REDMOND – If Redmond plays second fiddle to Bend when it comes to economic development, it’s not for lack of trying.

The city has two urban renewal districts, one for its slumping downtown and another in its airport industrial park, that funnel property taxes back into public improvements such as streets and sewers at no extra cost to businesses.

It also encourages new and expanding businesses to take advantage of its enterprise zone. Businesses that qualify can receive a five-year property tax break on buildings and equipment.

Now the city is considering another incentive to draw in new businesses and encourage existing operations to expand – federal tax breaks. The catch: city consultants want $100,000 just to prepare the application to the U.S. Treasury.

”Somehow we are going to have to provide a decent place for people to live and if we could get a little help that would be appreciated,” said Irv Nygren, city councilor.

Like other city leaders, Nygren is open to any ideas that would encourage investment and family-wage jobs in Redmond where the tax base has skewed toward residential growth in recent years. The imbalance is reflected in the city’s tax rates, which are the highest in Deschutes County.

At a recent goal-setting session, Redmond city councilors and staff set economic development and tax reductions as top priorities for the coming year.

Now the city is trying to figure out whether they are willing to gamble on the prospect of future returns.

”This is an awful lot of money and I don’t know what will come of it,” said Councilor Jay Patrick. ”If we are able to produce more business in town it might encourage investment, increase the tax base and everything else. It’s sure not an overnight miracle.”

Earlier this week the city called a roundtable meeting of local business leaders to gauge their interest in the program, which offers tax breaks to investors and frees up money for low or zero-interest loans as well as local grants.

The program, which was created by Congress three years ago to encourage investment in low-income communities, will begin awarding the first in round of tax credits to local development agencies next month. Over the next seven years, the U.S. Treasury will hand out $15 billion in tax breaks through the program.

The program works like this: A community, in this case Redmond, forms a local non-profit development agency that can request money from the federal government in the form of tax breaks.

The agency turns around and sells the tax breaks to investors and uses the cash to fund low and zero-interest business loans.

Investors earn money through annual federal tax credits. After seven years investors are permitted to divest. Ideally, the program operates at a net-gain.

Local development agencies become self-sufficient and provide communities another tool to attract businesses through loans and other financial incentives.

Another factor driving Redmond’s interest in this program: Bend doesn’t qualify for the program, which is limited to low-income communities, as defined by the 2000 U.S. Census. In the highly competitive world of economic development, that could give Redmond a much-desired advantage when it comes to recruiting businesses.

City attorney Steve Bryant researched the program for a Monday night presentation to some of the area’s key economic development players.

So far, the program, referred to as New Markets Tax Credit, has been overlooked by rural areas. Major metropolitan areas made up the majority of the 350 applicants. Portland, for example, was the only city in Oregon to apply in 2002, which it did through the Portland Development Commission (PDC).

The PDC acts as arm of local government, coordinating long-range urban planning in the city. The commission identified a series of potential projects that would qualify under the program guidelines, led by two major mixed-use redevelopments on Portland’s north side. The commission requested $250 million in tax credits to help fund construction.

”We could justify that amount, so we went ahead and applied for it,” said Kenneth Asher, PDC operations manager. ”But it is unlikely Portland would receive anything close to that.”

It is also unlikely that Redmond could amass enough interest in the program to begin to approach that kind of request. But there are ways for smaller communities to take advantage of the program, said Bryant. He expects the U.S. Treasury to be inundated with applications for its next round of funding, many from small communities.

Karen Williams, an attorney with Lane, Powell, Spears, Lubersky LLP, a law firm with offices in Portland that specializes in tax credits, said she agrees with Bryant.

”This is such a broad opportunity to create a program and take a thoughtful approach to development,” said Williams, whose firm worked on Portland’s application.

So far, though, the complexities of the program have largely limited the ability of small communities to participate. Unlike traditional development incentives where cities are a pass-through entity for public dollars, New Markets Tax Credits force cities and development agencies to partner with business and investors.

”It is intriguing,” said Barry Jordan, senior vice president at Bank of the Cascades and a member of the Redmond Economic Development Board. ”We’re obviously trying to look at everything we can. We owe it to ourselves to do that.”

On the other hand, said Jordan, there is an clear risk. The city hasn’t figured out where it could squeeze $100,000 from its already tight budget. And there is no guarantee that it will see any return, if it does apply.

”It is one of those deals where you have to pay to play. That is why we have to be real careful,” he said.

But at this point everyone is keeping the door open. The city has scheduled another meeting with business leaders for March 17 to discuss potential project ideas for the program. ”All we can do is make the best decision possible and be prepared to defend it,” Jordan said.

Eric Flowers can be reached at 541-504-2336 or eflowers@bendbulletin.com.