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3. HRSR 10-17-2008.ver MEMORANDUM TO: Mayor and City Council Housing and Redevelopment Authority FROM: Scott Clark, Community Development Director DATE: October 17, 2005 SUBJECT: MetroPlains Agreement Revisions Action for Consideration The City Council is being asked to consider modifications to the Development Agreement by and between the City of Elk River and Metro Plains Development, LLC. The Housing and Redevelopment Authority will be reviewing this agreement at a special 5:30 p.m. meeting prior to the Council meeting and will be in attendance to give their advisory recommendation. In addition, attached to this memorandum is a generalized concept diagram illustrating the general principles as to how the tax increment streams are being separated and what they are reimbursing relevant to redevelopment costs. Background Before detailing what changes axe being made to the development agreement, it is important to note that the over riding principles of the terms to date are not being amended. All of the following agreement principles remain: - When the projects are built, a "permanent" value will be established that all future tax levies will be measured against, with 95 percent of this pool of increment will be used by the developer to pay specific obligations. All project value that is a result of inflation or appreciation (or put another way, an increase to the "permanent value) will be retained by the City to pay for specific obligations. The Agreement maintains assurances must be in place that the Bluffs of Elk River will be constructed first and that the Jackson Place would not be able to be constructed without the former mentioned projecf being in place. MetroPlains Agreement Revisions October 17, 2005 Page 2 Look back provisions which limit the internal rate of returns on the projects remain in place. Development Agreement Modifications In order for the tax increment placing agent to make the tax increment note more marketable they have asked for the following two considerations: - Collapsing the Parking Lot Note into the Development Cost Note. The original agreement had the developer's total 95% distribution being divided with 89% going to the Development Cost Note and 6% going to the Parking Lot Note. Having one note does not give the developer any additional increment but makes it simpler in marketing and financing (see pages 28, 35, 36 and 37). Placing an Assessment Agreement on the Bluff residential property that will last until the earlier date of December 31, 2010 or the date of issuance of any Refunding Bond. The same concept is proposed for the Jackson Place residential and the commercial space fox both Jackson Place and Bluff but with a termination date of December 31, 2015. This provides a "floor" of value for the refunding and establishment of a minimum value (see pages 10, 38-40 and Exhibit P). Attached is MSA 469.177 Subd. 8 which gives the City the authority to enter into an Assessment Agreement. The agreement also is changed as follows: - Establishes the sale price for Jackson Square at $130,000 ($5.63 per square foot). The value was established pursuant to the past agreement provision of a third party appraisal, which was conducted through the Minnesota Housing Finance Agency (MHFA) (see page 18, Section 3.4). - Allowance that a commitment letter from the MHFA and closing on interim financing is sufficient (in addition to the Agreement's other contingencies) to close on Jackson Place (see page 20/21). - Additional language bolstering the requirement that the Bluff Block Development can be commenced or completed without the construction of Jackson Place (see page 25). - After issuance of a refunding bond, the developer is allowed to collect an amount over the principle and interest of the bond, up to the allowable 95% and can not exceed the $3.3 million development cost outlined in Section 5.2. This amount will be memorialized in a "B" note. The reality is that after the refunding bond is sized the principle will be significantly less than the $3.3 million and any residual value will be negligible. The developer securing increment over the refunding bond principle amount still meets the intent of the original agreement, as the guiding principle was to have 95% of the "non- inflationary" increment being distributed fox eligible development costs (see page 34 and 35). S:\PLANNING\Scott Clark\2005 CC memos\10-17-OS Metro Plains Agreement.doc MetroPlains Agreement Revisions October 17, 2005 Page 3 Staff is also working on some default language issues that will be presented at the meeting. Recommendation Staff recommends approval of the changes as presented. NOTE: Some language changes are anticipated to this draft and will be distributed at the meeting. 5:\PLANNING\Scott Clark\2005 CC memos\10-17-05 Metro Plains Agreement.doc Tax Increment Distribution "Non-Inflationary" Distribution - 95% Payment of Development Cost (Section 5.2.) to developer - 5% City Administration "Asset/Inflationary" Distribution - 100% to City Payment of SAC/WAC Land Note Payment Residual Increment for Pooling S:\PLANNING\Scott Clazk\2005 HRA memos\Ta~: Increment Distribution.doc Minnesota Statutes Display Document 2 of 6 Page 1 of 2 ,; Minnesota Statutes 2004 Display Document 2 of 6 N _r 1 .~ S ^~. YJ LJ ~r~ 2__ ~, ~~ ~ ~~ G~1 ~~~~~^~ SEarch Terms 5unnar~ EH nd Load Pnor To H Gr,wn ~lottom Next Hel Section: 469.177 continued... The county auditor shall increase the original net tax capacity of the district by the net tax capacity of each improvement for which a building permit was issued. Subd. 5. Tax increment account. The tax increment received with respect to any district shall be segregated by the authority in a special account or accounts on its official books and records or as otherwise established by resolution of the authority to be held by a trustee or trustees for the benefit of holders of the bonds. Subd. 6. Request for certification of new tax increment financing district. A request for certification of a new tax increment financing district pursuant to subdivision 1 or of a modification to an existing tax increment financing district pursuant to section 469.175, subdivision 4, received by the county auditor on or before June 30 of the calendar year shall be recognized by the county auditor in determining local tax rates for the current and subsequent levy years. Requests received by the county auditor after June 30 of the calendar year shall not be recognized by the county auditor in determining local tax rates for the current levy year but shall be recognized by the county auditor in determining local tax rates for subsequent levy years. Subd. 7. Property classification changes. When any law governing the classification of real property and determining the percentage of market value to be assessed for ad valorem taxation purposes is amended, the increase or decrease in net tax capacity resulting therefrom shall be applied proportionately to original net tax capacity and captured net tax capacity of any tax increment financing district in each year thereafter. This subdivision applies to tax increment districts created pursuant to sections 469.174 to 469.178 or any prior increment law. Subd. 8. A sessment~ magreementsm. An authority may enter in o a written massessment~ magreementm with any person establishing a minimum market value of land, existing improvements, or improvements to be constructed in a district, if. the property is owned or will be owned by the person. The minimum market value established by an massessmentm magreementm may be fixed, or increase or decrease in later years from the initial minimum market value. If an agreement is fully executed before July 1 of an assessment year, the market value as http://ww2.revisor.leg.state.mn.us:8181 /SEARCH/BASIS/mnstat/public/www/DDW?W... 10/14/2005 Minnesota Statutes Display Document 2 of 6 Minn~sota~ Statuttx Minnesota Statutes 2004 Display Document 2 of 6 Search Te~ ,~unnary Eu ~{r~ p~~ Prior To~ pawn bottom Neat] N~ Section: 469.177 continued... The assessor shall review the plans and specifications for the improvements to be constructed, review the market value previously assigned to the land upon which the improvements are to be constructed and, so long as the minimum market value contained in the massessment(~l ~agreement~ appears, in the judgment of the assessor, to be a reasonable estimate, shall execute the following certification upon the agreement: The undersigned assessor, for the assessment of the certifies that the market the land and improvements being legally responsible above described property, values assigned to are reasonable. The ~assessmentm magreement~ shall be filed for record and recorded in the office of the county recorder or the registrar of titles of each county where the real estate or any part thereof is situated. After the agreement becomes effective for assessment purposes, the assessor shall value the property under section 273.11, except that the market value assigned shall not be less than the minimum market value established by the ~assessment~ ~agreementm. The assessor may assign a market value to the property in excess of the minimum market value established by the massessmentl~ magreementm. The owner of the property may seek, through the exercise of administrative and legal remedies, a reduction in market value for property tax purposes, but no city assessor, county assessor, county auditor, board of review, board of equalization, commissioner of revenue, or court of this state shall grant a reduction of the market value below the minimum market value established by the massessment~ magreement during the term of the agreement filed of record regardless of actual market values which may result from incomplete construction of improvements, destruction, or diminution by any cause, insured or uninsured, except in the case of acquisition or reacquisition of the property by a public entity. Recording an massessment~ ~agreementm constitutes notice of the agreement to anyone who acquires any interest in the land or improvements that is subject to the massessment~ magreement~, and the agreement is binding upon them. An massessmentm magreement~ may be modified or terminated by mutual consent of the current parties•.to the agreement. Modification or termination of an ~assessmentm magreement~ must be approved by the governing body of the municipality. If the estimated market value for the property for the most recently Page 1 of 2 http://ww2.revisor.leg.state.mn.us:8181 /SEARCH/BASIS/mnstat/public/www/DDW?W... 10/ 14/2005 Minnesota Statutes Display Document 2 of 6 available assessment is less than the minimum market value established by the ~assessment~ magreement~ for that or any later year and if bond counsel does not conclude that termination of the agreement is necessary to preserve the tax exempt status of outstanding bonds or refunding bonds to be issued, the modification or termination of the ~assessmentm magreementm also must be approved by the governing bodies of the county and the school district. A document modifying or terminating an agreement, including records of the municipality, county, and school district approval, must be filed for record. The assessor's review and certification is not required if the document terminates an agreement. A change to an agreement not fully executed before July 1 of an assessment year is not effective for assessment purposes for that assessment year. If an ~assessmentm magreement~ has been modified or prematurely terminated, a person may seek a reduction in market value or tax through the exercise of any administrative or legal remedy. The remedy may not provide for reduction of the market value below the minimum provided under a modified ~assessmentm agreement that remains in effect. In no event may a reduction be sought for a year other than the current taxes payable year. Subd. 9. Distributions of excess taxes on ca tured net tax capacity. (a) If the amount of tax paid on aptured net tax capacity exceeds the amount of tax incre nt, the county auditor shall distribute the excess to the nicipality, county, and school district as follows: each gov nmental unit's share of the excess equals (1) the total amount of the exces~for the tax increment financing district, multiplied by (2) a fraction, the numerator f which is the current local tax rate of the governmental un' less the governmental unit's local tax rate for the year th original local tax rate for the district was certified (in n case may this amount be less than zero) and the denominator o which is the sum of the numerators for the municipality, coun y, and school district. If the entire increase the local tax rate is attributable to a taxing district, oth r than the municipality, county, or school district, the the excess must be distributed to the municipality, count and school district in proportion to their respective local t x rates. (b) The amou s distributed shall be deducted in computing the levy limit of the taxing district for the succeeding taxable year. Page 2 of 2 ...More Search Te~ Sonnary Ex amend 6pad~ Prier T~ ~ OnWn ' ~o~ , ~~ http://ww2.revisor.leg. state.mn. us: 8181 /SEARCH/BASI S/mnstat/public/www/DD W?W... 10/ 14/2005