HomeMy WebLinkAbout4.A. Approval of Resolution No. 2014-2, A Resolution Authorizing the Establishment of a policy and Procedures for Tax Increment Financing General Business
4• A.
SHAKOPEE
TO: Economic Development Authority
FROM: Samantha DiMaggio, Economic Development Coordinator
DATE: 03/18/2014
SUBJECT: Approval of Resolution No.2014 -2, A Resolution Authorizing the Establishment of a Policy and
Procedures for Tax Increment Financing
Background
The City has approved TIF in the past but has had no formal policy in terms of what performance criteria the
applicant should meet, in such things as job creation, wage requirements, and the like. City Staff has developed this
policy in collaboration with the City Attorney's office, Kennedy & Graven, and the City's Financial Adviser,
Springsted. Staff has also reviewed the current policies from a variety of other cities within the State of Minnesota.
Tax increment financing (TIF) uses the increased property taxes that a new real estate development generates to
finance costs of the development. In Minnesota, TIF is used for two basic purposes:
1) To induce or cause a development or redevelopment that otherwise would not occur —e.g., to convince a
developer to build an office building, retail, industrial, or housing development that otherwise would not be
constructed. To do so, the increased property taxes are used to pay for costs (e.g., land acquisition or site
preparation) that the developer would normally pay.
2) To finance public infrastructure (streets, sewer, water, or parking facilities) that are related to the development. In
some cases, the developer would be required to pay for this infrastructure through special assessments or other
charges. In other cases, all taxpayers would pay through general city taxes.
When a new TIF district is created, the county auditor certifies (1) the current net tax capacity (i.e., property tax
base) of the TIF district and (2) the local property tax rates. As the net tax capacity of the district increases, the
property taxes (i.e., the "tax increment ") paid by this increase in value is dedicated and paid to the development
authority. The tax increment is limited to the tax derived from the certified tax rate. Increases in value that generate
increment may be caused by construction of the development or by general inflation in property values. The
authority uses the increment to pay qualifying costs (e.g., land acquisition, site preparation, and public
infrastructure) that it has incurred for the TIF project. There is a mismatch between when most TIF costs must be
paid —at the beginning of a development —and when increments are received —after the development is built and
begins paying higher property taxes. Three basic financing techniques are used to finance these upfront costs:
1) Bonds: The authority or municipality (city or county) may issue its bonds to pay these upfront costs and use
increment to pay the bonds back. Often, extra bonds are issued to pay interest on the bonds ( "capitalizing" interest)
until increments begin to be received.
2) Interfund loans: In some cases, the authority or city may advance money from its own funds (e.g., a development
fund or sewer and water fund) and use the increments to reimburse the fund.
3) Pay -as- you -go financing: The developer may pay the costs with its own funds. The increments, then, are used to
reimburse the developer for these costs. This type of developer financing is often called "pay -as- you -go" or
"pay -go" financing.
Minnesota authorizes development authorities to use TIF. These authorities are primarily housing and
redevelopment authorities (HRAs), economic development authorities (EDAs), port authorities, and cities. In
addition, the "municipality" (usually the city) in which the district is located must approve the TIF plan and some
key TIF decisions. TIF uses the property taxes imposed by all types of local governments. But the school district
and county, the two other major entities imposing property taxes, are generally limited to providing comments to
the development authority and city on proposed uses of TIF. The state - imposed tax on commercial - industrial and
seasonal- recreational properties is not captured by TIF.
Before an authority may create a TIF district, it and the city must make "but -for" findings that (1) the development
would not occur without TIF assistance and (2) that the market value of the TIF development will be higher (after
subtracting the value of the TIF assistance) than what would occur on the site, if TIF were not used. Minnesota
allows several different types of TIF districts. The legal restrictions on how long increments may be collected, the
sites that qualify, and the purposes for which increments may be used vary with the type of district.
From a developers' standpoint, TIF offers an advantage, in that property taxes otherwise paid to the School District,
in addition to those of the County and City, are included. The School Board and County Board may comment on
the plan, but cannot "veto" it.
The City requires TIF, as well as Tax Abatement, beneficiaries, to pay living wage jobs, which locally have been
identified as 200% of Federal minimum wages per the City of Shakopee's Business Subsidy Policy. This means,
based on the current minimum wage of $7.25/hour, jobs to be created must pay $14.50. The number of jobs to be
created are not specified, which is consistent with most other Minnesota cities' TIF and Tax Abatement subsidy
plans than staff has seen.
District Type ' Use of Increment Maximum
Duration
[Redevelopment „[Redevelop blighted areas 125 Years
Renewal and Redevelop areas with obsolete uses, 15 Years
renovation not meeting blight test
Economic Encourage manufacturing and other 8 Years
development footloose industries
Housing Assist low- and moderate - income 25 Years
housing
[Soils `[Clean up contaminated sites 120 Years
Compact Redevelop commercial areas with 25 Years
development 'more dense developments
Action Sought
If the EDA concurs, it should, by motion, approve the following Resolution:
Resolution No. 2014 -2, A Resolution Authorizing the Establishment of a Policy and Procedures for Tax Increment
Financing.
Attachments: 2014 -2
Information Sheet
Policy
CITY OF SHAKOPEE, MINNESOTA
ECONOMIC DEVELOPMENT AUTHORITY
RESOLUTION NO. 2014-2
RESOLUTION AUTHORIZING THE ESTABLISHMENT OF A POLICY AND
PROCEDURES FOR TAX INCREMENT FINANCING
WHEREAS, The City of Shakopee, Minnesota, Economic Development Authority (the "City") has the
authority to issue tax increment financing pursuant to Minnesota Statutes, Sections 469.174 to 469.1794
(the "Tax Increment Financing Act ") , and
WHEREAS, the City desires to be proactive in the promotion and stimulation of economic growth, and
WHEREAS, the issuance of tax increment financing by the City is perceived to be of assistance in
aiding financially in the industrial and economic development of the City of Shakopee, and
WHEREAS, the Economic Development Authority deems it advisable to develop a policy and
procedure for the issuance of such financing;
NOW, THEREFORE, BE IT FURTHER RESOLVED BY THE ECONOMIC DEVELOPMENT
AUTHORITY OF THE CITY OF SHAKOPEE, MINNESOTA, that, the attached Tax Increment
Financing Policy for the City of Shakopee is hereby adopted, effective March 18, 2014.
Adopted in regular session of the Economic Development Authority of the City of Shakopee, Minnesota
held this Day of , 2014.
Matt Lehman, President
ATTEST:
Julie Linnihan, City Clerk
HOUSE RESEARCH Short Subjects
Joel Michael Updated: October 2010
Tax Increment Financing
What is TIF? Tax increment financing (TIF) uses the increased property taxes that a new real
estate development generates to finance costs of the development. In
Minnesota, TIF is used for two basic purposes:
• To induce or cause a development or redevelopment that otherwise would
not occur —e.g., to convince a developer to build an office building, retail,
industrial, or housing development that otherwise would not be constructed.
To do so, the increased property taxes are used to pay for costs (e.g., land
acquisition or site preparation) that the developer would normally pay.
• To finance public infrastructure (streets, sewer, water, or parking facilities)
that are related to the development. In some cases, the developer would be
required to pay for this infrastructure through special assessments or other
charges. In other cases, all taxpayers would pay through general city taxes.
How does TIF When a new TIF district is created, the county auditor certifies (1) the current
work? net tax capacity (i.e., property tax base) of the TIF district and (2) the local
property tax rates. As the net tax capacity of the district increases, the property
taxes (i.e., the "tax increment ") paid by this increase in value is dedicated and
paid to the development authority. The tax increment is limited to the tax
derived from the certified tax rate. Increases in value that generate increment
may be caused by construction of the development or by general inflation in
property values. The authority uses the increment to pay qualifying costs (e.g.,
land acquisition, site preparation, and public infrastructure) that it has incurred
for the TIF project.
How is TIF used to There is a mismatch between when most TIF costs must be paid —at the
pay "upfront" beginning of a development —and when increments are received —after the
development costs? development is built and begins paying higher property taxes. Three basic
financing techniques are used to finance these upfront costs:
• Bonds. The authority or municipality (city or county) may issue its bonds to
pay these upfront costs and use increment to pay the bonds back. Often,
extra bonds are issued to pay interest on the bonds ( "capitalizing" interest)
until increments begin to be received.
• Interfund loans. In some cases, the authority or city may advance money
from its own funds (e.g., a development fund or sewer and water fund) and
use the increments to reimburse the fund.
• Pay - you - go financing. The developer may pay the costs with its own
funds. The increments, then, are used to reimburse the developer for these
costs. This type of developer financing is often called "pay -as- you -go" or
"pay -go" financing.
What governmental Minnesota authorizes development authorities to use TIF. These authorities are
units can use TIF? primarily housing and redevelopment authorities (HRAs), economic
development authorities (EDAs), port authorities, and cities. In addition, the
"municipality" (usually the city) in which the district is located must approve the
TIF plan and some key TIF decisions. TIF uses the property taxes imposed by
all types of local governments. But the school district and county, the two other
major entities imposing property taxes, are generally limited to providing
comments to the development authority and city on proposed uses of TIF. The
state - imposed tax on commercial - industrial and seasonal - recreational properties
is not captured by TIF.
What is the but for Before an authority may create a TIF district, it and the city must make "but -for"
test? findings that (1) the development would not occur without TIF assistance and
(2) that the market value of the TIF development will be higher (after
subtracting the value of the TIF assistance) than what would occur on the site, if
TIF were not used.
What types of TIF Minnesota allows several different types of TIF districts. The legal restrictions
districts may be on how long increments may be collected, the sites that qualify, and the
created? purposes for which increments may be used vary with the type of district.
District type Use of Increment Maximum
duration
Redevelopment Redevelop blighted areas 25 years
Renewal and Redevelop areas with obsolete uses, not 15 years
renovation meeting blight test
Economic Encourage manufacturing and other 8 years
development footloose industries
Housing Assist low- and moderate - income housing 25 years
Soils Clean up contaminated sites 20 years
Compact Redevelop commercial areas with more 25 years
development dense developments
How many TIF According to the 2010 report of the Office of State Auditor (OSA), there were
districts exist? 2,048 active TIF districts in 2008. The graph shows the relative shares by type
of district.
TIF Districts by Type in 2008
(2,048 districts)
Housing
/ (545)
Redevelopment t
(950) Y., Renewal (25)
Special Laws (7)
Soils (20)
Pre -1979 (47)
Economic Development
(454)
Source: 2010 Report of the State Auditor
For more information: Contact legislative analyst Joel Michael at 651- 296 -5057. Also see the House
Research web site for more information on TIF at www. house .mn /hrd/issinfo /tifmain.htm.
The Research Department of the Minnesota House of Representatives is a nonpartisan office providing legislative,
legal, and information services to the entire House.
House Research Department 1 600 State Office Building 1 St. Paul, MN 55155 1 651 - 296 -6753 1 www.house.mn /hrd /hrd.htm
City of Shakopee, Minnesota
TAX INCREMENT FINANCING (TIF) POLICY
1) POLICY PURPOSE
For the purposes of this document the term "City" includes the Shakopee City Council, Staff, the
Economic Development Authority, Advisory Boards and Commission, Financial consultants, and legal
counsel.
The purpose of this policy is to establish the City of Shakopee's position relating to the use of Tax
Increment Financing (TIF) for private development above and beyond the requirements and
limitations set forth by State Law. This policy shall be used as a guide in the processing and review
of applications requesting tax increment assistance.
The City of Shakopee (City) is granted the power to utilize TIF by the Minnesota Tax Increment
Financing Act, Minnesota Statutes 469.174 through 469.1794, as amended. The fundamental
purpose of tax increment financing in the City of Shakopee is to encourage desirable development
or redevelopment that would not otherwise occur but for the assistance provided through TIF.
The City reserves the right to approve or reject projects on a case by case basis, taking into
consideration established policies, project criteria, and demand on City services in relation to the
potential benefits from the project. Meeting policy criteria does not guarantee the award of
business assistance to the project. Approval or denial of one project is not intended to set
precedent for approval or denial of another project.
The City Council (and EDA Board) can deviate from this policy for projects that supersede the
objectives identified herein.
2) OBJECTIVES OF TAX INCREMENT FINANCING
Tax Increment Financing (TIF) uses the increased property taxes generated by new real estate
development within a tax increment district to pay for certain eligible costs associated with the
development. As a matter of adopted policy, the City will consider using TIF to assist private
development projects that will achieve one or more of the following objectives:
• To retain local jobs and /or increase the number and diversity of jobs that offer stable
employment and /or attractive wages and benefits. Preference will be given to higher
paying jobs that also provide benefits such as health care coverage.
• Projects that provide value in the forms of needed transportation and other utility
infrastructure improvement that would be completed in conjunction with the project.
• To encourage additional unsubsidized private development in the area, either directly or
indirectly through "spin off" development.
2014 Page1
• To facilitate the development process and to achieve development on sites which would not
otherwise be developed but -for the use of TIF.
• To remove blight and /or encourage redevelopment of commercial and industrial areas in
the City that result in high quality redevelopment and private reinvestment.
• To offset increased costs of redevelopment (i.e. contaminated site clean -up) over and above
the costs normally incurred in development.
• To create opportunities for affordable housing.
• Projects that improve the quality of life in the City by providing a desirable good or service
and address an unmet demand in the community.
• To contribute to the implementation of other public policies, as adopted by the city from
time to time, such as the promotion of quality urban or architectural design, energy
conservation, and decreasing capital and /or operating costs of local government.
3) USE OF TAX INCREMENT FINANCING
1. When possible, TIF shall be used to finance public improvements associated with the
project. The priority for the use of TIF funds is:
a. Public improvements, legal, administrative, and engineering costs.
b. Site preparation, site improvement, land purchase, demolition, and environmental
remediation.
c. Capitalized interest, bonding costs.
2. The following types of TIF districts may be established:
a. Economic Development Districts (maximum term 9 years)
b. Redevelopment Districts (maximum term 26 years)
c. Housing Districts (maximum term 26 years)
d. Renewal and Renovation Districts (maximum term 16 years)
e. Other types of TIF districts, along with specific criteria, may be considered on a case
by case basis.
3. TIF assistance shall not be provided for reimbursement of land and /or property price that
is in excess of fair market value. An appraisal by a third party, agreed upon by the City and
Developer, will determine the fair market value of the land.
4. The City shall retain a fee to reimburse administrative costs up to but not to exceed ten
percent (10 %) of any tax increment received.
5. Any developer receiving TIF assistance shall provide a minimum of twenty percent (20 %)
cash equity investment in the project. The TIF assistance shall not be used to supplant cash
equity. The City may consider exceptions for "pay -as- you -go" TIF projects.
6. Developer shall be able to demonstrate a market demand for a proposed project. TIF shall
not be used to support purely speculative projects.
7. TIF shall not be utilized in cases where it would create an unfair and significant competitive
financial advantage over other projects in the City.
8. TIF shall not be provided for projects that would place extraordinary demands on city
services or for projects that would generate significant environmental impacts.
2014 Page 2
9. The developer must provide adequate financial guarantees to ensure completion of the
project, including, but not limited to: assessment agreements, letters of credit, personal
guarantees, etc.
10. The developer shall adequately demonstrate, to the City's sole satisfaction, an ability to
complete the proposed project based on past development experience, general reputation,
and credit history, among other factors, including the size and scope of the proposed
project.
11. For the purposes of analyzing the proposal, the developer shall provide any requested
market, financial, environmental, or other data requested by the City or its consultants.
4) PROJECT QUALIFICATIONS
All TIF projects considered by the City of Shakopee must meet all of the following requirements:
1) To be eligible for TIF, a project shall result in one of the following:
a. For Economic Development TIF Districts, new construction of a minimum of 50,000
square foot building.
b. For Economic Development TIF Districts, the minimum creation of one new or
retained full time job per $15,000 of TIF provided.
c. For Redevelopment TIF Districts, a minimum value increase of 2 times the current
year assessed value, whichever is greater.
2) The project shall meet at least one of the objectives set forth in Section 2 and satisfy all the
provisions set forth in Section 3 of this document.
3) The developer shall demonstrate that the project is not financially feasible but -for the use of
TIF.
4) The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and
Zoning Ordinances.
5) The project shall serve at least two of the following public purposes:
a. Creation of jobs with livable wages and benefits, per City's Business Subsidy Policy.
b. Increase of tax base.
c. Enhancement or diversification of the City's economic base.
d. Industrial development that will spur additional private investment in the area.
e. The project contributes to the fulfillment of the City's development or
redevelopment objectives.
f. Removal of blight or the rehabilitation of a high profile or priority downtown site.
5) SUBSIDY AGREEMENT & REPORTING REQUIREMENTS
• All developers /businesses receiving tax increment financing assistance from the City of
Shakopee shall be subject to the provisions and requirements set forth by State Statute
116J.993 and summarized below. Developers /businesses must also comply with the City's
Business Subsidy Policy.
• All developers /businesses receiving TIF assistance shall enter into a Subsidy Agreement
with the City of Shakopee that identifies: the reason for the subsidy, the public purpose
served by the subsidy, and the goals for the subsidy, as well as other criteria set forth by
State Statute 116J.993.
2014 Page3
• The developer /business shall file a report annually for two years after the date the benefit
is received or until all goals set forth in the application and performance agreement have
been met, whichever is later. Reports shall be completed using the format drafted by the
State of Minnesota and shall be filed with the City of Shakopee no later than March 1 of each
year for the previous calendar year. Businesses fulfilling job creation requirements must
file a report to that effect with the City within 30 days of meeting the requirements.
• The developer /business owner shall maintain and operate its facility at the site where TIF
assistance is used for a period of five years after the benefit is received.
• The developer /business will be required to attain or exceed the jobs and wages goals set
forth in the Subsidy Agreement.
• Developer /Businesses failing to comply with the above provisions will be subject to fines,
repayment requirements, and be deemed ineligible by the State of Minnesota to receive any
loans or grants from public entities for a period of five years.
6) APPLICATION PROCESS
1) Applicant submits the completed application
2) City staff reviews the application and completes a project score sheet.
3) Results of the score sheet are submitted to the appropriate governing authorities for
preliminary approval of the proposal.
4) If preliminary approval is granted, the applicant submits the application fee of $12,000 and
the Tax Increment Financing Plan, along with all necessary notices, resolutions and
certificates are prepared by City staff and /or consultants. The application funds will be
placed in a non - interest bearing account and any unused portion of the fee will be returned
to the applicant.
5) Notices are published and sent to the county and school board.
6) Public hearing(s) on the proposed project are held.
7) The City Council grants final approval or denial of the proposal.
*This policy shall be reviewed on a biannual basis with the next review being set for April, 2016.
2014 Page 4