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DEC. 1 1.2000 9:17AM EHLERS 4 ASSOCIATES NO. 6272 P. 2 EHLERS & ASSOCIATES INC I. o To;City of Orono From:Rusty Fificld 111 Subject:Use of TIFsDate:December 11,2 1. 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 tinanci^y in this project? As the City Council moves ahead with the planning process, the discussion will shift horn 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 docs 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. 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. 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 TIF the development as proposed would not occur. Use of TIF: 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. 2. 3. LEADERS IN PUBLIC FINANCE A 30S0 Centre Pointe Drive Dm.vie* MN AAll.'^linR 651.697.BS06 fax 6S1.697.8599 ruaty^ehlervlr)C.cocn