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7.1. SR 04-21-2014
City of Elk - Request for Action River O. To Item Number Mayor& City Council 7.1 Agenda Section Meeting Date Prepared by Public Hearings April 21, 2014 Brian Beeman,Director of Economic Development Item Description Reviewed by Blackhawk Woods Housing Tax Increment Jeremy Barnhart,Deputy Director, CODD Financing District (TIF) Reviewed by Cal Portner, City Administrator Action Requested Approve,by motion, a resolution modifying the Development Program for Development District No. 1, establishing Tax Increment Financing District No. 24, and approving a Tax Increment Financing Plan. Background/Discussion The Blackhawk Woods project is a proposed 56-unit affordable senior housing project located west of Waco Street. The developer applied for TIF assistance through the establishment of a Housing TIF District to finance a portion of the costs associated with constructing the affordable housing project. Springsted has completed the "but for" analysis and determined that without the requested TIF assistance, as the developer indicated,the project would not proceed as proposed due to the income restrictions of the occupants and insufficient cash flow to finance monthly expenses and debt service. The developer's proposed financial package includes long-term permanent financing of$4.5 million in tax exempt Housing Revenue Bonds and$1.5 million in equity from a tax credit syndicator for a total estimated project budget of$6 million. Since March 3,2014, based in part on previous meeting comments from the HRA and City Council, the developer has reduced the project size from 84 to 56 units, changed the anticipated financing from HUD to tax exempt Revenue Housing Bonds and reduced the request for financial assistance from the proposed Housing TIF District from 25 to 15 years. When the HRA discussed the project,their concerns were the length of the TIF term,job creation and wage levels, and the number of units. However,it was decided that the project still had merit based on the service it would provide through affordable senior housing in the community and added property tax value. The HRA recommended the Council consider the project and call for a public hearing to be held on Monday,April 21, 2014. Financial Impact The developer has indicated that because the project is directed toward seniors, there is no expected impact on schools or parks. The impacts of the TIF can be found in Section V (page 10) and Exhibit IV (page 17) of the TIF Plan. P a w E R E U 6 Y NaA f RE] Attachments • City Council Black Hawk Housing TIF Packet, dated March 3, 2014 • Resolution modifying the Development Program for Development District No. 1 establishing a Tax Increment Financing District and approving a Tax Increment Financing Plan • Draft Modification to the Development Program for Development District No. 1 and the Tax Increment Financing Plan for Tax Increment Financing (Housing) District No. 24 • Springsted's updated "But For" analysis and supporting documents dated April 15, 2014 N:\Public Bodies\Agenda Packets\04-21-2014\Final\x7.1 sr Blackbawk Woods Public Hearing Housing TIF.docx /i Elk Request for Action Fiver To Item Number Mayor and City Council 4.9 Agenda Section Meeting Date Prepared by Consent March 3, 2014 Brian Beeman,Director of Economic Development Item Description Reviewed by Resolution Calling for Public Hearing for Black Jeremy Barnhart,Deputy Director, CODD Hawk Housing Tax Increment Financing Reviewed by Cal Portner, City Administrator Action Requested Establish, by motion, a public hearing for Monday,April 21, 2014, for proposed Tax Increment Financing (Housing) District No. 24 (Black Hawk Woods Housing Project) as recommended by the Housing and Redevelopment Authority (HRA). Background/Discussion With the recent development of a Housing TIF policy and scoring sheet,the Black Hawk woods project is moving through the review process. Springsted has reviewed and re-scored the Black Hawk Senior living project utilizing the newly updated housing TIF scoring worksheet.The project scored on the low end of the moderate scale with a rating of 22. This is enough points to bring the project forward for consideration. As part of the TIF process, a public hearing held by the City Council is required. The county and school are also required to be notified. A description of the Black Hawk project is outlined in the attached March 3, 2014, regular HRA meeting staff memo. Staff requests the City Council to set the public hearing date for this project. Springsted, the city's financial consultant,will be available if needed to answer any questions pertaining to the project. Financial Impact N/A Attachments • HRA Black Hawk Housing TIF Packet, dated March 3, 2014 • Resolution Calling for Public Hearing for proposed TIF District No. 24 PVaw/�EAEU 0 r m If URE E1� _ _ Request for Action River To Item Number Housing& Redevelopment Authori 7.1 Agenda Section Meeting Date Prepared by General Business March 3, 2014 Brian Beeman, Director of Economic Development Item Description Reviewed by Recommend Setting Public Hearing for Black Jeremy Barnhart, Deputy Director, CODD Hawk Housing Tax Increment Financing Reviewed by Action Requested Authorize by motion, recommending to the City Council setting a Public Hearing for Monday,April 21, 2014, for proposed Tax Increment Financing (Housing) District No. 24 (Black Hawk Woods Housing Project). Background/Discussion The City Council approved an update to the TIF policy on February 18, 2014. Springsted has reviewed and re-scored the Blackhawk Senior living project utilizing the newly updated housing TIF scoring worksheet. The project scored on the low end of the moderate scale with a rating of 22;however, this is enough points to bring the project forward for consideration. As part of the TIF process, a Public Hearing held by the City Council is required. The County and School are also required to be notified. A description of the Black Hawk project is outlined in the attached October 7, 2013, regular HRA meeting staff memo. Springsted, the city's Financial Consultant,will be available if needed to answer any questions pertaining to the project. Financial Impact N/A Attachments • Springsted TIF 24 Memo • Black Hawk Woods Application (re-scored) • Resolution Recommending Calling for Public Hearing for proposed TIF District No. 24 • HRA Black Hawk Housing TIF Packet, dated October 7, 2013 r pI1EIEI 11 NATUREJ Springsted Incorporated 380 Jackson Street, Suite 300 Springsted Springsted Saint Paul,MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 mm.springsted.com MEMORANDUM TO: Members of the City Council of the City of Elk River Members of the Housing and Redevelopment Authority of the City of Elk River Brian Beeman, Economic Development Director FROM: Mikaela Huot,Vice President DATE: February 25, 2014 SUBJECT: Tax Increment Financing Application Review Worksheet: Blackhawk Woods Housing Project The City of Elk River has asked Springsted to evaluate the tax increment financing (TIF) request submitted by Senior 30 Elk River Limited Partnership (the developer) for the proposed development of a senior housing rental project consisting of approximately 84 one-level townhome units. The City's Tax Increment Financing Policy also requires that the Tax Increment Financing Application Review Worksheet be completed to evaluate the project and ensure it meets the criteria of the City's policy. The application for Tax Increment Financing proposes the development of a senior living townhome community. The Developer is proposing to construct an 84-unit townhome development, containing 49 one-bedroom units, 35 two- bedroom units, and a clubhouse activity center. Additionally, each unit will include an attached garage. The development is proposed for persons of low and moderate income;which will result in income limitations for potential residents and reduced rental rates. The Developer will be undertaking both the construction and operation of the proposed development. Attached to this memo are the results of Springsted's review based on information provided by the Developer and the City's updated Tax Increment Financing Policy and Application that includes a Review Worksheet specifically focusing on proposed housing projects. Our review of the project and completion of the housing review worksheet would rank this project as moderate based on a high, moderate, low and not eligible scale. With this information, we believe the City Council could proceed with calling for a public hearing and consideration for approval of a TIF District as the proposed project meets the `moderate' criteria of the City's Tax Increment Financing Application Review Worksheet and Policy. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at (651) 223-3036 or mhuot(cDspringsted.com with any questions or comments. Public Sector Advisors TAX INCREMENT FINANCING APPLICATION REVIEW WORKSHEET- HOUSING PROJECTS: BLACKHAWK WOODS SENIOR HOUSING PROJECT TO BE COMPLETED BY CITY STAFF 1. The project meets the criteria set forth in Section IV of the City's Tax Increment Financing policy. X a) Meets minimum thresholds for size,value, and tax revenue. X b) Meets at least one of the objectives in Section II and satisfies all of the provisions set forth in Section III. X c) Demonstrates need for TIF with the but-for analysis. X d) Consistent with all city plans and ordinances. X e) Serves at least two public purposes as defined in Section IV (f). 2. Ratio of Private to All Public Investment in Project: Points: 5 $9,077,786 Private investment 5:1 5 $996,871 Public Investment 4:1 4 9:1 Ratio Private: Public Financing 3:1 3 2:1 2 Less than 2:1 1 3. Job Creation in the City of Elk River: Points: 1 3 Number of new jobs as a result of the project. 20+ 5 Number of existing/retained jobs divided by 2. 15+ 4 3 Total 10+ 3 5+ 2 Less than 5 1 4. Wage Level of new jobs created/retained: Points: 5 Minimum hourly wage Over $25/hour 5 of As created/retained: $25.00 $21-25/hour 4 $17-20/hour 3 $14-16/hour 2 Under$14/hour 1 5. Market Value/Tax Base Generation: Points: 1 Project will result in an estimated market value per unit $135,000/Unit 5 (land and building) of $97,000 $125,000/Unit 4 $115,000/Unit 3 $105,000/Unit 2 $ 95,000/Unit 1 6. Project provides housing that is restricted Points: 5 to persons 55 years and older: 5 7. Project proposes rehabilitation of existing housing, housing stock, and maximizes utilization of existing infrastructure: Points: 0 4 8. Project proposes a location near existing jobs, transportation, recreation, retail services, social services, and schools: Points: 0 2 9. Type of Housing Project: Points: 1 100% Owner Occupied 2 X Investment Property 1 10. Likelihood that the project will result in Points: 1 unsubsidized, spin-off development. High 5 Moderate 3 X Low 1 Sub -Total Points: of a possible 38 points. 11. Bonus Points Bonus Points: 3 X The project will be 100%Pay-asyougo TTF. 3 points The project contributes to the goals of Energy City. 2 points • Product promotes sensible use of energy,OR • Project utilizes significant energy efficient design&/or materials in construction. Total Points: 22 Overall project analysis: High 38-30 points Moderate 29-22 points Low 21-13 points Not Eligible 12-0 points City of Elk River Tax Increment Financing Policy&Application row EaEO s Amended February 2014 INAWRil Page 2 of 15 TAX INCREMENT FINANCING APPLICATION REVIEW WORKSHEET- HOUSING PROJECTS: BLACKHAWK WOODS SENIOR HOUSING PROJECT TO BE COMPLETED BY CITY STAFF 1. The project meets the criteria set forth in Section IV of the City's Tax Increment Financing policy. X a) Meets minimum thresholds for size,value, and tax revenue. X b) Meets at least one of the objectives in Section II and satisfies all of the provisions set forth in Section III. X c) Demonstrates need for TIF with the but-for analysis. X d) Consistent with all city plans and ordinances. X e) Serves at least two public purposes as defined in Section IV (f). 2. Ratio of Private to All Public Investment in Project: Points: 5 $9,077,786 Private investment 5:1 5 $996,871 Public Investment 4:1 4 9:1 Ratio Private: Public Financing 3:1 3 2:1 2 Less than 2:1 1 3. Job Creation in the City of Elk River: Points: 1 3 Number of new jobs as a result of the project. 20+ 5 Number of existing/retained jobs divided by 2. 15+ 4 3 Total 10+ 3 5+ 2 Less than 5 1 4. Wage Level of new jobs created/retained: Points: 5 Minimum hourly wage Over $25/hour 5 of As created/retained: $25.00 $21-25/hour 4 $17-20/hour 3 $14-16/hour 2 Under$14/hour 1 5. Market Value/Tax Base Generation: Points: 1 Project will result in an estimated market value per unit $135,000/Unit 5 (land and building) of $97,000 $125,000/Unit 4 $115,000/Unit 3 $105,000/Unit 2 $ 95,000/Unit 1 6. Project provides housing that is restricted Points: 5 to persons 55 years and older: 5 7. Project proposes rehabilitation of existing housing, housing stock, and maximizes utilization of existing infrastructure: Points: 0 4 8. Project proposes a location near existing jobs, transportation, recreation, retail services, social services, and schools: Points: 0 2 9. Type of Housing Project: Points: 1 100% Owner Occupied 2 X Investment Property 1 10. Likelihood that the project will result in Points: 1 unsubsidized, spin-off development. High 5 Moderate 3 X Low 1 Sub -Total Points: of a possible 38 points. 11. Bonus Points Bonus Points: 3 X The project will be 100%Pay-asyougo TTF. 3 points The project contributes to the goals of Energy City. 2 points • Product promotes sensible use of energy,OR • Project utilizes significant energy efficient design&/or materials in construction. Total Points: 22 Overall project analysis: High 38-30 points Moderate 29-22 points Low 21-13 points Not Eligible 12-0 points City of Elk River Tax Increment Financing Policy&Application row EaEO s Amended February 2014 INAWRil Page 2 of 15 City of Elk ---_� River Resolution No. 14- Resolution Calling for a Public Hearing on a Modification to the Development Program for Development District No. I, Establishment of Tax Increment Financing District No. 24, and the Adoption of a Tax Increment Financing Plan Therefor BE IT RESOLVED by the City Council (the "Council") of the City of Elk River,Minnesota (the "City"), as follows: Section 1. Public Hearing. This Council shall meet on April 21, 2014, at approximately 6:30 P.M., to hold a public hearing on a proposed modification to the Development Program for Development District No. 1 (the "Modification"),the proposed establishment of the Tax Increment Financing District No. 24 (a Housing District) (the "TIF District"), and the proposed adoption of a Tax Increment Financing Plan for the TIF District (the "TIF Plan"),pursuant to Minnesota Statutes, Sections 469.174 to 469.1794, as amended. Section 2. Notice of Public Hearing, Filing of Plans. City staff and consultants are directed and authorized to prepare the Modification and TIF Plan and to forward such documents to the appropriate taxing jurisdictions,including Sherburne County and Independent School District No. 728 (Elk River). The City Clerk is authorized and directed to cause notice of the hearing in substantially the form attached as Exhibit A hereto,together with an appropriate map as required by law, to be published at least once in the official newspaper of the City not less than 10,nor more than 30, days prior to April 21, 2014, and to place a copy of the Modification and TIF Plan on file in the City Clerk's office at City Hall and to make such copy available for inspection by the public. Adopted: March 3, 2014 John J. Dietz,Mayor ATTEST: Tina Allard, City Clerk 432923v1 JSB EL185-22 City of Elk EXHIBIT A River Notice of Public Hearing NOTICE IS HEREBY GIVEN that the City Council of the City of Elk River, Sherburne County, State of Minnesota,will hold a public hearing on April 21, 2014,at approximately 6:30 P.M. at the City Hall, 13065 Orono Parkway, Elk River,Minnesota, relating to (1) the proposed adoption of a Modification to the Development Program for Development District No. 1 (the "Modification"), (2) the proposed establishment of the Tax Increment Financing District No. 24 (a Housing District) within Development District Project No. 1, and (3) the proposed adoption of a Tax Increment Financing Plan (the "TIF Plan") therefor,pursuant to Minnesota Statutes, Sections 469.174 to 469.1794, as amended. Copies of the Modification and TIF Plan are on file and available for public inspection at the office of the City Clerk at City Hall. The property to be included in the Tax Increment Financing District No. 24 is located within Development District No. 1 and the City of Elk River. A map of Development District No. 1 and Tax Increment Financing District No. 24 is set forth below. Subject to certain limitations,tax increment from the Tax Increment Financing District No. 24 may be spent on eligible uses within the boundaries of Development District No. 1. [When publishing INSERT MAP of Development District Project No. 1, and Tax Increment Financing District No. 24] All interested persons may appear at the hearing and present their views orally or prior to the meeting in writing. BY ORDER OF THE CITY COUNCIL OF THE CITY OF ELK RIVER,MINNESOTA City Clerk 432923v1 JSB EL185-22 �j City of Elk Resolution 14- River A Resolution of the City of Elk River Approving the Modification of the Development Program for a Development District No. I, Establishing a Tax Increment Financing District and Approving a Tax Increment Financing Plan Therefor BE IT RESOLVED by the City Council (the "Council") of the City of Elk River, Minnesota (the "City"), as follows: Section 1. Recitals. 1.01. It has been proposed that the City modify the Development Program (the "Program Modification") for Development District No. 1 (the "Development District"), establish Tax Increment Financing District No. 24 within the Development District (the "TIF District") and adopt the related Tax Increment Financing Plan therefor (the "TIF Plan") all pursuant to and in conformity with applicable law,including Minnesota Statutes, Sections 469.124 through 469.133 and Sections 469.174 through 469.1794, as amended (the "TIF Act"), all as reflected in that certain document entitled "Modification to the Development Program for Development District No. 1 and the Tax Increment Financing Plan for Tax Increment Financing (Housing) District No. 24 (Blackhawk Woods Senior Living Development)", and presented for the Council's consideration. 1.02. The City has performed all actions required by law to be performed prior to the approval of the Program Modification and the TIF Plan, including without limitation delivery of the Program Modification and the TIF Plan to the Board of Sherburne County (the "County") and the Board of Independent School District No. 728 (the "School District"), and the holding of a public hearing by the City thereon following notice thereof published in the City's official newspaper at least 10 but not more than 30 days prior to the public hearing. 1.03. The Council has investigated the facts relating to the Program Modification and the TIF Plan; at the public hearing the City Council heard testimony from all interested parties on the TIF Plan; the City Council has considered the documentation submitted in support of the TIF District and TIF Plan,including data,information and/or substantiation constituting or relating to why the TIF District meets the requirements to be a housing tax increment financing district and why the assistance satisfies the "but for" test; and the City Council has taken into account the information and knowledge gained in hearings upon and during consideration of other matters relating to the proposed Development. Section 2. Findings for the Adoption and Approval of the Program Modification and TIF Plan. 2.01. The City Council hereby finds that the creation of the TIF District and adoption of the TIF Plan therefor, are intended and,in the judgment of the City Council, their effect will be, to carry out the objectives of the Program Modification and to create an impetus for the construction of low and moderate income housing, and will otherwise promote certain public purposes and accomplish certain objectives as specified in the Program Modification and TIF Plan. p I I E I E 0 1T NATURE 2.02. The City Council hereby finds that the TIF District qualifies as a "housing district" within the meaning of the TIF Act for the following reasons: The District is, pursuant to Minnesota Statutes, Section 469.174, Subdivision 11, a "housing district" because it consists of a project or portions of a project intended for occupancy, in part, by persons or families of low and moderate income as defined in Chapter 462A, Title II of the National Housing Act of 1934; the National Housing Act of 1959; the United States Housing Act of 1937, as amended; Title V of the Housing Act of 1949, as amended; and any other similar present or future federal, state or municipal legislation or the regulations promulgated under any of those acts. No more than 20% of the square footage of buildings that receive assistance from tax increments will consist of commercial, retail or other nonresidential uses: The project to be constructed in the TIF District is a multifamily rental housing facility consisting of approximately 56 one-level townhome units for seniors. At least 20% of the units (i.e., 12 units) in the project that receive tax increment financing assistance will be rented to and occupied by individuals or families whose income is 50% or less of area median income. 2.03. The City Council hereby makes the following additional findings: (a) The City Council further finds that the proposed development, in the opinion of the City Council, would not occur solely through private investment within the reasonably foreseeable future and, therefore, the use of tax increment financing is deemed necessary. The specific basis for such finding being: The proposed approximately 56-unit affordable senior rental housing development would not be undertaken in the reasonably foreseeable future due to the reduced return on investment from affordable rental housing compared to market rate housing, based on a project pro forma and other materials submitted to the City by the proposed developer. The proposed developer has represented that the development could not proceed without tax increment assistance. (b) The City Council further finds that the TIF Plan conforms to the general plan for the development or redevelopment of the City as a whole. The specific basis for such finding being: The TIF Plan will generally complement and serve to implement policies adopted in the City's comprehensive plan. The housing development contemplated is in accordance with the existing zoning for the property. (c) The City Council further finds that the TIF Plan will afford maximum opportunity consistent with the sound needs of the City as a whole for the development of the TIF District by private enterprise. The specific basis for such finding being: The proposed development to occur within the TIF District is primarily low and moderate income senior housing. The development will increase the 2 taxable market valuation of the City. The available affordable senior housing in the City will expand by approximately 56 rental units with the completion of the development contemplated by the TIF Plan. 2.04. The provisions of this Section 2 are hereby incorporated by reference into and made a part of the TIF Plan. Section 3. Approval and Adoption of the Plans; Policy on Interfund Loans and Advances. 3.01. The TIF Plan and Program Modification, as presented to the Council on this date, including without limitation the findings and statements of objectives contained therein, are hereby approved,ratified, established, and adopted and shall be placed on file at City Hall. 3.02. The staff of the City and the City's advisors and legal counsel are authorized and directed to proceed with the establishment of the TIF District and the implementation of the TIF Plan and this Resolution, including without limitation filing the TIF Plan and Program Modification with the County,the Commissioner of Revenue and the Office of the State Auditor. The Mayor and City Administrator are hereby authorized and directed to negotiate, draft, execute, prepare and file all further plans,resolutions,documents and contracts necessary to accomplish these actions. 3.03. The Council hereby approves a policy on interfund loans or advances ("Loans") for the TIF District,as follows: (a) The authorized tax increment eligible costs (including without limitation out- of-pocket administrative expenses) payable from the TIF District, as its TIF Plan is originally adopted or may be amended, may need to be financed on a short-term and/or long-term basis via one or more Loans, as may be determined by the City Finance Director from time to time. (b) The Loans may be advanced if and as needed from available monies in the City's general fund or other City fund designated by the City Finance Director. Loans may be structured as draw-down or"line of credit" obligations of the lending fund(s). (c) Neither the maximum principal amount of any one Loan nor the aggregate principal amount of all Loans may exceed the adopted and,if applicable, amended TIF Plan budget. (d) The maximum term of any Loan shall not exceed the lesser of the statutory duration limit of the TIF District or such earlier date as the City Finance Director may specify in writing. All Loans may be pre-paid, in whole or in part, whether from tax increment revenue,TIF bond proceeds or other eligible sources. (e) The outstanding and unpaid principal amount of each Loan shall bear interest at the rate prescribed by the statute (Minnesota Statutes, Section 469.178, Subdivision 7),which is the greater of the rates specified under Sections 270.75 or 549.09 at the time a Loan, or any part of it,is first made, subject to the right of the City, as determined by the City Finance Director,to specify a lower rate. 3 (fl Such Loans within the above guidelines are pre-approved. The Loans need not take any particular form and may be undocumented, except that the City Finance Director shall maintain all necessary or applicable data on the Loans. Passed and adopted this 21"day of April 2014. John J. Dietz,Mayor ATTEST: Tina Allard, City Clerk 4 City of Elk River, Minnesota Modification to the Development Program for Development District No. 1 and the Tax Increment Financing Plan for Tax Increment Financing (Housing) District No. 24 (Blackhawk Woods Senior Living Development) Draft Dated: April 15, 2014 Public Hearing Date: April 21, 2014 Approved: Prepared by: SPRINGSTED INCORPORATED 380 Jackson Street, Suite 300 St. Paul, MN 55101-2887 (651) 223-3000 www.springsted.com TABLE OF CONTENTS SECTION I—MODIFICATION TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT DISTRICT NO. 1 Foreword............................................................................................................................... 1 SECTION 11—TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING (HOUSING) DISTRICT NO. 24 A. Definitions.................................................................................................................... 2 B. Statutory Authorization................................................................................................. 2 C. Statement of Need and Public Purpose....................................................................... 2 D. Statement of Objectives............................................................................................... 2 E. Designation of Tax Increment Financing District as a Housing District........................ 2 F. Duration of the TIF District........................................................................................... 3 G. Property to be Included in the TIF District.................................................................... 3 H. Property to be Acquired in the TIF District................................................................... 5 1. Specific Development Expected to Occur Within the TIF District................................. 5 J. Findings and Need for Tax Increment Financing ......................................................... 5 K. Estimated Public Costs................................................................................................ 6 L. Estimated Sources of Revenue.................................................................................... 6 M. Estimated Amount of Bonded Indebtedness................................................................ 7 N. Original Net Tax Capacity............................................................................................ 7 0. Original Tax Capacity Rate.......................................................................................... 7 P. Projected Retained Captured Net Tax Capacity and Projected Tax Increment........... 8 Q. Use of Tax Increment................................................................................................... 6 R. Excess Tax Increment.................................................................................................. 9 S. Tax Increment Pooling and the Five Year Rule............................................................ 9 T. Limitation on Administrative Expenses......................................................................... 9 U. Limitation on Property Not Subject to Improvements-Four Year Rule........................ 10 V. Estimated Impact on Other Taxing Jurisdictions.......................................................... 10 W. Prior Planned Improvements........................................................................................ 11 X. Development Agreements............................................................................................ 11 Y. Assessment Agreements............................................................................................. 11 Z. Modifications of the Tax Increment Financing Plan...................................................... 11 AA. Administration of the Tax Increment Financing Plan.................................................... 12 AB. Financial Reporting and Disclosure Requirements...................................................... 12 Map of the Tax Increment Financing District......................................................................... EXHIBIT I Map of the Development District........................................................................................... EXHIBIT I AssumptionsReport ............................................................................................................. EXHIBIT 11 Projected Tax Increment Report........................................................................................... EXHIBIT III Estimated Impact on Other Taxing Jurisdictions Report....................................................... EXHIBIT IV City of Elk River, Minnesota SECTION I-MODIFICATION TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT DISTRICT NO. 1 Foreword The following text represents a Modification to the Development Program for Development District No. 1. This modification represents a continuation of the goals and objectives set forth in the Development Program for Development District No. 1. The changes generally include the establishment of Tax Increment Financing (Housing) District No. 24. For further information, a review of the Development Program for Development District No. 1 is recommended. It is available from the City Administrator at the City of Elk River. Other relevant information is contained in the Tax Increment Financing Plans for the Tax Increment Financing Districts located within Development District No. 1. SPRINGSTED Page 1 City of Elk River, Minnesota SECTION II-TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING(HOUSING) DISTRICT NO. 24 Section A Definitions The terms defined in this section have the meanings given herein, unless the context in which they are used indicates a different meaning: "City„means the City of Elk River, Minnesota; also referred to as a"Municipality". "Council" means the City Council of the City; also referred to as the"Governing Body". "County„means Sherburne County, Minnesota. "Development District" means Development District No. 1 in the City, which is described in the corresponding Development Program. "Development Program"means the Development Program for the Development District. "Project Area" means the geographic area of the Development District. "School District" means Independent School District No. 728, Minnesota. "State"means the State of Minnesota. "TIF Act"means Minnesota Statutes, Sections 469.174 through 469.1794, both inclusive. "TIF District"means Tax Increment Financing (Housing) District No. 24. "TIF Plan" means the tax increment financing plan for the TIF District(this document). Section B Statutory Authorization See the Development Program for the Development District. Section C Statement of Need and Public Purpose See the Development Program for the Development District. Section D Statement of Objectives See the Development Program for the Development District. Section E Designation of Tax Increment Financing District as a Housing District Pursuant to the TIF Act, the City seeks to create TIF District No. 24 as a housing district and adopt a TIF Plan for the TIF District. Housing districts are a type of tax increment financing district that consist of a project intended for occupancy, in part, by persons or families of low and moderate income. Low and moderate income is defined in federal, state, and SPRINGSTED Page 2 City of Elk River, Minnesota municipal legislation. A project does not qualify if more than 20% of the square footage of buildings that receive assistance from tax increments consist of commercial, retail or other nonresidential use. In addition, housing districts are subject to various income limitations and requirements for residential property. For owner occupied residential property, 95%of the housing units must be initially purchased and occupied by individuals whose family income is less than or equal to the income requirements for qualified mortgage bond projects under section 143(f) of the Internal Revenue Code. For residential rental property, the property must satisfy the income requirements for a qualified residential rental project as defined in section 142(4)of the Internal Revenue Code. The TIF District meets the above qualifications for these reasons: 1. The planned improvements consist of the following: a. Approximately 56 total units,for which the following will apply: o 56 one level senior townhome units with at least 40% (22) of the rental units will be occupied by persons with incomes no greater than 60% of county median income. The developer anticipates that 100%of the units will be occupied by residents with incomes no greater than 60%. 2. At least 80% of the square footage of the building(s) in the proposed development will be used for residential purposes. No more than 20 percent of the square footage of buildings that receive assistance from tax increments may consist of commercial, retail, or other nonresidential uses. 3. The City will require in the development agreement that the income limitations for the rental units in the senior housing project will apply for the duration of the TIF District. Tax increments derived from a housing district must be used solely to finance the cost of housing projects as defined in section 469.174, subd. 2 and 469.176 of the TIF Act. The cost of public improvements directly related to the housing projects and the allocated administrative expenses of the City may be included in the cost of a housing project. The City anticipates using tax increment revenues to finance a portion of the extraordinary costs associated with providing the affordable housing units. Section F Duration of the TIF District Housing districts may remain in existence 25 years from the date of receipt of the first tax increment. Modifications of this plan (see Section Z)shall not extend these limitations. The City reserves the right to allow the TIF District to remain in existence the maximum duration allowed by law (projected to be through the year 2041), but anticipates the TIF District will be decertified prior to that time (see Section P) in approximately 2031, based on the anticipated terms of assistance. All tax increments from taxes payable in the year the TIF District is decertified shall be paid to the City. Pursuant to Minnesota Statutes, Section 469.175, subd. 1(b), the City specifies 2016 as the first year in which it elects to receive tax increment from the TIF District,which is no later than four years following the year of approval of the TIF District. The City anticipates that the TIF District will be decertified after 15 full years of collection in taxes payable 2031 (see Section P). Section G Property to be Included in the TIF District The TIF District will consist of an approximate 10.94 acre area of land located within the Project Area. A map showing the approximate location of the TIF District is shown in Exhibit I. The PID numbers and legal descriptions of the existing parcels that will comprise the TIF District are described below: SPRINGSTED Page 3 City of Elk River, Minnesota Parcel ID Number Legal Description 75-741-0182 741-WEST OAKS THIRD ADDITION Sec.31 T33N R26W,LOT 41, BLK 1 75-753-0010 753-WEST OAKS FOURTH ADDITION Sec.31 T33N R26W,OUTLOT A 75-741-0180 LOT 40, BLK 1 75-741-0178 LOT 39, BLK 1 75-741-0176 LOT 38, BLK 1 75-741-0174 LOT 37, BLK 1 75-741-0172 LOT 36, BLK 1 75-741-0170 LOT 35, BLK 1 75-741-0168 LOT 34, BLK 1 75-741-0166 LOT 33, BLK 1 75-741-0164 LOT 32, BLK 1 75-741-0162 LOT 31, BLK 1 75-741-0160 LOT 30, BLK 1 75-741-0158 LOT 29, BLK 1 75-741-0156 LOT 28, BLK 1 75-741-0154 LOT 27, BLK 1 75-741-0152 LOT 26, BLK 1 75-741-0150 LOT 25, BLK 1 75-741-0148 LOT 24, BLK 1 75-741-0146 LOT 23, BLK 1 75-741-0144 LOT 22, BLK 1 75-741-0142 LOT 21, BLK 1 75-741-0140 LOT 20, BLK 1 75-741-0138 LOT 19, BLK 1 75-741-0136 LOT 18, BLK 1 75-741-0134 LOT 17, BLK 1 75-741-0132 LOT 16, BLK 1 75-741-0130 LOT 15, BLK 1 75-741-0128 LOT 14, BLK 1 75-741-0126 LOT 13, BLK 1 75-741-0124 LOT 12, BLK 1 75-741-0122 LOT 11, BLK 1 75-741-0120 LOT 10, BLK 1 75-741-0118 LOT 9, BLK 1 75-741-0116 LOT 8, BLK 1 75-741-0114 LOT 7, BLK 1 75-741-0112 LOT 6, BLK 1 75-741-0110 LOT 5, BLK 1 75-741-0108 LOT 4, BLK 1 75-741-0106 LOT 3, BLK 1 75-741-0104 LOT 2, BLK 1 75-741-0102 LOT 1, BLK 1 The area encompassed by the TIF District shall also include all street or utility right-of-ways located upon or adjacent to the property described above. SPRINGSTED Page 4 City of Elk River, Minnesota Section H Property to be Acquired in the TIF District The City may acquire and sell any or all of the property located within the TIF District; however, the City does not anticipate acquiring any such property at this time, other than for road right of way or utility purposes. Section I Specific Development Expected to Occur Within the TIF District The proposed development is expected to consist of the construction of an affordable senior rental housing development consisting of approximately 56 one-level townhome units. In order to comply with the statutory requirements of a Housing TIF District, at least 40% (22 units) of the 56 units would be occupied by residents with incomes at or below 60% of the area median income. The City anticipates using available tax increment to finance eligible housing costs associated with development of the 56-unit affordable senior housing project, as well as related administrative expenses of the project. The City anticipates that construction will commence on the 56 unit complex in 2014 and be fully constructed by December 31, 2015 and be 100%assessed and on the tax rolls as of January 2, 2016 for taxes payable in 2017. At the time this document was prepared there were no signed construction contracts with regards to the above described development. The City intends to enter into a development agreement with the developer for the housing development described in this section. In addition, the City may use Tax Increment from the TIF District in the future to provide financial assistance for the development of affordable housing within the Project which meets the income requirements set forth in Section 469.1761 of the Tax Increment Act. Section J Findings and Need for Tax Increment Financing In establishing the TIF District, the City makes the following findings: (1) The TIF District qualifies as a housing district; See Section E of this document for the reasons and facts supporting this finding. (2) The proposed development, in the opinion of the City, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The proposed development is expected to consist of approximately 56 total units. The City's finding that the proposed development would be unlikely to occur solely through private investment within the reasonably foreseeable future is based on an analysis of the project pro forma and other materials submitted to the City by the developer. These documents have indicated that the reduction in annual revenues due to the lower rents associated with providing affordable housing units will result in returns that are not sufficient to support development, thereby making this housing development infeasible without public assistance. (3) The TIF Plan conforms to the general plan for development or redevelopment of the City as a whole; and The reasons and facts supporting this finding are that the City has found the TIF plan consistent with the general plan for development of the city as a whole and will generally complement and serve to implement policies adopted in the City's comprehensive plan. (4) The TIF Plan will afford maximum opportunity, consistent with the sound needs of the City as a whole,for the development of the Project Area by private enterprise. SPRINGSTED Page 5 City of Elk River, Minnesota Through the implementation of the TIF Plan, the City will provide an impetus for an affordable senior housing complex, which complements the overall housing needs of the City and helps support other private types of development by providing a range of housing opportunities for residents and workers within the City. Section K Estimated Public Costs The estimated public costs of the TIF District are listed below. Such costs are eligible for reimbursement from tax increments of the TIF District. Estimated Public Costs Estimated Amount Land/Building acquisition $0 Site Improvements/Preparation costs $247,101 Utilities $0 Other public improvements $0 Construction of affordable housing $400,000 Pooling $0 Administrative expenses $111,982 Interest expenses $360,712 Total $1,119,795 The City reserves the right to administratively adjust the amount of any of the items listed above or to incorporate additional eligible items, so long as the total estimated public cost ($1,119,795) is not increased. The City also reserves the right to fund any of the identified costs with any other legally available revenues, but anticipates that such costs will be primarily financed with tax increments. Section L Estimated Sources of Revenue Estimated Sources of Revenue Estimated Amount Tax Increment revenue $1,119,795 Interest on invested funds Total $1,119,795 The City anticipates providing financial assistance to the proposed development through the use of a pay-as-you-go note. As tax increments are collected from the TIF District in future years, a portion of these taxes will be distributed to the developer/owner as reimbursement for public costs incurred (see Section K). The City reserves the right to finance any or all public costs of the TIF District using pay-as-you-go assistance, internal funding, general obligation or revenue debt, or any other financing mechanism authorized by law. The City also reserves the right to use other sources of revenue legally applicable to the Project Area to pay for such costs including, but not limited to, special assessments, utility revenues,federal or state funds, and investment income. SPRINGSTED Page 6 City of Elk River, Minnesota Section M Estimated Amount of Bonded Indebtedness The maximum principal amount of bonds (as defined in the TIF Act)secured in whole or part with tax increment from the TIF District is $1,119,795. The City currently plans to finance the improvements and affordable housing costs in the form of a pay-as-you go revenue note to reimburse the developer for certain project costs associated with construction of the project, but reserves the right to issue bonds in any form, including without limitation any interfund loan with interest not to exceed the maximum permitted under Section 469.178, subd. 7 of the TIF Act. Section N Original Net Tax Capacity The County Auditor shall certify the original net tax capacity of the TIF District. This value will be equal to the total net tax capacity of all property in the TIF District as certified by the State Commissioner of Revenue. For districts certified between January 1 and June 30, inclusive, this value is based on the previous assessment year. For districts certified between July 1 and December 31, inclusive, this value is based on the current assessment year. The Estimated Market Value of all property within the TIF District as of January 2, 2014,for taxes payable in 2015, is estimated to be $311,100. Upon establishment of the TIF District, and anticipated subsequent reclassification of property from residential rental property with a classification rate of 1.25% to a reduced 4d residential rental classification of 0.75%, it is estimated that the original net tax capacity of the TIF District will be approximately $2,333. Each year the County Auditor shall certify the amount that the original net tax capacity has increased or decreased as a result of: (1) changes in the tax-exempt status of property; (2) reductions or enlargements of the geographic area of the TIF District; (3) changes due to stipulation agreements or abatements; or (4) changes in property classification rates. Section 0 Original Tax Capacity Rate The County Auditor shall also certify the original tax capacity rate of the TIF District. This rate shall be the sum of all local tax rates that apply to property in the TIF District. This rate shall be for the same taxes payable year as the original net tax capacity. In future years, the amount of tax increment generated by the TIF District will be calculated using the lesser of(a)the sum of the current local tax rates at that time or(b)the original tax capacity rate of the TIF District. For purposes of estimating the tax increment generated by the TIF District, the sum of the local tax rates for taxes levied in 2013 and payable in 2014 is 159.678%as shown below: 2013/2014 Taxing Jurisdiction Local Tax Rate City of Elk River 48.540% Sherburne County 54.861% ISD#728 51.286% Other 4.987% Total 159.678% SPRINGSTED Page 7 City of Elk River, Minnesota Section P Projected Retained Captured Net Tax Capacity and Projected Tax Increment The City anticipates that the project will begin construction in early 2014 and be complete by December 31, 2015, creating a total tax capacity for TIF District No. 24 of$39,324 as of January 2, 2016. The captured tax capacity as of that date is estimated to be $36,991 and the first full year of tax increment for taxes payable in 2017 is estimated to be$59,067 with partial value and increment in taxes payable 2016. A complete schedule of estimated tax increment from the TIF District is shown in Exhibit III. The estimates shown in this TIF plan assume that class rates will be 4d residential rental (low-income) at 0.75% of the estimated market value, and assume 3%annual increases in market values. Each year the County Auditor shall determine the current net tax capacity of all property in the TIF District. To the extent that this total exceeds the original net tax capacity, the difference shall be known as the captured net tax capacity of the TIF District. The County Auditor shall certify to the City the amount of captured net tax capacity each year. The City may choose to retain any or all of this amount. It is the City's intention to retain 100% of the captured net tax capacity of the TIF District. Such amount shall be known as the retained captured net tax capacity of the TIF District. Exhibit II gives a listing of the various information and assumptions used in preparing a number of the exhibits contained in this TIF Plan, including Exhibit III which shows the projected tax increment generated over the anticipated life of the TIF District. Section Q Use of Tax Increment Each year the County Treasurer shall deduct 0.36% of the annual tax increment generated by the TIF District and pay such amount to the State's General Fund. Such amounts will be appropriated to the State Auditor for the cost of financial reporting and auditing of tax increment financing information throughout the state. Exhibit III shows the projected deduction for this purpose over the anticipated life of the TIF District. The City has determined that it will use 100% of the remaining tax increment generated by the TIF District for any of the following purposes: (1) Pay for the estimated public costs of the TIF District (see Section K) and County administrative costs associated with the TIF District(see Section T); (2) pay principal and interest on one ore more pay-as-you-go notes, tax increment bonds or other bonds issued to finance the estimated public costs of the TIF District; (3) accumulate a reserve securing the payment of tax increment bonds or other bonds issued to finance the estimated public costs of the TIF District; (4) pay all or a portion of the county road costs as may be required by the County Board under M.S. Section 469.175, Subdivision 1a; or (5) return excess tax increments to the County Auditor for redistribution to the City, County and School District. Tax increments from property located in one county must be expended for the direct and primary benefit of a project located within that county, unless the county board involved waives this requirement. Tax increments shall not be used to circumvent levy limitations applicable to the City. SPRINGSTED Page 8 City of Elk River, Minnesota Tax increment derived from the TIF District must be used solely to finance the cost of housing projects (including administrative expenses and public improvement costs) as defined in Section 469.174, Subdivision 11 of the Tax Increment Act and subject to the requirements set forth in Section 469.1761 of the Tax Increment Act. Tax increment shall not be used to finance the acquisition, construction, renovation, operation, or maintenance of a building to be used primarily and regularly for conducting the business of a municipality, county, school district, or any other local unit of government or the State or federal government. Further, tax increments may not be used to finance: a commons area used as a public park; facilities used for social or recreational purposes (whether public or private); or publicly-owned facilities used for conference purposes; provided that tax increment may be used for a privately owned conference facility, and for parking structures whether public or privately owned and whether or not they are ancillary to one of the otherwise prohibited uses described above. If there exists any type of agreement or arrangement providing for the developer, or other beneficiary of assistance, to repay all or a portion of the assistance that was paid or financed with tax increments, such payments shall be subject to all of the restrictions imposed on the use of tax increments. Assistance includes sale of property at less than the cost of acquisition or fair market value, grants, ground or other leases at less then fair market rent, interest rate subsidies, utility service connections, roads, or other similar assistance that would otherwise be paid for by the developer or beneficiary. Section R Excess Tax Increment Beginning with the sixth year after certification of the TIF District, any year in which the tax increments from the TIF District exceed the amount necessary to pay the estimated public costs authorized by the TIF Plan, the City shall use the excess tax increments to: (1) prepay any outstanding tax increment bonds; (2) discharge the pledge of tax increments thereof; (3) pay amounts into an escrow account dedicated to the payment of the tax increment bonds; or (4) return excess tax increments to the County Auditor for redistribution to the City, County and School District. The County Auditor must report to the Commissioner of Education the amount of any excess tax increment redistributed to the School District within 30 days of such redistribution. Section S Tax Increment Pooling and the Five Year Rule As permitted under Minnesota Statutes, Section 469.1763, subdivision 2(b)and subdivision 3(a)(5), any expenditures of increment from the TIF District to pay the cost of a "housing project" as defined in Minnesota Statutes, Section 469.174, subd. 11 will be treated as an expenditure within the district for the purposes of the "pooling rules" and the "five year rule". The City does not currently anticipate that tax increments will be spent outside the TIF District (except allowable administrative expenses), but such expenditures are expressly authorized in this TIF Plan. The City does not expect that allowable pooling expenditures will be made outside of the TIF District, but such expenditures are expressly authorized in this TIF Plan. Section T Limitation on Administrative Expenses Administrative expenses are defined as all costs of the City other than: (1) amounts paid for the purchase of land; SPRINGSTED Page 9 City of Elk River, Minnesota (2) amounts paid for materials and services, including architectural and engineering services directly connected with the proposed development within the TIF District; (3) relocation benefits paid to, or services provided for, persons or businesses residing or located within the TIF District; or (4) amounts used to pay interest on,fund a reserve for, or sell at a discount,tax increment bonds. Administrative expenses include amounts paid for services provided by bond counsel, fiscal consultants, planning or economic development consultants, and actual costs incurred by the County in administering the TIF District. Tax increments may be used to pay administrative expenses of the TIF District up to the lesser of(a) 10% of the total tax increment expenditures authorized by the TIF Plan or(b) 10%of the total tax increments received by the District. Section U Limitation on Property Not Subject to Improvements- Four Year Rule If after four years from certification of TIF District No. 24, demolition, rehabilitation, renovation, or qualified improvement of an adjacent street has commenced on a parcel located within the TIF District, then that parcel shall be excluded from the TIF District and the original net tax capacity shall be adjusted accordingly. Qualified improvements of a street are limited to construction or opening of a new street, relocation of a street, or substantial reconstruction or rebuilding of an existing street. The City must submit to the County Auditor, by February 1 of the fifth year, evidence that the required activity has taken place for each parcel in the TIF District. If a parcel is excluded from the TIF District and the City or owner of the parcel subsequently commences any of the above activities, the City shall certify to the County Auditor that such activity has commenced and the parcel shall once again be included in the TIF District. The County Auditor shall certify the net tax capacity of the parcel, as most recently certified by the Commissioner of Revenue, and add such amount to the original net tax capacity of the TIF District. Section V Estimated Impact on Other Taxing Jurisdictions Exhibit IV shows the estimated impact on other taxing jurisdictions if the maximum projected retained captured net tax capacity of the TIF District was hypothetically available to the other taxing jurisdictions. The City believes that there will be no adverse impact on other taxing jurisdictions during the life of the TIF District, since the proposed development would not have occurred without the establishment of the TIF District and the provision of public assistance. A positive impact on other taxing jurisdictions will occur when the TIF District is decertified and the development therein becomes part of the general tax base. The fiscal and economic implications of the proposed tax increment financing district, as pursuant to Minnesota Statutes, Section 469.175, Subdivision 2, are listed below. 1. The total amount of tax increment that will be generated over the life of the district is estimated to be $1,123,843. 2. To the extent the proposed project in TIF District No. 24 generates any public cost impacts on City provided services such as police and fire protection, public infrastructure, and borrowing costs attributable to the district, such costs will be levied upon the taxable net tax capacity of the City, excluding that portion captured by the District. The City does not anticipate issuing general obligation tax increment bonds attributable to the District and reserves the right to finance certain project costs with this method as necessary. 3. The amount of tax increments over the life of the district that would be attributable to school district levies, assuming the school district's share of the total local tax rate for all taxing jurisdictions remained the same, is estimated to be$360,960. SPRINGSTED Page 10 City of Elk River, Minnesota 4. The amount of tax increments over the life of the district that would be attributable to county levies, assuming the county's share of the total local tax rate for all taxing jurisdictions remained the same is estimated to be$386,121. 5. No additional information has been requested by the county or school district that would enable it to determine additional costs that will accrue to it due to the development proposed for the district. Section W Prior Planned Improvements The City shall accompany its request for certification to the County Auditor(or notice of district enlargement), with a listing of all properties within the TIF District for which building permits have been issued during the 18 months immediately preceding approval of the TIF Plan. The County Auditor shall increase the original net tax capacity of the TIF District by the net tax capacity of each improvement for which a building permit was issued. There have been no building permits issued in the last 18 months in conjunction with any of the properties within the TIF District. Section X Development Agreements If within a project containing a housing district, more than 10% of the acreage of the property to be acquired by the City is purchased with tax increment bonds proceeds (to which tax increment from the property is pledged), then prior to such acquisition, the City must enter into an agreement for the development of the property. Such agreement must provide recourse for the City should the development not be completed. The City anticipates entering into an agreement for development, but does not anticipate acquiring any property located within the TIF District, other than for right of way and utility purposes. Section Y Assessment Agreements The City may, upon entering into a development agreement, also enter into an assessment agreement with any person, which establishes a minimum market value of the land and improvements for each year during the life of the TIF District. The assessment agreement shall be presented to the County or City Assessor who shall review the plans and specifications for the improvements to be constructed, review the market value previously assigned to the land, and so long as the minimum market value contained in the assessment agreement appears to be an accurate estimate, shall certify the assessment agreement as reasonable. The assessment agreement shall be filed for record in the office of the County Recorder of each county where the property is located. Any modification or premature termination of this agreement must first be approved by the City, County and School District. The City may consider entering into an assessment agreement. Section Z Modifications of the Tax Increment Financing Plan Any reduction or enlargement in the geographic area of the Project Area or the TIF District; increase in the amount of bonded indebtedness to be incurred; increase in the amount of capitalized interest; increase in that portion of the captured net tax capacity to be retained by the City; increase in the total estimated capital and administrative costs; or designation of additional property to be acquired by the City shall be approved only after satisfying all the necessary requirements for approval of the original TIF Plan. This paragraph does not apply if: (1) the only modification is elimination of parcels from the TIF District; and (2) the current net tax capacity of the parcels eliminated equals or exceeds the net tax capacity of those parcels in the TIF District's original net tax capacity, or the City agrees that the TIF District's SPRINGSTED Page 11 City of Elk River, Minnesota original net tax capacity will be reduced by no more than the current net tax capacity of the parcels eliminated. The City must notify the County Auditor of any modification that reduces or enlarges the geographic area of the TIF District. The geographic area of the TIF District may be reduced but not enlarged after five years following the date of certification. Section AA Filing and Administration of the Tax Increment Financing Plan Upon adoption of the TIF Plan, the City shall submit a copy of such plan to the Minnesota Department of Revenue and the Office of the State Auditor. The City shall also request that the County Auditor certify the original net tax capacity and net tax capacity rate of the TIF District. To assist the County Auditor in this process, the City shall submit copies of the TIF Plan, the resolution establishing the TIF District and adopting the TIF Plan, and a listing of any prior planned improvements. The City shall also send the County Assessor any assessment agreement establishing the minimum market value of land and improvements in the TIF District, and shall request that the County Assessor review and certify this assessment agreement as reasonable. The County shall distribute to the City the amount of tax increment as it becomes available. The amount of tax increment in any year represents the applicable property taxes generated by the retained captured net tax capacity of the TIF District. The amount of tax increment may change due to development anticipated by the TIF Plan, other development, inflation of property values, or changes in property classification rates or formulas. In administering and implementing the TIF Plan,the following actions should occur on an annual basis: (1) prior to July 1, the City shall notify the County Assessor of any new development that has occurred in the TIF District during the past year to ensure that the new value will be recorded in a timely manner. (2) if the County Auditor receives the request for certification of a new TIF District, or for modification of an existing TIF District, before July 1, the request shall be recognized in determining local tax rates for the current and subsequent levy years. Requests received on or after July 1 shall be used to determine local tax rates in subsequent years. (3) each year the County Auditor shall certify the amount of the original net tax capacity of the TIF District. The amount certified shall reflect any changes that occur as a result of the following: (a) the value of property that changes from tax-exempt to taxable shall be added to the original net tax capacity of the TIF District. The reverse shall also apply; (b) the original net tax capacity may be modified by any approved enlargement or reduction of the TIF District; (c) if the TIF District is classified as an economic development district, then the original net tax capacity shall be increased by the amount of the annual adjustment factor; and (d) if laws governing the classification of real property cause changes to the percentage of estimated market value to be applied for property tax purposes, then the resulting increase or decrease in net tax capacity shall be applied proportionately to the original net tax capacity and the retained captured net tax capacity of the TIF District. The County Auditor shall notify the City of all changes made to the original net tax capacity of the TIF District. Section AB Financial Reporting and Disclosure Requirements The City will comply with all reporting requirements for the TIF District under Minnesota Statutes, Section 469.175, subdivisions 5 and 6. SPRINGSTED Page 12 Exhibit / Tax Increment Financ ing (o sing ms!r|G N% 2 ' > ` ©. « 7$g����■ - . - � � . � } . 7S-75f 165 \ . . -�4 : 3RD Ala r SPR NGSTED Page 13 • .� t 1• �I 1 t I it ��-• r- -- � ' � �I�I �11 �— �■ ■ ■r1 1eltil■ RA IIr�C. wV tiw �y'uuiilt Bill_, -Id= I -. rid,>_�.�i�� ��- ":.•,�.. � � .. - � x;11111!' • -__ `coc'�l � 0�17..i.��;�'!'!=- � 1� R- _ �" ;: fie- ►�L .x , Z - �•� �•7R"�."'iii -' MILO out ii'-E= J:fit::: hill V:-r�n■ V 77� =i7r m . BOUNDARY DEWLOPMEW DISTRICT NO.1 I ELK RrVEF, II Exhibit 11 Assumptions Report City of Elk River, Minnesota Tax Increment Financing (Housing) District No.24 Blackhawk Woods Senior Housing Project Updated Revenues based on 56 units with EMV of$5.204M and 3% Annual MV Inflator Type of Tax Increment Financing District Housing Maximum Duration of TIF District 25 years from 1st increment Projected Certification Request Date 06/30/14 Decertification Date * 12/31/31 (16 Years of Increment) 2013/2014 Base Estimated Market Value $311,100 Original Net Tax Capacity $2,333 Assess ment/Collection Year 2014/2015 2015/2016 2016/2017 2017/2018 Base Estimated Market Value $311,100 $311,100 $311,100 $311,100 Estimated Increase in Value- New Construction 0 989,956 4,932,156 5,089,453 Total Estimated Market Value 311,100 1,301,056 5,243,256 5,400,553 Total Net Tax Capacity $2,333 $9,758 $39,324 $40,504 City of Elk River 48.5440% Sherburne County 54.8610% ISD#728 51.2860% Other 4.987% Local Tax Capacity Rate 159.678% 2013/2014 Fiscal Disparities Contribution From TIF District 0.0000% Administrative Retainage Percent(maximum = 10%) 10.00% Pooling Percent 0.00% Bonds Note(Pay-As-You-Go) Bonds Dated NA Note Dated 12/31/14 Bond Rate NA Note Rate 4.50% Bond Amount NA Note Amount $653,400 Present Value Date& Rate 12/31/14 4.50% PV Amount $647,101 Notes *based on City desire to reduce maximum term and developer's request for assistance Projections assume no future changes to classification rates and current tax rates remain constant. 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The City asked Springsted to evaluate the tax increment financing (TIF) request submitted by Senior 30 Elk River Limited Partnership(the developer)for the proposed development of a senior housing rental project. The initial application and request consisted of a project with 84 units and the full term of a Housing TIF District(25+years) of assistance and Springsted prepared a Tax Increment Financing Application Review Worksheet based on the facts presented at the time. Following review by the HRA and City Council, it was recommended the developer pursue a reduced term of assistance. As a result, the developer has provided an updated request for financial assistance package with a project consisting of approximately 56 one-level townhome units. Consistent with the City's Tax Increment Financing Policy, Springsted prepared an updated Tax Increment Financing Application Review Worksheet that is attached to this memo for review. The developer's updated application for tax increment financing assistance proposes the development of a senior living townhome community consisting of a 56-unit townhome development,containing 32 one-bedroom units and 24 two-bedroom units.Additionally, each unit will include an attached garage.The development is proposed for persons of low and moderate income;which will result in income limitations for potential residents and reduced rental rates. Attached to this memo are the results of Springsted's updated review based on the new financial information provided by the Developer assuming a 56 unit development. The updated review of the project and completion of the housing review worksheet would rank this project as low with a score of 18 based on a high, moderate, low and not eligible scale. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at(651) 223-3036 or mhuot cDspringsted.com with any questions or comments. Public Sector Advisors Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul,MN 55101-2887 Springsted Tel: 651-223-3000 Fax: 651-223-3002 www.spdngsted.com MEMORANDUM - UPDATE FROM OCTOBER 16, 2013 TO: Members of the City Council of the City of Elk River Brian Beeman, Economic Development Director FROM: Mikaela Huot,Vice President Julian Bradshaw,Analyst DATE: April 15,2014 SUBJECT: Financial Analysis for proposed Blackhawk Woods Senior Living Development In 2013 the City of Elk River received a request for financial assistance to construct a senior housing project in the City. The City asked Springsted to evaluate the tax increment financing (TIF) request submitted by Senior 30 Elk River Limited Partnership(the developer)for the proposed development of a senior housing rental project. The initial application and request consisted of a project with 84 units and the full term of a Housing TIF District(25+years)of assistance. Following review by the HRA and City Council, it was recommended the developer pursue a reduced term of assistance. As a result,the developer has provided an updated request for financial assistance package with a project consisting of approximately 56 one-level townhome units. We have reviewed the project assumptions and general rationale for TIF assistance based on the updated information submitted by the developer. It is our understanding that the developer is in the process of assembling financing for the project, including tax credits and mortgage financing. It has been indicated that project funding would be contingent on City tax increment financing assistance and that a TIF Note is necessary to provide sufficient cash flow to meet both the tax credit syndicator and lender requirements including annual debt service and cash flow coverage in the operating proforma. Based on this information, the City could be justified in making a "but for" finding that the anticipated development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. We recommend, however, that the City also consider an appropriate level of TIF assistance for reimbursement of certain eligible project costs based on the developer's information. The purpose of this memo is to outline our analysis of the project including review of the developer's request for assistance, tax increment revenue projections, and review of the developer's project proforma and projected rates of return as provided by the developer. Public Sector Advisors City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 2 Background The request for Tax Increment Financing is based on the development of a senior living townhome community. The developer's revised request includes a proposal to construct a 56-unit townhome development, containing 32 one- bedroom units and 24 two-bedroom units.Additionally,each unit will include an attached garage.The development is proposed for persons of low and moderate income; which will result in income limitations for potential residents and reduced rental rates. The developer will be seeking to utilize federal low-income housing tax credits through the Section 42 4%program. These tax credits will provide an equity source for funding of the project. The developer indicated the receipt of TIF assistance from the City is necessary to meet scoring requirements set by the Minnesota Housing Finance Agency (MHFA)as well as lender requirements. The permanent financing for the project is anticipated to be obtained as tax exempt housing revenue bonds and also includes certain requirements for performance of the project. The developer will be undertaking the construction and operation of the proposed senior housing facility,for which it has sought TIF assistance from the City. The purpose of this analysis is two-fold, first to determine if the project is unlikely to proceed"but-for"the assistance, and second to determine if the requested assistance would create a rate of return in excess of typical market expectations. Developer Request for Tax Increment Financing Assistance The developer, Senior 30 Elk River Limited Partnership, submitted a request for TIF assistance with the purpose of TIF to finance extraordinary costs associated with constructing affordable senior housing within the City. The developer has requested tax increment assistance for financing a portion of the site improvement costs associated with construction of the project. After revising the project with adjustments to the funding assumptions and number of units,the developer was able to reduce the request for tax increment assistance to 15 years from the original request of 25 years. Based on the developer's updated project narrative and total estimated project costs, the City could consider tax increment assistance for financing of the site improvement costs associated with the project for the requested term of 15 years which equates to total revenues of approximately$1,007,813 as described further in the following sections of this analysis. There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay-as- you-go basis. With upfront financing,the City would finance a portion of the developer's initial project costs through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the developer would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 3 Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the developer. If tax increment revenues are less than originally projected,the developer receives less and therefore bears the risk of not being reimbursed the full amount of their financing. With bonds,the City would still need to make debt service payments and would have to use other sources to fill any shortfall of tax increment revenues. With internal financing, the City risks not repaying itself in full if tax increment revenues are not sufficient. Typically in either case of upfront financing,there is a shortfall payment guarantee with the developer. The developer has requested financial assistance as pay-as-you-go through a developer note. Tax Increment Analysis In order to estimate the amount of TIF revenues generated by the proposed development,certain assumptions were made based on the value of the project,construction schedule,and anticipated financing terms. ® Estimated base value(41 parcels)as of Jan. 1,2013 0 75-741-0182(EMV of$14,600) 0 75-753-0010—common area(EMV of$24,500) 0 39 undeveloped parcels within common area(EMV of$272,00) o anticipated to be reclassified as 4d rental following development m Estimated incremental market value upon completion o $5,204,224 estimated market value o 56 total townhome units ® 24 2-bedroom units ® $105,000 per unit(preliminary assessor's estimate) ® 321-bedroom units ® $84,000 per unit(preliminary assessor's estimate) ® Increment based on new building value only ® Construction commences in 2014 and is completed spring/summer 2015 0 25%assessed in January of 2015 for taxes payable in 2016 0 100%assessed in January of 2016 for taxes payable in 2017 ® 3%annual market value inflator ® Tax rates,class rates and future market values remain constant ® Developer PayGO Note 0 90%increment pledged to developer o Present value(discount)rate of 4.5% o Dated date of 12/31/14 0 15 year term City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 4 Tax Increment Revenue Estimates The tax increment revenue estimates are based on collection of revenues for the full term of the district. Based on the assumptions outlined above,the projected tax increment revenues to be generated from the project are shown in the chart on the following page. Tax increment Financing(Housing)District No.24 Scenario 1 Total Projected Available Tax Increment $1,119,795 City Retainage(10%) $111,982 Net Amount Available for Developer(90%) $1,007,813 Present Value at 4.5%of Developer Amount $647,101 (15+year term of district) The Developer has requested TIF financing on a pay-as-you-go basis, to help offset the reduced rent limitations required by the Section 42 program. The Developer has requested 15 years of assistance to coincide with the anticipated term of permanent financing being the tax-exempt housing revenue bonds. Project Qualification Initial discussions with the developer indicate that the project as proposed will qualify as a housing TIF District. A housing TIF District is a type of tax increment district which consists of a project that is intended for occupancy by persons or families of low and moderate income. Revenue derived from tax increment from a housing district must be used solely to finance the cost of a housing project as defined. The cost of public improvements directly related to the housing projects and the allocated administrative expenses of the City may be included in the cost of a housing project. In order for the proposed project to qualify as a tax increment financing housing district,the property must satisfy the income requirements for a qudlified residential rental project as defined in section 142(d) of the Internal Revenue Code. The requirements of this subdivision apply for the duration of the tax increment financing district. The income requirements are as follows: A at least 20%of units are occupied by residents whose income is 50%or less of area median income,or at least 40%of units are occupied by residents whose income is 60%or less of area median income. In addition, not more than 20 percent of the square footage of the buildings that receive assistance from tax increments may consist of commercial, retail, or other nonresidential uses. The developer has indicated the project will meet the second test and is anticipating that 100%of the units will be occupied by residents with incomes at or below 60%of the area median income. City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 5 Project Costs The developer's revised submittal includes a total project budget of$6,000,000 as illustrated in the table below: Blackhawk Woods Project Budget Total Amount Land Acquisition $676,000 Construction Costs 3,860,706 Soft costs 181,176 Finance Costs 256,941 Marketing 207,529 Development Fee/Overhead 424,333 Contingency(4%) 240,000 Reserves 153,315 Total Costs $6,000,000 The developer has indicated they currently own one of the two parcels on which the development is proposed, and has indicated the second parcel is currently under contract for purchase, assuming the project is able to proceed. A portion of the land acquisition cost estimate will be used to repay delinquent real estate taxes on the parcel the developer has under contract at the time of closing. The parcels combine for an approximate area of 10.94 acres. The per acre purchase price equates to approximately$61,179. It should be noted that one of the parcels on which a majority of the rental units will be located is already improved with site grading, utilities, and roadways installed; however some site improvements are required prior to development occurring. The developer has estimated the total hard construction costs and vertical improvements to be $3,860,706, which equates to a per-unit construction cost of approximately$68,941. The Development Fee/Overhead cost equates to approximately 7%of the total development cost. The Soft Cost category is for expenses related to the professional service costs incurred in the planning and development of the site. The Financing Cost line-item is for expenses related to the Tax Credit process as well as costs associated with the permanent financing, and construction loan interest cost. The Contingency line-item is based on approximately 4%of project costs, and the Reserves line-item represents 6 months of debt-service. Sources of Funds The Developer's submittal includes a preliminary total project budget of$6,000,000 as illustrated in the table below: Blackhawk Woods Project Budget Total Amount Equity $1,500,000 Permanent Financing 4,500,000 Total Sources of Funds $6,000,000 City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 6 The developer's revised financial package includes long term permanent financing through the issuance of tax exempt housing revenue bonds in an amount of$4,500,000 with a 15 year term and 30 year amortization with an effective interest rate of 5.5%. Lender requirements include sufficient debt coverage and cash flow to pay the initial investors and annual tax increment revenues are necessary to meet this requirement. In addition the developer will be required to provide personal loan guarantees for the project cost, rent-up schedule and loan repayment. In addition to the traditional mortgage financing the developer has projected they will receive additional equity from a tax credit syndicator in the amount of $1,500,000. The tax credits provide the required equity that allows for the project to proceed. The developer has indicated that the tax credits will be received in stages as the project progresses requiring periodic cash injections from the developer until sufficient capital is received. Developer Proforma But-For Analysis In approving a TIF district and project, the City must make several findings, including the "but for" test: that the proposed development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The developer has provided a"but-for" argument stating that the developer's lender has indicated that financial assistance from the City is necessary to provide sufficient project cash flow and market returns to investors that will achieve project feasibility. The developer states the assistance is necessary to construct the project as proposed based on current financial indicators. Based on the developer's stated position relative to the need for tax increment financing assistance, the City could make its "but for" finding and provide tax increment assistance. We recommend, however,that the City also consider an appropriate level of TIF assistance for the project based on the information submitted by the developer. The City's position relative to the use of tax increment has typically been to finance extraordinary costs. The level of assistance is in part dictated by the 'extraordinary' costs of the project. Initial discussions about the project indicate the assistance would be provided as reimbursement to assist the developer with extraordinary costs associated with construction affordable housing on the project site. Following thorough evaluation of the project, the City will be prepared to make an informed "but-for" decision based on the likelihood of the project needing assistance,as well as the appropriate level of assistance. The"but-for"test is used to determine whether a project is likely to proceed as proposed without the use of public dollars. To complete this analysis we constructed and examined two ten-year project proformas, one showing a result if the developer receives the requested TIF assistance and one showing a result without assistance. Our analysis of the proforma included a review of the development budget, projected operating revenues and expenditures, and the project's capacity to support annual debt service on the first mortgage. Springsted performed an analysis using the Internal Rate of Return (IRR) mechanism to estimate the proposed project's rate of return. The internal rate of return measures the average annual yield on an investment, generally over a longer period of time,which in this case is 10 years. The internal rate of return measurement is typically what is used by public agencies to determine the need for a subsidy. City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 7 Generally, should the rates of return lie below a reasonable range without assistance; we could assume the project as proposed would not move forward without assistance. Should the returns lie within a reasonable range with the assistance, we could assume the amount of assistance tested is appropriate for the project. All such estimates should be viewed as general indicators of performance and not exact forecasts. The number of current and future variables affecting these estimates and actual results are great. In order to understand the potential return realized by the Developer, with and without the tax increment assistance, we utilized the project cost and operating information provided by the Developer to generate a 10-year operating pro forma to calculate an estimated IRR analysis. The purpose of evaluating the operating pro forma is to understand the potential return to the Developer through the initial development of the project and the operation of the enterprise over a period of time. A 10-year period may not be indicative of the Developer's intended investment period. The first step in analyzing the return to the Developer is to determine if the costs presented are reasonable. We provided a breakdown of the estimated project costs within a previous section of the memo. Assuming all other assumptions and variables remain constant, a reduction in total project costs may have a positive impact on the projected returns. The majority of the project costs outlined above are estimates, and subject to future change; however appear to be reasonable within the scope of the project. The second step in calculating the return to the Developer is to determine if the operating revenues and expenses are reasonable. • The developer proposes average rental rates of $749 per month for the one-bedroom units and $965 per month for the two bedroom units. The rental rates will be limited based on the requirements of the Tax Credit program and tax increment statutes,assuming tax increment financing is provided to the project • The developer is assuming operating expenses related to administration, utilities/trash, operations & maintenance, real estate taxes,insurance,and replacement reserves. The third step in performing an internal rate of return analysis is to assume a hypothetical sale of the asset at the end of the pro forma review period, which in this case is 15 years. The use of a hypothetical sale in this analysis is only for purposes of calculating the potential return to the developer, and is by no means indicative of the likelihood of a sale in Year 15. In order to accurately perform the return analysis all assets have to be converted to a cash position at the end of the pro forma, in order to calculate the return on the initial equity investment. The developer has indicated they intend to own and lease the building for an extended term greater than the 15 years we analyzed in calculating the return. For the purpose of accounting for the value of the asset in year 15 of the operating pro forma, we used a capitalization rate of 6.5%to determine the development value. The table below shows the result of our pro forma analysis based on the project costs and operating information provided by the developer. City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 8 With TIF Without TIF Operating Proforma Assistance Assistance Estimated Leveraged IRR 5.84% 1.72% There is no set IRR benchmark that dictates whether a project needs TIF assistance or not. There are general market indicators that determine a project should be"doable"with a 10-year average return of 10-20%. However this is only an indicator and may or may not apply for each individual project, especially in today's market, and there may be other factors impacting the developer's ability to proceed. The developer has stated that the project will not occur without TIF assistance. Therefore,the City should view the IRR calculations as one factor in arriving at a decision for this particular project. An additional measure of project feasibility is the Debt Coverage Ratio (DCR), which is a calculation detailing the ratio by which operating income exceeds the debt-service payments for the project. If the DCR is greater than 1.0 it indicates the project has operating income that is greater than the debt-service payment by some margin;conversely if the DCR is less than 1.0 it indicates the project is incapable of meeting its debt-service payment and would need to seek additional revenue sources in order to pay its debt. Typical lending standards will require a DCR of greater than 1.0 as a measure of cushion in the vent actual revenues and expenses are different than projected. In this case the Developer indicated a need to meet or exceed a DCR of 1.15. Our pro forma calculation, which included slightly revised TIF projections from the Developer, resulted in a stabilized DCR of 1.16 with assistance and 0.98 without assistance. The return analysis outlined above is based on the developer's request for 15 years of tax increment assistance as annual cash flow. Conclusion Should the developer receive TIF assistance, it would be required to reserve at least 40%of the units for persons of low and moderate income for the term of the TIF assistance. When the TIF assistance has been completely repaid, the developer will be under no obligation to continue reserving affordable housing units. As a result, the projected time frame for the repayment of the TIF assistance should be considered when determining the assistance amount. The developer has requested TIF assistance for 15 years as necessary to attract tax credit equity and meet lender requirements necessary to obtain permanent financing for the project. The developer has indicated that the assistance is necessary for the project to proceed as proposed. The developer would use the annual tax increment revenues to provide sufficient cash flow necessary to meet the lender requirements including debt service coverage and investor cash flow that are not projected to be supported due to the reduction in operating revenues from the affordable units. In some cases, there may be opportunities to fill a portion of the gap by other means—thereby reducing the required TIF subsidy and/or term. The developer could consider deferring a portion of the upfront developer fee, rental rates City of Elk River,Minnesota Analysis of Blackhawk Woods TIF Application April 15,2014 Page 9 might also be able to be increased if the project proves successful,.however the rates are ultimately dictated by both market and income requirements of TIF Districts, actual project costs may be less than projected, and finally, a reduction in the TIF note interest rate(from 4.50°/x) may also be considered. As illustrated in our analysis outlined above, it appears the project is infeasible without assistance absent significant changes to either the equity investment, project cost assumptions, or projected operating income. Given our review of the current assumptions it appears as if changes of this magnitude are unlikely to be realized. Therefore, we feel the proposed project is unlikely to proceed but-for the requested TIF assistance. It is important to note that the project will be providing affordable senior housing in the City of Elk River. Without the tax increment assistance, the developer has indicated he is not able to proceed with the project due to rent restrictions required. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at (651)223-3036 or mhuot(a springsted.com with any questions or comments. 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The project meets the criteria set forth in Section IV of the City's Tax Increment Financing policy. X a) Meets minimum thresholds for size,value,and tax revenue. X b) Meets at least one of the objectives in Section II and satisfies all of the provisions set forth in Section III. X c) Demonstrates need for TIF with the but for analysis. X d) Consistent with all city plans and ordinances. X e) Serves at least two public purposes as defined in Section IV 2. Ratio of Private to All Public Investment in Project: Points: 5 $6,000.000 Private investment 5:1 5 $669,134 Public Investment 4:1 4 9:1 Ratio Private: Public Financing 3:1 3 2:1 2 Less than 2:1 1 3. Job Creation in the City of Elk River: Points: 1 1 Number of new jobs as a result of the project. 20+ 5 Number of existing/retained jobs divided by 2. 15+ 4 1 Total 10+ 3 5+ 2 Less than 5 1 4. Wage Level of new jobs created/retained: Points: 2 Minimum hourly wage Over$25/hour 5 of jobs created/retained: $15.00 $21-25/hour 4 $17-20/hour 3 $14-16/hour 2 Under$14/hour 1 5. Market Value/Tax Base Generation: Points: 0 Project will result in an estimated market value per unit $135,000/Unit 5 (land and building) of $92,933 $125,000/Unit 4 $115,000/Unit 3 $105,000/Unit 2 $ 95,000/Unit 1 6. Project provides housing that is restricted Points: 5 to persons 55 years and older: 5 7. Project proposes rehabilitation of existing housing, housing stock, and maximizes utilization of existing infrastructure: Points: 0 4 8. Project proposes a location near existing jobs, transportation, recreation,retail services, social services, and schools: Points: 0 2 9. Type of Housing Project: Points: 1 100% Owner Occupied 2 X Investment Property 1 10. Likelihood that the project will result in Points: 1 unsubsidized, spin-off development. High 5 Moderate 3 X Low 1 Sub -Total Points: of a possible 38 points. 11. Bonus Points Bonus Points: 3 X The project will be 100%Pay-asgougo TIF. 3 points The project contributes to the goals of Energy City. 2 points • Product promotes sensible use of energy,OR • Project utilizes significant energy efficient design&/or materials in construction. Total Points: 18 Overall project analysis: High 38-30 points Moderate 29-22 points Low 21-13 points Not Eligible 12-0 points City of Elk River Tax Increment Financing Policy&Application P 0 V E N E 0 0 1 Amended February 2014 INATUREJ Page 2 of 15 City of Elk River Presentation to: City Council April 21, 2014 Public Hearing on Proposed TIF (Housing) District No. 24 (Blackhawk Woods Project) Presenter: Mikaela Huot, Vice President/Consultant Purpose of MeetingProcess for Approving TIF District •Review request for assistance •Hold Public Hearing to Take Any Public Comment on Proposed TIF (Housing) District No. 24•Approximate 60 day approval process, which includes notifications to County and School Board, publication •Consider Resolution Approving Modification of the of hearing notice, and holding of public hearing Development Program for a Development District No. •But-For test: 1, Establishing a Tax Increment Financing District –City to make a finding that “…the proposed development and Approving a Tax Increment Financing Plan would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future…” 23 1 What Does a Tax Increment Financing TIF Plan Discussion Plan Do? •Purpose of Plan•Provides statutory authority for a City Council to use tax increment financing –Provides statutory authorization to use tax increment financing •Establishes the geographic boundaries of a TIF –Legal terminology/language, required by Statute District –Based on assumptions of development •Establishes an estimated budget of revenues and –No commitment to provide assistance expenses of the TIF District over the term of the –Recommend plan with maximum flexibility District •Shows the estimated impact on other taxing jurisdictions 45 What Doesn’ta Tax Increment Financing Plan Project Qualifications Do? •Does not approve nor guarantee the future provision •Qualifies as housing TIF District of tax increment assistance –20% of units restricted for persons or families at 50% area median income or •Does not approve nor guarantee the future sale of tax –40% of units restricted for persons or families at 60% increment bonds area median income (100% would be restricted) •Does not approve an increase in property taxes •Not more than 20% of square footage of project for •Does not alter the method by which property taxes commercial, retail or other nonresidential use within the District are calculated •Must maintain units as affordable for term of district 67 2 Initial Project Proposal: Blackhawk Updated Project Proposal: Blackhawk Woods Senior HousingWoods Senior Housing •84-unit rental townhome housing project•56-unit rental townhome housing project •25 Years of tax increment assistance•15 Years of tax increment assistance •Completed building value of $7,869,290 •Completed building value of $5,204,224 •Total Gross TIF: $2,323,089•Total Gross TIF: $1,119,795 –City Retainage (10%): 232,319–City Retainage (10%): 111,982 –Net amount (90%): $2,090,770 –Net amount (90%): $1,007,813 •Approximate principal amount of $996,871 •Approximately principal amount of $647,101 –4.7% interest rate–4.5% interest rate 89 Developer Proforma But-for AnalysisDeveloper Proforma But-for Analysis •Proposed development would not occur without •10-Year Operating Proforma Review assistance –(over time ownership project) •Developer has stated project would not be •With and without scenarios constructed without TIF assistance •Internal Rate of Return (IRR) analysis •Cash flow insufficient –Below certain range, assume project does not move forward •City could make its but-for finding •Annual and cumulative cash flow •Consider appropriate level of TIF assistance •Debt coverage ratios –Revised request is for 15 years 1011 3 City Policy Application Review Developer Proforma But-for Analysis Worksheet •Both scenarios –equity and debt same •Initial proposed project: review is moderate to low – (because paygo)depending on some of the review categories •With scenario: TIF revenues used for cash flow•Updated project with certain aspects changed: updated review is low •Estimated returns, cash flow and debt coverage analysis multiple mechanisms used to measure project performance, based on certain assumptions 1213 SummaryQuestions? •Project would provide affordable senior housing for Mikaela Huot, Consultant duration of district 651-223-3036 •Developer updated request for 15 years of assistance •Developer has stated assistance is necessary for Springsted Incorporated project to proceed 380 Jackson Street, Suite 300 –Revenues necessary for cash flow and to meet DCR Saint Paul, MN 55101-2887 requirements 1415 4