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Item No. 5A Meeting Date: December 11, 2000 Type of Business: EDA WK: Work Session; PH: Public Hearing; CA: Consent Agenda; EDA: EDA Business City of Mounds View Staff Report To: President and Economic Development Authority From: Aaron Parrish, Economic Development Coordinator Item Title/Subject: Pre-1997 TIF Interest Earnings Date of Report: December 5, 2000 Background: As Council is aware, The Office of the State Auditor has determined that interest earnings on TIF funds prior to July 1, 1997, herein referred to as pre-1997 interest earnings, are not subject to TIF restrictions. Mr. Jim O’ Meara, the EDA’s TIF attorney, has reaffirmed this position. There are approximately $2,276,116 in such earnings. Subsequently, the EDA directed the EDC to evaluate potential options for the use of these funds. Prior to EDC evaluation, Ehlers and Associates, the EDA’s Financial Advisor, was consulted and advised that the pre-1997 interest earnings be transferred into a new or different fund. This will enable the pre-1997 interest earnings to be distinguished from existing TIF funds. Additionally, it was suggested that a majority of the money not be obligated and/or spent immediately. This is due to some issues currently outstanding with the Office of State Auditor. More specifically, the OSA has been evaluating Mounds View’s use of TIF for the acquisition and renovation of the Community Center. If the EDA is found to be in non-compliance, one of the potential penalties is repayment of all or part of funds associated with the non-compliant activity. Additionally, the pre-1997 earnings have been accounted for with TIF funds for several years. Depending upon OSA interpretation, they may consider these funds tax increment. If that is the determination, then these funds would have the same restrictions associated with TIF. Accordingly, it would be fiscally prudent to wait for the OSA to evaluate TIF reports reflecting changes relative to the use of pre-1997 interest earnings prior to spending a significant amount of funds on non-TIF activities. Taking the above consultation into consideration, the EDC evaluated the following potential options including the following: 1. Establishing a fund to provide for any future safety improvements, infrastructure, and/or redevelopment associated with County Highway 10. 2. Establishing a fund for variety of future economic development and housing projects / improvements throughout the City. This could include a revolving loan fund, funding for economic development once the current TIF districts expire, housing programs and replacement, mobile home park revitalization, or a range of other activities. 3. Transfer revenue to existing funds. 4. Keep pre-1997 interest earnings in existing TIF funds to be spent on TIF eligible activities. 5. A combination of the aforementioned options. 6. Other suggestions.