RD362 - Virginia Enterprise Zone Program 2016 Grant Year Annual Report

Executive Summary:

The Virginia Enterprise Zone (VEZ) program is a partnership between state and local government that promotes economic development and revitalization through job creation and real property investment. When used in conjunction with other local, state and federal programs, Enterprise Zones can leverage substantial private sector investment in targeted areas throughout Virginia.

The Virginia Enterprise Zone program was first established in 1982 and has undergone several amendments over the years. The most significant change was in 2005 when the General Assembly passed the Enterprise Zone (EZ) Grant Act. It provided for the implementation of specific community and economic development policies: targeting zone designations to distressed localities, gradually reducing the number of zones statewide for deeper impact and providing incentives for the creation of higher paying jobs with health benefits. The 2005 EZ Grant Act also replaced the former tax credit incentives with the Real Property Investment Grant (RPIG) and the Job Creation Grant (JCG). These grants are performance-based; firms must create jobs and/or place a real property investment into service before applying for grant awards. However, the 2005 act allowed pre-qualified firms to continue accessing the former General Income and Investment Tax Credit incentives. The tax credit program officially sunsets in 2019; however, each year the number of firms applying for tax credits continues to decline due to the expiration of firms’ 10-year qualification periods.

The grant incentives are explained in greater detail below and are the focus of this report.

Real Property Investment Grant (RPIG) awards up to 20 percent of the total amount of Qualified Real Property Investments (QRPI) made to a building or facility, not to exceed $100,000 within a five consecutive year period, for investments of less than $5 million. For QRPI of $5 million or more, the grant is capped at $200,000 per building or facility. For rehabilitation and expansion projects, a zone investor must spend at least $100,000 in QRPI to be considered eligible for the RPIG. New construction projects require zone investors spend at least $500,000 to qualify for the grant. The 20 percent grant award is based on the amount of investment made in excess of the $100,000 and $500,000 eligibility thresholds, respectively.

In Qualification Year 2016, the most frequent type of RPIG grantee invested in the rehabilitation of an existing commercial building that they owned but did not occupy. The typical RPIG grantee invested $813,703 in the project and received a grant award of $65,411 (these figures reflect the median investments and awards). Across all RPIG grantees, the average investment was $1,661,042 and the average grant award was $73,680. It should be noted than in Qualification Year 2016 RPIG awards were pro-rated at 73.680252 cents on the dollar.

Job Creation Grant (JCG) awards up to $500 or $800 for each net new, permanent full-time position created above a four-position threshold. Positions earning at least $12.69/hour (175 percent of the federal minimum wage of $7.25/hour) with health benefits are eligible for a grant of up to $500/position. Positions earning at least $14.50 (200 percent of the federal minimum wage) with health benefits are eligible for a grant of up to $800 per year. Eligible firms can receive grants for up to 350 positions per year for a period of five years. Retail, food & beverage, personal service, and non-profit positions are not eligible for the JCG. As of 2010, firms in High Unemployment Areas (HUAs) may qualify for the JCG at a reduced wage threshold of 150 percent of the federal minimum wage ($10.88/hour) for the $500 grant per eligible position. HUAs are localities with unemployment rates that are equal to or more than 150 percent of the state average unemployment. A list of the HUA zones for the 2016 Qualification Year is included in the Appendix E.

In Qualification Year 2016, the average grantee created 14 net new jobs over the previous calendar year, 49 net new jobs over their base year, and received a grant of $28,442. The typical JCG award for Qualification Year 2016 was $14,276, indicating that most awards were in the $10,000-20,000 range. The average job creation and JCG awards were lower in Qualification Year 2016 than previous years, which can be attributed to two primary factors. First, Qualification Years 2014 and 2015 were the fifth year (in the five-year job creation cycle) for numerous large firms, and thus the overall job creation numbers dropped drastically as these firms graduated from their current job creation cycle. Second, while the number of net new jobs is smaller than previous cycles, the average size of the qualifying firms is also smaller, indicating that small businesses have begun accessing the program in greater volume.