HomeMy WebLinkAboutTIF DiscussionSTAFF REPORT
DATE: September 14, 2021
DISCUSSION
AGENDA ITEM: Tax Increment Financing (TIF) Introduction and NorthPoint Request TO: Mayor and Council
SUBMITTED BY: Kristina Handt, City Administrator
BACKGROUND: The city has been asked by NorthPoint Development to consider approving a Tax Increment Finance (TIF) district for their development on 77 acres south of CSAH 14 and east of CSAH 13. Since the city
has not done any TIF districts in the past, I’ve asked Tammy Omdal from Northland Public Finance (the city’s financial consultant) to attend the work session and provide a high level introduction to TIF so council can be more familiar with the program when considering the developer’s request. Jenny Boulton
from Kennedy Graven will also be there to answer any legal questions as she would be involved in helping to draft the documents to create the TIF should the city decide to move forward.
ISSUE BEFORE COUNCIL: What questions does the council have about TIF? Any direction to staff following the presentations?
PROPOSAL DETAILS/ANALYSIS: Included in your packet is a copy of Omdal’s presentation for the meeting. It covers how TIF works, what’s required and other considerations. If the council decides to move forward with TIF, the city will need to develop and adopt a business subsidy policy. It is important to note that if the council adopts a business subsidy policy it will apply to any request for TIF. It is not easy to change the policy once in
place as it would require approval by the state to make changes. Also included in your packet is some information on the proposed development by NorthPoint. Slide 5 outlines some public infrastructure costs typically paid by developers. In addition to these amounts, the TIF funds could cover the cost of the city expenses for sewer (about $750,000) and an AUAR for the whole 180 acres so the site north of CSAH 14 wouldn’t need to complete this work at a later date. These
are all tentative items and subject to negotiation. OPTIONS: No final decisions are being made tonight. The main purpose is to educate the council on TIF and hear from the NorthPoint representatives. Any feedback would be helpful in providing direction on how we move forward with the drafting of a business subsidy policy, if the council so chooses. Staff would begin
the policy discussion with the EDA if given the direction. FISCAL IMPACT: To be determined based upon increment created, length of district, and other negotiations with developer. TIF could be used to fund public infrastructure such as the sewer extension from Oakdale. If TIF was used the city would not have to rely on sewer or ARPA funds thereby freeing them up for other uses. ATTACHMENTS:
• TIF Handout from Northland
• NorthPoint Info
City of Lake Elmo, MN September 14, 2021
Northland Public Finance 1
RC 18-
TAX INCREMENT FINANCING (TIF)
OVERVIEW
CITY OF LAKE ELMO
SEPTEMBER 14, 2021
Tammy Omdal, Northland Public Finance
RC 18-Overview
Key Questions for TIF
How does TIF work?
What is the “but for test”?
Why is it so complex?
Who can establish and what are the requirements?
What is the duration of districts?
What are the limitations for use of TIF?
Potential use of TIF in Lake Elmo
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 2
RC 18-How does TIF work?
Property taxes created by development
are captured and used to finance eligible
project costs
Purpose is to encourage development that
would otherwise not be feasible
Primary public finance development tool
Simple in concept, but complex in
application
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RC 18-How are tax increments derived?
Base Value—value
before development or
redevelopment
Continues to be paid to
local taxing jurisdictions
(city, county, school,
etc)
Taxes “captured”
during term of the TIF
district are distributed
for deposit to the TIF
District
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 3
RC 18-What is the “but for” test?
Before creating a TIF district, City must
find that in its opinion the subsidized
development would not have happened
“but for” the use of TIF
Generally thought to have two purposes:
To prevent excessive use of TIF
To protect the interests of overlapping
governmental units
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RC 18-Why is TIF so complex?
TIF Act (MS Sections 469.174 to 469.1794 is
complex and has changed over the years
and continues to change
Challenge in using TIF lies with the
complexity of statutory limitations
These complexities make it impractical to
provide a thorough explanation of TIF in
the limited time of this workshop
We will keep focus on the “big picture”
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 4
RC 18-Who can establish a TIF District?
TIF Act gives the power to establish
districts to an “authority”
City has the power to act for the purposes
of creating and administering TIF districts
and plans
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RC 18-Who can establish a TIF District?
Must establish TIF districts within the
boundaries of a Project Area
City has the authority to establish any of
the various types of TIF districts
authorized in statute (housing district,
redevelopment district, etc.)
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 5
RC 18-What are the requirements for establishing a TIF
district?
There are different types of TIF districts
authorized by the TIF Law
Which type of district is applicable to a
specific project depends on the details of
the project
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RC 18-What are the requirements for establishing a TIF
district?
To create a TIF district a specific process
must be followed and ongoing reporting is
required
After a TIF district is established, there are
other requirements that may be applicable
depending on how the TIF will be used
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 6
RC 18-What are the requirements for granting a
business subsidy?
Business subsidy may not be granted until the
grantor has adopted criteria after a public
hearing
Criteria may not be adopted on a case-by-case
basis.
Requirements can be found in MN Statutes
Sections 116J.003 to 116J.995
Business subsidy requirements are not specific to
TIF, other forms of assistance may be subject to the
business subsidy requirements
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RC 18-What needs to be included in a business
subsidy policy?
Criteria must set specific minimum requirements that
recipients must meet in order to be eligible to receive
business subsidies
Criteria must include a specific wage floor for wages to
be paid and jobs created
Wage floor may be stated as a specific dollar value or may be
stated as a formula that will generate a specific dollar amount
For example, full-time equivalent (FTE) employees of a businesssubsidy recipient shall be paid wages excluding benefits of at least110% of the federal poverty level for a family of four
A copy of the criteria must be submitted to DEED along with the
first annual report after a grantor has adopted criteria
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 7
RC 18-What is the maximum duration of TIF Districts?
Depends on the type of TIF district
Economic development district is 9 years
Redevelopment district is 26 years
Housing district is 26 years
Renewal and Renovation District is 16 years
Soils condition district is 21 years
Hazardous Substance Sub-District is 26
years
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RC 18-What are limitations for use of TIF?
Use of TIF requires a clear understanding
of the statutory limitations
Use of TIF revenues is controlled by both
State law and by the plan for a TIF district
State law sets forth specific limitations
based on the type of TIF district
Use of TIF must be authorized by a TIF
plan adopted by the City
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 8
RC 18-What are limitations for use of TIF?
Term “pooling” refers to the ability to
spend money outside of the geographic
boundaries of a TIF district and within the
boundaries of a larger Project Area
Certain pooling limitations may apply, as
defined in Minnesota statute, depending
on the type of district
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RC 18-What are limitations for use of TIF?
Timing factors must be considered in
creating a TIF district
Establishing a district or making certain
findings for substandard buildings, too far
in advance of actual development may
limit future ability to establish TIF districts
and the use of increments
State Legislature periodically makes
changes to the statutes that govern TIF
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 9
RC 18-Potential use of TIF in Lake Elmo
Establishment of TIF districts is one of
several tools the City may consider for the
implementation of plans for development
and redevelopment
Ability to meet the statutory criteria for
establishing a TIF district is a key to the
creation and use of tax increments
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RC 18-Potential use of TIF in Lake Elmo
City has received a request for the City to
consider the establishment of an economic
development district
Warehouse and distribution buildings
Capture increase in valuation (property taxes)
from new development for 9-year duration to
assist the development
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 10
RC 18-Potential use of TIF in Lake Elmo
Under MN law each type of TIF district
has certain criteria that must be met
For an economic development district, the
property use must generally be for
warehousing, distribution, and/or
manufacturing
Criteria must be met both in the original
establishment of a district and on-going
use of increment that is generated
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RC 18-Potential use of TIF
During life of a TIF District increase in valuation
of property, from base valuation before TIF, is
captured to assist the development
Before TIF During TIF After TIF
Taxable Market Valuation of Property 1,261,391 68,250,000 68,250,000
City Property Tax 3,627 3,627 202,154
County Property Tax 4,180 4,180 232,993
School Property Tax (Net Tax Capacity) 2,651 2,651 147,759
School Property Tax (Referendum) 2,140 115,782 115,782
Other Property Tax 1,176 1,176 65,566
State Property Tax 8,267 490,290 490,290
Local Taxes Paid to Fiscal Disparties Pool 12,742 710,142 710,142
Captured Taxes for TIF - 636,837 -
Total Property Taxes Payable 34,784 1,964,686 1,964,686
Example for Annual Property Taxes Payble
from Example Property
Note: Analysis assumes no change in taxable market valuation during duration of TIF
District for simplicity of illustration the example. In this example, the property within
the TIF District is contributing tax capacity to the fiscal disparities pool.
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 11
RC 18-Illustration for use of TIF
1 18,850,000 376,250 220,514 75.83% 167,209 (602) 166,607 16,661 15,074 149,946 135,668
2 43,842,500 876,100 533,853 75.83% 404,803 (1,457) 403,346 40,335 49,980 363,011 449,817
3 59,117,500 1,181,600 725,361 75.83% 550,017 (1,980) 548,037 54,804 95,342 493,233 858,081
4 68,250,000 1,364,250 839,858 75.83% 636,837 (2,293) 634,544 63,454 145,579 571,090 1,310,214
5 68,250,000 1,364,250 839,858 75.83% 636,837 (2,293) 634,544 63,454 193,630 571,090 1,742,668
6 68,250,000 1,364,250 839,858 75.83% 636,837 (2,293) 634,544 63,454 239,589 571,090 2,156,299
7 68,250,000 1,364,250 839,858 75.83% 636,837 (2,293) 634,544 63,454 283,547 571,090 2,551,927
8 68,250,000 1,364,250 839,858 75.83% 636,837 (2,293) 634,544 63,454 325,593 571,090 2,930,335
9 68,250,000 1,364,250 839,858 75.83% 636,837 (2,293) 634,544 63,454 365,808 571,090 3,292,272
TOTAL =4,943,051 (17,795) 4,925,256 492,526 4,432,730
Key Asssumptions for Cash Flow:
a. Taxable market value (TMV) annual growth assumption = 0.00%b. Original Tax Capacity Rate estimated based on Taxes Payable Year 2021.
c. Election for captured tax capacity is 100.00%
d. Present value (PV) calculated based on semi-annual payments and 4.0% rate, and date of 8/1/2022.
e. Assumes the City elects for fiscal disparities contribution to be paid from inside the District.
Captured
Tax
Increment
Financing
(TIF)
Original
Tax Rate
Less
State
Fee
Total TIF
Distributed
to City
PV of
Total TIF
to City
Net Available TIF
90.0%
TIF
District
Year
Tax
Capacity
Taxable
Market Value
EXAMPLE TIF CASH FLOW
Captured
Tax
Capacity
After Fiscal
Disparities
Total TIF to
City
TIF Retained by City
10%
Net
Available
TIF
PV of Net
Available
TIF 5
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RC 18-Potential use of TIF in Lake Elmo
TIF “retained” by City can be used by the City topay TIF eligible project costs, includingadministrative costs for the TIF district
Eligible costs including consulting and legal fees, costsrelated to annual reporting, staff time, etc.
TIF that is not used to pay eligible costs is excess TIFto be returned to the County for redistribution to thetaxing jurisdictions
Not more than 10% of the tax increment derivedfrom the property can be used to pay administrativecosts and the administrative costs are included in thecalculation for pooling limitation
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City of Lake Elmo, MN September 14, 2021
Northland Public Finance 12
RC 18-Summary
TIF can be used to finance many actions
needed to facilitate development and
development, including land acquisition, site
preparation, parking, and public
improvements
TIF creates a means to borrow money needed
to pay for redevelopment costs
Pay-go TIF revenue note to developer
General obligation bonds
Interfund loans
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RC 18-
Northland Public Finance
The public finance group of
Northland Securities, Inc.
150 South Fifth Street, Suite 3300
Minneapolis, Minnesota 55402
800-851-2920
www.northlandsecurities.com/public_finance
Member of FINRA and SIPC | Registered with SEC and MSRB
Thank You - Questions
Tammy Omdal
Managing Director
612-851-4964
tomdal@northlandsecurities.com
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PROJECT ECONOMIC IMPACT AND NORTHPOINT PROFILE
CYPHERS LOGISTICS PARK
Lake Elmo, Minnesota
LOGISTICS PARKCYPHERS
LAKE ELMO, MINNESOTA
CLP-LakeeLmo-090821 2
At a GlanceNORTHPOINTDEVELOPMENT
CORPORATE SNAPSHOT
BEYOND THE CONTRACT
At a Glance
NORTHPOINT WAS RANKED THE
OVER THE LAST 5 YEARS BY
#1INDUSTRIALDEVELOPER
ACTIVEMARKETS
CURRENTLY ACTIVE IN 23 STATES
OFFICE LOCATIONS
Kansas City: Headquarters
St. Louis, Chicago, Cincinnati, Sacramento,
Detroit, Harrisburg, Salt Lake City, Seattle
423+ INDUSTRIALCLIENTS
References available from our clients; a few are represented below
Offi ce Locations
Industrial Markets
INDUSTRIAL SPACELEASED IN 2020
16.3+MILLION SF
EST. JOBS CREATED IN OUR DEVELOPMENTS
65+THOUSAND
CURRENTINDUSTRIAL PORTFOLIO
107.4+MILLION SF
TOTAL CAPITAL RAISEDSINCE INCEPTION
$9.5+BILLION
INDUSTRIAL SPACEUNDER CONSTRUCTION
27+MILLION SF
CHARITABLE CONTRIBUTIONSSINCE INCEPTION
$7.2+ MILLION
*All stats last updated beginning of Q3 2021
LOGISTICS PARKCYPHERS
LAKE ELMO, MINNESOTA
CLP-LakeeLmo-090821 3
Conceptual Masterplan
DEVELOPMENT OVERVIEW
Site Area 76.6 acres
Building Coverage 31.5%
Total Building Area 1,074,000 sf
Building 1 Area 415,000 sf
Building 2 Area 189,000 sf
Building 3 Area 189,000 sf
Building 4 Area 281,000 sf
BUILDING 1±391,000 SF
470' x 832'
BUILDING 4
±281,000 SF
284' x 988'BUILDING 2±189,000 SF260' x 728'BUILDING 3±189,000 SF260' x 728'Ideal Avenue NIdeal Avenue N34th Street N.34th Street N.14
LOGISTICS PARKCYPHERS
LAKE ELMO, MINNESOTA
CLP-LakeeLmo-090821 4
BUILDING 1±391,000 SF
470' x 832'
BUILDING 4
±281,000 SF
284' x 988'BUILDING 2±189,000 SF260' x 728'BUILDING 3±189,000 SF260' x 728'Ideal Avenue NIdeal Avenue N34th Street N.34th Street N.14
DEVELOPMENT OVERVIEW
Site Area 76.6 acres
Building Coverage 31.5%
Total Building Area 1,074,000 sf
Building 1 Area 415,000 sf
Building 2 Area 189,000 sf
Building 3 Area 189,000 sf
Building 4 Area 281,000 sf
$27MM
Annual Wages
& Benefits
±560
Permanent
Job Creation
±76Acres of Land
455
Construction Jobs
PROPOSED MEDIAN CUT AND TURN LANE WITH POTENTIAL SIGNAL
PUBLIC SEWER EXTENSION FOR FUTURE DEVELOPMENT
Conceptual Masterplan
LOGISTICS PARKCYPHERS
LAKE ELMO, MINNESOTA
CLP-LakeeLmo-090821 5
Public Improvements Estimate
ITEM QUANTITY UNITS UNIT COST TOTAL
Sewer Extension 1 EA $139,400 $139,400
Auger Under Rail 170 LF $1,180 $200,600
34th St. Signal 1 EA $450,000 $450,000
34th St. Curb Cut and Turn Lanes 1 EA $231,000 $231,000
TOTAL $1,021,000
PUBLIC IMPROVEMENTS
$1,021,000
ESTIMATED
LOGISTICS PARKCYPHERS
LAKE ELMO, MINNESOTA
CLP-LakeeLmo-090821 6
Job Impact Estimates and Assumptions, Summary
$11.5+
MILLION
Construction
IN BENEFITS
$3.4+
MILLION
$20.8+
MILLION
Warehouse
IN BENEFITS
$6.2+
MILLION
$1.05+
MILLION
Minnesota State
WAREHOUSE
$773+
THOUSAND
CONSTRUCTION
WAGES
TAXES
JOBS
CONSTRUCTION JOBS
455
INDIRECT
WAREHOUSE JOBS
560
DIRECT
ESTIMATED
$103.5M
TOTAL CAPITAL INVESTMENT
TOTAL
1.07M+
SQUARE FEET