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Home My WebLink About1989-07-07 NAC Memorandum Re TIF Surplus Funds northwest associated consultants, inc. MEMORANDUM TO: Frank Sommerfeldt, Mayor LaVonne Wilson, City Clerk Bob Voto, City CPA Mark Vierling, City Attorney Mary Ippel, Bond Counsel FROM: Dan Wilson, TIF Consultant DA'T'E: 7 July 1989 RE: St. Croix Mall TIF Surplus Funds FILE NO: 798.02 - 89.09 The Council recently committed up to $640,000 (present value) on a pay as you go TIF project to the St. Croix Mall project. The project. has the ability to generate substantially more TIF proceeds than what has- been committed. Hence, we have the pleasant problem of deciding how to use the surplus funds. The TIF Act: does imoose some restrictions. The TIF Acct requires that there is some cause /effect relationships between the project that generates 'the funds and the usc� of the funds. This is something the legislature is looking `or when they cites "abusive" practices. Budgets adopted now can be amended in the future, provided the direct relatiornshi p remains. The attached Exhibit A demonstrates the potential magnitude of future surpluses. Please keep in mind that the special legislative session in September called by the Governor may institute changes that dramatically change these numbers. Increases in property values will increase these numbers. SURPLUS AMOUNT Column (6) on Exhibit A identifies approximately $884,000 cumulatively over a 10 year period of time as being available for project costs. I would recommend that a City administrative .fee be retained by the City to administer this project over the 10 years. 4601 excelsior blvd., ste. 410, minneapolis, mn 55416 (612) 925 -9420 fax 925 -2721 The Developer has stated that they need $640,000 in present value. The stream of payments as shown here although totally $884,000 has a present value of less than $500,000, depending upn what interest rate is used. The Public Corp people question my starting the increase in frozen base immediately. They say some counties will wait until the building is complete before increasing the base. I called the Washington County Auditor's office and spoke with "Karen" in the absence of the Auditor. She said they start the ecnomic adjustment factor the year following certification. This is consistent with my exhibit. Even though there is a potemntial shortfall to the Developer, there is a potential surplus in the form of the annual fiscal disparity contribution. TIF PLAN OPTIONS Preparation of the TIF Plan requires us to make certain findings that directly effect how much money the city will receive and what they can do with its basic findings and options are as follows: 1. Original Valuation $3,410,300 2. Increased Valuation $5,007,000 3. Captured Valuation 0 -100% A City need not capture all of the increment generated, particularly if there is a surplus. Some communities think it is better to share with the other taxing jurisdictions in the new growth of tax dollars as they are generated. Others think it is better to pay the public cost as soon as possible and then dissolve the district. Others will capture all of the increment to begin with and then decide to share the surpluses when and if the surpluses actually materialize. 4. Duration of District 1 -10 years The statutory maximum is for a 10 year district. A district with a reduced duration is possible where surpluses exist. Objection from other taxing jurisdictions usually develop over surplus funds. 5. Fiscal Disparities State law requires commercial projects to contribute approximately 40% of their total tax bill to the fiscal disparities pool for redistribution. The pool will receive 40% of this project's tax value. The question is how will it be paid? The 40% can be paid directly by the project or its obligation can be spread over the remaining tax paying property outside the TIF District. The fiscal disparity contribution is approximately $101,376 annually. ECONOMIC IMPACT ON OTHER TAXING JURISDICTIONS Thirty days prior to the public hearing, we must notify the other taxing jurisdictions of the economic impact the project will have on their respective jurisdiction. In order to meet the July 7, 1989 deadline, I prepared the notice assuming the City will capture the entire amount available for the maximum term. A copy of that calculation is also attached. This statement does not lock the City into any specific decision or action. It merely provides the City with the maximum flexibility should the Council decide to capture all of the increment including the fiscal disparity portion. Adoption of the plan now being proposed does define or limit future options. I am seeking your input now so that the plan can hopefully be adopted as prepared. The developer is anxious to get started so I prefer to deal with the options available to the City at this time. RECOMMENDATION I have requested the City Engineer and City Planner to come up with a "wish list" for public improvements in the vicinity of the Mall. Perhaps they or you will identify some additional projects so as to utilize the potential surplus funds. I would suggest that a 10 year project duration with a 1000 capture of the tax increment. This will give the city ample protection from future legislative changes. I would recommend that you consider paying the fiscal disparities portion directly from the project, rather than to redistribute it to other tax parcels. This is an irreversible decision once made, so it is very important. If someone identifies a necessary public improvement project that could be carried out with these funds, I would reconsider this recommendation. Please call with your ideas or questions. TAX INCREMENT CASH FLOW ANALYSIS ST. CROIX MALL TIF OAK PARK HEIGHTS (4) Tax Capacity Value Tax on (5) (6) (1) (2) (3) Increase Fiscal Tax Avail. Year Base Complete Increase @.92031 Disparity For Asst 0 1988 -89 185,316 1 1989 -90 188,853 2 1990 -91 192,460 3 1991 -92 196,136 439,958 243,822 224,391 101,376 123,015 4 1992 -93 199,822 439,958 240,136 220,999 101,376 119,623 5 1993 -94 203,700 439,958 236,258 217,431 101,376 116,055 6 1994 -95 207,591 439,958 232,367 213,550 101,376 112,474 • 7 1995 -96 211,556 439,958 228,402 210,200 101,376 108,824 8 1996 -97 215,596 439,958 224,362 206,483 101,376 105,107 9 1997 -98 219,714 439,958 220,244 202,693 101,376 101,317 10 1998 -99 223,911 439,958 216,047 198,830 101,376 97,454 883,878 (1) 3,410,300 Base per Assessor 100,000 @ 3.3 3,300 3,310,000 @ 5.5 182,066 185,366 Tax Capacity of Base Ln6rease Annually by 1.0191 as annual economic (2) 3,410,300 Base Market Value adjustment factor 5,007,000 Increase Market Value 8,417,300 Total Market Value 100,000 x 3.3% 3,300 • 8,317,300 x 5.5% 436,658 439,958 Tax Capacity (3) (2) - (1) = (3) (4) (3) x .92031 = (4) (5) 5,007,000 Increase Market Value .055 275,385 Tax Capacity .92031 Tax Capacity Rate 253,439 Tax .4 Fiscal Disparity Rate 101,376 Fiscal Disparity Tax (6) (4) - (5) = (6) EXHIBIT IMPACT ON TAXING JURISDICTION TIF DISTRICT ST. CROIX MALL OAK PARK HEIGHTS 1988 -1989 TIF District* Increased Percent of Total Total Tax Base Tax Tax Tax Capacity Capacity Capacity Capacity Increase Value Available Jurisdiction Valuation Valuation % of Total Valuation % of Total For Normal Growth City of Oak Park Heights 6,823,398 185,366 2.716 253,439 3.581 96.41 School District #834 39,553,310 185,366 .493 253,439 .670 99.33 Washington County 113,976,709 185,366 .162 253,439 .222 99.77 School District #916 322,328,649 185,366 .057 253,439 .078 99.92 TAX CAPACITY RATE IMPACT 233,242 ANNUAL TAX INCREMENT ** Distribution 1988 -1989 Tax Increment Tax % of Total To Individual Tax Capacity Rate • Jurisdiction Capacity Rate Tax Capacity Jurisdiction Impact of TIF City of Oak Park Heights 13.781 14.97 ;34;9 I6 .512 School District #834 49.666 53.96 125,857 .335 Washington County 23.030 25.02 58,357 .051 School District #916 1.605 1.74 4,058 .001 Other 3.949 4.29 10,006 92.031 100.00 233,242 *Base increases annually at rate of 1.91 4 * * Assumes development would have occurred without assistance being sought.