2017-03-14 TIF Basics Harrison Bay (Trident) Ehlers PPTTIF 101 & Trident TIF Request
City of Mound HRA
Stacie Kvilvang & James Lehnhoff – Ehlers
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March 14, 2017
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Agenda
Tax Increment Financing (TIF) Basics
Financing a project using TIF
Project analysis
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What is TIF
The ability to capture and use most of the increased local property tax revenues from new development within a defined geographic area.
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Why Use TIF
Encourage certain types of development or redevelopment that would not normally occur without assistance (“but for” test)
Construct affordable housing
Redevelop blighted areas
Remediate polluted sites
Create or retain jobs
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Building Blocks of TIF
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Base Valuation and Taxes
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Currently City receives this much in taxes from the property
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Building Blocks of TIF
Development occurs
TIF District “captures” value from new development
Abatement can “capture” part or the entire value from the parcel
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TIF Example (26 Year Housing District)
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Base Taxes
Captured Tax Capacity
District Ends
Full Taxes to all Entities
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Taxes Not Captured in TIF
State Property Taxes
Tax paid by commercial users (cabin owners pay as well)
Not included in local tax capacity rate, therefore it is not applied to captured value for TIF districts or abatement
Market Value Taxes
School operating referendums and other school taxes
Based upon market value of property rather than tax capacity of property
Not included in local tax capacity rate, therefore it is not applied to captured value for TIF districts or abatement
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Housing
26 year maximum term
Qualifications
Rental
20% affordable at 50% of area median income; or
$30,050 for 1 person household (2016 incomes)
$34,350 for 2 person household (2016 incomes)
40% affordable at 60% of area median income
$36,060 for 1 person household (2016 incomes)
$41,220 for 2 person household (2016 incomes)
Owner Occupied
95% of units have to qualify
Household of 2 or less has to be at or below 100% of area median income
Household of 3 or more has to be at or below 115% of area median income
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Should have evidence that project meets statutory requirements for need
Developer “pro forma” or projections
Comparable costs of land
Risk
Future development potential for site
Look-back provision
Developer detail actual costs after complete
“But For” Test
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Project Financing
Eligible uses
Construction of affordable housing
Land acquisition and relocation
Demolition and clearance
Site improvements and parking
Public utilities
Administration
Interest on financing
Ineligible uses
Recreation (parks, trails, ice arenas, etc.)
City buildings
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Project Financing
Each project has a development agreement/contract
Sets amount and term of TIF
Timing of development
Etc.
Who up-fronts TIF costs?
Developer (this is the typical structure)
Pay-as-you-go
No risk to City but higher rate
City/County
G.O. Bond or Interfund loan
Council will make 4-5 findings (depending on fiscal disparities)
The answer to this question does not require numerical analysis but relies on specific economic and site factors affecting the development.
Council Review and Consideration
As part of the process to adopt the TIF Plan and approve the TIF District, the Council will be required to hold a public hearing and consider four findings. In general, the findings
are summarized as follows:
The TIF District is a _____________ district defined in Minnesota Statues.
The proposed development, in the opinion of the City Council, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. (This
is known as the But For finding.)
The TIF Plan conforms to the general plan for the development or redevelopment of the municipality as a whole.
The TIF Plan will afford maximum opportunity, consistent with the sound needs of the City as a whole
Fiscal disparities
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The Project – Harrison Bay Senior Living
Total project costs of approximately $16.20 million
But tax value only $9.360 million
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Base Valuation and Taxes
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Currently City receives this much in taxes from the property
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Future Valuation & City Portion of Taxes
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1,449% increase in property valuation
Future City taxes from Apartments development
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Housing TIF
Developer receives $.81 on the dollar
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TIF Request
Create new housing TIF district
12-year term
$1.4M PAYGO TIF Note over 12 years
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Is this all justified?
No, but $930,000 over 10 to 15 years is
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If Done over 12 years:
If Done over 15 years:
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TIF Request - Developer
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TIF
Developer Cash
Total Development Costs
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TIF Request - Ehlers
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Decreased by 3%
and
Increased Equity by Same amount
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Elderly Waiver Rents vs. Market Rents
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Annual TIF
Return on Cost (NOI/TDC)
Debt Service Coverage
Project Returns - Ehlers
Return on $3.12 million equity
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Pro forma Comparison
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Recommended Options
TIF Note for $930,000
Principal based upon 10 years of TIF
Paid over 10 years
TIF Note for $930,000
Principal based upon 10 years of TIF
Paid over 15 years
TIF Note for $1 million
Principal based upon 10 years of TIF
But with 2% inflation factor on valuation
Paid over 10 or 15 years
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Stacie Kvilvang
651-697-8506
skvilvang@ehlers-inc.com
James Lehnhoff
651-697-8552
jlehnhoff@ehlers-inc.com
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