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INFORMATION #1 11-05-2012 Elk REQUEST FOR ACTION River To ITEM NUMBER Housing Redevelopment Authority INFORMATION Economic Development Authority AGENDA SECTION MEETING DATE PREPARED BY November 5, 2012 Annie Deckert, Director of Economic November 13, 2012 Development ITEM DESCRIPTION REVIEWED By Finance & Commerce Articles re: Special TIF Legislation,TIF Cal Portner, City Administrator 16- Elk River Pizza Ranch REVIEWED BY ACTION REQUESTED None. BACKGROUND/DISCUSSION In May of 2011, the HRA and City Council approved a loan in the amount of$90,000 to Elk River Pizza Ranch at 2%interest for 10 years with a 5-year balloon per special TIF legislation enacted in 2010 which allowed communities to utilize TIF to stimulate job creation. The funding was used to cover the$72,000 SAC/WAC fees and to purchase adjacent land necessary for parking. The attached series of articles were published in Finance &Commerce,a daily print and online newspaper focused exclusively on business in Minnesota, covering real estate, construction,banking and finance. The Elk River Pizza Ranch Project is one of the projects highlighted in the series. Per the loan documents,The Pizza Ranch was required to create four full time jobs ($25,000-$70,000 salary),in addition to approximately 70 part-time jobs at wages $7-$11 an hour. These job goals have been achieved. Our Pizza Ranch case study doesn't appear to fit the nature of the article as there was a positive impact on property taxes as the building is now suited for higher level development than before the loan, the loan is anticipated to be paid back at a competitive interest rate and the job goals were achieved. FINANCIAL IMPACT None. ATTACHMENTS • "The Great Property Tax Free-for-all", Finance&Commerce, October 24,2012 Action Motion by Second by Vote Follow Up 10/25/12 Finance&Commerce>Print>F&C special investigation Finance & Commerce http://finance-commerce.com F&C special investigation by Chris Newmarker Published: October 24th, 2012 $35.9 million in excess ihe to x rea increment financing money I helped fund $510.6 � r million- worth of construction ,, projects. 3 The idea 4,4 , .', ' — F Free - for— all was to kick- start f , construction .41,,, hiring and projects, but most recipients failed to count, complete or verify that jobs were created. Read the full Finance &Commerce special investigation below. ARTICLES IN THIS INVESTIGATION: The great property tax free-for-all Counting construction jobs proves difficult How the TIF program worked, and how we reported it With loans to developers, all was usually forgiven Local officials have mixed views about lobs program CHART: Tracking construction and permanent lobs CHART: Following the money Complete URL: http://finance-commerce.com/2012/10/fc-special-investigation/ finance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52393 1/1 Finance & Commerce http://finance-commerce.com The great property tax free-for-all by Chris Newmarker Published: October 24th, 2012 When it came to taxpayer-funded breaks, Minneapolis- based discount retailer Target Corp. got a two-for-one special in the Twin Cities last year. :- Brooklyn Park officials gave Target $2.5 million for its northern office campus expansion just months after Inver Grove Heights gave $1.25 million for a Target If store delayed by concerns about consumer demand. The money came out of 2010 state legislation Y 9� permitting local governments to direct excess property tax dollars from tax increment financing districts to private developments. The idea was to kick-start hiring in a Minnesota construction industry that lost 50,000 jobs in the Great Recession. 58%of projects I i not From Target's plans at opposite ends of the Twin Cities track co6 construction to a Pizza Ranch in Elk River and a rehab of an aircraft maintenance facility in Duluth, 35 cities and other public entities across the state funneled $35.9 million to 76 building projects before the July 1 deadline for construction starts, according to a Finance & Commerce investigation. I That"temporary authority to stimulate construction," some claim, helped to leverage $510.6 million-worth of construction projects. As for construction jobs, numbers were unavailable for 44 out of 76 projects.Some cities did not keep track of the jobs at all, while others had incomplete or unverified counts, Finance & Commerce found. Why? The state legislation did not require them to count, complete or verify. The lack of oversight is troubling even to state Sen. James Metzen, DFL-South St. Paul, who helped to author the 2010 bill. Metzen says it is "common sense" that job creation was the goal and that tracking it holds communities accountable. "The cities should be counting. And if they're not, we ought to say to them, 'What did you do with the money? And how many construction jobs and =� permanent jobs were created?'... If they're not disclosing, maybe it has to be a requirement going forward: 'Tell us what ate' you're doing,'" Metzen said. ., Finance &Commerce found that the legislation appears to have created 2,199 , ` - construction jobs in 14 cities and is creating or retaining at least 7,681 permanent jobs in 24. Inver Grove Heights indirectly gave Target Corp. Even a number such as 7,681 permanent delayed by million for aboutconsumer demand. jobs is misleading. Less than a third are (Staff photos: Bill Klotz) jobs that employers are creating. Of the 5,412 retained, nearly three-fourths come from Target, which plans to move 3,900 jobs from downtown Minneapolis to Brooklyn Park. For the cities keeping track of jobs, each construction job cost an average of$8,213.53 in 10/25/12 Finance&Commerce>Print>The great property tax free-for-all property taxes, and the cost was $3,761.17 per permanent job, according to F&C's analysis. The total public and private investment was an average of$92,817.20 per construction job and $48,617.77 per permanent job. Such dollars-per-job numbers are in line with what the U.S. Economic Development Administration has described as typical in such ' deals, said Janna King, president of Economic ' Development Services in Minneapolis. 466/ " 361 "17. When 's n 3 the program it came, company to Tar et spokeswoman double-di i Jessica into Deede responded that"projects that involve „ y , incentives represent significant capital investment by Target and must provide a '. superior financial return as well as expected F �; \ guest, team member and community benefits." Finance & Commerce's analysis of the 76 projects also found: • Decisions about spending the moneys vow often involved local officials'particular goals or aspirations rather than a focus on creating jobs. This included appetites because $1.6 million went to Brooklyn Park gave $2.5 million for Target's I Cossetta Italian Market & Pizzeria in St. northern office campus expansion. (above) Paul, $250,000 helped fund the new Pizza Luce location in Richfield, $90,000 helped bring a Pizza Ranch to Elk River, and as much as $1.545 million went to the Shoreview Retail Center, where Leeann Chin and Chipotle are tenants. • Target wasn't the only multibillion-dollar company enjoying the largesse. Its chief competitor, Bentonville, Ark.-based Wal-Mart Stores Inc., indirectly benefited from $2.4 million going toward the redevelopment of the former Brookdale Center in Brooklyn Center, now anchored by a Wal-Mart superstore that opened in September. • For big companies, receiving the property tax dollars was p art of a smorgasbord of economic development opportunities. Duluth, for example, used the 2010 law to steer $350,000 to aircraft maintenance company AAR Corp. as part of a $7.5 million city and state grants and loans package. • Statewide, the program was unfocused in how money was spent. Property tax cash helped build gas stations in Sauk Rapids and St. Peter, spruce up downtown businesses in Breckenridge and Stillwater, and tear down blighted homes in West St. Paul. Money also went to manufacturers, apartment developers and health care providers. • The largest award — $3.8 million in grants and loans — is making up for past mistakes in Ramsey, where the city had to pick up the pieces after the Ramsey Town Center development went bankrupt. Property tax dollars are helping to build the $28 million, 230-unit Residence at the COR luxury apartment complex in Ramsey, slated for completion next spring. How the excess TIF program performed matters because home and business owners pay a higher share of local property tax dollars when money is diverted to building projects, according to critics of such incentives. Governments at all levels also continue to spend tax dollars to stimulate the economy. Earlier this year, the Minnesota Legislature provided the state Department of Employment and Economic Development with $47.5 million in bonding funds for"business development through capital project grants." DEED made sure to include construction and permanent jobs projections with the projects that Gov. Mark Dayton eventually picked. For example, $25 million went toward a $54 million St. Paul Saints baseball stadium that is expected to create 225 construction jobs and at least 23 permanent jobs. In contrast, 24 of the 76 TIF money awards were simply outright grants. Another 17 were 2/8 finance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52262 E 10/25/12 Finance&Commerce>Print>The great property tax free-for-all forgivable loans, but only a handful tied job creation to loan forgiveness. In most cases, l finishing the building project and occupying the structure was enough to keep the money. When it came to spending the $35.9 million in property taxes, local officials argue that flexibility was more important. "Had the legislation mandated too many details, it would have tied our hands getting it done," said Bill Short, clerk and treasurer in White Bear Township, which used the program to give a $466,000 grant for Tecnetics Industries'new $3 million, 30,000-square-foot headquarters and plant at 1201 N. Birch Lake Blvd. With a lease in White Bear Lake unexpectedly expiring in the spring, Tecnetics last year was considering moving its headquarters and fewer than 50 jobs, many of which pay close to $100,000 a year, to Australia, company CEO John Madgett said. "If that money had not been available, there was no deal," Madgett said. Some local officials also pointed out that the money was local property tax revenue, so it made more sense for accountability to be at the local level. "This was really our money," said Regina Harris, Bloomington's Housing and Redevelopment Authority administrator. "I just take the jobs bill for what it was, which was please go out there and create jobs, and they didn't say how many." Bloomington used $1.05 million as part of a larger subsidy for the $40 million Genesee Apartments and Townhomes project. The complex is not affordable housing, but Harris says the recently completed project still brought more housing options to the city. Targeted development Stories-high mounds of dirt have been rising up from 4:v �:-` I the prairie near office buildings at the Target Northern Campus at Highways 169 and 610 in Brooklyn Park. j Construction workers under Ryan Cos. US have been '. digging down before constructing a $32.5 million, 4 325,000-square-foot office tower, the first of two e * planned at the campus. Brooklyn Park is using TIF funds as a grant Target for$2.5 million in construction cut TIES: costs for the office building project — a move the city's Economic Development Authority unanimously agreed $3.75 million of $35.9 million to in December 2011. Target was already familiar with this funding mechanism. Only months before, in July 2011, the 1ro I-Ner e E Inver Grove Heights City Council voted 3-2 to indirectly provide Target with $1.25 million. The money went to Description: f the Argenta Hills retail development off Amana Trail, which includes a $15 million, 135,000-square-foot *01t; Target store that opened in July. Some in Inver Grove Heights wondered why Target, a ' company with $2.93 billion in profits and $69.87 billion <r ,pt in sales in its most recent fiscal year, needed $1.25 --"--"-- million for a store project. Target already had a West St. Paul SuperTarget, on South Robert Street, a 10-minute drive from the Amana Trail location. Local resident Dian Piekarski, who spoke out against the Inver Grove Heights City Council awarding the money last year, still thinks it was a bad idea for a city of around 34,000 residents. "I don't need a Target five miles closer than what we already have. Why are they getting a gift?" Piekarski said. "Local government has gotten involved in picking winners and losers." Piekarski suspects the 135,000-square-foot store would have been built anyway because Target had already spent millions of dollars to acquire land off Amana Trail from the developer. f inance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52262 3/8 10/25/12 Finance&Commerce>Print>The great property tax free-for-all Much of the infrastructure including a foundation was already constructed. "It was on Target to finish the project," she said. City Administrator Joe Lynch disagrees. After delaying the Inver Grove Heights store when the recession hit,Target was increasingly concentrating on its 2013 expansion into Canada, Lynch said. Without Target, the city would have had a prime development spot sitting empty fora long time. "There was a concern they might never be back, that they would sell the property and take the loss on putting in the foundation," Lynch said. The $1.25 million forgivable loan went to Inver Grove Heights Investments LLC, a development entity created by Roseville-based McGough and other undisclosed investors involved with Argenta Hills. "I'd say the recession changed the s, en a x 1 `)i L-s 6 P#24f r , ' ', fundamentals of retail development. ... �� ?? „ fir"a3 1 [The city money] was absolutely the f9� " catalyst and instrumental to this deal going forward," said Greg Munson, vice president of development at McGough. g The store had to be built and has to stay open for five years for Inver Grove Heights Investments to keep all the money — but . there was no requirement for the Target store to produce a specific number of jobs. "We didn't do it that way because we Shoreview granted $845,000 for the new knew the jobs would be transient. We Shoreview Retail Center, and it will grant another asked that they create jobs," Lynch said. $700,000 if the developers can land a high-end grocery store. (Staff photo: Bill Klotz) Neither Lynch nor Munson had construction job numbers available. But Lynch recalled that Target officials spoke of 200 full- time and part-time permanent jobs during the store's grand opening. McGough is also finishing work on additional space for smaller retailers and has already built and sold 20 homes in the area. The city expects to get an extra $104,000 in property taxes a year from the Target store. Brooklyn Park also did not have job requirements when it came to the $2.5 million for the office building on Target's existing six-building campus. Work is expected to start within nine months on another similarly sized office building. The Target award was among five — totaling $3.28 million — that the city of Brooklyn Park made under the program. Brooklyn Park business developer Amy Baldwin said the city wanted to avoid placing an undue burden on contractors when it came to counting construction jobs. "We wanted to keep it as simple as possible," Baldwin said. Jason Aarsvold, Brooklyn Park's community development director, notes that Target was due property tax abatements under a previous economic development agreement. By giving Target the money upfront for the office building, instead of abatements, Brooklyn Park will get more property tax revenue in coming years, he argues. Target has said it plans to transfer 3,900 Target technology workers from downtown Minneapolis to the campus, quadrupling Target's workforce in Brooklyn Park to 5,200 by 2014. And Target's recent real estate moves downtown suggest it may be adding more workers there, too. With that many jobs flowing in, it is little wonder that online video shows no one speaking out when the $2.5 million was brought up during November and December 2011 EDA and City Council meetings in Brooklyn Park. Actual need for spending is unclear 4/8 f inance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52262 10/25/12 Whether it was a huge company such as Target or a humble Pizza Ranch franchisee in Elk River receiving the money, local officials continually made the argument that the building projects would not have otherwise — or at least would have not happened to the extent that = they did. ;f But those types of statements draw skeptical responses from critics of � ri economic development incentives. "It sure looks like jobs were created with ._ that subsidy. But what's the St. Paul beneficiaries of TIF financing include counterevidence? What would have Cosetta's on West Seventh Street. (Staff photo: happened if you hadn't given those Bill Klotz) subsidies?" said Art Rolnick, a former Minneapolis Federal Reserve research director who is a senior fellow at the University of Minnesota's Humphrey School of Public Affairs. Rolnick thinks tax cuts and improved government services are better ways to spur economic growth. Some cities did not want to risk losing projects. Duluth's Economic Development Authority, for example, owns a 180,000-square-foot-plus former Northwest Airlines maintenance facility, which has been empty for nearly 10 years, at the city's airport. When Wood Dale, Ill.-based aircraft maintenance outsourcer AAR Corp. said earlier this year that it needed $5 million in grants to move into 152,000 square feet of the building, local and state officials instead cobbled together a package of$7.5 million of grants, loans and lease discounts. "This deal was vital to Duluth. ... That building sitting empty there sends the wrong message for our community when people fly in there," said Brian Hanson, president and CEO of regional economic development group Apex. Running up to the July 1 deadline, the city used the 2010 jobs program to provide $350,000 in property tax revenue up front to pay for$500,000-worth of building renovations for MR. Local officials anticipate 20 construction jobs in coming months from the work and expect MR to bring 192 jobs to the city. Both Hanson and Chris Eng, Duluth's business development director, don't think MR will accept the full $7.5 million package, but the money is hanging out there for now. Economic development gone wild? Unleashing the local property tax dollars appears to have had a free-for-all effect that Rolnick says is similar to earmarks — the congressional practice of steering federal dollars toward local pet projects that has been limited in recent years. "You would think you would want fiscal discipline. This is earmarks on the local level. This is bad public policy," Rolnick said. Phil Krinkie, a former Republican state legislator who is president of the Taxpayers League of Minnesota, compared the situation to a lab experiment involving rats and cheese. "The Legislature sets up the maze with all the criteria to find the money, and enterprising people, private-sector along with public-sector employees, will endeavor to get to the money," Krinkie said. Mark Phillips, former commissioner of the Minnesota Department of Employment and Economic Development, counters that rules sometimes have to be loosened during times of economic distress, even if some mistakes result. finance-commerce.com/wp-content/plugins/tdc-s ociable-toolbar/wp-print.php?p=52262 "I think cities got some projects lined up that were slow to develop in a tough economy," said i Phillips, whose departure as DEED commissioner was announced Oct. 18. Brian Hanson, president and CEO of Duluth-area economic development group Apex, summed it up: "What this represents is a hell of a lot of activity that wouldn't have happened." A hunger for development A project that might seem foolish at first glance may have made sense at the local level. . , / gin ` _ Take the Pizza Ranch at 19141 Freeport �� St. NW in Elk River. Sauk Rapids-based Alliance Building Corp. renovated a former Movie Gallery video-rental store for$1.87 million ; The city economic development director, arf a .' \ Annie Deckert, says it's hard for a �,� restaurant to start in Elk River because .. _ �� water and sewer access charges can run St. Paul beneficiaries of TIF financing also include in the tens of thousands of dollars. the Schmidt Brewery. (Staff photo: Bill Klotz) "It's something our community has wanted forever," Deckert said of restaurants. A$90,000 loan with a 2 percent interest rate made the difference for the local Pizza Ranch franchisee. Elk River wanted something done with the old video store site because it detracted from the nearby Elk Park Center at 19112-19216 Freeport St. NW, which includes a Cub Foods, OfficeMax and Furniture Mart among its tenants. 3 The Pizza Ranch is also providing four full-time jobs paying $25,000 to $70,000 a year, and 70 part-time jobs paying $7 to $11 per hour, Deckert said. Elk River was not alone when it came to funneling money toward shopping and dining options. Nearly 40 percent of the $35.9 million in TIF spent statewide appears to have gone to retail, food and hospitality projects. Shoreview officials were more Asian-Latin fusion in their tastes when they decided to grant $845,000 for Minnetonka-based Stonehenge USA's $7.2 million, 24,034-square-foot Shoreview Retail Center, which includes a Leeann Chin and Chipotle among its tenants. Stonehenge could get an additional $700,000 in a grant if it lands a high-end grocery retailer. Shoreview assistant city manager Tom Simonson argues that it was about community"values and desires."The desire was for"more dining and retail services options" (egg rolls and burritos, for example), which then added to the tax base and provided some jobs. Shoreview is indirectly giving up to $214,000 to the $17.9 billion-asset TCF Financial, which is building a $2 million, 3,000-square-foot bank branch nearby. Simonson says the money — which helped pay for the owner of an old Sinclair gas station at the site to demolish it for redevelopment — was worth it because site redevelopment made way for road improvements and a sign next to the branch that promotes the Shoreview Retail Center. Jobs were not the focus in Shoreview. The city did not ask developers for construction or permanent jobs numbers. Stories behind the numbers The largest single tax dollars award under the program involved Indianapolis-based Flaherty & Collins'$28 million, 230-unit Residence at the COR project in Ramsey. The luxury apartment complex is among a number of projects occurring in the more than 400-acre COR area. The city used $3.8 million in TIF property taxes as part of an overall $7 million grant and loan package to support the project, said Darren Lazan, development manager for the COR project. 10/25/12 Finance&Commerce>Print>The great property tax free-for-all "It absolutely wouldn't have happened without that money," Lazan said. "The banks were just not comfortable with Ramsey." Bank executives had good reason to be uncomfortable. Back in 2009, three of their peers, former officers of the now-defunct Lino Lakes-based Community National Bank, reached a plea deal with federal prosecutors in a conspiracy to commit bank fraud case. The alleged fraud involved the collapse of what was then called the Ramsey Town Center development. In court documents, the U.S. Attorney's Office in Minnesota said the development came unraveled amid "fraud, debt and mismanagement." The city ended up having to buy 150 acres in the area. Two of the former executives — I William Sandison and his son Ross — served months-long prison terms, according to a Federal Bureau of Prisons website search. It was only after Ramsey was able to grant and lend a total of$7 million that Pittsburgh- based PNC Financial Services Group was comfortable financing the Residence at the COR, Lazan said. ! "It was about building confidence in the banking community, and this did it," Lazan said. In Sauk Rapids, officials argue that a gas station they helped to build through the program is proving to be a catalyst for further development. A nearly $150,000 business subsidy helped pay for a 4,450-square-foot SuperAmerica that opened in spring 2012 at the southeast intersection of U.S. Highway 10 and Golden Spike Road. But local officials also argue that there is more than meets the eye. The money helped pay for Landwehr Construction to make $800,000-worth in site grading, sewer and water installation and other improvements. The improvements were needed for the $1.48 million gas station project handled by Welsh Construction on behalf of VL I Development, an entity related to Cold Spring-based Alpha Development. IThe SuperAmerica and improvements at the VL site proved "instrumental" in the state awarding Benton County a $2.9 million Transportation Economic Development grant, which is going toward $4.9 million of interchange improvements, said Sauk Rapids City Administrator Ross Olson. The hope is that more retailers will express interest in the site. "Was the utilization of these dollars focused? Absolutely they were," Olson said. "Every community has different needs." Sauk Rapids officials, however, did not have jobs numbers for the projects the city funded, and did not require specific numbers in agreements. The subsidy agreement with VL Development, for example, had the developer agreeing to create "jobs" at the site paying at least $12.50, but did not specify a number. Unclear results after millions spent Many other Minnesota cities did not keep track, which raises the prospect that millions of dollars were spent with unclear results. Projects that counted construction jobs — what the state program was designed to create — accounted for only $18.1 million, or 50 percent, of the total TIF dollars awarded, Finance & Commerce found. The situation with permanent jobs was better: Projects that counted permanent jobs accounted for$28.9 million, or 81 percent, of total TIF dollars. "I agree that there should be more information-reporting requirements," said Isanti Mayor George Wimmer, whose city spent $916,500 on $6.7 million-worth of projects, including a 33- unit hotel and a 20-unit senior memory care center. Isanti actually collected jobs numbers: The money helped produced 367 construction jobs and 24 to 34 permanent jobs. i "We require it so we are able to effectively communicate with our citizens and taxpayers what benefits are being provided," Wimmer said. finance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52262 7/8 10/25/12 "If you cannot show the benefits of a particular program, why would anyone support [it]?" MORE ARTICLES ON THIS INVESTIGATION: Counting construction jobs proves difficult How the TIF program worked, and how we reported it With loans to developers, all was usually forgiven Local officials have mixed views about lobs program CHART: Tracking construction and permanent lobs CHART: Following the money Complete URL: http://finance-commerce.com/2012/10/the-great-property-tax-free-for-aII/ f inance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52262 8/8 10/2 hl1Hce&Commerce>Print>Counting construction jobs proves difficult Finance & Commerce http://finance-commerce.com Counting construction jobs proves difficult by Chris Newmarker Published: October 24th, 2012 Tracking the TIC` investment . Retail Development Housing Units Bushiest/Industrial Food/Hose Office Oilier CiiM C1K , NATN4 emu sAestemt mum 1 teak,,' '+� 'SNC a wIfIT smitog6f€'i ,isYGAl�.i;*r ` %" 12 r < tAtNHCfOWA isrt r [ �tt5 ate„ to fit . - ` Of MIT LAOS ,'- j CtOiX1 cggM4,:.ttat HRECON t fRC-CE N1 Ft Some cities kept track, but law didn't require it So how many hard-hat jobs did Minnesota's two-year"temporary authority to stimulate construction" actually create? Going by a formula used by the Associated General Contractors of Minnesota, the number would be nearly 15,000. But it's unclear, for now, whether the $35.9 million in property taxes and $510.6 million in total public and private investment actually achieved that number. That's because many of the 35 cities polled by Finance & Commerce did not count construction jobs, or had incomplete or unverified numbers. Out of 76 projects 44 did not track construction numbers. f inance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52338 1/3 10/2S41i8ce&Commerce>Print>Counting construction jobs proves difficult The situation raises questions about accountability because the whole point of the program was to create construction jobs, according to state Sen. James Metzen, DFL-South St. Paul, who helped author the 2010 bill that created the program. "There ought to be a better accountability. First, what are they doing with the money? I guess we know that. iid the But how many jobs are you creating with this — 4, ,,,` construction jobs and permanent jobs?" Metzen said. * Another bill author, Senate Minority Leader Thomas IIM4 "Bakk, DFL-Cook, also thinks taxpayers should care. "When you reduce someone's tax burden, it raises _ everyone else's," Bakk said. 4 But Bakk says he and other lawmakers decided not to ate, require job counting because local property tax dollars — not state dollars — were being spent. Bakk thought 41k, accountability should be at the local level. "It's local in that cities don't have to do it, and if they , q do, they pay for it themselves," Bakk said. � ' r3 During checks with each of the 35 cities or entities, - �: � Finance &Commerce found that the legislation appears to have created 2,199 construction jobs in 14 cities and construction,jobs. is creating or retaining 7,681 permanent jobs in 24. But ?fj,,,,,c,j, more than half the permanent jobs are simply moving t,° I from Target's downtown Minneapolis headquarters to -� - - its northern campus in Brooklyn Park. ONSTRUCTION JOBs c For the cities keeping track, it cost an average of .. t .ti .,r j ,-,,,,, $8,213.53 in property taxes per construction job and !"° $3,761.17 per permanent job, according to F&C's analysis. Exclude the Target project in Brooklyn Park, and the average cost was $6,979.52 per permanent � � � � job. -'-. i . . t t Even whether such averages hold up is an issue „��„� � ,,, ,� � , because cities that did count did not always go back to �q verify. A popular argument among local officials was PER, N that they could see with their own eyes that construction was happening, so why formally check? ftt � Own Kitt -O Regina Harris, Bloomington's Housing and ".`ry Redevelopment Authority administrator, estimates Graphics: Tim Montgomery Frana Construction's work on the 212-apartment, 22- townhome Genesee Drolect brought 250 construction jobs to the site at the southeast corner of Penn Avenue South and American Boulevard. She also anticipates 60 full-time jobs once the entire project is complete. Harris, however, argued that checking back on the jobs numbers was unneeded and that the legislation did not require it. "I just take the jobs bill for what it was, which was please go out there and create jobs, and they didn't say how many," Harris said. Others counted permanent jobs, but not construction jobs. In the case of the St. Paul Port Authority, officials decided that counting and double-checking permanent jobs was much more important. "The reason to do the construction in the first place is to support long-term business growth. This isn't construction for construction's sake," said St. Paul Port Authority President Louis Jambois. The Port Authority steered $2.3 million toward two projects worth $55.7 million and claims to 2/3 10/1 h12ice&Commerce>Print>Counting construction jobs proves difficult have created or retained 400 permanent jobs in the process. Both were forgivable loans: $1.8 million to Wellington Management for the River Bend Business Park and $500,000 to steelmaker Gerdau for new caster equipment. The Associated General Contractors of Minnesota claims to have an answer on h' z the jobs question. We The group has used George Mason !�y ' University Professor Stephen Fuller's a'1 formula of 28,500 jobs per$1 billion of construction investment. With $510.6 � 1 million-worth of construction benefits, the state jobs bill program has employed or is employing 14,552 construction workers, s 1ft according to the formula. ffi No matter the priorities of local officials, construction industry leaders think the program helped Minnesota's construction Frana Construction's work on the 212-apartment, Indust turn a corner after losing about 22-townhome Genesee project brought roughly industry 9 250 construction jobs to the site in Bloomington. 50,000 jobs during the Great Recession. (Staff photo: Bill Klotz) The construction sector is presently up 4,400 jobs over the past 12 months. Roseville-based McGough was a big winner under the program. Besides working on the $15 million Target store in Inver Grove Heights, which received $1.25 million, McGough was general contractor for the $14 million expansion of Cossetta Italian Market & Pizzeria in St. Paul. The expansion was partially funded with $1.6 million in a combination of a forgivable loan and market rate loan from the city of St. Paul. McGough also was the general contractor for an $8 million commercial remodeling in Coon Rapids, which received a $340,000 grant. Bayer Medical Care's Medrad business promised to retain 220 jobs and create at least 30 more in return for the Coon Rapids grant, but construction job numbers were not available. Greg Munson, vice president of development at McGough, was not sure how many construction jobs the program produced for his company but was sure it made a difference. "There's significant depth on the bench with the labor trades, so every job is important," Munson said. MORE ARTICLES ON THIS INVESTIGATION: The great property tax free-for-all How the TIF program worked, and how we reported it With loans to developers, all was usually forgiven Local officials have mixed views about lobs program CHART: Tracking construction and permanent jobs CHART: Following the money Complete URL: http://finance-commerce.com/2012/10/counting-construction-jobs-proves-difficult/ finance-commerce.com/wp-content/plugins/tdc-s ociable-toolbar/wp-print.php?p=52338 3/3 E X2 ik63erce>Print>How the TIF program worked, and how we reported it Finance & Commerce http://finance-commerce.com How the TIF program worked, and how we reported it by Chris Newmarker Published: October 24th, 2012 Tax increment financing districts allow local -""� governments to help pay for development of blighted areas by pledging to set aside the additional property tax revenue created by a development, using it to facilitate pollution clean-up, infrastructure improvements or other activities a developer may , . have been hesitant to fund. �� _ The DFL-controlled state Legislature and then-Gov. I` Tim Pawlenty opted in 2010 to remove many of the strings attached so that local governments could � spend excess dollars from the TIF districts on private L development projects. The program expired this year, with construction having to start by July 1. The 2010 law offered other measures, including the temporary creation of TIF economic development districts, a state historic structure tax credit and an angel investment tax credit. But Finance & Commerce decided to focus on the excess TIF spending because its effects are more immediate. Legislative staff requested that the Office of the State Auditor collect local spending plans, but the resulting report was short on details because of the lack of reporting requirements in the law. Reporting requirements are important but direction comes from the Legislature, said Minnesota State Auditor Rebecca Otto said in an email. "...The Legislature sets the policy, and the statute for the Jobs Stimulus Program for TIF does not require development authorities to report the number of jobs retained/created in order to use TIF funds in this way," she said. "The statute required a 'spending plan.' " Finance & Commerce reporter Chris Newmarker contacted the 35 cities and other public entities in the auditor's report and found that all but one, Montrose, spent, granted or lent money. (Montrose did not get money awarded in time.) In the process of his reporting, Newmarker discovered that St. Cloud also used TIF money. Newmarker collected details including jobs estimates (during construction and permanent jobs created or retained), total project costs, the form and amount of the award, square footage and general contractors. MORE ARTICLES ON THIS INVESTIGATION: The great property tax free-for-all Counting construction jobs proves difficult With loans to developers, all was usually forgiven Local officials have mixed views about jobs program CHART: Tracking construction and permanent jobs CHART: Following the money Cornplete URL: http://finance-commerce.com/2012/10/how-the-tif-program-worked-and-how-we-reported- it/ finance-commerce.com/wp-content/plugins/tdc-s ociable-toolbar/wp-print.php?p=52335 1/2 10/25/12 Following the money I Finance&Commerce o/t /(-7/ 2 1 ` FINANCECOMMERCE E....._...................... Lain Manage Account I Subscribe • Home» • News» • Special Sections • Public Notice • Events» • Marketplace» • Digital Edition Following the money While the Minnesota Legislature freed up excess TIF dollars to stimulate construction hiring and projects,cities did not track construction jobs for 58 percent of the projects.Still,some tracked permanent jobs created and retained jobs.Nearly three-quarters of the total retained jobs ate the result of Target shifting downtown jobs to Brooklyn Park. Permanent Permanent City-Project Description TIF$ Total est. Form TIF was awarded jobs created jobs project cost retained (approx.) (approx.) Brooklyn Center-Howe Fertilizer Site(Real $76,000 $5,000,000 Interest free loan for environmental testing with site NA NA Estate Recycling) Brooklyn Center-redevelopment of Brookdale $2,400,000 $100,000,000 Grant reimbursing for demolition,etc. NA NA Brooklyn Park-Cobalt Industrial REIT II $63,897.50 $255,590 Grant,installation of fast-response sprinkler system 90 Brooklyn Park-Embassy Enterprises $43,000 $332,000 Grant reimbursing for building upgrades 5 Brooklyn Park-Target Northern Campus $2,500,000 $32,500,000 Grant reimbursing for construction costs NA 3,900 Cambridge-MAPE USA manufacturing project $70,000 $250,000 Low-interest loan 5 19 Coon Rapids—American PreClinical Services $350,000 $2,600,000 Grant for rehab of industrial building 40 NA Coon Rapids—RMS $700,000 $4,800,000 Grant for 60,000-square-foot addition to facility 150 600 Coon Rapids-Biovest International $103,000 $1,500,000 loan for renovations 14 24 Coon Rapids-Medrad $340,000 $8,000,000 Grant,remodeling of building 30 220 Coon Rapids-Premier Disability $100,000 $178,000 Grant for renovations 50 NA Delano-Fee waiver(about 15 homes,1-2 $90,000 NA Waived city construction fees NA NA businesses) Grant-land acquisition,building demolition,moving Detroit Lakes-Downtown Crossing $488,703 $2,500,000 utilities 80 Elk River-Pizza Ranch loan $90,000 $1,871,890 conversion of vacant video store 74 NA Farmington-Immanuel Dental $65,000 $425,000 Forgivable loan NA NA Glencoe-Midwest Research $60,000 $100,000 Loan at 2.5%for renovations 4 Swine/Mi romatrix Medical Inver Grove Heights-TamgedAmgenta Hills $1,250,000 $15,000,000 Forgivable loan 200 NA retail project Lindstrom-Northwoods Roasterie $20,000 $300,000 Forgivable loan 5 Lindstrom-St.Croix Regional Medical Center's clinic $380,000 $2,500,000 Forgivable loan 11 NA Little Canada-Grabs Properties/Midwest $262,143.48 $262,143.48 Loan,renovation of building 10 Gymnastics Minnetonka-The Glenn by St.Therese $100,000 $15,900,000 Grant to reimburse for sewer and water access 30 NA 1/3 finance-commerce.com/following-the-money/ 10/25/12 Following the money I Finance&Commerce i Southwest charges Monticello-Walgreens $378,680 $1,650,000 Funded infrastructure,utility payments for NA NA development New Brighton-The View at Long Lake $1,200,000 $19,000,000 Grant 5 NA Sauk Rapids-VL Development(Alpha $149,999 $2,282,000 Business subsidy for site grading,sewer&water NA NA Development) installation Sauk Rapids-Wildflower Terrace $1,003,000 $14,500,000 Reimbursement for site improvements NA NA Shoreview-Shoreview Retail Center $1,545,000 $7,200,000 Grant NA NA Shoreview-TCF Financial branch $214,000 $2,000,000 Grant,new branch NA NA St.Cloud-Arctic Cold Storage $110,000 $3,600,000 Reimbursing for site improvements 8 50 St.Cloud-Jason Friesz DDS $107,500 $970,000 Forgivable loan-redevelopment of building, 2 3 addition St.Joseph-Mill Stream Shops&Lofts $25,000 $115,000 Forgivable loan 15 St.Joseph-St.Joseph Meat Market $27,000 $300,000 Forgivable loan NA 35 expansion St.Louis Park-6414 W.Lake St.(Curt $25,000 $77,000 Forgivable ban 3 Rahman developed) St.Paul Port Authority-Building No.3 at $1,800,000 $5,700,000 Forgivable loan 70 NA Riverbend St.Paul Port Authority-Gerdau $500,000 $50,000,000 Forgivable loan to buy new equipment NA 330 St.Peter-Kwik Trip $300,000 $1,154,000 Funded street,utilities reconstruction to support NA NA project Stillwater-101 Water St.S. $21,805 $21,805 Loan,15 years at 3.25%,paid through special NA NA assessment Stillwater-120 Main St.N. $43,580 $43,580 Loan,15 years at 3.25%,paid through special NA NA assessment Stillwater-126 Second St.S. $66,650 $66,650 Loan,15 years at 3.25%,paid through special NA NA assessment Stillwater-219 Main St.S.(Brine's) $13,400 $13,400 Loan 15 years at 3.25%,paid through special NA NA assessment Stillwater-229 Main St.S. $87,401 $87,401 Loan,15 years at 3.25%,paid through special NA NA assessment Stillwater-241 Main St.S. $33,490 $33,490 Loan, 15 years at 3.25%,paid through special NA NA assessment West St.Paul-City housing replacement $150,000 $414,676 City purchased six blighted houses and razed them NA NA program . White Bear Township-Tecnetics Industries $466,000 $3,000,000 Grant-site work,building pad prep,site NA 31 HQ improvements Wmsted-131 First St.N.(owned by Will $5,000 $10,000 Forgivable loan NA NA Steger) TOTAL $17,824,249 $306,513,625 901 5212 Source:Finance&Commerce research and analysis MORE ARTICLES ON THIS INVESTIGATION: The great property tax free-for-all Counting construction jobs proves difficult How the TIF program worked.and how we reported it With loans to developers.all was usually forgiven Local officials have mixed views about jobs program CHART:Tracking construction and permanent jobs 2/3 finance-commerce.com/following-the-money/ iallifi f1Qommerce>Print>With loans to developers,all was usually forgiven Finance & Commerce http://finance-commerce.com With loans to developers, all was usually forgiven by Chris Newmarker Published: October 24th, 2012 In many cases, simply building a structure and _ _ , occupying it was enough to get a loan forgiven under the two-year"temporary authority to 32°k gra stimulate construction" that the Minnesota state Legislature created in 2010. Thirty-five cities and local entities took $35.9 million in extra funds from their tax increment financing „ districts and used the money to help fund more than $510.6 million-worth in construction projects. Out of 76 projects that received money, 24 were, simply outright grants, and another 17 were ' ' ' forgivable loans where forgiveness was often tied to things built, according to a Finance & Commerce investigation. 22%forgivable loans Even though a goal of the state law was to create ..__ µ _.___.. construction jobs, 13 of the 17 projects receiving forgivable loans either did not keep track of jobs or did not have the information readily available. The situation begs the question: Does anyone ever pay back forgivable loans? The forgivable loans and grants make up more than half the $35.9 million spent statewide: $7 million were forgivable loans and $12.9 million were grants. A typical forgivable loan was the $1.25 million that Inver Grove Heights provided the McGough-led team that created the Argenta Hills retail development off Amana Trail, which includes a $15 million, 135,000-square-foot Target store that opened in July. Inver Grove Heights did not require a specific number of jobs for the developers to keep the money, said City Administrator Joe Lynch. Rather, the developers got to keep the $1.25 million if the Target opened by December 2012, and stayed open for five years. Half of an additional 30,000-square-foot building also has to be available for occupancy by the end of the year. The developer turned in invoices with construction expenses to get reimbursed for them. "That's why we went the route of a forgivable loan, so that if they didn't construct and they didn't complete and they didn't open under certain time frames that the money would be given back to us," Lynch said. According to Lynch, basing forgiveness on getting buildings constructed and occupied was easier than counting jobs because retail jobs are often transient. One person might work 12 hours one week and another person 12 hours the next week, Lynch said. St. Louis Park gave $605,000-worth of forgivable loans to three projects — the largest being $500,000 for a $3.5 million renovation project that allowed aluminum anodizing company Hardcoat to move inside the city to a 30,000-square-foot building at 7317 W. Lake St. So what does Hardcoat need to do to keep the money? "They have to hold and maintain the property and not sell it for five years," said Greg Hunt, St. Louis Park's economic development coordinator. Hardcoat turned in "certificates" with expenses that could then be reimbursed with the loan. Hunt said the city's priority was to get more uses into vacant buildings and create full-time f inance-commerce.com/wp-content/plugins/tdc-sociable-toolbar/wp-print.php?p=52341 jobs. "There were some projects we turned away because they weren't going to result in new tax base. ... What I was looking for was something that was going to be a substantial return," Hunt said. With the building Hardcoat is occupying, Hunt expects the facility's present $1.2 million value to double. And even though St. Louis Park is not tying job numbers to loan forgiveness, Hunt is still keeping track of construction and permanent jobs numbers to ensure accountability. R.J. Marco Construction, for example, created at least five construction jobs at the Hardcoat site, and the company has created five jobs on top of the 15 it already had in the city, Hunt said. Hunt thinks the best part of the program is that it gave cities such as St. Louis Park flexibility — and he wishes state lawmakers had given cities even more time to use the money. "Each community has its own projects that are going to come up," Hunt said. "The fact that it helped spur something is better than nothing." MORE ARTICLES ON THIS INVESTIGATION: The great property tax free-for-all Counting construction lobs proves difficult How the TIF program worked, and how we reported it Local officials have mixed views about jobs program CHART: Tracking construction and permanent jobs ICHART: Following the money Complete URL: http://finance-commerce.com/2012/10/with-loans-to-developers-all-was-usually-forgiven/