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Home My WebLink About6A TIF and Tax AbatementP RIO\ U rx 4646 Dakota Street SE Prig Take 1VIN 5 37? ECONOMIC DEVELOPMENT AUTHORITY AGENDA REPORT MEETING DATE: March 14, 2011 AGENDA #: 6A PREPARED BY: Danette Parr, Community Development and Natural Resources Director PRESENTED BY: Danette Parr AGENDA ITEM: TIF and Tax Abatement Discussion — Ehlers & Associates DISCUSSION: Introduction Currently, there are only a limited number of economic development tools avail- able to cities. Those that do exist have experienced additional legislatively im- posed restrictions over time. The purpose of this item is to familiarize the EDA with two primary public sector economic development tools: Tax Increment Fi- nancing (TIF) and Tax Abatement. In cases of TIF and Tax Abatement, the City often utilizes the expertise of Eh- lers and Associates, a public finance firm because of the level of expertise ne- cessary, as well as the considerable process and oversight needed for a single project. For that reason, Rebecca Kurtz and Dave Callister, staff members of Ehlers and Associates, will be joining the EDA to present information related to TIF and Tax Abatement (Power point presentation and handout attached). Both Ms. Kurtz and Mr. Callister have extensive experience related to public sector economic development (their professional portfolios are attached). There are aspects of these tools which are not immediately apparent. For ex- ample cities as a matter of policy will require that the developer pay all up front costs for a TIF application so the taxpayer is not at risk. Tax increment while offering the greatest return to the developer does entail a great deal of process, notifications, and reports, all in a short timeframe. There are also two types of tax increment financing. One places the risk on the developer and the other on the taxpayers. Rebecca Kurz, CIPFA Financial AdvisorNice President Rebecca has been a Financial d rsor• in the Ehlers' Roseville office since 2000 assisting Minnesota cities, toi itships, count es, public wilifies, and special districts design and it rplementfinanciar sohit ons. i-ioi- tojoining Ehlers she had 6 years of is ate government e cpefience i or king Wth communities in South Dakota, the 71pin Cities and Greater- AAAI One o e iecca's r-eafes cont b rtions to `h ei-s and ow- clients is her abilitjo to build relationships benpeen i-esiden s, businesses, and intergovernmental mgani ations. Rebecca Kurtz DIr t: (551) 697-8516 rku O,hl r -In .com 71c.-Homsin.'11._%,.1nnr...1ReeelopentDebt Pl rnin and Issuance Economdvm • Analysis & Presentation of Alternative Financing do Tax Increment District Creation & Modification Options, Plans And 'Fools . 'Tax Abatement Options, Financing, & Policies • Lease Revenue Financing 9 'ALF and Abatement Analysis • Nora -Profit & Industrial Revenue Bonds • Downtown Redevelopment and Revitalization • �T Public Facilities (PFA.) Loans Developer ProformaAnalysis/But For 'Pest • Refundings/Cash Defeasances Devel p r Attraction & Selection • Debt Service Fund/Cash Flow Analysis • Developer Negotiations • Representation to Board Market & Credit Rating . TIF Revenue Bonds/Calculation ofDeveloper Agencies Payments Housing Revenue Bonds . Business Subsidy Options & Negotiations • Electric Revenue Bonds Project Management ment Services Special Financial studies JOBZ Negotiations • Utility Rate Study/Analysis Nand Acquisition, Relocation, & Developer • Fiscal Impact Study/Analysis Negotiations • Budget Preparation Assistance Grant Writing • Merger/Consolidation/Aniiexation Impact Analysis TIF Revenue Projection Update Strategic and Financial Planning Business Assistance Policies • debt Management • Financial Management Planning • Capital Improvements Planning • Strategic Planning • Certified Independent Public Finance Advisor or National Development Council Economic Development Finance Professional • onom 1c Dei*eloprrment A ssocfallon A ' — fast Presrd nI Bachelor D, f Bence Journalism and • Alalronal Assoc'Ia(ion of In e endent Public Finance dvisors Business Economics), • AM' Chapter o gle National Association ofHousi g ,South Dakota State Universlop, Brookings, SD R e de ve lopin e n t Q1f1c i rIs • Minn Govennnent Finance Offt cersAssociallon 0 Min 1cipal Clerks and Finance Officers Association ofAMI 0 lid -America Econondo Development Council a "Assn. o oval Ho using Finance Agencies( ML I' n= sh = Ma '7r E H L E R Dave Callister, CIPFA Financial AdvisorNice President Dave has been a Financial Advisor in the Ef hleiw' ose ille qfflce since 2004, p) -o iding conrrtrrrnities and their leadei-s with cuslo rti ed nanclat services and advice. Pi+r' )+ tojolliing Ehlerse sere for 18 yearsas a city aamMistr ator• M three Minnesota cities. One ofl ave'as greatest C0JJtt41utions to Ehlers' clients is his skill i oi-king directly with st ff andpolicyntakers to develop long- aryl financial pans that result in stable and rediota le, rndrrtg of important public projects. Dave Caliiter Direct: 1 697-8553 dcallister(@.ehlers-ine.com Debt Planning and Issuance Economic, Housing Development a Analysis & Presentation of Altemative Financing Redevelopment Options, Plans And Tools 0 Tax Increment District Creation & Amendment 4 Lease Revenue Finan ing 0 Tax Abatement Options, Financing, & Policies a Refundings/Cash D f sauces • TfF and Abatement Analysis a Debt Service Fund/Cash FlowAnalysis 6 Downtown Redevelopment and Revitalization 0 Representation to Bond Market & Credit Rating • Developer Proforma Analysis/But For Test Agencies 0 Developer Attraction & Selection � Land Acquisition, Relocation, 1'�d lo�}�` Special Fir ar ial Studies Negotiations 0 Utility late Study/Analysis a TIF Revenue Bonds/Calculation of Developer Pa m nts • Fiscal Impact Study/Analysis • Project Management Services • Budget Preparation Assistance • Grant Writing • Merger/Consolidation/Annexation Impact Analysis Public Participation Strategic and Financial Planning • Public Participation Process 0 Debt Management ent Studi s 0 Community Survey/Communications/Newsletters 0 Financial Management Planning Capital Improvements Planning other • Strategic Planning • Special State Legislation-- Transportation and LGA Certified Independent Public Finance Advisor CIPFA International Cite Managers Association • Bachelor ofArts (Metro Urban Studies) NW City/County Management Association Augsbwg College, blinneapolis, AN National Association of Independent Public Finance Advisors or • Master of Arts (Urban and Regional Studies), • Minnesota o��rnn�rrt Finance Officers AssociationMinnesotafc��e �I��e�+it; r�ac��a, � 0 Municipal Clerks and Finance, Officers Association of MN • Economic Development Association of Minnesota TIF and Abatement Basics March 14, 2011 Rebecca Kurtz and Dave Callister — Ehlers EHLERS LEADERS IN PUBLIC FINANCE Session Outline ■ ■ Introduction to TIF 1F Types of TIF Districts Introduction to Abatement Comparison of TIF to Abatement L4 The ability to captu and use most of the increased local property tax revenuezz� from new deveiopmenf within a defined geographic area for a defined period of time without approval of the other taxing jurisdictions. Tax revenues continue to go to The original (`base") market value established when District created Original Tax Capacity all local governments Building Blocks of TIF ■ TIF District "captures" increased value from new development Development occurs = New Tax Capacity Original Tax Capacity tIt TIF = —� Capturea fax Capacity x Local Tax Rate TIF District: Where increment is collected TIF District TIF TIF District District ■ Defines parcels whose increased value will be captured Parcels do not have to be contiguous, but usually are Must meet criteria in state law for different types of districts to accomplish different policy objectives Project Area: Where increment may be spent � IMM J Project Area TIF District TIF TIF District District ■ TIF Districts must be located in a Project Area or Development District. Can have multiple TIF Districts in one Project Area Some increment can be spent outside District in Project Area (called "Pooling") TIF District Approval LEI Can be established by City, County, HRA, or EDA Must have approval of elected officials following public hearing TIF Plan and Project Area Plan State policy objectives Identify parcels in TIF District Provide maximum budget authority for TIF revenues and expenditures Have five years to undertake project Key Questions 1 11 0 if Key Question #1: TvDe of TIF District 0 0 Jbsolete E Key Question #2: Calculating Annual Increment � New Market Value 3,600,000 x se Market Value Class Commercial/ Industrial (2%) Class Rate (Future Use) Commercial/' Industrial (2% ax Capacity 72,000 Base Tax Capacity ,700 New TC — Base TC = Captured Tax Capacity 72700 — 87700 = 63,300 Key Question #2: Mill;: CalculatingAnnual lncr Gross Annual TIF = Captured fax Capacity x Local Tax Rate 63,300 x 107.6% $68,111 Annual Gross Increment Less Statue Auditor (.36%) Less Admin (max 10%) Annual Net Increment X 26 years $ 68,111 ($ 246) ($ 6.787) $ 61,079 $115881055 -*h The stream of increment is discounted to represent value in today's dollars = $735,400 This is the value of the increment to the project. What is Excluded from TIF? ■ State-wide taxes for commercial/industrial property Fiscal disparities contribution Market value taxes (referendums) Taxes attributable to base value Key Question #4: What Can Increment Be Used Must Be Costs Associated with New Development Land Acquisition Demolition and Relocation Site improvements Utilities, Streets, Sidewalks Environmental Clean-up Parking Buildings (but only for housing or new economic development districts) Key Question #4: � What Can Increment Used Must meet policy objectives in TIF Plan Must be in TIF Plan Budget Prohibited Uses: General Governmental Purposes Recreational Facilities, Parks and Trails Upgrades to public improvements "But For" Test The development is only possible but for the use of tax increment Elected body has to make this finding Underwrite the amount and term of TIF assistance provided Parcels consisting of 70% of area must be improved Improved area equals 15% area of parcel More than 50% of buildings must be substandard Building Conditions 15% Code Requirement More than 50% of buildings must be substandard Not including outbuildings Must document findings 90% of TIF used to correct redevelopment issues Reasonable distribution of conditions IN Redevelopment District Reasonable Distribution ■ TIF District Qualifications � Renewal and Renovation Dist Parcels consisting of 70% of the area must be improved 20% of buildings are structurally substandard 30% of other buildings require substantial renovation or clearance To remove inadequate street layout, incompatible uses or land use relationships, overcrowding of buildings, excessive dwelling unit density, obsolete buildings not suitable for improvement or conversion, etc. 90% of TIF must be used for conditions which allowed district to be established TIF District Qualifications � ..Housinq District Affordable Housing - Income test is main qualification Can include market rate housing to help contribute TIF to affordable buildings 100% tax increment used for affordable housing; 20% o used for comm f project's value can be �rcial/industrial development TIF District Qualifications � Economic Development Districliennnnft— At least 85% of new building space must be: Manufacturing Warehousing, storage, distribution Research and development Telemarketing Temporary — 2011 Jobs Parcels consisting of 70% of the area is occupied by buildings classified as commercial and industrial property for real estate tax purposes The planned redevelopment or development, when completed, will increase the total square footage of buildings classified as commercial and industrial property occupying the district by three times or more Use of Increment — land, acquisition, demolition and site preparation, public infrastructure or public improvements serving the district (with certain limits on streets and parking) Duration limit — 25 years Authority to create a Compact Development District expires on June 30, 2012 What is Abatement? 0 .. LEI The ability to capture and use all or a portion of the local property tax revenues within a defined geographic area to assist with commercial or housing development In practice, it an exemption is a rebate rather than from paying taxes IN ■ Encourage certain types of development or redevelopment that would not normally occur without assistance Create jobs Redevelop blighted sites Construct affordable housing Finance public improvements Finance up -front costs and provide additional equity to a development How Abatement Works Allows each major taxing jurisdiction to choose to contribute its share of the taxes and limit abatement in any manner it determines appropriate Can use to retain business by abating existing taxes Property owners do not need to give permission to abate taxes Abatement will not change their amount of taxes Who May Grant Abatement - III: 0 0 Cities. Counties. Schools. Towns ■ Only need approval by the governing boards Cannot abate the State property tax or Market Value tax How to Establish an Abatement iLi LEI ■ Identify parcels to include in abatement and research property information Quantify need for public assistance Publish a Notice of Public Hearing Must be published more than 10 and less than 30 days prior to hearing and identify properties to be included and abatement amount 0 Hold Public Hearing How to Establish an Abatement ALj LEI Adopt a resolution, which must contain the following: Term of abatement Statement of public benefit expected to result from the abatement Required findings Schedule of repayment of deferred taxes Terms of Abatement ■ Maximum of 15 or 20 years 20 year maximum if any one jurisdiction declines (or 90 days pass) after written request to participate 8 year maximum if the resolution is silent with respect to the term Public Purpose w LEI Should have evidence that the project meets the public purpose test Specific statement Developer proforma Comparable costs of land Risk Future development potential for site F -jM11-- - Vh ■ Benefits to the political subdivision at least equal the costs of the proposed agreement; AND Abatement is in the public interest Increase or preserve tax base Provide employment opportunities Provide or help acquire or construct public facilities Redevelop or renew blighted areas Provide access to services for residents Provide public infrastructure Phase in a property tax increase, in specific circumstances Stabilize the tax base IN ■ In any one year, the TOTAL amount a political subdivision may abate may not exceed the greater of: Ten percent of its net tax capacity $200,000 May not abate taxes on a parcel which is located in a TIF district Can abate taxes after a parcel is removed from a TIF district Abatement and Tax Levies ■ Abatements are special tax levies outside of levy limits Amount of abatement must be added to total levy for the current year Proposed levy for Truth in Taxation must include current year levy amounts Certified levy must include current levy abatement amounts Who Takes the Risk ■ Pay-as-you-go Developer funds TIF expenses and is repaid over time with interest General Obligation Bonds City issues debt to cover expenses TIF Revenue Bonds Investor in bonds takes risk Contact Information ■ Rebecca Kurtz rkurtz(a�ehlers-inc.com (651) 697-8516 Dave Callister dcallister(a�ehlers-inc.com (651) 697-8553 Abatement/TIF Compare ■ The following information is provided as a reference tool. The information may be helpful as a starting point to assist in the determination of whether tax abatement or tax increment may be more appropriate for your project. As always, contact your financial advisor and/or TIF attorney to assist in making the final determination. Tax Increment Captures and uses mos- of the increase local property tax revenues without approval of the other taxing jurisdictions Minnesota Statutes 469.174 to 1811 W - Abatement LEI Provides the ability for onr,- it mirt; tGxif,,, jurisdictions to capture and use all or a portion of their share of the local property tax revenues ■ Minnesota Statutes 469.1812 to 1815 Who Can Grant Assistance? - ■ Tax Increment City approves TIF Abatement Cities Counties Schools Towns Redo Substandard/Obsolete Buildings Redevelopment TIF Renovation and Renewal TIF Compact Development TIF Abatement Affordable Housing Housing TIF Abatement Job and Tax Base Creation Economic Development TIF Abatement -jil a Redevelopment - ■ Tax Increment Redo substandard/ obsolete buildings 15% of each parcel must be improved 70% of district area must consist of improved parcels Substandard buildings are required - Redevelopment and Renovation Districts Increased density is required — Compact District Reasonable distribution of conditions Abatement No coverage or inspection requirements Housingilli 01 Tax Increment Income test is main qualification More liberal rules on pooling Can include market rate housing to help contribute TIF to affordable housing Abatement No income requirements Economic Development ■ Tax Increment Goal is job creation Majority of new space must be manufacturing, warehousing, distribution, telemarketing, and/or research and development, or fall within the exceptions (small city retail, border city, tourism, bedrock) Abatement No use requirements Geographic Areas&11 01 Tax Increment TIF district must be in a project area, which sets boundaries for TIF expenditures; Project Area may contain multiple TIF districts TIF district defines parcels for capture of value Abatement Parcels with taxes being abated must be identified Maximum Terms ■ .W� Tax Increment Economic Development — 9 years Renovation and Renewal — 16 years Redevelopment— 26 years Housing — 26 years Abatement Participation by all 3 entities — 15 years Participation by 1 or 2 entities — 20 years Resolution is silent as to the term -8 years Approval Process ■ Tax Increment Requires notification to County and School District, but does riot require approval from other jurisdictions ■ City holds public hearing and adopts resolution with findings Abatement Requires public hearing by each Ndrticipating jurisdiction ■ Each i u risd iction adopts a resolution with statement of public benefit and term of abatement Amount of Assistance ■ Tax Increment Captures only the increase in value Abatement Flexible structure May capture existing values Reporting Requirements ■ Tax Increment Annual reports are filed with the Office of the State Auditor by August 1 Business subsidy reports may need to be filed Abatement No reporting requirements Business subsidy reports may need to be filed Tax Increment ■ No maximum on the annual increment generated or number of TIF districts F -1w. --Vk Abatement Maximum cannot exceed the greater of $200,OOC or , 0% if the net tax capacity Restrictions on Use M ■ Tax Increment Restrictions on use depending on type of district General government use is prohibited Recreational use is prohibited Abatement Few restrictions on use Cannot abate taxes on a parcel located in a TIF district Tax Increment Geographic restrictions and pooling Abatement Abatements are special levies and outside levy limits Amount of abatement must be added to total levy for current year Proposed levy and certified levy must include current levy abatement amounts LLI J Z LLI V4 •� O ct ct OC u ct +, ct b!J OC 00 u u ct r4 � U az' +� �, O �' �' N N •� p ct b!J 4� BOO U N-4-1 O Ct ct cr--, .- O c� 4� •►" c� O U +,jcn N CJ •� .� N O • ,� c� O O O O ct t 7:� cn U 42) �., U r--� r--� r--� 4J � N 4J +, r--� r--� • � +� U r--� r--� � N r--� r--� 4J rc cn7:�rC U L N U r ct M 7� U 'c$ U N O cn '� OC N _ N U N $-+ u v� U U ctu cn ct N �, O O v� U � O �1 � �"� INC 1 r-1 ct cn T--� cn -+-j V� U M p U� ;..4 vl ct �E O O ct ct Q rc �--a p�>r-� N p 7:� c� $,,, c� p � ct 4-j Ct ;--4 4-j cn U rc U4-1 U4-1 n ct '� Ct ctO 4� N 4� ct' b�A O 0 U -j 4-4 O � � •� cn �--� U N 0 N 0 L N UJ rl cn N 4-0 4 a) 4-0 U O ct ct 4-4 ct< ct ^ ct 4-4 X En � � � ctct O N O Nct L/] Nct M� ct ° Ct X CU o a 4 ct ct cn ct 'Z:� ct QJ •� 4J � U N � � ct U U �s O N ct ct c ct O ctI � O c 4� Ct U Q + U 7� W j ct W