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Home My WebLink About9D - Tax Increments AGENDA ITEM: DISCUSSION: CITY COUNCIL AGENDA REPORT JUNE 17, 2002 9D DONALD RYE, PLANNING DIRECTOR CONSIDER APPROVAL OF REPORT RELATING TO TAX INCREMENT DISTRICTS 1-1,1-2 AND 2-4 History This report deals with three TIP Districts established by the City over the past 17 years. TIF District 1-1 was established on June 19, 1985. TIP District 1-2 was established on March 23, 1988 and TIF District 2-4 was established on August 2, 1994. All three districts were modified in October, 1996. Earlier this year, staff noted some discrepancies in some of the reporting forms sent to the State auditor dealing with these three districts. Staff conducted a review of the three districts with the assistance of Mary Ippel, attorney with Briggs and Morgan and Sid Inman of Ehlers Associates. Their comments are attached. Current Circumstances The review of the three districts indicated that the modification of TIF District 2-4 was improper because it did not separate the budgets for the three districts. The review also indicated that, because of statutory restrictions on the use of TIF funds, the City cannot incur other expenses with regard to this district. As a result, the district should be de-certified as it no longer qualifies as a TIF district because of the time elapsed since its establishment. Regarding Districts 1-1 and 1-2, the review showed that, while the budgets need to be amended, the City could continue to receive increment and generate expenses relative to these districts, Both 1-1 and 1-2 are located within the Downtown Development District 1, Issues There are two issues associated with the findings of the TIF review. The first is the budget amendment for Districts 1-1 and 1-2. Staff believes the budgets should be amended as recommended by Ehlers, thereby making significant monies available for Downtown redevelopment efforts. As of April 30th, 2002, these two districts had a combined balance of$288,381. The second issue involves the decertification of TIF 2-4. Decertification means that the current account balance of $184,745 1626d~~~~s~r~~~CAM:%~~,119fJblffi~e, Minnesota 55372-1714 / Ph, (952) 447-4230 / Fax (952) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER AL TERNA TIVES: RECOMMENDED MOTION: REVIEWED BY: would be returned to the County for distribution to the appropriate taxing jurisdictions. Staff believes this to be the proper approach. The alternative is to leave it as is with the likelihood an audit by the State Auditors office would point out the problems with the district and the funds would have to be returned in any case. Staff believes the City should be proactive in dealing with this district. ronr lm:i on Staff believes the budgets for Disricts 1-1 and 1-2 should be amended as recommended and that TIF District 2-4 should be de- certified. In thew event the City Council approves the de-certification and budget amendments, the appropriate resolutions will presented to the Council in July. The next two agenda items identify the proposed use of the money: 1) Downtown improvements such as the Pleasant Avenue Parking and 2) the Fa<;ade Restoration Matching Grant Program, 1. Direct staff to initiate the budget amendments for TIF Districts 1-1 and 1-2 and commence de-certification of TIF District 2-4, 2. Do not direct staff to initiate budget amendments or de-certification, 3 ,Defer action for specific reasons Alternative 1. L:\02FILES\02eda\CCREPOR T61702TIF ,doc 2 BRIGGS AND :MORGAN 2200 FIRST NATIONAL BANK BUILDING 332 MINNESOTA STREET SAINT PAUL, MINNESOTA 55101 TELEPHONE (651) 223-6600 FACSIMILE (651) 223-6450 PROFESSIONAL ASSOCIATION WRITER'S DIRECT DIAL (651) 223-6620 WRITER'S E,MAIL mippel@briggs,com April 11, 2002 VIA E-MAIL Mr. Donald Rye Prior Lake City Hall 16200 Eagle Creek Avenue SE Prior Lake, MN 55372-1787 Re: City of Prior Lake, Minnesota Dear Don: This letter is sent to summarize our recent meeting concerning Tax Increment Financing Districts Nos. 1-1, 1-2 and 2-4. Tax Increment Financing Districts No, 1-1 and No. 1-2 are redevelopment districts. Tax Increment Financing District No. 1-1 was established in 1985 and Tax Increment Financing District No. 1-2 was established in 1988. I would appreciate receiving information concerning the certification dates of these districts, The budgets for these TIF Districts can be amended to provide for the use of tax increment for the amended budget costs. Assuming that these TIF districts were certified before October 3, 1989, the TIF Districts are not subject to the 90% test relating to redevelopment districts established after that date. Please review the budgets for Tax Increment Financing Districts Nos. 1-1 and 1-2 to determine if they should be amended to reflect the City's current intent with respect to the unspent tax increments. With respect to Tax Increment Financing District No. 2-4, the City has only expended $6,126.00 oftax increment since this TIF District was established in 1994. Since this TIF District is subject to the pooling restrictions contained in Minnesota Statutes, Section 469.1763 and because the City is beyond five years from the certification of the TIF District, the City can not incur additional expenses with respect to the TIF District. It is my recommendation that the City decertify this TIF District and return the unspent tax increments to the County Auditor for distribution to the respective taxing jurisdictions. 1397022vI MINNEAPOLIS OFFICE' IDS CENTER' WWW.BRIGGS.COM MEMBER - LEX MUNDI, A GLOBAL ASSOCIATION OF INDEPENDENT LAW FIRMS ----r BRIGGS AND MORGAN Mr. Donald Rye April 11, 2002 Page 2 If you have any additional questions, please do not hesitate to contact me. Very truly yours, /s/ Mary L. Ippel Mary L. Ippel MLI/tfy 1 397022vl MEMORANDUM TO: Frank Boyles, City of Prior Lake Don Rye, City of Prior Lake Mary Ippel, Briggs & Morgan FROM: Sid Inman, Ehlers & Associates Rebecca Kurtz, Ehlers & Associates DATE: May 31, 2002 RE: Prior Lake Modification of TIF Districts 1-1,1-2 and 2-4 The City established three tax increment financing districts: TIF District No. I-Ion June 19, 1985; TIF District No. 1-2 on March 23, 1988; and TIF District No, 2-4 on August 2, 1994. The three districts were modified in October 1996. According to the Modification to Tax Increment Financing Districts No.1-I, 1-2 and 2-4, the intent of the proposed modification was to "expand Tax Increment Financing District No. 2-4 to include approximately 30 acres of blighted commercial property east of Highway 13 between Franklin Trail and Duluth Avenue and merge the financial resources of all three tax increment districts in order to fund necessary public improvements and stimulate redevelopment by private parties." In the view of Ehlers and Associates, this modification was improper because it did not separate the budgets for each district. We believe that the Office ofthe State Auditor concurs with our opinion. We have compared the original budgets as adopted in the Tax Increment Financing Plans and compared them with the OSA Reports, Then we allocated the $3,500,000 modification among the three TIF Districts based on the percentage of increment through 2000. TIF District No, 1-1 received 60% of the increment; TIP District No. 1-2 received 16%; and TIF District No. 2-4 received 24%. (See "Original Modification as Allocated") The attached pages show the original budget as adopted, the proposed modifications to the TIF Plan budgets and to the OSA Reporting Forms, and the modification total for each district. Please do not hesitate to contact us if you have questions, from the desks of: Sid Inman & Rebecca Kurtz Ehlers & Associates, Inc. 3060 Centre Pointe Drive Roseville, MN 55113 Phone: (651) 697-8500 Fax: (651) 697-8555 T City of Prior Lake Original Modification as Allocated Modification Modification! Modification! Modification! Dated October 1996 Allocation Allocation Allocation of TIF 1-1 (60%) of TIF 1-2 (16%) of TIF 2-4 (24%) Revenues Tax Increment Revenue 3,330,000 2.100,000 560,000 840,000 Interest on Invested Funds Bond Proceeds Loan Proceeds Special Assessments Sales/lease Proceeds Loan!Advance Repayments Grants Other: Local Contribution 170,000 Transfers in Total Revenues 3,500,000 2,100,000 560,000 840,000 Expenditures Land/Building Acquisition 2,000,000 Site Improvements Installation of Public Utilities 1,250,000 Parking Facilities Streets and Sidewalks Public Park Facilities Social, Recreational Facilities Interest Reduction Payments Bond Principal Payments Bond Interest Payments Loan Principal Payments Loan/note Interest Payments Administrative Expenses 100,000 Other: Capital Interest Relocation 150,000 Transfers Out Total Expenditures 3,500,000 0 0 0 Revenues Over (Under) 0 2,100,000 560,000 840,000 Note: TIF is allocated based on allocation of TIF received through 2000,