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To: 0.C From: G W Date: Subject: FREERS & ASSOCIATES INC Mike Mornson —HRA Executive Director Stacie Kvilvang -Ehlers and Associates July 18, 2006 Modification to Redevelopment Project No. 3 and TIF District No. 3 (Cub Foods) After completing TIF reporting for the City for the first time this year it was noted that the budget for the above referenced district was not in compliance with the Office of the State Auditor (OSA) requirements and therefore was producing what is termed "excess increment" ($247,405 in 2005). Excess increment is best defined as increment generated in excess of what was budgeted. In 2005 the Legislature changed TIF law to require communities to spend or return any excess increment within nine (9) months after the end of the year (by September 1" of following year). We are recommending that the HRA and CC modify the TIF budget for the District to match it to expected revenues (needs to be completed prior to September 1, 2006). This modification will show that the increment is being spent to provide the City and HRA maximum flexibility for use of future increment. It should be noted that we do assume that the majority of the increment will be needed to satisfy payment of the outstanding bonds for the District. we will be completing an analysis to determine what will be. generated over the term of the District (will be decertified in 2023) and what is needed to pay off the bonds. To the extent there is any increment not needed to pay for obligations in this District, we would recommend that we "pool" the funds to pay for redevelopment costs in TIF District 3-5 (Silver Labe village Redevelopment) or for any redevelopment projects in Project Area No. 3. Since the City and HRA is modifying the TIF budget, the modification is required to go through the entire public hearing process as if the City and HRA were creating a new TIF district. As part of this process, the Planning Commission found that the development plans for this district is in conformance with the City's general development/redevelopment plans of the City at its' August 15, 2006 meeting. Please contact me at 651-697-8506 with any questions. cc: Jerry Gilligan -- Dorsey & Whitney File LEADERS IN PUBLIC FINANCE 3060 Centre Pointe Drive Phone: 651=697-8506 Fax: 651-697-8555 Roseville, MN 55113-1105 skvilvang@ehlers-inc.com