UDC-51-08-00002-E The Investment Opportunity Fund Program
12/17/08 N.Y. St. Reg. UDC-51-08-00002-E
NEW YORK STATE REGISTER
VOLUME XXX, ISSUE 51
December 17, 2008
RULE MAKING ACTIVITIES
URBAN DEVELOPMENT CORPORATION
EMERGENCY RULE MAKING
I.D No. UDC-51-08-00002-E
Filing No. 1211
Filing Date. Dec. 02, 2008
Effective Date. Dec. 02, 2008
The Investment Opportunity Fund Program
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:
Action taken:
Addition of Part 4246 to Title 21 NYCRR.
Statutory authority:
New York Urban Development Corporation Act, section 5(4); L. 1968, ch. 174; L. 2008, ch. 57, part QQ, section 16-p
Finding of necessity for emergency rule:
Preservation of public health, public safety and general welfare.
Specific reasons underlying the finding of necessity:
Effective provision of economic development assistance in accordance with the enabling legislation requires the creation of the Rule. Program will address the dangers to public health, safety and welfare by providing assistance to combat economic distress.
Subject:
The Investment Opportunity Fund Program.
Purpose:
To provide the basis for administration of the Investment Opportunity Fund including evaluation criteria and application process.
Text of emergency rule:
INVESTMENT OPPORTUNITY FUND PROGRAM
Section 4246.1 General
These regulations set forth the types of available assistance, evaluation criteria, application and project process and related matters for the Investment Opportunity Fund (the "Program"). The Program was created pursuant to § 16-p of the New York State Urban Development Corporation Act, as added by Part QQ of Chapter 57 of the Laws of 2008, and promotes economic development by facilitating the creation and retention of jobs by increasing private investment and business activity in the State of New York.
Section 4246.2 Definitions
For the purposes of this Part 4246, the terms below should have the following meanings:
(a) "The Act" shall mean the New York State Urban Development Corporation Act Chapter 174 of the Laws of 1968 (as amended).
(b) "The Corporation" shall mean the New York State Urban Development Corporation.
(c) "Cost" as applied to a project or portion thereof financed under this Part, means all or any part of the cost of construction, remediation, renovation, and acquisition of all lands, structures, real or personal property, rights, air rights, rights-of-way, easements, and interests acquired or used for a project; the cost of demolishing or removing any buildings or structures on land so acquired, including the cost of acquiring any lands to which the buildings or structures may be moved, the cost of machinery and equipment, interest prior to, during, and for a period after, completion of construction, remediation, renovation, or acquisition, as determined by the corporation; for extensions, enlargements, additions, replacements, renovations, and improvements; the cost of architectural, engineering, plans, specifications, estimates, and other expenses necessary or incidental to the construction, acquisition, and financing of any project, excluding lobbying and governmental relations expenses.
(d) "Distressed communities" shall mean areas as determined by the Corporation meeting criteria indicative of economic distress, including land value, employment rate; rate of employment change; private investment; economic activity, percentages and numbers of low income persons; per capita income and per capita real property wealth; and such other indicators of distress as the Corporation shall determine.
(e) "Facilities" means real and personal property, structures, air rights, conveyances, equipment, thoroughfares, buildings, and supporting components thereof located in the state, that are directly related to the acquisition, construction, reconstruction, rehabilitation, remediation, or improvement of a project which will achieve the purposes of facilitating the creation or retention of jobs or increasing investment or business activity within a municipality or region of the state or academic research and development efforts that promote the development of life sciences and high technology initiatives including genomics and biotechnology research.
(f) "Financial assistance" in connection with a project, includes, but is not limited to, grants, loans, equity investments, loan forgiveness, loan guarantees, or any combination thereof.
(g) "Not-For-Profit Corporation" shall mean a corporation organized under the provisions of the Not-For-Profit Corporation Law.
(h) "Project" shall include but not be limited to designing, acquiring, planning, permitting, entitling, demolishing, removing, constructing, improving, extending, restoring, financing, remediating and generally developing facilities.
(i) "Sponsor" or "project sponsor" shall be the state or any political subdivision of the state or a municipality, including but not limited to any departments, agencies, public benefit corporations, or commissions. In addition, a sponsor or project sponsor may include not-for-profit corporations formed on behalf of a sponsor, special districts, assessment districts, tax increment financing units or districts, business improvement districts, regional and community development organizations, not-for-profit organizations, not-for-profit organizations or businesses organized to do business under the laws of, or doing business within the state, or any combination of the aforementioned entities that makes application to the corporation for financial assistance in connection with an investment opportunity fund project in a manner prescribed by the corporation.
Section 4246.3 Types of Assistance
The Corporation is authorized to provide Financial Assistance to Project Sponsors for Costs associated with a Project.
Section 4246.4 Eligibility
Project Sponsors shall be eligible for Financial Assistance for Projects provided, the Project:
(a) is consistent with any existing local or regional comprehensive plan. A municipality which is a Sponsor for a project or projects shall submit a resolution that has been adopted by the legislative body or bodies of the lead project sponsor that certifies that the proposed project is consistent with existing local or regional plans; the proposed financing is appropriate for the specific project; the project facilitates effective and efficient use of existing and future public resources so as to promote both economic development and appropriate use of natural resources; and the project develops or enhances infrastructure or other facilities in a manner that will attract, create, and sustain long-term investment and employment opportunities; and
(b) provides economic benefits to one or more regions of the state or, for projects that are not anticipated to have a regionally significant impact, provide economic benefits to localities that suffer from disproportionate levels of poverty, unemployment, population or job loss or other indicators of economic distress.
Section 4246.5 Evaluation Criteria
The Corporation shall give priority in granting assistance generally to those projects:
(a) with significant private financing or matching funds through private or other public entities;
(b) likely to produce a high return on public investment;
(c) with existence of significant support from the local business community, local government, community organizations, academic institutions and other regional parties;
(d) deemed likely to increase the community's economic and social viability;
(e) with cost benefit analysis that demonstrates increased economic activity, sustainable job creation and investments;
(f) located in distressed communities;
(g) whose application is submitted by multiple entities, both public and private; or
(h) such other requirements as determined by the Corporation as are necessary to implement the provisions of the Program.
Section 4246.6 Application and project process
(a) The Corporation may, at its discretion and within available appropriations, issue requests for proposals and may at other times accept direct applications for program assistance.
(b) Promptly after receipt of the application, the Corporation shall review the application for eligibility, completeness, and conformance with the applicable requirements of the Act and this Rule. Applications shall be processed in full compliance with the applicable provisions of Section 16-p of the Act.
(c) If the proposal satisfies the applicable requirements and initiative funding is available, the directors normally meet once a month. If the project is approved for funding and if it involves the acquisition, construction, reconstruction, rehabilitation, alteration or improvement of any property, the Corporation will schedule a public hearing in accordance with the act and will take such further action as may be required by the act. After approval by the Corporation and a public hearing, if required, the project may then be reviewed by the state public authorities control board ("PACB"), which also generally meets once a month, in accordance with PACB requirements and policies, and the investment opportunity fund capital approval board ("CAB") created pursuant to Section 16-p(6) of the Act. Following directors' approval, PACB approval, if required, and approval by CAB, the legal documents will be drafted by the Corporation. Until such time as the CAB is formally constituted, approval by the PACB shall be considered approval by CAB upon consent of the Director of Budget. Notwithstanding the foregoing, no project shall be funded if sufficient Program monies are not received by the Corporation for such project.
(d) No full-time employee of the state or full-time employee of any agency, department, authority or public benefit corporation (or any subsidiary of a public benefit corporation) of the state shall be eligible to receive assistance under this initiative, nor shall any business, the majority ownership interest of which is beneficially controlled by any such employee, be eligible for assistance under this initiative.
Section 4246.7 Confidentiality
(a) To the extent permitted by law, all information regarding the financial condition, marketing plans, manufacturing processes, production costs, customer lists, or other trade secrets and proprietary information of a person or entity requesting assistance from the Corporation, which is submitted by such person or entity to the Corporation in connection with an application for assistance, shall be confidential and exempt from public disclosures.
Section 4246.8 Expenses
(a) An application fee of $250 must be paid to the Corporation for projects that involve acquisition, construction, reconstruction, rehabilitation alteration or improvement of real property, the financing of machinery and equipment and working capital loans and loan guarantees before final review of an application can be completed. This fee will be refunded in the event the application is withdrawn or rejected.
(b) The Corporation will assess a commitment fee of up to two percent of the amount of any Program loan involving projects for acquisition, construction, reconstruction, rehabilitation, alteration or improvement of real property, the financing of machinery and equipment and working capital payable upon acceptance of commitment with up to one percent rebated at closing. No portion of the commitment fee will be repaid if the commitment lapses and the project does not close. The Corporation will assess a fee of up to one percent, payable at closing, of the amount of any Program grant involving the acquisition, construction, reconstruction, rehabilitation, alteration or improvement of real property or the financing of machinery and equipment or any loan guarantee.
(c) The applicant will be obligated to pay for expenses incurred by the Corporation in connection with the project, including, but not limited to, expenses related to attorney, appraisals, surveys, title insurance, credit searches, filing fees, public hearing expenses and other requirements deemed appropriate by the Corporation.
Section 4246.7 Affirmative action and non-discrimination
Program applications shall be reviewed by the Corporation's affirmative action department, which shall, in consultation with the applicant and/or proposed recipient of the program assistance and any other relevant involved parties, develop appropriate goals, in compliance with applicable law (including section 2879 of the public authorities law, article fifteen-A of the executive law and section 6254(11) of the unconsolidated laws) and the Corporation's policy, for participation in the proposed project by minority group members and women. Compliance with laws and the Corporation's policy prohibiting discrimination in employment on the basis of age, race, creed, color, national origin, gender, sexual preference, disability or marital status shall be required.
This notice is intended
to serve only as an emergency adoption, to be valid for 90 days or less. This rule expires March 1, 2009.
Text of rule and any required statements and analyses may be obtained from:
Antovk Pidedjian, New York State Urban Development Corporation, 633 Third Avenue, 37th Floor, New York, NY 10017, (212) 803-3792, email: apidedjian@empire.state.ny.us
Regulatory Impact Statement
1. Statutory Authority: Section 9-c of the New York State Urban Development Corporation, as added by Chapter 174 of the Laws of 1968 (the Act) provides, in part, that the New York State Urban Development Corporation (Corporation) shall, assisted by the commissioner of economic development and in consultation with the department of economic development, promulgate rules and regulations in accordance with the state administrative procedure act.
Section 12 of the Act provides that the Corporation shall have the right to exercise and perform its powers and functions through one or more subsidiary corporations.
Section 16-p of Part QQ of Chapter 57 of the Laws of 2008 provides for the creation of investment opportunity fund. The corporation is authorized, within available appropriations, to provide financial assistance pursuant to this section.
2. Legislative Objectives: Section 16-p Act sets forth the Legislative intent of the Investment Opportunity Fund to provide financial assistance to eligible entities by supporting projects in New York State that focus on: projects causing the creation or retention of jobs, increasing investment or business activity within a municipality or region, or academic research and development efforts that promote the development of life sciences and high technology initiatives. It further states that a project sponsor shall be the state, any political subdivision of the state, a municipality, including departments, agencies, public benefit corporations, commissions, not-for-profit corporations, businesses or organizations, special districts, assessment districts, tax increment financing units or districts, business improvement districts, regional and community development organizations, or any combination of these entities.
The selection of projects shall be governed by rules and regulations to be created with public notice of the development objectives, the features of which shall be: minimum standards with respect to economic impact; consistency with existing local or regional comprehensive plans including adoption of local legislative resolutions; the proposed financing is appropriate for the specific project; effective and efficient use of existing and future public resources so as to promote both economic development and appropriate use of natural resources; and projects which develop or enhance infrastructure or other facilities in a manner that will attract, create, and sustain long-term investment and employment opportunities; assistance to projects that will provide economic benefits to one or more regions of the state or, for projects that are not anticipated to have a regionally significant impact, that will provide economic benefits to localities that suffer from disproportionate levels of poverty, unemployment, population or job loss or other indicators of economic distress. Each project shall be considered and reviewed by a five member investment opportunity fund capital approval board.
The Legislative intent of Section 16-p of the Act is to assist in the retention and creation of jobs and investment in the state through business development in a time of need.
The adoption of 21 NYCRR Part 4246 will further these goals by setting forth the types of available assistance, evaluation criteria, application and project process and related matters for the Investment Opportunity Fund.
3. Needs and Benefits: Chapter 53 of the Laws of 2008, page 882, lines 3 thru 21 allocates $50 million in capital funds to the Investment Opportunity Fund (Fund) to support investment in projects that would promote local and regional economic development and revitalization. Projects in high growth/high tech to be financed with Fund assistance are expected to provide significant growth opportunities. Fund criteria for project selection will give preference to projects in localities with disproportionate levels of poverty, unemployment, or population and job loss.
The Fund allocation of $50 million in new capital spending could support approximately 542 construction-related jobs, generating an additional $28 million in personal income in distressed communities. The Corporation used the Implan® regional economic analysis system to model employment and personal income multipliers for construction spending to estimate the direct, indirect and induced jobs related to the Fund amounts assumed to be devoted to capital spending on infrastructure and construction-related activity. Implan® is used by a number of state and federal agencies to include the U.S. Forest Service and the U.S. Census Bureau. Over the past fifteen years, Implan® has grown to become the industry standard for determining the total economic outputs of an industry or specific project.
New York State may collect nearly $1.8 million in personal income tax and sales tax on income spending. To estimate the personal income tax revenues generated by this spending, the Corporation assumed the tax calculation for single or married filing separately on taxable income over $20,000, using the standard deduction and 6.85% on income over $20,000. Sales tax was estimated on taxable disposable income earned by wage earners. The Corporation assumed that 75% of gross income is disposable income and 40% of that is taxable.
This level of capital spending (assumed to be primarily on site development, infrastructure, building rehabilitation and new construction) will provide the basis for further investment in a broad range of economic activity.
4. Costs: The Fund as identified in Chapter 53 of the Laws of 2008, page 882, lines 3 thru 21 will be funded through the issuance of Personal Income Tax bonds. In addition to the interest costs, it is expected that fees and costs associated with issuing bonds, including the Corporation's fee, underwriting, banking and legal fees, will be approximately 1.6% of the total amount borrowed.
The costs to municipalities and other regulated parties involved would depend on the extent to which they participate in and support the proposed projects. For municipalities, this may involve matching funds or the commitment of other public resources for project development. Participation is voluntary and would be considered on a case-by-case basis depending on the location of the municipality involved.
5. Paperwork/Reporting: There are no additional reporting or paperwork requirements as a result of this rule on regulated parties. Standard applications used for most other Corporation assistance will be employed keeping with the Corporation's overall effort to facilitate the application process for all of the Corporation's clients. The rule provides that the Corporation may, however, require applicants to submit materials prior to submission of a formal application to determine if a proposal meets eligible criteria for Fund assistance.
6. Local Government Mandates: The Fund imposes no mandates - program, service, duty, or responsibility - upon any city, county, town, village, school district or other special district. However, if a private entity wishes to participate in this program, the projects must be sponsored by the state or any of its political subdivisions or municipalities, including not-for-profit corporations formed on behalf of a sponsor. Eligible projects require consistency with existing local government or regional comprehensive plans and must include adoption of a resolution by the legislative body to this effect.
7. Duplication: The regulations do not duplicate any existing state or federal rule.
8. Alternatives: The Fund proposed regulations provide for a variety of potential program outcomes, by type of assistance (loans, loan guarantees, and grants), eligible applicants (municipalities, industrial development agencies, local development companies, public authorities and public benefit corporations, private developers or businesses, and other entities), and eligible uses (planning, sewer and water systems, energy facilities, transportation facilities and systems, pipelines, land acquisition, demolition and site clearing, etc.) Preference will be give to projects with significant financing, with a likely high return on pubic investment, with significant local support, in distressed areas, among other criteria.
The Fund criteria were developed through an extensive outreach process conducted by Upstate ESDC in Fall 2007. These seven, half-day regional blueprint sessions (1 in each Upstate economic development region designated as Western New York, Finger Lakes, Central New York, Southern Tier, North Country, Mohawk Valley, and Capital Region) gathered input from regional economic leaders across five categories: infrastructure, innovation, intellectual capital, international, and investment. Additional input for Downstate and the State overall was gathered in a report issued for the Corporation by A. T. Kearney, Delivering on the Promise of New York State, issued in mid-2007.
The following are two examples of alternatives that were provided during the outreach portion of the rulemaking process. All of the suggestions offered were from members of the small business community and local governments who responded to the Corporations request for input. All of the suggestions were included in the rules and regulations submitted with this Regulatory Impact Statement.
1. Regulations should be drafted to give priority to projects in developed areas that use smart growth principles, and that promote energy efficiency and conservation.
Section 4246.4, Part (a) provides that "the project facilitates effective and efficient use of existing and future public resources so as to promote both economic development and appropriate use of natural resources."
2. A streamlined application and reporting process is important to encourage small business participation.
ESDC uses one standard application for this, and many other economic development programs. The information required under Section 4246.6 "Application and project process" from all applicants is needed for the corporation to make sound investment decisions. Private financing institutions request similar, if not more robust information from their applicants.
9. Federal Standards: There are no minimum federal standards related to this regulation. The regulation is not inconsistent with any federal standards or requirements.
10. Compliance Schedule: The regulation shall take effect immediately upon adoption.
Regulatory Flexibility Analysis
1. Effects of Rule: "Small business" is defined by the State Economic Development law to be an enterprise with 100 or fewer employees. The vast majority - roughly 98 percent - of New York State businesses are small businesses.
We applied this criterion to ESD's models of the NYS economy to determine how many small businesses could benefit from the Investment Opportunity Fund. We limited the analysis to industries that are likely to have eligible businesses: manufacturing, transportation and warehousing, information, finance and insurance, professional and technical services, management of companies and enterprises, and arts, entertainment and recreation.
Across these 7 broad sectors our analysis indicates that approximately 155,000 small businesses will be eligible for funding under the Investment Opportunity Fund.
In addition approximately 4,000 municipalities and local economic development-oriented organizations will be eligible for funding.
2. Compliance Requirements: There are no compliance requirements for small businesses and local governments in these regulations.
3. Professional Services: Applicants do not need to obtain professional services to comply with these regulations.
4. Compliance Costs: To the extent that there are existing capabilities at the local level to administer the projects funded through this program, there should be relatively little, if any additional administration costs.
5. Economic and Technological Feasibility: Compliance with these regulations should be economically and technologically feasible for small businesses and local governments.
6. Minimizing Adverse Impact: This rule was designed to facilitate the provision of loans, loan guarantees, equity investments, grants and other economic development financing to public and private sector project sponsors. As such, positive impacts are anticipated. Local governments, when acting as lead project sponsor, must submit a resolution adopted by their legislative body indicating the project is consistent with local or regional plans, and certify other local project characteristics such as economic development leverage and infrastructure enhancement.
7. Small Business and Local Government Participation: The National Federation of Independent Business, New York Farm Bureau, and the New York Conference of Mayors were consulted during this rulemaking and comments requested. In addition, 17 rural organizations, cooperatives, and agricultural groups and 10 local government associations were also notified.
ESDC received 10 responses to its outreach to interested parties on the proposed regulations. Much of the responses received consisted of general supporting statements for the programs or critique of the enabling legislation.
Listed are several comments received on the proposed rules related to the Investment Opportunity Fund and our response to the comment.
1. Regulations should clearly define "distressed communities" using specific, objective criteria.
Section 4246.2, Part (b) defines "Distressed Communities"
2. A streamlined application and reporting process is important to encourage small business participation.
ESDC uses one standard application for this, and many other economic development programs. The information required under Section 4246.6 "Application and project process" from all applicants is needed for the corporation to make sound investment decisions. Private financing institutions request similar, if not more robust information from their applicants.
3. Regulations should allow for municipal comments when the applicant is not a municipality.
Section 4246.5, Part (c) gives preference to projects with the "existence of significant support from the local business community, local government, community organizations, academic institutions and other regional parties."
Rural Area Flexibility Analysis
1. Types and Estimated Numbers of Rural Areas: Much of New York State is rural. According to the Executive Law § 481 (7), some 44 counties, all located in the ESD Upstate Region, are rural, defined as having a population less than 200,000. Portions of an additional 9 counties have certain townships with population densities of 150 persons or less per square mile. Only 10 counties - all Downstate - have no rural character, according to Executive Law.
We applied these criteria to ESD's models of the NYS economy to determine how many rural businesses could benefit from the Investment Opportunity Fund. We limited the analysis to industries that are likely to have eligible businesses: manufacturing, transportation and warehousing, information, finance and insurance, professional and technical services, management of companies and enterprises, and arts, entertainment and recreation.
Across these 7 broad sectors our analysis indicates that approximately 20,000 rural businesses will be eligible for funding under the Investment Opportunity Fund. In addition approximately 4,000 municipalities and local economic development-oriented organizations will be eligible for funding.
2. Reporting, Recordkeeping and Other Compliance Requirements and Professional Services: The rule will not impose any new or additional reporting or recordkeeping requirements; no affirmative acts will be needed to comply; and, it is not anticipated that applicants will have to secure any professional services in order to comply with this rule.
3. Costs: The costs to municipalities and other regulated parties involved would depend on the extent to which they participate in and support the proposed projects. For municipalities, this may involve matching funds or the commitment of other public resources for project development.
4. Minimizing Adverse Impact: The purpose of the Investment Opportunity Fund program is to maximize the economic benefit of new capital investment in areas in need of economic revitalization. The program requires that such investments coordinate with local area comprehensive development plans in order to maximize its effectiveness and minimize any negative impacts. It also requires that cost-benefit analyses be completed to demonstrate the effectiveness of projects undertaken and contribute to the assessment of overall impact.
5. Rural Area Participation: Under this rule all communities and businesses in rural areas of the state are eligible to apply for financial assistance. In addition, since many rural areas are also economically distressed places, this rule emphasizes projects in those areas as one of the criteria for selection. The extent of local government support and involvement for loan, loan guarantee, and grant project applicants are two of the criteria for project acceptance. A public hearing may also be required under the NYS Urban Development Corporation Act. To gauge rural and non-rural reaction to this rule the National Federation of Independent Business, the New York Farm Bureau, and the New York Conference of Mayors were consulted during this rulemaking and comments requested. In addition, 17 rural organizations, cooperatives, and agricultural groups, and 10 local government associations were also notified. Examples of questions that were received and the Corporation's answers to these questions include the following:
1. Regulations should be drafted to give priority to projects in developed areas that use smart growth principles, and that promote energy efficiency and conservation.
Section 4246.4, Part (a) provides that "the project facilitates effective and efficient use of existing and future public resources so as to promote both economic development and appropriate use of natural resources."
2. A streamlined application and reporting process is important to encourage small business participation.
ESDC uses one standard application for this, and many other economic development programs. The information required under Section 4246.6 "Application and project process" from all applicants is needed for the corporation to make sound investment decisions. Private financing institutions request similar, if not more robust information from their applicants.
Job Impact Statement
These regulations will not adversely affect jobs or employment opportunities in New York State. The regulations are intended to improve the economy of the state through strategic investments that facilitate the creation and retention of jobs by increasing private investment and business activity in the state.
There will be no adverse impact on job opportunities in the state.
