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Home My WebLink About[04] TIF District 2-2CITY OF KT. JOSEPH MEETING DATE: April 4, 2011 AGENDA ITEM: TIF District 2 -2 SUBMITTED BY: Administration Council Agenda Item 4 BOARD /COMMISSION /COMMITTEE RECOMMENDATION: The St. Joseph EDA has reviewed and accepted a TIF application from the St. Joseph Meat Market to expand their existing facility. The plans indicate expansion of the retail space (1,898 square feet) and new cooler space (1,104 square feet) for a total expansion of 3,002 square feet. The estimated expansion cost is $ 354,000 and the meat market has identified a financing gap of approximately $ 70,000 to $ 80,000. The EDA recommended the Council accept the application of the Meat Market to utilize Tax Increment Financing for the expansion. PREVIOUS COUNCIL ACTION: The City Council considered the TIF application of the St. Joseph Meat Market to expand their existing facility to increase the cooler space and retail area as recommended by the EDA. The Council accepted the projected and moved it forward to the hearing stage which is set for April 21, 2011. BACKGROUND INFORMATION: Part of the TIF process requires the Planning Commission consider the impact of the proposed project as it relates to the Comprehensive Plan and development objectives. The proposed project is located in the Central Business District (131) and is a permitted use. Therefore, the project meets the intent of the Comprehensive Plan. The project also meets the development goals of the City as the EDA and City have been working to promote new and expansion of the downtown area. ATTACHMENTS: Request for Planning Commission Action ................... 4:1 -2 Resolution Supporting Project ........ ............................... 4:3 -4 Project Information ........................... ............................... 4:5 -16 REQUESTED COUNCIL ACTION: Authorize the Acting Chair and Administrator to execute Resolution 2011 -001, recommending the Council adopt TIF 2 -2 as the proposed development meets the development goals and comprehensive Plan for the City of St. Joseph. THIS PAGE INTENTIONALLY LEFT BLANK RESOLUTION PC2011 -001 RESOLUTION RECOMMENDING APPROVAL OF THE ESTABLISHMENT OF TAX INCREMENT FINANCE DISTRICT NO. 2 -2 AND THE ADOPTION OF A TAX INCREMENT FINANCING PLAN RELATING THERETO. WHEREAS, the Planning Commission has reviewed the documents relating to the proposed establishment of Tax Increment Finance District No. 2 -2, and the adoption of a Tax Increment Financing Plan relating thereto; and WHEREAS, the Planning Commission has been asked to provide a recommendation to the City Council regarding the adoption of the same; NOW THEREFORE BE IT RESOLVED by the Planning Commission of the City of St. Joseph, Stearns County, Minnesota (the "City "), as follows: 1. The proposed development of the project area as described in the Finance Plan will serve to complement the City's plans for development in the City, and serves to promote the City's development objectives. Adopted this day of 2011. Michael Deutz, Acting Chair ATTEST Judy Weyrens, Administrator THIS PAGE INTENTIONALLY LEFT BLANK CITY OF ST. JOSEPH wwww cityof stjoseph.com Administrator DATE: February 3, 2011 Judy Weyrens MEMO TO: Economic Development Authority Mayor Honorable Mayor Schultz Richard Schultz Administrator Weyrens Councilors FROM: Cynthia Smith- Strack, Municipal Development Group Steve Frank Bob Loso RE: Request for Tax Increment Financing Assistance: Renee Symanietz Pfannenstein, St. Joe Meat Market Dale Wick Request: EDA Mr. Harvey Pfannenstein has submitted a pre - application for tax increment financing and Carolyn Yaggie— potentially tax abatement assistance in conjunction with a $354,000 (construction cost) Heiner, expansion to the St. Joe Meat Market retail facility at 26 1st Avenue Northwest. A copy of the Steve Frank expansion plan is attached to this memo. Chad Davey Tom Skahen The expansion includes a 1,898 sf addition to the retail space and an additional 1,104 sf of Dale Wick new cooler space. Total expansion is 3,002 s.f. and will bring the existing 4,222 sf structure to 7,224 s.f. The expansion will allow the facility to process meat products at the retail shop versus the location on Minnesota Street resulting in productivity gains. In addition, investment in new equipment will provide increased operational efficiencies. The goal of the expansion is to ensure long -term viability of the establishment and to retain jobs within the community. The Applicant is reporting a $70- 80,000 gap in funding (details will be available for the meeting) and requesting assistance from the City to close the gap. The project to increase operational efficiency and increase productivity will not occur without gap financing. The Applicant has noted that if the gap in financing is not filled and operational /productivity efficiencies implemented the operation will likely close or leave the City. The Applicant has submitted a pre - application for TIF for the EDA's consideration and recommendation to the Council. Information regarding the projected estimated market value, potential sources and uses of financing, and financial pro forma analysis will be available for the meeting. Please note this information is not public until the financing is finalized, however, a copy of the information may be released to those needing reasonable access to said data provided it is again collected following its use. Background: TIF Tax increment financing is a tool which allows the City/EDA to reimburse a company or land owner a portion of the new property taxes generated as a result of a development project. The amount of financial assistance available (TIF) is dependent upon a number of factors including but not limited to the assessed market value of the building and the financial need of the company. There are several types of tax increment financing districts, each of which has a maximum increment period established by state law. Mr. Pfannenstein is requesting assistance in the form of economic development TIF. Page 2 of 18 Term of TIF Agreement The maximum term of an economic development TIF district is nine years, however, the term of any TIF agreement should only reflect the amount needed to close a demonstrated 'gap' in financing. In this case the projected TIF generated by the project is NOT sufficient to close the financing gap. Therefore, the Applicant is requesting the City consider either using excess TIF revenue from an existing district or tax abatement to fill remaining gap. Pay as you go TlF State law allows the City/EDA to proceed with two types of TIF financing mechanisms. The first is the issuance of a TIF bond by the City/EDA. In this arrangement the proceeds of new tax increments are immediately available to the developer in the form of cash. With this type of mechanism the City/EDA bear significant risk in that if the project isn't completed and /or taxes are not paid, the City is responsible for making the bond payment. Due to the amount of risk involved, the City of St. Joseph's TIF policy highly discourages the issuance of TIF bonds. Instead an arrangement known as 'pay as you go' is the standard mechanism embraced by the City/EDA. With 'pay as you go' TIF, the City does not issue debt, instead the City enters into an agreement with the Developer pledging to 'rebate' a portion of the tax increment provided property taxes are paid. In this kind of arrangement, the Developer may use the TIF agreement to leverage a note from a conventional lender but the City is not incurring risk if taxes aren't paid or the project not completed. The Applicant is requesting pay as you go TIF. Requirements: Preliminary TIF Application: The following are required to be submitted with the preliminary application for TIF assistance: 1. A map showing the exact boundaries of the proposed development. A site plan is attached. 2. A General description of the project including the following: • Size and location of building(s); The proposed single story structure will be utilized for commercial retail and product storage space. The building design matches the existing structure. • Business type and use; Retail. • Traffic information, including parking; Parking facilities are proposed to the south and east of the building, as is existing. The site plan must be approved administratively by the City, including parking requirements. The EDA does not have jurisdiction over parking lots. • Timing of project; The Applicant wishes to proceed with the expansion in May of this year. • Estimated market value following project completion. MDG has consulted with the County Assessor regarding a projected EMV. The review is pending at this time, however, a report is expected in time for the meeting. The Applicant's contractor has placed the construction cost at $354,000. 3. The existing Comprehensive Plan land use designation and zoning of the property. The comprehensive plan guides the subject parcel to continued downtown (Central Business District) use. Current zoning class is B -1. Retail facilities are permitted within said zoning class. Page 3 of 18 4. A statement identifying how the increment will be used and why it is needed to complete the project. The increment will be used to assist with eligible expenses associated with the development. Thorough sources/uses will be included with the final application for TIF, the company will be required to disclose financial information in conjunction with the final application. Preliminary sources /uses will be available at the meeting. 5. A statement identifying the public benefits for the proposal including estimated increase in property valuation, new jobs to be created and other community assets. TIF assistance is requested to provide for increased operational efficiency and productivity increases by consolidating processing and taking advantage of new technology and equipment. The project will result in retaining 26 jobs within the community and a projected increase in market value for the structure within the Downtown. 6. A written perspective of the developers company (i.e. corporation, principals, history, past projects, etc.). St. Joe Meat Market has long been a fixture within the City. In fact in a comprehensive plan visioning session in 2002 when asked what made St. Joseph, St. Joseph the St. Joe Meat Market was often mentioned. The family owned business has been operated by the Pfannensteins for 50 years. Current owners and operators are Harvey and Carol Pfannenstein. TIF Policy: A copy of the City's TIF policy is attached. The policies for the use of TIF include the following: 1. General Policy — The City of St. Joseph and EDA shall consider Tax Increment Financing for projects that serve to accomplish the City's goals for housing and economic development as they may change over time. The goals include facilitating projects that would result in the creation of quality jobs(i.e. stable employment and /or attractive wages and benefits) and the attraction, retention, and expansion of business and housing options in the City. The request appears to meet this policy criteria. 2. Objectives: As a matter of adopted policy, the City of St. Joseph and EDA will consider using tax Increment Financing (TIF) to assist private development projects to achieve one or more of the following purposes: The project appears to meet objectives as outlined in (c)and (t) below. Remove blight and /or encourage redevelopment in the commercial and industrial areas of the City in order to encourage high quality development or redevelopment and private reinvestment in those areas. b. To provide for a balanced and sustainable housing stock to meet diverse needs both today and in the future. c. To retain local jobs and/or increase the number and diversity of quality jobs (i.e. stable employment and /or attractive wages and benefits. d. To encourage additional unsubsidized private development in the area, either directly, or through secondary "spin -off' development. e. To offset increased costs of redevelopment (i.e. contaminated site clean -up, demolition of existing building), over and above those costs Page 4 of 18 that a developer would incur in normal urban and suburban development. f. To facilitate the development process and to achieve development on sites which would not be developed without this assistance. 3. Costs that qualify for TIF assistance: The TIF would assist with building expansion to accommodate operational efficiencies and productivity gains. 4. Minimum Qualifications: a. TIF would facilitate development that would not occur without the assistance. The Preliminary TIF application will be supplemented by source/use statements including preliminary pro forma analysis which Identify a gap In project funding. The applicant has certified the development could not occur but for the use of TIF. b. But -For Test. The pre - application requires the developer to submit a statement identifying how the increment will be uses and why it is needed to complete the project. The applicant will demonstrate the project does not cashflow without TIF assistance. c. The project is consistent with the Comprehensive Plan and zoning ordinance. The subject parcel is zoned downtown commercial. d. Prior to approval of the TIF Plan (at the time of final application), financial guarantees and credentials will be required. e. The Applicant owns the subject property. 5. Desired Qualifications: a. Taxes paid before and after the development will be greater than a 2:1 ratio. Current property taxes payable on the subject parcel equal to $12,708. I'm currently working with Bob Undvall at Stearns County to obtain a projected market value and taxes payable. Following that preliminary TIF projections will be created by Ms. Traci Ryan of David Drown Associates and available at the meeting. Ms. Ryan will also be attending the February 9t' meeting. b. TIF should not be used for speculative projects. Mr. Pfannenstein has been a business owner for 14 years. St. Joe Meat Market has been in business for 50 years. Pfannenstein is a life -long resident of the area. c. TIF should not be used to pay for overpriced land. The TIF assistance Is proposed to be used for costs associated with expansion of an existing business within the original townsite (Central Business District) and not for greenfield development. Since the site is within a dense, developed urban area, specialized construction techniques must be employed. TIF Is not being used to pay for overpriced raw land. d. TIF should be pay -as -you go. The request is for pay -as -you go assistance. e. Preference is given to projects that do not cause extraordinary demands on City services. The applicant is proposing retail space and energy and water efficiency upgrades which will decrease demand on the utility systems. Page 5of18 f. Preference is given to projects that are consistent with the comp. plan, improve surrounding land uses, provide new employment, are financially feasible and provide the highest and best desired use for the property. The project appears to meet all of the aforementioned criteria in addition to furthering the City's goal of revitalizing the Downtown with pedestrian friendly, human -scale construction. The Developer and the City's new TIF Consultant will be present to provide answers to questions and additional comment as requested. The concept of 'preliminary' as it pertains to this request is similar to the concept of 'preliminary' in conjunction with a 'preliminary plat.' Although the conventional definition of 'preliminary' describes activities preceding the main discourse or business approval of the 'preliminary' TIF application is an action analogous to approving the conceptual use of TIF for this project. Action: If the EDA is supportive of utilizing TIF for this project, a MOTION is in order to recommend the City Council approve the pre - application and authorize submittal of the final application and fee. Page 6 of 18 City of St. Joseph Policy and Procedures for Tax Increment Financing Proiect For the purpose of this policy, the "EDA" shall also mean the St. Joseph Economic Development Authority, which serves in conducting various economic development, housing and redevelopment programs and activities within the City of St. Joseph. GENERAL POLICY The purpose of this policy is to establish the position of the City of St. Joseph and the Economic Development Authority with respect to the use of Tax Increment Financing for private development within the City. This policy shall be used as a guide in the application for, review and consideration of any requests for Tax Increment assistance. The fundamental purpose of tax increment financing in St. Joseph is to encourage desirable development and /or redevelopment that would not otherwise occur "but for" the assistance provided through TIF. The City of St. Joseph and EDA shall consider Tax Increment Financing for projects that serve to accomplish the City's goals for housing and economic development as they may change over time. The goals include facilitating projects that would result in the creation of quality jobs(i.e. stable employment and /or attractive wages and benefits) and the attraction, retention, and expansion of business and housing options in the City. II. CITY's and EDA's OBJECTIVE FOR THE USE OF TIF As a matter of adopted policy, the City of St. Joseph and EDA will consider using tax Increment Financing (TIF) to assist private development projects to achieve one or more of the following purposes: • Remove blight and /or encourage redevelopment in the commercial and industrial areas of the City in order to encourage high quality development or redevelopment and private reinvestment in those areas. • To provide for a balanced and sustainable housing stock to meet diverse needs both today and in the future. • To retain local jobs and /or increase the number and diversity of quality jobs (i.e. stable employment and /or attractive wages and benefits. • To encourage additional unsubsidized private development in the area, either directly, or through secondary "spin -off' development. • To offset increased costs of redevelopment (i.e. contaminated site clean -up), over and above those costs that a developer would incur in normal urban and suburban development. • To facilitate the development process and to achieve development on sites which would not be developed without this assistance. St. Joseph TIF Policy Page 7 of 18 • 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. III. COSTS WHICH QUALIFY FOR TIF ASSISTANCE • Project design fees including: utilities, landscape, architectural and engineering design. • Site related work including: permits for site work, earthwork/excavation, soil correction, landscaping, utilities, streets and roads, street/parking lot paving, street/parking lot lighting, curb and gutter, sidewalks • Land acquisition • Special assessments • Legal fees (acquisition, finance, closing) • Soil tests • Environmental studies • Surveys • Park and open space dedication fees • Interest rate write downs • Relocation assistance • Replacement or clean -up of contaminated soils which would otherwise preclude redevelopment • Rehabilitation • Any other costs allowable by Statute IV. PROJECTS WHICH MAY QUALIFY FOR TIF ASSISTANCE All new TIF projects considered by the City of St. Joseph and EDA must meet each of the following minimum qualifications and will also be evaluated based on their ability to meet the desired qualifications for assistance. However, it should not be presumed that a project meeting any of the qualifications will automatically be approved. Meeting the qualifications creates no contractual rights on the part of any potential developer to have its project approved. MINIMUM QUALFICIATIONS 1. The project should meet one or more of the Tax Increment Financing Objectives outlined in Section II of this policy, but at a minimum shall: • Remove blight and /or encourage redevelopment in the commercial and industrial areas of the City in order to encourage high quality development and redevelopment and private investment in those areas. • To facilitate the development process and to achieve development on sites which would not be developed without this assistance. 2. The developer must demonstrate that the project is not financially feasible "but for" the use of TIF assistance. 3. The project must be consistent with the City's Comprehensive Plan, Zoning Ordinances and the FDA's Strategic Plan or require changes to the plan and ordinances must be under active consideration by the City at the time of final TIF application submittal. St. Joseph TIF Policy 2 Page 8 of 18 4. Prior to approval of a TIF financing plan, the developer shall provide any requested market and financial feasibility studies, appraisals, soil borings, private lender commitment, and /or other information the City, EDA or its financial consultants may require in order to proceed with an independent underwriting of the proposal. 5. The developer must provide adequate financial guarantees to ensure the completion of the project. These may include, but not limited to: assessment agreements, letter of credit, personal deficiency guarantees, maximum cost contract, etc. 6. Any developer requesting TIF assistance should be able to demonstrate past successful general development capability as well as specific capability in the type and size of development proposed. 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 the projects, general reputation and /or bankruptcy, or other problems or issues considered relevant by the City and EDA. 7. The developer shall retain ownership of the project at least long enough to complete it, to stabilize its occupancy, and to establish the project management and initiate repayment via the TIF assistance. DESIRED QUALIFICATIONS 1. TIF proposals creating a higher ratio of property taxes paid before and after redevelopment will receive priority consideration. Given the different assessment circumstances in the City, this ratio will vary widely. A 1:2 ratio of taxes paid before and after redevelopment is desired. 2. TIF proposals should normally not be used to support speculative industrial, commercial, office or housing projects. In general, the developer should be able to provide market data, tenant letter of commitment or finance statements which support the market potential /demand for the proposed project. 3. TIF will 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 than 20% in excess of the market value as determined by an independent appraisal of the property. 4. 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. Developers should provide information to support that the TIF assistance will not create such a competitive advantage. Priority consideration will be given to projects that fill an unmet market need. 5. TIF will be provided on a pay -as- you -go basis. Any request for up front assistance will be evaluated on its own merit in accordance with this policy. Projects requesting pay- as- you-go financing will receive priority consideration. 6. Preference will be given to projects that do not place extraordinary demands on City services. If it is determined by the City's Public Works Director and City Engineer that an extraordinary increase in public service would result because of the project, TIF financing will not be considered. 7. TIF will not normally be used for projects that would generate significant environmental problems in the opinion of the local, state, or federal governments. Priority will be given to project that aim to clean -up existing contaminated sites and would facilitate the location of an St. Joseph TIF Policy Page 9 of 18 industry or business that has an environmentally sound track record, or meet a housing need in the City. 8. Preference will be given to projects that meet good public policy criteria as determined by the EDA and City Council, including: • Projects that are in accord with the Comprehensive Plan, Strategic Plan, Zoning Ordinances and other redevelopment plans of the City and EDA, • Projects that provide significant improvement to surrounding land uses, the neighborhood, and /or the City, • Projects that provide a significant increase in tax base, • Projects that provide significant new, or retained employment, • Projects that meet financial feasibility criteria established by the EDA, and • Projects that provide the highest and best desired use for the property. V. TAX INCREMENT PROJECT EVALUATION PROCESS The following five methods of analysis for all TIF proposals will be used: 1. Consideration of project meeting minimum qualifications. 2. Consideration of project meeting desired qualifications. 3. Project meets "but for" analysis and statutory qualifications (Exhibit A). 4. Project Report Card (Exhibit B). 5. Project is deemed consistent with the EDA Strategic Plan and the City's Comprehensive Plan. Please note that the evaluation methodology is intended to provide a balanced review. Each area will be evaluated individually and collectively and In no case shall one area outweigh another In terns of importance to determining the level of TIF assistance. VI. APPLICATION FOR TIF ASSISTANCE FOR ALL TIF DISTRICTS AND PROJECT AREAS The City's tax increment financing program will be administered by the St. Joseph Economic Development Authority (EDA). The St. Joseph EDA will require a non - refundable application fee in the amount of $2,000 for its processing of the application. The application fee shall be paid to the EDA at the time of final TIF application is submitted. At the time a final TIF application is submitted, the applicant shall also deposit $8,000 with the EDA if the project cost is estimated at $750,000 or less or $15,000 if the project cost is estimated at $750,001 or more, with the EDA to cover its attorney's and consultant's costs incurred as part of amending or establishing a TIF District, drafting and negotiating a development agreement, and conducting and fiscal analysis that may be require to meet the requirements of utilizing TIF. If additional costs are incurred beyond the $15,000, prior to the execution of a development agreement, the EDA shall notify the applicant in writing and the applicant will be required to deposit additional funds upon notice. If the project is approved and the applicant proceeds with the project, the EDA shall reimburse the applicant any unused portion of the deposit as of the date of execution of the development agreement. If the applicant does not proceed with the project, the EDA shall reimburse the applicant for the unused portion of the deposit as of the date that the EDA is notified in writing that the applicant desires to withdraw its application. VII. APPLICATION PROCESS St. Joseph TIF Policy Page 10 of 18 The application process is a two -step process and must be completed in accordance with the TIF application procedures (Exhibit C). The purpose of this approach is to give an applicant the opportunity to present a development proposal without expending a great deal of money and time in pursuing a development that may conflict with the City's and EDA's goals and objectives. VIII. OTHER POLICY ISSUES FISCAL DISPARITIES Does not impact the City of St. Joseph according to State Statute. Loss of Govemment Aid At any time, if the formation of a new TIF district or the use of an existing district to finance a project will subject the City to an LGAMACA penalty or local contribution to a project, the transaction shall be structured so as to have the ultimate cost the City minimized to the greatest extent permitted by law, so as to have the project bear the cost of the penalty or contribution. Public Use of Tax Increment The City and EDA shall follow applicable state laws in terms of potential public improvement financing with TIF. It shall be the general policy of the City and EDA to identify public improvements at the time of adoption or amendment of the TIF Plan. PASSED AND DULY ADOPTED this day of , 1998 by the City of St. Joseph. PASSED AND DULY ADOPTED this day of , 1998 by the St. Joseph EDA. Mayor EDA Chair ATTEST: City Administrator EDA Director Attachment A "But For" Worksheet Attachment B In -house Grading and Report Card Attachment C Application Procedures St. Joseph TIF Policy Page 11 of 18 - - - - -- � I H I � I � � �00 I ��:� I '" � � � I ,® �- 0 �� *g g I :a y w �w � 0�� qM C•C � ppp • �e • f �0 d r. s. • p� � eel W��p•►'`pO �� V J cc 4"t • Og • E PI C �1- M O ww C• Z 1-4 �# 3 az gO~ a V .�i L •� r 00 cn �� gaOMi w � • �� y Z fppCjC�r 3-1 a �I, 2: s LL- .0 � a om a s CL / a / .. \ EY �` 1 ALL 1 / oZ / / 1 4J U 1 Mr / / I s N L