SPECIAL MEETING OF THE COUNCIL OF THE CITY OF NOVI

 MONDAY, MARCH 27, 2000, AT 7:00 PM

COUNCIL CHAMBERS-NOVI CIVIC CENTER-45175 W. TEN MILE ROAD

Mayor Clark called the meeting to order at 7:05 PM

ROLL CALL: Mayor Clark, Mayor ProTem Lorenzo, Council Members Bononi, Crawford (arrived 7:07pm), Csordas, DeRoche (absent/excused) and Kramer

ALSO PRESENT: Craig Klaver, Dennis Watson

L. Gormezano, Michigan Economic Development Corp.

Paul Sherbeck, 24547 Fairway Hills Drive, strongly urged Mayor and Council not to have any policy for/or any Tax Abatement. There are no benefits for the taxpayers, Tax Abatements serve only the businessperson. He asked who benefited from abatements?

Mayor Clark responded the purpose of audience participation is to allow residents to express their concerns or views on a particular topic and not to get into a debate. There are Mayors Office hours on Saturday mornings for discussion purposes. Councilmember Kramer also mentioned Council people are available by phone and e-mail.

Steven Reed, 27168 Meadowbrook Road commented he has a hard time believing they would consider a Tax Abatement in the OST Zoning and felt it was negating Council’s justification for the OST Zoning District. The only time he has heard of residential property being given a tax break is just before it is condemned for new development. His opinion is actions speak louder than words and he would wait to see what kind of action would go on here.

C. Wilson, a 29 year resident, is opposed to any idea of Tax Abatements. He asked Council how fast would they like the Novi Community to develop? If Novi is attractive enough to attract past development why are they thinking of offering Novi at a discount to accelerate more development? Our infrastructure already has a difficult time handling the development we have? He felt Tax Abatements are a subsidy/welfare for corporations. He always thought welfare was for the needy not the greedy.

Ernie Aruffo commented he has confidence in Council that they will prepare a program that would set a pro-action rather than a reaction. That Council would have a schedule to follow not a general gift to businesses. He saw no objection to offering Tax Abatements to companies willing to develop property that would be taxed at a higher rate than if the land were to remain undeveloped. This would still be additional tax dollars benefiting the City. If restrictions were placed on the Tax Abatements we would see a policy that would create jobs and economic benefits to the City.

Paul Sherbeck addressed two additional concerns. The loss of possible benefits that the City might incur by not having businesses brought in with a Tax Abatement. He suggested Council look into saving money in other areas. He strongly urged the City to sell the Ice Arena. Parks and Recreation may also want to use pay as you play programs. There are several programs for Senior Citizens and they are the wealthiest group of individuals in the history of the world and he did not think government should subsidize them in any way, shape or form. Mr. Sherbeck does not want a millage for a new Library. He also wanted to know about Textron or any other company who has inquired, formally or informally about Tax Abatements. He requested an immediate answer from Council.

Mayor Clark responded he is only aware of Textron inquiring.

PURPOSE OF SPECIAL MEETING - Tax Abatement Policy

Greg Capote, Economic Development Coordinator, reiterated the purpose of the meeting by giving an overview of what transpired at the February 24, 2000 Council Meeting.

There has been support from the State and the County who are in attendance. Larry Gormezano, manager of Michigan’s southeastern branch of the Michigan Economic Development Corporation and Mr. Dan Hunter, manager of Oakland County Economic Development Team.

Mr. Capote continued with a brief explanation of a sample policy provided to Council. It contained a statement of purpose, suggested goals, suggested guidelines, and two different options that Council might wish to use in evaluating an applicant’s application and the number of years awarded for Tax Abatements. The abatement can be from one to twelve years. In addition Council had asked for some illustrations of what developments have currently come up in the OST District. Most of the projects listed in the packet are in the planning or construction phase. The Husky Corporation, a 25-acre site, in excess of 90,000 square feet is the only completed project. Council had also asked for a comparison of dollar amounts in relationship to current taxable values and those values if they are abated. A slide was shown with the tax jurisdictions and the 1999 millage rates.

Mr. Gormezano wished to clarify a couple of items. When a company lists itself as a billion-dollar company it did not mean it is profitable. When investing millions of dollars in building and equipment it takes a long time for the company to become productive. Part of the philosophy for Tax Abatements is to help companies move through this period where they may not be profitable. Tax Abatements were also instituted to attract investment into the State and local communities. The MEGA Program offers two basic credits. For a company to qualify it has to certify the but/for statement, which meant they came to Michigan because these credits were offered. The credits are twofold; one is a single business tax credit for the incremental increase in their investment. So, if they are making a new investment in Novi the State gives up a piece of the single business tax, which is also added on to other operations they may have in Michigan. Secondly, the more powerful of the credits given is essentially a rebate of the State withholding tax to the company for up to twenty years. Also MEGA’S mission is to keep businesses in Michigan not attract new business. MEGA is doing a substantial amount but cannot do everything. They like to see localities in partnership with MEGA in offering incentives to complete a package. The MEGA loan is only a piece of it; they also offer job training, and other incentives along with local incentives. MEGA also has situations where the groups are commercial projects, they will ask communities to participate in other ways, such as extending water lines or exempting certain licensing fees.

Dan Hunter, Manager of Oakland County Planning and Economic Development, mentioned he reviewed the draft policy and commended the staff and attorney for putting together a good framework. He felt it accentuated things important to Novi such as natural habitat. Also, with the criteria set forth, it would stand for either large firms or small businesses. Businesses usually pay more in taxes than they receive in services. It is a fine way to grow with the community, to pay for the needed facilities and is a tool for business retention.

Member Csordas said there had been only one request for Tax Abatement prior to this but now they are seeing projects of the scope that the City has not seen up to this point. He said the OST Zoning has brought great opportunity to the City of Novi to increase the revenue. The recommendations of the City staff to bring forward this OST District has brought larger manufacturing companies to the City, is generating more taxes and is a type of industry that Novi has not had prior to this. He thought a Tax Abatement Policy was something that should be considered and the criterion to determine the number of years and the percentage of Tax Abatement is very good.

Member Csordas said Mr. Gormezano stated it was either MEGA Credits or Tax Abatements; and asked if that was correct?

Mr. Gormezano said where it is a manufacturing project they ask that the City offer a Tax Abatement to the company. In other cases where it is not a manufacturing project they look for other types of things because abatement is not available.

Member Csordas said let’s say it is a world wide manufacturing organization that was building a research and development facility in Novi would that still apply?

Mr. Gormezano said in their projects that are not manufacturing they ask for other types of things. Where a company is going to establish a research and development center that would be eligible for abatement assuming the company manufactures in Michigan. It has to be a manufacturer in Michigan not some where else.

Member Csordas said regarding total average annual level of new full time employment some of these projects would bring employees that do live in other communities. However, there can not be any question that they would also have a propensity to spend their money in this City because they are working here. He thought that the Main Street area businesses would benefit from large high tech research and development companies, commercial or whatever.

He thought rehabilitation of existing buildings was great if that was included in the draft of criterion and perhaps preference should be given to companies that have been in the City for a number of years. These are people who have invested in the community, have become involved in community projects and have supported all functions of the community. He thought it was a good idea to have existing businesses qualify for this if they are expanding their business or outgrowing their current facility and want to build a new facility in Novi.

Member Csordas said he would support a Tax Abatement Policy and thought this was a good start.

Member Bononi said when the OST Ordinance was written there was never any talk about Tax Abatements. The idea behind the OST was it would generate tax dollars with high tech clean manufacturing that would make fewer demands on City services. Therefore, it would be a more profitable benefit to the City and would also generate auxiliary businesses.

She was not convinced that the City would get additional dollars with fewer demands on City services with Tax Abatements. She said another way to get it would be holding the line and not blinking in the market place.

The document suggested Novi would benefit from many things including jobs and auxiliary businesses that would spring up as a result of granting the abatements. She asked what the guarantee was? She said the City gives away 50% of a tax amount and has a pretty good idea that we are going to get things in return.

Example:

1. We are talking about, in this document; under the guidelines for Tax Abatement the average wage of new jobs must equal or exceed 150% of the Federal minimum wage, which today would be $7.73 per hour rate. When realizing that for a family of four that is at $17,050 and is on the poverty line and the poverty line for an individual is something below $15,583 she did not think this was a good guideline.

2. There used to be a guarantee when a big manufacturing firm would move into a community that there would be many auxiliary businesses. We live in a global economy and it is not uncommon for companies to send their parts someplace else around the world to be assembled and sent back here. Although that would probably be the ideal situation it is by no means a guarantee.

3. She commented, regarding Tax Abatement Goals, she was not sure what Tax Abatement goals the Council had and would like to know what they were. She wanted to know if they were more than one vehicle or just this vehicle. She believed incongruously inserted, under Tax Abatement Goals:

B. To promote the preservation of natural resources that achieves a high level of sensitivity with respect to the natural environment.

This is something that is already regulated in this City. To suggest that protecting our environment should be used as a negotiating chip is something she would never agree to. She thought this item was incongruous and did not belong here.

From the standpoint of Option 1 versus Option 2 there is no threshold listed. There could be a very small amount of total value that Council could be talking about in a business as opposed to say a world headquarters. A lot of terminology in this section dealt with uniqueness and she did not know what uniqueness was but it did not necessarily give her an advantage or disadvantage when considering who would be a suitable applicant.

There is no guarantee that the development would provide enhanced opportunities for the existing business community and depended on what the business was it might or might not.

The Option 2 where Council would go down the list and generally determine by criteria what type of use would be encouraged she would suggest that Commercial did not belong in there. From the standpoint of giving away the store to subsidize it she could see no reason she would support that.

Under C, the Total Average Annual Level of New Full Time Employment, if there were a specification of only new jobs, which this section did not provide, would be one thing. She would not consider that.

The eligible facilities language suggested all these other uses and she suggested that to her recollection Council only talked about OST.

She said there were a lot of other technical concerns she had about what the document said but for the most part it was pretty much a duplication of the document that was used by the City of Livonia. She was sure this document worked for them but this is not Livonia.

She said whoever owns the land benefits and by virtue of this whoever owns the land could sell it faster. She was not saying anything was wrong with that but from the standpoint of sacrificing half of the tax base of each of these properties, in that regard, she had big reservations.

Member Bononi concluded by saying this was a good point to start but it was by no means any kind of document she would support in its present form.

Mayor Clark said the Del Wal Corporation received a Tax Abatement that concluded in December 1999 and they would now be paying their tax burden. He said abatements were not forever and when over the company went back to paying the full level of taxes it would have been paying absent the abatement.

This has to be looked at as an economic reality test. A few years ago people were begging for jobs and we were the rust belt and we were history. We are not history anymore, we are extremely strong economically but that does not mean there would not be a down turn in the economy. He said for years the State of Michigan relied on steel and automobiles and every time there was a major down turn we suffered for it. During those periods our youth went to college, got an education and took that education and brainpower somewhere else. This is another way of keeping it here and bringing more here.

This type of policy might enhance economic diversity and help to insulate the City from major down turns in the economy that could not be done before. If there is an abatement policy it is for a given period of time and for a given amount. The company seeking the abatement has to satisfy very rigorous demands that Council insisted upon as well as those at the State level to even get the abatement. In the interim they are all paying taxes and even with the Headlee Amendment if the assessments go up the taxes go up.

This is a way to spread the burden and we are concerned about the rather large judgement that is hanging out there. If we are not successful in that he would rather be in a position to have that risk spread as broadly as possible so that the effect can be minimized on the residential component of Novi.

Mayor Clark did not want to see this as a wholesale policy. He would want to see it confined to the OST District unless there is some overriding reason for it to be somewhere else. He was referring to existing businesses that have made long term commitments and have sunk their economic lifeblood into this community. He felt they would deserve, if circumstances warranted it, special consideration. That could be dealt with by the proposed formula that is set forth. If someone wants to invest $100,000 in the community it would not cut it but if someone is talking about a multi million dollar project that is something else again.

He wanted to limit the number that could be considered per year to a minimum level so that Novi would not be viewed as a community that gave wholesale abatements.

Mayor Clark agreed with Member Bononi that he would not want to see Commercial as one of the types of uses that would qualify. However, under B, Tax Abatement Goals, he disagreed with Member Bononi. He felt it should be in there as an affirmation so that if one is coming forward for an abatement and they have a development proposed in a sensitive wetlands/woodland area they know going in that the same rules apply to them stringently and fairly.

He asked Mr. Watson to comment on Public Act 198 and whether the number of years and area in which abatements could be granted could be limited.

Mr. Watson thought inherently they could limit the areas in which it would be granted because before a certificate is granted there has to be a district established and that is within Council control. He also thought the number per year could be limited if established specifically in the criteria. He said he would look into it.

Mayor Clark said if there is a major project that would warrant a designation of a district it could be done even though it might be outside of a broader general area.

Mr. Watson said that is right. Typically, if a district is established it would be defined very narrowly. It would not be done over a broad area of the City or an entire zoning district.

Member Kramer said when the OST District was created they were hoping it would bring larger corporate entities to the City. He said there needed to be a policy because people have been approaching and Council needed to take a posture. A policy would set expectations and guidelines for continuing discussion.

Member Kramer said we have Option 1 and Option 2 and he did not view them as either or. He felt they should both be considered. One as a subjective view and one as an objective view of looking at it. He stated he would support creating a policy but had several comments. He wanted to tighten, define, refine and focus on what he believed was a good draft.

Mayor Clark asked Council to write their comments down and provide them to Mr. Capote and Mr. Watson so they would have that information when working on the draft.

Mr. Watson said the documents provided are very general in nature and one thing that was very clear from the last Council discussion was that if Council was going to adopt a Tax Abatement Policy it was going to be very restrictive. This document was put before Council as a starting point and the kinds of things Member Kramer was talking about are the kinds of things they were hoping to solicit to make this document more complete.

Mayor Clark thought Council felt that this was a beginning outline for Council’s consideration, changes and additions.

Member Crawford said he was in favor of the policy and thought that it was a pro-active approach. He said times have changed and we are in a very competitive world, state, county and City and if a policy is not adopted that welcomed opportunities they would go elsewhere. He said Novi can not afford to lose those opportunities but it did not mean that they give away the ranch. He commended staff and Mr. Capote for what they had put together and thought it was an excellent starting place. He did think it needed to be fine-tuned to suit Novi’s specific needs and wants. It is a tool that can be used when needed.

Mayor Pro Tem Lorenzo said when talking about Tax Abatements there are disparities. When it is offered to business and not residential or to only certain kinds of businesses that is disparity. Her position on this has been to keep an open mind and she would consider a very limited Tax Abatement Policy that was very selective, cautious and disciplined. She felt this document was contrary to that and was very broad, easy to qualify and very indiscriminate. It allows large or small firms, did not have a minimum threshold of investment in the community and allowed many different categories of development. She would limit the policy to the OST District in order to secure not only high tech companies but also extraordinary projects. She used Troy as an example of " extraordinary". They have a minimum threshold of a $40 Million investment in the community, 500 or more new jobs and qualification for the Michigan Economic Grant. She felt this would be a good place to start because she wanted to be very, very selective in who was considered.

Regarding some of the goals in the document she stated that she was not willing to provide Tax Abatement for compliance with our ordinances. If Council was going to provide Tax Abatements and they were going to do something extraordinary in terms of going above and beyond our wetlands/woodlands ordinance requirements that could be a criteria. It would have to be well above and beyond what normal regulations require.

Mayor Pro Tem Lorenzo felt Council could afford to be very selective in Novi. She said Novi is not starving for development and has been very successful in each development category. There are a lot of takers and users without any incentive. She was not convinced of the need for a policy but would keep an open mind. She asked for public input.

Mayor Clark asked that Council put their thoughts and comments on paper and give them to Mr. Capote and Mr. Watson within the next week and suggested another meeting be scheduled for the immediate future to address this.

Member Csordas agreed with Mayor Pro Tem Lorenzo and Mayor Clark. He felt Novi had to be competitive with other communities in Michigan and in other states. He felt Council had to demonstrate fiscal and fiduciary responsibility to do what they could to bring in good businesses that generate tax revenue.

He thought one of their goals should be to mitigate the resident proportion of taxation, which would be a win-win situation. The larger companies, for a short period of time if Council went with this policy, would receive some tax relief. It is a half-full glass that would become 100% full over a certain period of time. Citizens would receive tax relief and there would be increases to the City’s revenue and it encouraged the following of the Master Plan.

Member Csordas said MEGA brought additional benefits to the City and possibly funds for infrastructure development.

Mr. Gormezano said the MEGA Program is part of the mix of incentives and services that are offered to overcome the cost disparity between a company locating in Michigan and a company locating in another state. Oftentimes a company would come to them with a variety of needs including tax relief, job training and infrastructure improvements. One of the important programs they have is the Transportation Economic Development Fund and there are regular cycles of funding for that. A priority is given to MEGA Projects when they distribute that funding as well.

Member Csordas said regarding thresholds, Mayor Pro Tem Lorenzo mentioned, on page 4 are minimum thresholds and they are probably a little bit low and even in the $4 Million to $6 Million range the maximum range of the tax exemption would be one year. He felt there was a base for thresholds and it was something he would pay particular attention to because he thought this was a very good start to that process. The rehabilitation of existing businesses was also included and had a threshold of $800,000 to $2 Million and then it went up to $10 Million and over through four levels, which would allow one to four years.

Member Csordas thought this was a good foundation and a thought provoking document to build on.

Member Bononi said two things she thought would be important would be the consideration of a 12 year term of Tax Abatement and that with this lawsuit decision forthcoming this does not make her feel more confident. She felt this community might be shouldering an ever-larger burden of providing service to those who would already be here under this situation.

The language that still concerned her was in the Industrial Facilities Exemption Certificate where we certify that "the Industrial Facilities Exemption Certificate did not have the effect of substantially impeding the operation of the City of Novi or impairing the financial soundness of the taxing unit that levies the tax within the City of Novi." She said knowing what she knew now she could not be convinced of that and would be looking forward to any additional information that would verify that.

Member Kramer said on the paragraphs of intent he agreed with Mayor Pro Tem Lorenzo. Phrases such as "incentives may be required" should be "incentives may be desirable". Also, "consideration of any Tax Abatement or any form of local participation" should read "any other form of ". The lead in paragraph indicates that "consideration of Tax Abatements will be on a limited basis to assure the City of Novi competitiveness with other communities throughout the region" should be strengthened considerably. He agreed this was not a blank check and stronger statements were needed to indicate that granting abatements was viewed as an exception basis and not as normal course of business. Also, that the consideration of applications be primarily aimed at major developments in OST Districts.

In the second paragraph "Tax Abatements will be reviewed on its merits" should read on its "own individual merits". Later in the paragraph " if an applicant satisfied all the conditions provided in this policy the City Council will consider" and he thought it should say may consider. The next section is Guidelines for Tax Abatement and it should be titled Guidelines for Consideration of Tax Abatement. Item I needs work, "the average wage of new jobs must equal or exceed 150% of the Federal minimum wage". He said there are a lot of commercial businesses in the City that do that and it will not support the citizens that live in the City. He thought it should evolve into a certain percentage of the wages paid should meet the norm of the community.

He thought paragraph J needed to be expanded to include the financial impact on the City in total versus what their contribution to the City is? He said it would need to come out to be a positive figure.

Member Kramer thought this whole section needed a reference to the status of a Michigan Economic Development Programs of Grants and Commitments because many times this goes hand in hand and it is not mentioned in reference. There needs to be a reference to the willingness of the applicant to assist in Grant applications.

He thought page 3 was highly subjective and many of these comments belonged also in Items D, E and G on the previous page.

Member Kramer agreed that Commercial should be removed out of the type of use, warehousing is questionable, capitol investment thresholds need to be discussed and the requirement opportunity under ten might not be a good place to start.

Member Kramer said the application process did not tie in with any State programs. In many cases one of the strong elements would be whether or not they had tie in and support at the State level.

He recognized the contract picked up Councils request of a repayment clause in the event that the company does not stay in business for the length of the abatement period.

Member Crawford concurred with Member Kramer. He thought the policy was as restrictive as they wanted to make it and in doing so he thought it provided flexibility to grant or not grant abatement. He hoped it would be kept flexible. Regarding comments about eliminating commercial and warehousing as a type of use he felt it sounded good on the surface but might limit flexibility. He thought with the proper criteria and definitions Council might want to keep them in there. They would not have to grant abatements for either one of those if they chose not to but he would not want to see them left out. He wanted it to be a restrictive policy with guidelines and thought this was an excellent document and felt it would serve them well if adopted as it is because Council has control as to how it would be implemented.

Mayor Clark asked that Council get all of their comments on paper to be considered for the proposed draft document so action could be taken on this.

There was consensus of Council to have a meeting on April 13^th at 7 PM.

Mr. Capote asked Council to send him any additional comments via E-mail and he would include a print out of any Council Members comments in the next packet. That way any member of the public could see what is being communicated between Council and a staff person. He asked for the comments as soon as possible.

Mr. Gormezano said, for clarification, State Law prohibits Tax Abatements for commercial development. Also, State Legislature has restricted the number of MEGA’s that can be offered in any given year to 25 projects. He said already they have given 17 and there might be projects later in the year that they would not be able to offer a MEGA to. He thought Council might want to consider whether that would totally restrict Council's action on that.

He said there are many State programs that use that 150% minimum wage language. He said they did that because there are various areas in the State, the Upper Peninsula and so forth, that are very low wage. However, the reality in their MEGA program is when they are looking for something in Novi it is nowhere near that wage. He said they were talking about $20.00 to $25.00 an hour in jobs like this. It is at Councils’ discretion because this is the minimum threshold required for a State wide basis.

The last item is the small versus large corporations. If Council tries to give some advantage to Novi companies and also those companies that want to rehabilitate obsolete facilities that might be an eyesore sometimes smaller companies have an awful lot of growth and a lot of potential. He asked Council consider small versus large as well because some of them have a lot to offer.

Steve Reed thought Council was going to figure out whether they were going to have a Tax Abatement Policy but it was clear to him that they have made it definite they would have one and they are working on the details.

Mayor Clark asked that everyone withhold their judgement until Council made a judgement. He said Council was approaching this in an orderly fashion, looking at all the possibilities and ramifications. They would come up with a proposed document that might form the basis of a policy if they decided to enact one. At that time, when the document is in an appropriate or final form for consideration then Council would consider all aspects and ramifications and come to a reasoned decision on what they wanted to do in this regard.

Richard J. Clark, Mayor Nancy Reutter, Deputy City Clerk

Transcribed by: ______________________________

Charlene Mc Lean

Date approved: April 17, 2000