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HomeMy WebLinkAbout08-27-1984 Council Packettl1\\1 Vrl+1a �1\ I aMwl •Mpf awwly IIPJ ll.p liar,: arl f�l•II w.r� 1 rwwr I�Y1 �M�• /•1 Ill Ir 1IN%%.1 %I'%Ira rN 11MIf 111 ♦arMfllr /\11 M\ 11\\\r lal rl\I111 11awr{►M\1\ 1y1\11 Sri ill I�w al lil lai: VI\\1. \IY rI I\ VI\\1 w:rl 114•I 1.11•r\1 rarai .aril. ARLON B. WA[lTO w n 'loco IDS •Owe* O'CONNOO • NANNAN •o sou •• 1.0«.« slate, r:NNCAPOLIO r 4h14a04'• r \%f "A %%40j y010N Otyvta r0t0a D f.a/c1 C w. .61 fw• lop.. . °c TAX INCREMENTFINANCING } IN NIINNESOTA i :tq .y� a •�A,.'�j, .,�E TID as , 1 i { a Miller & Schroeder Municipals, Inc, Miller & Schroeder Municipals, Inc. 17o NORTHWESTERN FINANCIAL CENTER, 7900 XERXES AVE. SOUTH. MINNEAPOLIS, MINNESOTA 55431 Mrmher of the Securities Inveslnr Praia ban Cnrpornhon TOLL FREE MINNESOTA 6p6.667.6M12 ITL 612-631-IS06 I L FRFt: ()THER STATES f1W 326-612Z Dear Local OHicigl: During its 1979 session, the Minnesota legislature amended Chapter 273 of the Minnesota Statutes by adding the Minnesota Tax Increment Financing Act.. The new law, which governs all tax increment financing undertaken after August 1, 1979, combined the numerous tax increment financing statutes into one comprehen- sive statute. The Act, which also contains several technical improvements, has removed a considerable amount of the inconsistency which once surrounded tax increment financing. The intent of this report is basically threefold: first, to present a current and useful report on tax increment financing; secondly, to impress upon you the opportunities which exist with tax increment financing; and, thirdly, to offer an opportunity for you to discuss with us any questions or plans you may have. We at Miller & Schroeder Municipals, Inc. hope that the following report, together with the financial services offered by Miller & Schroeder Municipals, Inc., � ill be of use to your community in its efforts to meet its financial needs. Sincerely, Miller & Schroeder Municipals, Inc. TAX INCREMENT FINANCING IN MINNESOTA TABLE OF CONTENTS Pale INTRODUCTION .................................... 1 Definitions .................................... 2 Summary..................................... 4 ELIGIBLE ACTIVITIES ............. . ........ .......... 5 Authorities .................................... 5 Qualified Projects ........................ .. .. .. .. 6 IMPLEMENTATION .................................. 7 Procedures .... ......... ..... . ..... .... . . .... .. 7 Duration ......................... .... . . . .. ... 7 Tax Increment Financing Plan .... .......... ... .. . .... 8 Tax Increment Bonds ......... . ... . ... . ........ . .. . 8 MILLER & SCHROEDER MUNICIPALS. INC....... .. .. . . . . . .. . . 9 Background .... ............ . ..... . ... . ... . . . .. 9 Investment Banking Services ... . . . .... . .... .... . . ... . 9 INTRODUCTION Throughout most communities in Minnesota, as a result of the decreasing availability of low cost, long- term financing, the need for redeveloping blighted and deteriorating urban areas, for developing low and moderate income housing, and for stimulating eco- nomic growth have become needs that are often pur- sued, but are not often met. Therefore, local governments should become aware of, and encourage the development of, innova- tive alternatives to alleviate or reduce the impact of today's high cost, long-term financing. Tax increment financing is one such effective alternative. It can pro- vide the private sector with the short-term incentives and long-term financing that can stimulate and encourage the needed development and redevelop- ment of a community. In many cases, tax increment financing can make the difference between a project which is economically feasible, and one which remains a concept. The recently enacted Minnesota Tax Increment Financing Act, Chapter 273 of the Minnesota Stat- utes, (the "Act") provides an opportunity for local governments to improve the economic climate of their communities on their own initiative, and without the usual red tape and long delays. This report sets forth, among other things: a description of the governmental agencies which have the statutory authorization to utilize tax increment financing; a description of the projects which re.9y be financed with tax increments; the requirements of a tax increment financing plan; the procedures involved in implementing such a plan; and the advisor, and underwriting services offered by Miller & Schroeder Municipals, Inc. DEFINITIONS While the new law has in many respects simpli- fied tax increment financing procedures and removed many inconsistencies, there are still several confusing procedures and terms. Outlined below are certain Authority. As illustrated below, an Authority means an entity authorized by the Act to undertake tax increment financing activities and issue tax incre- ment bonds to finance these activities. Authorities, as General District. As illustrated below, a Gen- eral District means a district or area created by an Authority under its general enabling legislation for some authorized public purpose. For example, a "development district" created by a city pursuant to terms and illustrations which will be used in this report for the sake of simplicity, and for an under- standing of their relationship to each other. Each term is discussed in greater detail later in the report. used in this report, may include charter or home rule cities, housing and redevelopment authorities, port authorities, or rural development finance authorities, among others. Authority Minnesota Statutes, Chapter 472A, or a "redevelop- ment project area" created by a housing and redevel- opment authority pursuant to Minnesota Statutes, Chapter 462, would be considered a General District in this report. 12 (.eneral District _ � t..ncrnl 1)i.Irict Tax Increment Financing District. As illus- trated below, a Tax Increment Financing District or TIF District means an area within a General District Qualified Project. As illustrated below, a Qual- ified Project means a Redevelopment Project., a Hous- ing Project or an Economic Development Project (all of which are discussed below under the caption "Qual- ified Projects") to be undertaken within a particular TIF District. The boundaries of a Qualified Project and a TIF District may be the same, or the boundaries of the TIF District may be larger than the area of the Qualified Project. All Qualified Projects must be within which an Authority intends to undertake a Qualified Project pursuant to a Tax Increment Financing Plan. Tax Increment Financing District Tax Increment Financing District Fay Increment Financing District Tax Increment Financing District undertaken, and therefore all TIF Districts must be created, within the boundaries of a General District. Only one type of Qualified Project. (i.e., housing, rede- velopment or economic development) may he under- taken within a single TIF District, but more than one TIF District may exist, and more than one type of Qualified Project may be undertaken, within a Gen- eral District. Qualified Project Qualified Project Qualified Project Qualified Project Qualited Project SUMMARY The basic concept behind tax increment financ- ing is to utilize the new tax revenues generated by a completed development to pay for certain develop- ment costs, such as land acquisition and site improve- ments, thereby allowing the Authority to stimulate private development which might not otherwise occur. The difference between the taxes before devel- opment and the increased taxes after development is referred to as the "tax increment." By following the procedures described in this report, this anticipated tax increment can be used by an Authority to finance certain development costs. For example, a Housing and Redevelopment Authority (HRA) may elect to encourage the redevel opn.ent of a particular blighted area by providing tax increment financing. In order for the HRA to provide tax increment financing it must create a General Dis- trict, and within it, a Tax Increment Financing Dis- trict which includes the particular blighted area. The newly created TIF District could contain several indi- vidual properties which are to be redeveloped, oi,e of which might be a property with a vacant and deterio- rating structure currently producing $2,500 per year in property taxes. PUTsuant to the Act, the Authority could pledge tax increments, and issue tax increment bonds, for all public redevelopment costs associated with the prop- erty. Therefore, the Authority could acquire the prop- erty, prepare thc- site for development, which could include removal or rehabilitation of the existing struc- ture, and then sell the property to a private developer for a specific purpose. The Authority could sell the property at a price which would reflect the new "fair market value" (usually lower than the actual market value). Upon completion of the new development by the private developer, the County Auditor would record the increased assessed value and levy a higher property tax. If the assessment reflected a property tax levy of $43,500, the tax increment would be $43,000 ($45,500 minus the original $2,500 property tax). The $43,000 tax increment would be pledged, together with tax increments collected from other properties within the TIF District, to the repayment of the tax increment bonds which had been issued to finance the initial acquisition and improvement of the TIF District. As shown in the above tax increment calculation, the taxing jurisdictions within the TIF District would still receive the original property tax, posPibly more if the entire tax increment was not needed for the repay- ment of the bonds. However, upon repayment of the bonds the taxing jurisdictions would receiv- the ejAire property tax --venue. In the meantime, the Authority would have removed or rehabilitated several unsightly buildings, developed new facilities, increased the tax base of the City, and probably created new employ- ment within the City. ELIGIBLE ACTIVITIES AUTHORITIES Pursuant to the Act, there are several Authori- ties which have the power to create Tax Increment Financing Districts and to issue tax increment bonds to finance Qualified Projects within such TIF Districts. The following is a brief description of such Authorities, including a discuosion of the limitations on their use of tax increments: 1. Housing and Redevelopment Authority Description. Pursuant to Minnesota Statutes, Chapter 462, housing and redevelopment authori- ties have the power, within a redevelopment project area (herein sometimes referred to as a "General District"), to develop a plan to improve substan- dard .,nditions, unsafe and unsanitary housing, and buildings or structures which are characterized by such conditions as dilapidation, obsolescence, overcrowding and faulty arrangement or design of building and improvements. Use of tar increments. Pursuant to the Act, HRA's may use the revenues derived from tax increments to finance or otherwise pay the public redevelopment costs associated with a redevelop- ment project. 2. Municipality administering a development district Description. Pursuant to Minnesota Statutes, Chapter 472A, municipalities have the authority, within a development district (herein sometimes referred to as a "General District"), to develop a program to provide impetus for commercial devel- opment, to increase employment, to protect pedestrians from vehicle traffic, to provide parking facilities and skyways, and to provide open space relief. Ilse of tax increments. Pursuant to the Act, municipalities may use the revenues derived from tax increments to finance or otherwise pay the capi- tal costs and administrative expenses of a develop- ment district. J. 'Municipality or any other Redevelopment .Agency administering a project under Chapter 474 Description Pursuant to Minnesota Statutes, Chapter 474, municipalities or any other redevelop- ment agencies have the authority to establish a pro - jest area (herein sometimes referred to as a "Gen- eral District") to promote, attract, encourage and develop economically sound industry and com- merce for the purpose of preventing deterioration and chronic unemployment. Use of tax increments. Pursuant to the Act, a municipality, or any other redevelopment agency, issuing industrial development revenue bonds may use the revenues derived from tax increments to accumulate and maintain a reserve securing the payment of principal and interest on, or to finance lease guarantee insurance to secure the payment of the net rentals of a project financed by, industrial development bonds. 4. Port Authority or Municipality exercising the power of a Port Authority Description. Pursuant to Minnesota Statutes, Chapter 468, port authorities have the power, within a port authority district (herein sometimes referred to as a "General District"), to establish projects fir the purpose of developing a system of harbor and river improvements, and for industrial development to prevent the deterioration of margi- nal land and industrial areas. Use of tax increments. Pursuant to the Act, port authorities may use the revenues derived from tax increments to finance or otherwise pay the redevelopment costs associated with a port author- ity district. S. Rural Development Finance Authority Description. Pursuant to Minnesota Statutes, Chapter 362A, a rural development finance author- ity has the power, through county government, to establish a project area (herein sometimes referred to as a "General District") for purposes of assisting in a broad range of agricultural projects related to the processing, storage and distribution of agricul- tural products. (Ise of tax increments. Pursuant to the Act, rural development finance authorities may use the revenue derived from tax increments to finance or otherwise pay the costs of a project undertaken pursuant to Section 362A.01, Subdivision 2. QUALIFIED PROJECTS The various Authorities may finance a particular project within a General District with tax increments if the project meets the definitions and qualifications in the Act as either a Redevelopment Project, a Hous- ing Project, or an Economic Development Project (herein sometimes collectively referred to as a "Quali- fied Project" or "Qualified Projects"). 1. Redevelopment Project � "Redevelopment Project" means a project wnere an Authority finds, by resolution, one of the following conditions reasonably distributed throughout the project: • The land is predominantly occupied by build- ings, streets, utilities or other improvements, and more than 50`, of the buildings (not includ- ing outbuildings) are structurally substandard to a degree requiring substantial renovation or clearance; or • The land is predominantly occupied by build- ings, streets, utilities or other improvements, and 2&', of the buildings are structurally sub• standard and an additional 30` of the buildings are found to require substantial renovation or clearance in order to remove such existing con- ditions as: inadequate street layout; incompati- ble land use relationships; overcrowding of buildings on the land; excessive dwelling unit density; obsolete buildings not suitable for improvement or conversion; or other identified hazards to the health, safety and general well being of the community; or • The land is not predominantly occupied by buildings, streets, utitilites or other improve- ments, but at least 80`', of the total acreage contains an unusual physical condition, and the cost of curing such condition would discourage private development (Therefore, the purpose of redeveloping the property is to make such land economically competitive with other, non - blighted raw land.), or • The property consists of underutilized air right., existing over a public street, highway or -;ght-of-way. 2. Housing Project A "Housing Project" means a residential devel. opment intended for occupancy, in part, by persons or families of low and moderate income. 3. Economic Development Project An "Economic Development Project" means any project not meeting the criteria of Redevelopment Project or Housing Project, but which the Authori- ty finds to be in the public interest because: • The project :vill discourage commerce, industry or manufacturing from moving their operations to another state; or • The project will result in increased employ- ment in the municipality; or • The project will result in the preservation atod enhancement of the (ax base of the municipality. IMPLEMENTATION PROCEDURES The first step in implementing a Qualified Pro- ject is to create a General District. Following the crea- tion of the General District, the Authority must form a TIF District within the General District by prepar- ing a TIF Plan which describes, among other things, the property to be included in the TIF District and the type of Qualified Project that will be involved (Redevelopment Project, Housing Project or Eco- nomic Development Project). The property compris- ing a TIF District may be noncontiguous, thereby enabling redevelopment to occur on an area -wide basis while excluding nonblighted areas from the TIF Plan and the TIF District. Before the Authority may adopt a TIF Plan, the municipality (if different than the Authority) in which the TIF District is located must approve the TIF Plan by holding a public hearing and making the following Hidings: (il that the tax increment project comprising the proposed TIF District is a Redevelopment Pro- ject, a Housing Project, or an Economic Development Project; (ii) that the tax increment financing is neces- sary because private development or redevelopment of the project would not occur, or at least would r A occur in the foreseeable future, without the use of tax increments; (iii) that the TIF Plan conforms with the general development or redevelopment plan of the municipality; and (iv) that the TIF Plan will provide maximum opportunity for the development or rede- velopment of the TIF District by private enterprise. In addition to the adoption of TIF Plan, the Authority must provide an opportunity to the mem- bers of the county boards of commissioners, and to the members of the school board of any school district in which any portion of the TIF District is located, to meet with the Authority. The Authority will present to them its estimate of the fiscal and economic impli- cations of such TIF District. DURATION Basically, a TIF District may remain in existence at leant as long as bonds continue to be outstanding. However, a Qualified Project comprising a TIF Dis- trict may receive tax increments only for a certain Period of time. A Redevelopment Project or a Housing Project cannot receive tax increments for more than 25 years from the date of the receipt of the first tax ►ncreme►tt An Fconomic Development Project cannot Upon the approval of the TIF Plan by the municipality, the Authority must confirm commit- ments for the redevelopment or development of the property to be acquired within the TIF District. Pur- suant to the Act, no Authority may, at one time, acquire from the proceeds of a bond sale more than 25% of the acreage within a Redevelopment Project, or We of the acreage within a Housing or Economic udvelopment Project, until the Authority has obtained a firm written, agreement with a private developer for the development or redevelopment of such property. In addition, the agreement must pro- vide recourse for the Authority should the develop- ment or redevelopment not be completed. After the County Auditor has certified the origi- nal assessed value of the TIF District, the Authority may issue general obligation or revenue bonds for the purpose of acquiring and making certain improve- ments to property identified in the TIF Plan. Once the planned site improvements have been completed, the Authority may sell the property to a private developer at a price which reflects the "fair market value" of the property (usually lower than the actual market value), and the new property owners may begin to develop the property according to the previous commitments with the Authority. The County Auditor must certify the amount of the captured assessed value to the Authority each year (the amount by which the assessed value after comple- tion of the development exceeds the original assessed value). This amount is the tax increment, and will be pledged to the repayment of the tax increment bonds issued to acquire and improve the property. receive tax increments for more than 8 years from the date of receipt of the first tax increment, or 10 years from the approval of the TIF Plan, whichever is less. After such time, the TIF District terminates, and all taxing jurisdictions receive property tax revenues as they otherwise would. (These are maximum pe: iodn. and, depending upon the size of the tax increment, a shorter period may be adequate to retire the bonds.) TAX INCREMENT FINANCING PLAN The TIF Plan of the Authority must contain the following: 1. Statement of objectives of the Authority for the improvement of the TIF District; 2. Statement as to the development program for the TIF District, including the property which the Authority intends to acquire; 3. Estimates of the following: • Costs planned to be incurred within the TIF Di--trict, including administrative expenses; • Amount of bonded indebtedness to be incurred; TAX INCREMENT BONDS Tax increment bonds are, in effect, long-term loans made by the bondholders to an Authority which enable the Authority to pay certain costs associated with the TIF District (the types of project costs which can be reimbursed with tax increments depend upon the statutory authorizations of the Authority). Upon completion of the development or redevelopment within the TIF District, the tax increments which are collected from the marginal increase in assessed value of the TIF District are placed in a special fund of the Authority and are used to pay the principal and inter- est on the bonds issued to finance the acquisition and improvement of a Qualified Project. Pursuant to the Act, tax increment bonds issued to finance a Qualified Project within a TIF District may he either general obligation bonds or revenue bonds. Tax increment general obligation bonds are pay- able primarily from a revenue source (i.e., the tax increment derived from a TIF District), but are also • Sources of revenue to pay public costs; • Most recent assessed valuation of taxable real property; • Estimated captured assessed value at completion; • Duration of the 'TIF District's existence; and 4. Statement on the impact of tax increment financing on the assessed values of all taxhig jurisdic- tions in the TIF District. backed by the full faith and credit of the municipality. They are not included in the computation of the net debt of the municipality, although the bonds remain an obligation and a legal liability of the municipality as long as they remain outstanding. General obliga- tion bonds will usually carry a lower interest rate than revenue bonds. On the other hand, tax increment revenue bonds, which also are not included in the computation of the muncipality's net debt, are, by law, neither a moral obligation nor a legal liability of the municipal- ity. The Act specifically states that the issuing munici- pality shall not "be subject to any liability Thereon or have the powers to obligate itself to pay . . the bonds." This provision should remove any doubt that tax increment revenue bonds are not, and could never become, a legal liability of the issuing municipality, and its overall general obligation bond rating will not be affected by the issuance of tax increment revenue bonds. MILLER & SCNROEDER MUNICIPALS, INC. BACKGROUND Miller & Schroeder Municipals, Inc. (Miller & Schroeder) has specialized in the underwriting and sale of municipal bonds since 1965. In addition to its main office in Wineapolis and an office in St. Paul, Miller & Schroeder maintains offices in Solana Beach, California and Chicago, Illinois, and has grown to become one of the largest municipal bond specialists in Minnesota. Miller & Schroeder provides advisory and underwriting services for municipalities and other issuers to provide financing for health -carp facilities, commercial and industrial projects, municipal facili- INVESTMENT BANKING SERVICES Set forth below is a brief description of the advi- sory and underwriting services offered by Miller & Schroeder: • Assist the municipality and its staff in analyz- ing the long-term financial requirements of the municipality. • Assist in developing a comprehensive financing plan which will meet the long-term objectives of the municipality, and make recommenda- tions relating to the timing and implementation of such financing plan. • Advise and assist the municipality and bond counsel in preparing the necessary legal docu- ments u► insure that the financing structure meets the predetermined objectiv" of the municipality. • Advise the municipality regarding cer:a;n terms of the h onds to he sold, including matur- ties, single and multi -family housing, and virtually any other activity which can be financed on a tax- exempt basis. Miller & Schroeder's staff has the knowledge and experience required to successfully finance a pro- ject, no matter what size. Previous issues have ranged in size from $300,000 to finance general municipal improvements to over $98,000,000 to finance low interest, single-family mortgages for a redevelopment agency. ity schedules, call features, reserve funds and other pertinent terms which will insure the broadest market for, and therefore the lowest interest rate on, the bonds. • Assist the municipality and underwriter's counsel in the preparation of an official state- ment containing all relevant information on the municipality, and the financing plan, for distri- bution to prospective purchasers of the bonds. • Prepare and present to the rating agencies all necessary financial information to obtain the highest rating on the bonds. • Assist in the preparation of all closing docu- ments and the sigr.;ng and delivery of the bonds. • Provide any additional services requested h_v the municipality to fulfill the individual needs of the municipality. If your City is concerned with its future financial needs, and is interested in or has questions regarding the services offered by Miller & Schroeder, contact a Miller & Schroeder representative today at 1612► Hail 15t>rY 4 . a Yy k" �+2 'y i $'.. �s�°a�'r „ � n• • -. Sack ' � . Vk ' -4 X. b' b Y i . Y `u Miner & Schroeder Municipals, Inc. ►eAa. Ef�#ri€. t' +`: t1DrrAl+ k. x Avg ltaJetgM. �rdt �t►i, palD+mi� 7'iA: •tea t .e�1 tb► Wr rdxn �w •+I a..o Y`Ywr Ysr t "�tVlvMo.•. lfl�'4Mti!1.+Mt�-1q4 met. Ttyt 'FR►J +)rNI',� �"=�' 1Mi. NdJ !!� 17Mi Aam