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16-052 Council Approved TIFRESOLUTION NO. 16 -052 APPROVING A REDEVELOPMENT PLAN FOR REDEVELOPMENT PROJECT NO. 2 AND A TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 2 AND AUTHORIZING AN INTERFUND LOAN BE IT RESOLVED by the City Council (the "Council ") of the City of Shorewood, Minnesota (the "City "), as follows: Section 1. Recitals. 1.01. The Economic Development Authority of the City of Shorewood, Minnesota (the "Authority ") has found that there is a need for redevelopment within the City to remedy blight and blighting conditions, prevent the spread of blight, promote the health, safety and welfare of City residents, and encourage related development and redevelopment in order to protect and improve the tax base and general economic vitality of the City. The Authority has caused to be prepared a document entitled "Redevelopment Plan for Redevelopment Project No. 2" (the "Redevelopment Plan "), pursuant to Minnesota Statutes, Sections 469.001 through 469.047, Sections 469.090 through 469.1082, inclusive, as amended (collectively, the "Act "). 1.02. The Authority has determined a need to create Tax Increment Financing District No. 2 (the "TIF District "), a redevelopment district, within Redevelopment Project No. 2, pursuant to the Act, and Minnesota Statutes Sections 469.174 through 469.1794, as amended (the "TIF Act "). The Authority has proposed using tax increment financing in order to facilitate the development of a 105 unit senior housing facility containing independent care, assisted living and memory care units for seniors (the "Housing Facility "), which will be located within the proposed TIF District. To this end, the Authority has caused to be prepared a document entitled "Economic Development Authority of the City of Shorewood, Minnesota, Tax Increment Financing Plan for Tax Increment Financing District No. 2 a Redevelopment District (Oppidan Senior Housing Project" (the "TIF Plan "). 1.03. The Redevelopment Plan and the TIF Plan have been reviewed by the Council and in accordance with the Act and the TIF Act, the Council finds that the Redevelopment Plan and the TIF Plan conform to the general plan for the development and redevelopment of the City as a whole. 1.04. The Authority and the City have performed all actions required by law to be performed prior to the adoption of the Redevelopment Plan and the TIF Plan, including, but not limited to, notification to Hennepin County and Independent School District No. 276, having taxing jurisdiction over the property in the TIF District and in the Project Area, and the holding of a public hearing upon published notice as required by law. 1.05. The Council hereby determines that it is necessary and in the best interest of the City at this time to adopt the Redevelopment Plan and the Tax Increment Financing Plan for the TIF District located within Project Area No. 2, pursuant to and in accordance with the Act and the TIF Act. 1.06. This Council has fully reviewed the contents of the TIF Plan and Redevelopment Plan and on this date conducted a public hearing thereon at which the views of all interested persons were heard. 1.07. There has also been presented before the City a Contract for Private Development (the "Contract ") between the Authority and KTJ 285, LLC (the "Redeveloper "), setting forth the parties' respective responsibilities in developing the Housing Facility. 1.08. The City has reviewed the Contract and finds that the execution of the Contract and the Authority's performance of its obligations thereunder are in the best interests of the City and its residents. Section 2. Findings; Redevelopment Project No. 2. 2.01. The Council hereby fords that there is a need for redevelopment within the City and the Project Area to remedy blight and blighting conditions, prevent the spread of blight, promote the health, safety and welfare of City residents, and encourage related development and redevelopment in order to protect and improve the tax base and general economic vitality of the City. More specifically, the City has identified that development of the property included in the Project is necessary to further development and housing goals. 2.02. The Council specifically finds that: (a) the land within the Project Area would not be available for redevelopment without the financial aid to be sought under this Redevelopment Plan; (b) the Redevelopment Plan will afford maximum opportunity, consistent with the needs of the City as a whole, for the development of the Project by private enterprise; and (c) that the Redevelopment Plan conforms to the general plan for the development of the City as a whole. Section 3. Findings; TIF District No. 2. 3.01. It is found and determined that it is necessary and desirable for the sound and orderly development of the Redevelopment Project and the City as a whole, and for the protection and preservation of the public health, safety, and general welfare, that the authority of the Act be exercised by the Authority and the City to provide public financial assistance to the TIF District and the Redevelopment Project. 3.02. It is further found and determined, and it is the reasoned opinion of the City, that the development proposed in the TIF Plan for the TIF District could not reasonably be expected to occur solely through private investment within the reasonably foreseeable future and the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in market value estimated to result from 2 the proposed development, after subtracting the present value of the projected tax increments for the maximum duration of the TIF District permitted by the TIF Plan, all as described in the TIF Plan. 3.03. The Plan for the TIF District conforms to the general plan of development of the City as a whole. 3.04. The Plan for the TIF District will afford maximum opportunity, consistent with the sound needs of the City as a whole, for the development of the TIF District and the Redevelopment Project by private enterprise. 3.05. The TIF District is a redevelopment district under Section 469.174, Subdivision 10 of the Act, based on the findings described in the TIF Plan, which are incorporated herein by reference, and other records on file with the City. 3.06. Reasons and facts supporting the findings under this Section are stated in the TIF Plan. The City has also relied upon the reports and recommendations of its staff and consultants as well as the personal knowledge of members of the Council in reaching its conclusions regarding the TIF District. Section 4. Redevelopment Plan and TIF Plan Adopted, Filing. 4.01. The Redevelopment Plan and the TIF Plan are hereby approved and adopted, and shall be placed on file in City Hall. 4.02. The City Clerk is authorized and directed to transmit a certified copy of this resolution together with a certified copy of the TIF Plan to the Auditor of Hennepin County with a request that the original tax capacity of the property within the TIF District be certified to the Authority pursuant to Section 469.177, Subdivision 1 of the Act, and to file a copy of the TIF Plan and Redevelopment Plan with the Minnesota Commissioner of Revenue and the State Auditor as required by the TIF Act. Section 5. Implementation of the Redevelopment Plan and TIF Plan. 5.01. The officers, staff and consultants of the City and the Authority are authorized and directed to proceed with the implementation of the Plans and, for this purpose, to negotiate, draft, prepare and present to the City and the Authority for their consideration any further plans, resolutions, documents and contracts necessary for this purpose. Section 6. Interfund Loan. 6.01 The City has determined to pay for certain eligible costs identified in the TIF Plan that may be financed using tax increments derived from the TIF District as authorized (the "Qualified Costs "), which costs may be financed on a temporary basis from City funds available for such purposes. Under Minnesota Statutes, Section 469.178, Subd. 7, the City is authorized to advance or loan money from the City's general fund or any other fund from which such advances 3 may be legally made (the "Fund "), in order to finance the Qualified Costs. The City intends to reimburse itself for the payment of the Qualified Costs, plus interest thereon, from tax increments derived from the TIF District in accordance with the following terms (which terms are referred to collectively as the "Interfund Loan "). 6.02 The City hereby authorizes the advance of up to $1,646,988 from the Fund or so much thereof as may be paid as Qualified Costs. The City shall reimburse itself for such advances together with interest at the rate stated below. Interest accrues on the principal amount from the date of each advance. The maximum rate of interest permitted to be charged is limited to the greater of the rates specified under Minnesota Statutes, Section 270C.40 or Section 549.09 as of the date the loan or advance is authorized, unless the written agreement states that the maximum interest rate will fluctuate as the interest rates specified under Minnesota Statutes, Section 270C.40 or Section 549.09 are from time to time adjusted. The interest rate shall be 4% and is able to fluctuate. 6.03 Principal and interest on the Interfund Loan shall be paid semi- annually on each February 1 and August I (each a "Payment Date ") commencing with the Payment Date on which the City has Available Tax Increment (defined below), or on any other dates determined by the City Administrator, through the last receipt of tax increment from the TIF District. 6.04 Payments on the Interfund Loan are payable solely from "Available Tax Increments" which shall mean, on each Payment Date, all of the tax increment available after other obligations have been paid, generated in the preceding six (6) months with respect to the property within the TIF District and remitted to the City by Hennepin County, all in accordance with Minnesota Statutes, Sections 469.174 to 469.1794. Payments on the Interfund Loan are subordinate to any outstanding or future bonds, notes or contracts secured in whole or in part with Available Tax Increments, and are on parity with any other outstanding or future interfund loans secured in whole or in part with Available Tax Increments. 6.05 The principal sum and all accrued interest payable under the Interfund Loan are pre - payable in whole or in part at any time by the City without premium or penalty. No partial prepayment shall affect the amount or timing of any other regular payment otherwise required to be made under this Interfund Loan. 6.06 The Interfund Loan is evidence of an internal borrowing by the City in accordance with Minnesota Statutes, Section 469.178, Subd. 7, and is a limited obligation payable solely from Available Tax Increments pledged to the payment hereof under this resolution. The Interfund Loan and the interest hereon shall not be deemed to constitute a general obligation of the State of Minnesota or any political subdivision thereof, including, without limitation, the City. Neither the State of Minnesota, nor any political subdivision thereof shall be obligated to pay the principal of or interest on the Interfund Loan or other costs incident hereto except out of Available Tax Increments, and neither the full faith and credit nor the taxing power of the State of Minnesota or any political subdivision thereof is pledged to the payment of the principal of or interest on the Interfund Loan or other costs incident hereto. The City shall have no obligation to pay any principal amount of the Interfund Loan or accrued interest thereon, which may remain unpaid after the final Payment Date. n 6.07 The City may amend the terms of the Interfund Loan at any time by resolution of the City Council, including a determination to forgive the outstanding principal amount and accrued interest to the extent permissible under law. ADOPTED BY THE CITY COUNCIL OF THE CITY OF SHOREWOOD this 14th day of July, 2016. ATTEST: Je n Panchyshyn, City herk EXHIBIT A TO RESOLUTION NO. 16 -052 The reasons and facts supporting the findings for the preparation and approval of the "Redevelopment Plan for Redevelopment Project No. 2" (the "Redevelopment Plan "), pursuant to Minnesota Statutes, Sections 469.001 through 469.047 and Sections 469.090 through 469.1082, inclusive, as amended (collectively, the "Act "). (the "Act "), and preparation and approval of the "Economic Development Authority of the City of Shorewood, Minnesota, Tax Increment Financing Plan for Tax Increment Financing District No. 2 a Redevelopment District (Oppidan Senior Housing Project" (the "TIF Plan "), are as follows: I. Finding that Tax Increment Financing District No 2 is a redevelopment district as defined in M.S., Section 469.174, Subd. 10. The City and Authority commissioned a study by LHB to determine the conditions of the property in the proposed TIF District contained in REPORT OF INSPECTION PROCE.DURES AND RESULTS FOR DETERMINING QUALIFICATIONS OF A TAX INCREMENT FINANCING DISTRICT AS A REDEVELOPMENT DISTRICT by LHB dated April 29, 2016 ( "LHB Report ") incorporated herein by reference and Section VI and E of the TIF Plan.) The LHB Report discloses that the District consists of three parcels with all three of the parcels containing one structure, with plans to redevelop the existing property to provide for the construction of a 105 -unit senior housing facility comprising of independent living, assisted living and memory care units, thereby assisting the City and the Authority in redeveloping existing blighted and inefficient land uses in the City to increase the tax base and retain and increase jobs in the City. An external inspection of the proposed area of the TIF District by LHB determined that parcels consisting of 100 percent of the area of the proposed TIF District being occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures, so that the coverage test requiring that at least 70 percent of the parcels in the District are so covered is met. An internal and external inspection of the buildings in the proposed District discloses that two (2) out of three (3) buildings (66.7 percent) in the proposed TIF District are structurally substandard to a degree requiring substantial renovation or clearance, because of defects in structural elements or a combination of deficiencies in essential utilities and facilities, light and ventilation, fire protection including adequate egress, layout and condition of interior partitions, or similar factors which defects or deficiencies are of sufficient total significance to justify substantial renovation or clearance. As a result of the LHB analysis, the buildings contain code deficiencies exceeding the 15 percent threshold requirement, and the cost to renovate the buildings total more than 20 percent of the replacement value of the buildings, therefore meeting the test requiring that 50 percent of the buildings in the District, not including outbuildings, are structurally substandard to a degree requiring substantial renovation or clearance. z Finally, the substandard condition of the buildings is reasonably distributed throughout the proposed TIF District. 2. Finding that the proposed development, in the opinion of the City Council, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future and that the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of Tax Increment Financing District No. 2 permitted by the TIF Plan. The proposed development, in the opinion of the City, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future: This finding is supported by the fact that the parcels in the District are occupied by two substandard buildings which is internally and externally characterized by significant code deficiencies relating to defects or substantial deterioration of mechanical and electrical systems, exterior of the structure and building components. The LHB Report determined the fifteen percent (15 %) replacement value costs for the structures in the District in order to analyze the level and extent of building code deficiencies in the structures. 66.7 percent of the buildings (2 of 3) in the District contained code deficiencies exceeding the fifteen percent (15 %) threshold required by Minnesota Statutes Section 469.174, Subd. 10(c). The proposed development requires demolition and subsequent construction of a new facility. LTJ 285, LLC (the "Redeveloper ") proposes to redevelop the property to provide for the construction of a 105 unit senior housing facility, thereby assisting the City and the Authority in redeveloping existing blighted and inefficient land uses in the City to increase the tax base and retain and increase jobs in the City. The proposed development project consists of the redevelopment of property within the City that has been found to be substandard. The Authority has identified significant public improvements associated with redevelopment of the project site in conjunction with new development. The estimated total redevelopment costs, including significant public improvements, of this property make the total cost of this effort significantly higher than costs reasonably incurred for similar developments on a clean site. The City's Financial Advisor, Springsted, Inc., has prepared Economic Development Authority of the City of Shorewood, Minnesota Redevelopment Plan for Redevelopment Project No. 2 Including Tax Increment Financing Plan for Tax Increment Financing (Redevelopment) District No. 2 draft Dated: July 14, 2016 (the "TIF Plan "). Springsted analyzed a proforma submitted by the Redeveloper, which demonstrates that the cost of demolition, hazardous waste abatement, public infrastructure improvements, site improvements and construction of the new facility make the proposed redevelopment infeasible without the tax increment assistance provided under this plan. The finding by the City and the Authority that the proposed redevelopment would be unlikely to occur solely through private investment within the reasonably foreseeable future is based on an analysis of the proforma and other materials submitted by the Redeveloper. As necessary, the Authority and City anticipate analyzing future 7 developer's proformas in detail to determine the minimal amount of assistance needed to compensate developers for extraordinary costs. The TIF, therefore, will be primarily directed to the costs of demolition, utility relocation and reconstruction and site preparation which are higher than can be supported by normal market forces in the Shorewood area. The Redeveloper has further represented to the City that it would not proceed with the redevelopment described above absent tax increment assistance. The increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the TIF District permitted by the TIF Plan: This finding is supported by the fact that the site is now occupied by one substandard building which has been vacant /underutilized and has not been developed or improved in this portion of the City. The only way that the market value of the site would increase is through substantial redevelopment similar to that proposed in this Plan. Any such redevelopment would need to address the same demolition, hazardous waste abatement and redevelopment costs that confront the proposed Redeveloper. Therefore, the City concludes as follows: a. The Authority's estimate of the amount by which the market value of the site will increase without the use of tax increment financing is anywhere from $0 to some modest amount based on small scale renovation or redevelopment that could be possible without assistance; any estimated values would be too speculative to ascertain. b. If the proposed development to be assisted with tax increment occurs in the District, the total increase in market value would be approximately $20,847,224, including the value of the building (See TIF Plan Exhibit 11). c. The present value of tax increments from the District for the maximum duration of the district permitted by the TIF Plan is estimated to be $3,053,857 (TIF Plan See Exhibit V). d. Even if some development other than the proposed development were to occur, the Council finds that no alternative would occur that would produce a market value increase greater than $17,793,367 (the amount in clause b less the amount in clause c) without tax increment assistance. 3. Finding that the Redevelopment Plan and Tax Increment Financing Plan for Tax Increment Financing District No. 2 conforms to the general plan for the development or redevelopment of the municipality as a whole. The Planning Commission reviewed the Redevelopment Plan and TIF Plan and found that they conform to the general development plan of the City. 4. Finding that the Tax Increment Financing Plan for Tax Increment Financing District No. 2 8 will afford maximum opportunity, consistent with the sound needs of the City as a whole, for the development or redevelopment of Redevelopment Project No. 2 by private enterprise. The project to be assisted by the TIF District will result in the preservation and enhancement of the tax base, the redevelopment of a substandard area of the City by removing substandard and obsolete structures, assist in providing new senior housing options within the City of Shorewood, and the retention of existing jobs and the creation of new jobs. The goals of the City include quality senior housing development and a visible impetus for new development in an underutilized area of the City which will be assisted by the Plans and their implementation in part, through the proposed development project. [The remainder of page intentionally left blank.] 0