Economic Incentives

Economic Incentives to Develop Fermentation Sciences Industry

Below is an overview of the work that has been done regarding the development of the craft beverage industry. We are sharing the results with hopes that it might help mayors and community leaders decide to pursue this industry target for their communities. Much like any other industry entrepreneurs are looking for assistance in the form of incentives. We have researched the laws governing the use of public funds and the following is summary of our findings.

Public Incentives for Primary Jobs Related to Fermentation Sciences

Denison Development Alliance (DDA) and Sherman Economic Development Corporation (SEDCO) are economic development corporations created under Section A of the Development Act of 1979. Both are Type A state chartered economic development organizations.

In 2003, the Texas Legislature amended the Act to require projects to create or retain “primary jobs.” The term “primary job” is defined to mean “a job that is: (A) available at the company for which a the majority of the product or services of that company are ultimately exported to regional, statewide, national, or international markets infusing new dollars into the local economy,” and (B) included in one of fifteen (15) sectors of the North American Industry Classification System (NAICS). Breweries, distilleries, and wineries that pass the primary jobs test qualify for financial incentives as follows:

NAICS Sector NAICS # Cash Grants Training Promotional
Breweries 312120 Y Y Y
Distilleries 312130 Y Y Y
Wineries 312140 Y Y Y

Private Funding for Entertainment District Development

For communities who want to develop a partnership with targeted businesses to provide venues that will be considered entertainment destinations for their cities they could seek funding from private sources such as local foundations, Chambers, or other private non-profits. The partnership could consist of providing funding and site location analysis to those businesses that meet the quality/entertainment expectations of the funding entity.

One example of funding guidelines:

Funding entity will provide 15% of the total investment with a maximum participation of $100,000

The investment will be provided in the form of a non-interest bearing forgivable loan which will have a 5 year term, i.e. if the business qualifies for the maximum of $100,000 for each year they maintain their business in the community their loan will be reduced by $20,000.

The local funding organization sets the criteria required of the applicant to assure that quality of the project truly makes it a unique destination/attraction.

The primary targets for this program are wineries and brew pubs/or breweries and distilleries.

Chapter 380/381 Texas Local Government Code

This provides express statutory authority for municipalities to offer economic development incentives consisting of loans and grants of city funds and the use of city personnel facilities and services, with or without charge, for economic development. It is an authorization rather than a mechanism for city and county incentives. The types of incentives are discretionary with the city and the county.

For example, a city may use Section 380.001 as authority to purchase or lease real property and improvements to a business to promote economic development; to provide financing for the purchase or lease of property; to waive or reduce impact or other fees; to provide grants equivalent to a refund of sales tax or property taxes; to provide funding to infrastructure or financing for the same; and to provide its personnel, equipment and facilities for economic development projects.

In providing an incentive pursuant to Section 380.001, the city contracts with the recipient of the grant, conditioning the incentive upon the creation of jobs, construction of improvement, continued operations for a stated period, or for other public considerations. The city may, but is not required to, require the recapture the grant or loan amount if the recipient does not fulfill the conditions of the grant.

Tax Abatement Agreements

Tax abatement is the traditional economic development tool available to local government to encourage development. Tax abatement agreements are governed by Chapter 312 of the Tax Code. A tax abatement agreement is a contract which the participating taxing unit may abate or forgo collection of certain property taxes that would otherwise be due and payable to the taxing unit. Cities, counties, colleges and other special districts may enter into a tax abatement agreement; however school districts may not. The maximum time period that property taxes may be abated is 10 years.

Zoning, Codes, Ordinances

In conclusion, while not an incentive, it is critical that you research your local codes to make sure they are business friendly in regard to the craft beverage industry. An example would be providing zoning for such establishments without requiring conditional use permit. In laymen’s terms this means that zoning in an area, like your downtown district, is already approved for craft beverage businesses. If it is not already zoned the business would have to apply for a “conditional use” zoning and in some cities that could take up to a minimum of 60 days. The comprehensive approach to zoning would be to establish an entertainment district that would allow open carry.

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