HomeMy WebLinkAbout2012-05-02 PACKET 06.B.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA
MEETING ITEM #
DATE 5/2/2012
PREPARED BY Finance Robin Roland
ORIGINATING DEPARTMENT DEPARTMENT HEAD
COUNCIL ACTION REQUEST
Consider approval of a spending plan for Tax Increment Financing Districts 1 -1, 1 -2, 1 -8, and
1 -12 under Minnesota State Statutes Section 469.176 Subd. 4m to utilize existing tax
increment revenues from TIF districts to stimulate construction /rehabilitation of private
development in a manner which will create or retain jobs.
STAFF RECOMMENDATION
Adopt Resolution approving spending plan for Tax Increment Financing Districts 1 -1, 1 -2, 1 -8,
and 1 -12.
BUDGET IMPLICATION N/A N/A
BUDGETED AMOUNT ACTUAL AMOUNT
ADVISORY COMMISSION ACTION
DATE
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DENIED
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SUPPORTING DOCUMENTS
® MEMO /LETTER: Roland
® RESOLUTION:
❑ ORDINANCE:
❑ ENGINEERING RECOMMENDATION:
❑ LEGAL RECOMMENDATION:
® OTHER: Spending Plan
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ADMINISTRATORS COMMENTS
City Administrator Date
HACouncil items \City Council Action Form.doc
(M City of Cottage Grove Memo
Finance Department
TO: Honorable Mayor and City Council
Ryan Schroeder, City Administrator
FROM: Robin Roland, Finance & Community Development Director
DATE: April 27, 2012
SUBJECT: Public Hearing - consider a written Tax Increment spending plan under the
Jobs Stimulus Program (MN Statute 469.176)
Introduction
In 2010, development authorities were given temporary expanded authority to use Tax
Increment to stimulate economic recovery through assistance to private development. The
2011 legislature expanded the authority by one year until December 31, 2012. The Jobs
Stimulus Program requires that a proposed written Tax Increment spending plan be approved
by the municipality after a published notice and a public hearing.
The City Council resolution on April 4, 2012 called a public hearing for May 2, 2012 for
consideration of the spending plan.
Discussion
A redevelopment project on the site of the former Home Depot by Stonehenge USA is
proposed. This project involves qualified expenditures under the Jobs Stimulus Program
Statute.
Analysis of the redevelopment project by the City's consultant (Ehlers) reflects a gap in the
project funding but for which the project would not proceed. This funding gap would be filled
by $1.9 million in TIF. As of December 31, 2011, available balances in the TIF funds are as
follows:
TIF 1 -1
$260,449
TIF 1 -3
348,962
TIF 1 -8
299,273
TIF 1 -12
405.402
Total existing
$1,314,086
Note that the balance of the $1.9 million will be received by district 1 -12 over the remaining
term of that district from funds which are not committed to debt repayment for the district.
Honorable Mayor, City Council, and Ryan Schroeder
Page 2 of 2
Use of the funds is dependent upon a Development Agreement between the developer and the
EDA and closing by the developer on the purchase of the property and on project financing
with initiation of construction activities on or before June 30, 2012.
The EDA approved the proposed spending plan at their meeting on April 10, 2012 contingent
on the approval of the City Council. A development agreement is proposed to be considered
by the EDA on May 8, 2012.
Requested Action
Adopt the resolution approving a written Tax Increment spending plan for TIF districts 1 -1, 1 -3,
1 -8, and 1 -12 under MN State Statute 469.176.
RESOLUTION NO. 2012 -XXX
RESOLUTION APPROVING A SPENDING PLAN FOR TAX INCREMENT
FINANCING DISTRICT NOS. 1-1, 1-2,1-8 AND I -12 IN THE CITY
BE IT RESOLVED by the City Council (the "City Council ") of the City of Cottage Grove (the
"City "), Washington County, Minnesota as follows:
Section 1. Background; Findings
(a) The City and the Cottage Grove Economic Development Authority (the "Authority ")
have previously established Tax Increment Financing District Nos. 1 -1, 1 -2, 1 -8 and 1 -12 (the "TIF
Districts ") and adopted the tax increment financing plans therefor (the "TIF Plans ").
(b) Subject to the approval of the City Council following a public hearing, the Authority has
adopted a spending plan for the TIF Districts in accordance with Minnesota Statutes, Section 469.176
Subd. 4m in the form submitted to the City Council by the Authority (the "Spending Plan ") to utilize
existing tax increment revenues from the TIF Districts in order to stimulate construction or rehabilitation
of private development in a way that will also create or retain jobs.
(c) The City and Authority have performed all actions required by law to be performed prior
to the approval of the Spending Plan, including, but not limited to, causing notice of a public hearing to
be published and holding a public hearing on the date hereof on the adoption of the Spending Plan.
Section 2. Approval of the Spending Plan.
(a) The Spending Plan for the TIF Districts is hereby approved.
(b) The Authority is hereby authorized to carry out the terms of the Spending Plan in such
manner as it determines to be consistent with the Program Policy.
Dated: May 2, 2012
Adopted:
Myron Bailey, Mayor
ATTEST:
Ryan Schroeder, City Administrator
Spending Plan
Tax Increment Financing Districts
Nos. 1 -1, 1-2,1-8, and 1 -12
City of Cottage Grove
Washington County
State of Minnesota
Authority Approval: April 10, 2012
City Council Adoption: May 2, 2012
EHLERbalu
LEADERS IN PUBLIC FINANCE
Prepared by: EHLERS & ASSOCIATES, INC.
3060 Centre Pointe Drive, Roseville, Minnesota 55113 -1105
651 -697 -8500 FAX: 651 - 697 -8555 WWW.EHLERS- INC.COM
Spending Plan
For Tax Increment Financing District
Nos. 1 -1, 1-2,1-8, and 1 -12
Section 1. Purpose
The Cottage Grove Economic Development Authority (the "Authority ") is the administrative
authority for Tax Increment Financing District Nos. 1 -1, 1 -2, 1 -8, and 1 -12 (the "TIF Districts ")
in the City of Cottage Grove, Minnesota (the "City "), and proposes to adopt a Spending Plan for
the TIF Districts in accordance with Minnesota Statutes, Section 469.176 Subd. 4m (the "Act ").
The purpose of the Spending Plan is to develop or redevelop sites, Lands or areas within the City
in conformity with the City's Comprehensive Plan by using available tax increments from the
TIF Districts to provide improvements, loans, interest rate subsidies, or assistance in any form to
private development consisting of the construction or substantial rehabilitation of buildings and
ancillary facilities, which will create or retain jobs in this state, including construction jobs.
Section 2. Plan
Under this Spending Plan, the Authority intends:
(a) To use up to $1.9 million of available tax increments from the TIF Districts to
provide assistance to Stonehenge for the substantial rehabilitation of the vacant
Home Depot building into a multi -tenant facility consisting of approximately
80,000 sq. ft. (the "Project ").
(b) The total amount authorized under this Spending Plan for Projects is $1,900,000,
and any such assistance provided shall be through formal approval of a
development agreement with the Authority. The Projects shall commence before
July 1, 2012, and shall constitute Projects that would not commence by such date
without the assistance provided pursuant to this Spending Plan. The Authority can
use available tax increments from the TIF districts after December 31, 2012 for
Projects under this Spending Plan, without amendment, if so authorized by statute.
(c) To amend the budget set forth in the Tax Increment Financing Plans for the TIF
Districts as necessary to provide for the assistance authorized by this Spending
Plan.
(d) To take any other action necessary and authorized by the Act in connection with
the Projects.
The assistance provided pursuant to this Spending Plan shall be subject to Minnesota Statutes,
Sections 116J.993 to 116J.995 (the 'Business Subsidy Law "), if applicable, and shall be subject
to the Business Subsidy Policy requirements.
City of Cottage Grove Spending Plan for TIF Districts Nos. 1 -1, 1 -2, 1 -8, and 1 -12
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STATE ®F
OFFICE OF THE STATE AUDITOR
-.-.yo-'
SUITE 500
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525 PARK STREET
(651)296 -2551 (voice)
(651) 296 -4755 (Fax)
REBECCA OTTO
SAINT PAUL, MN 55103 -2139
state auditornosa.state.mn.us (E -mail)
STATE AUDITOR
1- 800 - 627 -3529 (Relay service)
Statement of Position
Jobs Stimulus Program - TIF
Tax increment revenue may be spent by a development authority only as permitted by the
Tax Increment Financing Act (TIF Act).' In 2010, development authorities were given
temporary expanded authority to use tax increment in ways not previously authorized. In
2011, the Minnesota Legislature extended this authority by one year. The purpose of
this expanded authority is to stimulate economic recovery through assistance to private
development, with particular emphasis on the retention and creation of construction jobs.
The authority expressly excludes assistance to public projects. To underscore the
immediacy of the need to create jobs, construction must commence no later than July 1,
2012, with the temporary authority expiring on ,December 31, 2012.
The tax increment to be used for this temporary Jobs Stimulus Program comes from one
of two sources: tax increment generated 1) from expanded authority through an economic
development district, or 2) through the use of available tax increment generated from
existing TIF districts. The requirements are slightly different, depending on which of
these two tax increment revenue sources are used.
Revenue from Economic Development Districts
Prior to the Jobs Stimulus Program, tax increment revenue from an economic
development district could be used only for manufacturing, warehousing, research and
development, telemarketing, and tourism facilities. Under the Jobs Stimulus Program,
this tax increment may also be used to provide improvements, loans, subsidies, grants,
interest rate subsidies, or assistance in any form to developments consisting of buildings
and ancillary facilities, subject to the following three conditions:
(1) The municipality must find that the project will create or retain jobs in
Minnesota, including construction jobs, and that the construction of the
' The TIF Act is found at Minn. Stat. §§ 469.174 to 469.1794, inclusive, as amended.
2 The dates in this Statement of Position have been changed to reflect the one -year extension provided by
the 2011 Legislature.
Minn. Star. § 469.176, subd. 4c (d).
` Minn. Star. § 469.176, subd. 4m.
5 Minn. Stat. § 469.176, subd. 4c (a) (1) to (7).
Reviewed: January 2012 2011 -3002
Revised: January 2012
This Statement of Position is not legal advice and is subject to revision.
An Equal Opportunity Employer
project would not have commenced before July 1, 2012, without tax
increment assistance;
(2) The construction of the project must begin no later than July 1, 2012; and
(3) The request for certification of the economic development district must be
made no later than June 30, 2012.
The primary purpose of the Jobs Stimulus Program is to stimulate economic recovery by
getting construction workers and others back to work as quickly as possible. Actual
physical activity on the construction site by gainfully employed workers, i.e., a shovel in
the ground, is the type of construction activity that must occur to meet the July 1, 2012,
deadline.
Whether the use of tax increment is limited to traditional site improvements or whether it
can be used for actual construction of privately -owned buildings depends on which
underlying development statute (the HRA Act, the EDA Act, the Port Authority Act, or
the Municipal Development Districts Act) is the source of the development authority's
powers. The TIF Act serves as a limitation on these powers. In most cases, the
development statute requires that tax increment revenue be spent for traditional site
improvements.
The authority and the municipality must follow the same procedure to create an economic
development district established for purposes of the Jobs Stimulus Program as they would
follow for the establishment of any economic development district? The TIF plan and
any modifications must be filed with the Department of Revenue and with the Office of
the State Auditor. In addition, at the request of the Legislature, the Office of the State
Auditor is compiling information on development activity occurring in economic
development districts as a result of the Jobs Stimulus Program.
Revenue from Existing Districts
Under the Jobs Stimulus Program, development authorities are given temporary authority
to use available and uncommitted tax increment revenue from any type of TIT district to
assist private development consisting of the construction or substantial rehabilitation of
buildings and ancillary facilities. The assistance that can be provided by the Jobs
Stimulus Pro ram includes direct investments in businesses necessary to finance the
development. The temporary authority to spend tax increment in this manner expires on
December 31, 2012.
6 Minn. Stat. § 469.176, subd. 4e (d) (1) to (3). Principle and interest received on loans authorized by this
Program are tax increment. Minn. Stat. §469.174, subd. 25. Consequently, the use of revolving loan funds
can be problematic. The OSA urges authorities to consult an attorney before establishing a revolving loan
fund.
Minn. Star. § 469.175, subd. 3.
s Minn. Star. § 469.175, subd. 4a.
9 Minn. Stat. § 469.176, subd. 4m.
Reviewed: January 2012 . 2 2011 -3002
Revised: January 2012
The "notwithstanding ... any other law to the contrary" language in the Jobs Stimulus
Program provision overrides many of the limitations of the TIT Act. For example, it
trumps the requirement of the Five -Year Rule that requires 75 percent of a district's tax
increment be reserved each year to cover outstanding debt or other contractual
obligations. With the Jobs Stimulus Program, reserved tax increment can be used if it is
not needed for annual debt service or contractual payments. The distinction between the
use of tax increment from an economic development district established for purposes of
the Jobs Stimulus Program and tax increment revenue generated from existing districts is
that the tax increment from existing districts can be spent on the actual construction or
rehabilitation of buildings and ancillary facilities.
Three limitations apply to the use of tax increment revenue from existing districts: 1)
Tax increment cannot be used for general government purposes; 2) tax increment cannot
be used for the acquisition, construction, renovation, operation, or maintenance of a
building used primarily and regularly for conducting the business of a municipality,
county, school district, or any other local, state or federal government; and, 3� tax
increment cannot be used for county road costs or county administrative costs. In
addition, tax increment cannot be spent if the increment has been pledged to pay bonds. 13
Some examples of available and uncommitted tax increment from the existing tax
increment district that can be used in the Jobs Stimulus Program are:
1. Excess increment from calendar year 2009, required to be returned to the
county by October 1, 2010;
2. Excess increment from calendar year 2010, required to be returned to the
county by October 1, 2011;
3. Tax increment reserved under the Five -Year Rule as required by law, where
the authority has sufficient tax increment to pay annual debt service payments;
and
4. Tax increment from a district that met the conditions for the Five -Year Rule
mandatory decertification after December 31, 2009, where the tax increment
remains in the authority's account in 2010 or will be received in 2011 if the
district does not otherwise reach its maximum duration at the end of 2010.
Not all available and uncommitted tax increment can be used in the Jobs Stimulus
Program. Some examples of tax increment that cannot be used are:
Excess increment from a prior year or years which was required to be repaid
to the county before December 31, 2009;
0 See Minn. Star. § 469.1763, subd. 3.
Minn. Star. § 469.176, subd. 4g.
12 Minn. Star. § 469.176, subd. 4h.
" Minn. Star. § 469.176, subd. 4m (a).
in Minn. Star. § 469.176, subd. 2, defines "excess increments." Subdivision 2(a) requires an authority to
return excess increments within nine months after the end of the year.
" Minn. Star. § 469.1763, subd. 4 (b).
Reviewed: January 2012 3 2011 -3002
Revised: January 2012
2. Tax increment from a district that met the conditions for mandatory
decertification under the Five -Year Rule at any time prior to January 1, 2010;
or
3. Tax increment the authority inadvertently received after the maximum
duration date. 16
Before an authority can use revenue from existing districts for the Jobs Stimulus
Program, a written spending plan approved by the municipality, subject to a prior 10- to
30 -day published notice and public hearing, is required. The spending plan must describe
the job - creating construction activity to be financed with tax increment and the costs.
The spending plan must be submitted to the Office of the State Auditor once it has been
approved by the municipality. 17
If a new or different activity is to be financed with tax increment or if the costs exceed
those disclosed in the original spending plan, a formal modification to the spending plan
may be necessary. Modification would require another published notice and an
additional public hearing. The modifications must also be filed with the Office of the
State Auditor.
16 See Minn. Star. § 469.176, subd. lb.
17 The Office of the State Auditor requires submission of the spending plans pursuant to existing authority.
Minn. Star. § 6.744; see also §§ 6.48 to .51.
Reviewed: January 2012 4 2011 -3002
Revised: January 2012