07-22-1998 Council Agenda - Laserfiche WebLink

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Mayor & City Council July 17, 1998 Page 2 of 3 While staff has been reviewing this matter for the past few months, it is coming to a head at this time because the current owner is in the process of selling Kandice Heights I to Mr. Jeff Royce of E.F. Royce Family Limited Partnership. In Mr. Royce's review of pertinent documents, I have made him aware of these two provisions. Obviously, Mr. Royce would like them addressed before proceeding with the purchase. Attachment "D" is a letter I received from Mr. Wes Johnson of Griffin Companies representing the current owner. This letter essentially asks us to forgo the minimum tax increment guarantee. Mr. Johnson has supplied us with revenue data from each property indicating negative operating incomes from 1992 through 1996. Kandice Heights I attained a positive net income from operations in 1997, while Kandice Heights II continued in a deficit mode. Mr. Griffin's analysis also indicates that at an 11 '' /z% capitalization rate based on the net operating income of each property, the supportable value of the property for resale purposes has not attained the minimum value guaranteed to us in the development agreement except in 1997 for Kandice Heights I. The key consideration in this issue relates to the minimum guarantee of tax increment. In the past few years when the class rates were higher, the district was generating more than sufficient revenues to retire debt. The surplus generated allowed us to acquire other properties within the redevelopment area. With the reductions in class rates, this will no longer be possible. However, if we are to impose the minimum tax increment guarantee, we are altering normal market factors affecting the calculation of property taxes for these parcels thereby making them less competitive. While we may yield a short-term financial gain, the properties' viability over the long -term may be jeopardized. Attachments "G" and "H" show the tax increment analysis for each property. It is also important to remember we are discussing a minimum tax increment guarantee, not minimum real estate taxes. In these same attachments, we have indicated actual real estate taxes for 1996 through 1998. The last factor we can consider is that Mr. Royce is purchasing Kandice I at a value of $1,380,000. While I cannot guarantee this, it is likely that the assessor's office will increase the market value to the new sale price. The soonest this could take effect is for taxes payable in the year 2000. Given current class rates projected to be in effect at that time, the tax increment generated from Kandice Heights I would increase to $52,711.87. While this does not hit the minimum guarantee, normal market factors are allowing this district to work in a manner that provides more than ample protection for the City. To facilitate the sale of this property and to ensure its long -term viability, it is my recommendation that we amend the development agreements for Kandice Heights I and Kandice Heights II by eliminating the guarantee of tax increment shortfall from each agreement. We would therefore be allowing normal market factors to work without jeopardizing the viability of these properties into the future. Given the current financial status of this district, this appears to be a reasonable course of action for the City. Page 10