HomeMy WebLinkAboutApril 6, 1998
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CITY COUNCIL WORK SESSION
AGENDA ITEM: APRIL 6 CITY COUNCIL WORK SESSW~
PREPARED BY: FRANK BOYLES, CITY MANAGER ~
Attached is the Agenda for the April 6 5:00 - 7:00 p.m. Work Session. The Tax Increment
Policy and Zoning Ordinance are scheduled for discussion. A light meal will be served.
The Tax Increment Policy has been prepared by the Economic Development Authority
for City Council consideration. The policy is intended to provide guidance to applicants
who want to know the City's position on this matter. The guidelines allow flexibility so
that the EDA and City Council can make decisions based upon the merits of the proposed
project.
The tax increment financing policy presentation will be in two parts. First, Roger
Guenette will review with the Council the contents of his attached memo which addresses
the City return on investment for the Business Office Park.. Next, Dick Underferth, Vice
President of the EDA will review the proposed policy. EDA Commissioner Mike Gresser
is also expected to be in attendance. EDA President Bob Barsness was not able to be
present, so he has sent the attached letter sharing his concerns with the City Council.
The staff and EDA are soliciting Council direction with respect to the policy so it can be
finalized.
If sufficient time remains after the Tax Increment Financing Policy discussion, the
Council may wish to continue its review of the proposed zoning ordinance until
adjournment at 7:00 p.m.
Attach:
1. Agenda
2. Memo from Roger Guenette
3. Letter from Bob Barsness
4. Draft Tax Increment Financing Policy
16200 Eb~e1IIAwo1U{s\4URR1.l.BOC:Mi<>.l>~iP5372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
PRIOR LAKE CITY COUNCIL WORK SESSION
FIRE STATION CITY COUNCIL CHAMBERS
APRIL 6, 1998
5:00 - 7:00 P.M.
I. TAX INCREMENT FINANCING POLICY-DICK UNDERFERTH
AND DON RYE
II. ZONING ORDINANCE REVIEW
i: \council\ works\ wks4698.doc
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TO:
Prior Lake EDA & City Council
FROM:
Roger Guenette
DATE:
March 16, 1998
RE:
Issues Impacting Economic Development Potential In Prior Lake
As the EDA and City Council are about to consider establishment of a TIF policy, it may be
appropriate to assess what has transpired and the current status of economic development opportunities
within the City. The purpose in preparing this memorandum is to aid new City Council and EDA
members in their understanding of why various developments have occurred to date and to facilitate
discussion as to what is likely to happen in the foreseeable future regarding commercial/industrial
development.
Eight years ago the City Council directed the Business Development Committee (BDC) to
investigate the potential for creation of a business/industrial park. At the time the only concentrated
area of commercial/industrial development was the "Credit River" industrial area located north of
County Road 21 on the east edge of the City. The "Credit River" area consisted of mixed use service,
distribution and manufacturing entities occupying facilities developed without access to municipal
services and lacking any consistency relative to building materials or design standards. Following an
extensive analysis, the BDC identified 5 potential areas to locate an industrial park (see attached map).
Of the 5 areas identified only two areas (#4 and #5) were eligible for municipal utility service prior to
the year 2000. The study also noted that while the average size business/industrial park comprised 140
acres, there were numerous reasons for ~e City to consider initiation of a smaller scale industrial park.
The reasons included: (1) lack of sizabl~ land parcels available for service with municipal utilities; (2)
reduced costs relating to land and utility extensions; (3) lack of proximity to major transportation
arterials; and (4) lack of amenities necessary to support large scale business/industrial development (e.g.
hotels, restaurants, day care). .
Based upon these and related factors in 1992-93, the City Council opted to acquire and develop
infrastructure on a 33 acre parcel situated in the southeast quadrant of the City (WaterFront Passage).
This decision conformed to the study's conclusion that the. market for commercial/industrial prospects
for Prior Lake would likely be small manufacturers, distributors and service related companies. The
down side to investing in a small scale industrial park included increased costs per square foot for utility
and road extensions, diminished developable acreage due to wetland conditions and need for storm
water holding ponds and small lot sizes preclude marketing to large scale users.
Despite these limitations, WaterFront Passage Business Park enabled the City to provide
opportunities for economic diversification without incurring inordinate risk. Since no private developers
had theretofore stepped forward to develop commercial/industrial sites, the establishment of WaterFront
Business Finance and
Economic Development
Specialists
CORP'0~t.,T: :>:.T:ES
PO Box 32609
Mpls.. r/1N 55432-0609
Phone (612) 755-5393
Fox (612) 755.7741
PO. Box 3027
Mankato. MN 56002-3027
Phone (507) 387-7117
Fax (507) 387-6115
Prior Lake EDA & City Council
March 16, 1998
Page 2
Passage by the City was a calculated risk for an unproven market. Over the past five years, the City has
successfully marketed all but 4 acres of the land available for development in WaterFrol1;t Passage. The
one remaining parcel consists of an odd configuration and will require additional wetland mitigation to
successfully market. The existing occupants of WaterFront Passage Business Park are consistent with
the proposed tenants identified in the 1990 study (small manufacturers, warehouse/distributors and
service related businesses).
If the City wants to change the focus of development objectives and seek to attract large scale
businesses, the following steps must be taken:
Assemble a substantial land parcel (100+ acres with 10 - 20 acre tracts available for sale)
that are ready for development (absence of soil/terrain problems and full complement of
utilities ).
Be prepared to use TIF to write down land cost to as low as $1 and waive development
fees (e.g. park dedication, trunk connection, etc.).
Improve transportation amenities to enable development sites to be served by 4-lane
highways with direct connections to Interstate highways.
Create a more substantial commercial retail area with business support services to serve
large scale industrial users.
. .
In the absence of these conditions, I must conclude that it is unlikely that the City of Prior Lake
will be successful in attracting large scale businesses in the near term.
The alternative is to continue to work with evolving small businesses. Based upon the City's
reluctance to acquire and develop addit~onal industrial property, the inability to open up large tracts of
land for utility extensions and the absence of large scale private real estate developers, it would appear
prudent to continue to focus on small business development. By assisting local developers (Wensman
and Messenbrink) by underwriting costs of. infrastructure extensions, viaut', it should be possible to
open up approximately 100 acres between the ~o sites for additional commercial/industrial
development; while these sites represent a substantial amount of acreage, they are located on opposite
ends of the City and contain a significant amount of undevelopable acreage. These sites would most
likely be developed by prospects similar to those currently located in WaterFront Passage. The City will
be able to evaluate each proposed project and request for_ lIt' assistance on a case-by-case basis. The
exact amount of lIt' assistance may be negotiated based upon the perceived value of the project as well
as the overall economic circumstances at that point in time.
I am aware that the City Council has asked for some method of measurement regarding return
on investment (ROI) relating to economic development. The enclosed cash flow statement pertaining to
the WaterFront Passage Business Park identifies overall expenditures including interest carrying costs,
cash sales proceeds and tax increment revenues relating to the development. While one 4 acre lot
remains to be marketed, the City stands to recapture all of their original investment, including interest
carrying costs on the G.O. improvement bond and the land contract and should realize a ROI of
approximately $482,040. Discounting this amount by a 7% interest factor over 16 years yields a net
present value of $292,152. Based upon an initial City cost of approximately $1,805,000 to acquire and
Prior Lake EDA & City Council
March 16, 1998
Page 3
develop WaterFront Passage the ROI would be approximately 16%. This amount could increase
substantially depending upon the disposition of the final parcel.
In addition to the "cash" return, the City has experienced an increase of 140 employment
positions and retention of 10 employment positions. These jobs account for an estimated annual payroll
of $3.8 million/year; furthermore, the City share of the tax base relating to WaterFront Passage will be
approximately $69,300/year upon termination of the 11 year tax increment districts created therein.
While it is reasonable to attempt to evaluate the ROI of the City's investment in economic development
it should be recognized that there may be intangible, intrinsic benefits of having a diversified economic
base within the community.
The residents of Prior Lake desire a high quality of life that includes recreational amenities,
quality housing, employment opportunities, infrastructure that works and a secure environment. Like
everyone else they would like to see their taxes reduced to a minimum. I believe that the City's initial
investment in WaterFront Passage will positively impact these objectives and that the proposed 111"
policy will help to ensure prudent investment of public resources in the future.
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CIlY OF PRIOR LAKFJWATERFRONT PASSAGE
TIF CASH FWW ANALYSIS/ROI
DeveloDment
Improvements
Land Purchase
Land Mortgage Interest
Bond Interest
LGA Loss/Local Contributions
Net City Costs
.,
,'", , Developable Acres
Developable Square Feet
Cost
$1,014,423
184,794
25,741
235,731
. 345.102
$1,805,791
20
871,200
I 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 TOTAL
,I REVENUES 3.500 45.470 243.136 206.272 198.376 181.791 161.732 174.002 174.002 185.500 185.500 150.456 139.320 48,346 20.186 0 2.117.589
EXPENSES
- LGA!LOCAL 0 0 (7.500) (8.613) (17.997) (23.274) (25.419) (26.643) (26.643) (26.643) (26.643) (19.143) (18.030) (7.422) (2.145) 0 (236.115)
I CONTRmUllON
I - SOIL CORREcnON (15.000) (22.360) I (14.400) 0 0 0 0 0 0 01 0 0 0 01 0 0 (51.760)
I- GO IMPROVEMENT
BOND $791.000 (11.865) (71.532) (71.760) (71.873) (72.952) (73.893) (74.700) (76.424) (76.912) (79.374) (83.719) (12.855) (12.393) (11.932) (11.471) (11.010) (824.665)
I - ADMINJLEGAL I (8.166) I (8.678) I (25.600) I (9.soo) I (20.500) I 01 01 01 01 01 01 01 01 01 01 01 (72.444)
I- CITY LOAN
REPAYMENT
(pRINCIPAL ONLY) 0 0 (32,183) (32.183) (32.183) (32.183) (32.183) (32.183) (32.183) (32.183) (32.183) (32.183) (32.183) (32, 183) (32.183) (32,183) (450,562)
INET I (31.531) I (57.100) I '91.69; I 84.103 1 54.7~ I 52.441 I 29.430 I 38.752 I 38.264 I 47.300 I 42.955 I 86.275 I 76.714 I (3.191) I (25.613) I (43.193) I 482.043
NET PRESENT VALUE
WATERFRONT PASSAGE CASH FLOW
YEAR AMOUNT
1993 -31,531
1994 -57,100
1995 91,693
1996 84,103
1997 54,744
1998 52,441
1999 29,430
2000 38,752
2001 38,264
2002 47,300
2003 42,955
2004 86,275
2005. 76,714
~. /.
2006 -3,191
2007 -25,613
2008 -43,196
~ TOTAL 482,040
NPV@
7%. 292,152
PRIOR LAKE STATE BANK Fax:612-447-3337
Apr 2 '98 11:05
P.02
MEMO
TO: Prior Lake City Council
FROM: Bob Barsness
RE: Approval ofT.I.F. Policy
DATE: Aprill. 1998
I wish to'concur in the recommendation of the rest of the E.D.A. members that the council
approve the proposed T.l.F. Policy. I believe Roger Guenette's memo of March 16, 1998,
gives a conserative analysis oithe ROI for the city. The Water Front Passage Business
Park is a city financed leveraged project. One could argue a much higher ROI. There is
a question when this park would have started to develop without the city being a catalyst
for the project. Additionally, how far in the future would we be considering the annex-
ation of the 60 acres adjoining the park or the added housing property for the future. I
think each of the E.D.A. members is looking at r.LF. financing on an as needed basis in
order to be competitive. I hope the council will approve the T .I.F. Policy so we can continue
to meet the opportunities in the future.
~~~
CITY OF PRIOR LAKE
ECONOMIC DEVELOPMENT AUTHORITY
TAX INCREMENT FINANCING POLICY
ADOPTED BY THE EDA DECEMBER 15, 1997
PURPOSE
This policy is established to outline the City's position on the use of tax increment
financing (TIP) 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 TIP policy, TIP 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 its' 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. ' I
6. :0 retain local jobs, increase the local job base and provide economic diversity in~ -r~
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.
PROGRAM ELIGIBILITY CRITERIA
Qualified projects should meet or exceed the following criteria to be eligible for TIP
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
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16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (61~) q.47-4245
AN EQUAL OPPORTUNITY EMPLOYER
,-",.
proposal from further consideration. Final approval of any project will be made by the
City Council and Economic Development Authority.
1. The project must be consistent with the City's Comprehensive Plan, zoning ordinance
and other applicable City ordinances.
2. The applicant must be willing to enter into a development or redevelopment
agreement satisfactory to the City.
3. The project must comply with all applicable environmental regulations.
4. The applicant must submit all of the materials required in the application.
5. 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.
6. The applicant/developer must provide a minimum of 10% equity in the project.
7. The EDA will favor owner-occupied projects over projects which will be leased.
8. For projects in an Economic Development District, a maximum of $10,000 of public
money will be invested for each full-time equivalent position created or retained.
9. For projects in Redevelopment Districts, those which remove or prevent blight will be
favored.
10. For projects in Redevelopment Districts, a ratio of taxes paid before and after
redevelopment of 1 :2 is desired.
11. TIF will not be used in projects that would give a significant competitive financial
advantage over similar projects in the area. Developers will provide information to
demonstrate that this criterion is met.
l~r'ffV'''lh bll~uM-nunlla&.y~~e u.a-j_t,Q fli"~!it ~~lat:i~... ~..... ...l.;.pments: T?e
/ developer should be able to prOVIde market data, letters of mtent or financIal
/ statements which illustrate the market potential or demand for the project.
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The applicant for assistance must complete an Application for TIF Assistance pursuant to
the procedures outlined below.
APPLICATION PROCEDURE
1) EDA establishes goals and objectives (EDA)
2) Advance Resources for Development acts as agent for EDA (StafJ)
3) The applicant submits a sketch plan and information on sources and uses of funds
for consideration and meets with appropriate staff and consultants to discuss the
scope of the project, the amount of public assistance being requested, the time
schedule and other appropriate information. (Applicant, Staff and Consultants)
4) The applicant completes an Application for Tax Increment Financing and submits
this to the Planning Department. (Applicant)
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5) The application will be reviewed by staff and their consultant for feasibility and
compliance with the criteria and a report to the EDA will prepared. (Staff and
Consultant)
6) Advance Resources proposes projects to EDA (Staff)
7) EDA approval/denial of project in concept. If the EDA's preliminary review is
positive, the applicant can make final application for assistance. This shall be
accompanied by a non-refundable application fee of $2,000 and a completed "But-
For" worksheet. If approved, the applicant shall be responsible for any additional
costs incurred by the City or EDA. (EDA and Applicant)
8) Concept goes to City Development Review Committee (DRC) for concept plan
review and comment (Staff)
9) Advance Resources negotiates with Developer (Staff)
10) Advance Resources prepares preliminary documents, which include comments
from DRC on concept plan review (Staff)
11) EDA approves documents to assure consistency with concept plan approval (EDA)
12) City Attorney reviews documents (Staff)
13) EDA recommends approval or approves applicable agreements for City Council
consideration, subject to site review approval including, but not limited to,
variances, CUP's, PUD's. Comprehensive Plan amendments, rezonings and
subdivision approvals (EDA)
14) Developer submits site plan, including necessary zoning applications, for official
action (Developer)
15) Staff reviews plans according to applicable Zoning and Subdivision Ordinance
requirements and refers to Planning Commission and/or City Council as necessary
(Staff)
16) Documents granting necessary approvals are incorporated into agreement in
Paragraph 7. Following final analysis of the submission, the EDA and City
Council will receive a report with staff recommendations for final action. If
approved, staff will prepare a Development or Redevelopment Agreement between
the City and developer. (Staff)
17) Obtain any required City Council approvals (Council)
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18) EDA and Developer execute agreement. Any zoning or land use approvals required
shall be completed prior to execution of the developers agreement. (EDA, Staff, and
Developer)
PROJECT COSTS ELIGIBLE FOR TIF ASSISTANCE
Project costs which qualify for TIP 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~tatute
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