HomeMy WebLinkAbout8F - Res. 95-109
AGENDA #:
PREPARED BY:
SUBJECT:
DATE:
BACKGROUND:
DISCUSSION:
STAFF AGENDA REPORT
8F
FRANK BOYLES, CITY MANAGER
CONSIDER APPROVAL OF RESOLUTION 95-109
ELIMINATING LOCAL GOVERNMENT
AID/HOMESTEAD AGRICULTURAL CREDIT AID
PENALTY FOR TAX INCREMENT FINANCING
DISTRICTS
OCTOBER 16, 1995
As part of its efforts to "refine" tax increment financing
districts, the State Legislature has established a local
government aid (LGA/RACA) penalty for tax increment
financing districts. A recent amendment to state statute
allows cities to avoid the penalty if certain investments
are made by the city to the district. This agenda item
proposes that the city avoid this penalty by taking certain
actions.
Attached is a memorandum from Roger Guenette which
explains the LGA/RACA penalty as well as the steps the
city must take to eliminate it. In brief, the city is required
to make an annual investment in the TIF district in the
amount of at least ten percent of the annual increment.
Tax increment revenues and development payments do
not qualify as a local contribution from unrestricted funds.
There are five TIF districts in the Waterfront Passage
Business Park. Four of the districts have been certified
since June 30, 1994 and would be eligible for the
elimination of the RACA penalty. One of the Districts
(NBC Products) is already exempt from RACA penalty
since we dealt with this issue when we established the
district. The estimated penalty for the remaining three
districts is $43,000 in the case of Metro/American, and
$121,000 in the case of E.M. Products, and $18,500 for
Becker. Roger Gluenette has supplied the attached
16200 ~~l~R<Ave. S.E.. Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
proforma which details the impact of this action. This is
for the full ten year period of the TIF district.
In order to eliminate this penalty of $182,500 it is
necessary for the city to establish a means through which
it can pledge unrestricted funds to these districts. Roger's
proposal is to take the necessary steps to make the
additional pledge required. In essence this means that the
city must make a contribution of 10% of the TIF district
revenues in order to save 30% of those revenues. In
private sector terms, this means making an investment of
10% to save 20%. It is a prudent business move. We have
no idea of how long this option will be available to us, so it
is important for us to take action as soon as possible.
ISSUES:
The primary issue is can the city find the necessary
funding to provide the additional pledge? I believe that by
using 50% of the economic recovery grant received on
behalf of E.M. Products as a pledge toward unrestricted
funds, combined with the contributions by the enterprise
fund and trunk fund, we will be able to meet the
contribution threshold required. It is possible for us to
better track the time invested by staff members in
administering these districts as part of this unrestricted
fund contribution.
ALTERNATIVES:
The Council has the following alternatives:
1. Authorize staff to pursue elimination of the
LGAlHACA penalty for tax increment financing
districts established since June 30, 1994 by adoption
of Resolution 95-109.
2. Take no action.
RECOMMENDATION: Alternative #1.
REQUIRED:
Motion and second to initiate steps necessary to eliminate
the LGAlHACA penalty for Tax Increment Financing
Districts created after June 30, 1994.
Attachment.
AGI01695.DOC
~INNESO~~
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PRIOR LAKE
PLEDGING A CONTRIBUTION OF
UNRESTRICTED FUNDS IN SUPPORT OF
T AX INCREMENT FINANCING PROJECTS
RESOLUTION 95-109
MOTION BY: SECOND BY:
WHEREAS, the City Council of the City of Prior Lake has previously established Tax
Increment Financing Districts Nos. 2-2 and 2-3 which were certified by
the Scott County Auditor on June 2, 1995; and,
WHEREAS, the City Council of Prior Lake has also previously established Tax
Increment Financing District No. 2-5 which was certified by the Scott
County Auditor on June 29, 1995; and,
WHEREAS, pursuant to the 1995 Omnibus Tax Bill, Article 5, Section 6, the City
Council may request an exemption from a LGAlHACA penalty if a
contribution of unrestricted funds in excess of 10% of the tax increment
revenues is pledged.
NOW THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF PRIOR
LAKE, hereby pledges to make a contribution of unrestricted funds equal to or in excess of
10% of the annual tax increment revenues generated from Tax Increment Financing Districts
Nos. 2-2, 2-3 and 2-5. By this action the City of Prior Lake will be exempt from any
LGAlHACA penalties in relation to the Tax Increment Financing Districts.
BE IT FURTHER RESOLVED that the City Manager is hereby directed to file a copy of
this resolution with the Minnesota Department of Revenue and the Scott County Auditor.
Passed and adopted this 16th day of October, 1995.
YES NO
Andren Andren
Greenfield Greenfield
Kedrowski Kedrowski
Schenck Schenck
Scott Scott
{Seal} City Manager
16200 ~~o~k Ave. S.E.. Prior Lake. Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
DYANeS
DATE:
October 10, 1995
TO:
Frank Boyles
Jeannie Robbins
FROM:
Roger Guenette
RE:
Elimination 01 LGA/HACA Penalty For Tax Increment Financing Districts
The purpose of this memo is to summarize our discussion regarding steps and oplions to eliminate the
LGAjHACA penalty on existing and future tax increment financing districts. Pursuant to recent legislation,
munidpaHties may ma.ke a local contribution from .unrestricted funds" towards the project in an amount
equal to at least' 00;0 o~ the annual tax increment revenues and thus be exempt from LGAlHACA penalties
for economic dcvr!nprnent TIF districts. "Unrestricted funds" are defined as proceeds such as general
funds. prQperty tax levy or a federal or state grant~in~aid which may be spent for general government
purpos~$. Tax increment r~venues or developer payments do not qualify as unr€ostricted funds, Cities
may elect to mf1~e a local contribution and thus avoid the LGAlHACA penalty fvi any' tax increment district
certified after June 30. 1994.
In th~ case of Waterfr""t Passage Business Park. the City has established five TfF districts thus far: four
of these distr'cts (No. 2-2 Becker Arena Products. No. 2.3 Metro/American. No. 2~5 E M Products and No.
2-6 NBC Produ~$) have been certified since June 30. 1994. Following is a table depicting total increment
revenues and LGNHACA penalties for these TIF Districts and the balance of undeveloped land in
WaterFront Passage Business Park:
TIF 2-3 TIF 2-6 Undeveloped
TIF 2.2 M etrol TIF 2-5 NBC Parcels:
Becker Arena American E M Products Products 10.3854/ TOTAL
acres
Gross TI F $100.225 $146,000 $403.200 $295.400 $1.628,600* $2,573,425
Revenues
LGA;HACA $30.100 $43,000 $121,000 $88,600 $448.600 $772.030
Estimate
NET TIF $70, '25 $103,000 $282,200 $206.800 $1,1401000 $1,801,395
· Assumes 250/0 lot coverage and real estate tax of $1 .SO/SF., 9 years of tax increment revenues
In order to avoid the LGA/HACA penalty the City would have to contribute approximately $258.000 in
unrestricted funds (10% of the total gross TIF revenues). At the onset ofthe WaterFront Passage Business
Business Finance and
Economic Development
Specialists
COI<?Cj)l\ T,: ;)ff;CE5:
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MpIS.. MN 5..'S432-00t)Q
Phone: (612) 755- 77 d 1
Fox.: (612) 755-5:'.93
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Park project the City injectad $355.000 of proceeds from the Enterprise Fund and Trunk Fund and bonded
for an additional $1.400.000 to finance 'and acquisition and infrastructure Improvements_ The pro forma
cash flow schedule depicted the repayment 01 $202,500 to the Enterprise Fund and Trunk Fund from tax
increment re'olenues and/or net sale proceeds; thus, the net contribution of unrestricted funds to the project
was to be $152,500 for the entire 20 aCre development, TIF District No. 2-1 (Keyland)....s certified prior
to June 30, 1994 and is not eligible for relief from the LGAlHACA penalties: this district eneompasses
1.2817 acres. Consequently, the City's iniliallocal contribution must be pro r<lted against the aereage
eligible for relief from LGAlHACA penalties reducing the amount to $142,727. Additionally, pursuant to
the recent legislation regarding this issue. the City may Count 50% of the Economic Recovery Grant
receivQd on behalf of the E M Products expansion towards the pledge of IJnrestricted f\Jnds. Since the
grant fs10r $50,000, the additional amount required tor pledge of unrestricted funds is reduced by $25.000
to a total of $90,273. Thus, in order to avoid the LGAlHACA penalty the City would have to pledge itn
additional $90.273:
10% of Estimated Gross TIF Revenues
Less Existing Pledge of Unrestricted Funds
Less 50% of Economic Recovery Grant
Additional Pledge Required
$258.000
~142,727
~ 25.000
$ 90,273
The City had originally contributed $355,000 of unrestricted funds and was to receive reimbursement for
$202,500 via lax increment. The additional estimated contribution requirement of $90,273 may be
accomplished by reducing the amount of reimbursement to City funds from $202,500 to $112.227.
11 a decision is made to provide such a contribution, th9 City would net approximately $772.000 in
additional TJF reYenues_ These proceeds. combined with other tax increment revenues ard net sale
proceeds could be used for activities such as expansion of the City's industrial area, contributions to a
revoJving loan fund or extension of utilities to the Credit River Industrial Area. In order to implement these
funding strategies tho City would need to expand the Project Area boundaries to include property outside
of the WaterFront Passage Business Park and modify the tax increment districts to allow for expenditure
of these excess revenues.
Attached is a revised proforma cash flow for WaterFront Passage Business Park. This schedule
incorporates and depicts the economic impacts associated with a pledge of unrestricted funds equal to
10% of the increment receipts for all of the TIF districts except No. 2.1 (Keyland) and the eJimination of
the LGA/HACA penalty; also included In this pro forma analysis is a recalculation of the land development
cost due to a reduction from 22 acres to 20 acres of land available for development. The reduction of !\va
acres of land available for development has increased the City's cost from $1. 75/SF to $1.93/SF. Despite
this increase the City should stiJI maintain a positiVe cash flow (approximately $303.000) in excess of the
original projections. This POSitive cash flow is attainable based upon the elimination of the LGA/HACA
penalty - If the LGA/HACA penalty is applied against the four TIF districts eligible for exemption the cash
flow would be reduced by approximately ($190.000) to a net of $113.000.t
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CITY OF PRIOR LAKE
WATERFRONT PASSAGE COST/PRICE PROFORMA
Cost Itemim1ion
Price per
O.velooment COtII Saua..e Foot ~
Improvemenl:S 1,111.612 '.160 eo.lS6':l6
Land PUfcNse 184,794 0.193 10.08%
Land Mong8g. Int..rest 66,996 0.070 5066%
Bond Interest 2S9.085 0.248 13.05%
Future Projeet Allowance ~.m ~ ~
1,832.487 1.912 100.00%
Less City Ccx1tribu1ion (H52 71H ~ 8.~
(213,211.60.500)
Net CIry C08I8 1,679, T16 1.93
Oeve'opable Acreas 20
~opabl. Sque.re F__ 811.200
lend Sajfll Summ8fV ~~v'~.~~om~ 8ecl<er .4.rena A"J'-Kican Glass
Building Square Feet 18.000 6.900 5.000
At;;f~
1,7
142.920.00
(5.500.00)
l.and Purchase Cost
Less Down Pa.yrn~1l!
Ju&y 1996 c:>aymet'lt
Oeeem~r 1996 payment
Soil Cotre<;tiOf' by City
SubT.012.I
15.000.00
154.420.00
Otber City Expen.
Reimbursement Soil CaTedi0f16
Aeimbunsement SUNey and Soil 9cxings
Consulting Fee6
Legal Feee
1111. Work. RI.lcordlng. EtC.
Less Developer Reimbursement
Subto1al Othet Citv Expense
Gra.nd Tobl. TIF R.Jmbu~bl.
7.500.00
500.00
lee.oo
8.166.00
162~586.00
E=stim8T8d Ta;w: Incr~M....,t F'rO("~~ 22~.OOO.OO
Less LGA Penetfy (~) (67.5C)(tOO)
Less , 0% conV'lbudon of Unres1rlcTed Funds 0
Le65 pay as you go
Land Acquisition
SoU CorrdOf'\
Net TllX Inl;..(\m~rd AvuUab'.
o
o
1~7,500.00
Net Gain (Loss) to City ($5.086.00)
Gain/Loss pM square foot . Lnnd (I.07)
Other Funding Sources. OTEO grant
CUmulative Galo/Los:s ($S.0e6.00)
'.2817
107,753.00
(45,470,00)
62.2.83.00
22.360.00
7.500.00
500.00
678.00
(2.500.00)
28,418.00
$4,643.00
100.22400
o
(10.024)
o
o
90,200.00
$5,557.00
$.10
$471,00
~t~rr9-.~i~~ E M P!"orll."'~ N8C p.~'-'Ct'S
5,000 2SBOO , 9.200
0.6759 3627 ',83
56.823.00 304.924.00 , 53.850.00
(8.200) (55.300.00) (75.000)
<, 7 .33~tOO)
(17,3:32.00)
48.623.00 214,959.00 78.850.00
0.5
42,035.00
(3.500.00)
38:535:00
1.500.00 , .500.00 2.774.00
3.7SO.00 3.750.00 9.000.00
300.00 300.00 5C)O.00
(3 1~.OO) (3,750.00) (1500.00)
1.800.00 1.800.00 4.n4.00
40.335.00 ~~ 423..'30 219,733.00
73.000.00 73.000,1)0 ...oS , 2OS.00
0 0 0
(7.500) [1.300) (40,320)
0 0 O.
(7.200.00) (7 200.00) _----l!:
58,500.00 53,500.00 362.888.00
$18,165.00 $8.076.00 $143,'55.00
$.8:3 $.V $.91
50.000
$18.6V.OO S2'6.703.oo $219.858.00
7.5CX).00
500.00
a.ooo.oo
e6.350.00
295.400 00
o
(29.540.00)
(96.000.00)
~
169.860.00
$83,010.00
$1.04
S302.868
.. Cooting~ liability TO ~ paid only if' 1h(t ~wnt ';'81 TIF je\Hllnue.~ f,.<<..-d projooc"dons. In ~ls Elv('lm the ~~'.,)per IIoIould recei""6 additiooa!
reimburoernent. but the C'ty W'Q4...I!d "Ot experi~e '!L"Y red.jGtjon in net 'evoenuee aD d~pi<:ted herein.
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