HomeMy WebLinkAboutCity Council Packet 05-02-2000 SpecialAgenda
City of Plymouth
Special City Council Meeting
Tuesday, May 2, 2000
Immediately Following the 7:00 PM Board of Review
Council Chambers
1. Call to Order
2. Status Report on City Center Streetscape Plan
3. Discuss Proposed Redevelopment Projects (including 2300 Berkshire Lane)
4. Receive Quarterly Report from City Manager (table to next study session)
5. Adjourn
MEMO
CITY OF PLYMOUTH
3400 PLYMOUTH BOULEVARD, PLYMOUTH, MN 55447
DATE: April 24, 2000
TO: Plymouth City Council
Planning Su through HurlburtFROM: Barbara Senness, Pl g ervisorp g ,
Community Development Director
SUBJECT: City Center Streetscape Implementation
1. ACTIONS REQUESTED:
Staff is asking that the Council approve the next steps in the implementation of the
streetscape plan. However, staff would point out that these are intermediate steps in
the implementation process. The Council will have final approval and/or authorization
over each the elements addressed below.
A. Approve the design and proposed spending plan for City Center signs at
Plymouth Boulevard and Vicksburg Lane. Authorize staff to negotiate a cost
sharing agreement for the sign on the east side of Vicksburg Lane.
B. Approve the proposed spending plan for additional landscaping along Plymouth
Boulevard.
C. Approve the general design for street furniture (benches) for use throughout
City Center and authorize staff to seek local sponsors to underwrite the cost of
individual benches.
2. BACKGROUND:
In June 1999, the Council approved the addition of a streetscape plan to its
Comprehensive Plan. Following that action, the City Council also authorized staff to
move forward with the first phase of streetscape plan implementation—public lighting
for a portion of City Center. This lighting will be installed later this year. In addition
to the funds that will allow implementation of public lighting, the City has earmarked
156,000 for further streetscape implementation. This memo outlines specific
implementation options for that additional funding. The options include City Center
signs and additional landscaping, including street furniture, along Plymouth Boulevard.
City Center Signs Proposed Budget: $49,000
Last year the Council discussed the importance of announcing City Center to citizens
and passing motorists through entrance signs. The Council focused its attention
primarily on the entrance at Plymouth Boulevard. However, in recommending the
reguiding of the property at the northwest corner of Vicksburg and Highway 55, staff
emphasized the importance of that entrance to City Center and the need for strong
identifying elements in that location as well. Along with building placement and
design, signs are key location identifiers.
Last fall, staff contracted with an architect to prepare a prototype sign for City Center.
Staff asked the architect to develop a design that could be used at both the Plymouth
Boulevard and Vicksburg entrances to City Center. The prototype sign is attached. It
would be constructed of brick, signifying permanence, and would include the Plymouth
City Center name as well an events board. As requested, the design could be altered so
the sign can work as a single element at the Plymouth Boulevard entrance or as two
matching sign elements on either side of the entrance at Vicksburg Lane. The curved
angle of the sign would facilitate landscaping between the two ends.
When the City Council first raised the potential for City Center signs, the Council
suggested that at least some, if not all of the cost, be shared by landowners in City
Center that would benefit from the signs. In reviewing each of the candidate sites, staff
finds that there would be good opportunity for cost sharing at the Vicksburg entrance.
On the west side, a developer has recently submitted a development application. The
City could make the entrance sign a part of the project approval. On the east side, the
addition of a sign would measurably improve the appearance of the corner which in
turn could be viewed as a positive by Mann Theaters. Staff therefore finds that at least
part of the cost of this sign could be recovered from adjacent property owners. Staff
proposes to meet with representatives from Mann Theater and Carlson Real Estate to
review the proposed sign design and location and to request their financial assistance in
constructing this sign. Staff does not see the same potential for cost sharing with the
sign at Plymouth Boulevard. At this entrance, there are no immediately benefitting
properties. The closest property, US Bank, has a pylon on Highway 55 and would
likely not see a City Center sign as a value-added for them. In addition, public uses
dominate the next section of roadway.
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Estimated costs of the signs are included in the table that follows.
Sign Location Estimated Cost City Cost
Plymouth Boulevard/HighwayBoulevard/Highway55 35,000 35,000
Vicksburg Lane/Highway 55 (east side) 28,000 14,000
Vicksburg Lane/Highway 55 (west side) 28,000 0
TOTAL 91,000 49,000
With cost sharing on the signs at Vicksburg Lane, staff estimates that the total cost to
the City could be reduced from $91,000 to $49,000. This assumes that all of the cost
of the west side sign would be covered by the developer of Plymouth Marketplace and
50 percent of the cost of the east side sign would be covered by Mann Theaters and
possibly Carlson Real Estate.
Plymouth Boulevard Landscaping Proposed Budget: $107,000
The City Council has also previously discussed placing additional landscaping in the
medians and boulevards along Plymouth Boulevard. The streetscape plan designates
Plymouth Boulevard as a parkway. One of the ways the plan suggests to achieve that
end is through additional landscaping. Because of the length of the roadway through
City Center and the large number of medians (there are nine), providing additional
landscaping will necessarily be a staged project.
Staff will be working with a group of landscape architects to develop an appropriate
design for the median and boulevard plantings. Once a design is finalized, staff is
proposing to select the medians closest to Highway 55 for initial implementation this
fall. The cost per median will determine how many medians can be completed in the
first phase.
Along with landscaping, staff has looked at potential designs for street furniture,
primarily benches. At the present time, Park and Recreation is also in the process of
selecting a bench for use at the Millennium Garden. While they have not picked a
specific design, they have settled on wood as a material. Staff finds wooden benches
would be appropriate throughout City Center. Wood weathers nicely and tends to
maintain a presentable appearance longer than metal. In addition, wood is consistent
with the strong tree/landscape theme in City Center. Community Development staff
will work with the Parks staff to select a wood bench that could be used at the garden
and in City Center. While there is no immediate funding for benches in City Center,
staff has identified the potential for private sector assistance in this area as well.
Specifically, the Plymouth Business Council has indicated interest in supporting
improvements in City Center. A bench with an identifying plaque would be a simple
and visible option for them. In addition, there may be opportunities to incorporate
street furniture in landscaped portions of private development sites in City Center. If
3
this happens, staff finds that it would be preferable from a design and theme
perspective, if the City could specify the type and manufacturer of the bench.
3. CONTINUING IMPLEMENTATION:
The steps that the City is taking with streetscape implementation are necessarily being
undertaken in phases. The next logical phases are outlined below. Staff notes that
there would be landscaping, signs and street furniture that would extend beyond the
next phases.
Continuation of the street lighting program
Continuation of the landscaping plan for Plymouth Boulevard
Development of detailed landscape plans for 1) 36 Avenue and 2) Vicksburg Lane
Development of additional signs at Vicksburg and County Road 9 and Plymouth
Boulevard and County Road 9
Redesign of Plymouth Boulevard north of 34' Avenue to widen the median and add
parking bays
ATTACHMENTS:
1. Proposed City Center Entrance Signs
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Agenda Number:
TO: Dwight Johnson,,,,City Manager
FROM: Anne HurlbF'Community Development Director
SUBJECT: Briefing on Proposed Redevelopment Projects—
Continental Property Group (CPG), 2300 Berkshire Lane
TOLD Development, Plymouth Crossings Project
DATE: April 27, 2000 for the Special City Council Meeting of May 2, 2000
1. PROPOSED ACTION
None. The Council identified "targeted redevelopment" as one of its top goals and priorities for
the coming year. Staff will brief the Council on the status of two projects that are currently in the
early stages of City review. Because these projects are somewhat unprecedented for the City of
Plymouth, staff is interested in getting the Council's feedback before we proceed with further
study and specific recommendations.
2. BACKGROUND ON CPG PROJECT
The City has received a request to create a Tax Increment Financing (TIF) Redevelopment
District to assist with the redevelopment of the property at 2300 Berkshire Lane (see attached
location map.) The property is currently vacant. The owner, Continental Property Group (CPG),
is planning to renovate and upgrade the existing 240,000 -sq. ft. structure to lease the property to
a tenant yet to be determined. To do so, they will need to invest a substantial amount
10,100,000) in building and site improvements. The property has a current taxable market
value of $4,209,000. After improvement, the estimated market value would be about
12,000,000.
A major obstacle to completing this project is the ownership of one of the three parcels of land
included in the 14.87 -acre site. Part of the property (6.63 acres, on which 85,000 -sq. ft of the
building sits) is leased to CPG on a lease that runs until 2012. CPG attempted to buy the
property, but the owner initially indicated no interest in selling at any price. Without control of
the land, CPG cannot justify a major investment in the property. Therefore, CPG requested the
City's assistance to use its power of eminent domain (condemnation) to acquire the property and
re -convey it to CPG.
CPG is requesting that the City provide TIF assistance equal to $650,000 plus the actual cost of
the land acquisition. CPG would finance all of the costs up front, receiving the TIF assistance on
a "pay-as-you-go" basis. The City and CPG would enter into a loan agreement specifying that
CPG would receive funds when and if they demonstrate that they have made the anticipated
improvements to the property, and the tax increments projected are realized and collected by the
City. The City would not be financing any of the amount through bonds or other means. This
limits the City's risk should the project not proceed as planned or the increase in values and the
resulting tax revenue is not realized.
Since the application was received, staff has conducted a preliminary inspection of the property.
We concur that it is likely that the property will qualify as a redevelopment district. The
majority of the building is warehouse space that is obsolete based on current industry standards
only 14 ft. clear height with closely space pillars). The portion of the building finished for
office space (about 25,000 sq. ft.) is in poor shape and would have to be demolished. The roof
and mechanical systems would both need work to convert the building for another user. The
parking lot and outdoor lighting are in poor condition and need to be rebuilt.
Staff has also been in contact with the fee owner of the 6.63 -acre portion of the site. The owner,
Cobham Associates (Rod Cushman), now indicates willingness to sell the property at the price of
1.4 million. CPG reviewed this offer and indicated that this price is not acceptable,
significantly exceeding CPG's last offer of $850,000.
Staff has requested a professional appraisal of the leased property. (The applicant has deposited
funds with the City to cover our out-of-pocket costs.) The results of the appraisal will provide
additional information for a possible negotiated sale between the two parties. If that fails, the
City will need to determine whether or not the City can or should use its powers of eminent
domain (condemnation) to facilitate the transfer of ownership. The appraisal will also help us
better estimate the amount of City assistance (TIF) that might be needed to make the project
financially feasible. After completion of the appraisal, we will come back to the Council with
specific recommendations on any actions necessary to proceed with the project.
Some of the issues that the City will need to consider include:
How much assistance is necessary to make the project feasible? Could it reasonably occur
without the City's assistance? (the "but for" test)
How long should the TIF district last? How long before the project contributes to the City `s
and other taxing jurisdictions') tax base?
What kind of financial impact would the TIF assistance have on the City and its taxpayers?
possible HACA penalties and treatment of the fiscal disparities contribution for the district)
Who will the tenant be? Will the business fit with the City's Comprehensive Plan and zoning
requirements? Will there be traffic or infrastructure impacts?
Is a negotiated sale between CPG and the other landowner possible? Or is it necessary for
the City to become involved and use its eminent domain powers to force a sale?
2
2. BACKGROUND ON TOLD PROJECT
Staff has been working informally with TOLD Development Company on a possible
redevelopment of the Plymouth Shopping Center and adjacent properties for over one year. The
site is the approximately 25 -acre area located at the southwest quadrant of the intersection of TH
55 and CSAH 73, also shown as "Study Area A" by the draft Land Use Guide Plan. The
developer has made an application for a TIF redevelopment district to help pay for the
extraordinary costs of the development including demolition and abatement of existing buildings,
soil corrections and infrastructure costs (primarily the rebuilding of the TH 55 frontage road and
intersection improvements.)
An early proposal by TOLD (April 1999) showed two 3 -story office buildings totally 170,000 sq.
ft.; one 15,000 -sq. ft. single -user retail building, and a 120 assisted living residential units in two
buildings. The site included all of the land in Study Area A, except for the "Mr. Gas" site at the
corner of TH 55 and CSAH 73. The existing shopping center, which would be torn down, is
functionally obsolete and consistently greater than 50 percent vacant. The shopping center site
would be combined with the adjacent vacant lot, currently owned by the adjacent property
owner. The project would require acquisition and demolition of ten residential properties on
Cottonwood Lane. These homes were all built between 1946 and 1951, except for one newer
home built in 1965. The residential neighborhood is sandwiched between the shopping center
and the Fourth Baptist Church/ Honeywell area, and is accessed only from the frontage road.
Compatibility of these land uses was identified as an issue during the land use plan update.
Since the developer originally approached the City, they have revised their concept. The most
recent plan now incorporates the Mr. Gas property (currently owned by Holiday) into the
development and shows 5 retail buildings totaling 42,000 sq. ft., including a new
gas/convenience store and two restaurants. The residential portion of the project has expanded to
237 market -rate apartments in three 3 -story buildings with underground parking.
The next step for this project will be the review of a sketch plan application, which was
submitted to the City last week. This will trigger study of the land use and infrastructure issues
such as traffic) anticipated by the study area designation. The project would be developed as a
Planned Unit Development (PUD) and require Comprehensive Plan amendments as part of the
development approval (this was anticipated by designation of the study area.)
Much additional review by City staff, financial consultants and attorneys is needed to determine
the impact of the requested TIF redevelopment district. The TIF assistance could be as much as
4 million, on a pay-as-you-go basis. The existing market value of the properties proposed to be
included in the TIF district is approximately $2.8 million. The market value of the completed
project is estimated at $22.8 by the developer.
Since approaching the City with this redevelopment concept, the developer has been working to
acquire the residential properties on a voluntary basis. While some seem willing to sell, there
may be one or more that are not. The City will need to decide whether or not to use its eminent
domain powers to assemble the site for the project.
3
Some of the issues for this project (the amount of assistance necessary, how long a district would
last, financial impacts) are the same as for the CPG project. In addition, the City will need to
consider:
The site is a very visible, "gateway" location that clearly needs improvement. How would
this project fit with the Council's vision for the area? How would the single-family
neighborhood to the south of the site be impacted by the project?
Does assisting retail development (including restaurants and a second gas/ convenience store
at the CSAH 73/ TH 55 intersection) merit public assistance? Redevelopment of blighted
properties may be worthy of public assistance; however, assisting these types of commercial
uses may be subject to some criticism.
The project would create an opportunity to improve important elements of the City's
transportation system (the intersections and the south TH 55 frontage road) that must be
weighed against the costs of the project.
Forcing unwilling, long-term Plymouth residents to sell their homes would create very
negative public perceptions.
How can the proposed multiple -family component of the project contribute to meeting the
City's housing goals?
Could the project provide opportunities for the existing neighborhood businesses to remain in
the neighborhood?
3. GENERAL INFORMATION ON TIF
Tax Increment Financing may be a new issue for some City Council members. The Minnesota
Department of Trade and Economic Development has published a very readable manual for local
officials. Excerpts from the manual, with general information about TIF and specifically about
redevelopment districts, are attached.
The City of Plymouth has been conservative in its use of Tax Increment Financing to assist
development and redevelopment. We have attempted to limit assistance to only the minimum
amount of assistance required to provide a "level playing field" and make a project feasible.
The length of TIF districts has been kept as short as possible to get the value of the projects on
the tax rolls as soon as possible and to limit the impact on other taxpayers through penalties on
the City's state HACA (Homestead and Agricultural Aids) revenues. Penalties vary by the type
of district and have been changed frequently by the legislature.
ATTACHMENTS:
1. CPG Property
a. Location Map
b. Letter from Pelstring Capital, October 20, 1999 (with attachments)
c. Letter from Rod Cushman, March 9, 2000
d. Letter from Pelstring Capital, April 6, 2000
2. TOLD Project
a. Location Map
b. Sketch Plan
3. Background Information on TIF, Minnesota Department of Trade and Economic Development
n:\cd\plan\staffrep\cc\2000\continentaltifl.doc
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PELSTRING CAPITAL CORPORATION
4 1200 Osborne Road --t Fridley, MN 55432
I October 20, 1999
Ms. Anne Hurlburt
Director of Community Development
City of Plymouth
3400 Plymouth Boulevard
Plymouth, MN 55447
IRe: Redevelopment TIF Project
Dear Ms. Hurlburt,
I wanted to provide additional detailed information on the potential for TIF
assistance to acquire the leased property that is part of the 2300 Berkshire
facility in Plymouth. I have completed a preliminary analysis and have
preliminarily determined that the site will qualify as a Tax Increment
Redevelopment District.
Continental Property Group, is working with several major tenants that
would be interested in this space, as "high tech" office space. In order to
complete the building renovation and upgrade, CPG would have to invest an
estimated $10,100,000 in the property. CPG cannot justify this investment
unless it can control the entire parcel.
612) 792-4227 GO@ 800-642-6258 Op (612 1 -02-4236 Fax-tr aektring@earthlink.net
Ib
REDEVELOPMENT TAX INCREMENT DISTRICT
Our preliminary analysis suggests that the development site will qualify as a
new Tax Increment Redevelopment District. The statutory requirements for
a redevelopment district are as follows:
1. At least 70% of the parcels, by area, must be "occupied" by buildings,
utilities or public improvements. To be classified as "occupied", the
improvements must cover at least 15% of the site.
2. Additionally, 20% of the buildings must be termed as "substandard"
such that they require removal or demolition and at least 50% of the
buildings must be "substandard" such that they require significant
renovation.
I have prepared a map of the area and the proposed TIF district. An initial
review of the development property suggests that well over 80% of the
development area qualifies as "occupied" as it contains existing buildings,
utilities, and other improvements.
Based upon my preliminary calculations, the attached area represents an
estimated 17 acres. Based upon the the proposed district, no more than 2.5
of these acres are currently "vacant". As such, the occupied area represents
a minimum of 85% of the total property, meeting the statutory test.
Based upon statutory requirements, there are only two buildings within the
district, and we believe that both of these structures meet the statutory
qualification for "substandard" or requiring "substantial renovation". Due to
the age and condition of the structures, it appears that this finding will not be
difficult to determine, but the City and Developer will need to conduct
appropriate inspections and complete the findings.
TIF FINANCIAL REQUEST
This property represents an opportunity for both the developer and the City.
The renovation and upgrade of this facility will have a very substantial
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impact on both the quality and use of the facility. Additionally, the proposed
tenant of the facility will greatly increase the number of employment
opportunities (150 to 250+) and the quality and pay for these positions.
The mayor obstacle to complete this project, however, is the Current owner of
parcel #3. This property is not owned by Continental Property Group, but
instead is controlled only by a "land lease". CPG will not invest the funding
required to complete this project, only to improve property controlled and
owned by a third party. CPG has attempted to negotiate the purchase of the
site, but the owner is unwilling to sell (see letter attached).
As such, the specific request of the City is to provide assistance in three
areas:
1. To utilize the TIF assistance to offset the cost of acquisition of the
property. The actual cost of acquisition can not be determined at this
time, but the property has a taxable market valuation of $261,000.
2. Direct TIF assistance to offset the removal of asbestos, interior
demolition, and parking removal, estimated at $650,000.
3. If necessary, to consider the use of municipal "condemnation" powers
to ultimately acquire and re -convey the property to Continental
Property Group, Inc.
As a redevelopment tax increment district, we understand the requirement to
expend the TIF funding for eligible redevelopment expenses. We believe
that the property acquisition and site redevelopment costs will qualify under
State Statutes.
i
ANTICIPATED RENOVATION COSTS
CPG has prepared a preliminary renovation/redevelopment budget as
follows:
Parking Lot/Landscaping $1,200,000
Demolition $ 3501000
Exterior Reconstruction $1,400,000
Asbestos Removal $ 150,000
HVAC/Electical $1,400,000
Office Construction $4,300,000
Fees/Closing $1,300,000
Total $ 10,100,000
We have prepared a preliminary financial analysis that provides an
indication of the financial cash flow of the tax increment district. For
purposes of this analysis, we have utilized the following assumptions:
ON TERM OF DISTRICT:
is
10
CURRENT TAX CAPACITY:
IN FUTURE TAX CAPACITY:
PROJECTED INCREMENT:
Statutory — 25 years
Effective use of funding — 16 years of
increment
147,315 — based upon properties
identified for the district.
444,815 — After completion of
renovation of building into office
project.
183,766 annually, beginning in
2002,
TIF REQUEST: Pay-as-you-go funding of increment
no risk to the city) to generate;i
present value" (at an 8.50% discount
rate equal to $650,000 plus the actual
amount of the land acquisition.
It should be noted that the proposed TIF district is anticipated to generate
over $2,400,000 of "present value" over approximately ten years of
increment. The City and the developer may want to consider the use of a
portion of the increment for other adjacent public improvement
costs.
SUMMARY
We appreciate consideration by the City of Plymouth of this redevelopment
Tax Increment Financing request. City assistance is necessary to assure the
financial viability of this project.
Most importantly, however, our request for assistance meets community
goals to encourage the redevelopment of this area. Additionally, the
developers are willing to bear all the risk of this transaction, funding all
construction and redevelopment costs up front, and by agreeing to accept all
funding on a pay-as-you-go basis.
We look forward to working with you on this project.
ly,
G CAPITAL CORPQRATION
Patrick W. Pelstring,
President
cc: Brad Hoyt
John Bessenen
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Tax Increment Financing Proposal
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The City of Plymouth
Attachments
Concept Building Drawing
Map of proposed TIF District
Preliminary Redevelopment Analysis
Preliminary Financial Analysis
Letter from Rod Cushman
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PARCEL
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PROPOSED TIF DISTRICT
PLYMOUTH REDEVELOPMENT DISTRICT
OCCUPIED PARCELS
TOTAL ACREAGE - OCCUPIED 14.87
TOTAL ACREAGE - UNOCCUPIED 2.4
PERCENTAGE OCCUPIED 86.10%
REDEVELOPMENT ANALYSIS
OCCUPIED
TIF
BASE MARKET NUMBER OF SUB- SUBSTANTIAL
REFERENCE ACRES VACANT VALUE BUILDINGS STANDARD RENOVATION
LAND & BUILDING 6.63 0.00 1,055,000.00 1 1 0
LAND 0.00 2.40 261,000.00 0 0 0
LAND & BUILDING 8.24 0.00 2,893,000.00 1 1 0
TOTALS 14.87 2.40 4,209,000.00 2.00 2.00 0.00
OCCUPIED PARCELS
TOTAL ACREAGE - OCCUPIED 14.87
TOTAL ACREAGE - UNOCCUPIED 2.4
PERCENTAGE OCCUPIED 86.10%
REDEVELOPMENT ANALYSIS
TIF
DISTRICT STATUTORY
ACTUAL REQUIREMENT
PERCENTAGE OCCUPIED: 86.10% 70.00%
PERCENTAGE - SUBSTANDARD: 100.00% 20.00%
PERCENTAGE - RENOVATION: 0.00%
TOTAL 100.00% 50.00%
PIN
NUMBER
27-118-22-24-0001
27-118-22-24-0002
27-118-22-21-0008
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m m m m i i i i i i i M i M i M m m
PLYMOUTH TYPE: REDEVELOPMENT
TAX INCREMENT ADI. FACTOR: N/A
ANALYSIS IN FLAT VAL- NONE
TIF DISTRICT #1 -NEW TERMINATES: YEAR 2024
REFERENCE: CONTINENTAL PROP
YEAR AN77GPA7ED BASE TAX CAPTURED TAX CAP NET UTY PROJECT/DEVELOPER NET PRESENT
PAYABLE TAX C4PAaTY CAPACITY TAX CAPACITY RATE INCREMENT ADM/N/S7R4770N PAYGO VALUE
2000 147,315 147,315 0
2000 147,315 147,315 0
2001 147,315 147,315 0 0.000% 0 0 0 0
2001 147,315 147,315 0 0.000% 0 0 0 0
2002 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 158,647
2002 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 310,826
2003 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 456,801
2003 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 596,825
2004 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 731,141
2004 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 859,981
2005 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 983,568
2005 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,102,117
2006 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,215,834
2006 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,324,914
2007 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,429,547
2007 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,529,915
2008 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,626,191
2008 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,718,542
2009 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,807,129
2009 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,892,103
2010 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 1,973,614
2010 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,051,802
2011 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,126,802
2011 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,198,744
2012 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,267,754
2012 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,333,950
2013 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,397,448
2013 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,458,357
2014 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,516,783
2014 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,572,827
2015 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,626,586
2015 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,678,154
2016 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,727,619
2016 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,775,068
2017 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,820,582
2017 444,815 147,315 297,500 123.540% 183,766 18,377 165,389 2,864,241
TOTALS 5,880,504.00 588 050.40 5 292 453.60 2 864 241.16
11
C
Mr. Bradley A. Hoydt
Continental Property Group
253 East Lake Street
Wayzata, MN 55391
Dear Mr. Hoydt,
ROD CUSHMAN
Box 592
Jackson, WY 83001
307 7339730
August 27, 1999
Thank you for your letter.
We have owned the property in Plymouth for over 30 years
and believe the property will have considerable value in the
future. We are not trying to persuade you to offer a higher
price. We have no interest in selling the property.
Sincerely,
1ti 0
ROD CUSH_MAN
ACKSON, VY 83001
307 7339730
Nz Ann Ku/zXAAui
C.i ty Ha.ii
3400 % lymou. h Bivd.
Piymouih. NN 55447
3-9-00
Dealt Ann,
Cnciozed .ih a copy o/ a ee;Uea laom Cushman & blakel ieid o f
8-16-99 piacing a value on .the paope2.ty owned .Py Cobham 4zzoc.
a. SI -4 mill ion.
CoAham A.6zoc. wou-ed Ae w-itfing to zeii th_e pltopelti.y .to
the City of Plfymou.th ne.t of any .taan,./e2 -axez /o2 A.4
m.iix ion.
S.inee2eiy,
MAR 1 3 2000
Ir
AUG -12-1999 10:45 CUSHMAN & WAKEFIELD 1G129409G41 P.03iO3
j
r.
24TH AVENUE
8.24 Acres
155,000 Square Feet
HOYT
ownD
z BUILDING
W
v:
Y
r] -
p
85,000 Square Fee
J
COBHAM ,a
BUILDING
HOYT
owm
PARKING
COBHAM•' ,-
PARKING S
HOYT _
PARKING
2.31 Acres
OWICLD
LEASED
NORTH
NOT TO SCALE
TOTAL P.03
APR -06-00 06:17 PM SPIKERS 6127924236
n
PELSTRING CAPITAL CORPORATION
1200 Osborne Road.t•, Fridley. MN 55432
April 6, 2000
Ms. Anne Hurlburt
Community Development Director
City of Plymouth
3400 Plymouth Boulevard
Plymouth, MN 55447
Re: Hoyt/CPG Tax Increment Request
Dear Ms. Huriburt,
Via fax: 612-509-5060
z 1(
PR 7
Brad lloyt and I have had an opportunity to discuss your discussions with
Mr. Cushman. Although it is encouraging to receive a response, his last
offer for salt of the property at $1,400,000 is considerably in excess of Mr.
l loyt's last offer of $850,000.
This amount is particularly difficult to absorb given the extensive investment
required to redevelop the building. We would recommend proceeding with
the appraisals and seeking consideration of the City Council to consider the
request for TIF.
Brad is currently working with a very serious prospect that would use the
entire building. The build out of the building would be 1/3 office, 1/3
production, and 1/3 warehouse. I do not have a firm job count, but I
understand that the company pays its employees very well and the number
of jobs would be very substantial.
The redevelopment and tenant "build -out" in the building (prior to the
acquisition of Mr. Cushman's property) would exceed $10M. Given the
P. 01
APR -06-00 06:18 PM SPIKERS 6127924236 P.02
projected lease rates, there is a serious question whether the project would be
financially viable. The determination of the final acquisition cost and the
potential for TIF assistance will be critical in the ability to complete the
project.
I will contact you in the next few days to give you more
prospect and disc he project schedule.
incer ly,
Patrick W. Pelstring,
President
cC: Brad Hoyt 612-473-2700
information on the
Location Map Land Use Guide
TOLD Development, C, Commercial
Plymouth Crossings ® CC, City Center
CO, Commercial Office
IP, Planned Industrial
LA -1, Living Area 1
N LA -2, Living Area 2
W E ;;;iii LA -3, Living Area 3rLA-4, Living Area 4
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s LAR, Living Area- Rural
Plymouth, Minnesota EM P -I, Public/Semi-Public/Institutional
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Historic Overview
Tax increment financing, also known as TIF, was
first introduced in Minnesota in 1946 as a public
development financing tool, but was not
popularly used until the 1970s, when federally
assisted housing and urban development
programs began to be phased out. In many
instances, projects were left midstream without
funding. For local units of government with
development projects pending but without
federal funding, tax increment financing was
often the only development financing tool left.
Public development authority powers were
randomly scattered throughout Minnesota
statutes, with each of these authorities containing
vague and often conflicting procedures for the
use of tax increment financing. By 1977, the
fractured use of tax increment financing caused
concern among legislators, resulting in a request
to either repeal tax increment financing or enact
specific procedures and safeguards for its use.
In 1979, the Legislature lifted the financing
mechanism of tax increment financing from the
underlying development statutes and inserted it
into a separate act. The powers and limitations of
public development were retained in the
underlying statutes and the tax increment
financing tool, complete with its own specified
procedures and limitations, was incorporated into
the Tax Increment Financing Act (M.S. §§
469.174 - 469.179 1, as amended).
wiz
Tax lomw&P Fam" ?
Since 1979, the Tax Increment Financing Act
has been extensively amended. The purpose of
most of these amendments has been to limit the
use of tax increment financing in order to correct
perceived abuses of its use. The numerous
amendments have resulted in different rules
governing different types of tax increment
districts, depending on when the districts were
created. Some amendments apply to all districts
while other amendments apply only to districts
created after adoption of the amendment.
This amending process can result in confusion
for individuals working with tax increment
financing. Previously created tax increment
districts are subject to different rules than newly
established districts. If a district is expanded, one
set of rules applies to the original district while a
second set applies to the expanded area. Given
the frequent amendments made to the Tax
Increment Financing Act, it is important for a
practitioner to check (i) the date a district was
created, (ii) the date certification of the district
was requested, and (iii) the date the district was
certified, and to apply the correct legal
procedures and requirements. Attached in the
Appendix to this handbook is a table which
summarizes the legal rules that apply for districts
created at certain times.
3
I
This handbook is meant to be prospective and
addresses the provisions of current law as they
apply to a newly established district or the
expanded portion of an existing district. If you
are working with an existing district, please
make sure you review the table in the Appendix
and determine under which rules you are
operating.
Public Purpose and Development Objectives
Public Purpose: The main objective of tax
increment financing is to encourage certain types
of development or redevelopment that would not
normally occur without the use of tax increment
financing. The type of development or
redevelopment that is assisted through tax
increment financing must serve a public purpose.
The public purposes for which tax increment
financing revenues can be expended include, but
are not limited to, (i) expanding the property tax
base, (ii) providing employment opportunities,
iii) redeveloping blighted areas, (iv) remediating
polluted soils, and (v) constructing low- and
moderate -income housing. Once the terms of the
project have been met, the tax increment financing
district is decertified and the property value of the
tax increment district is returned to the tax rolls,
thus increasing the tax base of the municipality,
school district, and county. Local governmental
services are primarily financed through property
taxes generated within the local jurisdiction. By
increasing the property tax base, local governments
are better able to provide government services.
Redevelopment: The expenditure of tax
increment financing revenues for the
redevelopment of blighted areas often involves
acquiring parcels of land containing blighted
structures, removing the structures, preparing the
site for redevelopment, and conveying the site to
a redeveloper. The public purpose for assisting
redevelopment of blighted areas is to conserve
existing resources, particularly the public
infrastructure of the community, and to
encourage redevelopment.
Public infrastructure includes utilities such as
water and sewer systems as well as public
amenities such as sidewalks, alleys, roads, public
parks and boulevards, parking ramps, street
lights, and public facilities. Tax increment
financing is used to conserve the investment that
a community has already made and to preserve
C!
the architectural integrity and historical character
for future generations. For example, an economic
benefit could be to rehabilitate an existing building
or remediate a polluted site in order to utilize the
existing public infrastructure and contain the
increasing cost of urban sprawl, rather than
construct a new building on undeveloped land.
Remediation of Polluted Soils: Many of the
underutilized areas of fully developed cities are
not redeveloped because the soil is polluted or
contains hazardous waste. Pollution does not
respect property boundaries and can affect a
large geographic area. Cleaning up polluted soil
is often more expensive than redevelopment. The
Tax Increment Financing Act has been amended
to authorize the expenditure of tax increment
financing revenues for pollution cleanup and the
removal of hazardous waste.
Employment Opportunities: Manufacturing
and industrial development creates more
employment opportunities and tax base than does
commercial development, which tends to move
commercial businesses and employees from one
location to another to meet consumer and
producer needs. To assure that tax increment
financing revenues are used to expand the tax
base and create jobs, the Tax Increment
Financing Act authorizes the use of tax
increment financing revenues for public and
qualifying improvements for manufacturing
while severely restricting the use of tax
increment financing for retail purposes.
Manufacturing is defined as "the manufacturing
or production of tangible personal property,
including processing resulting in the change in
condition of the property." Warehousing,
storage, and distribution of personal property
resulting from manufacturing, research and
development relating to production and
distribution, and telemarketing are also included
within the scope of manufacturing.
Targeted Commercial Development: Tax
increment financing may be used for commercial
development in limited circumstances where
geographic location is an important element.
Tax increment financing revenues can be
expended to assist in the development of tourism
facilities in counties of the State where tourism is
a primary industry but a sparse employment base
and geographic distance from the consumer
market precludes manufacturing as a viable economic
option.
Small cities of 5,000 population or less which are
located ten miles or more from a city of 10,000
population or more can locate a commercial
facility of up to 15,000 square feet, such as a
grocery store or fast food franchise
establishment, within their jurisdiction to meet a
public need and to create community economic
viability. In addition, small cities in the State
located one mile or less from another state or
Canada are given expanded authority to use tax
increment financing for commercial
development. They may use tax increment
financing to create "qualified border retail
facilities" consisting of a shopping center or one
or more retail stores containing at least
25,000 square feet of retail space. This
development may contain new buildings or
substantially rehabilitated existing buildings.
Low- and Moderate -Income Housing: The
statistics of the Minnesota Housing Finance
Agency show that a majority of all rental housing
in Minnesota utilizes some form of public
financial assistance. The primary public purpose
for the expenditure of tax increment financing
revenue for housing is to provide habitable and
affordable housing based on the income or
economic capacity of the occupant, whether the
housing is owner occupied or rental housing. The
low- and moderate -income criteria used in the
Tax Increment Financing Act are defined by
Section 143(f) or 142(d) of the Internal Revenue
Code.
Other Public Purposes and Development
Objectives: Tax increment financing may be
used to assist with other development objectives
such as the acquisition and site preparation of
vacant, underutilized, or polluted railroad
property or rights-of-way, the development of
marginal land in cities with port authorities, or
the development or redevelopment of mined
underground space.
Tax Increment Financing: Concept and Definition
Tax increment financing is a method local
governments use to pay for the costs of
qualifying improvements necessary to create new
development, redevelopment, or publicly
assisted housing. The financing of the qualifying
improvements is paid from the increased
property taxes generated from the new
development, redevelopment, or housing that
would not occur "but for" such assistance. Tax
increment is the difference between the existing
property taxes on a parcel of land before
development occurs and the increased property
taxes created by the new development. The tax
5
increment revenue is used by the local
government for a term of years to finance
qualifying improvements.
In 1997, the Tax Increment Financing Act was
amended to define "increment, tax increment, tax
increment revenues, and revenues derived from
tax increment or other similar terms for a district"
to include the revenues generated from captured
tax increment, interest or other investment earnings
on tax increment revenues, and proceeds from
the sale or lease of property purchased by an
authority with tax increment revenues.
Pros and Cons of Tax Increment Financing
Tax increment financing has become an increasingly popular development and redevelopment tool in
Minnesota. Along with its popularity come conflicting opinions about its uses, effectiveness and
necessity. The following lists some of the perceived pros and cons of tax increment financing.
Pros
1. Tax increment financing creates tax base and
employment that would not otherwise occur.
2. Tax increment financing allows financing of
public improvements without an election.
3. Tax increment bonding is not included in the
bonded indebtedness of a municipality.
4. Tax increment financing provides a
municipality with control over its local
development.
5. Tax increment financing provides
administrative funds for operating authority
programs and paying costs incurred for
administering districts.
6. Authorities are protected by limitations
contained in the Tax Increment Financing
Act and by development agreements.
7. Municipalities have control over tax increment
development activity.
8. Tax increment financing provides a
competitive edge over other states and
regions.
9. Tax increment financing requires a due
process, including a public hearing in order
to get citizen input.
n,
Cons
1. The "but for" test is subjective and cannot
really be quantified.
2. Tax increment financing provides a means to
circumvent referendum requirements.
3. Rating agencies, such as Moody's Investors
Service and Standard & Poor's, include tax
increment financing bonding in their
consideration of city risk.
4. Municipalities do not bear the true costs of
projects financed with tax increment, so they
may undertake projects where the benefits
are outweighed by the true costs.
5. Municipalities use tax increment financing to
acquire funds for municipal programs.
6. Authorities find ways to circumvent the Tax
Increment Financing Act, or the Act is not
followed due to ignorance of the law.
7. Municipalities use county property taxes and
state funds without their consent.
8. New development is not created, old
development is just moved around.
9. Even though there is a public process, the
public does not really have a say in the
decision making, or the public process is not
followed.
I Taj6 IwA&4wZ
hm" Rwe" 6wwtd?
Tax increment is simply the difference between
the property taxes being paid now and the future
property taxes to be paid on new development or
redevelopment, subject to the restriction in State
law including: the use of property now, the use
of the property after new construction, the number
of years that the increment may be captured, the
type of costs for which tax increment can be used,
The Minnesota Property Tax System
The State of Minnesota has one of the most
complicated property tax systems in the nation.
Three factors affect a property owner's property
tax: (i) the estimated market value of the
property, (ii) the classification of the property
how the property is used), and (iii) the total
local tax rate.
The estimated market value of the property is the
value that the assessor placed on the property.
This value should closely reflect what a buyer
would pay for the property if it were offered for
sale. Each year, on January 2, the assessor
reviews the market valuation of the property to
determine if changes in the real estate market
require a change in the estimated market value.
and the need for assistance. Through tax
increment financing, a municipality or
development authority is able to utilize the
property taxes resulting from increased market
value of new development or redevelopment to
pay for the qualifying costs related to that
development.
Each property type in Minnesota, i.e., residential
homestead, commercial, agricultural homestead, is
subject to a conversion from market value to tax
capacity according to state statute. The conversion
from market value to tax capacity is based on
the classification, or use, of the property. Each
property type is assigned a class rate, or
percentage, as determined by the Legislature.
Commercial, industrial and other business
property tend to have higher class rates than
residential and agricultural property.
The tax capacity is actually the taxable value of the
property. Tax capacity is calculated by multiplying
the estimated market value by the class rate. This
value is multiplied by the local tax rate to determine
the amount of property tax a property owner pays.
j Valu® f X Rate
X = aapa"cl Tax !P < is
12
1997 and 1998 Classification Rate Changes
The 1997 and 1998 Legislatures made several
changes to the property tax system. Among the
major changes was a compression of the class rates.
Most of the changes went into effect for taxes
payable 1998, although additional changes were
Class
1 a - Homestead
house, garage, land)
Id - Seasonal migrant
worker housing
3a - Commercial/
Industrial
3a - Transit zones ci
4a - Apartments
4b - Less than 4 rental units
and does not qualify as 4bb
4bb - One unit rental
not seasonal
4c - Resorts Cabins
4d - Low-income housing
5 - Public utility
made by the 1998 Legislature for taxes payable
1999. The class rates for taxes payable on certain
properties payable 1999 as compared to payable
1997 and 1998 are as follows:
Pay 1997 Pay 1998 Pay 1999
72,000 1.0% < $75,000 1.00% < $75,000 1.0%
72,000 2.0%
No applicable
section
75,000 1.85%
If criteria are met, housing
uses 1 a class rates.
100,000 3.0% < $150,000 2.7%
100,000 4.6% > $150,000 4.0%
100,000 3.0% < $150,000 2.7%
100,000 4.0% > $150,000 0.85%
of the second tier ci rate.
3.4% 2.9%
2.3% 2.1%
2.3% < $75,000 1.9%
75,000 2.1 %
2.3% 2.1%
72,000 1.75%
72,000 2.5% > $75,000 2.5%
2.0% 1.9% in pay 1998 for class
4d and 1.0% for qualifying
property in pay 1999.
Transition rates apply for
4d and 4c property that do
not qualify in pay 1999
as low-income property.
4.6% 4.0%
Along with the class rate changes there were
several related amendments that define the classes
to include or exclude certain types of property or
include qualifying criteria for the class.
The pay 1998 class rates were the initial steps in
the class rate compression process. Due to a lack
of revenue, the 1997 Legislature and the
Governor agreed to establish statutory targets or
75,000 1.4%
13
75,000 1.7%
If criteria are met, housing
uses 1 a class rates.
150,000 2.45%
150,000 3.5%
150,000 2.7%
150,000 0.85%
of the second tier ci rate.
2.5%
1.7%
75,000 1.25%
75,000 1.7%
1.8%
75,000 1.25%
75,000 2.2%
1.0%
3.5%
goals for specific class rates. The targets were
enacted by the 1998 Legislature.
While the reduction in class rates has resulted in
reduced property taxes, it has also resulted in a
reduction of tax increment revenue generated by
existing districts. See section entitled "Special
Taxing District" regarding remedy if classification
change causes shortfall in tax increment revenues
for payment of prior existing obligations.
Original Tax Capacity
The original tax capacity of property within a tax
increment financing district is the tax capacity of
the property at the time the district is established.
Once a tax increment financing district is
approved, the county auditor should receive the
tax increment financing plan and approving
resolution along with the request for certification
of the district.
According to the Tax Increment Financing Act,
the county auditor will use property values for
the current taxes payable year for districts whose
request for certification was received on or
before June 30. For districts whose request for
certification is made after June 30, the original
tax capacity is based on property values for the
subsequent taxes payable year.
The county auditor must increase the original net
tax capacity of the district by the net tax capacity
of each improvement for which a building permit
was issued within the 18 months prior to
approval of the tax increment financing plan.
fl!
The original tax capacity may be changed during
the life of a district due to changes in the
taxable/exempt status of property, changes in the
property classification rates of parcels in the
district, and addition or removal of parcels. The
taxes that are generated from the original tax
capacity will continue to go to the various taxing
jurisdictions in which the district is located.
In the event the classification rate to be applied to
the new improvements is different than the current
classification rate for the property to be certified,
the classification rate for the new improvements
will be used to determine the original tax capacity.
For economic development districts, an inflation
factor, averaging the five year market value increase
prior to the certification of the district, is applied
each year to the original tax capacity of the district,
effectively reducing the increment generated by the
district. In computing this inflation factor, the
auditor will exclude the market value, as estimated
by the assessor, that is attributable to new
construction; extension of sewer, water, roads, or
other public utilities; or platting of the land.
Captured Tax Capacity
Captured tax capacity is the
total tax capacity of the parcels
in the district less the original Total
tax capacity. The total tax Tax
capacity is the sum of the tax Capacity
capacity of the parcel prior
to (re)development (original
tax capacity, as previously
discussed) and the tax capacity of the constructed
improvements. The captured tax capacity is
Total
Tax Capacity
Captured
Tax Capacity D
Captured Tax Capacity
Original Tax Capacity
multiplied by the local tax rate to determine the
amount of tax increment for the current year.
Original
Tax Capacity
Local
Tax Rate
i
15
Captured
Tax Capacity
Tax
Increment
Pooling Considerations
Pooling refers to the amount of tax increment that
can be spent outside of the boundaries of a tax
increment district but within the boundaries of a
project area as defined in Appendix A, but may or
may not be located in another tax increment district.
Tax increment revenues from one district within
a project area may be used to support development
or redevelopment activities in other tax increment
revenue districts within the same project area.
Tax increment from districts created before May 1,
1990 may be spent anywhere within the project area
boundaries. The 1990 changes in the Tax Increment
Financing Act placed restrictions on pooling.
Further restrictions were enacted in 1995. For
districts created after June 30, 1995, no more than
20 percent of the increment (25 percent in the case
of redevelopment districts) may be spent outside the
boundaries of the tax increment financing district.
However, increment from housing tax increment
financing districts may be spent to finance "housing
projects" located anywhere in the broader project area.
Administrative costs are considered to be expenditures
made outside the tax increment financing district.
Fiscal Disparities (M.S. § 469.177, subd. 3, Ch. 473F and 276A)
Cities in the seven -county metropolitan region
and municipalities in the taconite tax relief area
participate in tax base sharing programs.
Under the seven -county metropolitan region
fiscal disparities program, cities must contribute
40 percent of the growth in taxable value from
commercial -industrial development since 1971
to that program. In return, cities receive a
distribution in the form of a share of the
commercial -industrial property taxes paid in the
region.
Under the taconite tax relief area program, cities
must contribute 40 percent of the growth in
taxable value from commercial -industrial
development since 1994 to that program. In
return, cities receive a distribution in the form
of a share of the commercial -industrial property
taxes paid in the region.
Cities may elect to make the contribution from
the captured value of a tax increment financing
district, by reducing the captured value ("B"
16
election), or by making the contribution for the
tax increment financing district from the existing
tax base of the city ("A" election). Under both
options, when the property taxes are calculated
for the various taxing jurisdictions, the fiscal
disparities will be taken from the parcel first,
then the tax increment, and if there is any tax
remaining, the local taxing districts will receive
their portion.
Cities may elect to use the existing tax base of
the city, or the "A" election, to maximize the
amount of tax increment revenues. With that
option, in order for the tax increment financing
district to receive the appropriate revenue, tax
base for general property taxes will be reduced.
requiring a higher tax rate for local revenue
needs. Often, fiscal disparities and the tax
increment combined is more than the total taxes
for the parcel. In that event, every other parcel in
the unique taxing area will contribute a portion
of their property taxes to the tax increment
financing district. The district in this situation is
considered "underfunded."
By choosing the "B" election option, the chances
of an underfunded district are greatly reduced
because the tax increment is lowered by the
fiscal disparities amount. In the case of an
economic development tax increment financing
district, the `B" election must be made. Under
the "B" election, fiscal disparities is taken from
Assumptions
If Parcel is not in a TIF District:
Total Taxes Generated
40 Percent for Fiscal Disparities
Remaining for Taxing Jurisdictions
If Parcel is in a TIF District:
Total Taxes Generated
Taxes Generated from Base Value of District
Tax Increment (Total Taxes less Taxes from Base)
Settlement of Taxes:
Fiscal Disparities
Tax Increment
Total Settlement
Total Taxes Generated
within the tax increment financing district.
When the taxes are distributed, the fiscal
disparities amount will be taken from the parcel
first, then the increment, and if there is any tax
left, the local taxing districts will receive their
portion of the remainder.
Difference between Taxes and Settlement
If negative, generation of the `underfunded" portion is
spread over the other overlapping taxing jurisdictions.
If positive, the other overlapping taxing
jurisdictions get their portions.
Fiscal disparities taken from captured value.
17
A" Election `B" Election*
1,000 1,000
400 400
600 600
1,000 1,000
200 200
800 800
400 400
800 400
1,200 800
1,000 $1,000
200 $200
LGAMACA Reduction or Local Contribution (M.S. § 273.1399)
Since 1990, the State requires municipalities
utilizing tax increment to pay a "penalty" in the
form of a reduction in local government aid
LGA) or homestead and agricultural credit aid
HACA).
The LGA/HACA reduction is tied to the State's
school aid formula. When a tax increment
financing district is established, the municipality
captures" that portion of the tax increment
revenues which result from the levies made by
the taxing jurisdictions, including the school
district. Through the school aid formula, the
State has stepped in to pay for any income lost to
the school district as a result of the captured
property value not being available to the school
district, in essence shifting the burden of a
portion of school district financing from the local
property tax system to the income tax and sales
tax systems of the State. The State calculates
how much less the schools aids would have been
had the captured value been available to the
school district. That amount is then deducted
from the LGA/HACA funds paid to the
municipality by the State.
The LGA/HACA loss varies, but it usually
equals approximately 30% of the tax increment
collected annually. Tax increment revenues
cannot be used to reimburse the general fund of
the municipality to cover this lost aid. When the
LGA/HACA reduction was first implemented,
some municipalities obtained a reimbursement
from the developer for the loss aid. For districts
for which certification was requested on or after
August 1. 1993, developer repayments cannot be
used to cover the loss. Any such repayment now
must be treated as tax increment revenue and can
only be used for eligible activities within the
district or project area and cannot be deposited
into the general fund.
The LGA/HACA offset is applied differently,
depending on the type of tax increment district.
Type of District Impact on LGAIHACA
Redevelopment, Housing & For the first five years after the original assessment year, there is
Soils Condition Districts and no aid loss. In the sixth year, the loss is 6.25% of the maximum
Hazardous Substance Subdistrict possible loss. Each year thereafter the loss increases in 6.25%
increments until the full loss applies in year 2 1.
Renewal and Renovation District For the first five years there is no aid loss. In the sixth year, the
loss is 12.5% of the maximum possible loss. Each year thereafter
the loss increases in 12.5% increments until the full loss applies in
year 13.
Economic Development District The maximum loss begins in the first year in which tax increment
is collected.
Qualified Housing District* No LGA/HACA reduction is made.
Defined in Appendix A.
ffl
In 1995, municipalities were given an option to
make a local contribution of revenues to pay
project costs to avoid the State aid reduction.
The specific rules for compliance with the local
contribution provisions continue to evolve. The
statute describes certain elements of the
requirements and leaves others subject to
interpretation. The specific factors listed in the
statute include:
The local contribution must be made from
unrestricted money of the authority or
municipality, such as the general fund, a
property tax levy, or a federal or state
grant-in-aid which may be spent for general
government purposes.
The local contribution may not be made,
directly or indirectly, with tax increments or
developer payments as defined under
M.S. § 469.1766.
The local contribution must be used to pay
project costs and cannot be used for general
government purposes or for improvements or
costs that the authority or municipality
planned to incur absent the project.
Other local governmental entities that benefit
from activities within a district may provide
revenues for the local contribution.
The municipality may make a local
contribution in excess of the required
contribution for a year. If it does so, the
municipality may credit the excess to a local
contribution account for the district. The
balance in the account may be used to meet
the requirements for qualifying local
contributions for later years.
The authority must annually submit a report
March 15) regarding its local contribution to the
Commissioner of Revenue. Information needed
to account for the local contribution includes:
activity financed, source(s) of funds, amount of
contribution, cumulative total contribution and
required contribution.
19
For any year, the total local contribution made
for all districts within a municipality is limited to
two percent of the net tax capacity of that
municipality.
If the State contributes to the project costs either
through a direct grant or similar incentive,
50 percent of that contribution may be applied as
the local contribution.
The amount of the local contribution is
dependent on the type of tax increment financing
district. For an economic development district, a
housing district, or a renewal and renovation
district, the amount of the local contribution is
ten percent of the tax increment revenue
generated from the district. For a redevelopment
district, a mined underground space district, a
hazardous substance subdistrict, or a soils
condition district, the local contribution is five
percent of the tax increment revenue generated
from the district.
Redevelopment
Percent
Type of Ttzx
Of Increment
District Revenues
Redevelopment 5
Renewal and Renovation 10
Soils Condition 5
Housing* 10
Economic Development" 10
Mined Underground Space 5
Hazardous Substance Subdistrict 5
If a district is a "qualified" housing district, no local
contribution is required. A qualified housing district
is a district for a residential rental project that
meets the requirement for a low-income housing
credit under federal law.
If a district contains an ethanol production facility
which meets certain statutory requirements, no
local contribution is required.
TRW /eta
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There are seven different types of tax increment districts:
1. Redevelopment 5. Economic development
2. Renewal and renovation 6. Mined underground space
3. Soils condition 7. Hazardous substance subdistricts.
4. Housing
Redevelopment Districts (M.S. § 469.174, subd. 10)
The purpose of a redevelopment district is to
remove blighted buildings or improve marginal
land to encourage redevelopment. Tax increment
financing can be used to assist with the private
redevelopment of areas containing substandard
structures, including acquiring property and
reselling or giving it to private developers and
installing public improvements. Redevelopment
districts are limited to "blighted" areas.
The criteria in state law for determining blighted
conditions have changed several times since 1979.
To qualify as a redevelopmentrdistrict, all properties
in the district must meet one of two criteria:
1) Parcels consisting of 70 percent of the area of
the district are occupied by buildings, streets,
utilities, or improvements, and more than
50 percent of the buildings, not including
outbuildings, are structurally substandard to
a degree requiring substantial renovation or
clearance. The municipality may not make a
determination that the property is structurally
substandard without an interior inspection of
the property. An interior inspection is not
required if (i) access cannot be made to the
property despite best efforts by the
municipality and (ii) evidence supports a
reasonable conclusion the the property is
structurally substandard. Written
documentation of why an interior inspection
was not done must be placed in the files; or
2) The property consists of vacant, unused,
underused, inappropriately used, or
infrequently used railyards, rail storage
facilities, or excessive or vacated railroad
rights-of-way.
For districts consisting of two or more
noncontiguous areas, each area must qualify as a
redevelopment district under this definition to be
included in the district, and the entire area of the
district must satisfy the definition.
Tax increment revenues may be collected from a
redevelopment district for up to 25 years after
receipt of the first tax increment. Alternately, tax
increment revenues may be collected for up to 20
years if the authority chooses to delay its initial
receipt of tax increments (1) until a minimum
market value is reached, or (2) for up to four
years.
At least 90 percent of the tax increment collected
must be spent to eliminate the blight conditions
that justified creation of the redevelopment
district. The qualifying expenditures include, but
are not limited to, acquisition of sites containing
substandard buildings or improvements or
hazardous substances, pollution or contaminants,
demolition of structures, clearing of land, and
installation of utilities, roads, sidewalks, and
parking facilities.
The `But For" Test
The "but for" test is one of the most important
findings that a municipality must make in order
to establish a tax increment financing district.
This finding represents the very essence of tax
increment financing. This finding states that the
proposed development would not be reasonably
expected to occur solely through private
investment within the reasonably foreseeable
future and therefore the use of tax increment
financing is deemed necessary. Simply stated,
the project would not go forward without the use
of tax increment financing.
The 1996 report by the Office of the Legislative
Auditor shows that cities interpret or apply the
but for" test differently. Some of the criteria
used to justify tax increment use include:
Cost: the high cost of a proposed development
makes the project too expensive without public
assistance;
v
But Foot" Test
aKd 90tv a g-A4zed?
Location: to encourage development in a
location that is consistent with the development
goals of the municipality or to prevent a
developer from locating in a different
community;
Timing: to encourage development of the project
sooner than would have happened otherwise;
Scope and Quality: to ensure development of a
larger or better quality facility;
Ultimatums: reaction to an existing company
that wishes to expand and threatens to go
elsewhere if it does not receive assistance; and
Public Improvements: financing of public
improvements, such as water and sewer utilities
and road improvements, to encourage
development or redevelopment.
The `But For" Analysis and Written Documentation (M.S. § 469.175, subd. 3(2))
In 1995, the Legislature made an effort to
quantify the "but for" test. As part of the "but
for" finding, a municipality is required to find
that the increased market value of the site that
could reasonably be expected to occur without
the use of tax increment financing would be less
than the increase in the market value estimated to
result from the proposed development after
subtracting the present value of the projected tax
increments for the maximum duration of the
district permitted by the plan."
27
In other words, a municipality must find that the
use of tax increment financing will increase the
estimated market value of the site over that
which would occur without tax increment
financing, as shown in the following example:
But For" Analysis
Example: A developer is requesting tax
increment financing to assist in the construction
of a new telemarketing facility. The municipality
is considering the establishment of an economic
development type of tax increment district. The
proposed estimated market value (EMV), or the
new estimated market value (New EMV), of the
project is $230,000. The current estimated
market value (Current EMV) of the land without
the project is $55,000. The difference between
the New EMV and the Current EMV is $175,000.
The present value of the tax increment (PV of tax
increment) for the maximum life of the district,
calculated at 7.5 percent, totals $42,191. This
present value calculation is based on nine years
of tax increment, an average annual tax
increment of $7,555, and assumes an inflation
factor of 1.08 percent. The difference in the
increase in the market value as calculated above
is $175,000. To determine the value of what
could reasonably be expected to occur on the site
without the use of tax increment financing,
subtract the present value of the tax increment
from the difference in the increase in market
value: $175,000 less $42,191 totals $132,809.
In this example, if development having a market
value over $132,809 could occur on the site
without tax increment financing, this project does
not meet the "but for" test and tax increment
financing could not be used for this project.
P1.9
Step One of Calculation:
New EMV $230,000
Current EMV $55,000
Difference/Increase in EMV
New EMV less Current EMV) $175,000
Step Two of Calculation:
Difference/Increase in EMV (from above) $175,000
PV of Tax Increment $42,191
Difference/Increase in EMV
less PV of Tax Increment $132,809
The tax increment financing law requires that a
municipality include in the tax increment
financing plan the identification and description
of studies and analyses used to make the "but
for" determination and set forth in writing the
reasons and supporting facts for the "but for"
finding. If a tax increment financing district is
established, supporting documentation should be
kept on the "but for" finding, such as a financial
statement or project pro forma from the
developer.
The Housing Exception
In 1996, the Legislature exempted qualified
housing districts from the market analysis of the
but for" test.
44 n koroFAA(uarg
a Ptyect ad Tax 1wwmtt Fimm" OuAie&
Defining the Relationship Between Project and District
Because tax increment financing is primarily a
financing tool to assist development or
redevelopment, a tax increment financing "district"
must be located within a "project" established
under a development statute which authorizes the
municipality or authority to undertake the
activity to be financed. While a district is a
specific geographic area from which tax increment
financing revenues are generated, a project is a
specific geographic area established under one of
the development statutes described above in
which public development revenues may be
spent, sometimes referred to as a "project area. "
When a municipality or authority begins to
examine whether to provide assistance to a
development, it must first look to the
development statutes to determine which statutes
allow the authority to provide the type of
assistance needed. This determines the type of
project area to be established.
Although the project area and tax increment
financing district may be established at the same
time, a district may be established within an
existing project area. The geographic area of the
project area is described in a development
Project Area = TIF District
29
program or redevelopment plan created by an
authority and approved by the municipality after
a public hearing.
The following are some distinguishing
characteristics between a tax increment financing
district and a project area:
1. A district can be either a contiguous or
noncontiguous geographic area, while a
project may be required to be contiguous,
depending on the development statute under
which the project area is established;
2. The geographic area of a district is described in
the tax increment financing plan, while the
geographic area of a project area is described
in the development program or
redevelopment plan;
3. A district may be either the same size or
smaller than a project area, but is always
located within the geographic area of a
project area;
4. The boundaries of a district may not be
expanded after five years from the request
for certification, while the boundaries of a
project area may be expanded at any time;
Project Area > TIF District
5. A district may not overlap another district,
while a project area may overlap another
project area;
6. A district can exist for only a maximum term
of years, while a project area has no term of
years; and
7. While a district may have a financial impact on
various taxing jurisdictions, a project area
has no financial impact.
Project Area District
Revenues Area within which revenues may Area from which revenues are generated
be expended
Area May be contiguous or noncontiguous, May be contiguous or noncontiguous
depending on type of project area
Size May be coterminous with or larger May be coterminous with or smaller
than district than project area
Expansion May be expanded at any time May not be expanded after five years
Overlap May overlap other project areas May not overlap other districts
Term Has no maximum term Has a maximum term
Ir
Establishing a District
Required Findings
To establish a district, the approving
municipality must make specific findings and
elections. The reasons and supporting facts must
be made in writing for each of the following
findings:
1. The type of district. For each type of district,
there is a specific set of findings, as defined
by the Tax Increment Financing Act. If a
district is a redevelopment or a renewal or
renovation district, the documentation must
be retained and available to the public until
the district has been terminated.
30
2. The "butfor"fending. That the proposed
development or redevelopment would not
reasonably be expected to occur solely
through private investment within the
reasonably foreseeable future and that the
increased market value of the site expected
without the use of tax increment is less than
the increase in the market value expected,
after subtracting the present value of all tax
increments for the duration of the district.
See section on the "But For" finding.]
3. Conformance to general plan. That the tax
increment plan conforms to the general plan
for the municipality as a whole. This would
refer to the comprehensive plan, if one existed. 4
4. Opportunity and needs finding. That the plan
will provide the maximum opportunity for
development or redevelopment of a project
by private enterprise which is consistent with
the needs of the municipality as a whole.
Additionally, the following elections must be
made at the time of plan approval:
Fiscal disparities election. If applicable, the
municipality must elect to have fiscal
disparities contributions come from either
inside or outside the district. (See section on
Fiscal Disparities)
2. Local contribution election. The municipality
must elect whether to make a qualifying local
contribution or incur the state aid reduction.
See section on Local Contribution.)
Contents of a
Tax Increment Financing Plait
il
As part of the process of establishing or
modifying a district, a tax increment financing
plan must be created for a new district and
modified for an existing district.
The following information must be contained in
a plan:
1. A statement of the objectives of the authority
for the improvement of a project;
to the contract, the activity governed by the
contract, the cost stated in the contract, and
the expected date of completion of that activity;
Identification or description of any other
specific development reasonably expected to
take place within the project, and the date the
development is likely to occur;
5. Estimates of the following:
The cost of the project, including
administration expenses;
The amount of bonded indebtedness to
be incurred;
The sources of revenue to finance or
otherwise pay public costs;
The most recent net tax capacity of taxable
real property within the district;
The estimated captured net tax capacity
of the district at completion; and
The duration of the district's or
subdistrict's existence.
6. Statements of the authority's alternate
estimates of the impact of tax increment
financing on the net tax capacities of all
taxing jurisdictions in which the district is
located in whole or in part.
2. A statement as to the development program for
the project, including the property within the
project, if any, that the authority intends to 7
acquire;
3. A list of any development activities that the
plan proposes to take place within the
project, for which contracts have been
entered into at the time of the preparation of
the plan, including the names of the parties
rch
For purposes of one statement, the authority
assumes that the estimated captured net tax
capacity would be available to the taxing
jurisdictions without creation of the district.
For purposes of the second statement, the
authority assumes that none of the estimated
captured net tax capacity would be available
to the taxing jurisdiction without creation of
the district;
Identification and description of studies and
analyses used to make the "but for"
determination; and
8. Identification of all parcels to be included in
the district or any subdistrict.
Approval Process
It takes approximately six weeks to go through
the procedural steps to establish a district. The
procedural steps are listed below. The order of
these steps may vary on a case by case basis.
1. * The plan is drafted by or at the request
of the authority.
2. ** The planning commission meets to
determine whether the plan is consistent
with the comprehensive plan of the
municipality.
3. * The authority approves the plan.
4. The authority requests that the municipality
call for a public hearing.
5. The municipality calls for a public hearing
on the establishment or modification of a
district.
6. * In the case of a housing or redevelopment
district, written notice must be provided
to the county commissioner who
represents the geographic area within
which the district is to be located, at least
30 days prior to publication of the public
hearing notice. Such notice must contain
a general description of the proposed
district's boundaries, the proposed
activities to be financed, an offer to meet
with the commissioner to discuss the
proposed district and a request for the
commissioner's comments with respect
to the district.
7. * The county board of commissioners and
members of the school board are given
estimates of the fiscal and economic
implications of the proposed district at
least 30 days prior to the public hearing.
The authority provides an opportunity to
the members of the county and school
boards to meet with the authority and
municipality.
32
8. * Notice of the public hearing is published
in a newspaper of general circulation
within the community. The notice is
published not less than 10 days nor more
than 30 days prior to the public hearing.
The published notice must include a map
of the district, the area from which tax
increments may be collected and, if the
project area includes additional property,
a map of the project area in which the
tax increment revenue may be expended.
9. * The municipality holds a public hearing
and approves the plan.
10. * The authority files a copy of the plan and
the plan or program for the project area
with the Commissioner of Revenue.
11. * The county auditor is advised that the
district has been established and is
requested to certify the original net tax
capacity and local tax rate of the district.
required by statute
required by statute depending on type of project area
Modifications to a Tax Increment
Financing Plan
A tax increment financing plan may be modified
by an authority at any time during the life of the
tax increment financing district. However, an
authority must make the same findings required
for approval of the original plan and hold a new
public hearing if the anticipated modification
includes any of the following:
1. reduction or enlargement of the geographic
area of the tax increment financing district:
a. The geographic area of the tax increment
financing district may be reduced but not
enlarged after five years from the
certification of the original net tax
capacity by the county auditor;
The authority need not hold a public hearing
if the only plan change is a reduction of
the geographic area of the tax increment
financing district and if the current net
tax capacity equals or exceeds the
original net tax capacity of the parcels
being eliminated or the authority agrees
that the original net tax capacity of the
district will be reduced by no more than
the current net tax capacity of the parcels;
c. If the district being enlarged is a redevelopment
or a renewal and renovation district, the
authority must show that the new parcels
meet the minimum statutory criteria for
creation of that type of district.
2. increase in the bonded indebtedness;
increase in the portion of the tax increment
financing value to be retained by the
municipality;
4. increase in total estimated tax increment
expenditures;
5. acquisition of additional property by the
authority; or
6. creation of a hazardous substance district.
33
If the authority decides to change a housing,
redevelopment, or economic development
district to another type of district, the authority
must (i) decertify the existing district, (ii) create
a new tax increment financing plan, and (iii)
follow all procedures for creation of a new
district, including county auditor certification.
Certification
A district is not established until the original tax
capacity and the original local tax rate of the
district have been certified by the county auditor.
As is discussed further under the management of
a district in this manual, it is key that a formal,
written request for certification of the district be
submitted to the county auditor as soon as
practical after approval of the district, since the
date the request is received by the county
auditor is considered the certification request
date of the district.
Statutory Deadlines for Establishing a Tax Increment Financing District
F scai implicat ons'to
Soho Ai Publsc eating
f at least 30 days' '.`
4— at least 30 days prior to publication 4— at least 10 days --
of hearing notice and map(s), but no more than 30 days
Count g Notice; and Ma
si_ nary P bUslied hi OffWin
N-
11 .
o#
Paper of Mumc pality E`
IFD stnc
n atid
Decertification of a Tax Increment Financing District
Decertification of a tax increment financing
district refers to the termination of the tax
increment financing district which occurs when
the county auditor removes all remaining parcels
from the district. f
It is the responsibility of the county auditor to
decertify the district. According to Minnesota
Statutes, the district must be decertified upon the
earliest of the following:
1. the applicable maximum duration as defined in
statute has been met;
2. the maximum duration limit, if any, provided
by the municipality;
3. if the Commissioner of Revenue issues an
order of noncompliance and the maximum
duration limit for an economic development
district has been exceeded;
4. upon completion of the required actions to
allow decertification, i.e., the terms of
outstanding bonds and contractual
obligations have been met; or
34
5. upon receipt by the county auditor of a written
request for decertification from the authority
that requested certification of the district.
Early decertification of a district needs to be
requested by the municipality or authority.The
request should include the date decertification
should take place. The Office of the State
Auditor has suggested that there be a resolution
from the authority decertifying the district for
any reason, including the expiration of the
district.
According to M.S. § 469.176, subd. 1(f), if there
are delinquent taxes outstanding within a tax
increment district after its decertification, it is the
authority's responsibility to provide the county
auditor with the information so that when the
delinquent taxes are collected, the auditor can
forward the tax increment portion to the
authority. This provision applies only when the
delinquent taxes had been pledged to outstanding
bonds or contractual obligations.
Glossary
Administrative expenses: all expenditures of a
development authority other than the amount
paid for the purchase of land or paid to
contractors or others providing materials and
services, including architectural and engineering
services, directly connected with the physical
development of real property in the district. They
include expenses for bond counsel, fiscal
consultants, and planning or economic
development consultants fees. Administrative
expenses cannot exceed 10 percent of a district's
total tax increment expenditures or the total tax
increment expenditures authorized by the tax
increment financing plan, whichever is less.
The limit is 5 percent for districts created
between August 1, 1979 and June 30, 1982.
M.S. § 469.174, subd. 14; M.S. § 469.176, subd. 3.)
Blight: a general term used to denote conditions
such as dilapidated, deteriorating, or substandard
structures. Tax increment redevelopment and
renewal and renovation districts are designed to
encourage redevelopment of blighted areas.
But for" test: a statutory requirement that a
municipality, in approving creation of a tax
increment district, must find that the "proposed
development or redevelopment, in the opinion of
the municipality, would not reasonably be
expected to occur solely through private
investment within the reasonably foreseeable
future." Pursuant to M.S. § 469.175, subd.3, the
municipality must make a quantitative finding
based on criteria required in the subdivision that
the use of tax increment financing will increase
the market value (and true value) of the site over
that which would occur without tax increment
financing.
Captured tax capacity: the total current tax
capacity of the parcels in the tax increment
financing district less the total original tax
capacity. The captured tax capacity is multiplied
by the local tax rate for the year in which the
district was established to determine the amount_
of the tax increment. (M.S. § 469.174, subd. 4.)
Development authority: special purpose
government entities authorized to exercise a
variety of development powers, including the use
of tax increment financing powers. Authorities
include cities (exercising powers under the
Municipal Development or Industrial Development
Acts), housing and redevelopment authorities,
port authorities, economic development
authorities, and rural development finance
authorities. (M.S. § 469.174, subd. 2.)
Excess increments: tax increments that exceed
the amount needed to pay the costs authorized
under the tax increment financing plan.
Increments are not excess increments if the tax
increment financing plan has been amended or
modified to permit additional spending. The law
requires that excess increments be used to prepay
outstanding bonds or deposited in an escrow
account for bond payments or returned to the
city, county, and school district(s) in proportion
to their local tax rates. (M.S. § 469.176, subd. 2.)
Excess taxes: taxes resulting from an increase in
the tax rate imposed on property in a tax
increment financing district. The amount of
excess taxes equals the actual tax rate minus the
original tax rate, multiplied by the captured tax
capacity. If the tax rate applicable to the district
increases, the taxes that result from this tax rate
increase are paid to other taxing jurisdictions.
Excess taxes are distributed to other taxing
jurisdictions in proportion to the respective
increases in their tax rates. If a school district
receives excess taxes, its state aid can be
recalculated. Rules on excess taxes apply only to
tax increment financing districts created on or
after May 1, 1988. (M.S. § 469.177,
subds. la and 9.)
Four-year knock down rule: Tax increments
cannot be collected on any parcel in a tax
increment financing district if within four years
after its certification the parcel has not been
developed or the city has not acquired the parcel
or made improvements on or adjacent to the
parcel or streets adjacent to the parcel. The
parcel can be restored if development activity
subsequently occurs. (M.S. § 469.176, subd. 6.)
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Internal financing: a method of financing tax
increment projects where a city uses its own
funds to support the start-up costs for a new tax
increment financing district or to fund city
improvement projects in a tax increment district.
The city may borrow money from its general
fund, economic development fund, municipal
utility fund or federal grant funds, or it may use
pooled" tax increments from another district.
The city then repays itself with tax increments
generated from the new development.
Interest rate reduction program: a project that
uses tax increment revenues to subsidize a
developer's interest payments on a private loan
to finance low- and moderate -income housing
developments. Interest rate reduction programs
are limited to a duration of 12 years and may not
be used to assist owner -occupied, single-family
dwellings. (M.S. § 469.176, subd. 4f.)
Land write-down: a transaction where a
development authority acquires property and
transfers it to a private developer at less than the
sum of the authority's acquisition cost, including
any expenditures by the city to prepare the
property for development.
Municipality: a general purpose government
required to approve: (i) creation of a tax
increment district, (ii) issuance of bonds, and (iii)
other major decisions made by the development
authority. In most cases, the municipality is the
city in which the tax increment financing district
is located. For districts outside a city, the
municipality is the county.
Original tax capacity: the tax capacity of
property within a tax increment financing district
at the time the district is created. The original tax
capacity may be changed due to changes in the
taxable/exempt status of property, changes in the
property classification rates of parcels in the
district, and additions or deletions of parcels..For
economic development districts, the original tax
capacity is also adjusted by the inflation rate on
property values in the area before the district
was established. (M.S. § 469.174, subd. 7;
M.S. § 469.177, subd. 1(f).)
Original tax rate: the sum of all the tax rates
imposed by all taxing jurisdictions (city, county,
and school district) at the time a tax increment
financing district is created. The original tax rate is
certified when the district is created and is the tax
rate for the life of the district. This rate is multiplied
by the captured tax capacity to determine the
amount of the tax increment. This rule applies only
to tax increment financing districts created on or
after May 1, 1988. (M.S. § 469.177, subd. la.)
Pay-as-you-go financing: a method of financing
tax increment projects where a developer obtains
the project financing and pays for the development
costs. The development authority uses the tax
increments generated from the development to
reimburse the developer for those development
costs plus interest. Usually, these arrangements
are formalized in a (re)development agreement.
With pay-as-you-go financing, the developer
bears the risk if tax increment revenues are
insufficient to cover project costs.
Pooling: allows tax increments collected from a
tax increment financing district to be spent on
activities outside the district. The activities must
be within the project area, but may or may not be
located in another tax increment financing
district. For districts created after April 30, 1990,
not more than 25 percent of tax increment
revenues may be spent for activities outside the
tax increment financing district. For districts
created after June 30, 1995, not more than 20
percent of tax increment revenues may be
pooled, although the limit for redevelopment
districts remains at 25 percent. (M.S. § 469.1763,
subd. 2.)
Project area: the geographic area in which tax
increment revenues may be spent. These
revenues must be collected from tax increment
financing districts located within the project area.
Project areas are designated by development
authorities under applicable development laws.
Qualified housing district:a housing district for
a residential project in which the properties
receiving tax increment financing assistance
meet all the requirements for a low-income
housing credit under federal law, regardless of
whether the project actually receives a housing
credit. The tax credit requirements are generally
more stringent than the income requirements
otherwise applicable to a housing tax increment
financing district. There is no local government
aid/homestead and agricultural credit aid
reduction for a qualified housing district.
Structurally substandard: a building
containing defects in structural elements or a
combination of deficiencies in essential utilities
and facilities, light and ventilation, fire
protection, or similar factors, which are of
sufficient total significance to justify substantial
renovation or clearance. A building is not
structurally substandard if it is in compliance
with the building code applicable to new
buildings or could be modified to satisfy the
building code at a cost of less than 15 percent of
the cost of constructing a new structure.
M.S. § 469.174, subd. 10(1)).
Taconite Tax Relief Area: A taconite tax relief
area is defined by statute as the geographic area
contained within the boundaries of a school
district which contains a municipality that meets
the following qualifications:
It is a municipality in which the assessed
valuation of wunined iron ore on May 1,
1941, was not less than 40 percent of the
assessed valuation of all real property, or
It is a municipality in which, on January 1,
1977, or the applicable assessment date,
there is a taconite concentrating plant or
where taconite is mined or quarried or
where there is located an electric generating
plant which qualified as a taconite facility.
M.S. § 273.123)
Tax increment revenues: the increased property
taxes paid by properties in the tax increment
financing district. Mathematically, tax
increments are determined by multiplying the
captured tax capacity by the current tax rate for
districts created before May 1, 1988, or by the
original tax rate for districts created on or after
May 1, 1988.
Tax Increment Financing Act: the 1979 Act,
and subsequent amendments, that governs
the establishment of tax increment financing
districts and the collection of tax increments.
M.S. § 4 69.174 - 469.1791, as amended.)
Tax increment financing district: the
geographic area from which tax increments are
collected. The development authority defines the
area in the tax increment financing plan. A
district may be a contiguous or noncontiguous
area within a project area. (M.S. § 469.174,
subd. 9.)
Tax increment financing plan: a plan that must
describe the project supported by tax increment
financing, project objectives, development
program and activities to be undertaken, type and
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duration of district being created, parcels
included in the district, estimated costs and
revenues, impact on other taxing jurisdictions,
and other details of the proposal. The plan must
be approved by the municipality after a public
hearing, and it may be amended at any time.
However, a public hearing must be held before
significant changes are approved, such as
increasing the size of the district or increasing
spending or bonded indebtedness. The size of the
district cannot be increased after five years from
the date the district was certified.
M.S. § 469.175, subds. 1,4.)
Tax increment financing general obligation
bonds: Either a city or a development authority
may issue general obligation bonds to finance the
projects for which the tax increment district was
created. Municipal general obligation bonds are
backed by the full faith and credit of the city. If tax
increments are not sufficient to repay the bonds,
the city must use general property taxes or other
city funds to repay the bonds. Authority general
obligation bonds are backed by the full faith and
credit of the development authority (such as the
housing redevelopment authority), but not the city.
Because the authority has only limited taxing
authority, these bonds are less secure than city
general obligation bonds. (M.S. § 469.178.)
Tax increment revenue bonds: bonds which
are backed by revenues generated from a
development project, such as tax increments,
proceeds from land sales, or lease revenues.
M.S. § 469.178.)
Three-year knock out rule: Tax increments
cannot be paid if the development authority has
not issued bonds, acquired property within the
district or constructed public improvements in
the district within three years after creation of the
district. Failure to satisfy this rule results in
decertification of the district. (M.S. § 469.176,
subd. la.)
Tourism facility: property that is acquired,
constructed, or rehabilitated for use as a
convention and meeting facility, amusement
park, recreation facility, cultural facility, marina,
park, hotel, motel, or lodging facility that is
intended to serve primarily individuals from
outside the county. To qualify, the property must
be located outside of the seven -county
metropolitan area, in a city with less than 20,000
people, and in a county where the median
income is no more than 85 percent of the state
median income and tourism -related earnings are
at least 15 percent of the total earnings in the
county. (M.S. § 469.174, subd. 22.)