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EDA Agenda 01-16-2008 (III) (Special Meeting)TIF Basics and Abatement 1 Presentation to City of Monticello EDA January 16, 2008 Ehlers & Associates Why Use TIF or Abatement? Encourage certain types of development or redevelopment that would not normally occur without assistance. Create jobs Redevelop blighted areas Remediate polluted sites Construct affordable housing E,HLERS t What is TIF? The ability to capture and use all increased local property tax revenues from new development within a defined geographic area. EHLERS Sample Residential Taxes Breakdown of Residential Taxes City of Monticello Outer County 3% Cry 31% 43% Sctnol 23% IEHLERS t Sample TIF Breakdown Taxes Before and After TIF: Where Do They Go? Q �« 2,000 1.500. ,d. ,. f ■ TIF O O her 1,000 O Scha «. 500 " ■City 0 ■ CaunI $50.000 House $200,000 House as Nor to TIF Redevelopment Project Area — Where money can be spent Project Area EHLErRS r TIF districts must be located in a Project Area or a Development District Established by various statutory authorities (HRA, EDA, City Powers) Sets boundary for TIF expenditures 01 EHLERS T TIF District — Where increment is collected Project Area Tf�: gistrict ■ Defines parcels for capture of value Some increment can be spent outs;de the TIF District, but in the Project Area ("Pooling") Project Area can contain multiple TIF Districts FREERS t Building Blocks of TIF & Abatement Value in Also called Tax revenues District when "base value" go to all local created governments FREERS t Building Blocks of TIF & Abatement TIF District "captures" Abatement can "capture" value from new part or the entire value development from the parcel Assistance = Development I 1 Captured Tax occurs Capacity X I Tax Rate FREERS tl Types of TIF Districts Different rules for each type Redevelopment—condition now Economic Dev. and Housing — future conditions Uses and duration of tax increment differ by district Old districts are grandfathered in with the old rules EHLE•RS t �1 Redevelopment 1. WON Improved parcels and structurally substandard buildings Improved area equals 15% area of parcel More than 50% of buildings must be substandard 90% of TIF used to correct redevelopment issues 26 year maximum duration EHLERS r Economic Development Specific forms of development Manufacturing Warehousing Research and Development Telemarketing Tourism Conditions , Bedrock Conditions lj I EHLERS r Economic Development 8 years after receipt of first increment Fiscal disparities must come from within district (metro or taconite area) Small city exception for commercial (5/10/10/15 Rule) At least 85% square feet of a building must be a "good use" or be space necessary and related to the "good use" FREERS t Other Types of TIF Districts Renewal and Renovation Housing Soils Condition IEHLERS t Findings Required in the Resolution Type of District and Supporting Facts Conforms to General Plan of City Consistent with Project Plan "But For" Test General test Market Value test ;` I FREERS t But For Tests Should have evidence that project meets tests Developer Proforma Comparable costs of land Risk Future development potential for site � I FREERS t Restrictions & Rules General government use is prohibited Recreational use is prohibited Public improvement upgrades Geographic restrictions and pooling FREERS t Tax Abatement: Another Economic Development, Housing & Redevelopment Tool EHLERS 1 ..t What is Abatement?` The ability to capture and use all or a portion of the local property tax revenues within a defined geographic area. It is a tax rebate rather than an exemption from paying taxes. IEHLERS t Abatement: The Tool of the Future • Background of Abatement in MN �i Original Law passed in 1997 J Subsequent modifications made abatement more useful Favored tool of Legislators — no state participation Minnesota Statutes, Section 469.1812 to 469.1815 How Abatement Works What an Abatement Is: Property Tax Rebate rather than an exemption from paying property taxes. Method to finance up -front costs and provide additional "equity" to a development or to finance a public improvement Can use for any commercial or housing development Business subsidy EHLERS t How Abatement Works Political subdivision may limit abatement in most any manner the subdivision determines appropriate: Specific dollar amount Increase in taxes resulting from improvement It can be used for retail business by abating existing taxes. Property owners do not need to give permission to abate taxes — ie. for a public improvement, such as a park or stop light, it will not change their amount of taxes. FREERS t Who May Grant Abatements Cities, Counties, Schools, Towns Approval by governing boards only Abatements are treated like special levies and are outside of levy limits Cannot abate new state property tax FREERS t Restrictions In any year, the total amount a political subdivision may abate may not exceed the reater of: Ten percent of the current levy $200,000 May not abate taxes on a parcel which is located in a TIF district Can abate taxes after a parcel is removed from a TIF district FREERS t Approval Process,�` ' tom; • Hold Public Hearing Published notice at least 10 days prior to hearing which identifies property • Pass Resolution Term 15 year max if all three jurisdictions agree • 20 year max if one or two entities agree Statement of public benefit KMPE R r Requisite Findings (1) Benefits will at least equal costs (2) Abatement is in public interest because: Increase or preserve the tax base; length from 9 to 26 Provide employment opportunities years Help construct public facilities TIF does not require Help redevelop blighted areas approval from County Help provide access to services; OR Help finance public infrastructure � T f , /,•y._ CF' TIF vs. Abatement TIF Districts vary in Abatement is a length from 9 to 26 maximum of 15 to 20 years years TIF does not require Abatement requires approval from County approval from each and School taxing entity TIF can only be Current taxes can be captured on new abated projects Aft FREERS r TIF vs. Abatement TIF is governed by complex statutes which limit its uses TIF reports are filed with the OSA annually No maximum on the annual amount of tax increment generated Abatement has fewer rules and limits on uses Abatement has no reporting requirements Maximum abated is the greater of $200,000 annually or 10% of the levy EHLERS t TIF & Abatement Policies Important to limit the use to projects with most benefit Could require certain job growth, market value growth, participation of other jurisdictions or state, type of business, or term. Can specifically exclude bonds or limit to a certain value. EHLERS t Basics of a Development Agreement Parties are identified Events of and Remedies on default are identified Developer Obligations are identified EHLERS t Significance of a Development Agreement ' Contract between the Authority and Developer Agreement lays out terms of providing assistance and type of financing involved Contains business subsidy language Any grant of $25,000+ or loan of $75,000+ must include an agreement to meet certain wage levels and stay in business for at least 5 years (M.S. Sections 116J.993 to 116J.995). YEeHLERS t Significance of a Development Agreement Separate set of compliance issues Business Subsidy Reporting and other Statutory requirements not necessarily in the TIF Act The budgets of the plan should match costs in agreement, if not, it may require a modification One district may have several agreements Not required by Statute VEoHLERS t Financing Bonds Provides money for up -front costs G.O. Bonds if 20%+ revenue from tax increment Pay -As -You -Go Developer finances costs and receives annual rebate No risk to the community Intetfund Loan City up -fronts costs from own resources Need resolution establishing loan IYEHLERS t In Closing... Complex matter Ask questions Get good guidance TIF Administration can be a hassle State Auditor is active in reviews of TIF Is it necessary? Allow enough time Understand risks and obligations Monitor the Legislature Questions? Todd Hagen 651-697-8508 thagen ,ehlers-inc.com Mark Ruff 651-697-8505 mark ehlers-inc.com EHLERS t EHLERS t