Creative Finance Vehicles to Fund Growth�Every year Biotechnology companies fail to claim billions of dollars in government incentives, abatements and grants that can substantially increase their equity position, fund expansion and growth, and offset operational costs such as energy, training, and facilities. Location Management Services, as part of Bay Bio’s Members Business solutions will walk you through the maze of local, state, and federal programs and compliance to show you how to maximize collection of these incentives program dollars. The purpose of this session will be to provide the attendees with knowledge on how to develop a “roadmap” for securing maximum incentives to offset capital requirements for new facilities, expansion, and operating costs.��Panel Moderator:��Jim Renzas�President and CEO, Location Management Services��Panel Speakers:��Mike Ammann�President, Solano Economic Development Corporation��Robert Carter�Site Head Vacaville Operations, Novartis Vaccines and Diagnostics, Inc.��Robert Meyer�Economic Development Analyst, Application Review and Economic Development Unit,�State of California Employment Training Panel��Matt Szuhaj�Director, Strategy & Operations, Deloitte Consulting LLP
Quick Facts
• Cetus, World’s first biotech company was founded in Emeryville in 1971
• Genentech opened its doors in South San Francisco 32 years ago, in 1976
• Over $6 billion in payroll• 90,000 employees• Average wage: $68,000• Estimated 6,000 new jobs created
in the past twelve months• Average time for FDA approval of
a new drug: 14 years• Average cost for development of
a new drug: $800 million
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Quick Facts • Cetus, World’s first rst biotech company was founded in Emeryville in 1971 • Genentech opened its doors in South San Francisco 32 years ago, in 1976 • Over $6 billion in payroll • 90,000 employees • Average wage: $68,000 • Estimated 6,000 new jobs created in the past twelve months • Average time for FDA approval of a new drug: 14 years • Average cost for development of a new drug: $800 million
NCAL Bio Cluster – World’s Largest
BayBio Corridor World’s Largest Cluster
• capitalization: $144 billion
• 95 publicly traded companies
• 1377 companies
• 408 marketed products
• 492 products in Phase II& Phase III clinical trials
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BayBio Corridor 2008 Collective market capitalization: $144 billion • 95 publicly traded companies • 1377 companies • 408 marketed products • 492 products in Phase II and Phase III clinical trials
Product Pipeline Comparison
Products in Phase II & Phase III clinical trials
• Northern California 492
• New Jersey 445
• Massachusetts 287
• Southern California 235
Plan Your Work & Work Your Plan
• Process begins with project outline including:• Don’t puff up these numbers – Remember “Claw backs” Project capital investment
• Job creation over specific period of time
• Develop a Team & provide relevant company information
• Ask for & get confidentiality Negotiate before you buy property or sign a lease
• Public purpose – “But for” clauses
– Project Mercury Example
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Ask for Confidentiality – Not for profits like Solano EDC can sign non-disclosure agreements Maintain confidentiality for negotiating leverage, companies should refrain from making any public announcement of plans for expansion or relocation until the incentive package has been finalized and agreements signed. Negotiate before you buy property or sign a lease Public purpose – “But for” clauses Relevant company information Capital investment Job creation over specific period of time
Key Considerations• Labor force talent decision
– Hire locally, attract, retain & scale– Trades – union & open/merit
shop– Education support system
• High School – science, math & biotech programs
• Community college – specialized training & certification
• Financial decisions– Land = One time cost that
appreciates in value– Facility = Ability to quickly
Negotiated labor agreement – no work stoppages Support at public meetings Right to work state – merit shop – labor cost advantage – safety LEED and energy efficient facilities
Incentives Negotiation Steps
• ID Eligible Grants, Credits & Incentives
• Develop Plan & Time Schedule to Secure Package
• Develop Compelling Story – Internal alignments & commitments
– Externally Public Relations
• Follow Through– Build community support & meet your obligations
Who’s Who in Economic Development?
• State & Local– CABIS
• Labor (EDD) & BTH
– CALED• Local government, non‐profit private, WIB & chambers of commerce
– Utility Companies (PG&E)
• Others– International real estate
brokers, site consultants & corporate real estate managers
State Assistance• CalBIS provides no‐fee site selection
services to employers, corporate real estate executives, and site location consultants who are considering California for new business investment.
• A wide array of consultation services are offered, including:
Financial assistance and loan programs Military and defense reuse zones Labor availability and education information State and local permit assistance Transportation and infrastructure information Information on tax credits and other incentive programs Economic and demographic data Business advocacy
• Site Selection Network– Location Management Service
– Other Support Groups• Bay Area Council
• CoreNet Global – NCAL Chapter
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Industrial Association BIO BayBio Site Selection Network Location Management
What Makes Location?
• A cluster of biotechnology– Available talent, scalable labor forces, available infrastructure, service firms &
a clear development path for on‐time delivery of a fully operational facility that puts product into the marketplace.
• Communities with staff that have successful grown biotech– Not want bee's communities who may or may not get the job done
• Remember – your job is on the line with your site recommendation
Talent – Job #1
• ISPE January CEO Night included Rob Carter, site head for Novartis Biopharmaceutical Ops in Vacaville (Ex‐LA).
• Of particular note was his admiration of the “depth & breadth” of talent present in the Bay Area to draw from.
• Novartis recent hiring program was totally Internet‐based & all hires were from the Bay Area with no relocations from outside the area
Source: ISPE SF Chapter News Letter Volume 15 number 5
Incentives Make Only “Marginal Difference”
• Incentives are NOT the driving force in selecting a location & should NOTdetermine the ultimate decision.
• A great incentive package can NOTtransform a poor site into a winning location.
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What are tax incentives? Every state and most municipalities offer tax incentives to attract businesses that make capital investments or create jobs or both. Incentive packages typically consist of primarily state incentives (with the exception of California), with local support in the form of tax abatements, permit fee reduction and priority of entitlements. Some tax incentives are statutory while others are discretionary. Statutory tax incentives include income and franchise tax credits such as job tax credits, investment tax credits (MIC), apportionment factor adjustments and tax-base modifications; and incentives for locating in targeted economic development low income or blighted areas. Statutory incentives are available to all companies that meet the qualifications and engage in qualified activity and creates the job or payroll qualifications. Incentive requirements, which might relate to minimum job creation or capital investments are enacted by state legislatures and vary accordingly Discretionary tax incentives are awarded on a case-by-case basis to entice particularly desirable employers to relocate or expand in the area. Examples include state tax credits, enterprise zone benefits, property tax abatements, sales and use tax exemptions and budgeted infrastructure improvements or human resource needs such as relocation assistance.
Net Operating Loss Carryover
• California tax law allows businesses that experience a loss for the year to carry this loss forward to the next year in order to offset income in the following years.
• New businesses can carry over 100 percent of their losses for 10 years if the loss is in their first year of operation.http://www.ftb.ca.gov/forms/05_forms/05_3805qins.pdf
What is California's Research & Development (R&D) Credit?
• The California R&D Credit reduces income or franchise tax.
• You qualify for the credit if you paid or incurred qualified research expenses while conducting qualified research in California.
• You receive 15 percent of the excess of current year research expenditures over a computed base amount (minimum of 50 percent of current year research expenses).
• You claim the credit on the return for the taxable year you incurred the qualified expenses.
What are Tax/Financial Incentives?
• Some incentives are statutory while others are discretionary – Know the difference when negotiating
• Every state & most municipalities offer tax or financial incentives to attract businesses that make capital investments or create jobs or both.
• Incentive packages typically consist of primarily state incentives with local support in the form of tax abatements, permit fee reduction & priority of entitlements.
Statutory Tax Incentives
• Statutory tax incentives include• income and franchise tax credits such as job tax credits, investment tax credits (MIC)
• apportionment factor adjustments and tax‐base modifications• and incentives for locating in targeted economic development low income or blighted areas.
• Statutory incentives are available to • all companies that meet the qualifications • engage in qualified activity • and creates the job or payroll qualifications.
• Incentive requirements, which might relate to • minimum job creation or capital investments are enacted by state legislatures and vary accordingly
Discretionary Incentives
• Discretionary tax incentives are awarded on a case‐by‐case basis to entice particularly desirable employers to locate, relocate or expand in the area.• Examples include state tax credits, enterprise zone
benefits, & property tax abatements
– Other discretionary incentives may include:• Sales & use tax exemptions, budgeted infrastructure
improvements, human resource needs such as relocation assistance, specialized training (ETP) or fast track/permitting coordination
State Enterprise Zones & LAMBRA
• Up to 100% Net Operating Loss (NOL) carry‐forward. NOL may be carried forward 15 years.
• Firms can earn $31,544 or more in state tax credits for each qualified employee hired up to $2 million per year with a few provisions.
• Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts. Up‐front expensing of certain depreciable property, up to $40,000 annually.
• Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment.
• LAMBRA communities also have community incentives as a part of the business attraction package. Each community is marketing military base existing buildings & property to attract expanding or locate new businesses. The incentives may include the use of machinery, tools, or office equipment left behind by the military.– More information: http://www.hcd.ca.gov/fa/cdbg/ez/lambra/
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Enterprise Zones in Northern California Oakland �Map | Website | Streets, TEA Streets Pittsburg �Map | Streets Richmond �Map | Website | Streets Sacramento, Florin Perkins �Map | Website | Streets Sacramento, Northgate/Norwood �Map | Website | Streets Sacramento, Army Depot �Map | Website San Francisco �Map | Streets, TEA Streets San Jose �Map | Website | Streets, TEA Streets Stockton �Map | Website | Streets, TEA Streets Watsonville �Map, TEA Map | Website | Streets, TEA Streets West Sacramento �Map | Website | Streets, TEA Streets LAMBRA’s in Northern California Mare Island Naval Shipyard Mare Island Mr. Gil Hollingsworth Mare Island Conversion Division 555 Santa Clara Street Vallejo, CA 94590 (707) 649-5452 (707) 648-4499 FAX Mather Field/ McClellan Air Force Base Mather Field/McClellan Park Mr. Paul Hahn County of Sacramento 700 H. Street, Suite 7650 Sacramento, CA 95814-1280 (916) 874-5220 (916) 874-5885 FAX Alameda Naval Air Station Mr. Ed Levine Naval Air Station Alameda 950 W. Mall Square, Suite 100 Alameda, CA 94501 (510) 749-5908 (510) 769-0694 FAX
Source: http://www.caled.org/edfinancing/index.html Timely and hassle-free access to expansion capital for land, building, or equipment? Long-term loans, with no prepayment penalty? 10% to 20% low down payment, preserves cash to promote business growth. Interest rates that are 20-30% below standard commercial lending rates? CEDA: FINANCING CHECKLIST STEP 1�Review this Checklist to see if IDBs are an option for your manufacturing expansion needs. �If you answer "YES" to these four key questions, proceed to STEP 2. Is manufacturing or processing the primary business activity? The same information assembled to obtain the bank Letter of Credit can be used for the second mortgage loan review Credit review looks at repayment ability, loan to value, and standard industry ratios Can the company obtain a bank Letter of Credit to support the IDB issue? (If the company qualifies for a conventional bank loan, it should be able to qualify for a bank Letter of Credit.) ��Additional Issues - Further considerations include: Has the company expended any funds for project costs to date? Project costs incurred more than 60 days prior to beginning the IDB application process are not eligible to be paid with bond proceeds. Tax treatment: Depreciation of financed equipment or facilities must use the straight line method (no accelerated depreciation). Industrial Development Bond funded construction projects are subject to prevailing wage. STEP 2�How do I lower my cash down payment?�CEDA has partnered with the Community Reinvestment Fund (CRF) to make long term, fixed rate, second mortgage business loans. CRF utilizes its own capital and the New Markets Tax Credit Program to make these loans. Once a project is pre-qualified for an IDB, we work to obtain approval and funding of the second mortgage. Features:�Fixed-rate long-term amortized loan The same information assembled to obtain the bank Letter of Credit can be used for the second mortgage loan review Credit review looks at repayment ability, loan to value, and standard industry ratios Project soft costs can be included in the financing, provided they are supported by the project appraisal (loan:value). STEP 3 What happens next?�As soon as a project is pre-qualified for an IDB, the CEDA finance team led by Growth Capital Associates, will take primary responsibility for the IDB issuance process. This is generally concurrent with the bank credit approval process. STEP 4�Who does what?� CEDA Finance Team� Pre-screen for basic eligibility and qualifications Secure local and state agency approvals Coordinate bond issuance and loan approval� Business Borrower Obtain bank Letter of Credit Contact CEDA Paula Connors�Executive Director�550 Bercut Drive, Suite G�Sacramento, CA 95814�916-448-8252 Ext. 102�[email protected] http://www.caled.org/edfinancing/index.html
Employment Training Panel (ETP)
• ETP prioritizes small businesses and employers in high unemployment areas of the State.
• Since its inception in 1983, the ETP program has provided over $1 billion to train more than 660,000 workers in over 60,000 California companies.
• Employer funded skills up‐grade or tech skills training program
• Incentive to upgrade existing skills or scale up new technical labor force
• http://www.etp.ca.gov/docs/flowchart.pdf
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Program Overview The Employment Training Panel (ETP) is a business and labor supported state agency that assists employers in strengthening their competitive edge by providing funds to off-set the costs of job skills training necessary to maintain high-performance workplaces. ETP is governed by an 8 member Panel; seven are appointed by the Governor and the Assembly and Senate leadership. The Secretary of Business, Transportation and Housing, or his/her designee, shall serve as ex officio, voting member. The ETP program is performance-based, providing funds for trainees who successfully complete training and are retained in well-paying jobs for a specific period of time. The program is funded by the Employment Training Tax paid by California employers, and targets firms threatened by out-of-state and international competition. Since its inception in 1983, the ETP program has provided over $1 billion to train more than 660,000 workers in over 60,000 California companies. Employers match training funds awarded by ETP for training existing workers, making these projects true public-private partnerships. ETP also funds training for unemployed workers. ETP prioritizes small businesses and employers in high unemployment areas of the State. The program serves as the State's premier economic development tool, encouraging many companies to locate or expand in California with the assistance of ETP's job training funds. Independent research has documented a return on investment of over $5 for every $1 in ETP funds spent on training. Upgrade your workers' skills by creating a customized training program that meets your company's needs. ETP is here to assist you as you make your employees and your company more productive to meet global competition.
• An Energy Analysis – also referred to as an “energy audit”
• Energy Efficiency Rebates PG&E offers rebates for hundreds of energy‐efficient technologies in multiple categories
• Customized Energy Efficiency/Demand Response Incentive Application
• New Construction Design Assistance & Cash Incentives
• Energy Management Education & Training
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An Energy Analysis – also referred to as an “energy audit” Energy Efficiency Rebates PG&E offers rebates for hundreds of energy-efficient technologies in multiple categories Customized Energy Efficiency/Demand Response Incentive Application New Construction Design Assistance and Cash Incentives Energy Management Education and Training Energy Design Resources (EDR) is a collection of energy design tools and resources funded by the rate payers of California and administered by the major utilities in California. EDR resources for laboratories include design guides and case studies to assisting the design of energy efficient labs. www.energydesignresources.com/category/hospitals-labs Labs21 is a voluntary program sponsored by the U.S. Environmental Protection Agency and the U.S. Department of Energy. The goal of the program is to improve the energy efficiency of labs in the U.S. Labs21 has developed a "tool kit" to provide design guides, case studies, energy benchmarking information, and other tools for optimizing energy efficiency in labs. www.labs21century.gov
Energy Design Resources (EDR)
• is a collection of energy design tools & resources funded by the rate payers of California– Administered by the major utilities in California.
• EDR resources for laboratories include – design guides & case studies to assisting the design of energy efficient labs.
Additional Resources on Energy Efficiency for Labs & Clean rooms
• Labs21 is a voluntary program sponsored by the U.S. Environmental Protection Agency and the U.S. Department of Energy.– The goal of the program is to improve the energy efficiency of labs in the U.S.
– Labs21 has developed a "tool kit" to provide design guides, case studies, energy benchmarking information, and other tools for optimizing energy efficiency in labs.
Local Incentives ‐ FairfieldThe City of Fairfield s has a pro‐business attitude that includes:• assist firms in securing all necessary city development approvals• assist in the issuance of Industrial Development Bonds for manufacturing
companies by facilitating meetings, assisting with preparation of the program application, and expediting all necessary public hearings for the issuance of the Bonds
• consider annual rebate of property taxes within Redevelopment Project Areas
• Revolving Loan Fund, which offers long‐term 4‐7% fixed‐rate financing• deferred the payment of water connection fees and AB1600 fees until a
certificate of occupancy is issued for a facility• assist with the State Employment Training Panel (ETP)• Workforce Investment Board (WIB) and local Employment Development
Department• (MCC) that provides tax credits to first‐time homebuyer• Mortgage Credit Certificate Program designed to assist low‐income first‐
time homebuyers
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Financial Assistance The City of Fairfield s has a pro-business attitude and will assist firms in securing all necessary city development approvals. The City has a streamlined development review process that will provide for project approvals by the Community Development Department or Planning Commission in as little as eight to ten weeks, including completion of the CEQA process. Industrial Development Bond Financing The City can assist in the issuance of Industrial Development Bonds for manufacturing companies by facilitating meetings, assisting with preparation of the program application, and expediting all necessary public hearings for the issuance of the Bonds. These funds can be used for the acquisition of land, buildings or equipment. The City has a proven track record in this area and has been directly involved in the issuance of over $35 million of Industrial Development Bonds within Fairfield over the past ten years. Property Tax Rebate The City will consider annual rebate of property taxes within Redevelopment Project Areas. The amount and timing of the rebate is dependent on the company’s needs, as well as the amount of capital investment in the community. The City has provided property tax rebates to three companies in the recent past. Revolving Loan Fund The City of Fairfield operates a Revolving Loan Fund, which offers long-term 4-7% fixed-rate financing. The loan proceeds can be used for property acquisition, construction, rehabilitation, furnishings, fixtures and equipment, and working capital. Loan terms are generally seven to ten years. Deferral of Fees The City has deferred the payment of water connection fees and AB1600 fees until a certificate of occupancy is issued for a facility. This would apply to certain types of new facilities constructed or expansion of an existing manufacturing facility in which the size of the existing utility services are increased or water or sewer requirements change. Employment Training Assistance The City has strong working relationships with the State Employment Training Panel (ETP), County Workforce Investment Board (WIB) and local Employment Development Department. We work to ensure that a company qualifies for the maximum amount of training reimbursements throughout the WIB and ETP. The ETP provides reimbursements for training costs at an average of approximately $2,000 per employee. Fixed-fee training hourly reimbursement rates range from $15 to $22 per hour per employee. New hires are eligible for up to $4,740 in training reimbursements. The City will also coordinate meetings with these agencies to ensure that the company is provided with the most qualified job applicants. For example, the WIB provides human resources assistance including recruitment assistance and employee screening. Affordable Housing Assistance First-Time Buyers The City of Fairfield operates several programs targeted at assisting first-time homebuyers. These include the Silent Loan program that is designed to assist low-income first-time homebuyers; the Mortgage Credit Certificate Program (MCC) that provides tax credits to first-time homebuyers. Also, a number of housing units in new subdivisions throughout Fairfield are set aside for sale to qualified moderate income households. Certain subdivisions also include down payment and closing cost assistance from the Redevelopment Agency to qualified moderate-income homebuyers. Please note that determinations by the California Department of Industrial Relations (DIR) and 2001 legislation states that direct public assistance to a project, such as the installation of public improvements, land write downs, below fair market price loans or grants, or payment of city fees by the Redevelopment Agency could trigger prevailing wage requirements for private improvements. This means that many traditional forms of redevelopment agency assistance to private projects constitute payments of public funds that will trigger prevailing wage requirements for private buildings and on-site improvements. However, the City always works with our partners to consider alternatives that best suit the needs of a particular company.
Local Incentives ‐ Vacaville
• Property Tax Rebate ‐ Redevelopment Agency
• Sales and Use Tax Rebate
• Water Connection Fee Reduction
• Prepayment of Sewer Connection Fee
• Defer Collection of Development Impact Fees Until Occupancy
• Financing of Development Impact Fees
• Underwriting Water Rates
• Reservation of Water and Sewer Capacity
• Water Availability not to impose rationing or restrictions on water usage
• Traffic option to reserve roadway capacity
• Approvals provide expedited processing of all applications for subsequent approvals.
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ASSISTANCE RELATED TO PROPERTY TAXES, SALES AND USE TAXES 1. Property Tax Rebate - Redevelopment Agency. The Vacaville Redevelopment Agency (RDA) agreed to rebate 100% of the net property tax it receives from xxxxx (approximately 44% of the tax rate of 1.02%) for a five-year period and 50% of the net property tax received in the subsequent 5-year period. 2. Sales and Use Tax Rebate. City agreed to reimburse all sales and use taxes received by the City specifically generated by the construction and equipping of the proposed project. The reimbursement applies only through the issuance of a occupancy permit. ASSISTANCE RELATED TO DEVELOPMENT IMPACT FEES. 3. Water Connection Fee Reduction. The Redevelopment Agency has agreed to acquire and sell to a project, at below retail rates, Water Rights which can be exchanged for water connection fees. 4. Prepayment of Sewer Connection Fee. RDA has agreed in the existing DA to allow xxxx to purchase Sewer Connection Fees up to 1,365,000 gallons, maximum peak hour. The DA also allows xxxxx to reserve capacity by prepaying the Sewer Connection Fees ahead of pulling a building permit, at the then current price. 5. Defer Collection of Development Impact Fees Until Occupancy. Upon request, the City agrees to defer collection of those Development Impact Fees not affected by the City/RDA subsidies until the project is completed. 6. Financing of Development Impact Fees: The City agrees, upon request, to assist xxxxx to form a Mello-Roos District for the purpose of financing those eligible Development Impact Fees. 7. Underwriting Water Rates. The Agency has agreed to fund rate charges up to a maximum of $200,000 for water and/or sewer service during period prior to web the project begins production of product. 8. Reservation of Water and Sewer Capacity. City has granted xxxxx the option to reserve water treatment capacity of xzxzxz gallons per day (gpd) and xzxzxzxz million gpd of wastewater treatment capacity. Project may exercise these options at any time with payment of connection fees. 9. Water Availability. City has agreed not to impose rationing or restrictions on water usage for a period of up to 6 years of drought, unless there is a threat to public health and safety. 10. Traffic. City has agreed to grant to xxxxx the option to reserve roadway capacity equivalent to an additional zzzz peak hour trips. MISCELLANEOUS 11. Consideration of Development Approvals: City has agreed to: · provide expedited processing of all applications for subsequent approvals. �· grant subsequent approvals that are consistent with Development Agreement. process all subsequent project approvals, that are consistent with the zoning, as administrative actions by the City's Community Development Director. vest parcel map and design review approvals for a five-year period.
Finally ‐ Claw backs
• What if your project fails or doesn’t meet expectations?– Your Key reason for tracking incentives, reporting & keeping your part of the location bargain
– Mostly “Claw backs or Paybacks” are found at the state level but could be part of the local agreement
– Incentives given in the public interest of job creation & would not happen “but for”
– Generally tied to investment & job creation at certain wage levels or targeted unemployed
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Aircraft maintenance retrained as nurse aids and nurses Non tech provide tech training for redeployment of labor force
