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HomeMy WebLinkAbout1990-08-01 NAC Ltr to OPH Re Surplus TIF Revenues FN Northwe st Associated Consultants, Inc. A C U R B A N P L A N N I N G • D E S I G N • M A R K E T R E S E A R C H ' f FILE C MEMORANDUM TO: LaVonne Wilson FROM: Dan Wilson DATE: 1 August 1990 RE: Oak Park Heights - Surplus St. Croix TIF Revenues FILE NO: 798.02 - 89.09 I have reviewed Bob Voto's letter of 7/27/90 in which he estimates a $490,172 surplus over the next eight years. The 1990 Legislature amended the TIF Statutes in an effort to limit what communities can do with surplus TIF funds. The St. Croix project is exempt from the legislative changes because of its certification date. At this time the City can still utilize the funds as previously discussed when the project was originally approved. I initially thought that the changes applied to the St. Croix project, but they do not. The point remains the same. The Legislature is seeking to limit a City's use of surplus TIF dollars. I expect this trend to continue. I would suggest that the City consider obligating these surplus funds to a bond issue for what is now an eligible project. In this way the funds are obligated in the case there are further restrictions. Attached is an excerpt from a Briggs and Morgan letter explaining the TIF law changes regarding pooling of surplus funds. cc: Bob Voto 4601 Excelsior Blvd. • Suite 410 • Minneapolis, MN 55416.(612) 925 -9420 • Fax 925 -2721 BRIGGS ­?n MORGAN I Restrictions On "Pooling" of Tax Increments These new rules are basically that at least 75% of the tax ' increment from new TIF districts must be spent on "activities" within the TIF district; that such eligible expenditures may be in the form of direct payment, payment on certain bonds, or payment ' on development agreements or similar contracts; that the activity must have been completed and paid for or that the agreements entered into or the bonds issued prior to five years after the ' certification of the district; that beginning with the sixth year after certification at least 75% of the increment that is left over after paying such eligible expenses must be used to pay or to reserve for payment and defeasance of any such outstanding bonds or contractual obligations; and, finally, when all of such bonds or contractual obligations have been paid (or sufficient money has been set aside to discharge or deaf ease the same) , the TIF district must be decertified. By the same token, up to 25% of the increment may still be ' "pooled" in the sense that it may be used for other eligible purposes outside the TIF district, within a larger project area, or as may otherwise be permitted by the TIF Act. ' For purposes of the 75% rule, increment is deemed expended on an activity within the TIF district only if at least one of the following has occurred: ' 1. Prior to five years after certification the increment is paid to a "third party" with ' respect to the activity; 2. Bonds (to finance the activity) are sold to a ' "third party" within such five year period and the increment revenue is used to repay the bonds; 3. Binding contracts with a "third party" are entered into for the performance of the activity within the five years after certification and the revenue is for payment of such contractual obligations; or ' 4. Costs with respect to the activity are paid within that five year period and the revenues are spent to reimburse a party for payment of the costs. For these purposes, "bonds" can include refunding bonds if the original bonds were spent on activities within five years from certification or if the original bonds were issued within five years and their proceeds expended on activities within a reasonable "temporary period" under a provision of the Internal Revenue Code _.. relating to tax - exempt bonds. For these purposes, "activities" means the acquisition or clearance of land, site preparation, soil correction, hazardous waste or other pollution removal, utility installations, public or private improvements, and other "similar" activities, but only to the extent that the tax increment can be spent for such purposes under applicable law. Activities do not include administrative expenses but do include engineering, architectural, and similar costs relating to the improvements. For these purposes, the term "third party" means an entity other than the person receiving the benefit of the assistance being financed with the increment revenue and other than the municipality, the applicable development authority, or other "person" substantially under the control of the municipality. These rules apply to new districts. See Section 21.