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HomeMy WebLinkAbout2A, TIF White Paper lt ,— IZEN HILLS Request for Council Action 2A Prepared By: Patrick Klaers, City Administrator Work Session Date: April 16, 2012 TIF White Paper Budgeted Amount: Actual Amount: Funding Source: N/A N/A N/A Discussion Topic: Informational only. No action required. Supporting Documents: 1. Memorandum from Patrick Klaers, City Administrator. 2. FPAC 2010 Work Plan Memo dated March 9, 2010. 3. April 12, 2011 FPAC/City Council meeting minutes. 4. TIF Selection Process Whitepaper for Arden Hills. 5. June 22,2011 EDC meeting minutes. 6. August 24, 2011 meeting minutes. 7. Business Subsidy Criteria Adopted December 8, 2008. 8. TIF Grading Proposal. 'It EN HILLS MEMORANDUM DATE: April 16, 2012 TO: Honorable Mayor and City Councilmembers FROM: Patrick Klaers, City Adminis at j SUBJECT: TIF White Paper G` Backtiround/Discussion In early 2010 the Financial Planning and Analysis Committee (FPAC) Chair and the Council Liaison identified a list of issues for the FPAC work plan. Attached is this list of issues. The goal to develop a "TIF policy as to what maximum percentage of the City should be in a TIF district" was one of the major agenda items for FPAC from October 2010 through April 2011. This FPAC work resulted in the TIF Selection Process Whitepaper. This Whitepaper was the topic of discussion at a joint FPAC and City Council meeting on April 12, 2011. Attached are the April 12, 2011 meeting minutes and the Whitepaper draft dated April 12, 2011. The Economic Development Commission (EDC) discussed the Whitepaper in June and in August, 2011. The minutes from these EDC meetings are attached. At this time the TIF Selection Process Whitepaper, as drafted by FPAC, is on the City Council work session agenda for discussion. Several FPAC members will be attending this work session to explain the Whitepaper project and to answer questions. Staff is looking for direction as to how to proceed with this Whitepaper. If the Council is only looking for a maximum percentage of the City tax capacity that should be in TIF districts, staff is very comfortable in doing an analysis and making a recommendation. On the other hand, if the Council is looking for a formula or a matrix that ranks preferred factors based on Council priorities to be used to evaluate applications for TIF, then staff would recommend that the City hire Ehlers for this project. City Council Meeting P:\Admin\Council\Agendas&Packet Information\2012\04-16-12 Wk Sess\Agenda Page i of 2 Ehlers has significant TIF experience with numerous municipalities within the metro area. In 2008, Ehlers helped the City in developing our Business Subsidy Policy that was reviewed by FPAC and adopted by the City Council on December 8, 2008. This policy is attached for your reference and offers some very good guidelines for evaluating TIF applications (see Sections 2 - Public Purpose, 3 - Objectives, 5.1 - Minimum Qualification, and 5.2 - Desired Qualifications). If requested, Ehlers could submit a proposal to help the City develop policies and procedures to implement the recommendations in the Whitepaper. The proposal from Ehlers would likely include a number of Council work sessions in order to define the priorities of the Council and the preferred criteria for ranking/evaluating applications. Finally, for your information, in reviewing the files for this agenda item, staff found the TIF Proposal Grading and Report Card for Housing and for Business and Commercial Redevelopment (see attachment). Staff could not find any record of this 2007 document being reviewed by FPAC or being accepted by the City Council. City Council Meeting PAAdmin\Council\Agendas&Packet Information\2012\04-16-12 Wk Sess\Agenda Page 2 of 2 ,,--A EN HILLS MEMORANDUM DATE: March 9, 2010 TO: Financial Planning and Analysis Committee FROM: Sue Iverson, Finance Director/Treasurer SUBJECT: 2010 Work Plan Councilmember Holden and Committee Chair Ostlund met and discussed various topics for the committee to work on. Among them are: 1. City purchase of Tower from George Reiling estate (This item is currently on this agenda) 2. Fees/revenues generation from non-profits 3. TIF policy as to what maximum percentage of City should be in a T1F district 4. Affordable housing subsidy/support 5. Use of bonding for capital expenditures b. PMP Neighborhood approach 7. TCAAP development implications 8. 132 District We will discuss with Councilmember Holden to prioritize two or three of these items to develop work plans to come back with recommendations to the Council in 2010. This will basically be an organizational meeting for our committee resulting in a work plan for the committee for 2010_ MINUTES -AXDEN HILLS FINANCIAL PLANNING&ANALYSIS COMMITTEE Tuesday,April 12,2011 6:00 P.M. Council Chambers,Arden Hills City Hall CALL MEETING TO ORDER AND ROLL CALL The meeting was called to order by Jim Ostlund at 6:00 pm. MEMBERS PRESENT:Jim Ostlund,Arlene Mitchell,John Braun,Katy Peters,David Grant;Council Liaison MEMBERS NOT PRESENT:Jeff Johnson OTHERS PRESENT: Fran Holmes,Nick Tamble,Brenda Holden,Patrick Klaers,Sue Iverson,Kyle Howard Call to Order 1. APPROVAL OF THE AGENDA Motioned:John Braun Seconded:Arlene Mitchell 2. APPROVAL OF March 29,2011,MINUTES Approved as amended Motioned:Arlene Mitchell Seconded:John Braun 3. UNFINISHED AND NEW BUSINESS A. Continue discussion on developing TIF white paper Discussion continued on the development of the TIF white paper with the assistance from the City Council.The Committee and Council held a robust discussion on the progress and direction of the paper,updating it as the discussion progressed throughout the meeting. The group requested that the Economic Development Committee be invited to the May 10,2011 meeting.The meeting time was also changed to 5:30 pm,from the normal time of 6:00 pm. 4. REPORTS A. Reports from the City Council Mayor Grant addressed the committee about the current issues affecting the city.Topics covered included the Pulte Home's development meeting with the Planning Commission,progress on the MNDot reconstruction of 694,and the redesign of the Lexington Ave bridge lanes. 5. ADJOURNMENT Motioned:Jim Ostlund at 7:55 pm. Seconded:Arlene Mitchell Ji stlund,Chair gusan K.Iverson,Finance Director City of Arden Hills 1245 West Highway 96•Arden Hills Minnesota 55112 Phone 651.792.7800•Fax 651.634.5137 www.ci.arden-hills.mn.us TIF Selection Process Whitepaper f or Arden Hills April 12,2011 Summary We recommend that the City Council: 1. Establish long-term TIF assessment criteria 2. Develop a point-based assessment system Background TIF The original argument made to legislatures to create TIF was that it created a way for cash- strapped communities to finance the upfront costs associated with redeveloping blighted areas, most commonly cleanup/remediation costs and infrastructure improvements. Subsidized redevelopment in an area could then spur future, unsubsidized redevelopment. TIF has long-term effects that need to be considered when making a decision about providing TIF for a project. "Unlike property taxes, increments are not used to pay for the general costs of cities, counties, and schools. Instead, increments go to the development authority and are used to repay public indebtedness or current costs the city incurred in acquiring the property, removing existing structures or installing public services." (League of Minnesota Cities) FPAC Committee Arden Hills already has TIF Districts and anticipates the need for more TIF financing. The Financial Planning and Analysis Committee was asked to look at how the City selects TIF projects and make recommendations about the process. The Committee addressed three broad questions: • How much of the city's tax base can it afford to have in TIF Districts? • How does the city best allot its TIF dollars to support its long term goals? (First come, first served may not provide the best outcome for the city.) • Are there tools or methods that will help city leadership assess each TIF request? The committee has reviewed cases and policies from other cities around the United States as well as processes used in corporate America to evaluate long-term strategic options and projects. TIF Decision Process Overview There are many tools the City of Arden Hills can use to drive development in the city, including preferential use of city facilities, loans, direct subsidies, property tax abatement, and Tax Increment Page 1 of 6 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 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 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 as defined in this TIF selection process guideline. 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 reallocates the tax money the district creates 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. The City should limit the total projected tax capacity of all tax increments to not exceed 3/4 of the state average of 6.4% of the taxable market value. This would mean a guideline for projected tax capacity for all tax increments in the City not to exceed X%. Page 2 of 6 in order-to beet m °Additionally 44F finaneing deeisions ovef the ong tefm. we recommend the FRA C it the Gity'sregular graphically monitoring of TIF projects either every other year or after a certain level of new TIF activity. The items that will be reviewed should include the total projected tax capacity, the percentage of increase in services since the last review, the number of TIF projects and their respective end dates the effectiveness of active TIF projects to their original concept and any other statistics or benchmarks that the aitt e eem deemed to be of importance. Devebp measurement criteria We recommend that the city debate and approve a set of long-term criteria with which to weigh potential TIF projects. The City has already developed a vision statement. The Committee considered whether this might be adequate as long term measurement criteria. One could simply compare a development project to the City's stated long-term strategic goals. While the process would be a good first step, we feel that it is too broadly worded to be used as criteria and would lead to confusion from both developers trying to assess how the city will view their individual projects and citizens who wonder why a particular project is or is not approved. We recommend the city develop a set of more refined, long-term selection criteria with which to weigh development projects seeking TIF. We further recommend that developing these criteria be done outside the process of considering any individual project. This will help ensure, as best as possible, an independent view of the long-term needs and strategy of the City. These long-term criteria would then be integrated into the current process of evaluating business subsidies. Assign points We recommend using a point based assessment system. There are multiple ways to implement this, but the goal of any method should be that when a project is assessed it would be granted points relative to how much it met each criterion and how relatively important that criterion is. The intent of the points system is not that it would make the decision for the City Council, but rather that it would focus discussion on the most salient points of the project under consideration. Any large project is inherently complex and it is important to avoid prematurely debating its finer points. It has been suggested that an objective rather than subjective point system be developed, however given the complexity of redevelopment projects and the mix of short-and long-term costs and benefits involved, the Committee could come up with no strictly objective measure.That said,where possible we strongly encourage objective measure wherever feasible. We also recommend that specific minimum requirements be laid out, including enumerating any specific types of projects that are not considered appropriate for TIF because by their nature such projects do not provide the necessary long-term benefits. Scoring would be done by the City Council or its designated representatives. Page 3 of 6 We commend that the following points, taken from our research, be held in mind throughout this process: 1. The"but for" tests are only the minimum requirements for qualifying for TIF; prudent communities set more stringent requirements. 2. TIF is there to solve community problems. 3. Use TIF only when truly necessary; it was never designed to be an alternate financing method for private developers. TIF Selection Criteria Below is a draft of what selection criteria might look like. This is for discussion purposes only. The goal would be to modify the percentages and the specific criteria and have the City Council eventually, debate, vote and approve the Criteria. Once this is done the Economic Development Committee (EDC), with any assistance needed from FPAC, should develop a detailed scoring process and methodology. Minimum requirements to use TIF • The long-term viability of the development partner has been reviewed and the City has determined that the partner has the financial stability and track record to drive the full benefit of the project over the life of the project • The objective of the project produces long-term expected benefit that exceeds the length of the TIF and is at least 15 years in duration. Selection Criteria (in rank priority order within each section) Community Goals 60% 1. Materially enhances the health, safety and well-being of all who live, work and play in the City. a. Enhances an interconnected system of trails, pathways and open spaces. b. Protects and preserves the community's natural resources including open spaces, lakes, wetlands, other significant natural features and historic resources. 2. Enhances or retains development of TCAAP in a way that accommodates a mix of land uses that is sensitive to the natural environment, economically sustainable and a benefit to the community 3. Retains or creates jobs that are long-term in nature and at or above the median for the State of Minnesota(vs. Business Subsidy Policy standard?) 4. Creates a desirable commercial/retail environment that enhances the long-term vitality of the City. 5. Provides a transportation system that has convenient and effective multi-modal connections within Arden Hills and to adjacent municipalities, the remainder of the Twin Cities Metropolitan Area and greater Minnesota. Future Leverage Goals 30% 1. Likelihood project will spur other projects that will not require further subsidy. a. Increases the ability to further develop a healthy and accessible community b. the center for further business development c. Increases likelihood of job growth in a growing industry Page 4 of 6 Regional Goals 10% 2. Moves the region closer to its mix goals for affordable housing 3. Enhances the regional trail system and it's integration with the Arden Hills trail system Next Steps 1.) Circulate Whitepaper with entire FPAC; debate and modify as appropriate. 2.) Review the City of Bloomington's methodology for creating its TIF spending guidelines. 3.) Place topic on City Council working session agenda for discussion and feedback. 4.) City Council to debate and approve (subject to modifications and amendment) "Long- term TIF Selection Criteria" 5.) Based on City Council's approved Long-term TIF Selection Criteria, EDC (with assistance from FPAC) to develop Long-term TIF Criteria point system and revised TIF approval process Page 5 of 6 6) City to embody new process and point system into TIF approval policy.what the final components and process might look like TIF Assessment Components and Process City Management Information (Identified outside any project proposal) City development goals Prioritized and weighted City financial goals Prioritized and weighted TIF Budget and plan TIF Assessment Worksheet TIF Assessment Process (The 3 steps of the worksheet done for each project) Initial project screening Passes City's subsidy criteria? TIF regulatory qualification? City has TIF capacity? Long-term screening Long term benefits to City? Long term viability of partner? TIF assessment How well does project rank? EDC recommendation? Matches well enough to continue Matches well enough to continue TIF assessment City Council approval? Ranks well enough to recommend to City Council Page 6 of 6 'It EN HILLS CITY OF ARDEN HILLS, MINNESOTA ECONOMIC DEVELOPMENT COMMISSION JUNE 22,20114:00 PM CITY HALL -=1245 WEST HIGHWAY 96 CALL MEETING TO ORDER Chair von Holtum called the meeting to order at 4:07 p.m. ROLL CALL Present: Chair Ed von Holtum, Commissioners James Huninghake, Dan Erickson and Rob Davidson. Also Present: Council Liaison Brenda Holden, City Administrator Pat Klaers, and Community Development Director Jill Hutmacher. Absent: None. 1. APPROVAL OF AGENDA It was the consensus of the EDC to accept the agenda as presented. 2. APPROVAL OF MINUTES It was the consensus of the EDC to accept the April 20, 2011 EDC minutes as presented. 3. UNFINISHED AND NEW BUSINESS A. State of the City Event Discussion took place regarding the State of the City event. The City Council directed staff and the EDC to schedule and plan a business-oriented State of the City event that should take place prior to the September 17, 2011 Celebrate Arden Hills event. The EDC established Wednesday, September 14, 2011, 7:30 a.m. to 9 a.m. as the preferred date and time. Depending on venue availability, September 13 or 15 would also be acceptable. Preferred locations are North Heights Lutheran Church and the Bethel University Continuing Education facility on Dunlap Street. If neither of these locations is available, other potential locations include Boston Scientific, Land O'Lakes, and the Marsden Room at the Ramsey County Public Works facility. The EDC decided that a continental breakfast will be provided to attendees at no charge. EDC Minutes June 22, 2011 Page 2 of 3 EDC members commented that topics of interest to the business community include an update on the stadium proposal and TCAAP development, an update on other development within the City, information on the City's finances and the 2012 budget, and the status of the B-2 District Implementation Plan. EDC members suggested that a multi-media approach to marketing would be most effective with the business community. Marketing efforts will utilize the City newsletter, website, and bulletin. The event will be announced at a City Council meeting. An advertisement will be posted in the Shoreview-Arden Hills Bulletin. The Arden Hills — Shoreview rotary will be contacted and asked for assistance in publicizing the event. Although the State of the City event will be oriented towards the business community, residents are welcome to attend the free event. Staff will work to plan the event. An update will be provided to the EDC at the next meeting. B. Draft Tax Increment Financing(TIF) White Paper The EDC discussed the draft TIF White Paper prepared by the Financial Planning and Analysis Committee. Commissioner Erickson commented that he liked the idea of guidelines, although he did not know if a point system would be objective. He also suggested that affordable housing be removed from the list of regional goals since in order to accommodate new affordable housing development, the City would need to rezone land that was not appropriate for housing development. Commissioner Davidson commented that the City has historically been very conservative with TIF financing. He was concerned that the point system proposed in the draft White Paper would make redevelopment more difficult. City Administrator Klaers commented that the City may want to compare the proposed TIF spending guideline with the percentage of tax capacity in TIF districts in similar communities such as fully developed suburbs with a mix of commercial and residential development. C. Gateway Signs Staff reported that the City Council had reviewed sign styles and costs and provided feedback to staff that a sign with a masonry base was preferred. The cost of a masonry base sign is estimated to be $20,000 to $25,000 per sign. Staff is working on the draft 2012 — 2016 Capital Improvement Plan (CIP). The draft plan, subject to revision by the City Council, includes a $65,000 budget for signs in 2012. This would include the City's share of$15,000 for a sign on the southwest quadrant of Lexington Avenue and County Road E, as well as two additional signs. EDC members commented that sign location priorities were established at a previous meeting, and suggested that staff check the minutes to determine the recommended location priorities. EDC Minutes June 22, 2011 Page 3 of 3 4. UPDATES A. TCAAP & Other Projects Staff reported that Ramsey County is working on site-specific special legislation regarding the proposal to develop a new Minnesota Vikings stadium on the TCAAP site. The City has provided some input on proposed language. The County hopes to have the legislation considered during a special legislative session. B. Commission Members None. C. Council Liaison An EDC meeting was scheduled for Wednesday, July 27, 2011, at 8 a.m. to discuss the State of the City event. A subsequent EDC meeting was scheduled for Wednesday, August 17, 2011, at 8 a.m. D. Staff Comments The annual committees and commissions picnic will be held on Tuesday, July 12, at Cummings Park. A sign-up list for the potluck will be distributed. 5. ADJOURNMENT The meeting adjourned at 5:40 p.m. Minutes approved by: Ed von Holtum, Chair Jill tmacher C mmunity Development Director EN HILLS CITY OF ARDEN HILLS, MINNESOTA ECONOMIC DEVELOPMENT COMMISSION AUGUST 24,20114:00 PM CITY HALL -- 1245 WEST HIGHWAY 96 CALL MEETING TO ORDER Chair von Holtum called the meeting to order at 4:18 pm. ROLL CALL Present: Chair Ed von Holtum and Commissioner Jim Huninghake. Also Present: Council Liaison Brenda Holden, City Administrator Patrick Klaers, and Community Development Director Jill Hutmacher, and Planning Intern Mei-Ling Anderson. Absent: Commissioners Rob Davidson and Dan Erickson. 1. APPROVAL OF AGENDA It was the consensus of the EDC to accept the agenda as presented. 2. APPROVAL OF MINUTES It was the consensus of the EDC to accept the July 27, 2011, EDC minutes as presented. 3. UNFINISHED AND NEW BUSINESS A. State of the City Event Community Development Director Hutmacher distributed drafts for the State of the City postcard mailing and an advertisement for the Shorevietiv-Arden Hills Bulletin. She said there have only been about a dozen RSVPs so far and suggested that EDC members promote the event to their colleagues and Arden Hills business acquaintances. Chair von Holtum and Commissioner Jim Hunginghake suggested e-mailing PDF versions of the postcard mailing and advertisement to absent EDC members for comments and asking members to help with event promotion. Councilmember Holden suggested also forwarding the postcard to the members of the City Council and the Planning Commission. There was discussion about using this opportunity to attract new EDC members. EDC Minutes August 24, 2011 Page 2 of 4 Community Development Director Hutmacher said there will be two boards thanking donors to Celebrating Arden Hills. There will be printed nametags for those who RSVP'd and blank nametags available for those who did not RSVP. Councilmember Holden will be emceeing the event; EDC members can focus on greeting attendees. Community Development Director Hutmacher stated that North Heights Lutheran Church was chosen as the venue in part because they provide set-up, catering, and audio-visual services. Chair von Holtum expressed that everything appears to be in good shape and that twelve RSVPs is encouraging considering it is still early. B. City Website Redesign Project Community Development Director Hutmacher announced that the Communications Committee is developing an on-line survey to gather suggestions from current users of the City's website. The on-line survey can be promoted at the State of the City and Celebrating Arden Hills events. It would be helpful to get feedback on the website from the EDC and the rest of the business community. Chair von Holtum supported the City's intention of working with professionals on the website redesign project. C. Tax Increment Financing Community Development Director Hutmacher introduced the topic of developing a benchmark limit for the total tax capacity captured by tax increment financing (TIF) districts. The Financial Planning and Analysis Committee (FPAC) has drafted a white paper that suggests Minnesota's state average as a potential benchmark. A recommendation is not needed today. Community Development Director Hutmacher reviewed definitions of tax capacity and tax rate. Tax capacity is a percentage of a property's assessed market value and differs among types of property. Residential units, for example. have a tax capacity of 1%. whereas commercial/industrial property has a tax capacity of 1.5%for the first $150,000 in assessed value and 2% for value above $150,000. The tax rate, or "mill rate", is a blended rate between all of the taxing jurisdictions including the City, County, school district, etc. Total property taxes are calculated by multiplying the tax capacity for each parcel by the jurisdiction's tax rate. The combined tax rate of Arden Hills'jurisdictions is around 1.05%. TIF districts capture the tax increment that would otherwise have gone to other jurisdictions. The captured increment is used to pay for infrastructure required by development. State Statutes define eligible and ineligible TIF expenditures. For example, infrastructure upgrades are eligible, but parks and general government services are ineligible. Discussion took place about the issue of having constrained cash now for public services during the duration of the tax increment district while taxes that would otherwise be available for public services are diverted to infrastructure costs. Commissioner Huninghake asked about the duration of tax increment districts. Community Development Director Hutmacher responded that it EDC Minutes August 24, 2011 Page 3 of 4 depends on the type of district and total eligible TIF costs, but there is a maximum duration of around twenty-six years. Community Development Director Hutmacher summarized Staffs findings that the City currently has 3.73% of its tax capacity captured by TIF districts, which will increase to 5% once Presbyterian Homes moves forward. Arden Hills is unique since 50% of the City's total tax capacity is from Commercial/Industrial (C/I) properties, which is very high compared to most cities in the metro. Only Fridley and Bloomington have similar proportions of tax capacity from C/I properties. Chair von Holtum asked if the proposed stadium could affect these numbers. Councilmember Holden and Community Development Director Hutmacher explained that the stadium would be tax-exempt but the 170-acre section of the property that is proposed to be privately developed would be taxable. If anything, the City's total tax capacity could increase. Community Development Director Hutmacher went over reasons that C/I properties are beneficial to cities. These developments provide jobs and their higher tax capacity relieves the burden on residential property owners. Staff would like direction as to whether to recommend to the City Council that the City's TIF-captured tax capacity benchmark match the state average or comparable cities. The EDC was provided with a spreadsheet listing Twin Cities municipalities with populations between 2,000 and 35,000 and percentages of C/I tax capacity and TIF- captured tax capacity. Among cities with percentages of C/I tax capacity above 35%, the median TIF-captured tax capacity is approximately 9%. City Administrator Klaers checked the list and verified that Roseville was missing from the list and should be added. Chair von Holtum asked for Councilmember Holden's view on setting the TIF-captured tax capacity benchmark, to which she replied that the EDC should consider the reasons we give TIF, not the amount we give. For example, TIF could be used to encourage development in the B-2 district. The City does not need to use TIF for business attraction, since the City already has low vacancy rates and significant commercial development. Also, although the City seldom uses TIF, that has not hindered commercial development. Commissioner Huninghake agreed with Councilmember Holden that we should not give businesses a tax advantage. In response to a question on the significance of the City having 50% of its tax capacity generated by C/I development, Community Development Director Hutmacher explained that Arden Hills not only has significant commercial development, but the City also has large areas of tax-exempt land such as lakes, colleges, parks, and TCAAP as well as very low-density residential neighborhoods. The City's proportion of commercial tax base is high in comparison to its relatively low residential tax base. Councilmember Holden suggested that the TIF-captured tax capacity benchmark may provide a reason for approving or denying TIF. TIF may not make or break a project, but the City can help make it more affordable and attractive to develop in Arden Hills. Presbyterian Homes received about $1.1 million in TIF but the City is getting a lot back in return, such as sewer repairs and the triangle parcel. EDC Minutes August 24, 2011 Page 4 of 4 This topic will be discussed in greater detail at a future EDC meeting so that the EDC's feedback can be conveyed to FPAC. 4. UPDATES A. TCAAP & Other Projects The August 4, 2011, stadium open house attracted twenty-seven Arden Hills residents, which is about one-third of the total number of people in attendance. The event was well-received by attendees. The most common comments were that people do not want public funding to support the stadium and they would prefer to have park space on the site. The City has not been contacted by the County or Vikings since the meeting. There are still a lot of unknowns. The costs and benefits of development depend on what you are comparing it to. The EDC reviewed a map of the County's proposed stadium-related transportation improvements. B. Commission Members None. C. Council Liaison None. D. Staff Comments Council will vote on the Select Senior Living development agreement at their next meeting. Staff asked EDC members to consider a monthly meeting schedule. Some monthly meetings may be cancelled, but more frequent meetings would be helpful to keep economic development projects moving forward in a timely manner. Staff will poll EDC members on potential meeting dates. 5. ADJOURNMENT The meeting adjourned at 5:32 p.m. Minutes approved by: Ed von Holtum, Chair Jill H macher Co munity Development Director ,!T -AVEN City of Arden Hills Business Subsidy Criteria Adopted December 8, 2oo8 1. PURPOSE AND AUTHORITY 1.1 The purpose of this document is to establish the criteria for the City of Arden Hills (the Grantor) for granting of business subsidies for private development within the City. These criteria shall be used as a guide in the processing and reviewing applications requesting business subsidies. 1.2 The City's ability to grant business subsidies is governed by the limitations established in Minnesota Statutes 116J.993 through 116J.995 (Statutes). The City may choose to apply its Business Subsidy Criteria to other development activities not covered under this statute. 1.3 Unless specifically excluded by the Statutes, business subsidies include grants by state or local government agencies, contributions of personal property, real property, infrastructure, the principal amount of a loan at rates below those commercially available to the recipient of the subsidy, any reduction or deferral of any tax or any fee, tax increment financing (TIF), abatement of property taxes, any guarantee of any payment under any loan, lease, or other obligation, or any preferential use of government facilities given to a business. 1.4 These criteria are to be used in conjunction with other relevant policies of the Grantor. 1.5 The City may deviate from these criteria by documenting in writing the reason(s) for the deviation. The documentation shall be submitted to the Department of Employment and Economic Development with the next annual report. 1.6 The Grantor may amend this document at any time. Amendments to these criteria are subject to public hearing requirements contained in the Statutes. 2 PUBLIC PURPOSE REQUIREMENT 2.1 All business subsidies must meet a public purpose with measurable benefit to the City as a whole. Public purpose may include, but not be limited to, the creation of needed services or facilities not currently available, provide a variety of housing ownership alternatives and housing choices, redevelop and 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, retain local Page 1 of 7 jobs, increase the job base, and provide diversity in that job base, enhance existing jobs through increased wages, encourage additional unsubsidized private development in the area, either directly, or through secondary "spin off' development, offset increased costs of redevelopment over and above those costs that a developer would incur in normal urban and suburban development, and meet other uses of public policy, as adopted by the Council from time to time including the promotion of quality urban design, quality architectural design, energy conservation, decreasing the capital and operating costs of local government, etc. 2.2 Job retention may only be used as a public purpose in cases where job loss is specific and demonstrable. The City shall document the information used to determine the nature of the job loss. 2.3 The creation of tax base shall not be the sole public purpose of a subsidy. 2.4 Unless the creation of jobs is removed from a particular project pursuant to the requirements of the Statutes, the creation of jobs is a public purpose for granting a subsidy. Creation of at least 1 Full Time Equivalent (FTE)job is a minimum requirement for consideration of assistance. 2.5 The wage floor for wages to be paid for the jobs created shall be not less than 150% of the State minimum wage in effect at the time the subsidy is granted. The City will seek to create jobs with higher wages as appropriate for the overall public purpose of the subsidy. Wage goals may also be set to enhance existing jobs through increased wages, which increase must result in wages higher than the minimum under this Section. 3. CITY'S OBJECTIVE FOR THE USE OF PUBLIC FINANCING 3.1 As a matter of adopted policy, the City of Arden Hills may consider using Tax Increment Financing (TIF) and other forms of public financing, such as tax abatement, bonds, and other forms as appropriate, to assist private development projects when such assistance complies with all applicable statutory requirements to: A. Remove blight and/or encourage redevelopment in designated redevelopment/development area(s) per the goals and visions established by the City Council B. To achieve the following housing-related goals: 1. To provide a balanced and sustainable housing stock to meet diverse needs both today and in the future 2. To ensure all housing is safe and well-maintained 3. To promote neighborhood stabilization and revitalization by the removal of blight and the upgrading of existing housing stock. C. To retain local jobs and/or increase the number and diversity of quality jobs Page 2 of 7 D. To encourage additional unsubsidized private development in the area, either directly or through secondary "spin-off' development. E. To offset increased costs for redevelopment over and above the costs that a developer would incur in normal urban and suburban development (determined as part of the But-For analysis). F. To facilitate the development process and to achieve development on sites which could not be developed without this assistance. G. To meet other uses of public policy, as adopted by the City Council from time to time, including but not limited to promotion of quality urban design, quality architectural design, energy conservation, sustainable building practices, decreasing the capital and operating costs of local government. 4. COSTS WHICH MAY QUALIFY FOR PUBLIC FINANCING ASSISTANCE 4.1 Although it is understood that State Statute limits the types of assistance, providing assistance to underwrite some or all of the following costs are consistent with the City of Arden Hills goals to the extent that development could not occur without such assistance: A. Project design fees including utilities, landscape, architectural, and engineering design B. Site-related work, including earthwork/excavation, soil correction, landscaping, utilities, streets and roads, street/parking lot paving, street/parking lot lighting, curb and gutter, and sidewalks C. Land acquisition D. Special assessments E. Soil tests F. Environmental studies G. Relocation assistance H. Replacement or cleanup of contaminated soils which would otherwise preclude redevelopment L Rehabilitation J. Any other costs allowable by state statute and approved by the City Council 5. PROJECTS WHICH MAY QUALIFY FOR PUBLIC FINANCING ASSISTANCE All new applications for assistance considered by the City of Arden Hills must meet each of the following minimum qualifications and will also be evaluated based on their ability to meet the desired qualifications for assistance. However, it should not be presumed that a project meeting any of the qualifications will automatically be approved for Page 3 of 7 assistance. Meeting the qualifications does not imply or create contractual rights on the part of any potential developer to have its project approved for assistance. 5.1 Minimum Qualifications: A. In addition to meeting the applicable requirements of State law, the project should meet one or more of the Public Financing Objectives outlined in Section 3; but at a minimum shall either: 1. Remove blight and/or encourage redevelopment in the City in order to encourage high quality development or redevelopment and private reinvestment in those areas; OR 2. Facilitate the development process and to achieve development on sites which would not be developed without this assistance. B. The developer must demonstrate to the satisfaction of the City that the project is not financially feasible "but for" the use of tax increment or other public financing. C. The project must be consistent with the City's Comprehensive Plan and Zoning Ordinances, Design Guidelines or any other applicable land use document. D. Prior to approval of a financing plan, the developer shall provide any requested market and financial feasibility studies, appraisals, soil boring, private lender commitment, and/or other information the City or its financial consultants may require in order to proceed with an independent evaluation of the proposal. E. The developer must provide adequate financial guarantees to ensure the repayment of any public financing and completion of the project. These may include, but are not limited to, assessment agreements, letters of credit, personal deficiency guarantees, guaranteed maximum cost contract, etc. F. Any developer requesting assistance should be able to demonstrate past successful general development capability as well as specific capability in the type and size of development proposed. Public Financing will not be used when the developer's credentials, in the sole judgment of the City, are inadequate due to past history relating to completion of projects, general reputation, and/or bankruptcy, or other problems or issues considered relevant to the City. G. The developer, or its contractual assigns, should retain ownership of any portion of the project long enough to complete it, to stabilize its occupancy, to establish project management and/or needed mechanisms to ensure successful operation. H. Enter into a Development Agreement crafted to meet the conditions of the actual project. Page 4 of 7 5.2 Desired Qualifications: A. Proposals creating a higher ratio of property taxes paid after redevelopment will receive priority consideration. B. Proposals should not be used to support speculative industrial, commercial, office or housing projects. In general the developer should be able to provide market data, tenant letters of commitment or finance statements which support the market potential/demand for the proposed project. C. Public Financing will not be used in a project that involves an excessive land and/or property price. This will normally be where the acquisition price is more than 20% in excess of market value as determined by an independent appraisal of the property (exclusive of relocation benefits). The City shall commission an appraisal and the cost will be paid from Developer's escrow. D. Public Financing will not be used in projects that would give a significant competitive financial advantage over similar projects in the area due to the use of public subsidies. Developers should provide information to support that assistance will not create such a competitive advantage. Priority consideration will be given to projects that fill an unmet market need. E. TIF and abatement will be provided on a pay-as-you-go-basis. Any request for upfront assistance will be evaluated on its own merits and may require security to cover any risks assumed by the City. F. Public Financing will not be used for projects that would generate significant environmental problems in the opinion of the local, state, or federal governments. Priority will be given to projects that aim to clean-up existing contaminated sites and would facilitate the location of an industry or business that has an environmentally-sound track record, or that meets a housing need in the City. G. Preference will be given to projects that meet good public policy criteria as determined by the City Council, including: I. High project quality (e.g. sound architectural design, quality construction and materials, sustainable building practices) 2. Projects that provide significant improvement to surrounding land uses, the neighborhood, and/or the City 3. Projects that provide a significant increase in tax base 4. Projects that provide significant new, or retained employment 5. Projects that meet financial feasibility criteria established by the City 6. Projects that provide the highest and best desired use for the property Page 5 of 7 6. PUBLIC FINANCING PRINCIPLES 6.1 General assumptions of redevelopment shall serve as a guide for the public financial assistance policies. These assumptions are as follows: A. All requests for assistance shall be reviewed by a third party financial advisor who will inform the City of its findings and recommendations. B. The City shall establish mechanisms within the development agreement to ensure that adequate checks and balances are incorporated in the distribution of financial assistance where feasible and appropriate, including but not limited to: 1. Third party review of the "but for" analysis 2. Establishment of"look back provisions" 3. Establishment of minimum assessment agreements C. The City will elect the fiscal disparities to come from inside applicable TIF district(s)to eliminate any impact to the existing tax payers of the community. D. The City will target up to the maximum allowed by State Statute of tax increment for administrative purposes. E. The developer shall proactively attempt to minimize the amount of public assistance needed through the pursuit of grants, innovative solutions in structuring the deal, and other funding mechanisms. 7. PUBLIC FINANCING PROJECT EVALUATION PROCESS 7.1 The following four methods of analysis for all Public Financing proposals will be used: A. Consideration of project meeting minimum qualifications B. Consideration of project meeting desired qualifications C. Project meets "but-for" analysis and/or statutory qualifications D. Project is deemed consistent with City's Goals and Objectives Please note that the evaluation methodology is intended to provide a balanced review. Each area will be evaluated individually and collectively and in no case should one area outweigh another in terms of importance to determining the level of assistance. 8. APPLICATION FOR PUBLIC FINANCING ASSISTANCE 8.1 The application process is a two-step process and must be completed in accordance with required application procedures. The purpose of this approach is to give an applicant the opportunity to present a development proposal without expending a great deal of money Page 6 of 7 and time in pursuing a development that may conflict with the City's goals and objectives. 8.2 The City's public financing program will be administered by the City of Arden Hills. The City will require a non-refundable application fee in the amount of $2,000 for its processing of the application. The application fee shall be paid to the City at the time a final Public Financing Application is submitted. 8.3 At the time a final Public Financing Application is submitted, the applicant shall also deposit $10,000 with the City to cover attorney and consultant costs incurred as part of amending or establishing a TIF district or abatement, drafting and negotiating a development agreement, and conducting any fiscal analysis that may be required to meet the requirements of utilizing any public financing. If additional expenses are incurred beyond the $10,000, prior to the execution of a development agreement, the City shall notify the applicant in writing and the applicant will be required to deposit additional funds upon notice. 8.4 If the project is approved and the applicant proceeds with the project, the City shall reimburse the applicant any unused portion of the deposit as of the date of execution of the development agreement. If the applicant does not proceed with the project, the City shall reimburse the applicant for the unused portion of the deposit, less expenses incurred but not yet billed, as of the date that the City is notified in writing that the applicant desires to withdraw its application. 9. SUBSIDY AGREEMENT 9.1 In granting a business subsidy, the Grantor shall enter into a subsidy agreement with the recipient that provides the information, wage and job goals (if applicable), commitments to provide necessary reporting data and recourse for fail to meet goals required by the Statutes. 9.2 The subsidy agreement may be incorporated into a broader development agreement for a proj ect. 9.3 The subsidy agreement will describe the requirements for the recipient to provide the reporting information required by the Statutes. Adopted by Arden Hills City Council December 8, 2008 Page 7 of 7 TAX INCREMENT FINANCING PROPOSAL Grading and Report Card Business and Commercial Redevelopment 1. Ratio of Private to Public Investment in Project: Points: Private Funds/TIF $ Private Investment $5:1 5 $ TIF/Public Investment 4:1 4 $ Ratio of Private/Public Financing 3:1 3 2:1 2 Below 2:1 1 2. Job Retention/Creation in the City: Points: New Employees in Arden Hills 50+ 5 as a Result of Project 25+ 4 15+ 3 Less than 15 2 NR 1 3. Ratio of City financing to jobs retained/created: Points: $ TIF Request $8,000 or less per job 5 New jobs $10,000 or less per job 4 $ TIF/job $12,000 or less per job 3 $15,000 or less per job 2 More than $15,000 1 Page 1 of 5 PAPlanning\Economic Development\Business Subsidy & Public Financing\Business Subsidy\Busines Subsidy Grading and Report Card.doc 4. Pay Level of Jobs (FTE): Points: Pay Range # of Employees in range Total wages Points $45,000/yr or more 5 $35,000/yr or more 4 $30,000/yr or more 3 $20,000/yr or more 2 Less than $20,000 1 Total Total Wages $ (FTE) # of employees = Average wage $ 5. Increase in Real Estate Value: Points: Before/After Redevelopment Value of site after redevelopment 1:5 5 Value of site before redevelopment 1:4 4 Ratio of value before/after redevelopment 1:3 3 1:2 2 1:1.5 1 Bonus points (6 points total) • The Project adds value to the neighborhood and/or incorporates active community living principles: 2 points • The proposed project will redevelop a previously contaminated or environmentally challenged site: 2 points • Projects that incorporate sustainable building practices: 2 points TOTAL BONUS POINTS AVAILABLE 6 points Page 2 of 5 P:\Planning\Economic Development\Business Subsidy & Public Financing\Business Subsidy\Busines Subsidy Grading and Report Card.doc TAX INCREMENT FINANCING PROPOSAL Grading and Report Card Housing 1. Provides economic integration of rental or ownership projects (percent of affordable housing to total units). Points: # of units 50% 5 # of LI units 25%to 49% 4 % of LI units 24% or below 3 Above 50% 2 NR 1 2. Rental or ownership projects with the lowest intermediary costs (soft costs). Points: Total Project Cost 0% - 15% 5 Soft Costs 16% - 24% 4 % Soft Costs 25% - 30% 3 >31% 2 NR 1 3. Loan financing for rental or ownership projects which include public and private investment (not including TIF). Points: Private Investment Private/Public Public funds (non-TIF) 4:1 5 Ratio Private/Public Financing 3:1 4 2:1 3 1.5:1 2 Below 1 Bonus Points (5 point total) • Incorporates Sustainable Building Practices 3 points • Provides Life-cycle housing alternatives 3 points • New construction of rental or ownership projects that integrate Livable Communities and/or Active Community Living concepts 2_points TOTAL POINTS 8 points Page 3 of 5 PAPlanning\Economic Development\Business Subsidy & Public Financing\Business Subsidy\Busines Subsidy Grading and Report Card.doc Please note - affordable housing is defined as 80% of median income or less adjusted by family size. Page 4 of 5 P:\Planning\Economic Development\Business Subsidy & Public Financing\Business Subsidy\Busines Subsidy Grading and Report Card.doc PROJECT REPORT CARD Business/Commercial and Housing Projects Question Points 1. 2. 3. 4. 5. Bonus Points TOTAL POINTS /(5 or 3) _ Excellent = 5 Very Good = 4 Average = 3 Below Average = 2 Fail = 1 Page 5 of 5 P:\Planning\Economic Development\Business Subsidy & Public Financing\Business Subsidy\Busines Subsidy Grading and Report Card.doc