Memo - Central Business District Financing Policy
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Memorandum
To:
From:
Date:
Subject:
Honorable Mayor and Members of the City Council
Steven C. Mielke, Hopkins City Manager .At1
F ebroary 23, 2001
Central Business District Financing Policy
Background
The City Council has asked that a discussion be held on the financing of various types of
expenditures in the Central Business District (CBD). Several factors are contributing to
the need for a discussion around policies of financing CBD improvements. With the
eventual loss of Tax Increment Financing (TIF) from the CBD, a valuable resource of
funds is going away. The CBD will always require both public and private re-investment
in order to continue to be a vital commercial district. And there is the need to set policies
that can provide a fair and equitable treatment of all properties and businesses in the CBD
as well as the rest of the City.
TIF District 1-1 is a pre- 79 district. That means the increment district was established
prior to 1979. Actions by the State of Minnesota have resulted in a law stating that pre-79 .
districts collect increment only to retire existing debt, after April 1 st of this year. In prior
years, 1-1 was used for a variety of uses, including debt retirement. It was used for public
parking improvements, building renovations, economic development projects, and other
eligible uses. With the recent law change, TIF will likely not be a reliable source of
funds.
Commercial districts like the CBD require infusions of funds in order to keep the areas
well-maintained, improved and viable business locations. In Hopkins, this has required
both public and private investments. The CBD is both an economic generator for the City
as well as a cultural and social center for the community. The investments necessary to
maintain the CBD will not stop.
When the CBD was expanded, during the 60's and 70's to what it is today, several
sources of funds existed. Urban Renewal funds were used to acquire and redevelop the
areas around Mainstreet (then Excelsior Avenue). During the late 70's, 80's and 90's Tax
Increment funds were a primary source of financing public improvements. Today, there is
a changing landscape in the financing of redevelopment projects. TIF is still a useful tool,
but law changes have significantly tightened how TIF can be used, and made it more
difficult to apply in a CBD setting.
Although there have been the changes in public policy around revenue sources, the need
for investments into the CBD have not changed. There are both needs for maintenance of
existing assets, and the need to invest for the future. Therefore, the following information
is intended to assist the Council in setting a policy on the financing of various types of
investments into the CBD.
Policy
F or purposes of this discussion, the types of investments staff recommends setting policy
around include: Parking, Improvements/Enhancements and Economic Development.
The following table outlines a suggested policy to be used in guiding funding decisions
for improvements in the CBD. Obviously it is impossible to predict all circumstances that
could arise from each individual project, but the table is an attempt to give guidance to
each circumstance.
Category Type Private Source Public Source
% %
Parking System
New Lots 100 SSD 0 nla
Assessed
Private Source
Lot Reconstruction 70 SSD 30 Gen. Tax Levy
Assessed
Lot Utility Mains 0 nla 100 Utility Funds
Maintenance 0 nla 100 General Fund
Enforcement! 0 nla 100 Parking Fund
Administration Note: Revenues are inadequate to
support current level of service
Improvements!
Enhancements
Landscaping 100 SSD 0 nla
Dumpster Clusters Private Source
Sidewalk snow
removal
Facade Programs
Economic
Development
Redevelopment X Private Source X Economic Development Fund
Projects Note: Percentage determined by
negotiated agreements.
Discussion/Options
Improvement Fund - The staff have discussed the need to create a new fund for use in
the CBD as well as the rest of the City. There are constantly needs for public
expenditures that would benefit from the creation of this fund. One idea is that
unexpended funds in the general fund would be transferred to the improvement fund and
be available for uses in the future, relieving the need to levy in future years.
A second idea is that of capturing some of the tax base that will be added to the City's
base, when TIF district 1-1 expires (expected in 2004-2005). At that time, the tax
capacity of the district will revert to the general base, allowing for a larger base upon
which to spread the levy. The tax capacity of the district has grown (thanks to both public
and private investments) to a point that the insurgence of this base will allow for a modest
but noticeable tax rate reduction. It would be possible to increase the tax levy at that time
to create a funding source for continued investments into the CBD and the rest of the
community.
As to the policy discussion around parking lot reconstruction, the creation of this fund
could allow for a reduction in the private property charge. The fund could also provide
funding for expenses that are not easily assessed i. e. clock tower improvements,
landscaping, signage, and parking enforcement.
When TIP district 1-1 expires, the tax capacity base will increase by about $2,000,000.
The impact of this event would allow for the various taxing jurisdictions to see a drop in
the tax rate. For the city's portion (about 25%) a drop of about 3% should occur. An
annual tax levy of $1-200,000 should be adequate to support activities in the CBD. This
increase would still allow for significant tax relief for the entire city, while creating a
method to pay for public CBD expenses. It would also then be possible to reduce the
assessment amount for parking lot reconstruction projects.
Since TIF district 1-1 will not expire for several years, it would be necessary to fund the
new Improvement fund from some other source until the fund can be funded from the tax
levy. Some ideas that have surfaced include a transfer of excess increment from districts
1-2 and/or 2-1 or perhaps from the Economic Development Fund. More information will
be available at the meeting on the level of funds available.
Reduction of Assessment Percentage - The parking lot reconstruction assessment
percentage is proposed at 70%. Since this is a new policy, it is possible to set the
percentage at whatever rate the council feels is appropriate. The proposed amount of the
assessment at 70% is $135,000. A reduction to 500,.10 would reduce the assessment to
$96,500, a reduction of about 29%. The corresponding average per square foot
assessment would of course be reduced below the current average of $.13. This reduction
would result in a higher public cost, which would be paid by the general tax levy.
Summary - The options for reducing the assessment amount are many, but a revenue
source is required. The staff endorses the concept of forming an improvement fund and
capturing a portion of the windfall that will occur when TIF district 1-1 expires. There
will always need to be a revenue source to pay for public costs. The district has been a
good method of improving and redeveloping the CBD. A fund such as this will allow for
the continuation of those improvements.
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