9.1. SR 06-15-2020
Request for Action
To Item Number
Mayor and City Council 9.1
Agenda Section Meeting Date Prepared by
Work Session June 15, 2020 Amanda Othoudt, Economic Development
Director
Item Description Reviewed by
Tax Increment Financing (TIF) and Property Tax Cal Portner, City Administrator
Abatement Overview
Reviewed by
Action Requested
Hear presentation by Baker Tilly Municipal Advisors, LLC and staff on Tax Increment Financing and
Property Tax Abatement.
Background/Discussion
Our Financial Advisor, Mikaela Huot, from Baker Tilly Municipal Advisors, LLC will present information
and identify developments in other cities that utilized TIF or Abatement for projects encumbered by
significant site challenges. We will discuss our current inventory for TIF and Abatement projects, the
remaining years and balance and discuss if there is an optimum ratio of TIF/Abatement in a city.
We will then identify and discuss local developments such as TIF 24, the Truck Shop project, TIF 25,
Jackson Hills and the Main and Gates redevelopment area where the city has encountered costs
associated with acquisition, demolition and how TIF could benefit the city. We will also discuss other
potential development sites near Northstar Business Park that are encumbered by natural gas pipelines
and wetlands and how TIF could benefit the developer and the city.
Financial Impact
N/A
Attachments
TIF and Abatement Analysis Spreadsheet
The Elk River Vision
A welcoming community with revolutionary and spirited resourcefulness, exceptional
service, and community engagement that encourages and inspires prosperity
(TIF) & Tax Abatment - Updated 06/01/2020
CompanyYear ApprovedCity AmountTermAmount LeftExpires
Envision2008$ 460,000.00 12$ 17,004.172020
GATR2015$ 546,814.00 15$ 445,487.002031
Morrell2015$ 121,609.00 15$ 98,264.002031
Sportech2015$ 639,113.00 20$ 503,884.102036
APEX2016$ 85,164.0012$ 78,550.752030
Tax Increment Financing Districts
Approval DateCertication DateFirst CollectionTIF Plan ApprovedPayable
TIF-22 DT Redevelopment (Granite Shores)200420042006$ 8,178,400.0025$ 2,543,703.002031Required Decertification Date
TIF-23 Prefered Powder201320142015$ 1,279,789.0010$ 598,202.002023Required Decertification Date
TIF-24 Truck Shop/City201720182020$ 1,406,393.0025$ 1,139,553.002045Required Decertification Date
TIF-25 Jackson Hills201820182021$ 824,100.0015$ 463,297.002036Required Decertification Date
City of Elk RiverJune 15, 2020OverviewTax Increment Financing City Council Work Session
Purpose of Discussion•Public purpose policy discussion•TIF 25 Housing•TIF 24 Redevelopment•TIF 23 Economic Development•TIF 22 Redevelopment•Existing TIF Districts•Financing options•Uses
of tax increment financing•Provide overview of tax increment financing (TIF)•2
Tax Increment Financing property ownersProperty owners within district pay taxes like all •capacity is added to existing tax baseFixed term for capture, then new development •improvements
related to developmentIncrement captured to pay for public costs and •A method of capturing tax base growth •3
How Tax Increment Financing Revenues are Derived city, county school etc.Taxes continue to flow to term of the TIF DistrictTaxes “captured” for the redevelopmentbefore development or
value –Base Value 4
Tax Increment Financing expenditures)eligible -(portion used to finance TIFIncremental TaxesDistrict and other taxing jurisdictions)(continues to City, County, School Base Taxesjurisdictions)and
all taxing to General Fund project; flows -(postNew Tax Base Last YearFirst Year$$$$$$$$$$$$$$Annual Taxes Generated (Dollars)5
How a TIF District is Created and Revenues Spent TIF District 2TIF District 3TIF District 1 Development DistrictProject Area/ Certification-Public Hearing-Purpose•Geographic boundaries•Budget•TIF
Plan-TIF District (Specific Project)•Referred to as ‘pooling’•be spent, with limitationsWhere portion of TIF dollars can •District)Project Area (Development •6
Options for Use of Tax Increment Revenues Property (incremental taxes) on tax roll•Direct improvements only•Minimal use•Timing considerations•Percentages vary by type of district•Retain
increment for ‘pooling’•26 years, based on type of district-9•Up to full term of TIF Districts•Finance related projects•Maximize use of financing tool•7
Tax Increment Financing (TIF)Coordinate new developments with existing plans •Facilitate infrastructure improvements•Enhance tax base•otherwise not occur, such as low income housingEncourage
development of uses that would •Retain existing tax base•(“but for” test)not occur Stimulate development where it would otherwise •Cities Use TIF to:•8
Types of TIF Districts district-Hazardous Substance Sub•Other•Soils Condition•Housing•Economic Development •Renewal and Renovation•Redevelopment•RequirementsDetermines Timeframe, Uses
of TIF and Ongoing 9
Tax Increment Financing (TIF) Eligible Costs Administrative Costs•Financing Fees/Capitalized Interest•Cost of Qualifying Housing•Relocation•Site Preparation/Demolition•Site Grading-Soil
Correction•Land Acquisition •Public Improvements•10
Tax Increment Financing (TIF)increment is availableDeveloper is reimbursed over time, to the extent •Developer pays annual property taxes•Project financed upfront by developer•go (PayGO)
Notes-you-as-Pay•Risk mitigation factors•Interfund Loan•contributes at least 20% of debt service costsCan be issued without a referendum if tax increment •G.O. Tax Increment Bonds•Upfront•11
Common Methods for Financing Costs
City’s Existing TIF Districts No funds provided to developer•acquisition and site preparation costsCity using increment to reimburse itself for •City financed costs upfront through interfund
loan•year maximum term-26•Redevelopment TIF District •Beaudry The Truck Shop–TIF 24 •12
City’s Existing TIF Districts housing unitseligible housing costs in exchange for affordable City using increment to reimburse developer for ••year maximum term for type of district-26•15
years paygo pledged to developer•Housing TIF District •Jackson Hills–TIF 25 •13
Statutory Findings to Approve TIF District Specific criteria for each type of district•That the project will qualify as a TIF District•development of the City as a whole That the TIF
Plan conforms to general plans for •private enterpriseof the City as a whole, for development by opportunity, consistent with the sound needs That the TIF Plan will afford maximum •14
Statutory Findings to Approve TIF District increment financing The proposed development would not occur but/for the use of tax •The but/for test:•foreseeable futurethrough private investment
within the reasonably City, would not reasonably be expected to occur solely That the proposed development, in the opinion of the •15
Statutory Findings to Approve TIF District subsidy provideddevelopment after subtracting the total estimated to result from the proposed the increase in the market value the use of TIF
would be less than withoutcould reasonably be expected to occur That the increased market value that •16
Tax Abatement length, public benefit, etc.Abatement resolution indicates terms: amount, •not require property owner consent)Adopted by resolution at a noticed meeting (does •development
purposesPermits levy of taxes for application toward •Portion remitted back pursuant to terms of assistance•Property owners pay taxes•NOT an actual abatement of taxes•17
Tax Abatement finance or provide public infrastructure•political subdivisionhelp provide access to services for residents of the •help redevelop or renew blighted areas;•provide or help
acquire or construct public facilities;•subdivision;provide employment opportunities in the political •increase or preserve tax base;•Abatement is in the public interest because it
will:•Benefits of the proposed abatement agreement at •18
Tax Abatement Eligible Costs costs of issuance•improvements made to their property, orreimbursements to the property owner for the cost of •acquisition and conveyance of land or other
property,•public improvements that benefit the property,•-If bonds are issued, eligible costs only include •property tax revenuePhase in property tax increase/equalization of •Acquire
or construct public facilities•Finance or provide public infrastructure•Improvements to private property•19
What Drives The “Gap” Or Need For Public Market competition•market conditions dictateDeveloper wants less risk/more return than typical •growth“Oversizing” of utility and infrastructure
for future •Development needs more than it can pay for•Hold out property owner, land price too high•Extraordinary affordable housing costs•Extraordinary redevelopment costs•20 Financing
Assistance?
Public Purpose Policy Objectives through “spin off” developmentEncourage unsubsidized private development •Increase city’s commercial and industrial tax base•and/or attractive wages
and benefitsdiversity of jobs that offer stable employment Retain local jobs and/or increase the number and •term benefits to the community-Demonstrate long•21
Public Purpose Policy Objectives Work force•Affordable•Market rate •Construction of housing•in developmentup) over and above the costs normally incurred -cleanOffset redevelopment costs
(i.e. contaminated site •quality redevelopment and private reinvestmentcommercial and industrial areas resulting in high Remove blight and/or encourage redevelopment of •“but for” the
use of incentivesAchieve development on sites that would not develop •22
Public Purpose Policy Considerations Private investor expectations•Term limitations•Percentage retained by City/pledged to project•Type of assistance•Financing of certain project costs•Geographic
priorities•Priority types of projects•23
Due Diligence Review for New Projects off investment-private investment or spinadditionalProbability that the project will leverage •a project outweigh the negative consequencesExtent
to which the expected positive consequences of •Site control and qualified developer (FA/Legal)•Market demand for the use developed •Statutory authority to use financial tools (legal)•24
Needs Assessment for Public Financing Assistance for’ assistance-Development would not occur ‘but•Matching funding sources with project costs•Verification of developer assumptions•supported
by development performanceFinancing of private eligible improvements not •supported by developer alone without assistanceFinancing of public improvements that could not be •Determine
need for and amount of public assistance•25
Questions?Mikaela.Huot@bakertilly.com 2533-368-6513036-223-Phone: 651Baker TillyMikaela Huot, Director 26
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as Baker Tilly is a member of firm.owned subsidiary of Baker Tilly Virchow Krause, LLP, an accounting -whollyBaker Tilly Municipal Advisors, LLC is a registered municipal advisor and
•circumstances, the services of a professional should be sought.address the specific circumstances of any individual or entity. In specific The information provided here is of a general
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