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DEC. 11. 2000 9 : 17AM EHLERS & ASSOCIATES NO. 6272 P. 2 EHLERS & ASSOCIATES INC O To: City of Orono From: Rusty Fifield W Subject; Use of TIF Date: December 11, 2000 The discussion of the senior housing project has focused on two broad issues: (1)What development is appropriate at this site; and (2)Is the City willing to participate financially in this project? As the City Council moves ahead with the planning process, the discussion will shift from concepts to details. This memo outlines some of the key details related to the City's financial participation and the use of tax increment financing (TIF). This memo does not deal with the specific dollar amounts of TIF and the City's participation in the project. These matters will be discussed in a subsequent memo to be provided for the December 18 City Council meeting. The City Council should include the following financial factors in the consideration of the proposed senior housing project. 1. Financial Implications: It is important to remember that City required adjustments to the project have economic implications. The frontage road and landscape buffers add to the project costs. The reduction in number of units eliminates income without a proportionate decrease in expense. These changes affect the financial feasibility of the development. At some point, a project can no longer absorb such alterations. TIF provides the means for the City to invest in the project to achieve these "public" objectives. 2. Need: My initial review of the project suggests that the use of TIF is needed for the proposed project to occur. The key to negotiations will not be if assistance is needed, but rather how much assistance is needed. As the project proceeds, the developer will be required to demonstrate the need for the financial assistance. The statutory test is "but for" the use of Til~the development as proposed would not occur. 3. Use of l'11•: The City cannot simply agree to give the developer a portion of the annual tax increment revenue. Tax increment can only be used to pay for statutorily eligible expenses. Typical reimbursable expenses include land, site improvements (grading, landscaping,parking), public improvements, and city utility charges. The increment can also be used to pay interest on the expenses when the developer is paid back over time. This issue becomes more important as the need for financial assistance grows. LEADERS IN PUBLIC FINANCE 3060 Centre Pointe Drive 651.697.8506 fax 651.697.8555 Pnccivillati1N R5111-1105 rusty@ehlers-inc.Corn