04-12-2011 Agenda - Laserfiche WebLink

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Financing (TIF). These varying tools have different long-term and short-term costs. TIF is one type of business subsidy. Importantly,TIF is a long-term subsidy with long-term cost and • benefit impacts that must be considered.This stands in contrast to some other forms of subsidies where the costs and impacts tend to be more short-term nature. The use of TIF can be thought about as having two decision layers. The first layer involves near term considerations: • Is the individual project acceptable under the City of Arden Hills business subsidy Policy? • Is the project financially feasible? • Is the TIF request currently affordable under the cities TIF Spending Guidelines? (see recommendation below) The second layer of considerations involves long-term considerations. • How does an individual project compare to the stated long-term goals and vision of Arden Hills? • How does the project compare to other potential long-term projects that are not yet identified? • How much long term leverage can the City obtain from a particular TIF project? Before a TIF project is approved,the project should be acceptable under both levels of consideration. Short-term consideration In general,the short-term considerations are not particularly difficult to assess. The first step is to match the project to the City's Business Subsidy criteria. The project must fall within the guidelines outlined. The second step is also relatively straightforward: the project must meet the financial thresholds for a TIF project. Finally,as a third step the project alone or in conjunction with other known projects cannot drive the city to exceed its total desired TIF limit. • These short-term considerations should be considered a threshold. A project must pass these tests to be considered for TIF funding. However,TIF funding is long-term,therefore the more important considerations are the long-term considerations. Long-term consideration By its nature TIF has long term impacts. The creation of a TIF District sidelines tax money for a period of time measured in years or even decades. Because only so much TIF is affordable for the City,at a very minimum any individual TIF District presents a long-term (lost)opportunity cost—a project today may preclude another different, potentially more beneficial,yet unknown project tomorrow. Therefore the TIF decision making process should be focused on long-term considerations. Recommendation for Creating a TIF Evaluation Process Develop TIF Spending Guidelines In order to better manage TIF financing decisions over the long term we recommend the City debate and set into policy a guideline on the total projected tax capacity of all tax increments in the City. Without a specific need we believe the City should limit the total projected tax capacity of all tax increments to not exceed %of the state average of 6.4%. This would mean a guideline for projected tax capacity for all tax increments in the City not to exceed 5%. Page 2 of 6