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Legal Counsel Memo re Incentive Policy 11-17-08 ejhWIUNER MICHOW & COX. ATTORNEYS AT LAW MEMORANDUM TO: Scott Wright CC: Larry Brooks, Eric Heidemann FROM: Eric Heil, Town Attorney DATE: November 17, 2008 SUBJECT: Incentive Policy and Guidelines for Public Sector Participation Summary: This memorandum provides legal and general comments on the Incentive Policy & Guidelines for Public Sector Participation ( "Incentive Policy "). Legal: Municipalities have broad legal authority to provide financial and other incentives to public and private development projects. Most of the listed incentive programs would require formal Council approval for each project through adoption of a resolution or ordinance. This process allows the Town to document its rationale and establish a defensible reason for such actions. The adoption of financial incentive policies is not legally necessary; however, such policies can (1) promote more efficient and effective decision making, (2) promote consistency amongst various applications, and (3) increase predictability for applicants requesting incentives. The formal adoption of an Incentive Policy can establish additional legal rationale for taking action to approve an incentive. On the other hand, a decision that is clearly inconsistent with adopted policy can be more susceptible to a legal challenge on the basis that the decision is "arbitrary and capricious." Format: There are numerous forms that an Incentive Policy can take, including (1) a stand alone policy document, (2) an addition to the Town of Avon Comprehensive Plan, and (3) an amendment to the Avon Municipal Code. Inclusion in the Avon Municipal Code would be convenient for both applicants and staff. Also, inclusion in the Avon Municipal Code would elevate the formality of the Incentive Policy because they would be adopted by ordinance and could only be amended by ordinance. Adoption by resolution would be less formal and easier to amend from time to time, but would likely result in a separate stand alone document. The Incentive Policy could include both a policy document and specific code provisions for implementation (akin to a Comprehensive Plan and Land Use Code). Arrangement: The draft Incentive Policy would benefit from a citation outline so that specific provisions could be referenced (i.e. I.A.1.a.(i)(a) or Section 1.10.010.a). Also, I believe the arrangement of ideas and concepts could be refined. Because the Incentive Incentive Policies November 17, 2008 Page 2 of 6 Policy contemplates that someone would request (i.e. an applicant would apply) and the Town would consider (i.e. review) such request and render a decision according to established criteria, a process that is similar to a development application would likely be the most familiar for both Town staff and any applicant. The following outline is provided as a typical outline for a regulatory application process: I. Purpose II. Definitions III. Incentives IV. Application Process V. Required Application Information VI. Review Criteria VII. Decision Purpose: The language in this section could be simplified and focused to establish a more direct statement of purpose. Sample language is provided below: The Town of Avon ( "Town') desires to promote, encourage and stimulate development and investment that realizes public benefits for the Avon community. Such public benefits include, but are not limited to: economic stabilization, enhancement and /or diversification; preservation of property values; provision of public amenities or facilities identified in adopted Town Planning Documents; and, promotion of self - sufficiency and sustainability on a community -wide basis. The Incentive Policy contained herein sets forth a process to evaluate projects and investments that can provide desired public benefits if certain incentives are offered by the Town. In additional, the Incentive Policy has the following purposes: 1. Provide guidelines for the development and investment community to understand when incentives may be appropriate; 2. Establish an orderly and public process for consideration and approval of incentives; 3. Promote the efficient use of incentives to maximize the public benefits to the Avon community; 4. Discourage the use of incentives when not necessary to realize the proposed public benefits or not appropriate as a matter of public policy; and, Widner Michow & Cox LLP Eric Heil, Esq., A.I.C.P. 12503 East Euclid Drive, Suite 230 Direct Tel 303.754.3392 Centennial, CO 80111 eheil @widnermichow.com Incentive Policies November 17, 2008 Page 3 of 6 5. Promote accountability to the general public in the use of public funds and resources. Any incentive is subject to approval by the Town Council. The Incentive Policy is not intended, and shall not create, any entitlement or right of any applicant to approval of an incentive. I also suggest considering a statement in the Purpose section that acknowledges that Avon has a resort based economy, that resort communities are highly competitive, and that enhancing public amenities enhances the attractiveness and competitiveness of the Avon economy for the benefit of businesses, visitors, residents, and second home owners. Definitions: The proposed Definition section could be incorporated herein. Placing a definitions section at the beginning or end is not a matter of substance and only a matter of style. Definitions are often placed at the beginning of statutory regulations and are placed at the beginning of several regulatory sections in the existing code. I propose including a definition of Town Planning Documents that includes all documents adopted through the public hearing process by the Town Council after review by the Planning Commission, including but not limited to [list of current documents]. This definition would allow cross - referencing and tying in all relevant planning documents without re- writing portions of such documents into the Incentive Policy. Local Business should be defined and incorporated as a criteria if retention and expansion of local businesses is a desired community goal that warrants incentives. don't agree with the proposed definition of Density Bonuses. My understanding of Density Bonuses is that it involves additional density in the form of increased units, building height, floor area ration and /or maximum square footage in consideration of a public benefit. Incentives: The list of Incentives is somewhat mixed. Some of the listed incentives are means (tax increment financing, tax rebates), some are ends (business relocation), and some appear to be important considerations (operation and maintenance costs). Generally, incentives can be categorized as (1) financial incentives [or subsidies] and (2) non - financial incentives [or cooperation and approvals]. Financial incentives include: 1. Appropriations (i.e. grants, loans, expenditures, matching funds for other grant programs, general bonds, etc.) 2. Tax increment financing (includes tax exempt bonds paid by project revenues) Widner Michow & Cox LLP Eric Heil, Esq., A.I.C.P. 12503 East Euclid Drive, Suite 230 Direct Tel 303.754.3392 Centennial, CO 80111 eheil @widnermichow.com Incentive Policies November 17, 2008 Page 4 of 6 3. Tax abatement or rebates 4. Waiver of fees 5. Assumption of operation and maintenance responsibilities 6. Sale, disposition or exchange of municipal land below market value Non - financial incentives include- 1 . Density or other development entitlement bonus 2. Approval of special districts to provide additional financing mechanism (i.e. General Improvement District, Business Improvement District, Special Improvement District) 3. Coordinate the design and timing of public capital improvements to enhance affected projects and investments 4. Streamline the development approval process for projects that meet defined criteria and provide defined public benefits 5. Use of government authority to enable development (such as condemning utility routes) or generally cooperation in multi -party projects 6. Sale, disposition or exchange of municipal land at fair market value Consideration should be given to focusing on the incentives that are most likely to be used and supported in Avon. Incentives that do not present a net cost to the Town are likely to be the most attractive, which includes: Tax increment financing, tax rebates from new projects, approval of financing districts, density bonuses, and streamlining the development approval process. With regard to the formation of special districts, a cross reference should be included to Section 18.01 Establishment of Special Districts. Coordinating and partnering on grant funding programs has strong potential to bring other financial resources to projects; however, the Town should be aware that the private sector is often not familiar with grant programs, more administration is required, longer timeframes are required, and grant programs usually impose additional requirements and constraints that may raise project costs or affect design. On the positive side, local, state, federal and private grant funding sources can provide an effective means of leveraging a small portion of Town funds and private applicant funds into larger sums. Land sales, acquisitions and transfers are more difficult in Avon due to the voter approval requirement in the Home Rule Charter. The existing charter language in section 18.3 is so broad that it applies to the sale and disposition of land acquired by the Widner Michow & Cox LLP Eric Heil, Esq., A.I.C.P. 12503 East Euclid Drive, Suite 230 Direct Tel 303.754.3392 Centennial, CO 80111 eheil @widnermichow.com Incentive Policies November 17, 2008 Page 5 of 6 Avon Urban Renewal Authority. Land conveyance to a private developer is a very potent economic and community development tool because it allows the municipality to establish very detailed terms for development rather than reacting to a private development application. It may be worthwhile to consider requesting voter approval to allow the sale and disposition of property owned by the Avon Urban Renewal Authority by the Board of Commissioners. At a minimum, the incentive section regarding municipal land should include a cross reference to the home rule charter, section 18.3. Overall, I suggest reducing the incentive to those that are most likely to be considered and provided, then provide a detailed description of each incentive. Application Process: Often, the applicant for an incentive will apply in the context of a proposed development project. Consideration should be given as to whether (1) the Planning and Zoning Commission should have an advisory role for such applications, (2) requested incentives should only be reviewed by the Town Council, or (3) the Town Council should decide on a case by case basis if applications for incentives should be referred to the Planning and Zoning Commission for a recommendation. The third option would likely be the most practical and would best reflect the existing legal authority and relationship of Town Council to the Planning and Zoning Commission. Required Application Information: The Incentive Policy should include an application form and list of required information in order to evaluate the requested incentive. If the requested incentive is based on economic necessity, then private financial information must be disclosed to verify the necessity. I would suggest that the Incentive Policy require disclosure to the Town Manager, one other Town staff person, and one representative from Council, such as the Mayor or other designee. This would provide a check and balance to insure that economic necessity is verified without a requirement to provide confidential private information to the entire Town Council. The policies should also address the ability to meet in executive session to discuss incentives and may include the ability to invite private party applicants into executive session if deemed necessary and appropriate. Required information should include (1) a specific statement of the proposal, (2) description of proposed public benefits to be provided, (3) support for such benefits from existing planning documents, (4) estimated costs of the incentive to the Town, (5) proposed matching contributions if any from the applicant, (6) the estimated costs of any operations and maintenance to be incurred by the Town, (7) the projected revenues and cost where tax increment financing or tax rebates are proposed, (8) confidential financial information when deemed necessary to verify economic necessity, and (9) a plan or method for evaluating the effectiveness and success of the incentive . Review Criteria: With a legal perspective, the review criteria is the most important section in the Incentive Policy because it establishes the core of the Incentive Policy. The draft Incentive Policy does not provide clear criteria. General criteria may be Widner Michow & Cox LLP Eric Heil, Esq., A.I.C.P. 12503 East Euclid Drive, Suite 230 Direct Tel 303.754.3392 Centennial, CO 80111 eheil @widnermichow.com Incentive Policies November 17, 2008 Page 6 of 6 preferable; however, general criteria can result in subjective interpretations by different Councilmembers that are difficult to reconcile. Also, general criteria may not provide a useful guide for applicants. Core criteria could include: 1. The application is complete 2. Applicant's proposal implements a Town Planning Document 3. Applicant's proposal provides a public benefit that would not be provided without the incentive 4. Applicant's proposal promotes one or more purpose of the Incentive Policy 5. The requested incentive is in proportion to the proposed public benefit 6. The requested incentive and project should not increase Town expenses more than the projected increased revenues 7. The requested incentive and project allows the Town and applicant to leverage grant funding from other sources 8. The proposal includes a practical method of evaluating the effectiveness and success of the incentive Additional criteria could be added to emphasize specific public benefits desired by the community, such as: 9. The proposed project enhances, expands or connects pedestrian corridors 10. The proposed project will result in the retention and /or expansion of locally established businesses 11. [others? transit, housing, amenities that enhance both resident and visitor experience ?] Decision: Like most application and review processes, the decision options should include (1) approval, (2) approval with conditions, (3) denial, and (4) continuance. You may also want to consider requiring approval by ordinance and stating that the ordinance is subject to referendum. Many contemplated incentives will require approval of an ordinance, unless some general authority was previously approved. Summary: Overall, my suggestion is that the Town should identify the incentives that are most likely to be practical and used, then draft a policy focused on those incentives with more detailed criteria for approval. Widner Michow & Cox LLP Eric Heil, Esq., A.I.C.P. 12503 East Euclid Drive, Suite 230 Direct Tel 303.754.3392 Centennial, CO 80111 eheil @widnermichow.com