DEVELOPMENT ITEMS- Erik J. Thorvig, Economic Development Coordinator
Title
RESOLUTION APPROVING AN AMENDMENT TO THE BLAINE ECONOMIC DEVELOPMENT PROJECT PLAN, ESTABLISHING AN ECONOMIC DEVELOPMENT TAX INCREMENT FINANCING DISTRICT AND APPROVING TAX INCREMENT FINANCING PLAN THEREFOR (SOUTH TERRACE COVE PROJECT)
Background
At the April 13, 2017 City Council workshop, the City Council was presented three redevelopment scenarios for the northeast corner of 102nd and University Ave. Each proposal requested EDA assistance ranging from $550,000-$900,000. The City Council provided direction to staff to work with Shade Tree Construction on a redevelopment project. Shade Tree provided a revised concept plan to the City Council at the April 5, 2018 workshop and the same direction was given to staff to continue to work with the developer. An $850,000 TIF request was also introduced and generally supported by the City Council.
The 3.09 acre site currently consists of three, 1970s era office buildings with storage garages behind. Shade Tree is proposing to redevelop the site with 43, for-sale townhome units sold in the $250,000-$300,000 price range. The Planning and Zoning approvals were approved by the City Council at the September 20th, 2018 meeting. If the TIF request is also approved, the developer will start demolition of the buildings this fall and potentially one set of units.
The site has been identified as a redevelopment area in both the 2030 and 2040 Comprehensive Plans. The strategy identified in the Comprehensive Plan states to “work with the owners on redevelopment possibilities including City/EDA assistance if it is determined public assistance is warranted.
The developer is seeking $850,000 in financial assistance form the EDA. The purpose of the request is to bring the cost to purchase the properties and demolish the buildings to a market rate price for vacant land. The proposed purchase price is $1,350,000 ($450,000/building) and approximately $215,000 in demolition costs; bring the total cost to $1,565,000. In general, 3.09 acres of vacant multi-family land would sell for approximately $538,000. As such there is an approximate $1,027,000 gap between what the developer will be paying versus what vacant, market rate land would cost if the developer were to do this project elsewhere. The $850,000 in assistance helps bring the cost to the developer closer to a market rate transaction.
Staff is proposing to fund the $850,000 through establishment of a new redevelopment TIF district. Typically this option is structured where the developer (or their lender) is paid back the $850,000 through a promissory note with annual TIF revenue from the district over a defined period of time not to exceed 26 years (Also known as Pay-As-You-Go TIF). This scenario works well for commercial/industrial or multi-family rental projects where you have long-term owners and lenders involved.
For this development, once the units are sold the developer and lender are no longer involved in the project. Therefore the pay-as-you-go option doesn’t work. Minnesota Statute 469.357 does allow for a city to internally borrow funds to provide money up front to the developer in one lump sum and pay themselves back. Staff would propose to internally borrow from the EDA general fund which has a balance of $4.3 million. This option would reduce the EDA general fund balance; however the fund is paid back over time, with interest, from TIF revenue. The initial $850,000 investment would earn, at 4% interest, $677,717. The benefit to this option is that it leaves existing pooled TIF funds for other projects that may not have other funding options, unlike this project. It’s anticipated that the TIF district will generate revenue to pay back the initial debt with interest quicker than the full term of the 26 year district. If this occurs, the district can be decertified and have all taxing entities receive the full benefit of the increased tax base earlier than the 26 year term of the district.
Recommendation
Staff recommends adopting the attached resolution.
Body
BE IT RESOLVED by the City Council (the “Council”) of the City of Blaine, Minnesota (the “City”), as follows:
Section 1. Recitals.
1.01 The Blaine Economic Development Authority (the “EDA”) has proposed to amend the Project Plan (the “Project Plan”) for the Blaine Economic Development Project (the “Project Area”) to expand the Project Area, to reflect increased public development and redevelopment costs and activities, and to establish Tax Increment Financing District No. 1-21 (South Terrace Cove Project, a Redevelopment District) (the “TIF District”) within the Project Area and to adopt the Tax Increment Financing Plan relating thereto (the “TIF Plan”), all pursuant to and in conformity with applicable law, including Minnesota Statutes, Sections 469.001 through 469.047, 469.090 through 469.1082, 469.124 through 469.134, and 469.174 through 469.1794, respectively (collectively, the “Plans”), all as reflected in that certain document, dated October 4, 2018, entitled “Amendments Relating to Blaine Economic Development Project Plan of the Blaine Economic Development Authority Including Establishment and Approval of Tax Increment Financing District No. 1-21 (A Redevelopment District) and a Tax Increment Financing Plan therefor” and presented for the Council’s consideration.
1.02 The Council has investigated the facts relating to the amendment of the Project Plan, the establishment of the TIF District and the adoption of the TIF Plan.
1.03 The City has performed all actions required by law to be performed prior to the adoption and approval of the TIF Plan, including, but not limited to, 30 days’ prior delivery of the TIF Plan to the County Auditor and School District Clerk and of the individual affected County Commissioner, a review of the Amendment to the Project Plan by the City Planning Commission, and the holding of a public hearing thereon following notice thereof published in the City’s official newspaper at least 10 but not more than 30 days prior to the public hearing.
1.04 Certain written reports and other documentation, information and material (collectively, the “Materials”) relating to the TIF Plan including the tax increment application made and other information supplied by Shade Tree Construction, Inc., a Minnesota corporation (or an affiliate thereof, the “Developer”) as to the activities contemplated therein, have heretofore been assembled or prepared by staff or others and submitted to the Council and/or made a part of the City or EDA files and proceedings on the TIF Plan. The Materials include data, information and/or substantiation constituting or relating to (1) the “studies and analyses” on why the new Tax Increment District meets the requirements to be a redevelopment tax increment financing district, including a report dated September 6, 2018 prepared by LHB, Inc., Minneapolis, Minnesota, (2) why the assistance satisfies meets the so-called “but for” test; and (3) the bases for the other findings and determinations made in this resolution. The Council hereby confirms, ratifies and adopts the Materials, which are hereby incorporated into and made as fully a part of this resolution to the same extent as if set forth in full herein.
1.05 The Developer has proposed to demolish three existing office buildings and construct approximately 43 owner-occupied townhomes and related improvements to be located at the northeast corner of 102nd Avenue and University Avenue (collectively, the “Development”) and has requested that the EDA provide tax increment assistance to pay a portion of the public redevelopment costs of the Development.
Section 2. Findings for the Modification of the Redevelopment Plan, the Creation of the TIF District and Adoption of a TIF Plan Therefor.
2.01 The Council hereby finds that: (a) the land within the Project Area would not be available for redevelopment without the financial aid to be sought under the Redevelopment Plan; (b) the Redevelopment Plan will afford maximum opportunity, consistent with the needs of the City as a whole, for the development of the Project Area by private enterprise; and (c) the Redevelopment Plan conforms to the general plan for the development of the City as a whole. The Project Area has been previously established by the City and the EDA and is not being expanded in connection with the establishment of the TIF District.
2.02 The Council hereby finds that the TIF District is in the public interest and is a redevelopment district, as defined in Minnesota Statutes, Section 469.174, Subdivision 10 for the following reasons:
The TIF District is, pursuant to Minnesota Statutes, Section 469.174, Subdivision 10(a), a “redevelopment district” because it consists of a project or portions of a project within which the following conditions, reasonably distributed throughout the TIF District, exist: (1) parcels consisting of at least 70% of the area of the TIF District are occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures and (2) more than 50% of the buildings located within the TIF District are deemed “structurally substandard” (within the meaning of Minnesota Statutes, Section 469.174, Subdivision 10(b) and (c)) to a degree requiring substantial renovation or clearance.
The TIF District consists of three parcels, and each parcel is “occupied” as defined in Minnesota Statutes, Section 469.174, Subd. 10(a)(1), in that at least 15% of the area of the parcel is occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures. There are 3 buildings in the TIF District, all of which are structurally substandard to a degree requiring substantial renovation or clearance. In addition, the costs of bringing the structurally substandard buildings into compliance with building codes applicable to new buildings would exceed 15% of the cost of constructing new structures of the same size and type on the site.
The report of LHB, Inc. dated September 6, 2018, including without limitation the supporting facts for these determinations, is on file with the staff of the EDA. There have been no building permits issued or improvements made to the buildings since the date of the report.
2.03 The Council hereby makes the following additional findings in connection with the TIF District:
(a) The Council further finds that the proposed Development, in the opinion of Council, would not occur solely through private investment within the reasonably foreseeable future and, therefore, the use of tax increment financing is deemed necessary. The specific basis for such finding being:
The costs of rehabilitating existing buildings of the age, size and condition of the buildings in the TIF District are higher than for new development and the Developer has represented that it could not proceed with the Development without tax increment assistance.
(b) The Council further finds that the TIF Plan conforms to the general plan for the development or redevelopment of the City as a whole. The specific basis for such finding being:
The TIF Plan will generally complement and serve to implement policies adopted in the City’s comprehensive plan. The construction of the Development contemplated is or will be in substantial accordance with the existing zoning or any permitted exception for the property and the City’s Planning Commission has determined that the Development is consistent with the comprehensive plan.
(c) The Council further finds that the TIF Plan will afford maximum opportunity consistent with the sound needs of the City as a whole for the development of the Project Area by private enterprise. The specific basis for such finding being:
The proposed Development to occur within the TIF District is owner-occupied housing and is consistent with other uses in the area. The Development will increase the taxable market valuation of the City and make more housing options available to the residents of the City.
(d) For purposes of compliance with Minnesota Statutes, Section 469.175, Subdivision 3(b)(2), the Council hereby finds that the increased market value of the property to be developed within the TIF District that could reasonably be expected to occur without the use of tax increment financing is probably $0 (other than amounts due to inflation), which is less than the market value estimated to result from the proposed development ($12,359,896 approximately), after subtracting the present value of the projected tax increments for the maximum duration of the TIF District (i.e., $1,488,689 approximately), which is approximately $10,871,207. In making these findings, the Council has noted that the property has been declining for several years and would likely continue to do so if tax increment financing were not available for redevelopment. Thus, the use of tax increment financing will be a positive net gain to the City, the School District, and the County, and the tax increment assistance does not exceed the benefit which will be derived therefrom.
2.04 The provisions of this Section 2 are hereby incorporated by reference into and made a part of the TIF Plan.
2.05 The Board further finds that the Project Plan and TIF Plan are intended and, in the judgment of this Council, their effect will be, to promote the public purposes and accomplish the objectives specified in the TIF Plan and in the Project Plan.
Section 3. Creation of the TIF District and Approval and Adoption of the Plans; Interfund Loans.
3.01 The creation of the TIF District and the amendment to the Project Plan and the adoption of the TIF Plan, as presented to the Council on this date, including without limitation the findings and statements of objectives contained therein, are hereby approved, ratified, established, and adopted.
3.02 The City elects to retain all of the captured tax capacity to finance the costs of the TIF District. The Development is residential property and therefore is not subject to fiscal disparities.
3.03 In accordance with Minnesota Statutes, Section 469.175, Subd. 1(b), the City elects to delay the receipt of the first increment until tax payable year 2021.
3.04 The staff of the EDA and the advisors and legal counsel of the City and the EDA are authorized and directed to proceed with the implementation of the TIF District and the TIF Plan therefor.
3.05 The Council hereby approves a policy on interfund loans or advances (“Loans”) for the TIF District, as follows:
(a) The authorized tax increment eligible costs (including without limitation out-of-pocket administrative expenses incurred in an amount up to $262,793, interest in an amount up to $680,000 and other project costs in an amount up to $2,365,141) payable from the TIF District, as the TIF Plan is originally adopted or may be amended, may need to be financed on a short-term and/or long-term basis via one or more Loans, as may be determined by the City Finance Director from time to time,
(b) The Council specifically, in addition to the loans described above, approves an interfund Loan in the amount of $850,000, to reimburse the Developer for certain costs of the Development, from the general fund of the EDA or such other fund as designated by the City Finance Director, to be repaid, on or before February 1, 2047, from available tax increments from the TIF District, plus, to the extent sufficient tax increments are available, interest on the outstanding balance of such Loan at the rate of 4.00% per annum (which is not greater than the rate specified under Minnesota Statutes, Sections 270C.40 or 549.09).
(c) The Loans may be advanced if and as needed from available monies in the City’s or the EDA’s general fund or other City or EDA fund designated by the City Finance Director. Loans may be structured as draw-down or “line of credit” obligations of the lending fund(s).
(d) Neither the maximum principal amount of any one Loan nor the aggregate principal amount of all Loans may exceed $2,627,934 outstanding at any time.
(e) All Loans mature not later than February 1, 2047 or such earlier date as the City Finance Director may specify in writing. All Loans may be prepaid, in whole or in part, whether from tax increment revenue, TIF bond proceeds or other eligible sources.
(f) The outstanding and unpaid principal amount of each Loan shall bear interest at the rate prescribed by the statute (Minnesota Statutes, Section 469.178, Subdivision 7), which is the greater of the rates specified under Minnesota Statutes, Sections 270C.40 or 549.09 at the time a Loan, or any part of it, is first made, subject to the right of the City Finance Director to specify a lower rate (but not less than the City’s or the EDA’s then-current average investment return for similar amount and term).
(g) Such Loans within the above guidelines are pre-approved. The Loans need not take any particular form and may be undocumented, except that the City Finance Director shall specify the principal amount and interest rate and maintain all necessary or applicable data on the Loans.
PASSED on October 4, 2018, by the Blaine City Council.