05-060-O                                                        REPLACEMENT 2

ORDINANCE NO. __________



The city of Duluth does ordain:

     Section 1. That the Duluth City Code, 1959, as amended, be amended by adding a new Article XXXIV to read as follows:

Article XXXIV. Regulation of development agreements

and business subsidies.

Sec. 2-179. Policy.

     It is the policy of the city of Duluth to engage in appropriate business development and physical development activities, but only in compliance with law, this ordinance, and reasonable standards for the honest disclosure of costs and revenue sources to the public. The city should not agree to pay for activities or structures unless the maximum cost thereof is set out in the agreement.

Sec. 2-180. Definitions.

     (a)  Development agreement means any promise between the city, DEDA, a city department, city agent, or city official acting in his or her official capacity and at least one other party, which agreement at least one of the parties intends to be legally enforceable, and which agreement has, as a significant purpose, the accomplishment of economic development goals and activities addressed in Chapter 469 of Minnesota Statutes, as it may be amended, and which agreement is related to a physical development. In order to be a development agreement, it must be an agreement whereby the city intends to contribute money or resources to a project in order to encourage, assist, subsidize, financially support, or develop commercial investment, land development, employment, or business activity within the city of Duluth for the purpose of benefitting the local economy or tax base. It includes an agreement with a not for profit corporation, a government agency, or any other party. It includes an agreement whereby the city agrees, as part of a development project, to alter or build public facilities, streets, sewers, or other physical improvements, including a tourist attraction, but does not include the contract for actual construction of the improvement. It includes an agreement for a business subsidy. It includes a change to, amendment of, or a part of, a development agreement. It does not include a contract for general community betterment, such as a grant agreement for a state financed social program, or an agreement to build or repair public facilities, streets, sewers, or other physical improvements, that is not related to a specific economic development project;

     (b)  Physical development means construction or alteration of real estate, including buildings, structures, and infrastructure, whether or not for public use;

     (c)  Public activity summary means a document, on a form approved by the finance director, which contains the following information about the development agreement:

           (1)  A brief statement that describes the project;

           (2)  The public purpose of the development agreement;

           (3)  Identity of each party to the development agreement;

           (4)  Describe any public facilities, streets, sewers, or other physical improvements the city will provide or alter under or pursuant to the development agreement;

           (5)  A good faith estimate, based upon information currently available, of the total cost to all parties of completing the project, including interest, professional fees, financial fees, bonding costs, the value of donated land or property and, for each item, identifying the source of the estimate;

           (6)  A good faith estimate of the greatest possible total expenditure by (cost to) the city, including the value of land or property donated by the city, but excluding a reasonable reserve for foreseeable contingencies, under the proposed development agreement;

           (7)  A good faith estimate of a reasonable reserve for foreseeable contingent costs, such as environmental response or regulatory penalties, that were not included in (5) or (6) above, or, if none, the reason why no contingency fund is included;

           (8)  The estimated actual total gross expenditure (total disbursements) by the city and/or DEDA under the proposed agreement, including business subsidies, pass through money, grants, loans, use of the contingency fund, tax increment financing, value of land or property donated to the project, etc;

           (9)  The estimated total net expenditure by (cost to) the city at the time that the project is constructed, accepted, and operating ((8) above less money or property received by the city from other sources or under the development agreement for use to finance the project);

           (10) The amount and source, by fund if applicable, of each revenue to the city that will be used to pay the expenditures that make up the total gross expenditure (total disbursements) shown in (8) above;

           (11) The good faith report by the city chief administrative officer, his or her designee, or the city auditor that each amount and source identified in (10) above is available for use at the time needed under the proposed contract, and has been secured and encumbered for the proposed use or, if not, what source of funds will be used for the project in place of the planned for funds if they are not available, or if the money is to be received as reimbursement for costs actually paid, an explanation of the extent to which the city can be sure that it will receive the money);

           (12) Tax base impact information required for a proposal under Article XXXI of this chapter, or its successor, and a statement of the estimated or calculated amount of annual ad valorem tax that will not be available for general use, which otherwise would be, as a result of tax increment financing of the project under the agreement;

           (13) The party or parties responsible for paying any costs of the project which are not paid by the city or DEDA;

           (14) The good faith report of the chief administrative officer or his or her designee that the proposed agreement is for the entire project and that costs in excess of those reported are not expected, and the policy or agreement that governs how and under what conditions the contingency funds can be used.

           Under some circumstances, law requires business subsidy forms and procedures.

Sec. 2-181. Public activity summary required.

     Whenever a development agreement that has an estimated actual total cost (as defined in Section 2-180(c)(8)) in excess of $100,000 is presented for review or approval to any elected official, city board or commission, Duluth economic development authority, or city council, it shall have attached to it a public activity summary that substantially conforms to this Article. The public activity summary, or a corrected or updated one, shall also be filed with the clerk as a public document. The city council shall not vote on any development agreement, or part or amendment of one, unless the most current public activity summary applicable to the development agreement has been on file with the clerk as a public document for at least five days before the date of the vote.

Sec. 2-182. Requirements for a development agreement.

     Any development agreement entered into by the city shall:

     (a)  Contain a clear statement of the maximum actual total gross expenditures (total disbursements), including all costs, fees, business subsidies, pass through money, use of contingency fund, grants, tax increment financing, value of land or property donated to the project, etc., required to be made by the city and/or DEDA under the development agreement;

     (b)  Identify each funding source for the city or DEDA’s expenditures under the agreement;

     (c)  Not obligate the city or DEDA to do an act or construct a structure the total cost of which is not included in the total expenditure described in (a) above;

     (d)  Not obligate the city or DEDA to furnish a service, structure, value, or thing to another party to the contract which is not limited by an enforceable and stated cost maximum as set out under Section 2-182(a), above;

     (e)  If the development requires the city to take an action or provide any improvement or alteration other than providing funding including, without limitation, business subsidies, pass through money, grants, loans, tax increment financing, or donating land or other property to the project, etc., identify the actions or public facilities, streets, sewers, or other physical improvements the city will provide or alter pursuant to the development agreement;

     (f)  Set out the conditions and procedures for use of the contingency fund;

     (g)  Contain a re-opener for the parties to renegotiate if force majeure or mutual mistake prohibits performance.

Sec. 2-183. Remedies.

     If any development agreement that does not conform to the requirements of sections 2-181 or 2-182 of this Article, or the successor of each, is entered into, then the city may cancel the development agreement, or the authorization to enter into the development agreement, at any time within 30 days after the last city council vote on authorizing the agreement, or part of it, or, if the council did not vote, within 30 days after the last day a party executed the agreement. During that 30 day period, such a contract can be cancelled and rescinded by (i) written notice to the other parties from the mayor or the mayor’s designee, or (ii) by written notice approved by the council by resolution, or (iii) by ruling of a court of competent jurisdiction. If a development agreement is cancelled and rescinded, the city or DEDA will be responsible for performance of the development agreement up to the date of cancellation. An intentional violation of this Article is punishable as set out in D.C.C. Section 1-7, or its successor.

     Section 2. That this ordinance shall take effect 30 days after its passage and publication.

STATEMENT OF PURPOSE:  This ordinance regulates the use of development agreements. It creates two basic requirements:

     (a)  Every development project must have a known maximum amount the city can be forced to pay.

     (b)  Every development project must have a known cost to the city and a known source for funds to pay that cost before the council votes on the matter.