PHED Item 2
March 11,2013
Worksession
MEMORANDUM
March 7, 2013
TO:
FROM:
Planning, Housing and Economic Development
C~ttee
Robert H. Drummer, Senior Legislative Attorney
Jacob Sesker, Senior Legislative Analyst
t7r
N
SUBJECT:
Worksession:
Bill 3-13, Finance
Investments
Economic Development Fund - Equity
Expected Attendees:
Steve Silverman, DED; Peter Bang, DED; and Michael Coveyou, Finance
Bill 3-13, Finance - Economic Development Fund - Equity Investments, sponsored by
the Council President at the request of the County Executive, was introduced on February 5. A
public hearing was held on March 5.
Background
The Maryland General Assembly enacted Chapter 710 of the 2010 Laws of Maryland
authorizing the County to make an equity investment in a company located in, or relocating to,
the County through the Economic Development Fund. This State enabling act took effect on
October 1,2010. Bill 3-13 would implement this authority.
The Bill would:
(l)
authorize the County to make an equity investment in a company located
in, or relocating to, the County through the Economic Development Fund;
(2) provide that the proceeds of an equity investment made by the County be
used for certain purposes;
(3) limit the amount and type of ownership interest the County may acquire;
(4) require the County to post a notice of each equity investment on the
County website within a certain period of time; and
(5) generally amend the laws governing the Economic Development Fund.
Under current law, the funds in the Economic Development Fund can only be used to aid
the County's economic development through loans or grants to private employers located in or
relocating to the County. Bill 3-13 would permit the County to make an equity investment in a
company to aid the County's economic development. The Bill would limit the investment to no
more than 25% ownership of the company and would prohibit the County from managing the
company or assuming present or future liability for the company.
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As described in the Executive's transmittal memo at ©7, the State of Maryland has
successfully made equity investments in companies to aid Maryland's economic development,
I
An equity investment, under appropriate circumstances, can result in a substantial financial
return on investment when the company generates substantial profits or is sold, however, the
timing and amount of this financial return is not known at the time the investment is made. The
potential return on an equity investment can be used to bolster the Economic Development Fund
or support other County programs. An equity investment would follow the same review and
approval procedures outlined in current law for grants or loans from the Economic Development
Fund. Bill 3-13 would add this additional alternative to the County's economic development
program.
Public Hearing
The lone speaker, Steve Silverman, DED Director, supported the Bill on behalf of the
Executive. (©14-1S).
Issues
Should equity investments be part
of the
County's economic development program?
Conceptually, adding the authority to use the EDF to make an equity investment in support of the
County's economic development is reasonable. The Bill contains the parameters established in
the State enabling act that the County must follow in making these equity investments. DED
would negotiate these investments along with negotiating loans and grants from the EDF. The
objectives for an equity investment would be the same as those for a loan or grant from the EDF.
The procedures for approval would also remain the same.
The only difference would be the potential complexity of the deaL The OMB fiscal
impact statement indicates that no additional staff time would be necessary to implement this
Bill. See ©1O. However, evaluating an equity investment and tracking a company's
performance after the investment are additional duties that should be considered during the
review of the DED budget,2 The Office of Legislative Oversight recently recommended that
DED enhance its performance monitoring and data collection of companies that receive
economic incentives in
aLa
Report
2013-2:
Review of Montgomery County's Economic
Development Incentive Programs. See
©19-20.
The EDF grants and loans provided for GeneLogic and Zyngenia described in Mr.
Silverman's public hearing testimony at ©14-1S make a case for adding the authority to make an
equity investment in a company as an additional tool in our economic development program.
Council staff recommendation:
approve the Bill as introduced.
The Executive's transmittal memo does not include any discussion of the State's other, less successful, equity
investments.
2
For comparison, OMB estimated that the additional duties associated with the establishment of a small business
navigator by Bill 5-12 required 2 additional positions in DED because DED had no available staff to perform these
additional duties.
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This packet contains:
Bill 3-13
Legislative Request Report
Transmittal Memo from County Executive
Fiscal and Economic Impact statement
Testimony of Steve Silverman
OLO Report 2013-2 (Excerpt)
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Bill No.
3-13
Concerning: Economic
Development
Fund - Equity Investments
Revised: February 27, 2013 Draft No.
L
Introduced:
February 5, 2013
Expires:
August 5, 2014
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date: _ _ _ _ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the request of the County Executive
AN
ACT to:
(1)
(2)
(3)
(4)
(5)
authorize the County to make an equity investment in a company located in, or
relocating to, the County;
provide that the proceeds of an equity investment made by the County be used for
certain purposes;
limit the amount and type of ownership interest the County may acquire;
require the County to post a notice of each equity investment on the County website
within a certain period of time; and
generally amend the laws governing the Economic Development Fund.
By amending
Montgomery County Code
Chapter 20, Finance
Sections 20-74 and 20-75
By adding
Montgomery County Code
Chapter 20, Finance
Section 20-75A
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL
No. 3-13
1
2
3
Sec. 1. Sections 20-74 and 20-75 are amended and Section 20-75A is
added as follows:
20-74. Purpose of Fund.
(a)
The purpose of the Fund is to aid the economic development of the
County by assisting private employers who are located or plan to locate
or substantially expand operations in the County.
(b) Assistance to a private employer from this Fund may take the form of:
(1)
(2)
loans or grants of public funds as otherwise authorized by law;
transfers of real or personal property as otherwise authorized by
law;
(3) provision of services, when otherwise authorized, by a County
agency; [or]
(4)
plans, studies, or other technical
assistance~
4
5
6
7
8
9
10
11
12
13
or
14
15
16
ill
(c)
an equity investment as authorized
Qy
Section 20-75A.
As used in this Article, "private employer" means any for-profit or
nonprofit corporation or firm that is not owned, primarily funded, or
controlled by a government agency.
"Private employer" includes a
17
18
19
20
lessor or supplier of real or personal property or services to a
government agency.
20-75. Use of Fund.
II<
II<
II<
21
22
23
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25
(d) The Executive must not provide assistance to a private employer valued
at more than $500,000 unless the grant.'). [or] loan.'). or equity investment
is approved by the Council in a special or supplemental appropriation.
The amount of any discount from market value in the sale of County
property offered as part of the assistance must be included in the value
of the assistance. The Executive must submit an economic development
26
27
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BILL
No. 3-13
28
29
agreement to the Council within 60 days after all parties to the
agreement execute it.
30
31
*
20-75A. Equity investments.
{ill
*
*
32
33
34
35
36
Subject to Section 20-75, the County may make an equity investment
through the Economic Development Fund in
~
company that is located
in the County or that agrees to relocate its business to the County.
.au
The proceeds of an equity investment made under subsection
{ill
may be
used for:
37
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45
46
ill
ill
ill
ill
ill
®
ill
.@)
working capital;
salaries;
marketing materials;
acquisition of inventory, equipment, or real property;
construction;
renovation;
leasehold improvements; or
research and development.
ill
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The County may not acquire an ownership interest exceeding 25% of
any company.
The terms of an equity investment must be set forth in
agreement that prohibits the County from:
~
47
funding
48
49
50
51
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ill
ill
ill
participating in the selection of the management of the company;
overseeing the operation ofthe company; and
assuming any present or future liability of the company.
W
A funding agreement may be:
ill
ill
an investment agreement;
~
limited partnership agreement;
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BILL
No. 3-13
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57
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59
ill
ill
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preferred stock purchase agreement; or
other documents that the County may require.
ill
The Director of Finance must:
ill
record the value of the equity investment in the County's
Financial
Statements consistent with Generally Accepted
60
61
Accounting Principles;
ill
ill
manage all equity investments acquired in accordance with the
funding agreement and State and County law; and
post notice of each equity investment made under this Section in
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readily accessible and clearly identified location on the County
website within
~
days after the date on which the County initiates
the equity investment transaction.
(g)
If an equity investment is liquidated through
~
sale or other disposition,
the proceeds must be deposited in the County's general fund.
Approved:
66
67
68
69
70
71
Nancy Navarro, President, County Council
Date
72
Approved:
73
Isiah Leggett, County Executive
Date
74
This is a correct copy ofCouncil action.
75
Linda M. Lauer, Clerk of the Council
Date
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Economic Dev. Fund· Equity Investments\BilI 5.Doc
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LEGISLATIVE REQUEST REPORT
Bill 3-13
Economic Development
-
Equity Investment Companies
Problem:
Montgomery County created the Economic Development Fund (EDF) in
1995 to provide financial assistance and incentive to private employers who
retain jobs in the County, and to stimulate the creation of new jobs.
The EDF focuses on high techlbiotech companies, manufacturing
companies, businesses located in urban revitalization areas and other
private employers providing the greatest public benefits. Since 1995,
Montgomery County has disbursed more than $40 million through the
EDF in the form of grants and loans to over 280 Montgomery County
based companies, resulting in the retention or creation of over 30,000 jobs,
and leveraging over $52 million in State funding and more than $1 billion
in private investment. By the statutory requirements, the EDF cannot
make an equity investment to private companies, but uses two forms of
assistance; straight loan, or grant convertible to a loan.
The State of Maryland provides creative financing for business enterprises
through its Department of Business and Economic Development,
Maryland Technology Development Corporation and Maryland Economic
Development Corporation. This can be in the form of a grant, loan, loan
guarantee, insurance or an equity investment
l .
The State's ability to take
an equity stake in companies receiving State funds has garnered
substantial financial returns for Marylanders. A prime example of this is
GeneLogic, which received funding from both the State through an
equity investment - and Montgomery County through a loan. When the
company was sold, Maryland's share of the profits exceeded $19 million­
money that went back into State coffers. In contrast, Montgomery County
received $15,000 back from its $188,000 convertible grant.
Through this bill, Montgomery County is simply seeking the right to
benefit from any upswings in the companies that we provide financial
assistance to, similar to the current abilities of the State.
As an equity shareholder, the County, like the State, will be able to reap a
return on its strategic economic development investments when EDF
recipients generate substantial profits from their products and services or
their company is acquired. These economic returns, whether they are
reinvested in the EDF to create a larger funding pool to support business
and job growth or used to augment other economic development
programs, will benefit Montgomery County.
1
The State cannot exceed a 25 percent ownership position and must divest investments within 15 years.
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Goals
&
Objectives:
In the 2010 Maryland General Assembly legislative session, the County
worked hard to pass the State
HB
891 to enable Montgomery County to
adopt a local bill to add this important tool to augment its economic
development and job creation.
The purpose of the attached bill is to enact this legislation at the County
level. The provisions of the HB891 only allow the County to make equity
investments through the County-funded EDF.
It
does not mandate
Montgomery County to make such investments, permitting the County to
make equity investment very strategically at its full discretion.
Coordination:
Department of Economic Development, Department of Finance, The
Office of the County Attorney.
This legislation will use the same funds under the Economic Development
Fund, and bears a similar risk to using a loan or a convertible grant to
assist companies. As such, no immediate or direct fiscal impact can be
gauged at this time.
Fiscal Impact:
Economic Impact:
This legislation will allow the County's EDF to make a strategic equity
investment to a select number of high-tech companies with a huge growth
potential, where a conventional form of financial assistance such as a loan
or grant is not suitable, or the County will forego an opportunity for a
large financial return if the transaction is structured as a loan. Due to a
highly speCUlative nature of the equity investment, not all transaction will
be successful. However, the economic impact and the financial return
from the successful transactions will more than offset the unsuccessful
transactions.
Experience Elsewhere:
The State of Maryland, through its Department of Business and
Economic Development, has been operating a very successful
equity investment program for over a decade and a half.
Peter Bang, Chief Operating Officer, Department of Economic
Development, 240-777-2008;
peter.bang@montgomerycountymd.gov
Source of Information:
F:\LAW\BILLS\\303 Economic Dev, Fund Equity Investments\LRR (Final),Doc
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OFFICE OF THE COUNTY EXECUTIVE
ROCKVILLE, MARYLAND 20850
Isiah Leggett
County Executive
MEMORANDUM
January
14~
2013
TO:
FROM:
SUBJECT:
Nancy Navarro, Council President
Isiah Leggett, County
Executiv.!r'_~
Proposed Legislation Relating to the Economic Development Fund and Equity
Investments
I am transmitting to Council for introduction a bill to authorize use of the
Economic Development Fund (EDF) to make equity investments in private companies. I am
also transmitting a Legislative Request Report, Fiscal Impact Statement and Economic Impact
Statement for the bilL
In 2010, the State enacted a law (Chapter 710, Montgomery County - Investment
Authority) that gave the County authority to use the EDF to make an equity investment in a
private company. Prior to enactment of that State law, the County had no authority to use the
EDF to make equity investments in private companies and was limited to providing two forms of
assistance: (1) a straight loan; or (2) a grant convertible to a loan.
. The State, through its Department of Business and Economic Development,
currently provides creative financing for business enterprises that can be in the fonn of a grant,
loan, loan guarantee, insurance or equity investment.
1
The State's ability to take an equity stake
in companies receiving State funds has garnered substantial financial returns for State residents.
A prime example of this is GeneLogic, which received funding from both the State, through an
equity investment, and the County, through a loan. When the company was sold, the State's
share of the profits exceeded $19 million - i.e., money that went back into State coffers. In
contrast, the County received $15,000 back from its $188,000 convertible grant.
This bill would allow the County to benefit from any upswings in the companies
to which we provide financial assistance, similar to the current State practice. As an equity
shareholder, the County will be able to reap a return on its strategic economic development
investments when EDF recipients generate substantial profits from their products and services or
their companies are acquired. These economic returns, whether they are used to create a larger
EDF funding pool to support business and job growth, augment other economic development
programs, or support other County programs, will benefit County residents.
1
The
State cannot exceed a 25 percent ownership position and must divest investments within 15 years.
~
r
• . 240-773-3556 TTY
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Nancy Navarro, Council President
January 14,2013
Page 2
For more information on this proposed legislation, please contact Peter Bang in
the Department of Economic Development at 240-777-2008.
Attachments (3)
c:
Joe Beach, Director, Department of Finance
Marc Hansen, County Attorney
Jennifer Hughes, Director, Office of Management and Budget
Steve Silverman, Director, Department of Economic Development
CD
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OFFICE OF MANAGEMENT AND BUDGET
Isiah Leggett
County Executive
Jennifer A. Hughes
Director
MEMORANDUM
November 9, 2012
TO:
FROM:
SUBJECT:
Roger Berliner, President, County Council
Jennifer
A.
Office
Joseph F. ae""tJ;;.:;'ctor, lJeparbnent ofFinance
Hu~ctor,
OfManagem~dgel
'? .
Bill
XX-12 -
Economic Development Equity Investment Companies
Attached please frod the fiscal and economic impact statements for the above­
referenced legislation.
JAH:hpv
c: Kathleen Boucher, Assistant Chief Administrative Officer
Lisa Austin, Offices ofthe County Executive
Joy Nurmi, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Information Office
Peter Bang, Department ofEconomic Development
Michael Coveyou, Department of Finance
David Platt, Department of Finance
Alex Espinosa. Office of Management and Budget
Blaise DeFazio, Office ofManagement and Budget
HeJen Vallone, Office of Management and Budget
Naeem Mia, Office of Management and Budget
Ayo ApoIJon, Office ofManagement and Budget
Office of the Director
101 Monroe Street, 14th Floor • Rockville, Maryland 20850 • 240-777-2800
www.montgomerycountymd.gov
montgomerycountymd.goy/311
240-773-3556 TTY
(j)
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Fiscal Impact Statement
Council Bill XX-12 - Economic Development - Equity Investment Companies
1.
Legislative Summary
The proposed bill authorizes the County to:
• make an equity investment in a company located in, or relocated to, Montgomery
County;
• provide that. the proceeds of an equity investment made by the County be used for
certain purposes;
• limit the ownership interest the County may acquire to no more than 25%;
• require that the terms of an equity investment be set forth in a funding agreement,
including prohibiting the County from taking certain actions;
• provide that a funding agreement may consist of other agreements or documents;
• require the County to post a notice of each equity investment in a readily accessible
and clearly identified location on the Montgomery County website within a certain
period of time; and
• generally address equity investments made by the County in certain businesses in the
County.
2. An estimate of changes in County revenues and expenditures regardless of whether
the revenues or expenditures are assumed in the recommended or approved budget.
Includes source of information, assumptions, and methodologies used.
Due to uncertainties about which company the County will invest in, its value, and its
economic performance,
it
is difficult to estimate the potential expenditures (the initial
investment) or revenues that the County may derive from its equity investment.
The proposed legislation will also use the same funds under the Economic Development
Fund, and bears a similar risk to using a loan or a convertible grant to assist companies.
As such, no immediate or direct fiscal impact can be gauged at this time due to
uncertainties in estimating the risk.
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
See item #2 above.
4.
An
actuarial analysis through the entire amortization period for each bill that would
affect retiree pension or group insurance costs.
Not applicable. This bilI does not affect retiree pension or group insurance costs.
5. Later actions that may affect future revenue and expenditures
if
the bill authorizes
future spending.
The bill does not authorize future spending.
6. An estimate of the staff time needed to implement the bill.
No additional staff time is needed to implement the bill as the existing staffwill still
conduct similar due diligence on applicant companies.
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7. An explanation of how the addition of new staff responsibilities would affect other
duties.
New staff is not required but the existing staff responsibilities will include posting notices
of any completed transactions on the County website to comply with the bill.
8. An estimate of costs when an additional appropriation is needed.
Not applicable.
9. A description of any variable that could affect revenue and
cost
estimates.
Revenues and cost estimates are detennined by the selected company's value and
economic perfonnance. These variables are difficult to estimate without determining
which company the County will choose to invest in.
10,
Ranges of revenue or expenditures that are uncertain or difficult to project.
Revenues and costs are affected by the selected company's value and economic
perfonnance. These variables are difficult to estimate without detennining which
company the County will choose to invest in.
11.
If
a bill is likely to have no fiscal impact, why that is the case.
Not applicable.
12. Other fiscal impacts or comments.
None.
13. The following contributed to and concurred with this analysis:
Peter Bang, Department of Economic Development
Helen P. Vallone, Office of Management and Budget
Naeem Mia, Office of Management and Budget
Datl
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"
Economic
Impact
Statement ­
Council Bill xx.12, Economic Development - Equity: Investment Companies
Background: ­
This Bill
autho~zes
the County to
make
equity investments in companies through the
Economic Developwent Fund (EDF),
limited
to
an ownership stake of 25% of the
company. The bill could have an economic impact if it results in higher, unexpected,
paybacks (through-the increased value of the
equity)
from companies that perfann very
well. The impact could be
in
the form of funding more
BDP
transaction&, whether taking
an equity interest or not, thereby increasing the number of companies that the County can
provide EDF incentives.
1.
The
sources
of
infonnation, assumptions, and methodologies used.
The infonnation available currently is only anecdotal as to the economic impact of the
proposed legislation. There is not sufficient experience with this type of incentive
to
use
as a basis for an economic impact forecast.
2. A description
of
any variable that could affect economic impact statements.
The economic impact depends on the change in the number and value of BDP incentives
granted because of the change in the law, compared
to
the number of EDF incentives that
would have been given without
the
change in the law. The proposed legislation may
cause the County to provide BDF incentives
to
companies that
it
would not have, absent
this change and in so doing
may
affect the impact on
spending.
employment, and other
economic variables
3.
The
bill's
positive
or negative effect,
if
any
on employment, spending,
saving,
investment, incomes,
and
property value
.in
the County.
The bill could increase the number of companies that the County gives EDF incentives,
which could increase employment, spending, saving, investment, income and property
values
in
the County. The impact would depend on the specifics of each individual EDF
incentive.
4.
If
a bill is likely to have no economic impact,
why
is that the case?
Not applicable.
5. The following contnbuted to and concurred with this analysis: David Platt and Mike
Coveyou, Finance.
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~1-~
Jo
ch. Director
F. B
])epadInentofFinance
Date
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/
Bill 3-13
Finance - Economic Development Fund - Equity Investments
Testimony of Steven A. Silverman
Director, Department of Economic Development
• Good afternoon. For the record, I am Steve Silverman,
Director of the Montgomery County Department of Economic
Development. I am here today on behalf of County Executive
Isiah Leggett to testify in support of this proposed legislation,
which will expand the versatility of our Economic Development
Fund. With enactment of this legislation, the County will be
able to promote the growth of high-tech businesses in
Montgomery County through the selective use of equity
investments, in addition to our currently available loan and
grant program.
• In 2010, the State of Maryland enacted a law (Chapter 710,
Montgonlery County -Investment Authority) that gave the
County authority to use the Economic Development Fund to
1
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make an equity investment in a private company. Prior to the
enactment of that State law, the County had no authority to use
the EDF to make equity investments in private companies
and/or hold an ownership interest in a private company.
• The State, through its Department of Business and Economic
Development, has been providing creative financing to
business enterprises in the form of grants, loans, loan
guarantees, insurance or equity investments, in a fashion that
best meets the needs of the business while achieving the
maximum return from these financing tools. In particular, the
State's ability to make equity investments in companies has
garnered sUbstantial financial returns for the State and its
residents.
• A prime example is GeneLogic, which received funding from
both the State, through an equity investment, and from the
County, through a loan. When the company was sold, the
State's share of the profits exceeded $19 million - i.e., money
that went into the State's coffers. In contrast, the County
2
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received $15,000 back from its $188,000 convertible grant
because GeneLogic had satisfied most of its required
performance milestones.
• Another example of this is
t~ia
eal that we closed in
2010. As you may recall, Zyngenia is a biotherapeutics start
up company specializing in the development of novel single-
protein, combination therapy drugs. Zyngenia was, and is still
well positioned to create best-in-class therapeutics. With its
innovative technology and a funding commitment of $50 million
by the NEA venture fund, Zyngenia is likely to follow the path of
Medlmmune, one of our most successful biotech companies.
Zyngenia would have been an ideal candidate for this new
equity investment program. However, due to statutory
limitations, we could only structure the deal as a conditional
grant under the existing EDF Grant and Loan Program, instead
of making any equity investment in Zyngenia. As such, if
Zyngenia reaches the set milestones in the future, the
conditional grant will be forgiven. However, under the new
3
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equity investment program, the County's investment could be
converted to stocks, and the sales of the stocks could bring
significant revenue into the County
if
the company were to go
public.
• Because of the Zyngenia transaction, the Council
recommended that an equity investment option should be an
available tool in the EDF, and urged the County to pursue the
legislation needed in order to establish this equity investment
vehicle.
• The proposed legislation will use the same funds under the
Economic Development Fund, and will bear a similar risk to
using a loan or a convertible grant to assist companies. This
legislation will enable the County to share in any financial
return, in addition to the job growth and private capital
investment from select economic development projects.
• Upon passage of this legislation, the County's EDF will make a
strategic equity investment to a select number of high-tech
companies with huge growth potential, where a conventional
4
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form of financial assistance such as a loan or a grant is not
suitable, or the County will forgo an opportunity for a large
return if the transaction is structured as a loan. Due to the
speculative nature of the equity investments, not all
transactions will be successful and we will be extremely
cautious and strategic in using this option. We are very
optimistic that use of the equity investment will augment other
economic development programs, and benefit Montgomery
County in the long-term.
• The Department of Economic Development, in coordination
with the Department of Finance and the Office of the County
Attorney, will administer this new program, with the frequent
use of consultants to conduct in-depth due diligence required
for all equity investment transactions.
• Thank you for introducing this bill at the request of the County
Executive. We look forward to working with Council as it
considers the bill.
5
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Review of
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Incentive
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Chapter VIII.
Recommendations
For Montgomery County's economic development incentive programs, the Department of Economic
Development has shown a commitment to performance monitoring and data collection.
Additionally, the County's "pre-award" measures indicate the financial incentives being provided to
companies are projected to provide a positive economic "return" to the County.
At the same time, OLO's review illustrates opportunities to build upon the current performance
monitoring and measurement efforts associated with incentive awards - in particular through
enhancing "post-award" data collection and reporting to better assess actual impacts.
OLO has three recommendations for Council action, detailed below, intended to provide both the
Council and the Executive Branch with the most complete picture possible when reviewing incentive
programs from a programmatic, strategic, and funding perspective.
Recommendation #1: Request that the County Executive enhance the data collection and
reporting procedures for economic development incentives by expanding
pre-award and post-award measurement of performance indicators.
The County Government should expand current data collection and/or reporting associated with three
key performance outcome measures - private capital investment, the estimated net fiscal impact of
awards, and jobs created and retained as detailed below:
• Collect and report data on the actual private investment made by award recipients at the
completion of the monitoring period for comparison with what was projected.
Many incentive awards include a specific amount ofprivate investment a recipient company must
make as a condition ofthe award, and DED annually reports on both cumulative and individual
planned private investment amounts as an outcome measure. However, DED does not provide a
follow-up "post-award" measure that shows how much ofthe planned investment actually occurs.
Since OLO found that not all award recipients successfully meet performance criteria, it is likely that
at least a portion of the planned private investment does not occur. Collecting and reporting this data
for each project will allow for a more accurate assessment of how well public incentives are working
to leverage important private investment in the County.
• Revise the estimated fiscal impact for each project at the completion of the monitoring
period for comparison with what was projected.
Similar to planned private investment, DED annually reports on the cumulative and individual
projected fiscal impact for each award. The model uses several assumptions in calculating the
projected impact, including the amount of private investment, the number ofjobs retained, the
number of new jobs created, the average wages paid for each job, and the number of new County
residents created.
Revising the estimate at the completion of an award recipient's monitoring period will provide a
more accurate assessment of the annual economic impact by using the actual <lata points on jobs,
investment, wages, and residents instead of what was projected when the award was approved.
OLO Report 2013-2
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February
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Review ofMontgomery County's Economic Development Incentive Programs
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Additionally, taking this step and comparing the pre-award and post-award projected fiscal impact
will allow DED and Finance to test (and revise if necessary) some of the assumptions that are built
into the model (for example, that 60% of newly created jobs will be filled by new County residents)
and.potentially enhance the accuracy of pre-award estimates.
• Differentiate between jobs retained and jobs created within the data reporting process for
program awards.
DED collects and reports "pre-award" and "post-award" jobs data, allowing for a comparison of
projected versus actual data. However, DED combines job retention and job creation data for
reporting on individual awards. These data should be separated out for reporting to allow for discrete
perfonnance assessment going forward for existing jobs retained and new jobs created; specifically
since job retention and job creation have different implications for the net economic impact of any
particular project.
Recommendation #2: Request the County Executive track and annually report on the long­
term outcomes of businesses that have received incentives (i.e., whether
they remain located in Montgomery County or have moved or gone out
of business).
For this report, OLO conducted an initial review of long-tenn retention data and found that the
proportion ofEDF incentive recipients remaining in the County varied by program. Regularly
tracking and reporting data on whether or not businesses that receive incentive awards are staying in
Montgomery County will help the Council and the Executive Branch assess the success of these
programs over the long-tenn. These data collection efforts should also track, where possible, the
time lag between when program monitoring ends and a company leaves or goes out of business.
Recommendation #3: As part of the economic development strategic planning process, the
Council should discuss with the Executive Branch performance targets
or guidelines for actual versus projected jobs, investment, fiscal impact,
and long-term retention results.
There are multiple variables that impact the dynamics of business growth and development within a
region. As such, it is not unexpected that some incentive recipients will not meet some or all
perfonnance criteria whether that is jobs, level of investment made, or remaining in the County.
However, the Council would benefit from being able to review the actual perfonnance data within a
set of guidelines or standards for each measure that indicate whether or not the incentives are
meeting strategic goals. Example of perfonnance guidelines could include:
• The proportion of businesses expected to remain in Montgomery County five, ten, and fifteen
years after receiving an incentive award;
• A desired percent of incentive recipients that successfully meet all perfonnance criteria, both
cumulatively and for each industry type (or other award factor); and/or
• A target ratio for actual jobs created andlor fiscal impact achieved versus what was projected.
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Report 2013-2
2013