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Home My WebLink About1A Special TIF Legislation ........ ...... . _ EN HILLS' Request for Council Action 1 A Prepared By: Ron Moorse Council Work Session Date: November 10, 2008 Special TIF Legislation Budgeted Amount: Actual Amount: Funding Source: NA NA NA Supporting Documents: 1. Memorandum dated October 15, 2008 from Stacie Kvilvang 2. Outline of Special TIF legislation EHLERS LEADERS IN PUBLIC FINANCE To: Ron Moorse—City Manager O From: Stacie Kvilvang—Ehlers and Associates - W Date: October 15,2008 Subject: Special TIF Legislation for TCAAP Overview We have had discussions with the City Council over the past several years about creating a redevelopment Tax Increment Financing (TIF) district to assist in offsetting some of the increased costs associated with redeveloping the TCAAP site. Based upon review of the TIF statutes as they currently are, we are proposing that the City Council consider obtaining special legislation to remove some of the existing barriers we see with the current TIF statute. Issues to Consider 1. What is the term of a redevelopment district and what tests have to be met to qualify an area for a redevelopment district? 2. Why is there a need to pursue special legislation? 3. What are the proposed changes to the TIF Statute and why are they needed? 4. Why are we looking at creating special legislation at this time? 5. What is the likelihood of the legislation being approved? 6. What is the process moving forward if we pursue special legislation? Analysis of Issues 1. What is the term of a redevelopment district and what tests have to be met to qualify an area for a redevelopment district? A redevelopment district has a 26-year duration (25 years after the receipt of the first increment). In order to qualify parcels of land to be included in a redevelopment TIF district, they must meet the following tests: a. 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 LEADERS IN PUBLIC FINANCE �j _..--- ------------.-.------------------------—-- .-._._._ __.-.- - ---------------- ........-- --------- _---- 1 3o6o Centre Pointe Drive Phone:65i-697-85o6 Fax:653.-697-8555 Roseville,MN 55113-1105 skvilvang@ehlers-inc.com Ron Moorse Special TIF Legislation for TCAAP October 15, 2008 Page 2 - b. More than 50% of the buildings, not including outbuildings, are structurally substandard to a degree requiring substantial renovation or clearance (determined by interior and exterior inspections and calculations of code issues and replacement costs) 2. Why is there a need to pursue special legislation? The current TIF statutes do not work well for large, multi-phased developments due to the long time frame it generally takes to develop these sites and the multi-year real estate market cycles that they are subject to. Many cities that have undertaken larger, long-term redevelopment projects such as this have often gone to the legislature to request exceptions to the current statute to assist them in making sure that the redevelopment can be implemented and is financially feasible. 3. What are the proposed changes to the TIF Statute and why are they needed? The proposed changes are as follows: a. The City will not be required to have all 160 structures inspected by a third party to determine if the structures are substandard (potential savings of nearly $50,000 to not have the report completed). The legislation would designate the 585-acrea are as a redevelopment district, based upon the fact that due to the age of the structures and the condition, they would qualify as substandard under the inspection process. b. The five-year rule is extended to ten years. Under current law a City only has the ability to reimburse itself or a developer(s) for eligible project costs that are incurred in the first five years of the district. Although we anticipate that most of the qualified expenditures will be made in this timeframe, it provides the City flexibility if there is market issues that come up that impede the redevelopment from happening as anticipated. It should be noted that many cities have requested and been granted this extension over the past several years. C. The City may delay first receipt of increment for up to six years (rather than four years under general law), and the City may designate the year of first receipt at any time during that period by timely notice to the county auditor (rather than being required to state the designated year in the TIF Plan). Again, this request is to provide the City flexibility with the District to determine when it is best to receive the 1st increment and thus, start the clock ticking on the district. If increment is generated in the years prior to the year the City designated to collect it, all tax revenue will he distributed back to the various taxing jurisdictions. It is possible that tax revenue generated by the new development in early years may be more Ron Moorse Special TIF Legislation for TCAAP October 15, 2008 Page 3 beneficial to the City to offset operational costs of the district, rather than being made available to the development right away (this will be reviewed as part of the is financial/resource study to determine the best option for the City and the development). d. The City may not establish a hazardous substance subdistrict within the TCAAP Site. Under current law, if you have a polluted site that meets certain criteria, a City may establish a hazardous substance subdistrict. What this allows is for the City to capture 100% of the taxes generated from the site to assist in paying for costs associated with remediating the site, rather than allowing the City to only capture the increased tax value from the new development to be available to pay these costs. As you are aware, the City intends to utilize the base tax value to assist in paying for any increased costs for City operations related to TCAAP (police, fire, snow plowing, etc). e. Extend the term of the district to 30 years after the receipt of the first increment rather than 25 years. This is to provide the City a safe harbor to make sure it will be able to pay for the obligations it agrees to. It should be noted that by setting the term to 30 years that it does not guarantee that the City will grant the developer 30 years of increment (the amount and duration of assistance is set in the Development Agreement), it only provides the City flexibility in meeting obligations it deems appropriate. 4. Why are we looking at creating special legislation at this time? As you know, there is a legislative process we have to follow. In order to meet committee deadlines and have the legislation introduced we need to start the process now. By moving forward with this concept, it allows staff to meet with the local elected delegation to discuss it with them and their support or authorship of the bill. In addition, it allows the City time to meet with key committee chairs and members to discuss the legislation prior - to its introduction in both the houses. 5. What is the likelihood of the legislation being approved? We can never guarantee what the current legislature will or won't approve. However, staff did meet with Joel Michael of House Research to obtain an initial read on the potential request and he did not see anything that would raise a"red flag" since many of the terms of the special legislation have been granted to other cities and projects over the past several years. Ron Moorse Special TIF Legislation for TCAAP October 15, 2008 Page 3 6. What is the process moving forward if we pursue special legislation? If the Council is okay with moving forward with pursuing special legislation, the following steps would happen: a. Steve Bubul would draft the formal legislation for council review b. Meetings would be set up with the local state delegation to discuss the legislation with them and ascertain who would be interested in authoring and/or sponsoring the legislation c. Meetings would be set up with key committee chairs and members to discuss the legislation and answer any questions or concerns they may have d. The legislation will be introduced into various committees by or before appropriate deadlines e. City officials will have to testify at the legislature as needed f. If the legislation is approved at the ,State level, the City Council will have to formally approve the legislation before the new law becomes enacted Attached to this memo is an outline of the special legislation as described above. Please contact me at 651-697-8506 with any questions. OUTLINE OF SPECIAL TIF LEGISLATION FOR TCAAP PROJECT CITY OF ARDEN HILLS October 10, 2008 The Problem. Minnesota Statutes, Sections 469.174 to 469.1799 (the "TIF Act") creates several difficulties for the use of tax increment financing in large-scale, multi-phase redevelopment efforts. The problems are exacerbated in the case of TCAAP, for these reasons: • Based on preliminary analysis by a consulting architect, the TCAAP Site easily qualifies as a redevelopment district, but a detailed study of approximately 160 abandoned structures would require a significant unnecessary expenditure. • While the TCAAP Site qualifies as a redevelopment district, the 5-year rule and 26-year duration do not match up with a development schedule that will likely extend for more than a decade. • While the TCAAP Site would also qualify as a soils condition district, those districts have a shorter duration and may be used only to finance the cost of rs remediation, rather than infrastructure and other redevelopment costs (where the need is likely to be greatest). • If smaller, separate TIF districts were created, pooling rules prevent the financing of project-wide infrastructure, which may be located outside the boundaries of individual TIF districts. • The redevelopment requires large initial investment (demolition, infrastructure, grading, clean-up), followed by a slow and uncertain build-out, which hinders the city's ability to determine when the first significant increment will be received, and creates the possibility that 26 years of increment will include many partial years, substantially reducing the overall tax increment revenues. The Proposed Solution. Under proposed special legislation, the City of Arden Hills would be authorized to establish a tax increment district under these general principals: 1. The City is authorized to establish the TCAAP Site (legally defined in the legislation) as a redevelopment tax increment district, subject to the rules described below. The TCAAP Site is deemed to meet the criteria for redevelopment districts under Minnesota Statutes, Section 469.174, subd. 10(a). 2. The five-year rule under Section 469.1763, subd. 3 is extended to ten years. 3. The City may collect increment for a period of 30 years after first receipt of increment(extending the duration under general law from 26 to 31 years). 4. The City may delay first receipt of increment under Section 469.175, subdivision l(b) for up to six years (rather than four under general law), and the City may designate the year of first receipt at any time during that period by timely notice to the county auditor(rather than being required to state the designated year in the TIF Plan). 5. The TIF district is otherwise subject to the general rules for redevelopment districts under the TIF Act. 6. The City may not establish a hazardous substance subdistrict within the TCAAP Site. 2