EDA Agenda 08-10-2011 (EDA/CC)JOINT CITY COUNCIL AND FDA MELTING
Wednesday, August 10, 2011
5:00 p.m.
Mississippi Room - 505 Walnut Street, Monticello, MN
1. Call to Order
2. Update on progress of Embracing Downtown Study & implementation strategies (power
point presentation)
3. Discuss priority projects to utilize surplus TIF in District 1 -22
4. Adjourn
3.
CC /EDA 8.10.11
DISCUSS PRIORITY PROJECTS TO UTILIZE SURPLUS TIF IN
DISTIRCT 1 -22:
A. REFERENCE AND BACKGROUND:
In April the EDA authorized Ehlers to analysis TIF District 1 -22 in greater detail and
provide recommendations on ways to best manage this district. Attached to this item is a
memo from Bruce Kimmel of Ehlers and Associations.
In general TIF District 1 -22 is the City's largest and most governed district. However,
district 1 -22 is also a great funding source right now due to a "Jobs Bills that was passed
in the legislature in 2010 and extended in 2011. The City has the ability to assist private
development (must create jobs) with minimal state process (as it relates to a TIF process)
until July 1, 2012.
The City Council and the EDA has a unique opportunity to work in collaboration to
achieve several existing priority projects and create new development opportunities.
B. STAFF RECOMMENDATION:
City Staff will be discussing various priority project ideas with the City Council and EDA.
The goal of the meeting is to narrow in on a few key initiatives and begin moving forward.
Time management is critical at this point in order to maximize dollars and put all the
pieces together to hopefully attract new development. A detailed power point presentation
outlining options, opportunities, and related funding sources will be presented at the
meeting. It is our goal to come out of the meeting with cohesive direction on priority
development/redevelopment initiatives.
C. ALTERNATIVE ACTION:
There will not be any specific motions requested at the joint City Council and EDA
meeting. Staff will be asking for direction from the policy boards and will bring back
specific action items at a later date.
D. ATTACHMENTS:
I. Memo from Bruce Kimmel
WNW
To:
Megan Barnett, City of Monticello and Monticello EDA
From:
Bruce Kimmel, Senior Financial Advisor
Date:
July 5, 2011
Subject:
Update of EDA Options for TIF 1 -22
The Monticello Economic Development Authority (EDA) administers 18 established and
active tax increment financing (TIF) districts within the City of Monticello. All of the EDA
TIF districts are part of Central Monticello Redevelopment Project Area No. 1, which is
relevant to the EDA's past and future abilities to transfer certain TIF district revenues to
TIF - eligible purposes between and outside of districts. This "pooling" authority and
other uses of increment are governed by Minnesota Statutes, Chapter 469.174 — 179,
and each TIF district has legal parameters that are determined by the state statutes that
were in place at the time the district was created, as well as by current state law.
The EDA's largest and most complex TIF district is TIF 1 -22, often referred to as the
Downtown TIF District. As Ehlers reported in its March 9, 2011 presentation to the EDA
Board, TIF 1 -22 collected $358,483 in increment during Fiscal Year 2010 and ended the
year with a fund balance of $2,424,501. Its outstanding obligations as of December 31
were $1,158,351 and the district stops collecting TIF no later than December 31, 2024,
meaning the EDA has up to 14 years of future increment (including Fiscal 2011).
Options A and B: Future Use vs. Decertification
The EDA (by which we also refer to the City of Monticello) has asked Ehlers to update
the report that we submitted on March 4, 2010, which identified and analyzed two
primary options for the future use of TIF 1 -22. Those two options still apply today, and
have been updated as follows:
A. The EDA can maintain the district: collecting annual tax increment, paying
existing debt obligations, and making new investments inside and outside of the
district. The EDA's ability to make new TIF expenditures was expanded greatly
by the TIF spending provision within the 2010 Jobs Bill. (See the attached
summary for details.) The EDA will want to follow its established incentive
policies in setting actual spending amounts. But given the Jobs Bill's unique
flexibility, Ehlers recommends that the EDA explore the full range of ways
in which it could use the TIF spending authority before it expires in 2012.
EHLERS
LEADERS IN PUBLIC FINANCE
wwweh1ers- 1nc.com
Minnesota phone 651.697.6500 3060 Centre Pointe Drive
Offices also in Wisconsin and Illinois fax 651. 697 -8555 Roseville, MN 5.5113 -1122
toll free 800 -552 -1171
Monticello EDA
Update of EDA Options for TIF District 1 -22
July 1, 2011
Page 2 of 4
B. The EDA can decertify some or all of the TIF 1 -22 parcels: ceasing annual TIF
collections, using existing fund balances to retire existing debt obligations, and
returning TIF 1 -22 tax capacity to the general tax rolls. Although increasing the
tax base would reduce pressure on the City's property tax rate, future state levy
limit formulas could restrict the City's ability to achieve the full benefit of this
increase. Also, because of the short -term opportunity presented by the TIF
spending provision, we suggest that the EDA wait until after 2012 before
decertifying parcels from TIF 1 -22.
Option A: Near -Term Capacity
With the Jobs Bill spending provision in effect, the EDA's near -term capacity to use
surplus increment from TIF 1 -22 is much broader than was the case when Northland,
Kennedy & Graven, and Ehlers independently evaluated the EDA's options in 2009 and
Early 2010. We estimate TIF 1 -22's available cash balance through 2012 as follows:
1. 2010 year -end fund balance of $2.425 million, plus:
2. 2011 and 2012 increment of $720,000 ($360,000 annually), minus:
3. $205,000 to pay TIF 1 -22's note obligations in 2011 and 2012, equals:
4. $2.940 million of "Jobs Bill' spending capacity.
In more detail, 2011 and 2012 are expected to play out as such:
Year -end 2010 Balance: TIF 1 -22
less 2/1/2011 Pay -Go Note Payments
plus 2011 TIF Revenue
less 2011 Pay -Go Note Pmts (8/1/11 & 2/1/12)
plus 2012 TIF Revenue
less 2012 Pay -Go Note Pmts (8/1/12 & 2/1/13)
Total TIF 1 -22 Capacity through 2012*
*Does not include interest earnings or administrative costs
in 2011— 2012
2,424,501
(41,201)
360,000
(82,401)
360,000
(82,400)
2,938,499
As the attached summary details, the EDA has wide discretion in spending TIF on
private development and /or public infrastructure necessary for the project, as long as
construction begins before July 1, 2012 and the TIF is spent by December 31, 2012.
With no restrictions on project eligibility, the EDA may assist any form of
commercial, industrial, office, and /or market -rate housing development.
Monticello EDA
Update of EDA Options for TIF District 1 -22
July 1, 2011
Page 3 of 4
Finally, the process of drafting and adopting a spending plan is relatively simple, as
compared to establishing a new TIF district, and can be completed in one month or less.
Option A: Long -Term Capacity
Most all of the analysis and recommendations contained in Ehlers' 2010 report, as well
as the Northland Strategies and Kennedy & Graven reports that we reviewed in our
2010 study, are still relevant to the EDA's consideration of its long -term options for TIF
1 -22. Specifically, unless the Legislature further extends the JOBS Bill TIF provisions
next year, the four statutory filters that Kennedy & Graven discussed in its 2010 memo
will govern the EDA's use of TIF 1 -22 beyond 2012: (1) TIF pooling rules; (2) the five -
year rule; (3) redevelopment TIF requirements; and (4) the knock -down rule.
The EDA prepaid in 2010 the Series 2004 G.O. TIF Bonds that were paid from TIF 1 -22
revenues. The District's two remaining obligations are the Cub Foods and Amoco pay -
as- you -go notes that draw TIF only from those specific parcels. In Fiscal 2013 through
2024, therefore, the EDA potentially could continue to collect an estimated $360,000 of
annual increment from TIF 1 -22, distribute $82,000 in note payments, and net $278,000
of annual surplus ($3.335 million total over 12 years).
In theory, then, TIF 1 -22's total surplus capacity through 2024 is $6.275 million:
$2.940 million through 2012 and another $3.335 million through 2024. We say "in
theory" because the EDA's actual ability to use existing and future TIF after 2012 will be
decided by how much TIF is spent through 2012 and the four statutory restrictions
discussed previously. In 2013, for example, the EDA may that statutory limits make
further investment overly difficult, and that moving toward partial or full decertification is
the next logical step.
Conclusion
Although the Jobs Bill TIF provisions present unprecedented near -term investment
opportunities for the EDA, we also recommend that the EDA periodically engage in a
bigger picture discussion of when and how the EDA wants to promote development.
For example, even with the near -term opportunity provided by the spending provision,
Option A only makes sense if the EDA sees using surplus TIF as part of its mission and
strategy. Otherwise, Option B is likely a more appropriate course of action.
If the EDA does wish to proceed with a TIF 1 -22 spending plan, we recommend that the
EDA define its priorities for the use of these funds, and apply its existing process for
analyzing and negotiating TIF assistance to all TIF funding proposals — even if the
benefitting projects are not captured in a new or existing TIF district.
Monticello EDA
Update of EDA Options for TIF District 1 -22
July 1, 2011
Page 4 of 4
Once the Jobs Bill window has closed, it would be prudent to take stock of TIF 1 -22's
existing resources, projected future increment, and remaining obligations, and to revisit
the costs and benefits of Options A (future use) and B (decertification) going forward.
Please contact me at (651) 697 -8572 or bkimmel @ehlers- inc.com with any questions
about this report. Thank you.
Appendices
• "Tax Increment Balances Can Be Used for Construction Projects to Create Jobs"
The "surplus increment" section of the Jobs Bill, as extended by 2011 Legislative
Session HF 1219, reads as follows:
Sec. 14. Minnesota Statutes 2010, section 469.176, subdivision 4m, is amended to read:
Subd. 4m. Temporary authority to stimulate construction. (a) Notwithstanding
the restrictions in any other subdivision of this section or any other law to the contrary,
except the requirement to pay bonds to which the increments are pledged and the
provisions of subdivisions 4g and 4h, the authority may spend tax increments for one or
more of the following purposes:
(1) to provide improvements, loans, interest rate subsidies, or assistance in any
form to private development consisting of the construction or substantial rehabilitation
of buildings and ancillary facilities, if doing so will create or retain jobs in this state,
including construction jobs, and that the construction commences before July 1, 244
2012, and would not have commenced before that date without the assistance; or
(2) to make an equity or similar investment in a corporation, partnership, or limited
liability company that the authority determines is necessary to make construction of a
development that meets the requirements of clause (1) financially feasible.
(b) The authority may undertake actions under the authority of this subdivision only
after approval by the municipality of a written spending plan that specifically authorizes
the authority to take the actions. The municipality shall approve the spending plan only
after a public hearing after published notice in a newspaper of general circulation in
the municipality at least once, not less than ten days nor more than 30 days prior to the
date of the hearing.
(c) The authority to spend tax increments under this subdivision expires December
31, 44 2012.