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HomeMy WebLinkAboutItem 03City of Lakeville Community & Economic Development Memorandum To: Mayor and City Council From: David L. Olson, Community& Economic Development Director �/i Copy: Allyn Kuennen, Interim City Administrator Dennis Feller, Finance Director Mikaela Huot, Springsted Date: September 26, 2014 Subject: Review of TIF Districts Scheduled to Expire in 2014 The City has four existing Tax Increment Financing Districts (TIF) that are scheduled to expire at the end of this year. The following is a brief summary of each: TIF District No. 3 This project was known as the DKM Professional Building and is the building on Holyoke Avenue in Downtown Lakeville and that is currently leased by ISD #194 for the Community Education function. This TIF District was created as a 25 year Redevelopment TIF District in 1987. The original purpose of this project was to facilitate the land acquisition for the CDA Winsor Plaza Senior Housing Project at 20827 Howland Avenue which is just west of this property. This TIF project activities also included site preparation, public improvements including sidewalks, and construction of a parking lot. This TIF District also provided pay-as-you-go TIF assistance for a land write-down for the original Heritage Commons development. The current estimated fund balance that will remain in this TIF District at the end of this year is $164,600. TIF District No. 8 This project was known as the Southfork Apartments project and is located on Kenwood Trail (Co. Rd. 50) at Jubilee Way across from the Argonne Plaza Shopping Center. This TIF District was created as a 25 year Housing TIF District in 1987. The purpose of this TIF District was to implement an interest rate reduction program for the original developers of the Southfork Apartment Project Development in order to make a percentage of the rental townhomes in this project affordable to persons with low to moderate incomes. Later modifications to this TIF District resulted in assistance being provided for the CDA Main Street Manor Senior Housing project located in Downtown Lakeville, assistance for Miller Hartwig Insurance Building that was developed on Holyoke Avenue across from the Art Center and site acquisition and preparation and public improvements for second phase of the Winsor Plaza Senior Apartment project on Howland Avenue in the Downtown. The current estimated fund balance that will remain in this TIF District at the end of this year is $174,656. TIF District No. 9 This project was known as Argonne Plaza and is located at the intersection of Kenwood Trail (Co. Rd. 50) and 175th Street. This TIF District was created as a 25 year Redevelopment TIF District in 1987. The purpose of this TIF District was to facilitate the redevelopment of four residential properties that were located in an area planned and zoned for commercial development. The project did not proceed as originally envisioned. A portion of the property later developed as a SA gas convenience store and the TIF Plan was modified to allow some of the captured tax increments to be used for improvements to Kenwood Trail (Co. Rd. 50) and 175t' Street. The current estimated fund balance that will remain in this TIF District at the end of this year is $99,835. TIF District No 17 This project was known as the Di Hed Yokes (DHY) project and was located at the northwest corner of the intersection of Holyoke Avenue and Co. Rd. 70. This TIF District was created as a Renewal and Renovation District in 1997. The purposed of this TIF District was to facilitate the development of contaminated site for DHY which was a manufacturing business that produced machined metal products and components for a number of different businesses. The business was successful for approximately 10 years however was not able to continue operations through the Great Recession. The existing building was sold about two years to a company called Midwest Veterinary Supply which operates a distribution center at this location. The current estimated fund balance that will remain in this TIF District at the end of this year is $255,150. Summary Attached is more detailed summary of each of these TIF Districts as prepared by Mikaela Huot of Springsted. Ms. Huot will be in attendance at Monday's Work Session to provide an overview of the options that the City has relative to these TIF Districts that are scheduled to expire at the end of this year. Recommended Action: Staff is seeking direction from the Council on how to proceed with each of these four TIF Districts. Once a consensus is reached, staff will work with Springsted, to initiate the necessary steps to process any modifications to these existing TIF Districts as directed by Council and complete the decertification process for these districts prior to December 31 It of this year. Springsted MEMORANDUM TO: David Olson, Community & Economic Development Director Dennis Feller, Finance Director FROM: Mikaela Huot, Vice President/Consultant DATE: September 26, 2014 SUBJECT: Review of Tax Increment Financing Districts Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com The City of Lakeville requested that Springsted provide a review of the City's tax increment districts. The purpose of the analysis is to determine the current financial position of each district, reconcile past activities and determine what options the City may have from each district to manage obligations, pooling opportunities, administrative payments, and additional expenditure opportunities within the City. Springsted relied upon information provided by the City including original and amended TIF Plans, OSA TIF Reports and current financial information to prepare the analysis. The purpose of this memo is to provide a summary and outline the recommended action items for several of the districts that are either close to decertification and/or all remaining obligations have been paid. Using the available information we were able to determine the type of district, which dictates statutory requirements on use, authorized budget and future budget capacity. Some of the City's TIF Districts had obligations that did not extend for the maximum term of the districts. A cash flow analysis has been prepared for each district showing the projected revenues and expenditures through the maximum term of the district based on the individual approved TIF Plans. With this information we were able to make recommendations for additional spending and timing of closing districts. Depending on the statutory authorities for the districts, as individual obligations are fulfilled the districts may be required to be decertified. Therefore the estimated fund balances may not reflect actual amounts available for City spending on eligible activities if districts need to be decertified. Depending on the type of district, the City may have the ability to spend the remaining increment for financing of eligible projects. The estimated amount of increment available for future spending from each district may be adjusted depending on the City's objectives. City of Lakeville, Minnesota TIF District Review Summary September 26, 2014 Page 2 Minnesota State Law sites specific restrictions regarding the use of tax increment based on the various types of districts. The type of district and certification date are primary guidelines used for administering districts and determining eligible projects and expenditures, as well as any recommendations regarding future activities. For each respective type of district, we have to consider regulations regarding the following issues: • Term of district • Pooling • The applicable 4 and 5 year rule provisions • Excess increment • Administrative expenses • Qualified tax increment expenditures • Other restrictions For the purpose of this report we have evaluated the City's active districts and placed them into separate categories dependent upon the type of district and the date of approval and certification. The ability to use tax increment revenues is somewhat dependent upon the type and establishing dates of a TIF District. Statutory powers relate directly to the type and certification dates of a TIF district. The City of Lakeville has three types of TIF Districts that we have been asked to review: 1. Redevelopment District certified pre -1990, 2. Housing Districts certified pre -1990, and 3. Renewal and Renovation District certified post -1990. TIF District No. 3 TIF District No. 3 is a redevelopment district established within the Downtown Project Area. The District was established May 4, 1987. The decertification date is December 31, 2014. The 2013 TIF Reports annually submitted to the OSA indicate an excess increment calculation. However, review of the original and amended TIF Plans indicate an adjustment to the reported budget of authorized revenues and expenditures could be made that would eliminate a majority, if not all, of the calculated excess increment. In addition, due to the establishing date of the district, flexibility exists in the ability to modify the TIF Plan budget to increase the authorized revenues and expenditures. As a result, we recommend the City adjust the reported budget based on the original and approved amendments of the district and modify the TIF Plan budget prior to December 31, 2014. TIF District No. 3 supported a pay-as-you-go note with final payment on February 1, 2014. The total TIF Plan budget as reported provided authority for total estimated tax increment revenues of $2,025,000 and project/financing costs of City of Lakeville, Minnesota TIF District Review Summary September 26, 2014 Page 3 $1,750,000 and bond financing of $254,000. Revenues include tax increment. Project costs include land/building acquisition, utilities, administrative costs and interest expense. The projected fund balance of the district by December 31, 2014 is estimated to be $164,600, including the payable 2014 tax increment collections. The current district budget does not specifically allow for pooling costs; however an amendment to increase the budget would provide the City with additional authority to use tax increments from the district on eligible project costs. Any further spending must be done on tax increment eligible activities within the TIF District and/or Project Area. Recommendations: 1. Adjust reported budgets prior to submission of 2014 OSA TIF Reports 2. Modify current TIF Plan budget prior to December 31, 2014 3. Decertify district as of December 31, 2014 4. Use remaining increment on additional authorized obligations TIF District No. 8 TIF District No. 8 is a housing district established within 1-35 Redevelopment Project Area No. 1. The District was established December 21, 1987. The decertification date is December 31, 2014. TIF District No. 8 supported debt obligations with final payment on February 1, 2014 and a pay-as-you-go note. The total TIF Plan budget as reported provided authority for total estimated tax increment revenues of $11,562,584 and project/financing costs of $7,270,584 and bond financing of $4,645,000. Revenues include tax increment and interest and investment earnings. Project costs include land/building acquisition, site improvements/preparation costs, utilities, administrative costs and interest expense. Projections of future increment indicate that TIF 8 will not exceed its total authorized revenue and expenditure amounts through the remaining term of the district. The district will have fulfilled its obligations by making final payment no later than February 1, 2014. The projected fund balance of the district by December 31, 2014 is estimated to be $174,656, including the payable 2014 tax increment collections. The current District budget does not specifically allow for pooling costs; however an administrative amendment to adjust the individual budget items may provide clarification on the City's intent of using the remaining fund balance on eligible project costs of the district and project area. Any further spending must be done on tax increment eligible activities within the TIF District and/or Project Area. Recommendations: 1. Administratively amend TIF Plan for identified future project costs 2. Pool available increment for authorized eligible uses 3. Decertify district as of December 31, 2014 City of Lakeville, Minnesota TIF District Review Summary September 26, 2014 Page 4 TIF District No. 9 TIF District No. 9 is a redevelopment district established within 1-35 Redevelopment Project Area No. 1. The District was established April 18, 1988. The decertification date is December 31, 2014. TIF District No. 9 supported utility costs financed by tax increments. The total TIF Plan budget as reported provided authority for total estimated tax increment revenues of $1,386,000 and project/financing costs of $1,828,000 and bond financing of $0. Revenues include tax increment and sales/lease proceeds. Project costs include land/building acquisition, utilities, administrative costs and interest expense. Projections of future increment indicate that TIF 9 will not exceed its total authorized revenue and expenditure amounts through the remaining term of the district. The district will have fulfilled its obligations prior to the required decertification of the district. The projected fund balance of the district by December 31, 2014 is estimated to be $99,835, including the payable 2014 tax increment collections. The current district budget does not specifically allow for pooling costs; however an administrative amendment to adjust the individual budget items may provide clarification on the City's intent of using the remaining fund balance on eligible project costs of the district and project area. Any further spending must be done on tax increment eligible activities within the TIF District and/or Project Area. Recommendations: 1. Administratively amend TIF Plan for identified future project costs 2. Pool available increment for authorized eligible uses 3. Decertify district as of December 31, 2014 TIF District No. 17 TIF District No. 17 is a renewal and renovation district within Airlake Redevelopment Project Area No. 1 and was established on April 14, 1997. The decertification date is December 31, 2014. TIF District No. 17 supported an interfund loan financed by tax increments with final payment on February 1, 2014. The total TIF Plan budget as reported provided authority for total estimated tax increment revenues of $833,000 and project/financing costs of $823,000 and bond financing of $530,000. Revenues include tax increment. Project costs include land/building acquisition, administrative costs and interest expense. Projections of future increment indicate that TIF 17 will not exceed its total authorized revenue and expenditure amounts through the remaining term of the district. The district will have fulfilled its obligations prior to the required decertification of the district. City of Lakeville, Minnesota TIF District Review Summary September 26, 2014 Page 5 The projected fund balance of the district as of December 31, 2014 is estimated to be $255,150, including the payable 2014 tax increment collections. Because the district is classified as a post -90 district and all existing obligations have been fulfilled, the City is limited on future activities of the district. As a result, we recommend the City consider decertifying the district as of December 31, 2014 and return the remaining fund balance as excess increment. The City will receive a portion back based on its share of the local tax capacity rate. Recommendations; 1. Decertify district as of December 31, 2014 2. Return remaining excess increment to County for redistribution Thank you for the opportunity to be of assistance to the City of Lakeville. Please let us know how we can best assist you as this project moves forward and should you have any questions please feel free to contact us.