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HomeMy WebLinkAbout010306 TIF Work Session16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 CITY COUNCIL AGENDA REPORT MEETING DATE: AGENDA#: PREPARED BY: January 3, 2006 5:30 p.m. Work Session Paul Snook, Economic Development Director AGENDA ITEM: CITY COUNCIL WORK SESSION: PRESENTATION ON TAX INCREMENT FINANCING (TIF) BY EHLERS & ASSOCIATES, INC. DISCUSSION: Introduction Rebecca Kurtz and Sid Inman of Ehlers & Associates, Inc (financial / TIF advisors) will be at the January 3, 2006 City Council Work Session to provide the City Council and staff with a primer on tax increment financing. Called "TIF Basics", the intent of the presentation is to provide new and experienced council members with a basic understanding of TIF. A periodic review of TIF is helpful in order to keep up with changes in TIF law. Attached to this report are three documents which council members may want wish to review prior to the session: · "TIF Basics"- Presentation Outline · City of Prior Lake Business Subsidy Policy · City of Prior Lake TIF Policy History The City of Prior Lake has historically used TIF very effectively in forwarding economic development efforts, from redevelopment districts such as Lakefront Plaza, to economic development districts such as EM Products and On-Site Engineering. Current Circumstances Currently there is an application for redevelopment TIF. After the Work Session, as part of the City Council Agenda, City Council is asked to call for a public hearing for the establishment of Tax Increment Financing District No. 5- 1 for the purposes of assisting in the redevelopment of property located in the downtown area for the future location of Premiere Dance Academy (PDA). PDA has submitted preliminary and full applications for TIF, and has paid the required TIF application fee of $12,000. In addition, staff anticipates a housing related TIF application in the first quarter of 2006. Conclusion As part of the work session, City Council members are encouraged to ask Ehlers & Associates representatives about whatever TIF questions they may have. ~: , .ci ofpi rlak~ om Prime~',©OC Phone 952.447.4230 / Fax 952.447.4245 ISSUES: FINANCIAL IMPACT: ALTERNATIVES: RECOMMENDED MOTION: ATTACHMENTS: None None N/A N/A "TIF Basics"- Presentation Outline City of Prior Lake Business Subsidy Policy City of Prior Lake TIF Policy Reviewed by: / Frank Boyles, City/~ger l C:\©ocuments and Set~ings\cgreen'sLocai Settinc~s\Tempo~'ary h'~lsrnet r: ,',~'~0~ ~... ,:~,o,,s ..... '~' Report ~:'tiers T ~:z P~met~, DOC TIF Basics City of Pdor Lake January 3, 2006 rview Powerful economic/community development tool Govemed by complex set of statutes Rules keep changing is TIF? ability to capture and use all increased local property tax revenues Crom new development bin a defined geographic area, Blocks of TIF Tax revenues Value in Also cel~ed~ go to all local Di~ when "base value" governmeats Building Blocks of TIF Assistatce = TIF District "capttm~" Captum~ Tax value from ~ew Capacity X development Tax Rate Development occum Use TIF? Encourage certain types of development or redevelopment that would not normally occur without assistance. - Create jobs - Redevelop blighted areas - Remediate polluted sites - Construct affordable housing Policies Important to limit the use to projects with most benefit Could require certain job growth, market value growth, participation of other jurisdictions or state, type of business, or term. Can specifically exclude bonds or limit to a certain value. Project Area - Where ect Area · TiF districts must be located in a Project Area or a Development District o Established by various statutory authorities (EDA, City Powers) · Sets boundary for TIF expenditures EHLERS District - Project Area · Defines pamels for capture of value · Some increment can be spent outside the TIF District, but in the Project Area ("Pooling") · Project Area can contain multiple TIF Districts of TIF Districts Different rules for each type - Redevelopment-condition now - Economic Dev. and Housing - f~ture conditions Uses and duration of tax increment differ by district Old districts are grandfathered in with the old rules pment Improved parcels and structurally substandard buildings - Improved area equals 15% area of parcel - More than 50% of buildings must be substandard 90% of TIF used to correct redevelopment issues 26 year maximum duration ~ 100% tax increment used for housing; 20% of project's value can be used for commercial/industrial development 26 year maximum duration 25% of project costs from any TiF district can be used for affordable housing outside the district Owner occupied housing: 95% of units sold to persons at 100% to115% median income Rental housing must be income restricted for the life of the district - 20% at 50% of median income - 40% at 60% of median income - 50% at 80% of median income ~mic Development Specific forms of development - Manufacturing - Warehousing - Research and Development - Telemarketing - Tourism Conditions - Bedrock Conditions Economic Development 8 years after receipt of first increment At least 85% square feet of a building must be a "good use" or be space necessary and related to the "good use" Small city exception for commercial (5/10/10/15 Rule) EHLER$ Set Up a TIF District Determine the Project Area Identify the parcels to include in district · Research property information - Assessed values - Current and proposed class rates - Current and proposed zoning · Quantify need for public assistance Plan Controls use of TIF Prescribed by State Law and reviewed by the State Auditor · Key contents - Description of district - Expected development and contracts - Findings · abut For" Test - Budget for costs and revenue sources · Should be as high as possible 0 TIF Plan Key contents (cont.) - Parcels to be acquired - Maximum debt to be incurred - Duration of district - Current and future tax capacities - Estimate of tax increment - Impacts on other jurisdictions - Studies and analyses EHLERS Uses of TIF Eligible uses - Land acquisition - Demolition and clearance - Site improvements - Public utilities - Relocation - Administration - Other public improvements - Interest on financing Findings Required in the Resolution · Type of Distdct and Suppoding Facts Conforms to General Plan of City Consistent with Project Plan · "But For" Test - General test - Market Value test But For Tests · Should have evidence that project meets tests - Developer Proforma - Comparable costs of land - Risk - Future development potential for site Restrictions & Rules General government use is prohibited Recreational use is prohibited Public improvement upgrades Geographic restrictions and pooling Three Year Activity Rule Each District must have activity within 3 years from Cour~y Certification date. - Issuing bonds in aid of the project - Acquiring property within the TIF district - Constructing or causing construction of public improvements within the TIF district Rule - Down" Each parcel must have activity within 4 years of County Certification date. - Demolition of buildings - Rehabilitation or renovation of property - Other site preparation, including street improvements, but not installation of utility service Five Year Rule - "Limit Pooling Restriction" Activity must take place § years from the County Certification date, - Paid to a third party for activities - Pledged to pay bonds to pay for activities - Binding contractual obligation - for activity =~'.~.~(~ - Reimbursement of costs for the activity, including interest Parcel Removal Can be any time dudng the life of the district - Can remove by resolution if current tax capacity > original tax capacity - Must remove by public hearing process if current tax capacity < original tax capacity EHLERS In Closing... Complex matter - Ask questions - Get good guidance Administration can be a hassle State Auditor is active in reviews Is it necessary? Allow enough time Monitor the Legislature Questions? Rebecca Kurtz 651-697-8516 rku~z@ehlers-inc.com Sid Inman 651-697-8507 sid@ehlers-inc,com In order for a proposed tax increment financing district to quali~ as a redevelopment district under Mi~esota Statutes, Section469.174, Subd. 10(a)(1), it must meet ~o t~eshold criteria: (1) "Parcels consisting of 70% of the area of the district must be occupied by buildings, streets, utilities, paved or gravel parking lots or other similar structures and more than 50 percent of the buildings, not including outbuildings, are structurally substandard to a degree requiring substantial renovation or clearance." The statute requires a parcel by parcel analysis that is ultimately concerned with the percentage of the total area that improved parcels occupy rather than the percentage of the number of parcels that contain improvements. For a single parcel to be considered improved, 15% of its area must contain improvements. The presence of any of the following may constitute improvements for the purposes of this test (specific examples should be discussed with an attorney): · · buildings · · utility lines · · drainage ditches · · sidewalks · · parking lots · · storage facilities (2) More than 50% of the buildings must be "structurally substandard." Determining whether a building is structurally substandard requires a two part analysis: First, a building must meet the statute's definition of"structurally substandard." According to M.S. Section 469.174, Subd. 10(b), structurally substandard means "containing defects in structural elements or a combination of deficiencies in essential utilities and facilities, light and ventilation, fire protection including adequate egress, layout and condition of interior partitions, or similar factors, which defects or deficiencies are of sufficient total significance to justify substantial renovation or clearance." Second, the repairs, which the first part of the test determines are needed, must meet a cost requirement. According to the statute a building is not structurally substandard if it could be brought up to the building codes applicable to new buildings at a cost of less 15% of the cost of constructing a new building of the same square footage and type on the site. In other words, if a 20 year old building contains structural defects or deficiencies sufficient to require substantial renovation and the cost of replacing that building is $100,000, the building can be considered "structurally substandard" for the purposes of a redevelopment TIF district if the cost of bringing it up to code (making it handicapped accessible for example) is greater than $15,000. However, the failure of a building to be disqualified under this test is a necessary, but not a sufficient, condition to determine the building is substandard. Ehlers & Associates, Inc. 3060 Centre Pointe Drive, Roseville, Minnesota 55113 651.697.8500 If there are 3 buildings in the district, 2 of them must meet this test. If there are 10 buildings in the district 6 of them must meet this test. An interior inspection is required unless the city has been unable to obtain permission to enter a building despite its best efforts. We recommend having a building inspector or other qualified person perform an onsite inspection of all buildings in the district and render a written opinion as to each buildings status with respect to this test. Ultimately, the governing body of a municipality must make the determination that the buildings are substandard. In addition to the above "blight" finding, a district may qualify as a redevelopment district under Minnesota Statutes, Section 469.174, Subd. 10(a)(2), (3), and (4) and if any of the following conditions are present: The property consists of vacant, unused, underused, inappropriately used, or infrequently used railyards, rail storage facilities, or excessive or vacated railroad rights-of-way; Tank facilities, or property whose immediately previous use was for tank facilities, as defined in M.S. Section 115c.02, Subd. 15, if the tank facilities: · have or had a capacity of more than 1,000,000 gallons; · are located adjacent to rail facilities; and · have been removed or are unused, underused, inappropriately used, or infrequently used; or · · A qualifying disaster area, as defined in Subd. 10b. Ehlers & Associates, Inc. - TIF & Redevelopment City of Prior Lake, Minnesota Business Subsidies Policy Adopted: Economic Development Authority Prior Lake City Council Amended: DATE: October 18, 2004 City of Prior Lake 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372 (952) 447-4230 CITY OF PRIOR LAKE POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES I. PURPOSE ICor the purposes of this document, the term "City" shall include the Prior Lake Ci[y Council and Economic Development ~tuthoti~y. The purpose of this policy is to establish guidelines and criteria regarding the use of business subsidies, such as tax increment financing (TIF), tax abatement, and other business subsidies for private development projects within the City of Prior Lake and shall be in addition to the requirements and limitations set forth by provisions of Minnesota State Statute 116J.993 (MN Business Subsidy Law), and by the City's policy and guidelines of the particular form of subsidy. These guidelines shall be used in processing and reviewing applications requesting business subsidies assistance. The fundamental purpose of business subsidies in the City is to encourage desirable development or redevelopment that would not othenvise occur "but for" the assistance provided through business subsidies. It is the intent of the City to provide business subsidies, as well as other incentives that the City may deem appropriate, at the shortest term required for the project to proceed. The City reserves the right to approve or reject projects on a case-by-case basis, taking into account established policies, specific project criteria, and demand on city services in relation to the potential benefits to be received from a proposed project. Meeting policy guidelines or other criteria does not guarantee the award of business subsidies. Furthermore, the approval or denial of one project is not intended to set precedent for approval or denial of another project. Whenever possible it is the City's intent to coordinate the use of business subsidies with other applicable taxing jurisdictions. II. DEFINITION OF "BUSINESS SUBSIDY" The following types of assistance having a value in excess of $25,000 are defined as a "business subsidy" within the MN Business Subsidy Law: · State and local government agency grants; · Contributions of personal property, real property, or infrastructure; City of Prior Lake Business Subsidies Policy 2 The principal amount of a loan that exceeds $75,000 at rates below those commercially available; Reductions or deferrals of taxes or fees; Guarantees of any payment under any loan, lease, or other obligation; and, Preferential use of government facilities. III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES In accordance with the MN Business Subsidy Law, the City will consider using business subsidies to assist private development projects to achieve one or more of the following public purpose objectives: To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits. · To enhance and diversify the City of Prior Lake's tax base. To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off" development. · To achieve development on sites which would not be developed without business subsidies assistance. · To remove blight and/or encourage development of commercial and industrial areas in the city that result in higher quality development or redevelopment and private investment. · To offset increased costs of development of specific properties when the unique physical characteristics of the site may otherwise preclude private investment. IV. Co GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES Business subsidy assistance will be provided from the City, by a "pay-as-you-go" method, to the developer if the business subsidy is tax increment financing or tax abatement. Requests for up front financing will be considered on a case-by-case basis, but are to be considered the exception rather than the rule. A developer requesting business subsidy assistance must demonstrate, to the satisfaction of the City, sufficient cash equity investment in the project as required within the City's policy for the particular form of subsidy. Business subsidy will not be provided in circumstances where land and/or property price is demonstrated by the County Assessor to be in excess of fair market value. This would normally be where the acquisition price is more than 10% in excess of market value, but the City has the right to use discretion in determining value and the overall project impacts/benefits will be considered.. City of Prior Lake Business Subsidies Pohcy 3 F0 J0 A developer must be able to demonstrate to the City, or, if applicable, to the underwriting authority, a market-demand for a proposed project. Such market demand demonstration can consist of market studies supporting the development proposal, pre-leasing or leasing commitments for at least 50% of the proposed project, other forms of research/study that documents the need, or other evidence that may be acceptable to the City. Business subsidy will not be used in cases where the subsidy would create an unfair and significant competitive financial advantage over other similar projects in the area. Business subsidy will not be used for projects that would place extraordinary demands on city infrastructure and services. If requested by the City, the developer shah provide adequate financial guarantees to ensure completion of the project, including, but not limited to: assessment agreements, letters of credit, cash escrows, and personal guaranties. Each developer must be able to demonstrate to the City's satisfaction, an ability to construct, operate, and maintain the proposed project based on past experience, general reputation, and credit history. If requested by the City, or its consultants, the developer shah provide sufficient financial, environmental, or other data relative to the successful operation of the project. Projects receiving business subsidy approval from other affected taxing jurisdictions will be more favorably received by the City. Vo Bo GUIDELINES FOR COMMERCIALJINDUSTRIAL BUSINESS SUBSIDIES Business subsidies will not be used for on-site retail or service businesses unless it is a redevelopment project that demonstrates that it will result in a substantial increase in tax base and a significant improvement in quality development, a reduction of blight, and/or an increase in employment. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. If the project is not consistent at the time of application for Business Subsidy, the applicant must first obtain approval from the City of any required zoning or comprehensive plan amendments, changes, variances, etc. If the developer is successful in gaining approvals, then the developer may be eligible to receive a business subsidy from the city. The project must result in the retention of existing jobs that would be lost "but for" the proposed development or result an increase and diversification in local jobs. Business retention jobs will be considered on a one-for-one match to job creation City of Prior Lake Business Subsidies Policy 4 only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law. Specific wage and job goals will be determined by the City giving consideration to the particular form of the subsidy, nature of the development, the purpose of the subsidy, local economic conditions and similar factors. The recipient will have up to two years to meet the job and wage goals established by the City. The minimum wage for a job to be considered a new or retained job shall be $9.00 per hour exclusive of benefits. Deviations less than the wage floor will be considered on a case-by-case basis and in accordance with the requirements of the MN Business Subsidy Law. Eo Business subsidies will not be used for commercial/industrial projects that have a history of inconsistent compliance with applicable environmental rules and regulations. VI. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS Each company receiving a business subsidy shall be subject to a business subsidy agreement with the City as well as the State of Minnesota and reporting provisions and requirements set forth by the MN Business Subsidy Law and summarized below: ho Progress Reports The recipient shall frie a report annually for two years after the receiving the subsidy or until all goals set forth in the subsidy agreement have been met, which ever is later. Reports shall be completed using the format drafted by the State of Minnesota and shall be fried with the City no later than March 1 of each year for the progress made the previous year. Bo Maintain Facility The recipient agrees to maintain and operate its facility at the site where the subsidy is used for a period of five years after the date the subsidy is provided. Failure to Comply Businesses failing to comply with the subsidy agreement will be subject to frees, repayment requirements, and be deemed ineligible by the State to receive any loans or grants from public entities for a period of five years. VII. SUBSIDY APPLICATION PROCESS AND PROCEDURE Application for business subsidies shall be made on forms for the particular form of assistance provided by the City. A fee of $2,500.00 shall accompany any Tax Abatement, or grant request to cover the City's legal, admimstrafive, and planning costs. The fee for Tax Increment Finance subsidy shall be $12,000. If additional amounts are required to reimburse the city for its costs, the applicant shall be City of Prior Lake Business Subsidies Policy 5 responsible for those costs. If there is an unused portion of the $12,000 fee, the City will reimburse the applicant for any unused costs at its discretion. The City reserves the right to amend its TIF fees annually as part of the official Fee Schedule. Following a review by appropriate City Staff, the application shall be referred to the either the Economic Development Authority or City Council for further action. Bo The application for business subsidies shall request information required within the City's policies on the particular form of subsidy including but not limited to; a detailed description of the project; a preliminary site plan; the amount of business subsidy requested; the public purpose of the project; the number and types of jobs to be created; the wages and benefits to be paid new employees; and verifiable funding sources and uses. City of Prior Lake Business Subsidies Policy 6 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 CITY OF PRIOR LAKE ECONOMIC DEVELOPMENT AUTHORITY TAX INCREMENT FINANCING POLICY ADOPTED BY THE CITY COUNCIL APRIL 16, 2001 AMENDED BY THE COUNCIL ON OCTOBER 18, 2004 PURPOSE This policy is established to outline the City's position on the use of tax increment financing (TIF) policy for private development. This policy will be used as a guide in processing and reviewing applications for tax increment financing assistance. In accordance with the TIF policy, TIF requests must comply with applicable state statutes. The City of Prior Lake is governed by the limitations established in Minnesota Statutes Chapter 469.174, the Minnesota Tax Increment Financing Act, for all districts created after August 1, 1979. PROGRAM GOALS This program exists to achieve the following goals: 1. To promote commercial, industrial and residential development under special circumstances that would otherwise not occur. 2. To increase and diversify the long-term tax base of the City in order to ensure the ability of the City to provide adequate services for it's residents while lessening reliance on the residential property tax. 3. To improve the City's economic vitality through the creation and expansion of employment opportunities. 4. To remove blight and encourage redevelopment in the commercial and industrial areas of the City in order to encourage high levels of property maintenance and private reinvestment in those areas. 5. To assure that projects are constructed and maintained at a level of quality consistent with the goals of the City of Prior Lake. 6. To retain local jobs, increase the local job base and provide economic diversity in that job base. 7. To assist in achieving other goals contained in adopted public policies as may be adopted by the City Council from time to time, including without limitation, quality design and construction, energy conservation and reductions in the capital and operating costs of government. 8. To provide high density housing as part of a mixed use development which includes retail and office uses, in select areas in the C-3 zoning district and other areas as may be deemed appropriate by the City Council. c:\documents and settings\cgreen\local settings\temporary intemet files\olk162X2004 tif policy adopted october 18 2004.doc www. cit~ofpriorlake, com Page I Phone 952.447.4230 / Fax 952.447.4245 o To provide TIF assistance, consistent with the TIF Policy, Business Subsidy Policy, Comprehensive Plan and Zoning Ordinance of the City, to eligible companies planning to build TIF eligible businesses in the Deerfield Industrial Park and other areas zoned Industrial. PROGRAM ELIGIBILITY CRITERIA Qualified projects should meet or exceed the following criteria to be eligible for TIF assistance. Meeting the threshold of eligibility does not guarantee approval of the project by the City. Conversely, failure to meet the criteria will not automatically exclude a proposal from further consideration. Final approval of any project will be made by the City Council. The project must be consistent with the City's Comprehensive Plan, zoning ordinance and other applicable City ordinances as well as applicable state statutes 1. The project shall meet at least one of the Program Goals listed above. 2. The applicant must be willing to enter into a development or redevelopment agreement satisfactory to the City. 3. It must be demonstrated that the project would not be financially feasible but for the public assistance to be provided. The level of TIF financing shall be reduced to the lowest possible level. 4. The project must comply with all applicable environmental regulations. 5. The applicant must submit all of the materials required in the application. 6. The applicant must agree to provide surety to the City to cover all costs paid by the increment, unless the project is a "pay as you go" agreement. These may include assessment agreements, letters of credit, personal deficiency guarantees, guaranteed maximum cost contracts and minimum payment agreements. 7. The applicant/developer must provide a minimum of 10% equity in the project. 8. The City Council will favor owner-occupied projects over projects that will be leased. 9. For projects in an Economic Development District, a maximum of $$0,000 of public money will be invested for each full-time equivalent position created or retained. 10. For projects in Redevelopment Districts, those that remove or prevent blight will be favored. 11. For projects in Redevelopment Districts, a ratio of taxes paid before and after redevelopment of 1:2 is desired. 12. TIF will not be used in projects that would give a significant competitive financial advantage over similar projects in the area, unless there are special circumstances that warrant the investment of TIF dollars for the project, such as a substantial increase in high quality jobs, a competitive business may be known to be exiting the area, a local competitive business may have announced it is quitting business, the other competitive business provides evidence that it is amenable to the competitor, etc. Developers will provide information to the City to demonstrate that this criterion is met. The developer should be able to provide market data, letters of intent or financial statements that illustrate the market potential or demand for the project. 13. In order to be eligible to receive TIF benefits exceeding $25,000, the applicant must sign a Business Subsidy Agreement with the City/EDA. c:\documents and settings\cgreen\local settings\temporary internet files\olk 162X2004 tif policy adopted october 18 2004.doc Page 2 14. For an applicant to receive TIF assistance from the City, it must demonstrate that it will create a majority of jobs (at least 60% of new employees) to be classified as those that pay at least $9.00 per hour or higher exclusive of benefits. The applicant for assistance must complete an Application for TIF Assistance pursuant to the procedures outlined in the Application. PROJECT COSTS ELIGIBLE FOR TIF ASSISTANCE Project costs that qualify for TIF assistance include the following: · Property acquisition · Land clearance · Relocation and demolition of structures · Site preparation Soils correction Removal of hazardous wastes or remediation of site contamination · Installation of utilities · Construction of public or private improvements · Administrative costs directly related to the identified parcels. · Design fees · Surveys · Environmental studies · Relocation of building occupants Rehabilitation of structures · Special assessments · Other costs allowed by Minnesota Statutes c:\documents and settings\cgreen\local settings\temporary internet files\olk 162L2004 tif policy adopted october 18 2004.doc Page 3