LEDC Asks City to Change New-Business Incentives

The city of Lakeland is taking a close look at how much it spends to incentivize business growth and where the dollars come from, after an economic development group suggested changes.

Following a recent presentation by Steve Scruggs, president of the private, non-profit Lakeland Economic Development Council, city commissioners expressed willingness to consider a tactic different than the current incentive of paying cash rebates after the creation of high-paying, highly skilled jobs.

Although the incentive has been available for years – averaging $120,000 a year over the past 10 years – commissioners have not agreed to at least two new incentives he suggested, Scruggs said.

View Scruggs’ presentation here or at the end of this article.

As an alternative, he asked commissioners – and they agreed – to take a look at providing incentives that help businesses with infrastructure needs that will remain as investments in the community.

“If the City Commission won’t increase its investment in promoting private-sector job creation, will you invest in your future?” Scruggs asked during his lengthy and detailed presentation last month. “How does the city make money? Obviously, Lakeland Electric is one of the biggest generators, and there’s ad valorem (property) taxes, water-use fees and wastewater-use fees.”

“The city makes money on infrastructure,” Scruggs said.

He proposed the city set up a $1 million fund annually, drawing from the user fees collected by Lakeland Electric and the city wastewater and water departments and from property taxes.

Such a fund would provide the flexibility needed to break down barriers and obstacles to developing or expanding businesses and industry here, Scruggs told commissioners.

City Manager Tony Delgado said on Wednesday that he has the city’s Finance Department “leading the process of reviewing the data” that Scruggs presented.

“I expect to have those numbers prepared and ready for discussion prior to our strategic and business planning retreats coming up in a few months,” Delgado said.

Scruggs provided commissioners with examples of how the proposed fund would work:

  • For a small entrepreneur, the fund could be used to offset city staff helping with architectural plans or for a grant to cover application and permitting fees, build a required firewall, buy a hood for an oven or relocate plumbing to fit code.
  • For a mid-size business, the fund could provide grants to cover application and permitting fees or expenses such as manhole covers, grease traps and UL equipment inspections.
  • For large projects, the fund could cover grants for application and permitting fees; mitigate water and wastewater fees; provide relocation of water, wastewater and electric transmission lines and transformers; provide such services as dual feeds; and provide needed transportation improvements, such as a traffic light or turn lane.

This proposal is effective because it includes the small entrepreneurs, “really where most jobs are created,” Scruggs said. “It is all about inclusion, bringing everyone along. We have not really done that.”

Scruggs’ charts showed what he called the city’s return on investment. He compared how much the city agreed to pay as incentives over five years, with how how much the businesses and industries paid in user fees and property taxes.

“In five years, you got $52 million in payments and spent $1.8 million on incentives,” Scruggs said. The 15 projects he listed brought in 5,560 jobs, he said.

Commissioner Scott Franklin, while complimenting Scruggs on the compilation of data, pointed out that the data showed monthly bills, not profits. “You only spend your profits,” Franklin said.

In an email response to LkldNow, Mayor Bill Mutz said that the commission “definitely wants to consider the basic concept of the LEDC incentive proposal.

“So we are currently recasting the numbers, looking at them not on a gross sales basis, but as the net contributions made, and we will restate the formulas accordingly before considering as a commission. “

According to Scruggs’ calculations:

  • For the 670 manufacturing jobs created in the past five years, the city paid $164,000 in incentives (of which $117,000 was in cash). Over those five years, the companies paid $26 million in property taxes and electric, water/wastewater fees and impact fees. He calculated that for every $1 the city invests, it receives $159 back.
  • For the 2,310 warehouse jobs created over the last five years, the city paid $2.769 million in incentives to the companies ($360,000 in cash). Over those five years, the companies paid $17.7 million to the city in property taxes, electric, wastewater, water and impact fees. He calculated that for every $1 the city invests, it gets $6 back.
  • For the 2,680 office jobs created over the last five years, the city paid $2.34 million in incentives to the companies ($1.308 million in cash) . The companies paid $7.63 million in property taxes and electric, wastewater, water and impact fees. He calculated that for every $1 the city invested, it received $3 back.

Delgado said part of the city’s look into Scruggs’ figures includes “evaluating the true rates of return where cost for doing service (operational, long term maintenance, etc. ) is part of the calculation mix.”

The request for the city to contribute more in incentives, adding to what is often much larger state and county incentives, comes at a time of unprecedented growth in terms of companies making capital investments in Lakeland, Scruggs acknowledged.

Projects currently under construction and recently completed add up to $498 million in capital investment, 6.5 million square feet and 2,535 new jobs, Scruggs said.

“This is my 32nd year here,” Scruggs said. “We have never seen anything like this, not even in the run-up to the 2007-2008 buildup. This is unprecedented.”

However, much of that investment is going into gigantic warehouse spaces that provide relatively few highly paid, high-skilled job.

“We need to create more high-skill, high-wage jobs, more market-value-added manufacturing,” Scruggs said. “It is in the city’s best interest to recruit those kinds of companies.”

Scruggs said that the while there are major projects, including the long-planned expansion of Publix corporate headquarters and its 700 highly paid jobs, overall, “we  are not doing that.”

“You are not giving me the tools to get them. If you don’t give me the tools, we will keep bringing in big warehouses,” Scruggs said.

Mutz said that the lackluster response Scruggs had received on recent incentive requests likely came from commissioners’ inability to see how the city’s funds are leveraged.

However, Scruggs’ latest suggestion appears to be a great tool, Mutz said.

Delgado said that city management agrees that Scruggs’ latest proposal “does provide a snapshot that shows that there is a solid correlation on the level of the current incentives provided and a return on investment.”

“However, we want to delve a bit deeper into the data on the level of that return on investment to make sure the commission has all the background to make an educated decision,” Delgado said.

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