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EDA Agenda - 06/14/2023 (special)AGENDA ECONOMIC DEVELOPMENT AUTHORITY SPECIAL MEETING Wednesday, June 14, 2023 — 4:00 p.m. Monticello Community Center Call to Order 4:00 p.m. Tax Increment Financing (TIF) and Tax Abatement Overview 3. Adjournment TAX INCREMENT FINANCING (TIF) AND TAX ABATEMENT OVERVIEW CITY OF MONTICELLO EDA -CITY COUNCIL WORKSHOP JUNE 14, 2023 Tammy Omdal, Northland Public Finance NORTHLAND "%, r;,- PUBLIC FINANCE ■ Provide general information Tax Abatement and the EDA in establishing and managing abatement projects* ■ Presentation will focus on: ■ Source and Use of TIF revenue ■ Development (TIF) agreements ■ Managing TIF Districts ■ Tax Abatement on the use of TIF and and City Council roles TIF districts and tax *Focus of presentation is not on specific TIF districts or projects in Monticello but rather general information on TIF and Tax Abatement as public finance tools NORTHLAND 2 PUBLIC FINANCE NORTHLAND 3 PUBLIC FINANCE TIF is a financing method to capture increase in value from new development _ Tax increments are generated by an increase in property taxes resulting from the increase in taxable market value from development NORTHLAND PUBLIC FINANCE — Property taxes attributed to the increase in valuation are used to finance or reimburse TIF eligible project costs After the capture of property taxes for TIF ends, then tax capacity from new development becomes available as tax capacity (tax base) to the respective taxing jurisdictions NORTHLAND PUBLIC FINANCE Monticello has established 46 TIF districts to date within the Central Monticello Redevelopment Project No. 1 Not all these districts remain open Districts are decertified after obligations or certain statutory conditions are met Decertification of a district means tax increment is no longer captured; it doesn't always mean the fund established for the district is closed NORTHLAND PUBLIC FINANCE F ► x 6 t s :N y. n r . =dQ Wiz• ,, - _�- �—S �':� - "':. i �:�� � Wit- t _ ��+-•. ` f ^I "'T �} .� 1 �.Y� 1. �'•r 4• _ - ' COVNTY ROAD 39 NEL �!.I far'•---xl J � --G6LF iL.RSE RV 1 ..,CV 4e� �Y, s.�i, i f it r, i ^ 't., �F � `'I �r .• .. >; .�__`' p39 µEQ -v'2x nt. •, yT / :_ti - tiF' X' - _:r RrV� cGUNZY'RgD. TIF Districts aa Active ® Proposed h NSTf r D ecertified Mdeveo monticello Relens 1 ryect # Boundary :" "� I� `_- i P JayI�. n, - SC'C•H.- 40 ;B/: i._ `v`4TtiT NE L Bou2,000 4,000Boundary f .�e�• l - A5V A Feet - Date:5118QGzz TIF Districts �iiao Central Monticello Redevelo ment Pro ect Area #1M0P �WSb� Monitcello, MN NORTHLAND PUBLIC FINANCE NORTHLAND 8 PUBLIC FINANCE Tax increment is generated by the increased property value that is created when a property is developed Captured property taxes attributed to the increased value from new development are used to support the development I Fixed term or duration to collect TIF revenue generated NORTHLAND PUBLIC FINANCE ■ TIF Revenue comes from property taxes paid by development within TIF district Parcel Taxable Market Value Net Tax Capacity (NTC) Multiplied By Multiplied By Property Class Rate Local Tax Capacity Rates Equals Equals Net Tax Capacity (NTC) NTC - Based Property Taxes NORTHLAND 10 PUBLIC FINANCE Net Tax Capacity from land and existing building value is called the Original Net Tax Capacity after conversion from Base Value ■ Important because taxes generated by the original value (NTC) within the district continue to flow to the respective taxing jurisdictions Net Tax Capacity growth above the Original Net Tax Capacity is captured by the district and generates tax increment revenue NORTHLAND PUBLIC FINANCE Estimated $10.5 Million Total Taxable Market Value at Completion NORTHLAND PUBLIC FINANCE $10.0 $0.5 New construction by Developer (Captured Value) Existing buildings and land value in TIF District (Base Value) 12 NORTHLAND 13 PUBLIC FINANCE With Establishment of TIF District and Completion of Project (Estimated for Tax Payable Year 2026) Annual Taxes Annual Captured Combined Total Current Taxes (Pay Received by Taxing Taxes (Tax Estimated Annual Taxing Jurisdictions 2023) Jurisdictions from Increment) from TIF Taxes Payable from Property within TIF District Property District City 12,141 17,984 178,295 196,279 School District 16,159 81,042 172,214 253,256 Anoka County 7,945 8,754 116,671 125,425 Other Taxing Jurisdictions 37,147 1,549 20,638 22,187 Total 73,391 109,328 487,818 597,146 NORTHLAND 13 PUBLIC FINANCE ■ Timing of development ■ Collection of first increment ■ Type of TIF District impacts duration ■ Property reclassification ■ Future market value inflation ■ Changes in local tax capacity rates ■ Property tax reform NORTHLAND 14 PUBLIC FINANCE Type of TIF District determines duration for district (to collect TIF revenue), uses of TIF, and on-going statutory requirements ■ Redevelopment ■ Renewal and Renovation ■ Economic Development ■ Housing ■ Soils Condition ■ Other -Hazardous Substance Sub -district NORTHLAND 15 PUBLIC FINANCE ■ Expiration determined by Type of District • Duration authorized in TIF Plan Type of Districts Economic Development Renewal & Renovation Soils Conditions Housing Redevelopment Hazardous Substance Sub. Total Number of Years of TIF Revenue Collection (Statutory Maximum) 9 16 21 26 26 26 or R.A.P. NORTHLAND 16 PUBLIC FINANCE ■ Stimulate development where it would otherwise not happen in the reasonably foreseeable future ■ Create jobs ■ Retain existing tax base ■ Encourage development of uses that would otherwise not occur ■ Enhance tax base ■ Facilitate infrastructure improvements ■ Coordinate new developments with existing plans NORTHLAND 17 PUBLIC FINANCE ■ Determining how much TIF is needed for project ■ Questions asked and answered ■ Is the TIF assistance necessary? ■ If so, how much assistance is needed? ■ Objectives ■ Provide minimum assistance for project feasibility ■ Mitigate city risk ■ Return property to general tax rolls NORTHLAND 18 PUBLIC FINANCE ■ Pay-as-you-go (Pay -Go) Assistance ■ Project costs financed by developer ■ Developer is reimbursed semi-annually for project costs as TIF revenue is generated over time ■ TIF revenue note issued to developer payable solely from pledged TIF revenue ■ Up -front Assistance ■ Project costs financed by EDA/ city and repaid with future TIF revenue G.O. Tax Increment Bonds Interf and Loan Other sources NORTHLAND 19 PUBLIC FINANCE NORTHLAND 20 PUBLIC FINANCE r Lays out terms for assistance and financing provided Creates obligation Helps to manage risk for authority May serves as land sale agreement, construction agreement, and business subsidy agreement, among other purposes NORTHLAND PUBLIC FINANCE ■ City council provides authority and responsibility to EDA to administer the agreement and responsibility for implementation actions included in agreements ■ EDA counsel (Kennedy &Graven) drafts agreement and assists EDA with administering provisions within the agreements NORTHLAND 22 PUBLIC FINANCE I How will the tax increment be used? What actions are required by the EDA and by the Developer? What are the ongoing obligations? NORTHLAND PUBLIC FINANCE EDA agrees to use a specified amount of TIF to reimburse developer (or EDA) for certain project costs up to a specified amount TIF available to the developer (and/or EDA) is defined NORTHLAND PUBLIC FINANCE EDA requires developer to certify actual project costs to be reimbursed from TIF EDA may issue a TIF Revenue Note to the Developer or agree to other terms for reimbursing the Developer for eligible project costs from TIF revenue NORTHLAND PUBLIC FINANCE Why would developer request a transfer or assignment of the obligation or TIF note? Does the agreement allow the developer to transfer the TIF Note to another party? What actions are required? NORTHLAND PUBLIC FINANCE i Income Limitations ■ Rental versus owner occupied residential property ■ Must be monitored by the EDA ■ Statutory non-compliance impacts (pay back TIF) ■ Require annual certification of compliance of income verification NORTHLAND 27 PUBLIC FINANCE Generally, applies to any grant or loan of $150,000+ Establishes wage and job goals Requires to stay in business for at least 5 years Establishes reporting requirements Establishes repayment obligations if goals are not met Terms for subsidy may be included within development (TIF) agreement or separate agreement NORTHLAND PUBLIC FINANCE NORTHLAND 29 PUBLIC FINANCE ■ Record Keeping ■ Compliance with Rules ■ Excess TIF ■ Pooling ■ Interfund loans ■ Decertification ■ Annual TIF Reporting NORTHLAND 30 PUBLIC FINANCE ■ It matters ■ Establishment and modification of TIF districts ■ EDA maintains transcript of all documents related to establishment and modification ■ Source and use of tax increment ■ TIF revenue derived from property ■ Other TIF revenue not derived from property ■ Administrative expense NORTHLAND 31 PUBLIC FINANCE ■ 4 Year Rule ■ Development activity within 4 years ■ No activity? Value is excluded from the original net tax capacity ■ Parcels can be "knocked -back -in" at later date based on current valuation 5 Year Rule ■ After year 5 there may be limits on the use of tax increment derived from property and requirement for % of increment spent within TIF district, doesn't apply to housing districts 6 Year Rule ■ Beginning with the 6th year after certification, and in each year after, certain % of increment must be spent on in -district obligations or set aside to pay in -district obligations ■ District must be decertified when outstanding bonds have been defeased, and when sufficient money has been set aside for: in -district contractual obligations; housing project costs specified in the TIF plan; and plan authorized housing expenditures NORTHLAND 32 PUBLIC FINANCE ■ Are funds available for pooling for project costs outside of the district but within project area? ■ Is there excess increment that must be returned to County? (i.e., Monticello TIF No. 22) ■ Is there excess increment derived from property set-aside for in - district obligations? ■ Is there any increment not derived from property, and not subject to pooling limitations? ■ Is there increment available for qualified housing project costs? ■ If there is a negative balance, is it covered by an authorized interfund loan? ■ What about "Pre -1990's TIF districts? NORTHLAND 33 PUBLIC FINANCE ■ Tax increments in excess of costs authorized in TIF Plan for the TIF district TIF Act limits how excess increment can be used k Annual reporting to State Auditor provides for calculation NORTHLAND PUBLIC FINANCE Pooling is not a defined term in the TIF Act ■ Allows TIF to be spent for qualified project costs outside the boundaries of the district, but within the project area ■ Project costs incurred after 5 -year rule date, due to timing, considered to be spent outside the boundaries of the TIF district Different pooling limitations (% of TIF) depending on certification date, additional pooling authority for specific purposes NORTHLAND PUBLIC FINANCE � EDA administrative costs are subject to pooling limitations County administrative expense not subject to pooling limitations ■ Housing TIF districts not subject to pooling limitations NORTHLAND PUBLIC FINANCE Adopted by resolution Development occurs before TIF collected � Authority to loan or advance money from other funds to finance project costs Defined as a "bond" in the TIF Act Can be repaid with future TIF collected Interest is allowable, subject to limitations Requirements differ based on date of loan NORTHLAND PUBLIC FINANCE Maximum duration depends on type of district Must decertify when outstanding bonds have been defeased and when sufficient money has been set aside to pay certain obligations or costs Resolution is required for early decertification EDA must provide county auditor with information on decertification NORTHLAND PUBLIC FINANCE Due annually by August ■ File each year until the district is decertified and all TIF is spent or returned to county auditor Reporting required beginning the year district is certified "Not an accounting exercise" - report is not designed to reconcile to audited statements but rather demonstrate compliance with statutory requirements NORTHLAND PUBLIC FINANCE ■ TIF is the primary development tool available to the EDA ■ Simple in concept, but complex in application ■ Property taxes created by development are captured and used to finance activities need to encourage development ■ Before creating a TIF district, EDA must find that in its opinion the subsidized development would not have happened "but for" the use of TIF NORTHLAND 40 PUBLIC FINANCE NORTHLAND 41 PUBLIC FINANCE W Tax abatement acts like a simpler and less powerful version of TIF City., county and school district have independent authority to grant tax abatement ■ Different from TIF and authority of city to approve capture of taxes Acting alone, the city cannot generate the same amount of revenue from tax abatement as TIF NORTHLAND PUBLIC FINANCE ■ No statutory criteria for findings for public interest ■ May use one or multiple criteria ■ Public interest statement is included in the approving resolution for Tax Abatement ■ Monticello approved a Tax Abatement project in 2017 (Resolution 2017-29) to help finance infrastructure improvements for Fallon overpass and associated street improvements, not to exceed amount of $9.0 million NORTHLAND 43 PUBLIC FINANCE 1. Tax base 6. Infrastructure 2. Jobs 3. Public facilities 4. Redevelopment 5. Access to services for residents NORTHLAND PUBLIC FINANCE 7. Phase in tax increase from significant investment 8. Stabilize tax base for utility property Certain projects may be of sufficient importance to encourage county and/or school district to consider tax abatement If one political subdivision declines to abate, then the city abatement levy can be made for a maximum of 20 years If a city, county and school district all abate, then the maximum period drops to 15 years NORTHLAND PUBLIC FINANCE � Total amount of property taxes abated (tax abatement levy) in any year may not exceed greater of: (1) ten percent of the net tax capacity of the political subdivision for the taxes payable year to which the abatement applies, or (2) $200,000, whichever is greater NORTHLAND 46 PUBLIC FINANCE Tax abatement in MN works more like a rebate than an abatement ■ Certify levy equal to the amount of taxes to be abated Tax abatement levy is spread the same as the general fund levy Revenue from tax abatement levy can be paid to a developer or retained by city for qualified uses NORTHLAND PUBLIC FINANCE Calculating Tax Abatement Levy Parcels Subject to Abatement Parcels Subject to Abatement Parcels Subject to Abatement Parcels Subject to Abatement Abated Tax Capacity Value of Parcels Jurisdiction's Tax Rate Annual Tax Abatement Levy Projects that do not meet criteria for other financing, including criteria for TIF: ■ Redevelopment lacking "substandard" buildings ■ Housing without specific income requirements ■ Economic development other than stated "industrial" uses in TIF Act NORTHLAND 49 PUBLIC FINANCE Funding options are similar to TIF ■ Three basic options: LA Pay -As -You -Go (reimbursement over time) Issuance of Bonds Inter -fund Loan NORTHLAND 50 PUBLIC FINANCE — City has authority to issue general obligation Tax Abatement Bonds Bonds are supported by tax abatement levy Limits on use of proceeds for eligible costs Not subject to debt limit No election required NORTHLAND PUBLIC FINANCE Helpful to create and adopt policy guidelines for Tax Abatement ■ Define objectives/ criteria for use in advance ■ Provide consistent framework for evaluating requests NORTHLAND 52 PUBLIC FINANCE ■ Tax Abatement can be a useful tool for assisting private development, especially for projects that may not qualify for TIF ■ Not as complex to establish and manage as TIF ■ City property taxes are captured and used to finance activities need to encourage development or to support other public interests ■ Other taxing jurisdiction taxes (county and school district) have independent authority to consider tax abatement (separate from city) NORTHLAND 53 PUBLIC FINANCE NORTHLAND 54 PUBLIC FINANCE Tammy Omdal Managing Director 612-851-4964 tomdal@northlandsecurities.com NORTHLAND PUBLIC FINANCE Northland Public Finance The public finance group of Northland Securities, Inc. 150 South Fifth Street, Suite 3300 Minneapolis, Minnesota 55402 800-851-2920 www.northlandsecurities.com/Dubiic finance Member of FINRA and SIPC I Registered with SEC and MSRB 55