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Home My WebLink About01 23 2017 TIF Presentation Report 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL WORK SESSION REPORT MEETING DATE: JANUARY 23, 2017 AGENDA #: B PREPARED BY: DAN ROGNESS, COMMUNITY & ECONOMIC DEVELOPMENT DIRECTOR AGENDA ITEM: OVERVIEW OF TAX INCREMENT FINANCING (TIF) DISCUSSION: Introduction City staff has asked Tammy Omdal of Northland Securities to provide the City Council with a general overview of Tax Increment Financing (TIF). History TIF has been used by many cities, including Prior Lake, for projects related to housing, industrial development and redevelopment. Currently, the city has six TIF districts, including three for Housing, two for Redevelopment, and one for Economic Development. Current Circumstances The most recent TIF approval was for an affordable senior rental housing project, The Grainwood. Another application has been recently submitted for TIF related to an affordable family rental housing project by Ron Clark called Pike Lake Marsh. This 68-unit project has received zoning and preliminary plat approval for a location at the northwest corner of County Highway 42 and Pike Lake Road. The previous City Council adopted a resolution of preliminary TIF support, but it now must go through the full TIF review/approval process. The TIF application awaited MN Housing’s granting of housing tax credits for Ron Clark’s project, which was done in the summer of 2016. Conclusion TIF is a valuable public assistance program that utilizes tax increase from a new or redevelopment project, including city, county and school taxes. It must be approved using the statutory “but for” determination whereby the project will not happen but for this assistance. ISSUES: City staff feels it is important for the City Council to gain a general understanding of TIF before it reviews any application for assistance. ALTERNATIVES: Discussion Only RECOMMENDED MOTIONS: N/A ATTACHMENTS: Northland Securities’ PowerPoint Slides OVERVIEW OF TAXINCREMENT FINANCING City of Prior Lake City Council Worksession January 23, 2017 The information in this presentation is based on sources believed to be reliable, but does not purport to be complete and is not warranted by Northland Securities, Inc.. Member FINRA and SIPC TAX INCREMENT FINANCING Purpose of this overview is to provide a high level overview of tax increment financing (“TIF”) Statutes that govern TIF are complex Minnesota Statute Sections 469.174 through 469.1794 (the “TIF Act”) This overview does not touch on all of the aspects of the TIF Act Overview focuses on information that is relevant for the City of Prior Lake and how it has utilized the TIF Act 2 OVERVIEW OFTAX INCREMENT FINANCING What is TIF? How is TIF used? What types of TIF districts may be created? How is a TIF district established? After established, how does TIF work? What is the “but for” test? What TIF districts exist in Prior Lake? 3 First Year of Tax Increment in Year 3 First Year of Payment on TIF Note in Year 3 4 Year Rule Compliance 5 Year Rule Compliance 6 Year Rule Compliance TIF Collection and Payments Continue – TIF Decertified Development Agreement Approved Construction Commences in Year 1 TIF District Certified by County Auditor New Building Valued in Year 2 Developer submits costs to City TIF Note issued Draft TIF Plan prepared Notice to County and School Development Agreement Prepared Draft TIF Plan Finalized Notice of Public Hearing Published Public Hearing and TIF District Established OVERVIEW OFTAX INCREMENT FINANCING EXAMPLEOFPROCESSTIMELINE 4 TIF Application Received Calendar Prepared City Council Calls for Public Hearing *Notice to County Commissioner Staff Begins Negotiations with Developer Possible City Council Worksession Note: Council meeting dates are shown in bold. *Notice to County Commissioner required for certain types of districts. WHATISTIF? Tax Increment is the local property taxes from the value of new development in a TIF district Not market value based property taxes Not State property tax levy Two basic purposes: Offset costs needed to make proposed development financially feasible Finance public infrastructure (streets, sewer, water, or parking facilities) that are related to the development Use of TIF governed by TIF Act and adopted plan for the TIF District (TIF Plan) 5 HOW ISTIF USED? Use of TIF varies by type of District Five types of TIF District Redevelopment Renewal and Renovation Housing Economic Development Soils Each type of District subject to different restrictions 6 HOW ISTIF USED? TYPESOFTIFDISTRICTS 7 DistrictType Use of Increment Duration (TotalYears of Collection after First Year) Redevelopment Redevelopblightedareas(greaterthan 50%ofthebuildingsaresubstandard)25 RenewalandRenovation Redevelopareaswithobsoleteuses, notmeetingsameblighttestasa RedevelopmentDistrict 15 Economic Development Encourage manufacturing andother industrialprojects 8 Housing Assistlowandmoderate income housing 25 Soils Cleanupcontaminatedsoils 20 HOW ISTIF USED? Project costs are typically incurred prior to the TIF district generating any tax increment Three basic financing techniques are used to finance project costs: Bonds Interfund loans Pay-as-you-go reimbursement to the Developer 8 HOW DOESTIFWORK? BASICELEMENTSOFTAXINCREMENT Original Tax Capacity (OTC) Value of property in District when established Taxes continue to go to local jurisdictions Captured Tax Capacity (CTC) Value from new development Current value minus OTC Original Tax Rate (OTR) Local tax rate when District established No tax increment collected above OTR Tax Increment = CTC X OTR 9 HOW DOESTIFWORK? EXAMPLEOFDISTRIBUTIONOFTAXES 10 Distributedto Taxing Jurisdictions Distributedto TIFDistrict Taxable MarketValue ofProperty(Residential) $241,600 $7,140,000 TaxCapacityofProperty(Residential) $1,812 $53,550 TaxesPayable basedonTaxCapacity 2: City $580 $17,130 $580 $16,550 County $664 $19,616 $664 $18,952 School 1 $591 $17,475 $591 $16,884 Other $136 $4,030 $136 $3,894 Total $1,971 $58,251 $1,971 $56,280 TaxesPayable basedonTaxable MarketValue 3 $742 $21,919 $21,919 TotalPropertyTaxesPayable $2,713 $80,171 $23,890 $56,280 Notes: 2. ResidentialpropertydoesnotpayState propertytaxes. State propertytaxescannotbe capturedforTIF. 3. Propertytaxespayable basedonmarketvalue cannotbe capturedforTIF. 1. Aportionofthe schoollevycannotbe capturedforTIF. The schedule above hasnotbeenadjusted. Distribution ofAnnualTaxes Payable After Development AnnualTaxes Payable Before Development AnnualTaxes Payable After Development Items HOW IS ATIF DISTRICT ESTABLISHED? PROJECT AREAVERSUSTIFDISTRICT TIF districts must be located within a Development District (Project Area) Multiple TIF districts can be established within a single Project Area City may spend limited tax increment collected from within a TIF district outside the boundaries of the TIF district and within the boundaries of the broader Project Area (referred to as “pooling”) 11 HOW IS ATIF DISTRICT ESTABLISHED? PROJECT AREAVERSUSTIFDISTRICT 12 Boundary of Project Area / Spend TIF within this Area Boundaries of TIF Districts within the Project Area / Collect TIF Revenue within these Areas HOW IS ATIF DISTRICT ESTABLISHED? STEPSINTHEPROCESS City receives an application from a developer for assistance and considers request for assistance TIF Plan and Project Area Plan (Development Program) is drafted Notification of public hearing and information on the draft plan is provided to School District and County (at least 30 days prior to public hearing) Public hearing is held following published notice City adopts resolution establishing the Project Area and TIF District and adopts the Plan 13 WHATHAPPENS AFTER DISTRICT IS ESTABLISHED? APPROVALOFDEVELOPMENTAGREEMENT Negotiate development agreement Terms and conditions for paying TIF to Developer Establishing TIF District only creates ability to use TIF Negotiation of the development agreement may occur during the same time the City is undertaking establishment of the TIF District Development agreement must be approved after TIF District is established Helpful for the City to be clear up-front on its policies and what is willing to do and not do to assist the project “Fast no” for the Developer is better than last minute changes 14 WHATHAPPENS AFTER DISTRICT IS ESTABLISHED? First year of increment occurs after there is an increase in the valuation from the original tax capacity (OTC) TIF Act contains other time factors that affect the use of TIF After qualifying project costs are paid (consistent with adopted plan) then TIF district is decertified, or maximum duration is reached, whichever occurs first 15 WHATISTHE“BUT FOR”TEST? Before a TIF district may be established, the city must make “but-for” findings that: the development would not occur without TIF assistance, and that the market value of the TIF development will be higher (after subtracting the value of the TIF assistance) than what would occur on the site, if TIF were not used. Findings are included in the resolution establishing the TIF district 16 WHATTIF DISTRICTS EXIST IN PRIOR LAKE? 17 WHATACTIVETIF DISTRICTS EXIST IN PRIOR LAKE? 18 Note: TIF1-5hasnotyetgeneratedtaxincrement;constructionisinprogress. Balances withinTIFdistrictsarerestrictedforeligibletaxincrementpurposesonly. TIFDistrict Number 1-3 1-4 3-1 5-1 6-1 1-5 TIFDistrict Name Lakefront Plaza RiverValley VetClinic Creekside Commons PremiereDance Academy Shepherds Path Gateway Grainwood DistrictType Redevelop- ment Economic Development Housing Redevelop- ment Housing Housing TIFPlan ApprovalDate 12/14/2001 9/19/2011 12/17/2001 3/6/2006 6/26/2006 5/11/2015 Required Decertification Date 12/31/2029 12/31/2022 12/31/2029 12/31/2034 12/31/2032 12/31/2035 TotalEstimated IncrementRevenue $3,000,000 $96,000 $1,600,000 $330,000 $6,186,000 $2,267,500 FiscalYear End 2015 Balance(Most Current ReportingYear) $121,882 $223 $85,038 $5,751 $227,306 $0 SUMMARY Important tool for helping the City achieve its development objectives Straightforward concept with numerous practical complexities Understanding basic helps City Council focus on policy issues 19 QUESTIONS 20 Tammy Omdal 612-851-4964 tomdal@northlandsecurities.com Rusty Fifield 612-851-4992 rfifield@northlandsecurities.com Northland Securities, Inc. 45 South 7 th Street, Suite 2000 Minneapolis, Minnesota 55402 800-851-2920 www.northlandsecurities.com