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HomeMy WebLinkAbout1991-04-30 VTR Ltr to OPH Re Revised TIF Projections VOTO, TAUTGES, REOATH & CO., LTD. / CERTIFIED PUBLIC ACCOUNT ANTS \ / Birch Lake Professional Building • 1310 E. Hwy. 96 • White Bear Lake, MN 55110 • Fax (612) 426 -5004 • Phone (612) 426 -3263 April 30, 1991 ROBERT 1. VOTO. CPA ROBERT G. TAUTGES, CPA JAMES S. REDPATH, CPA D. KENNETH GEORGE, CPA DAVID 1• MOL, CPA To the Honorable Mayor and Members of the City Council RECEIVED MAY 21991 City of Oak Park Heights 14168 N 57th St Stillwater, MN 55082 RE: ST. CROIX MALL - REVISED TIF PROJECTIONS Attached herewith are the following schedules projecting the TIF calculations and Developer assistance for the St. Croix Mall - TIF Agreement based upon current (1991) data: Exhibit A - Computations of total tax allocations (county basis) including City TIF monies based upon an $8,410,300 final project value. Exhibit B - Computations of developer assistance based upon an $8,410,300 final project value. When the City Counci /HRA approved this TIF Agreement, it was anticipated that payments to the Developer would total $960,000 over eight years (i.e. approximately $120,000 per year). However, this level of assistance will not be reached due primarily to a change in the "economic adjustment factor" to be used for this project and TIF tax revenues which will be "lost" to this project. ECONOMIC ADSUSTMENT FACTOR, The economic adjustment factor is computed by the County and is used to adjust the base property values before computing annual incremental (11F) values. For example, if the base value starts at $3,000,000 and the economic adjustment factor is 2 %, the base value will be increased by 2% per year. This base value (adjusted upwards annually) cannot be used for TIF purposes. It remains as part of the City's (plus County and School District) regular tax base. In effect, this adjustment allows the regular tax base to increase annually over the life of the TIF District (based upon inflationary increases prior to the creation of the TIF District). MEMBERS OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS • PRIVATE COMPANIES PRACTICE SECTION MINNESOTA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS GOVERNMENT FINANCE OFFICERS ASSOCIATION • MINNESOTA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS • To the Honorable Ma Y o *d Members of the City Council City of Oak Park Heights April 30, 1991 Page 2 When the initial TIF projections were prepared, we used an economic adjustment factor of 1.911% per year. This factor was based upon data estimated by the developer and the County. The actual economic adjustment factor for this project is 5.7858% or more than three times the estimated amount. This change has the effect of increasing future base values for this project and decreasing future TIF values for this project. The effect of this change is reflected in the following schedule: Original Revised Estimates Estimates Year Base TIF Base TIF 1991 71.0% 29.1% 76.9% 23.1% 1992 45.3% 54.7% 48.0% 52.0% 1993 45.3% 54.7% 49.8% 50.2% 1994 45.3% 54.7% 51.6% 48.4% 1995 45.3% 54.7% 53.5% 46.5% 1996 45.3% 54.7% 55.5% 44.5% 1997 45.3% 54.7% 57.6% 42.4% 1998 45.3% 54.7% 59.7% 40.3% The above, original estimates reflected a consistent split of 45.3 %/54.7 % between base and TIF because we used an economic adjustment factor of 1.91 % which closely approximated our annual inflationary factor of 2.0 %. The revised estimates are based upon the actual economic adjustment factor of 5.7858% and the original inflationary factor of 2.0 %. This results in an increasing base value and decreasing TIF value after the second year. "LOST" TIF REVENUE The original projections were based upon State Statutes and Regulations in effect at that time. Recent State changes have reduced the Ievel of TIF revenue available to the City for TIF purposes. 1. Tax capacity ratios for industrial/commercial property have been decreased from 3.30%/5.25% to 3.20%/4.95%. This change reduces the level of TIF revenue generated (from an equal fair market value of this property) by approximately 5.75 % per year. 2. The tax capacity ratio (including all jurisdictions) was 92.031 % for 1988/89. This has increased to 106.784 % for 1990 /91. This increase is partially the result of increased tax levies (i.e. school district referendum) and partially the result of decreased tax capacity ratios (see item #1 above). However, TIF taxes resulting from increased tax ratios will be "lost" to the TIF District. To the Honorable Ma y o *d • Members of the City Council City of Oak Park Heights April 30, 1991 Page 3 The combined effect of the above two factors will result in "lost" TIF revenue totalling $219,867 over the term of this project (i.e. 1991 through 1998). These "lost" TIF taxes will be assessed against the properties and collected by the County. However, they will not be remitted to the City as TIF revenue; rather, they will be remitted to the primary taxing jurisdictions (City, County and School District) based upon relative increases in tax capacity rates of such jurisdiction. As a practical matter, most of this "lost" TIF revenue will be remitted to the local school district. Any amount received by the City will be used to reduce future general- purpose (levy limitation) tax levies of the City. PROTECTED /ESTIMATED DEVELOPER ASSISTANCE, The annual and total estimated amount of developer assistance is shown in Exhibit B at the $8,410,300 completed project value. A comparison of the original estimates (at the $8,417,300 completed project level) and revised estimates is as follows: Developer Assistance Original Revised % Year Estimates Estimates Decrease Chan 1991 $ 46,034 $ 30,908 $(15,126) (32.9 %) 1992 138,414 118,928 (19,486) (14.1%) 1993 141,196 117,154 (24,042) (17.0 %) 1994 144,032 115,094 (28,938) (20.1%) 1995 146,924 112,732 (34,192) (23.2 %) 1996 149,876 110,056 (39, 820) (26.6%) 1997 152, 884 107, 050 (45, 834) (30.0%) 1998 40,640 103,701 63,061 155.0% $960,000 $815,623 ($144,377) (15.0)% The decreased developer assistance is primarily the result of the increased economic adjustment factor as stated previously. As clearly shown above, the revised estimates are 15 % below the original estimates. The above schedule reflects the effects of the higher economic adjustment factor. Each year a greater portion of this tax base is retained as part of the regular (i.e. Non -TIF) tax base. Alternatively, the TIF portion of this tax base will decrease, unless the overall value is increased at or above the economic adjustment factor level. i i T the Honorable Ma and • O p May And of the City Council City of Oak Park Heights April 30, 1991 Page 4 CITY TIF REVENUES The original TIF plan and projections were based upon developer assistance equal to 60% of the incremental tax base. The remaining 40% is applied towards the City's fiscal disparity contribution amount - -in theory. In actual practice, the City's fiscal disparity factor was 15.6% for 1990/91 applied against all (100%) commercial/industrial property values. This 15.6% against all commercial/industrial value equates (equals) 40% against post 1971 increased commercial/industrial property values. This variance (methodology between theory and practice) creates a situation whereby the developer receives his full 60% assistance and the City receives additional amounts (i.e. 40% fiscal disparity in theory vs. 15.6% fiscal disparity in actual practice) of TIF revenues. Under normal circumstances, all commercial/industrial property will contribute to the fiscal disparity pool. However, under current TIF State Statutes, the City has the option of excluding TIF property from fiscal disparities. If this option is elected, the excluded amount will be applied to other City property values. The City of Oak Park Heights did make this election for this TIF project. Accordingly, actual TIF revenues should be split 60% to the developer and 40% to the City for other TIF purposes. Revised estimates of City TIF revenue are shown in Exhibit B attached to this report. . CITY TIF CON UTMENTS In conjunction with the developer project, the City partially committed its TIF revenue to finance a street re- alignment project at 58th Street and Osgood Avenue. The primary purpose of this project was to improve traffic flows and patterns. A summary of construction costs at December 31, 1990 plus estimated final costs is as follows: Construction Estimated Costs @ Completed Description 12/31/90 Project Contractor $ 97 $110 Engineering 21,488 24,200 Other 6,372 7,200 Total Actual/Est. $125,676 $141,400 Projected Interest 24,000 Projected Total $165,400 • To the Honorab le Ma y or9d Members of the City Council City of Oak Park Heights April 30, 1991 Page 5 The City's financing plan for this project calls for 100% City TIT financing. However, most of the above costs were incurred prior to 1991 and all of these costs will be incurred by the end of 1991. The first City TIF revenue will not be received until June and December of 1991 ($8,772 each). Additionally, sufficient City TIF revenues will not be actually received until December, 1993 to fully finance this project. We recommend that the City formalize a loan (between its TIF Fund and the Closed Bond Fund) to provide interim financing for this project. The interfund loan can be dated January 1, 1991 in the amount of $140,000; carry interest at 8% per annual; and, payable on or before December 31, 1993. The City can make partial repayments of this loan as City TIF monies are actually received. The above 58th Street and Osgood Avenue project will substantially commit City TIF revenue through 1993. Thereafter, the City can expect to have the following amounts available to finance other City TIF projects: Year Amount Accumulative 1994 $78,228 $78,228 1995 76,777 155,005 1996 75,119 230,124 1997 73,231 303,355 1998 71,090 374,445 As shown above, future City TIF revenue will not be available until 1994. Additionally, these amounts are limited -- averaging only approximately $75,000 per year for five years. DEVELOPER TIF The City's final committment to the Developer of this project generally called for the Developer to receive 60% of the additional or incremental taxes generated by this project with a maximum amount of $960,000 to be paid over the term of this TIF District. Tax Increment Financing has been the subject of various State Statutes over the past several years, most of which has limited TIF revenue and/or uses of TIF revenue (especially additional or excess TIF revenue). Accordingly, a formula was devised to guard against future State Statute changes and to insure substantial compliance with the interest of the City Council. The attached Exhibit B computes the 1991 (and future years) amounts to be paid to the Developer and retained by the City over the term of this TIF District. As shown in Exhibit B, total TIF Tax Revenue - Net is projected to be $1,371,561 over the years 1991 through 1998. The Developer's portion is projected to be $815,623 or 59.5% and the City's T the n of Honorable Ma ind • To 0o y Members of the City Council City of Oak Park Heights April 30, 1991 Page 6 portion is projected to be $555,623 or 40.5% of the total. This percentage split (between Developer and City) deviates slightly from the 60%/40% original goal because of changes in State Statute and County Assessor's methodology since 1989. However, it is substantially in accordance with the final City committment to the Developer. The City's Agreement with the Developer calls for the City to remit Developer TIF revenues within 30 days of the actual receipt of such monies. The City will be receiving these monies (both Developer TIF and City TIF) as part of its normal tax settlement each June and December. However, the City usually does not receive the detailed allocations (of its overall tax settlement) until sometime after the monies are received. Accordingly, it may not be possible for the City to remit these monies within 30 days of receipt. We recommend that the City remit such monies as soon as possible after receipt of all required information. The attached Exhibit B computes the Developer's TIF at 60% of the computed total and presents actual net TIF tax based upon Washington County methodology. The percent amounts shown in the last two columns can be used by the City to allocate actual TIF tax receipts to the Developer. For example, (assuming prompt payment of the 1991 property taxes) the City should receive its' first TIF tax settlement equal to one -half of the 1991 total amount (i.e. 1/2 of $52,322 or $26,161) in June or July, 1991. When this occurs, the City should remit $15,454 (or 59.1 % of the actual amount received) to the Developer. A similar amount will be payable after receipt of the December, 1991 tax settlement. As an option, the City may wish to remit an even 60 % of actual TIF receipts in 1991. This option would be fully consistent with the interest of the City Council when final approval for the level of developer assistance was determined. We will be available to discuss this report and other matters with the City Council at a later date. Respectfully submitted, VOTO, TAUTGES, REDPATH & CO., LTD. Robert J. Voto, CPA cc: Mark Veirling Dan Wilson Attachments CITY OF OAK PARK HEIGHTS MALL91 BAS T.1. F. PROJECTIONS -ST. CROIX MALL EXHIBIT A R.E. TAX ALLOCATION -WASH. CTY. BASIS TAX CITY/ CITY / TAX COLL. FAIR MARKET VALUE TAX CAPACITY VALUE TAX TOTAL CTY. DEVEL LOST FISCAL COLL YEAR BASE INCR. TOTAL -BASE INCR. TOTAL RATE TAX SCH. T. I. F. T.1. F. DISP. TOTAL YEAR 1989 3,410,300 0 3,410,300 177,092 177,092 0.92031 164,136 ACTUAL 148,824 0 0 15,312 164,136 1989 1990 3,607,613 - 126,713 3,480,900 180,683 -6,309 174,374 0.90383 160,304 ACTUAL 140,408 0 0 19,896 160,304 1990 1991 3,816,342 1,144,358 4,960,700 186,952 56,853 243,805 1.06784 259,655 ACTUAL 159,031 52,322 8,388 39,914 259,655 1991 1992 4,037,148 4,373,152 8,410,300 197,769 216,791 414,560 1.06784 442,684 PROJECT 144,783 199,515 31,983 66,403 442,684 1992 1993 4,270,729 4,307,777 8,578,506 209,212 213,674 422,886 1.06784 451,575 PROJECT 155,669 196,646 31,523 67,736 451,574 1993 1994 4,517,825 4,232,251 8,750,076 221,317 210,062 431,379 1.06784 460,644 PROJECT 167,234 193,322 30,990 69,097 460,643 1994 1995 4,779,217 4,145,861 8,925,078 234,122 205,919 440,041 1.06784 469,893 PROJECT 179,521 189,509 30,379 70,484 469,893 1995 1996 5,055,733 4,047,847 9,103,580 247,668 201,209 448,877 1.06784 479,329 PROJECT 192,571 185,175 29,684 71,899 479,329 1996 1997 5,348,248 3,937,404 9,285,652 261,998 195,892 457,890 1.06784 488,953 PROJECT 206,429 180,281 28,900 73,343 488,953 1997 1998 5,657,687 3,813,678 9,471,365 277,157 189,926 467,083 1.06784 498,770 PROJECT 221,143 174,791 28,020 74,816 498,770 1998 TOTALS -1991 -1998 ONLY 3,551,503 1,426,381 1,371,561 219,867 533,692 3,551,501 NOTES: INITIAL BASE VALUE EQUALS THE 1988189 REAL ESTATE TAX VALUE AS FOLLOWS: BLK 21 LOT 1 1,140,100 PARKG IN 1 MALL EXPANSION 61402 -2150 BLK 21 LOT 2 1,654,700 MAIN MALL 61402 -2200 BLK 21 LOT 3 438,600 MALL/ MALL EXPANSION 61402 -2250 BLK 2 / LOT 4 26,600 MALL/ MALL EXPANSION 61402 -2300 BLK 2 / LOT 5 150,300 MALL - THEATER 61402 -2350 TOTAL MKT. VALUE 3,410,300 TOTAL MARKET VALUE GROWS TO SET AMOUNT AT 1992 WITH 2 % ANNUAL INCREASES THEREAFTER_ ANNUAL ECONOMIC ADJUSTMENT FACTOR (APPLIED TO BASE) PER WASHINGTON COUNTY 0.057858 LOST T.1. F. REPRESENTS T. I. F. TAXES IN EXCESS OF 1989 TAX CAPACITY RATE OF .92031 MALL91 D.XLS CITY OF OAK PARK HEIGHTS T.1. F. PROJECTIONS -ST. CROIX MALL EXHIBIT B TAX FAIR MARKET VALUES TAX TOTAL -TAX NET DEVEL COLL ADJUST. TAX INCR. PROP. INCR. LOST INCR. T I F T I F TAX -CTY. BASIS -NET PERC. PERC. YEAR TOTAL BASE INCRE. FACTOR TAX TAX T I F TAX 0 60 % DEVEL CITY TOTAL DEVEL. CITY 1989 3,410,300 3,410,300 0 0.0000 1990 3,480,900 3,607,613 - 126,713 -0.0364 1991 4,960,700 3,816,342 1,144,358 0.2307 259,655 59,902 8,388 51,514 30,908 30,908 21,414 52,322 59.1% 40.9% 1992 8,410,300 4,037,148 4,373,152 0.5200 442,684 230,196 31,983 198,213 118,928 118,928 80,587 199,515 59.6% 40.4% 1993 8,578,506 4,270,729 4,307,777 0.5022 451,574 226,780 31,523 195,257 117,154 117,154 79,492 196,646 59.6% 40.4! 1994 8,750,076 4,511,825 4,232,251 0.4837 460,643 222,813 30,990 191,823 115,094 115,094 78,228 193,322 59.5% 40.5% 1995 8,925,078 4,779,217 4,145,861 0.4645 469,893 218,265 30,379 187,886 112,732 112,732 76,777 189,509 59.5% 40.5% 1996 9,103,580 5,055,733 4,047,847 0.4446 479,329 213,110 29,684 183,426 110,056. 110,056 75,119 185,175 59.4% 40.6% 1997 9,285,652 5,348,248 3,937,404 0.4240 488,953 207,316 28,900 178,416 107,050 107,050 73,231 180,281 59.4% 40.6% 1998 9,471,365 5,657,687 3,813,678 0.4027 498,770 200,855 28,020 172,835 103,701 103,701 71,090 174,791 59.3% 40.7% 3,551,501 1,579,237 219,867 1,359,370 815,623 815,623 555,933 1,371,561 59.5 40.5% NOTE: THE ANNUAL ECONOMIC INDE< FACTOR HAS BEEN CHANGED FROM 1.91 % TO 5.7858 % IN ACCORDANCE WITH THE RNAL CERTIFICATION RECEIVED FROM THE WASHINGTON COUNTY ASSESSOR'S OFFICE NOVEMBER 27,1989.