia Enterprise Zone Act) </li></ul><ul><li>State & local government partnership </li></ul><ul><li>Means to stimulate job creation, private investment, and revitalization. </li></ul>
  5. 5. Enterprise Zones
  6. 6. EZ Statute 2005 <ul><li>July 1, 2005: General Assembly passed Enterprise Zone Grant Act </li></ul><ul><li>Transitioned program from tax credits incentives to grants: </li></ul><ul><ul><li>Job Creation Grant </li></ul></ul><ul><ul><li>Real Property Investment Grant </li></ul></ul>
  7. 7. Enterprise Zone Grant Act <ul><li>Act authorizes up to 30 zones </li></ul><ul><li>Current zones run out their 20-year designation period </li></ul><ul><li>30 zones will be reached as current zones expire </li></ul><ul><li>Initial ten-year designation period, with two five-year renewals </li></ul>
  8. 8. Policy Intent <ul><li>Target zone designations -- greatest need and most impact </li></ul><ul><li>Focus on economic situations that can best benefit from financial incentives -- influence location decisions </li></ul><ul><li>Increase fiscal accountability associated with state incentives </li></ul>
  9. 9. Zone Designation Process
  10. 10. Designation Application Content <ul><li>Demonstration of Need </li></ul><ul><li>Zone Characteristics </li></ul><ul><li>Impact of Zone </li></ul><ul><li>Program Implementation </li></ul>
  11. 11. Distress Factors <ul><li>Locality-wide distress factors not zone specific distress criteria </li></ul><ul><li>Freedom to put zone where it best fits local economic development needs </li></ul><ul><li>3 zones per locality </li></ul><ul><li>Each zone can have 3 non-contiguous areas </li></ul>
  12. 12. Distress Factors <ul><li>50 percent of an applicant’s score is based on the most recent three year averages: </li></ul><ul><ul><li>Average unemployment rate </li></ul></ul><ul><ul><li>Average median adjusted gross income (all returns) </li></ul></ul><ul><ul><li>Average percentage of public school students receiving free or reduced price lunches </li></ul></ul>
  13. 13. Applicants <ul><li>City or county only </li></ul><ul><li>Towns can be part of county acreage </li></ul><ul><li>Joint applicants can be two or more adjacent jurisdictions – must be strategic, not just convenient; must have mechanism to ensure shared benefits </li></ul>
  14. 14. Zone Requirements <ul><li>Meet but do not exceed size limitations </li></ul><ul><li>Provide a local incentive package </li></ul><ul><li>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 </li></ul><ul><li>No eligibility criteria must be met in order to apply for zone designation </li></ul>
  15. 15. Designation Process <ul><li>Zones must show impact, effectiveness to be renewed after 10 years and then after 15 years </li></ul><ul><ul><li>Performance of EZ responsibilities </li></ul></ul><ul><ul><li>Effectiveness in creating jobs and capital investment </li></ul></ul><ul><ul><li>Need </li></ul></ul><ul><li>DHCD will review performance, effectiveness with each zone annually and offer suggestions for improvement </li></ul>
  16. 16. Designation Process: Impact <ul><li>Impact of Designation on Locality’s Economic Development Efforts </li></ul><ul><ul><li>The importance of zone designation </li></ul></ul><ul><ul><li>What role will the zone play in overall economic development efforts </li></ul></ul><ul><ul><li>Joint zones should discuss the mechanisms to be used to ensure benefits are shared </li></ul></ul>
  17. 17. Zone Termination <ul><li>Statute requires DHCD to terminate zone designations under the following conditions: </li></ul><ul><ul><li>Failure to provide local incentives </li></ul></ul><ul><ul><li>Failure to qualify for state incentives </li></ul></ul><ul><li>Businesses/Zone Investors that are within an eligibility period may continue to qualify for state incentives. </li></ul><ul><li>Once de-designated, no new businesses can qualify </li></ul>
  18. 18. Incentives
  19. 19. State Incentives <ul><li>New performance based grants: </li></ul><ul><ul><li>Job Creation Grant </li></ul></ul><ul><ul><li>Real Property Investment Grant </li></ul></ul><ul><li>Click below for summary chart on State incentives </li></ul>
  20. 20. Job Creation Grant <ul><li>Encourages the creation of higher quality jobs </li></ul><ul><li>Eligible positions: </li></ul><ul><ul><li>Net new to Virginia </li></ul></ul><ul><ul><li>Over 4 job threshold </li></ul></ul><ul><ul><li>Permanent full-time </li></ul></ul><ul><ul><li>Pay at least 175% of Federal minimum wage </li></ul></ul><ul><ul><li>Provide health benefits </li></ul></ul>
  21. 21. Job Creation Grant: Amount <ul><li>Based on wages paid for the position </li></ul><ul><li>For businesses providing health benefits & </li></ul><ul><ul><li>Pay at least 175% of Federal minimum wage ($9.01/hour) </li></ul></ul><ul><ul><ul><li>Up to $500/position per year </li></ul></ul></ul><ul><ul><li>Pay at least 200% of Federal minimum wage ($10.30/hour) </li></ul></ul><ul><ul><ul><li>Up to $800/position per year </li></ul></ul></ul>
  22. 22. Job Creation Grant: Term <ul><li>Capped at 350 positions annually </li></ul><ul><li>Available for 5-consecutive year term </li></ul><ul><li>Restrictions: </li></ul><ul><ul><li>Retail, personal service, or food and beverage positions </li></ul></ul><ul><ul><li>Units of local, state, or federal government </li></ul></ul>
  23. 23. <ul><li>Zone verification </li></ul><ul><li>Payroll documentation </li></ul><ul><ul><li>W-4 </li></ul></ul><ul><ul><li>First and last payroll records for base and/or grant </li></ul></ul><ul><ul><li>year </li></ul></ul><ul><li>Health benefits information </li></ul><ul><ul><li>Part of position’s premium paid by employer </li></ul></ul><ul><ul><li>Health insurance waivers for those declining firm’s insurance </li></ul></ul><ul><li>W-9 </li></ul><ul><li>CPA’s Attestation Report </li></ul>Job Creation Grants: Application Materials
  24. 24. Real Property Investment Grant <ul><li>Based on qualified real property investments made by individual/entity to commercial, industrial, or mixed-use* buildings in Enterprise Zones </li></ul><ul><li>Applicant: Zone Investor </li></ul><ul><ul><li>Owner </li></ul></ul><ul><ul><li>Owner of space* </li></ul></ul><ul><ul><li>Tenant* </li></ul></ul><ul><ul><li>Developer </li></ul></ul><ul><li>* Supplemental application material </li></ul>
  25. 25. Real Property Investment Grant: Amount <ul><li>Eligibility thresholds based on type of investment: </li></ul><ul><ul><li>$50,000 for rehab or expansion </li></ul></ul><ul><ul><li>$250,000 for new construction </li></ul></ul><ul><li>Up to 20% of total cost of qualified real property investment </li></ul>
  26. 26. Real Property Investment Grant: Term <ul><li>Capped per building/facility </li></ul><ul><ul><li>Investments less than $5 Million: $125,000 per building or facility </li></ul></ul><ul><ul><li>Investments of $5 Million or more: $250,000 per building or facility </li></ul></ul><ul><li>5-consecutive year term </li></ul><ul><li>Restrictions: </li></ul><ul><ul><li>Units of local, state, or federal government </li></ul></ul>
  27. 27. Qualified Real Property Investment <ul><li>NOT Qualified Real Property Investments: </li></ul><ul><ul><li>Furnishings </li></ul></ul><ul><ul><li>Appraisal, architectural, engineering and interior design fees </li></ul></ul><ul><ul><li>Loan fees; points or capitalized interest </li></ul></ul><ul><ul><li>Legal, accounting, realtor, sales and marketing or other professional fees </li></ul></ul><ul><ul><li>Closing costs </li></ul></ul><ul><ul><li>Permits, user fees, zoning fees, impact fees, inspection fees </li></ul></ul><ul><ul><li>Bids </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Signage or signs </li></ul></ul><ul><ul><li>Utilities </li></ul></ul><ul><ul><li>Bonding </li></ul></ul><ul><ul><li>Copying </li></ul></ul><ul><ul><li>Rent loss </li></ul></ul><ul><ul><li>Roads </li></ul></ul><ul><ul><li>Temporary facilities </li></ul></ul><ul><ul><li>Utility hook-up or access fees </li></ul></ul><ul><ul><li>Outbuildings </li></ul></ul><ul><ul><li>Well, septic, or sewer systems </li></ul></ul><ul><ul><li>Land or building acquisition </li></ul></ul><ul><ul><li>Basis of any property: (i) for which a grant was previously awarded; (ii) which was previously placed in service in Virginia by the taxpayer, a related party, or a trade or business under common control; or (iii) which was previously in service in Virginia and has a basis in the hands of the person acquiring it, determined in whole or in part by reference to the basis of such property in the hands of the person from whom acquired, or Internal Revenue Code §1014 (a). </li></ul></ul><ul><li>Qualified Real Property Investments: </li></ul><ul><li>Excavation, grading </li></ul><ul><li>Paving </li></ul><ul><li>Driveways, roads, sidewalks </li></ul><ul><li>Landscaping or other land improvements </li></ul><ul><li>Demolition </li></ul><ul><li>Carpentry </li></ul><ul><li>Sheetrock, plaster </li></ul><ul><li>Painting </li></ul><ul><li>Ceilings </li></ul><ul><li>Fixtures </li></ul><ul><li>Doors, windows </li></ul><ul><li>Fire suppression systems </li></ul><ul><li>Roofing and flashing </li></ul><ul><li>Exterior repair </li></ul><ul><li>Cleaning and clean-up </li></ul><ul><li>Electrical/wiring </li></ul><ul><li>Plumbing </li></ul><ul><li>HVAC </li></ul><ul><li>Flooring </li></ul><ul><li>Windows </li></ul>What Constitutes Qualified Real Property Investment?
  28. 28. <ul><li>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 </li></ul>CPA’s Attestation Report
  29. 29. Enterprise Zone Grant Deadlines April 1st – Applicant submits application to DHCD May 15th – DHCD notifies applicant of deficiencies. June 1st – Applicant resubmits, if necessary and deficiencies have been resolved. June 30th – DHCD notifies applicant of qualification. August – Virginia Department of Treasury sends enterprise zone grant check to applicant. Application Deadlines for New EZ Grants: Wage-based Job Creation Grants and Real Property Investment Grants
  30. 30. <ul><li>Funds allocated annually by General Assembly </li></ul><ul><li>$16.5 million in grants available grant year 2006 </li></ul><ul><li>Should requests exceed grants allocated, all qualified requests will be pro-rated </li></ul><ul><li>Pro-ration was 61 percent for the 2005 grant year </li></ul>Grant Awards and General Limitations
  31. 31. Local Incentives
  32. 32. Local Incentives <ul><li>Crucial part of program’s success </li></ul><ul><li>Means to create an improved climate for private business development & expansion </li></ul>
  33. 33. <ul><li>Consistent with local revitalization and development goals (overcoming barriers to business operations) </li></ul><ul><li>Local government may propose any type of incentive permissible under Federal and State Law (as long as zone specific) </li></ul>Local Incentives
  34. 34. Local Tax Incentives <ul><li>Dos and Don’ts </li></ul><ul><ul><li>Constitutionality is a must! </li></ul></ul><ul><ul><li>Article 10, Section 1, Uniformity Clause: </li></ul></ul><ul><ul><ul><li>Taxation has to be uniform in territory, subject, class </li></ul></ul></ul><ul><ul><ul><li>“Territory” refers to entire locality </li></ul></ul></ul>
  35. 35. Local Tax Incentives <ul><li>Dos and Don’ts (cont.) </li></ul><ul><ul><li>Applies to “property” type taxes – real estate, machinery & tools </li></ul></ul><ul><ul><li>Unless expressly allowed by the GA, like 58.1-3220 & 3221; or </li></ul></ul><ul><ul><li>As a grant, typically thru an IDA, for machinery & tools tax </li></ul></ul><ul><ul><li>Do not use words abatement, refund, rebate </li></ul></ul>
  36. 36. Local Tax Incentives <ul><li>Dos and Don’ts (cont.) </li></ul><ul><ul><li>Uniformity does not apply to BPOL, utility tax, permit fees </li></ul></ul><ul><ul><li>Rebates, refunds, abatement are allowed </li></ul></ul>
  37. 37. Local Incentives <ul><li>Partial exemption for substantially rehabilitated real estate (58.1-3221, VA Code) </li></ul><ul><li>Grants based on the value of machinery & tool tax </li></ul><ul><li>Architectural assistance – grants, design </li></ul><ul><li>Reduced permit and user fees </li></ul><ul><li>Special rates for BPOL tax </li></ul>
  38. 38. Local Incentives <ul><li>Special zoning districts (e.g., parking) </li></ul><ul><li>Fast-track permitting </li></ul><ul><li>Exemptions from local ordinances </li></ul><ul><li>Infrastructure improvements </li></ul><ul><li>Crime reduction measures (security audits; assistance w/purchase cost) </li></ul>
  39. 39. Local Incentives <ul><li>Quality vs. quantity </li></ul><ul><li>Measurable and effective </li></ul><ul><li>Should represent sound fiscal policy </li></ul>
  40. 40. Roles & Responsibilities
  41. 41. State Role & Responsibility <ul><li>Annual site visit </li></ul><ul><li>Confer with you and your clients on state qualification, on-site and via phone </li></ul><ul><li>Review & advise on amendments to boundaries or incentives </li></ul><ul><li>Provide periodic administrator meetings </li></ul><ul><li>Participation in local workshops and zone promotion </li></ul>
  42. 42. Zone Assessment <ul><li>Means to evaluate level of participation, success, and value of zone </li></ul><ul><li>Offer more targeted technical assistance </li></ul><ul><li>Considerations </li></ul><ul><ul><li>INCENTIVES! </li></ul></ul><ul><ul><ul><li>Local utilization </li></ul></ul></ul><ul><ul><ul><li>State utilization </li></ul></ul></ul><ul><ul><li>Physical appearance of zone </li></ul></ul><ul><ul><li>Marketing efforts </li></ul></ul><ul><ul><li>Number of stakeholders involved </li></ul></ul>
  43. 43. Local Responsibilities <ul><li>Program performance evaluation: </li></ul><ul><ul><li>Data Collection </li></ul></ul><ul><ul><ul><li>Incentive utilization </li></ul></ul></ul><ul><ul><ul><li>Private Sector Investment </li></ul></ul></ul><ul><ul><ul><li>Public Sector Investment </li></ul></ul></ul><ul><ul><li>Submit an Annual Report to DHCD (July) </li></ul></ul><ul><ul><ul><li>Discusses zone activity and is the basis for an annual report to the General Assembly. Click below to view a copy of the report. </li></ul></ul></ul><ul><li> </li></ul><ul><ul><li>Annual site assessment visits with DHCD staff </li></ul></ul>
  44. 44. Local Responsibilities <ul><li>Process/Management Structure for: </li></ul><ul><ul><li>Zone administration and local incentive promotion </li></ul></ul><ul><ul><ul><li>What departments are involved and what are their roles </li></ul></ul></ul><ul><ul><li>Compilation of comprehensive list of addresses & businesses within zone </li></ul></ul><ul><ul><li>State Incentives promotion </li></ul></ul><ul><ul><ul><li>Meet state requirements </li></ul></ul></ul><ul><ul><ul><li>Attend how-to-qualify workshops </li></ul></ul></ul><ul><ul><ul><li>Respond to questions about state incentives </li></ul></ul></ul><ul><ul><ul><li>State grant forms and applications </li></ul></ul></ul><ul><ul><li>Zone Marketing </li></ul></ul>
  45. 45. Marketing <ul><li>Shouldn’t be an after thought </li></ul><ul><ul><li>Develop a plan </li></ul></ul><ul><ul><li>Point person </li></ul></ul><ul><li>Awareness vs. Target </li></ul><ul><li>Everyone can help market </li></ul><ul><ul><li>Regional Partnership </li></ul></ul><ul><ul><li>IDA </li></ul></ul><ul><ul><li>Downtown Organizations </li></ul></ul><ul><ul><li>Realtors/developers </li></ul></ul><ul><ul><li>SBDC </li></ul></ul>
  46. 46. Zone Characteristics: Size Guidelines <ul><li>Cities: </li></ul><ul><li>Minimum of 1/4 square mile (160 acres) </li></ul><ul><li>Maximum of 1 square mile (640 acres); </li></ul><ul><li>Or, 7 percent of the jurisdiction’s land area or population, whichever is largest </li></ul>
  47. 47. Zone Characteristics: Size Guidelines <ul><li>Consolidated Cities: </li></ul><ul><li>Minimum of 1/2 square miles (320 acres) </li></ul><ul><li>Maximum of 6 square miles (3,840 acres) </li></ul><ul><li>Hampton, Newport News, Richmond, Suffolk, Virginia Beach </li></ul>
  48. 48. Zone Characteristics: Size Guidelines <ul><li>Counties: </li></ul><ul><li>Minimum of 1/2 square mile (320 acres) </li></ul><ul><li>Maximum of 6 square miles (3,840 acres) </li></ul>
  49. 49. Zone Characteristics: Size Guidelines <ul><li>Unincorporated Areas of County: </li></ul><ul><li>Minimum of 1/2 square mile (320 acres) </li></ul><ul><li>Maximum of 6 square miles (3,840 acres) </li></ul>
  50. 50. <ul><li>Joint zones – an enterprise zone located in two or more jurisdictions (cities or counties). </li></ul><ul><li>Each locality’s portion of the joint zone can consist of up to three non-contiguous geographic areas relative to that locality. </li></ul><ul><li>One of the locality’s three possible zone areas must be contiguous to at least one other participant’s zone area as part of the joint application. </li></ul>Zone Characteristics: Zone Configurations
  51. 51. <ul><li>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 county’s zone acreage and constitutes a single zone. </li></ul><ul><li>EXAMPLE: Smyth County applies for a single zone designation. A portion of the proposed zone includes part of Marion’s town limits. The acreage within the town limits counts towards Smyth County’s zone acreage. The town is not required to offer incentives (but can) and is considered part of the county’s zone. </li></ul>Zone Characteristics: Size Configurations County limits Town limits Portion of town limits in County’s single zone County EZ boundaries
  52. 52. <ul><li>Example of a Joint Zone Configuration </li></ul>Zone Characteristics: Size Configurations Locality One Locality Two Locality Three Contiguous joint zone areas Non-contiguous zone areas (3 per locality)