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Item No. 5 Meeting Date: July 1, 2002 Type of Business: WS • WS: Work Session; PH: Public Hearing; CA: Consent Agenda; EDA: EDA Business City of Mounds View Staff Report To: Mounds View City Council From: Aaron Backman, Economic Development Coordinator Item Title/Subject: Everest Group request to Revise C.G. Hill TIF Development Agreement Date of Report: July 1, 2002 Background In June of 1994, the Mounds View Economic Development Authority (EDA) and the Everest Group, Ltd. (Developer)signed a Development Agreement. The purpose was to encourage the development of a 30,000 sq. ft. manufacturing facility for C.G. Hill & Sons, Inc. to be located in the Mounds View Business Park. As part of the Agreement, the EDA agreed to defray$196,000 of the development costs by issuing an EDA Note to the Developer. Specifically, this was a "Pay-as-you-go" Tax Increment Financing (TIF) Revenue Note with Michael Investments, and since 7/24/00 with Red Cent Management, the assigned owner. It is a limited revenue obligation by the EDA but not a general obligation of the EDA and is payable only from tax increments received on the respective parcels from Ramsey County. The terms of the Note are: principal • $196,000, interest rate 7.0%, note duration 6/27/94 to 8/1/03 with semi-annual payments on February 1st and August 1st, and the available tax increment is 85% of the tax increments generated by the portion of the tax capacity of the Development Property which exceeds$6,249. A total of 11 payments have been made by the City of Mounds View for the C.G. Hill project. Of the $220,939,97 paid to date, $142,476.81 is principal and $78,463.16 represents interest. In preparation for the February 1, 2002 developer payment, calculation methods were reviewed. Some discrepancies in what was paid and what should have been paid were discovered. Following meetings in March, April and May with representatives of the Developer and Ehlers & Associates, it was determined that the City of Mounds View had overpaid the Developer by $12,073.76. Due to the overpayment on the C.G. Hill project, no payment occurred on 2/1/02,or will occur on 8/1/02. The overpayment is eliminated when a partial payment occurs on 2/1/03, and a full (and final) payment would occur on 8/1/03. In 2001 the Minnesota Legislature approved major property tax changes that affect commercial class rates. Class rate compression has affected the revenue expectations for the duration of all three TIF districts in Mounds View. With no increase in market value, it is forecasted that MV TIF District increment revenue went down 35%from 2001 to 2002. TIF District#1 alone will be experiencing a $500,000+ reduction in increment. This also translates into reductions in available increments for developers. For the C.G. Hill project, developer payments decline from $36,395.34 (Pay 2001) to $19,299.63 (Pay 2002), or a 47% reduction. •