4.9. SR 08-16-1993
r~1 -\j
( )j
rlk
ITEM 4.9.
TO:
FROM:
MAYOR & CITY COUNCIL
WILLIAM RUBIN, ED COORDINAT~/~
AUGUST 5, 1993 f ~
DATE:
SUBJECT: PUBLIC HEARING ON PROPOSED
AMENDMENT TO TIF PLANS NO. 1 AND
NO. 3
INTRODUCTION
At its July 19, 1993 meeting, the Elk River City Council
authorized a public hearing for August 16, 1993, to consider a
modification to Tax Increment Financing (TIF) Plans No. 1 and
No.3.
BACKGROUND
The proposed modification will amend
authorize additional tax increment
currently referenced in the Plans.
amendment will allow the City to:
the respective Plans to
expenditures that are not
If approved, the Plan
a.
Pay for
foundation
compaction,
extensions,
redevelopment
Avenue.
certain redevelopment costs (demolition,
removal, soil boring and analysis,
site preparation, on site utility
etc.) associated with a proposed
project at Main Street and Freeport
-
A description of the proposed project follows. The request for
TIF assistance comes from Mr. Dennis Chuba, The Chuba Company,
317 Main Street. Up to $60,000 in TIF assistance has been
requested by Mr. Chuba. The TIF funds would be used to
reimburse the developer for costs associated with the
redevelopment project (that is, demolition, foundation removal,
compaction, etc.) he is proposing at Main Street and Freeport
Avenue. In 1992, the City Council approved a TIF amendment for
a similar project developed by Mr. Chuba within the same block
(Main Street and Evans Avenue). As with the 1992 TIF request,
a new TIF District would not be established. Rather, TIF funds
from Districts No. 1 and No. 3 would be used as a grant to
reimburse the developer for certain eligible costs as permitted
by Minnesota Statutes.
1993 Project
e
Mr. Chuba is proposing the construction of an office/townhouse
building which will contain approximately 8,500 to 10,000
square feet. The building will provide owner/occupied space
for four to five new or existing Elk River businesses. This
project gives a small office user the opportunity to acquire
P.O. Box 490 · 13065 Orono Parkway · Elk River, MN 55330 · (612) 441-7420 · Fax: (612) 441-7425
e
space through a townhouse association arrangement. The project
gives companies the opportunity to build equity rather than to
pay rent to a landlord. Construction of the project is
scheduled for this year and will be completed during the winter
months. The project will have a finished market value of
approximately $540,000.
By comparison, the 1992 project contained approximately 6,500
square feet and has a finished market value of $400,000. Two
of the three townhouse units have been sold and the final unit
is available for sale.
TIF Historical
Early on, TIF was used as an urban renewal tool. That is,
funds were used to encourage inner-city redevelopment projects
wherein a developer or end user was reimbursed for costs such
as: demolition, site preparation, civil/engineering, parking
improvements, water and sewer extensions, landscaping
enhancements, curb/sidewalk improvements, etc.
Over time, the use of TIF has been expanded to include housing
projects and economic development projects (such as Alltool
Manufacturing, Tescom Corporation, Timron Precision Gear, etc.).
e
But/For Test
The classic test for determining whether or not a TIF Grant was
appropriate rests with the But/For Test. That is, after
conducting a public hearing on this matter, the governing board
of a city must determine that, "But/For the use of TIF
incentive, this project would not occur in the reasonable,
foreseeable future".
This test, however, does not apply to the modification of TIF
Plans No. 1 and No.3. Why? The City Council, through the
public hearing process, is simply modifying an existing Plan to
allow for the expenditure of funds from a respective District
to be used for a very narrow list of eligible expenditures as
authorized by Minnesota Statutes. Among those limited eligible
expenditures include reimbursement for demolition costs, site
preparation, compaction, etc.
If the But/For Test were required in this matter, it would
surely have to be required for previous TIF Plan amendments as
well. This test was not applied to the use of TIF funds by the
Elk River City Council for:
e
Woodland Trails
Railroad Trail
Orono Park
Woodland Trail Expansion
Main Street Redevelopment Site
Library Expansion
.
TIF No. 1 and No. 3 Nuance
Minnesota Statutes addresses how a municipality may expend TIF
funds from a TIF District. Put simply, TIF funds from a small
geographic area known as a TIF District can be expended on
limited, eligible items or projects that are found outside of
the TIF District but within the broader "project area". In Elk
River, the project area is the corporate limits.
Although TIF funds
Main, and are proposed
project, the nuance
that of not creating a
were used in the 1992 project at Evans and
to be used for the 1993 office-townhouse
or wrinkle with the use of these funds is
new TIF District.
The City Council and EDA Commissioners are acutely aware of the
ramifications of creating new TIF Districts. The primary
consequence of a new TIF District is that of a loss of a
portion of the City's state aid. With recent TIF Districts,
the City, EDA, and HRA have placed the loss of state aid burden
on the project's end user. That is, the end user, pursuant to
a contract for private development, agrees to make the City
whole in the event the newly-created TIF District results in
the loss of state aid. During the most recent legislative
session, developer payment of state aid losses was prohibited.
Ie
Given this new restriction, a city may be far better off in
using TIF funds from existing Districts to help leverage certain
projects. Because no TIF District is created, the City,
through its leveraged TIF funds, enables a project like Mr.
Chuba's to go immediately on the tax rolls for the benefit of
the local taxing jurisdictions (city, county, and school
district) .
Because this is an owner-occupied office project, the end-users
would likely suffer the consequences of the creation of a new
TIF District. However, if Mr. Chuba was proposing the
construction of speculative office space that he would own
long-term, he, rather than the end users, would suffer the
consequences of any loss in state aid.
Main Street Corridor
e
The writer of this memo views the Main Street corridor from
Highway 169 to Highway 10 as a critical corridor for Elk
River. Given the recent projects along Main Street and Evans
Avenue, it is reasonable to expect that similar projects will
occur along this corridor so that eventually it will connect
with the traditional Central Business District area at Main
Street and Jackson Avenue. Most of these projects, however,
will require substantial demolition and site preparation
costs. That's where TIF funds from No. 1 and No. 3 come into
play. The alternative is to encourage the conversion of single
family homes along this corridor into office-type uses.
Utilizing funds from TIF Districts No. 1 and No.3, the City
e
can play an important role in determining how this Main Street
corridor is shaped.
Other Options
A. Revolving Loan - This option received some debate at the
EDA meeting on July 12, and again at the City Council
meeting on July 19. This option will not work.
Typically, the EDA provides this supplemental financing
tool to end users. As security for repayment, the EDA
files a mortgage against the respective properties.
Because Mr. Chuba is a land developer (that is, he is
acquiring property, making it ready for construction, and
then disposing of it), an EDA loan to Mr. Chuba is not
practical. The writer of this memo would not recommend an
unsecured loan.
B.
New TIF District - On the surface, one could suggest that
a TIF District could be created. This is suggested
despite the new restrictions as of the last legislative
session. Upon further analysis, the City, EDA, or HRA
would face the prospect of creating a "TIF Redevelopment
District". This type of District, however, requires
another finding over and above the But/For Test. The
additional finding is that of blight. The statutory
definition of blight is extremely limited. The writer of
this memo would not recommend the creation of a TIF
Redevelopment District because of the limited definition.
The properties at Main Street and Freeport Avenue do not
meet the definition of blight.
e
Funds Available
Found in Exhibit A of the proposed modification to TIF Plans
No. 1 and No. 3 is a cash flow analysis. The analysis finds
that after funding $177,000 to supplement the library
expansion, and, after providing up to $60,000 for the Main
Street and Freeport Avenue redevelopment project, sufficient
funds are still available for debt service and other, undefined
projects. Staff's best estimate of those funds is
approximately $400,000.
Clearly, the City Council is wise to prioritize how this finite
pool of TIF funds are allocated. While other projects loom on
the horizon (proposed business park, etc.), Mr. Chuba
successfully demonstrated with his 1992 project, the ability to
undertake a redevelopment project from concept to completion.
The 1993 project is expected to build on the momentum of the
previous project.
e
The writer of this memo supports prioritizing projects.
Council, however, must remember that the statutory list of
eligible expenditures is very narrow. Clearly, the proposed
modification to TIF Plans No. 1 and No. 3 to support the Main
e
Street and Freeport Avenue project falls within the definition
of permitted eligible expenditures.
Proposed Limitation Per Project
The writer of this memo understands that an alternative to Mr.
Chuba's request was to limit the size of TIF funds for each
project. It is generally understood that redevelopment
projects will require more funds because of the nature of the
activities - chief among them, demolition, foundation removal,
site preparation, etc.
Unless Mr. Chuba is able to document the cost of the TIF
eligible expenditures, he will not receive reimbursement. That
is, Mr. Chuba has requested up to $60,000 in TIF funds. If he
only documents expenses of $40,000, that is what he is
reimbursed. To reinforce this, lien waivers and contractor's
claims totalling just under $20,000 are on file relative to the
1992 project.
ACTION REQUESTED
At the close of the public hearing, the City Council is asked
to adopt a resolution approving the modification to Tax
Increment Financing Plans No. 1 and No.3.
4It RECOMMENDATION
I recommend that the Elk River City Council approve the
modification to Tax Increment Financing Plans No. 1 and No. 3
through the adoption of the attached resolution.
e
e
MODIFICATION OF
TAX INCREMENT FINANCING PLANS
TAX INCREMENT FINANCING DISTRICT NO. 1 AND NO. 3
.
City of Elk River
August 16, 1993
.
e
e
.
MODIFICATION OF
TAX INCREMENT FINANCING PLANS
TAX INCREMENT FINANCING DISTRICT NO. 1 AND NO. 3
PURPOSE
The sole purpose for this modification (the Modification) of
the existing Tax Increment Financing Plans (the TIF Plans) for
Tax Increment Financing District No. 1 and No. 3 (the TIF
Districts) is to provide supplemental information relating to: A)
the increase in total estimated Tax Increment expenditures
authorized by the Plan. The City proposes to assist with a
redevelopment project by paying for certain public redevelopment
costs authorized by Minnesota Statutes.
This Modification ratifies and
those terms of the TIF Plans and
entirety, subject only to the
provisions provided herein.
incorporates by reference all
their attachments in their
Modification and additional
MODIFICATION
The TIF Plans and Minnesota Statutes, Section 469.175, subd.
4 require Modification of the TIF Plans in the event additional
property is designated to be acquired by the City or in the event
there is an increase in total estimated Tax Increment
expenditures. Therefore, the TIF Plans are modified and
supplemented as follows:
1.) Development Proqram The goals and objectives
TIF Districts and City of Elk River Development District
(the Development District) are set forth in the TIF Plans
the Development Program for the Development District.
goals and objectives include:
of the
No. 1
and in
These
a.) To provide impetus for business and industrial
development by constructing public facilities.
b.) To increase employment opportunities in the City by
encouraging additional business and industrial development.
c.) To preserve and enhance the tax base of the City.
d.) To provide financing for public improvements within the
Development District as found by the City Council to be
necessary or appropriate to meet the purposes of the
Development District.
The TIF Plans state that tax increment generated by the TIF
Districts will be used for public improvements and facilities
determined by the City Council to be necessary and appropriate to
meet the purposes of the Development Program. The City Council
e
has determined that paying for certain public redevelopment costs
identified in this Modification is necessary and appropriate to
meet the purposes of the Development District, because:
a.) With respect to the redevelopment project proposed a
Main Street and Freeport Avenue, the City Council has
determined that its assistance will: 1) preserve and enhance
the tax base of the City, 2) encourage additional business
and commercial development through the elimination of the
blighting influence in that area, and 3) increase employment
opportunities in the City. These purposes are consistent
with the goals and purposes of the Development Program and
the TIF Plans.
2.) Property to be Acquired - No property is proposed to
be acquired by the City in the TIF Districts.
e
3.) Development Activities -
a.) Private Development Activity Development activity
within Development District No. 1 will include the
construction of an office condominium containing
approximately 10,000 square feet at 317 and 323 Main
Street. The site is currently zoned C-2, Office District.
Permitted uses in this District include governmental,
business and professional offices, outpatient health care
facilities, personal service establishments, and public
parks.
Currently, two single family home exist on this site. One
home has been converted into an office building. To
accommodate the construction of the office building, the
residences would be demolished or moved. A potential re-use
of the existing office building is that of office space for
the Elk River Area Chamber of Commerce.
The demolition, site preparation, soil analysis, and other
public redevelopment costs are eligible Tax Increment
expenditures under Minnesota Statutes.
Because TIF Funds are used to assist with the office
project, the City will enter into a Redevelopment Agreement
prior to the development activities occurring.
The property affected by the Redevelopment project is
described below:
317 Main Street -
e
Legal Description:
Lot 3, Block 21, Village of Elk River, Sherburne
County, Minnesota
PID #75-405-2120
e
323 Main Street -
Legal Description:
Lots 1 and 2, Block 21, Village of Elk River,
Sherburne County, Minnesota
PID #75-405-2110
The location of these properties are shown on the map
attached as Exhibit B to this modification.
4.) Financial Analysis of the TIF Districts -
Cost of the Public Development Activities
Financed:
to
be
Main Street-Freeport Avenue Redevelopment
Total
$60,000
$60,000
Administrative
Interest
Contingency
Total Costs
-0-
-0-
-0-
$60,000
e
Sources of Funds:
Tax Increment
$60,000
Amount of Bonded Indebtedness to be Incurred: -0-
As noted in the TIF Plans, the City has elected to retain the
full captured assessed value of the TIF Districts No. 1 and No. 3
and to use all of the tax increment generated by the TIF
Districts for the purposes identified in the TIF Plans. As
indicated on the attached Exhibit A, the TIF Districts will
generate more than enough revenue to fund the proposed public
redevelopment costs. Therefore, it will not be necessary to
extend the duration of the TIF Districts No. 1 and No. 3 beyond
the period described in the TIF Plans or to increase the amount
of tax increment to be received, in order to fund the proposed
redevelopment activities.
5.) Cash Flow Analysis Attached as Exhibit A to this
Modification is a revised cash flow analysis for the TIF
Districts which sets forth the impact of the proposed public
redevelopment expenditures. As shown on the cash flow analysis,
the cost of these activities will be paid from tax increment
generated by the TIF Districts No.1 and No.3 in excess of that
necessary to pay existing debt service.
e
6.) Estimated Impact on the TIF Districts on Other Taxing
Jurisdictions Because the proposed public redevelopment
activities will be paid for with tax increment currently retained
by the City under the TIFPlans, the estimated impact on other
e
-
e
taxing jurisdictions as described in the TIF Plans will remain
unaffected. In addition, the office redevelopment at Main Street
and Freeport Avenue will not require the creation of a new Tax
Increment District. Therefore, the new property taxes generated
by the office will go directly to the local taxing jurisdictions.
7.) Administrative Procedures and Requirements This
Modification is being made pursuant to the Modification procedure
explained in the TIF Plans and Minnesota Statutes, Section
469.175, subd. 4, sOlely for the purpose of funding public
redevelopment costs at Main Street and Freeport Avenue.
:I: " ""'I'-\Ol"1l"1CXlCXl
[/) rx:I " l"1.-tNOO\OO
,:( U II O\""'CXlIll\O.-tO\
U :ij " .. .. .. .. .. .. ..
II OONl"1N.-t<Xl
.-t ~ II O\OI'-\Ol"1.-tO\
l"1 II ""'\0\0 1'-\0 1lll"1
...... 1Il II il/t- il/t- il/t- il/t- il/t- il/t- il/t-
. N II (I)
.-t e
--- 0
" l"10\1'- 01110 U
II CXlOI'- .-tCXlO s::
[/) " ""''''''\0 CXlIllN H III \0
~ ::> II .. .. .. .. .. .. 0\ 0\
...:l II O\NOO.-tN +l 0\ 0\
::> p., II o 1'-0\ l"1N.-t Ul .-t .-t
Z p:: II .-t .-t.-t.-t (I)
~ ::> II il/t- il/t- il/t- il/t- il/t- il/t- \.l s:: s::
[/) II -- -- -- Q) .,-l .,-l
+l
III s:: Ul Ul
" N H Q) Q)
II l"1"'" 0 +l +l
II . (I) III III
" 00 l"1 '0 s:: s::
II 00 0 ::l .,-l .,..f
p:: " 00 .-t ..-l e e
rx:I " U \.l \.l
:I: " 01'- ..... s:: Q) Q)
~ II \01'- 0 H ~~
0 II il/t- ..-l
II il/t- Q) +l ..-l l"1
+l 0
III s:: . .
l"1 " p:: 0 0
" N 0 Z Z
. rx:I U ~ '0
0 [/) II 0 III +l +l
Z ~~ II "'" ~ Ul U U
II 0 Ul s:: .,..f .,..f
'0 " s:: III 0 \.l \.l
s:: p.,g; " III 0 .,-l +l +l
III " <Xl .,..f Ul +l Ul Ul
p., " il/t- +l Q) o .,-l .,..f
..-l e Q) 0 0
e ::l 'n
. II .-t.-t l"101ll0 ::l Ul o ~ ~
0 rx:I II 00\ N..-l<XlO Ul Ul \.l H H
Z Ul U II \0 III l"1CXlIllN Ul ,:( p.,~~
s:: ~ H II .. .. .. .. .. .. ,:( '" '" '" '"
Ul 0 1Il ~ " O\OO\O.-tN
+l .,..f rx:I II ..-lNOl"1N.-t
0 +l 0 rx:I " .-t.-t.-t.-t.-t.-t
.,-l 0 [/) " il/t- il/t- il/t- il/t- il/t- il/t-
,:( \.l Q)
+l 'n
~ Ul 0
H .,-l \.l .-t
e lIlOp., ~
H Z ""'0 0
:I: O\~ ~ NO 0
>< s:: 0 .-to 0
rx:I .,..f ..-l ~ ~ .. .. ..
u ~ ""'00
s:: ~u 1'-1'-0
Ill..c: z l"1l"1N
s:: Ul H il/t- il/t- il/t-
.,-l III
~u
0 II "'"
+l rx:I II l"1
s:: Z II 0\
Q) H II .. .!o:
e 1Il II 0 0
Q) S II 0\ 0
\.l II "'" 1Il
0 U II il/t-
s:: ~
H III
II "'" ~
~ II I'-
III l"1 II N >-
~ ~ II +l +l
H . II 0\ \.l s::
~ 0 II 0 Q) s:: Q)
Z II N P40 a
II il/t- o .,-l
\.l +l 0
p., .,-l ..-l
" 0 Ul Q)
II III l"1 .,..f >
II <Xl 0\ &~
.-t II .. 0\ s::
~ " "'" .-t o Q) 0
H . II \0 ,:(p:: .,-l
~ 0 " .-t >- Ul
Z " il/t- +l.!o: +l s::
s:: \.l \.l III
Q) ::l III 0 P4
Q) 0 Q) o p., P4~
u .,-l > u Q) rx:I
s:: > \.l Ul Q)
III \.l Q) Q) ..-l \.l >-
..-l Q) Ul s:: .,-l ~ \.l
III [/) Q) \.l Ill...... III
1Il p:: ::l \.l +l \.l
+l ..Q ~ Q)..Q
..c: ..Q ~ \.l Q) .,..f
,e Ul Q) H Q) '0 \.l ...:l
III 0 ~ ..c: s:: +l
U [/) III [/) 0
I'- I'- ..-l .,-l
N .-t .-t N l"1 "'" III \0 I'- CXl e '0 S::..-l
0\ "'" III 0\ 0\ 0\ 0\ 0\ 0\ 0\ 0 o .,..f ..Q
...... 0\ 0\ 0\ 0\ 0\ 0\ 0\ \.l 0 III ::l
.-t O\.-t .-t .-t .-t .-t .-t .-t .-t ~ 3: ~ p.,
l"1 0\0\
...... l"1 ----
N il/t- il/t- .-tNl"1"'"
.-t -----
193RD AVE
~-;::::;
~I
\oj
~
~.'"
,0
.
MAIN STREET -
FREEPORT AVENUE
REDEVELOPMENT
co. RD. NO.
I 7 8TH
EXHIBIT B
~
.
RESOLUTION 93 -
RESOLUTION FOR THE CITY OF ELK RIVER
A RESOLUTION APPROVING THE MODIFICATION OF THE TAX
INCREMENT FINANCING PLANS FOR TAX INCREMENT FINANCING DISTRICTS
NO. 1 AND NO.3, AND DIRECTING CITY STAFF TO IMPLEMENT THE
MODIFICATION OF TAX INCREMENT FINANCING PLANS NO. 1 AND NO. 3
The City Council for the City of Elk River (the City),
acting pursuant to its authority under the Minnesota Tax
Increment Financing Act (Minn. Stat. Sec. 469.174-469.179)
hereby finds, determines, and resolves as follows:
FINDINGS
1. That the City has created and established Development
District No. 1 in the City pursuant to Minnesota Statutes
Chapter 469.
2. That the City has created and established Economic
Development Tax Increment Financing Districts No. 1 and No. 3
in the City pursuant to the Minnesota Tax Increment Financing
Act.
4It 3. That the purpose of Development District No. 1 and TIF
Districts No. 1 and No. 3 is to provide a means for financing
public improvements and facilities necessary for the City to
attract additional business and industrial development and
increase employment opportunities in those areas of the City
designated for these uses.
4. That the purpose of the modification of the TIF Plans
for the TIF Districts No. 1 and No. 3 (the Modification) is to
provide supplemental information relating to Tax Increment
expenditures to pay for certain public redevelopment costs.
j
5. That the Tax Increment expenditures used to pay for
certain public redevelopment costs authorized by Minnesota
Statutes is consistent with the goals and purposes of the
Development Programs and the TIF Plans.
6. That TIF Districts No.1 and No.3 are Economic
Development Tax Increment Financing Districts pursuant to
Minnesota Statutes Section 273.73, subd. 12.
.
7. That the Modification of the TIF Plans for TIF
Districts No. 1 and No.3 reflects ,the City's intention to use
a portion of the tax increment captured in TIF Districts No. 1
and No. 3 to assist with a redevelopment project within
Development District No. 1 by paying for certain public
development costs authorized by Minnesota Statutes.
,..... ~
8. That the Modification is consistent with and conforms
to the Comprehensive Plan for the development of the City as a
whole, and to the City's adopted Land Use Plan.
.
(a) The Modification of the Plan is consistent with
and conforms to the City's Growth Management Plan
by providing tax increment expenditures to assist
with the redevelopment of a parcel of property
along Main Street in Elk River.
(b) The Modification has been submitted to and
reviewed by the City's Planning Commission which
has found that the Modification conforms to the
City's Comprehensive and Land Use Plans.
(c) The Modification does not conflict with any other
known private proposals or other public projects.
9. That the Modification will afford maximum opportunity,
consistent with the sound needs of the City as a whole, for
development by private enterprise.
10. That the Modification adequately serves the goals and
objectives of the TIF Districts No. 1 and No.3.
11. That the Modification has been transmitted by the City
to the Sherburne County Board of Commissioners and to the
School Board for Independent School District No. 728.
e
12. That notice of a Public Hearing on the Modification
has been published in the official newspaper of the City, as
required by Minnesota Statutes Section 469.175, subd. 3 and 4.
13. That a Public Hearing on the Modification was held
before the City Council on August 16, 1993, and that an
opportunity to be heard was granted at that time to all
residents of the City and all other interested persons.
.
e
e
e
..
RESOLVED
A. That the City Council of the City of Elk River hereby
approves the Modification of the Tax Increment Financing Plans
for Tax Increment Financing Districts No. 1 and No.3.
B. That the City Council of the City of Elk River hereby
directs staff to proceed to take those steps necessary to
implement the Modification.
The foregoing resolution was introduced by Councilmember
and duly seconded by Councilmember
The following voted in favor of the resolution:
The following voted against:
The following were absent:
Whereupon the resolution was adopted August 16, 1993.
Henry A. Duitsman, Mayor
ATTEST:
Sandra A. Thackeray, City Clerk