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2 3 4 � 9 10 11 12 l�'�, Jy REQUEST FOR COUNCIL ACTION Department Approval � �. Date: June 15, 2009 Item No. : 11. a City Manager Approval � / Item Description: Public Hearing for Proposed Tax Increment Financing (TIF) District No. 18 (Har Mar Apartments TIF District) within Development District No. 1 1.0 BACKGROUND On March 11, 2009, Aeon (the developer), the owners of the Har Mar Apartments, submitted a formal request to the City to consider the establishment of a housing tax increment financing (TIF) district on its parcel. The purpose of this request is to create a funding source to fill the projected financial gap in the second phase of its initiative to revitalize this aging apartment complex. As the Phase 2 proj ect is proposed, Aeon would construct a new 48-unit apartment building consisting of a combination of affordable two- and three-bedroom units with underground parking. In its pro forma submitted as part of the TIF application, the developer identified a$913,610 financial gap remaining after exhausting other funding sources. While Aeon does not anticipate beginning construction on the new building unti12011, the developer has requested the creation of the TIF district at this time in order to capture the new 13 value created through both the Phase 1 and Phase 2 elements of its project. The rehabilitation of 14 the existing buildings (Phase 1), which received final land use approvals on June 8, 2009, is 15 anticipated to commence during the 2009 construction season. 16 17 TIF is a financing tool available to local units of government to assist with "public costs" of 18 private development using future property tax revenue as the funding sources. To generate tax 19 increment, a TIF district must be established, which identifies the parcels whose future taxes will 20 be collected, and, after a public hearing, a TIF plan is adopted by the City Council identifying 21 how much increment will be generated in future tax increment based on a development scenario, 22 the use of these funds, and the possible impacts to other taxing jurisdictions. A housing TIF 23 district can collect increment for 25 years after the collection of the first increment (26 total 24 years). 25 26 The State of Minnesota created housing TIF districts to help cities finance affordable housing 27 projects and has created affordability tests to qualify projects for this type of district. Rental 28 housing must meet one of the three affordability tests, which are: 29 ■ 20-50 test: 20 percent of the units are occupied by individuals whose incomes are 30 50 percent or less of the area median income Page 1 of 3