Loading...
HomeMy WebLinkAbout[05] Housing Incentives EDA Agenda Item MEETING DATE: September 19, 2017 AGENDA ITEM: Housing Programs SUBMITTED BY: Administration BOARD/COMMISSION/COMMITTEE/COUNCIL RECOMMENDATION: N/A PREVIOUS EDA ACTION: None BACKGROUND INFORMATION: City staff has been approached by Al Keller, Elite Development questioning if the City would consider the issuance of TIF for housing. Keller has indicated that it is difficult to build entry level homes due to the cost. Included with the packet material is information from the City TIF consultant regarding available incentives. This item is for discussion at this time. City staff is in the process of surveying the surrounding communities to gather additional information on building, incentives and housing activity. This information will be presented at the meeting. BUDGET/FISCAL IMPACT: ATTACHMENTS: Northland Securities Information REQUESTED BOARD ACTION: Discussion MEMORANDUM To:JudyWeyrens From:TammyOmdal Date:September14,2017 Re:TaxIncrementFinancing(TIF)forHousing ThepurposeofthismemorandumistoprovidetheCityofSt.Joseph(the“City”)withinformation ontheuseoftaxincrementfinancing(TIF)toassisthousing. ConsiderationsfortheCity AstheCityconsidershowbesttorespondtoarequestforTIF,thefollowinginformationand questionsforconsiderationmaybehelpfultoinformtheCity’sdiscussionandconsiderationofa request: 1.HousingassistedbyTIFisintendedforoccupancyfamiliesoflowandmoderateincome. DoestheCitywanttoprovidefinancialassistancetosupportthebuildoutofincome qualifiedhousingintheCity?WhattypesofhousingchoicesinwhatareasoftheCitywould bedesirable? 2.IftheCitydoeswanttosupportincomequalifiedhousinginacertainarea,whatcostsmight theCityconsiderforreimbursementwithTIF?Forexample,acommonmethodforusing TIFforowneroccupiedresidentialhousingistowritedownthepublicimprovementcosts, suchasthecostsrelatedtoconstructionofstreetsandutilitiesorrelateddevelopmentfeesor assessments. 3.WhatexistingpolicycriteriaorguidelinesmighttheCityidentifyastowhyTIFassistance wouldbeprovidedforacertaindevelopmentcomparedtoanotherfutureandsimilarly situateddevelopment?(i.e.,onwhatbasiswouldtheCitysay“yes”or“no”toanotherland owner/developerrequestingTIF?) HousingTIFDistrict AhousingTIFdistrictisatypeoftaxincrementfinancingdistrictwhichconsistsofaprojectintended foroccupancy,inpart,bypersonsorfamiliesoflowandmoderateincome.Lowandmoderate incomeisdefinedbyfederal,stateandsometimeslocallegislation.Thetaxincrementassistance providedmustbedirectlyrelatedtothehousing. NorthlandSecurities,Inc.45South7thStreet,Suite2000,Minneapolis,MN55402TollFree1-200-851-2920Main612-851-5900 www.northlandsecurities.com MemberFINRAandSIPC TIFforHousing September14,2017 Page 2 IncomeLimitations Housingdistrictsaresubjecttovariousincomelimitations.Forowneroccupiedresidentialproperty, 95%ofthehousingunitsmustbeinitiallypurchasedandoccupiedbyindividualswhosefamily incomeislessthanorequaltotheincomerequirementsforqualifiedmortgagebondprojectsunder Section143(f)oftheInternalRevenueCode.Generally,theinitialoccupantsmusthaveincomesof 100%orlessofstatewidemedianincomeorcountymedianincomeforfamiliesoftwoorless (whicheverisgreater),and115%ofstatewidemedianincomeorcountymedianincomeforfamilies ofthreeormore(whicheverisgreater).Owner-occupiedincomelimitsapplytoeachhousingunit butonlytothefirstpurchaserofthehousing. Forresidentialrentalproperty,thepropertymustimposeincomerequirementsonitsunits.Ata minimum,thepropertymustsatisfytheincomerequirementsforaqualifiedresidentialrentalproject asdefinedinSection142(d)oftheInternalRevenueCode.Thisrequiresthatatleast40%oftheunits arerentedtofamilieswithincomesatorbelow60%ofcountymedianincome,or20%oftheunits rentedtofamilieswithincomesatorbelow50%ofcountymedianincome,adjustedforfamilysize. TheserequirementsapplyforthelifeoftheDistrict. ExhibitAtothememorandumprovidesinformationonmedianincomelimitationsfortheStateof MinnesotaandStearnsCounty. OtherTypesofAssistance IftheCitydecidesthatitdoesnotwanttouseTIFtoassisthousing,butdoeswanttoconsiderpublic financialassistancetoencouragethebuildoutofabroaderrangeofhousingchoices,thereare optionsotherthanTIFfortheCitytoconsider.Oneoftheseoptionsistheuseofpropertytax abatement. Minnesotalawauthorizespoliticalsubdivisionstograntpropertytaxabatementsforeconomic development(Minn.Stat.469.1813).Thelawallowsabatementstobeusedforabroadrangeof projectsandpurposes,ifthepoliticalsubdivisionfindsthatpublicbenefitsexceedthecosts. Thelawoutlinesthepermittedusesofabatements,limitationonamountsandterms. Thename“taxabatement”ismisleading.Theenablingstatutedoesnotauthorizetheactual abatementoftaxes.Instead,theCityhastheabilitytolevyapropertytax(anabatementlevy) thatisequivalenttotheCitytaxesthatcouldbeabated.Theincreasedpropertyvaluefromthe housingdevelopmentwouldhelptooffsetanyimpactontheCity’soverallcitywideproperty taxrate.TheCity,forexample,couldacttousetherevenuefromanabatementlevytowrite downthepublicimprovementcostsforahousingproject,suchasthedevelopmentfeesorspecial assessmentsrelatedtoconstructionofthestreetsandpublicutilities,orothercosts,foralimited periodoftime(maximumof20yearsaftercertainactions). EXHIBTA IncomeLimitations StateofStearns MNCounty MedianFamilyIncome$80,400$70,000 OwnerOccupiedIncomeLimit: 115%ofMedianFamilyIncome$92,460$80,500 RentalPropertyIncomeLimit: 50%ofMedianFamilyIncome$40,200$35,000 60%ofMedianFamilyIncome$48,240$42,000 SourceofData: U.S.DepartmentofHousingandUrbanDevelpoment,Income Limitations,FiscalYear2017MedianFamilyIncomeAreas NorthlandSecurities,Inc.45South7thStreet,Suite2000,Minneapolis,MN55402TollFree1-200-851-2920Main612-851-5900 www.northlandsecurities.com MemberFINRAandSIPC TAXINCREMENTFINANCING TYPESOFDISTRICTS NorthlandSecurities iscommit- TIFusestheincreasedpropertytaxesthatanewrealestatedevelopmentgeneratesto tedtokeepinglocalgovernmentsin- formedofthelatesttools,issuesand wouldotherwisenotoccur.Itcanbeusedtopayforprivatecostsortopayforpublic trendsinpublicfinance. improvementsthatarerelatedtofacilitatingthedevelopment.TIFisgovernedbyMin- Northland’sPublicFinanceGroup nesotaSections469.174to469.1794,inclusive,asamended,collectively,the“TIFAct”. specializesinthepublicfinance ThisisabroadoverviewofthetypesofTIFdistrictswithintheTIFAct. needsofmunicipalitiesandgovern- mentalagenciesacrosstheUpper Midwest.Ourpublicfinanceprofes- sionalshavethedepthofexperience legalrestrictionsvarybytypeofdistrict,includingtheallowableuseofincrement,maximum inthemunicipalbondindustrythat durationofthedistrict,abilitytospendincrementoutsideoftheboundariesofthedistrict, servesourclientswell,astheynavi- etc.ThemostcommontypesofTIFdistrictsareredevelopment,economicdevelopment,and gatethroughthecomplexitiesofthe financialmarkets. includerenovationandrenewal,soils,andotherdistrictsthatmaybeestablishedpursuant tospeciallegislation. Asadiversifiedfinancialservices firm,weprovidefinancialadvisory servicesandarealsoasignificant REDEVELOPMENTTIFDISTRICT underwriterofmunicipaldebt.This AredevelopmentTIFdistrictprovidesfortheredevelopmentofblightedareas.Toqualify providesadistinctadvantagetoour aproject,orportionsofaproject,mustbefoundtohavecertainconditionsreasonablydis- clients.Notonlycantheydrawupon ourexperiencetodevelopasound velopmentTIFdistrictisthatparcelsconsistingof70%oftheareaofthedistrictareoccupied financeplan,butalsoourexpertise bybuildings,streets,utilities,pavedorgravelparkinglotsorothersimilarstructuresand inthecreditmarkets,togetfirst- morethan50%ofthebuildings,notincludingoutbuildings,arestructurallysubstandard handmarketinformationusefulin toadegreerequiringsubstantialrenovationorclearance.Redevelopmentdistrictsmaycol- thestructuringandtimingoftheir financing. Ourmissionisto“providedirection aredevelopmentdistrict. andproduceresults.”Northland PublicFinanceiscommittedtodevel- ECONOMICDEVELOPMENTTIFDISTRICT opinglong-termclientrelationships byprovidingsoundadvice,creative trictwilldiscouragebusinessfrommovingtoanotherstateormunicipality;increaseem- solutions,andthedesiredresults. ploymentinthestate;orpreserveandenhancethetaxbaseofthestate.Incrementmaybe NorthlandSecurities,Inc. 45South7thStreet,Suite2000 toassistdevelopmentsifmorethan15%ofthebuildingsandfacilities(onasquarefootage Minneapolis,MN55402 basis)areusedforapurposeotherthan:(a)manufacturing;(b)warehousing,storageand TollFree1-800-851-2920 distributionoftangiblepersonalproperty(excludingretailsales);(c)researchanddevelop- Main612-851-5900 mentrelatedtotheaforementionedactivities;(d)telemarketingifthatactivityistheexclusive www.northlandsecurities.com MemberFINRAandSIPC necessaryforandrelatedtotheabove. HOUSINGTIFDISTRICT ToestablishahousingTIFdistricttheproposedresidentialproperty,whethersingle-family ormulti-family,mustbeintendedforoccupancyinpartbypersonsorfamiliesoflowand March2104/RC14-87 (ContinuedonPage2) TAXINCREMENTFINANCING PAGE2 moderateincome.Upto20%ofthesquarefootageofbuildingsSpeciallegislationhasbeenenactedtoallowexceptionstotheTIF thatreceiveassistancemayconsistofcommercial,retail,orotherActforindividualdistricts.Themostcommonreasonsforenact- non-residentialuses.Incrementmaybecollectedfor25yearsaf- enteringintocontractsorissuingbonds;(2)extendingthedura- tionlimitsofaTIFdistrict;(3)creatinganexceptiontorequire- tionasahousingdistrict,residents’incomemustbelimited. anexceptiontothelimitationsontheuseoftaxincrement. Forowneroccupiedresidentialproperty,95%ofthehousing unitsmustbeinitiallypurchasedandoccupiedbyindividuals FEASIBILITYANALYSIS whosefamilyincomeislessthanorequaltotheincomerequire- ThereisrarelyasinglewaytouseTIFonanygivenproject.Most projectsrequireaperiodofexplorationtodeterminetheoptions oftheInternalRevenueCode.Generally,theinitialoccupants andimplicationsfortheuseofTIF.Someimportantquestionsto musthaveincomesof100%orlessofstatewidemedianincome exploreaninitialfeasibilityanalysisinclude: orcountymedianincomeforfamiliesoftwoorless(whichever isgreater),and115%ofstatewidemedianincomeorcountyme- •Doestheproposedusequalifyfortheestablishmentofanew dianincomeforfamiliesofthreeormore(whicheverisgreater). TIFdistrict? Owner-occupiedincomelimitsapplytoeachhousingunitbut •DoanyexistingTIFdistrictshavepotentialapplication? •Howmuchannualtaxincrementrevenueisestimatedtobe generatedbynewdevelopment? Forresidentialrentalproperty,thepropertymustimposeincome requirementsonitsunits.Ataminimum,thepropertymustsat- •WhatelementsoftheproposedprojectareTIFeligible? • Thisrequiresthatatleast40%oftheunitsarerentedtofamilies Northland’sgoalattheoutsetofeachprojecttoprovideaccurate withincomesatorbelow60%ofcountymedianincome,or20% andunderstandableinformationthatcanbeusedtoevaluatethe oftheunitsrentedtofamilieswithincomesatorbelow50%of useofTIFandtodetermineappropriatenextsteps. countymedianincome,adjustedforfamilysize.Theserequire- mentsapplyforthelifeoftheDistrict. OTHERCONSIDERATIONS Therearemanyotherconsiderationsthatexistwithestablish- OTHERTYPESOFTIFDISTRICTS mentandon-goingmanagementofTIFdistrictsthatarenot Othertypesofdistrictsincluderenovationandrenewal,soils, coveredinthisoverview.Otherconsiderationsincludetimere- andotherdistrictsestablishedbyspeciallegislation.Foraren- strictions(otherthanduration),poolingoftaxincrementderived ovationandrenewaldistrict,thesameparcelandarearequire- fromproperty,useoftaxincrementnotderivedfromproperty, mentsapplyasforaredevelopmentdistrict,butonly20%ofthe buildingsneedbestructurallysubstandard;another30%ofthe adoptedplan.Thesearejustafewexamplesofotherconsider- buildingsmustrequirerenovationorclearancetoremovecertain ations. conditions.Incrementmaybecollectedfor15yearsafterthedate Formoreinformationabouttheservicesavailablefrom lowfordesignationofthedistrict. NorthlandStrategies,pleasecontact: TammyOmdal ForasoilsTIFdistrict,thepresenceofhazardoussubstances,pol- lution,orcontaminantsrequiresremovalorremedialactionforManagerofNorthlandStrategies use.Theestimatedcostoftheproposedremovalandremedial (612)851-4964 actionmustexceedthevalueofthelandbeforecompletionof tomdal@northlandsecurities.com www.northlandsecurities.com theestimatedcostsoftheproposedremovalorremedialaction exceeds$2persquarefootfortheareaoftheparcel.Increment maybecollectedfor12yearsafterapprovaloftheTIFPlan. TAXABATEMENT professionalwithanyquestionsabouthow “taxabatement”ismisleading.Theenablingstatute(MinnesotaStatutes,Sections Northlandcanserveyourcommunity. 469.1812to469.1815)doesnotauthorizetheactualabatementoftaxes.Instead,lo- calgovernmentshavetheabilitytolevyapropertytax(anabatementlevy)thatis 612-851-5931 equivalenttotaxesthat couldbe abated.Therevenuederivedfromanabatement levycanbeusedforavarietyofeconomicdevelopment,redevelopment,housing MonteEastvold infrastructurepurposes. 612-851-5904 meastvold@northlandsecurities.com GeorgeEilertson 612-851-5906 geilertson@northlandsecurities.com 2015.ThesestatutesaresubjecttochangebytheStateLegislature. BillFahey 612-851-4950 CALCULATINGTHEABATEMENT bfahey@northlandsecurities.com Ataxabatementisbasedonthepropertyvalueoftheparcel(s)subjecttotheabate- ment.Theunitofgovernmentgrantingtheabatementdecideshowmuchofthepar- 612-851-4992 celvaluetouseintheabatementcalculation.Theabatementmayfunctionliketax JessicaGreen 612-851-5930 abatementmayalsousetheentirevalueoftheparcelorinanyothermannerthe jgreen@northlandsecurities.com governingbodyofthesubdivisiondeterminesisappropriate. MichaelHart Thestatutedoesnotcontrolhowpoliticalsubdivisionsdeterminetheparcelsthat 612-851-4966 mhart@northlandsecurities.com cels,parcelsgroupedintoacommonproject,orabroaderareaofimprovements. BrianKujawa 612-851-4977 Thetaxabatementiscalculatedbymultiplyingthetaxcapacityvaluesubjectto bkujawa@northlandsecurities.com abatementbytheabatingjurisdiction’staxrate.Itisimportanttoincorporatethetax TammyOmdal abatementintotheannuallevycalculations.Anabatementlevymustbeincludedin 612-851-4964 thepreliminarylevyforTruthinTaxation.Thistimingmeansthattheactualprop- tomdal@northlandsecurities.com ertyvaluewillbeknown(valueasofJanuary1ofthecurrentyearfortaxespayable inthefollowingyear),butthetaxratewillbeanestimate. Themethodologyforcalculatingtheabatementshouldbeclearlydescribedinthe resolutionauthorizingtheabatement. USES NorthlandSecurities,Inc. Theenablingstatutecontainsrelativelyfewlimitationsontheuseoftaxabatement. 45S.7thStreet,Suite2000 Therevenuesfromtheabatementlevycanberetainedbythepoliticalsubdivisionor Minneapolis,MN55402 TollFree:800-851-2920/Phone:612-851-5900 conveyedtothepropertyowner.Whenpaidtothepropertyowner,theabatement Fax:612-851-5918 actslikeataxrebate. www.northlandsecurities.com MemberFINRAandSIPC RC16-206/May2016 ties.TheproceedsofTaxAbatementBondscanonlybeusedto(1)payforpublic erty,asprovidedunderthissection,(3)reimbursethepropertyownerforthecost ofimprovementsmadetotheproperty,or(4)paythecostsofissuanceofthebonds. (Continuedonnextpage) TaxAbatement Minnesotalocalgovernmentshavemadebroaduseoftaxinterest,thenthepoliticalsubdivisionmayuseotherlegally abatement.Herearesomeexamplesthatillustratepotentialavailablerevenues,includingpropertytaxes,topayinterest applications:onthebonds.Thegeneralobligationofthepoliticalsubdivi- sionmaybepledgedtothebonds.Thebondsarenotsubject • tothedebtlimitanddonotrequireanelection. district. PROCESS •Redevelopmentprojectswherethesettingis economicallyobsolete,butnotphysicallyblighted. •Publicimprovements,suchashighwayinterchanges, oftaxabatementissimple.Thegoverningbodyofthepoliti- • rametersforthetaxabatement.Apublichearingisrequired beforeapprovingtheresolution.Noticeofthehearingmust •Recreationalfacilitiesandcommunitycenters. bepublishedinanewspaperofgeneralcirculationinthepo- liticalsubdivisionatleastoncemorethantendaysbutless Financialassistancetoprivatepartiesmadeusingtaxabate- than30daysbeforethehearing.Thestatutedoesnotrequire mentmaycreateabusinesssubsidyunderStateLaw. KEYLIMITATIONS inthepublicinterestforoneofthefollowingreasons: Severalimportantlimitationsapplytotheuseoftaxabate- •Increaseorpreservetaxbase. ment. •Provideemploymentopportunities. POLITICALSUBDIVISIONS •Provideorhelpacquireorconstructpublicfacilities. Theabilitytousetaxabatementisgiventocities(statutory •Helpredeveloporrenewblightedareas. orhomerulecharter),towns,schooldistricts,andcounties. •Helpprovideaccesstoservicesforresidentsofthepoliti- Eachofthesepoliticalsubdivisionshasindependentauthor- calsubdivision. ityovertheuseoftaxabatement. •Financeorprovidepublicinfrastructure. MAXIMUMAMOUNT •Phaseinapropertytaxincreaseontheparcel. Thetotalamountoftaxabatementsforeachpoliticalsubdivi- sioniscapped.Thetotalabatedtaxesinanyyearcannotex- abatementresolutionalsoincludestheparcelssubjecttothe ceedthegreateroftenpercent(10%)ofthenettaxcapacityof abatement,propertyvaluefromtheparcelsusedintheabate- thepoliticalsubdivisionforthetaxespayableyeartowhich mentcalculation,durationoftheabatement,andanyother theabatementapplies,or(2)$200,000. DURATION Anabatementlevyisnotcurrentlysubjecttolevylimits.An Thegeneralruleisthatapoliticalsubdivisionmaygrantan abatementlevymustfollowtheproceduresapplicabletoall abatementfor15yearsorless.Themaximumdurationis otherpropertytaxlevies. 8yearsiftheauthorizingresolutiondoesnotspecifyadu- ration.Themaximumabatementperiodmayincreaseto20 yearsifoneoftheotherpoliticalsubdivisionsisrequested Northland’sPublicFinanceGroupspecializesinthepublic toparticipateanddeclines(pursuanttoproceduresinM.S. financeneedsofmunicipalitiesandgovernmentalagen- 469.1813,Subd.6,Paragraphb). ciesacrosstheUpperMidwest.Ourpublicfinanceprofes- sionalshavethedepthofexperiencethatservesourclients RELATIONSHIPTOTIF well,astheynavigatethroughthecomplexitiesoflocal governmentfinanceandeconomicdevelopment. fortaxabatement.TIFparcelscanbeusedforabatementafter Ourmissionisto“providedirectionandproduceresults.” NorthlandPublicFinanceiscommittedtodeveloping TIFdistrict. long-termclientrelationshipsbyprovidingsoundadvice, creativesolutions,andthedesiredresults. BONDS Bondscanbeissuedtoprovidefundingforcertainactivities (see“Uses”).Thetotalprincipalofabatementbondscannot exceedthesumofestimatedabatementsfortheyearsgrant- ed.Iftheabatementisnotadequatetopayprincipaland