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Memo Tax Increment Discussion .;,.. - ~. . CITY OF HOPKINS MEMORANDUM DATE: April 7, 1993 TO: Honorable Mayor and City Council FROM: Ji< Jim Kerrigan SUBJECT: TAX INCREMENT DISCUSSION ITEM ------------------------------ Recently there have been a number of questions raised as to the City of Hopkins past and present use of tax increments. As a result of those questions and concerns, staff. has prepared a report which compiles a variety of information on this topic. At the April 13 workshop staff is proposing to undertake a summary , discussion of this report. This item is only informational and no action is being requested of the Council. . JK04073C . ~ < . TAX INCREMENT FINANCING REPORT ~. I. INTRODUCTION The purpose of this report is to outline information and issues relating to tax increment financing in the City of Hopkins. The following topics are detailed in this report: 0 Tax Increment overview 0 Recent LegiSlative changes 0 Benefits of Tax Increment 0 Background of Tax Increment in Hopkins 0 Existing Tax Increment Districts in Hopkins 0 Prior Uses of Tax Increment by Hopkins 0 Future Uses of Tax Increment in Hopkins 0 Hopkins Tax Increment Policy . 0 Tax Increment From a state Perspective 0 Tax Increment From a Local Perspective This report should be able to aid city Council members in answering qUestions~rom the general public regarding all aspects of tax increment financing. Tax increment financing is a very complicated development tool, but for the purposes of providing information to the Council, staff has kept the information in this report on a fairly general level. II. TAX INCREMENT OVERVIEW A. Purpose of Tax Increment The following are reasons why cities use tax increment financing: 0 Achieve broader economic gains of new development in terms of employment, tax base enhancement, and secondary spin off. 0 Facilitate the construction of related public improvements it wishes to achieve by coordinating a TIF project with more general improvement projects. 0 Eliminate blighted or' environmentally contaminated . properties. 0 Retain better control over the nature of development. . ,i,',","j",,;;;;;;;.l'.",:,,,,;.,;;,,i ; Tax Increment Financing Report Page 2 . 0 The quality of the new development is enhanced by TIF. 0 Realize new development which would not otherwise occur without the use of TIF. The last example is probably the most important. In order for the city to finance a project with TIF, it must make a finding that the new development would not occur "BUT FOR" the use of tax increment financing. The critics of tax increment financing state that the development would occur anyway, and the city is simply giving money to a private party. Counties and school districts are particularly interested in this finding because from their position, they will not realize any increase to their tax base until after the TIF district has been terminated. B. What is Tax Increment Tax increment financing captures the increase in property valuation attributed to redevelopment in a specific district to pay for public redevelopment costs. within a tax increment district the tax capacity at the time the district is established continues to be distributed to the respective taxing jurisdictions. C. Development Aqreement . A development agreement is a contract executed between the city or HRA and the land owner/developer as part of a tax increment project. It details the obligations of each party. The development agreement usually requires the landowner/developer to . . 0 Construct a development within a certain time frame with a specified minimum size and market value. 0 Provide guarantees insuring the timely completion of the development. 0 Usually requires the city to construct public improvements , and/or purchase land associated with the new development according to an agreed upon schedule using the expected tax increment income. '! I cities currently require a development agreement on all new = developments. It is common that a TIFdevelopment agreement may 'j exceed 50 pages not including exhibits. I Tvpes of Tax Increment Financinq Districts J D. j The state of Minnesota presently has five types of tax increment . I financing districts. They are as foll~ws: i ,I i I ! i'. I I .; ",..,' "'Ct'''''''''''', 'n~,,,p~"'~'C""'.,,,~ii",~.j""""'''.....';mm''',,;' ",^""";,l"f;;',,.;;,:;J;;&,'::;;~;m;' j,,;;,';;~~;:::',,':"'i ;!~:i'h\;>t..," "f:"'"" :;"".~~,,,,, J 1; Tax Increment Financing Report Page 3 . ,/ 1. Redevelopment District - A redevelopment district is a blighted area containing substandard buildings. - Requires documentation to evaluate code violations and estimated costs of rehab versus new construction. - Maximum length of this type of district is 25 years from receipt of first tax increment. 2. Housing District - (i.e. Handicap Housing Project) - Housing districts provide housing opportunities for low and moderate income persons. - The maximum length of a housing district is 25 years from receipt of first tax increment. 3. Renewpl and Renovation District - Blight and obsolescence tests must be met. - Maximum length of this type of district is 15 years . from receipt of first tax increment. (Redevelopment District. is 25 years) - Does not require as extensive a funding of, blight as in redevelopment district . 4. Soils Condition District i ! - Where 80% or more of the district requ~res substantial earthwork and the costs of the earthwork exceed the anticipated fair market value of the land after site preparation. ! I , - The maximum length of this type of district is 12 years from city approval of the district. 5. Economic Development District I i . .. .'1.. - In order for an economlC development d~strlct to apply to a site, the site must not be able to meet the criteria for any of the above districtl;;. - An economic development district may be used only for manufacturing, production, processing,! warehousing, storage, research and development, telemarketing and . distribution of property. Cannot be used for retail project. I , i Ii ., , Tax Increment Financing Report Page 4 _ Prohibits expenditures if more than 10% of such tit facilities are used for other purposes. - Does not require a finding of blight. - Must demonstrate retention of local businesses, increased employment and enhancement of state tax base. - The maximum length of an economic development district is 10 years from date of city approval of TIF plan, or 8 years of collected increment, whichever is less. A subdistrict can be created within anyone of the above types of districts. A subdistrict generates increment based upon a value of $0, rather than on the difference between the existing value, and the value which would be created by the new development. Subdistricts are typically used'as a method for financing remediation of environmentally contaminated properties. E. Eligible TIF Uses The following are examples of major eligible tax increment project expenditures: o Land acquisition tit o Soil corrections o site preparation o Relocation/demolition o Public improvements for street, sewer, water, pedestrian walkways o Administrative costs up to 10% of tax increment F. Bonds Versus Pay as You Go In many cases, the city is required to fund project expenditures prior to development occurring. For example, the city issues general obligation tax increment bonds to finance the project costs. The city in turn, receives tax increment revenues over a period of years and uses them to pay debt service on the bonds. The financial limitations of this scenario are that the city's ability to fund project costs are directly dictated by the amount and duration of the tax increment revenues available. The bond method creates a certain element of risk for the city, in that the city is dependent upon the property owner to pay the taxes, _, in order for the City to make debt service payments on the bond. ~ " , , ," " " . ""'" ;~'., ",'~~ ""........IOIM""" _~'''',...,''''''''''''~ hjj.l,iijl)Id~,;.lrlolMii!il",,';' ;.',)::;'~'.'".;[~!::i;~"",,"l"':i' 'J;' ~,'.,C.'," "'''''~".- , E Tax Increment Financing Report Page 5 . Another financing scenario being more commonly utilized today, because it limits the amount of risk that cities are exposed to when issuing general obligation tax increment bonds. This financing alternative is called PAY-AS-YOU-GO. PAY-AS-YOU-GO requires the developer to fund project expenditures up-front, therefore requiring the developer to assume a majority of the risk associated with the project. The City then receives tax increment revenues over a period of years, and essentially returns those tax increments to the developer for use in paying off some of these up-front costs associated with the project. The financial limitations dictated by the amount and duration of the tax increment revenues available still apply when utilizing the pay-as-you-go method of tax increment financing. G. TIF Districts Versus project Areas There are two basis differences between a project area and a tax increment financing district. These are outlined below: 1- Financial Difference: 0 Project Area is an area in which TIF funds can be spent and TIF Districts can be created . 0 TIF District is an area from which TIF funds are qenerated 2. Geographical Difference 0 A project area and a TIF district can have identically, the same geographical area 0 A project area can have a larger geographical area than a TIF district, but the geographical area of a TIF district cannot lie outside of a project area. 0 A project area may contain one or more separate TIF districts. III. RECENT LEGISLATIVE CHANGES In 1990 the state legislature made some fairly dramatic changes to the state tax increment financing laws. A couple of the major changes are outlined below: 0 A reduction in City LGA and HACA payments will be made to offset a portion of the increased school aid payments resulting from the creation of new TIF Districts. . A fairly complicated set of regulations have been enacted to calculate the reductions in LGA and HACA payments to the city. Some different types of Districts are governed by separate .- - , Tax Increment Financing Report Page 6 regulations for LGA/HACA reductions. In a Redevelopment District, .4It reductions would not begin until the sixth year after increment has begun to be received, and continue on a phased-in basis over the following 15 years. The LGA and HACA regulations apply only to districts which were certified after April 30, 1990. The City of Hopkins has only one district to which these LGA and HACA reductions would apply, that is TIF District 2-6 (Handicap Housing project). 0 The 1990 legislation also limits the ability of the city to expend tax increment from a district for activities outside the district, but within the project area. Under the new legislation enacted in 1990, a stipulation has been made that at least 75% of the tax increment which is generated within a district, must be spent on activities within that district. Previously, it was a common practice to spend 100% of the increment generated from a specific project in a tax increment district, outside of that district on a different project within the same project area. IV. BENEFITS OF TAX INCREMENT There are many benefits to all taxing jurisdictions through a city's use of tax increment financing to encourage economic development . activities. These benefits include: 0 The City, County, and School District benefit by broader economic gains of new development in terms of increased employment and tax base. 0 Tax increment projects often facilitate the construction of related public improvements which benefit the entire general base of residents in the city. 0 County and school districts often argue that the formation of new TIF districts has a negative effect upon their financial situations, because upon certification of a new TIF district, the values of properties within that district are frozen at that present rate. The new development is not translated into tax base again until the end of the TIF district (0 to 25 years). In contrast to this argument, cities are required by State law to qualify each tax increment project based upon the "BUT FOR" test. It is necessary for a tax increment project to prove to the city that the development which is being proposed will not occur "BUT FOR" the use of tax increment financing. with this in mind it is fair to respond to the county and school district that if a tax increment district were not formed, these taxing jurisdictions would not receive the benefit of new development in this area . because the new development would not have occurred without the use of TIF. Therefore, upon decertification of a TIF district, the city, county, and school district receive taxes based upon a ,.- ~;'ll,. < " ., ,,, ...,..'" "".." ,1,,~: ,:iIl;'I:.'" ,.." ) F Tax Increment Financing Report Page ,7 . far greater value of property in that district because of the new development which has occurred. V. BACKGROUND OF TAX INCREMENT IN HOPKINS The City of Hopkins was one of the first cities to ,utilize Tax ~. Increment to facilitate the undertaking .of redevelopment activities. The first tax increment district was established in 1971. It was located between sixth and Seventh Avenue south of Mainstreet. The purpose of this district was to facilitate construction of the Hopkins Village Apartments project. It appears very possible that this was the first tax increment district in the State of Minnesota. In 1971 the HRA undertook a large scale urban renewal project funded by HUD. ,The project area, designated R46, was the area between Seventh Avenue South and 11th Avenue South, from Second street South to the alley of the block fronting on the south side of Mainstreet. A tax increment district was also established for this area. Between 1971 and 1976 the HRA acquired approximately 86 commercial and residential properties in this area. When these parcels were acquired, the original assessed values for these properties were certified by the County Auditor for tax increment purposes. Tax . increments generated within this area were used to provide a source of funding for the public improvements undertaken in conjunction with the private redevelopment. In 1976 the HRAand City adopted a redevelopment plan for the central business district. This plan expands the 1971 tax increment district west of 12th Avenue and north of First Street south. It includes basically all of the property in the Central Business District. The purpose of expanding this tax increment district,.was basically two- fold. 0 To facilitate construction of a new grocery store facility for Tait's Super Valu and the expansion of the existing First Bank building. 0 Provide a funding source for additional redevelopment activities within the central business district. Over the next several years there were only minor changes to the existing central business tax increment district including the following: 0 Expansion of the district south to include County .Road 3 and the Burlington Northern Railroad right of way. The purpose of this expansion was to fund possible traffic and parking improvements in this area. . ,: Tax Increment Financing Report Page 8 0 In 1982 the HRA by resolution incorporated into the CBD Tax . Increment District the Barton Aschman study entitled "Downtown Development Program" as a guide for action in this area. This document recommended numerous projects including renovation of commercial buildings, parking and street improvements and facilitating office and retail development. In 1985 the Authority created a new tax increment district, TIF District 2-1, which encompasses a large portion of the former Minneapolis Moline site south of County Road 3, east of 11th Avenue. The purpose of this district was to facilitate a physical redevelopment of this property. To date the West Side Business Park has been constructed in this tax increment district. No tax increment funds were expended to undertake this project. In 1990 the City created a number of new tax increment redevelopment districts which include the following: 0 TIF District 2-2 which included the Harley Hopkins property. This District has been decertified. 0 TIF District 2-3 which includes the property between sixth and Seventh Ave. north of Mainstreet. The purpose of this district was to facilitate construction of a proposed grocery store . facility in this area. 0 TIF District 2-4 which includes the pines Mobile Home Park. 0 TIF District 2-5 which contains the Hopkins Tech Center property located at 17th Avenue South, south of County Road 3. The most recent tax increment district was created in 1992. This is located at the northwest corner of County Road 3 and Fifth Avenue. The purpose of this district is to facilitate construction of a 24 unit handicap housing project. In recent years three tax increment districts have been decertified by the city and placed back on the tax rolls. These districts include the following sites: 0 Village Apartments 0 Harley Hopkins 0 The South Sector Redevelopment District between 14th and 17th Avenue South of Fifth Street South. . , ,-, ,. . -" w . .., ""m"""""""'illInIinII!I1ntt,I"""ll!Ill~1'Il"!.'lclmll,l.,,,.,.L.,,fl,~,ruttll!!,~ij_!."....lu!~."',' "'.h,,im.Ht'~.".!I"~''-: ''''.-'..'!':;.'.', ,.y;.',j('""1lr.._'hlm..... ;,. Tax Increment Financing Report Page 9 .VI. EXISTING TAX INCREMENT DISTRICTS IN HOPKINS The following is various information concerning the tax increment districts which are presently in existence within the City of Hopkins. These include the following: TIF Annual Number/ID Location Expiration Date Increment (Approx. for 1992) 1-1 7th-12th Avenue, 2001 (Except that increments $1.25 million Co Rd. 3 to 1st can be collected until 2009 street North for payment of outstanding bonds sold prior to 1990) 2-1 Former Minneapolis 2010 $142,000 Moline property located SE corner 11thjCo.Rd 3 Commercial property north of 2nd st So between 6th & 7th Ave So. Any portion of the RR right of . way east of 169 and south of Co Rd 3 TIF Annual Number/ID Location Expiration Date Increment (Approx. for 1992) 2-3 Between 6th & 7th 2015 -0- north of Mainstreet 2-4 pines Mobile Home Park 2015 -0- 2-5 Hopkins Tech Center 2015 -0- Propert:y 17th Avenue & south of Co Rd 3 2-6 NW corner of Co Rd 3 & 2017 -0- 5th Avenue All of the above districts are located within two project areas which includes all of the commercial/industrial property within the city. As a result of recent action by the Hopkins HRA, SUbject to statutory limitations, increments from the various TIF Districts can be spent anywhere in this project area. Only tax increment district 1-1 has any substantial outstanding bonded . indebtedness. For 1993 the annual debt service is approximately $780,000. outstanding bonded indebtedness exists against TIF 1-1 until the expiration of this district in 2009. - ,* ~ - - Tax Increment Financing Report Page 10 . - - Based upon the existing tax increment revenue stream being generated in tax increment district 1-1, there exists a future bonding capacity of approximately $3.5 million at the present time. However this can vary depending on changes in tax rates, tax capacities within the district, abatements and tax payment delinquencies. Tax Increment District 2-1 (R.L. Johnson property) is the only other tax increment district which is presently producing any tax increment revenues. For 1992 this district generated approximately $142,000 in . tax increment revenues. The bonded indebtedness against this district consists of an internal loan which requires a payment to tax increment district 1-1 of approximately $50,000 to $60,000 on an annual basis for costs incurred with the Mainstreetproject. It is assumed that the there will.be a significant increase in tax increment be generated from TIF District 2-1 at the. time that the remaining R.L. Johnson property is developed. However, it is felt by staff that a significant amount of this increment may be required in order to facilitate this overall redevelopment effort. Remaining increments over and above what are required for these purposes will probably be used to finance local costs as relates to the upgrading of County Road 3. Tax Increment Districts 2-2, 2-4, 2-5 and 2-6 are all for the most . part not producing any tax increment at this time. The City/HRA has the ability to collect increments from these districts through 2015 except for TIF District 2-6 which extends to 2017. In order to facilitate redevelopment in these areas, probably the majority, if not all of the tax increment generated by a redevelopment project, will need to be used to pay for public costs involved with undertaking the project. VII. PRIOR USES OF TAX INCREMENT IN HOPKINS A. Villaqe Apartment proiect 0 First tax increment district for the city of Hopkins and one of first in the state of Minnesota 0 site assemblage involved acquisition of 13 lots which contain two commercial uses (gas station and lumber yard) and four residential structures. 0 project consisted of 161 unit HUD 236 mUlti-family housing project. Construction was started in 1971 and completed in 1972. 0 $270,000 bond was issued by the Hopkins HRA in order to finance public redevelopment costs. . ,,-,''-.',''''H'-'''''''-''''''''-' '-"''',;''''"'M"",,,,,m,,,,",,,,,,,',,,,''''',,,,,,',',,,,', '''''''''''",;.''.;w~""'.,',, ....... ...___ .... ...._m....--...___.. _".',_",e",','" 'M_' _ _._ .~__.:..=;;.~=;.;;o._ ~ " Tax Increment Financing Report Page .11 . 0 The assessed value of the project site prior to development was approximately $30,000. Following completion of the project the assessed value was approximately $1,181,000 (1973). 0 This district has been decertified. B. CBD North proiect 0 Project involved acquisition of a site to facilitate construction of a new store for Tait's Super Valu and the acquisition and sale of property to First Bank to facilitate expansion of their existing facility. In order to undertake this project the existing R46 Urban Renewal District south of Mainstreet between 7th arid 11th Avenue was expanded in 1976 to include this project area as well as the majority of properties within the central business district between 7th and 12th Avenue. 0 In order to facilitate the Tait's project, site assemblage involved the acquisition of five residential structures and two vacant parcels. It also involved the moving of the building which is now Richard's Liquor. . 0 $400,000 twelve year general obligation tax increment bond was sold by the City in order to finance the public development cost. 0 Total project costs were approximately $560,000. The taxes generated from 'the project area prior to the development were approximately $72,000. Following project completion the property taxes paid within the project area were approximately $149,000. C. South Industrial Redevelopment Proiect 0 Project area is 27.89 acres and located between 14th and 17th Avenue south of Fifth Street. 0 site assemblage involved acquisition of 33 land parcels and five non-conforming residential structures. 0 Redevelopment involved a 16,000 square foot expansion of an existing business (Spantek) and the construction of eight manufacturing warehouse buildings by Steiner Development. Project also involved the construction of all new infrastructure in this area. 0 Construction was undertaken in phases between 1979 and 1982. . 0 Tax increment for this district was established in 1978. 0 Redevelopment bond of $825,000 to firiance pUblic cost. Tax Increment Financing Report Page 12 0 Net project cost to City was approximately $380,000. . 0 Estimated market value of the property in project area prior to development was approximately $240,669 (1978). Following completion of the project total market value was approximately $5,800,000 (1982) . D. City Gables Pro;ect 0 site assemblage involving acquisition of nine homes and three vacant lots. 0 project area was part' of CBD Tax Increment District 1-1. Net project costs were approximately $850,000. 0 Project involved construction of 14 townhouses and 49 condominium units. The developer was Baton corporation. 0 The assessed value of the project site was approximately $696,000. The assessed value following completion of project was approximately $3,600,000. E. Handicap Housinq Pro;ect 0 Northwest corner of County Rd. 3 and 5th Ave. S. . 0 Involves acquisition of 6 homes and 1 vacant parcel. 0 Total pUblic costs are estimated to be approximately $550,000. 0 The existing market value of the project area is approximately $428,000. 0 The minimum market value of. the completed project will be $1,049,147. VIII. FUTURE USES OF TAX INCREMENT IN HOPKINS What follows is an outline of potential projects which appear to necessitate the use of TIF. This outline in not intended to represent an all inclusive list of potential projects. . 1. Suburban Chevrolet This property is located in the CBD TIF District 1-1. This project will involve the redevelopment of this site once it becomes vacant in the fall of 1993. Public development costs are anticipated to be used for acquisition and demolition. It is . anticipated that available increments from within TIF District 1-~ 1 will be used to finance the majority of project costs as the ,,~_, ~=~ '~'"."""M;". "". "'''". .,~, ,.;"~.u ~'.w ~ Tax Increment Financing Report Page 13 . amount of increment generation is limited due to the fact that this district expires .in 2001- 2. Pines Mobile Home Park Redevelopment This site is located within Tax Increment District 2--5 established in 1990, and is zoned R-4Medium Density Residential. Staff is presently talking with a couple developers concerning a residential redevelopment project. It is assumed that public costs involved with facilitating redevelopment will consist .of land write-down, demolition and relocation. 3. ' Hopkins Tech Center project This site is located within Tax Increment District 2-4. The proposed project for this area previously discussed would consist of demolition of the existing 290,000 square foot warehouse manufacturing building. This building is obsolete in today's market because of ceiling height and parking. Redevelopment would consist of the construction of a number of smaller industrial buildings on the site. This project has not proceeded to date due to the substantial costs involved with facilitating . development and also site contamination issues. 4. CBD Grocery store proiect This ,project, which has been discussed for a number of years, is proposed to meet market demands for a larger grocery store in the CBD district. The business is proposed to be owned by Tait's Super Valu and would involve either new construction or expansion of the existing facility. Project costs would involve acquisition, relocation and demolition. It is proposed that the majority of the public costs would be financed with available tax increment within TIF District '1-1. IX. HOPKINS TAX INCREMENT POLICY In 1990 the city of Hopkins adopted a tax increment policy. The purpose of this document is to detail when the City/HRA will use tax increment. A variety of objectives and criteria are detailed in the policy. The policy is fairly specific as relates to industrial projects but leaves more discrepancy for residential and commercial development. Attached to this report isa copy of the City'S Tax Increment Policy. X. TAX INCREMENT FROM A STATEWIDE PERSPECTIVE . Over the years there has been a substantial increase in the number of tax increment districts. In 1974 four cities and two counties had tax Tax Increment Financing Report Page 14 increment districts with a total captured value for the state of .2%. . In 1992, 348 cities and 80 counties had created tax increment districts with a total captured value for the state of 8.5%. For 1992, 1,300 tax increment districts were in existence. Because of the growth in tax increment and the impact on Minnesota revenues, there has been an increased interest on the part of various legislators over the last several years to address various concerns as relates to the use of this tool by local government. In 1990 there were a number of substantial changes per the existing law. However, there is still the perception by certain individuals that tax increment is being abused. Tax increment was originally created as a tool to basically facilitate redevelopment activities in older communities that had a number of problems that needed to be addressed in order to facilitate development. For the most part, there still seems to be support for retaining this tool to facilitate this endeavor. However, there seems to be a growing support for eliminating this' .tool to facilitate the development of "corn fields" where public financing really is not necessary in order to make the project feasible. Two issues continue to be discussed in the legislature as relates to tax increment are as follows: 0 The possible elimination of economic development districts. . These districts do not require a finding of blight. To date the city of Hopkins has not created any districts under this legislation. 0 The possible expansion of using tax increment to facilitate environmental cleanup. XI. TAX INCREMENT FROM A LOCAL PERSPECTIVE In 1992 the City of Hopkins had a total tax capacity value of $17,583,286. Of this amount, $1,180,214 or 6.71% was captured within tax increment districts. This is below the average of 8.5% for the state of Minnesota and 8.63% for Hennepin County. A couple cities in the Metro area have between 29-33% captured tax capacity. It cost a $96,000 homeowner in Hopkins approximately $10.00 in 1992 to have 6.71% of the City's tax capacity in Tax Increment Districts. This figure is based upon an estimate of the amount which was paid to the City, School District, and County to make up for the 6.71% of captured tax capacity. . TIFUSE2 -",-, ..=~ "." =". ~,,,. _. ."...;~.~~"'''''r''''''''_'N''m'"''''.m'''....~.~"'' "'~" "W. .. ,..... '""c ""'.' "......" y" .' c _._'~ . ~__ . CITY OF HOPKINS Tax Increment Policy 1. PURPOSE 1.01 The purpose of this policy is to establish the Citys' position as relates to the use of Tax Increment Financing for private development. This policy shall be used as a guide in processing and reviewing applications requesting Tax Increment assistance. 1.02 ,The City shall have the option of amending or waiving sections of this policy when determined necessary or appropriate. - . 2. STATUTORY LIMITATIONS 2.01 In accordance with the Tax Increment POlicy, TIF Requests must comply with applicable State Statutes. The City of Hopkins is governed by the limitations established in Minnesota Statutes 469.174, the Minnesota Tax Increment . Financing Act for all districts created after August 1, 1979. . . 3. ELIGIBLE USES FOR THE USE OF TAX INCREMENT FINANCING 3.01 As a matter of adopted policy, the City of Hopkins will consider using Tax Increment Financing (TIF) to assist private developments only in those circumstances in which the proposed private projects meet one or more of the following uses:. A. To redevelop blighted or under-utilized areas of the community. B. To meet the following housing-related uses: 1. To provide a diversity of housing adjacent to the Hopkins downtown area. 2. To provide a variety of housing ownership alternatives and housing choices. - 3. To promote affordable housing for low or moderate income individuals. 4..To promote neighborhood stabilization and . revitalization by the removal of blight and the upgrading in existing housing stock in residential areas. - To r~move blight and encourage r~development in the . c. commercial and industrial areas of the city in order to encourage high levels of property maintenance andprivate reinvestment in those areas. D. To increase the tax base of the city in order to ensure the long-term ability of the City to provide adequate services for its residents while lessening the reliance on residential property tax. E. To retain local jobs, increase the local job base, and provide diversity in that job b~se. F. To increase the local business and industrial market potential of the city of Hopkins. - G. To provide'adequate short term business and shopper parking, and resident parking. H. To encourage additional unsubsidized private development in the area, either directly, or through secondary "spin- off" development. I. To promote the potential future usage of a public transit system light rail line through maximizing the development . potential of parcels adjacent to the system stations. J. To offset increased costs of redevelopment, over pnd above those costs that a developer would incur in normal I urban an~ suburban development. K. To accelerate the development process and to achieve development on sites which would not be developed without this assistance. L. To meet other uses of public policy, .as adopted by the council from time to time, including promotion of: quality urban design, quality architectural design, energy conservation, decreasing the capital and operating costs of local government, etc. 4. TAX INCREMENT PROJECT APPROVAL CRITERIA 4.01 All new projects approved by the City of Hopkins should meet the following mandatory minimum approval criteria. - However, it should not be presumed that a project m~eting these criteria will automatically be approved. Meeting these criteria, creates no contractual rights on the part of . any potential developer. ,,,,,,,,,,~,,,,,,,,,",,,m""""'''x,,',,,'''''''' ". '" """,",l'~,",d"N!~..",,'i' ,.,:;;;l;."',iitU,hid,; ',; ',;",;.,~';''''~ ;~:;.-:.:._,", . A. The TIF assistance shall be provided within applicable state legislative restrictions, debt limit guidelines, and other appropriate financial requirements and policies. B. The project should meet one or more of the above adopted Tax Increment Financing Goals of the city. C. The project must be in accord with the Comprehensive Plan and zoning Ordinances, or required changes to the plan and Ordinances must be under active consideration by the city at the time of approval. D. TIF assistance will not be provided to projects that have the financial feasibility to proceed without the benefit of Tax Increment Financing. In effect, TIF assistance will not be provided solely to broaden a developer's profit margins on a project. Prior to consideration of a TIF financing assistance request, the city may undertake an independent underwriting of the project to help ensure that the request for assistance is valid. E. Prior to approval of a TIF financing plan, the developer . shall provide any required market and financial feasibility studies, appraisals, soil boring, information provi~ed to private lenders for the project, and other information or data that the city or ~ts financial consultants may require in order to proceed with an independe~t underwriting. F. To ensure cash flows are adequate projects receiving TIF assistance should,normally have a 1.2:1 debt service coverage ratio (a ratio of funds projected to be available to funds required for debt service). G. The developer should provide adequate financial guarantees to ensure the repayment of the TIF subsidy. These may include, but are not limited to: assessment agreements, letters of credit, etc. . H. Any developer requesting TIFassistance should able to demonstrate past successful general development capability as well' as specific capability in the type and size of development proposed. . I. The developer should retain ownership of the project . atleast long enough to complete it, to stabilize its occupancy, to establish the project management, and to initiate repayment of the TIF. . J. The level of TIF funding should be reduced to the lowest . possible level by maximizing the use of private debt and equity financing first, and then using other funding sources or income producing vehicles that can be structured into the project financing, prior to using additional TIF funding. 5. TAX INCREMENT PROJECT EVALUATION CRITERIA I 5.01 All projects will be evaluated on the following criteria for comparison with other proposed TIF projects reviewed by the city, and for comparison with other subsidy standards (where appropriate). It is realized that changes in local markets, costs of construction, and interest rates may caus~ chages in the amounts of Tax InQrement subsidiea that a given project may require at any given time. 5.02 Some crieteria, by their very nature, must remain subjective. However, wherever possible "benchmark" criteria have been established for review purposes. The fact that a given proposal meets one or more "benchmark" criteria does not mean that it is entitled.to funding under this policy, but rather that the city is in a position to . proceed with evaluations of (and comparisons between) various TIF proposals, using uniform st~ndards whenever possible. . . 5.03 Following are the evaluation criteria that will be used by the city of Hopkins: A. All TIF proposals should optimize the private development potential of a site. B. All TIF proposals should obtain the highest possible private to public financial investment ratio. The council establishes a benchmark ratio of 3 parts private to 1 part public funding for industrial projects. -Housing and retail/commercial projects shall be reviewed on an ~ndividual basis. C. All TIF proposals should create the highest feasible number of new jobs on the site. The'Council establishes a benchmark of one newly created (or retained) FTE job per $10,000 of TIF assistance provided to industrial projects. Housing and Retail/Commercial projects shall be reviewed on-an individual basis. D. All TIF proposals should create the highest possible . ratio of property taxes paid before and after redevelopment. Given the different assessment circumstances in the City, this ratio will vary widely. However, under normal circumstances, the Council will --....,. . .~ ,,_',. ."~,,," .,., ., ,,"'-"'ill! .1i!,,~'~'!I"" ,~,,,,,,,,_~,_,,;;"\'"'';';''''' ;'Ii,'~' """"''''i''':.". };:-(!.!>., , ' -',' "'-- ~.. ....,.,;",---- . .. . expect at least a 1:2 ratio of taxes paid before and . after redevelopment. E. TIFproposals should normally not be used to support speculative industrial, commercial, and office projects. In general, speculative projects are defined as those projects which have letters of intent orpreleasing for less than 50% of the available leaseable space. F. All TIF proposals will be reviewed to determine the feasibility to provide the City with equity participation in new developments (through a share of the profits) , or to treat the TIF assistance as a second ~ortgage with fixed payments. G. AllTIF proposals involving displacement of low and moderate income residents shou~d give specific attention to the re-housing needs of those residents. Normally, this should be done as a part of the TIF funding proposal. Adequate solutions to these re-housing needs will be required as a matter of public policy. . H~ TIFwill normally not be used in a project that involves an excessive land and/or property price. This will . normally be where the acquisition price is more that 10% . in excess of market value. I. AIITIF projects will need to meet the "but for!'.. test. TIF will not be used unless the need for the ci~y's economic participation is sufficient that, without that assistance the project could not proceed in the manner as proposed. -- J. TIF will not be used in projects that would give a significant competitive financial advantage over similar projects in the area due to the use of tax increment subsidies. K. TIF will not be used when the developer's credentials, in the sole judgement of the City, are inadequate due to past track record relating to: completion of projects, general reputation and/or bank~ptcy, or other problems or issues considered relevant by the city. L. A developer using TIF will need to provide a financial guarantee for the repayment of the TIF, within the constraints of existing tax law. - . . . ., . y:;;:[;'t!:;: ;~7;~~r;1::;/ TIF will not be used to support projects that place M. demands on City services, or other capital or operating expenditures, that exceed the average city expenditures for similar facilities. Consideration will be given to the total public costs that are required to support the project, including offsite facilities costs that are required. N. TIF will not normally be used for projects that would generate significant environmental problems in the opinion of the local, state, or federal governments. o. TIF will not be used when the schedule for development has exceeded the schedule established in the redevelopment agreement, and where the City has not agreed to extensions of that sch~dule. P. TIF funding should not be provided to those projects that fail to meet good public policy criteria as determined by the Council, including: poor project quality: projects that are not in accord with the comprehensive plan, zoning, redevelopment plans, and city policies; projects that provide no significant . improvement to surrounding land uses, the neighborhood, . and/or the City; projects that do not provide a ';~:)'.:::':':'" ,~...'.,..,;. significant increase in tax base; projects that do not have significant new, or retained, -employment; projects that do not meet financial feasibility criteria ' established by the City; and projectss that do not provide the highest and best desired use for the property. TIFPLCY - - . ED '-,,' . ., ,_=,~::.~...:;.,......,""""",....._,,~,,~,_ ._,.,',j":',,,~)'~'i.;",,'~'W~ll,U.'!~;Vl:,hi;>., r' iU'i,;:~;'" " ':,'r-'~ -, o. . PROCEDURES --.._- ---..--.. ., .... .-......... .. -- -- -, -..-....- 1- Meet with appropriate City Staff to discuss the scope of the project, public participation being requested., time 8chedule, and other information a8 may be neces8ary. .- '... -'-"---'--2-;-'Comp 1 e tion :--of."...... Pre 1 iminary '.-Tax'-Inc remen1:-Fiuanc:tng-H" .~. . - A88i8tance Application form. This form shall be 8ubmitted to the Director of Community Developm~nt. 3. The request shall be reviewed by City staff on a preliminary basi~ as' to thefea8ibility of the project. The 8taff shall prepare a report on the project. 4. The application shall be placed on the City Council agenda f."or concept review. The applicant may make a formal presentation of the project. The staff." will present its' findings. 5. If the Council's Preliminary Concept Review ~8 p08itive, the applicant may elect to file a f."ormal application accompanied by a non-refundable fee of.$100.0~ which shall only be ref."unded at the time of signing a redevelopment contract should the project be approved. 6 . If Zoning and Planning Commission action is required, it . will be necessary for the applicant, at this tim!3, to make application to the Commission for Concept Review. 7. Following the necessary f."inancialanalysis and preparation of detailed plans, the City Council and BRA, if necessary, shall take action on the project. If." approved, the staff will be directed to undertake the following steps: ... " ..-_. ..-..... .,' - prepare a redevelopment agreement based upon the terms approved - prepare a redevelopment plan and tax increment financing plan if l'equired At this time a $1000.00 deposit (cash or letter or credit) shall b'e required to defray costs involved with these steps which shall also be ref."unded at the time a redevelopment contract is signed should the project be approved. 8. If a redevelopment plan or ~oning action is'required, the Zoning and Planning Commis8ion, City Council and HRA shall take the appropriate action at the same time that ,..;or _... ... ," ~. the. ~edevelopmant aqeement is considered f."or approval. . PROCEDUR 11II .. CITY OF HOPKINS . PRE-APPLICATION TAX INCREMENT FINANCING ASSISTANCE Legal name of applicant: Address: Telephone number: Name of contact person: REQUESTED INFORMATION, Addendum shall be attached hereto addressing in detail the following: 1. A map showing the exact boundaries of proposed development. 2.'Give a general description of the project including: size and location of building(s); business type or use; traffic information including parking, projected vehicle counts and traffic flow; timing of the project; estimated market value fOllowing completion. 3. The existing Comprehensive Guide Plan Land Use . designation and zoning of the property. Include a statement as to how the proposed development will conform to the land use designation and how the property will be zoned. 4. A statement identifying how the increment assistance will be used and why it is necessary to undertake the project. 5. A statement identifying the public benefits of the proposal including estimated increase in property valuation, new Jobs to be created and other community assets. 6 . A written perspective of the developers company of corporation, principals, history and past projects. SIGNATURE Applicant's signature: Date: . n_"_._,, ., '" =" '~'="'"".~""'''''fl''''''''''.",,, _.UTI.'.." . "."'"tmll.' '''',tri..'h; ..., -~ww.". "~"""._".,,;,,,;'."^~='" ',,~'L""""""'_ , . CITY OF HOPKINS Application fOF Tax Increment Financing GENERAL INFORMATION: Business Name: Date: Address: Type (Partnership, etc.) Authorized Representative: Phone: Description of Business: Legal Counsel: Address: Phone: FINANCIAL BACKGROUND: . 1. Have you ever filed for bankruptcy? 2. Have you ever defaulted on any loan commitment? 3 . Have you applied for conventional financing for the project? 4. List financial references: a. b. c. 5. Have you ever used Tax Increment Financing before? If yes, where and when? PROJECT INFORMATION: 1 . Location of Proposed Project: . 2. Amount of Tax Increment Assistance requested? 3. Need for Tax Increment Assistance: 4 . Present ownership of site: , < 5. Number of permanent jobs created as a result of project? . 6 . Estimated annual sales: Present: Future: 7. Market value of project following completion: 8. Name and address of architect: 9. Anticipated start date: Completion Date: FINANCIAL INFORMATION: 1- Estimated project related costs: a. land acquisition $ b. site development c. building cost d. equipment e. architectural/engineering fees f. legal fees g. off-site development costs 2. Source of financing: a. private financing institution $ . b. tax inerement funds c. other public funds d. developer equity PLEASE INCLUDE: 1. Preliminary financial commitment from bank. 2. Plans and drawing of project. 3. Background material of company. 4. Pro Forma analysis. 5. Financial statements. 6. Statement of property ownership or control. 7. Payment of application fee ($100.00) . , ~ n.. ". = .=, =~m" ..err"","" ~'..Y ",,~","jj' ".",.,"c""._.",..'.',""'.",;-,:,'''',,,,:..],- '. w_, . "j , THE . CITY OF j 1 HOPKINS ,MINNESOTA i HENNEPIN COUNTY "" . """ '... ~ ~ 2 3 1 1 I I 'I I I I I I I I I I 4 .... .. ____...;....;,;:........i.r.....;,;.---...~ .~ ;' ,....".. ll/II REDEVELOPMENT PROJECT AREA NO..1 5 (PASSED BY COUNCIL RESOLUTION, OCTOBER 20, 1992) A B C D . ( i^ THE CITY OF HOPKINS, MINNESOTA . HENNEPIN COUNTY . ICAU "" ."" "" 1 . t I ~ ~ ~ f.""1',.",m~.,j;,'; 2 ~ f "=' ;f'~l""fl ~ OM~ III", DJI 3 ~ ~ ~'I ~.I ;1 . \:l J "1 ;.... ".w.:.Ai/......~~,>;~rji.F.;..c;,..;;~r;:t~""'....~'~ ..~ \It".". 4 $ TIF DISTRICT 1-1 . i 5 I -- A B C D -."----,-..- ..-.....:.-;....--.....-.. - .._- .._- .-.......--- "-'~-' ...-- . ,_i.:".-J!:f.;~i:({,_i>r~' ." "'".m...".. . J ......_ THE CITY OF _ ~ __--=-~ HOPKINS, MINNESOTA ~ 'LS (L ,,-'" ,"~n f ..,~.........- . """ L . ~_~ b ";., 1 "" ''?'' r.Jr---- - b: $; ~ '\ ~rr- . ," ~ ~ - .-- I I ~ @ ....IT.... ~ L__.:.---- ..: "",,""""! ~,.. I 2 - l r.;;;;;;-"i'i\."-.l --=~ ~ . -6-.... T4a,....:~..:...... ~ ...~. ~ -j 0 1" "'~-- .-- :$ f-A~~~_. "' ,'" -,~.~V ~ ~!!a ~ ~ ~- ...:.~ i' ,~ ~... j c'.\. ~ 7\1 ' 'Y~_ I JLJ . l' ~",.. J h7~~:'~- ~! 3 J I~~, I . ~ @ I . ,~ --1' i " I ~ I ! "i j :1 I I J "' ~ ,- 'm. · 1 4 -::.' ~v .: I I __~"_'.. J____--r--l .~..". ~ ~~"i in'....... !$I \410 E~.." Il\I1 I .' ;' - I c." ... ..t&: r.. r1J; .y~ . ,} . n ~ TIP DISTRICT 2-1 t ,~,' ~t, I 1 . II 1 J \ ~ \ \ } i """~,, t 5 i i ,...,,~ loa.w r lll'vr ~ I - '\ r ".n --..-.. ", ""':'~ -, , j., , I r "'" ~"<l-o), I I . "- I I. ._.... . J~: ' ,. --~----1 ....... J __ "'( I .~. ' . -~ A B C . D ~,._- .,.m.._" ... . 'f .~. I ._TO.... THE CITY OF ~. _ @~.::~ HOPKINS ,MINNESOTA _ ~("'-""",--.:."" ') rY/- .'... ~.L. =:\ !(. HENNEPIN COUNTY . 1 L, /le.~ ".2:.. o.....~ '~ .' . t'----,"'IlIt ill i' . , ""', ~ .>JIII-A1f """y ~ ' _I--~ l l @ _.TO... I -~-- t. 1 j ~, i ~i- I ,~'''.~--~. ~ ---' 2 ........~ ~' ~----__.:;->1 _~ ....... ,,", _s,,,I.,..,, _ ~ .." ""'- llt' _ OMfOItlllMCOII fifJfi,7 @ ... """'Il:l~. "I"" ! W 1"""'" "I --- .-- .-------' --- . ~ .~.~~ 6li. ,~ ~ ...... .~i:? ,:, '" .--: - UJ ,- "..~...p:; ~ ,.~ . 'I '" ~ I 4io." "".~ ~ 'y, ,.~ alti~h .Me.... \! cf1~] i. . I. ~~r-- j j {7/Q},. ;=i~:~" -~~ 3 \ . I ~V~ . @.."': 'n'~ ~t~~~ @I~~~c.~~ ~' · 11. .1.' r_W:1 ' 1/ ! ,. '1 ~W''r' ii!ii' : ;, .. ," l ~ ", I I Iii ~ J I \.Ill ni 1 j I", 1 I' . -..i; ~ I 1.n '~':'" .. ;;-- I!! I n I '1' ,I (i) _~ ~ ~ c/ ~.~ ~l 4 @ I ___ ~... ~j'~' ;;:--;; '" ,=_..r~.-J. ~./. '-lj>- .. '-ti.i';.~ / "~ ," ~ TIF DISTRICT 2-3 ! ',~ .' ~~ . II I l\ . I ~\\~ J 1''IfI.~' if, '''''~ ...Iu.i ... if 5 I fr" 1"'111 ~ '\ ',' (nt"~ ~.. . C''''''''''''fe,...a. 1<..,1 .... \ (" .",Tl ~"oI\>.1-.>> [ .. ......, ,e' I I~ .n....; I --. "(. .,-------'" I~.. . . -.- ABC D .... ... 'N_.____.~ "-,- . . ,_ ,~ ., ~ ~ ,~, 'u~ ~ ,~,.c ..C " I. ""n,, .., Ii C'...",,,,,,,,,,,,..),', ..."....,.,:,..,-,q '-"<. """>i;::,,...'.;;"'-''''~;';'_''__'_____ , .__. THE CITY OF ~... (ij cr'-~2. HOPKINS, MINNESOTA ~ ,*" r -...... I ........ """'" i'i .......' L ...~. . r L\ .r-"- ~._~ \,,' ... ,- ~ ,. ~; ~_ ~ .-.A r'\ --"'Y f, e . : --:I L=-, \. ..J t,..~,,_l rJll'\ti'" I- I ,__:~ -- ~'J. "" fi;;: .. _ --r- __- .:--~Jil. -,.- ,,"~i ~ 'l '" I~f ~\\!l. '.,-" -l!.I....'" ' ~ ~ . L< 'I: _.",~',"''iU I X ~ '- y,\ '-_ ~ r~~~{" - .. "- Id ~l ,. ..... -! I '1Q;..,:r I ;>11i?\ 3 .. I I ..>>; .'. '1 ' . . J \ / .:. ~. ;g ~ : I'.'" 1 .JI. ' ,.: ! f?" , I) i I ~."W: I, · T . ' ,,1 ~U i ' i4 -- . · / ~ · ~ I Ii II ; \ ' . ,/,/ . -~--, j 4 I ,'~-.~ /" ~- - n · ~..' ~/- .@ iTl ; 1x:': / ,. n ~ TlF DISTRICT 2-4 I W" J~!. . il' ~ 1\ i ..,,"~ \ J I ~ .....'~ '\ la.1ai.I ... II 5 \ .,vr lo. , - ~ t" ",,'~ '. . ~""1'I~ ...1.... .. r' .u:J. ..... --'...."'1-,! I' . I : . 1~ .' ! ----_.......\ ....,.. -Y' _ "'f ~I . ' -.- ABC D .._" _.__--.....,~ _, .. ..__H . ~-- - ~ - - THE CITY OF ..lMIlf.TOMK" - Vi 1-; '.:," ~ . HOPKINS, MINNESOTA ~ r --........:.".. !l HENNEPIN COUNTY . r/ .....~.L,.~.. '"'" - 1 L l/_~' .., . .., ,.., ! r---- -~.. i. , --". .....!1 ,,,,,,",, ~$. ->- lit 9 I ~ _n._ ~ L__~____ - r'~^'-~ ~~ ~ 2 ". ! ~ ,.......: " ..,.... $~ ~::.:,..... ~. ..- ..~ -.----- --~ ~, /. ~~ 'l ,. 'A . ~ :\;~ ~ . ~ .... ~ Ip L!J ~l ~ _.:~' ~ VI' ~ ~, ~ 4.\.. ~ ~ ,.~. I Ji f -. .. ~"\..d TJ 1, l!'.-;' ::_~ - ~ ! 3 ---~ ~ -~ ~ ~'), .Ai. "~. !~' , " .J, I ' I, ,. 1 .. --:VJ /' I ' 'i · # :1 . I" 1 .4 ~ ',~ I ~ I , _~ ":iII.i I' !.I 'i'...... I. ,',1 ~ .;. " . ~ _ : ~ f 'M: I . ~~ / ~/ I II 1.1.. :1 4 . ".. / .. ~-' , :::"--r-.. .. ,-"'_..._~_. ... $-'M elH . ., , :- I .@ L. ilj ;:';0;: fl '" TIF DISTRICT 2-5 . I 'Ai] \~ . J \ ' I ,., I'VT1"~ \ t / L '\ .... If \''''I~ 5 (,\If) '", I ('V'I'~ ~} I ", I II'V'}"'~ '. '-'...... .1- I r-" II'IITI . ~ I ! I "'" I I ------.J ~: !: ,...../' I -- 'f 1 .... . ........ A B C . -" .~..."... ~~w~, In. M ~I "'""~I , .tH, !" ,".,''',',,,,, "',,"',., ',i'<'.,,",.] .: l.';,""I')'rl!,"."'" .., '\i _,- THE CITY OF (ij ~.. ~'. --~ HOPKINS, MINNESOTA ~ :1~!i HENNEPIN COUNTY ( .....~. --., . -. L. .' V..~. . ... , '!J9' ,... J r---- ., ~'~ '" 1 ~-=-I L~~ t J ~ ~- I r'~""""'" ......I 2 u: ~ ~ ..~:: ~dt,~,,~. "ll, jg,.. '"." OAIIfMlIlHCDIt @,' '"':: :J ~,.-- .-- -...-...--- "'-(;j @" '. -:\ ~~ ~~ -,_.. , w ~ ~ l L~" 1._ ~~~~ i ~4~ M"~ ,. ~~\\ ;(I ,"" l-e' ... --" ~I " , '.i 7l~> ;'"" ~ .,j 3 I . (\ ~ , . ~ :. .. L_" l) . ~1-! ~. I ~~ m -11 ------. "." .JI. ,. ~ w~' J . I' J! ~:r . ~~. .- I r "I I ~ I>> ~ : i" ", 'I ill- I I_~ i-ll1": ~ IT ~, :1 ~ , ~ . _ ~ ~ ~ .-:. ( I ~ / ~ ~@,. , 1.1 i "__.......-',,~ I J ,,~~_-'''.-'..''r-'''..__r 4 " . I .-- 'ii" 't"" · - I. I '.'- ~ '-lO-- .. I .' l:- I I i -U ; ,y. / fl" ... TIF DISTRICT 2-6 . I" '~~j ~ J.: "'~ -- .. 1 . J 1 .-J \~ \ J InTl.~ \ ~ 5 f t ~::::~ , ~ w ~ ' I ~ 1_ lnn'............ 'l$" . ,..,,"~ . "" .1- I ( ..", ~~'-...>", 1 j ./ J -------J ~ ,...... ___ "<<' 1 ,... . -.- A B C D .