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cp06-29-2004 c1. AGENDA HUTCHINSON CITY COUNCIL SPECIAL MF.F.TING TUESDAY, JUNE 29, 2004, b:00 P.M. ] . CALIs TO ORDER - 6:00 P.M. 2. PUBLIC HF.ARiNG (a) CONSIDERATION OF ADOPTING A MODIFICAI'lON TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT PROGRAM NO. 4 AND THE MODIFICATIONS TO THE TAX INCREMENT FINANCING PLANS FOR TAX INCREMENT FINANCING DISTRICTS NOS. S, 6, AND 7 THEREIN (ADOPT RESOLUTION NO. 12466) Action - Closc public hearing Action -Motion to reject -Motion to approve C~ 3. ADJOURN CITY OF HUTCHINSON COUNTY OF MCLEOD STATE OF MINNESOTA Council member introduced the following resolution and moved its adoption: RESOLUTION NO. 12466 RESOLUTION AAOPTING A MODiFiCATION TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT PROGRAM NO. 4 AND THE MODIFICATIONS TO THE TAX INCREMENT FINANCING PLANS FOR TAX INCREMENT FINANCING DIS'I'ItICT NOS. 5, 6, AND 7 THEREIN. AE IT 1tF,SOLV GD by the City Council of the City of Hutchinson, Minnesota, as follows: Section 1. Recitals. I.O1. The City Council (the "Council") of the City of Hutchinson (the "City") has heretofore established Development District No. 4 and adopted a Development Progam therefor. It has been proposed that the City adopt a Modification to the Development Program for Development District No. 4 (the "Development Program Modification") and adopt Modifications to the Tax Increment Financing Plans for Tax Increment Financing District No. 5, Tax Increment Financing District No. 6, and Tax Increment Financing District No. 7, all redevelopment districts located within Development District No. 4, (the "TIF Plan Modifications") therefor (the Development Program Modification and the TiF Plan Modifications are referred to collectively herein as the "Modifications"), all pursuant to, and in accordance with, Minnesota Statutes, Sections 469.124 to 469.134, and Sections 469.174 to 469.1799, inclusive as amended (the "Act"), all as reflected in the Modifications, and presented for the Council's consideration. 1.02. The City has investigated the facts related to the Modifications and has caused the Modifications to be prepared. 1.03. The City has performed all actions required by law to be performed prior to the adoption and approval of the proposed Modifications, including, but not limited to, notification of McLeod County and Independent School District No. 423 having taxing jurisdiction over the property included Tax Increment Financing llistrict Nos. S, 6, and 7, and the holding of a public hearing upon published notice as required by law. 1.04. The City is not modifying the houndaries of Tax Increment Financing ("TIF") District Nos. 5, 6, and 7. Section 2. Findings for the Modifications. 2.01. The Modifications include the clariflcatien of the boundaries of Development District No. 4. 2.02. The Council hereby finds that, taking into account all of the increments that are available r~ LJ C~ to pay qualifying obligations for TiP District No. 6, the increment from TIF District No. 6 will be insufficient to pay the amount of qualifying obligations and that the insufficiency is a result of (i) changes in the class rates and (ii) elimination of the state-determined general education property tax levy under Laws 2001, First Special Session chapter 5. This finding is supported by the analysis in Exhibit A. 2.03. The Council hereby reaffirms the original findings for the TIF District No. 5, established as a "redevelopment tax increment financing districC'. The TIF Plan Modifications for TIF District No. 5 are to enable the City to capture an increased amount of tax increment in T1F District No. 5 by unfreezing the local tax rate that is applied against the captured tax capacity in TIF District No. S. The additional increment will be available for pooling to TIF District No. G, pursuant to Minnesota Statutes, Section 469.1792, Subd. 3(a). The budget for TIP District No. 5 is being modified in order to allow for pooling to TiF District No. 6. The Council hereby elects that the original local tax rate under Minnesota Statutes, Section 469.177, Subd. 1(a), does not apply to TIF District Nn. 5. The TIP Plan Modifications do not include any enlargement of the boundaries of TIF District No. 5 nor do they include changes to the term of TIF District No. S. 2.04. The Council hereby reaffirms the original findings for TIF District No. G, established as a "redevelopment tax increment financing district ". The TIP Plan Modifications For TIF District No. 6 are (i) to enable the City to capture an increased amount of tax increment in TIF District No. 6 by unfreezing the local tax rate that is applied against the captured tax capacity in TIP District No. 6, (ii) to clarify the budget, and (iii) to enable the City to capture an increased amount of tax capacity in TIF District No. G by authorizing the extension to the life of TIF District No. 6 of up to four years. The extension of the duration of TIF District No. 6 is expected to pay for expected deficits resulting from class rate compression, pursuant to Minnesota Stahrtes, Section 4G9.1792, Subd. 3(a). The extension of TIF District No. 6 will only be effective in the event that, after pooling all available increments from other districts, the increment available to pay qualifying obligations for TIP District Nn. 6 is actually insufficient. T'he TIF Plan Modifications for TiP District No. 6 do not include any enlargement of the boundaries ofT1F District No. 6. 2.05. 'fhe Council hereby reaffirms the original findings for TIF District No. 7, established as a "redevelopment tax increment financing district". The TIF Plan Modifications for 'f IF District No. 7 are to enable the City to capture an increased amount of tax increment in TIP District No. 7 by unfreezing the local tax rate that is applied against the captured tax capacity in TIF District No. 7. The additional increment will be available for pooling to TIF District No. G, pursuant to Minnesota Statutes, Section 469.1792, Subd. 3(a). The budget for TIF District No. 7 is being modified in order to allow for pooling to TIF District No. G. The Council hereby elects that The original local tax rate under Minnesota Statutes, Section 469.177, Subd. 1(a), does not apply to TIP District No. 7. The Modifications do not include any enlargement of the boundaries of TIF District No. 7 nor do they include changes to the term of T1F District No. 7. 2.OG. Council hereby finds that the Modifications are intended and, in the judgment of this Council, the effect of such actions will be, to provide an impetus to accomplish certain nl?jectives as specified in the Modifications, which are hereby incorporated herein. The Council further finds that the Modifications conform to the general plan for the development or redevelopment of the City as a whole; and that the Modifications will afford maximum opportunity consistent with the sound needs of the City as a whole, for the development or redevelopment of the District by private enterprise. Section 3. Public Purpose. 3.01. The adoption of the Modifications conform in all respects to the requirements of the Act and will afford maximum opportunity, consistent with the sound needs of the City as a whole, for the development nr redevelopment of the project area by private enterprise in that the intent is to provide only that public assistance necessary to make the private developments financially feasible, and thereby serves a public purpose. Section 4. A royal and Ado lion of the Modifications- Filin . 4.01. Conditioned upon the approval thereof 6y the Council following its public hearing thereon, the Modifications, as presented to the Council on this date, are hereby approved, established and adopted and shall 6e placed on file in the offce of the City Administrator. 4.02. Upon approval of the Modifications 6y the Council, the staff, the City's advisors and legal counsel are authorized and directed to proceed with the implementation of the Modifications and for this purpose to negotiate, draft, prepare and present to this Council for its consideration all further Modifications, resolutions, documents and contracts necessary for this purpose. Approval of the Modifiications does not constitute approval of any project or a Development Agreement with any developer. 4.03 Upon approval of the Modifications by the Council, the City Administrator is authorized and directed to forward a copy of the Modifications to the Minnesota Department of Revenue pursuant to Minnesota Statutes 469.175, Subd. 4a. 4.04. The City Administrator is authorized and directed to forward a copy of the Modifications to the McLeod County Auditor. The motion for the adoption of the foregoing resolution was duly seconded by Council member and upon a volt being taken thereon, the following voted in favor thereof: and the following voted against the same: llated: June 29, 2004 AT'1"lJST: Marlin Torgerson, Mayor Gary Plotz, City Administrator (Seal) t.. J C~ As njJune 21, 2004 Draft for City Council Review MODIFICATION TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT DISTRICT NO. 4 CITY OI' HUTCHINSDN COUNTY DF MCLEDD STATE OF MINNESOTA I'uUlic Hearing for Modification: Tune 29, 2004 Modification Adopted: E H L E R S Prepared 4y: FREERS & ASSOCIATES, INC. 3D60 Centre Pointe Drive, Roseville, Minnesota 55113-1105 e a s s o c i n r r s ~ h r. 651-697-85D0 fax 651-697-8555 www.ehlers-inc.com L ~~ TABLE ~FC~NTENTS (for reference purposes only) MODIFICATION TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT DISTRICT ND. 4 ................... . ....................... 1 Subsection 1.1 Background ............................................... 1 Subsection 1.2 Modifications to the Development Program ..................... . 1 Subsection 1.3 Boundaries of Development District No. 4 ....................... 1 APPENDIX A MAP OF DEVELOPMENT DISTRICT NO. 4 .................................. A MODIFICATION TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT DISTRICT NO. 4 Subsection 1.1 Background The City of Hutchinson (the "City") has, pursuant to Mrnnesata Statures ("M.S. ), Sections 469.124 ra 4h9.134, inclusive, as amended (the "Development District Act"), approved a Development Program for Development District No. 4 (the "Dcvclopmcnt Program") in the Ciry. This document was prepared to modify the Development Program that was adapted by the City Council in May, ] 980 and mndi ficd on April 24, 1990, December 30, 1991, and May 13, 1999. The changes herein are intended to clarify the existing Developtent Program and modifications already on file with the Ciry of Hutchinson. Subsection 1.2 Modlflcations to the Development Program The City amends the Development Program pursuant to the Development District Act to clarify that the City is authorized to undertake activities with respect to the redevelopment of the property located at 35 Washington Avenue li„ parcel number 23-056-3400, which is included in the Tax Increment Financing District No. 13. Tax Increment Financing District was established by a public hearing on July 8, 2003. Certain costs of such rcdcvclupment arc proposed to be paid or reimbursed from tax increment tv be derived from Tax Increment Financing District No. 13. Subsection 1.3 Boundaries of Development District No. A The boundaries of Development District No. 4 are being recognized, based nn prior action, to include al] properties and adjacent rights-of--way identified in all Modifications to Development District No. 4 dated through May 13, 1997, plus by the parcel listed as 23-056-3400. City uC Hutchinson Modi}ieatian to thr DevelopmeN pmgrem rot Development Uistncl No, 4 L~ nrr~.Nnix APPENDIX A MAP OF DEVELUPMEN7' DISTRICT NO. A r~ L~ U 9 I qIr E Ell x LEI E F11 Rff 1 71 1 1 11 t.7�nllll!�2ttl L q � I � �� 1 I II T�Af I 1 41 7-L I 1.. -L `... r � � � � �, ',1 C-1 F 9 11sK " HI jj1 a r7 11 1 1 l�—.. 1 I ifil IJ lA i I 11 Jk-Ij I J I altg r _ jH t �14l IT Q ]IF i T73.� ..... rl,i7 ,- Ii FI . - I .�j __ — il ! � I I L J, j 11, 7 J�l III—Tir, ,, , I—, r I LI'T . .. ....... qIr E Ell x LEI E F11 Rff 1 71 1 1 11 t.7�nllll!�2ttl L q � I � �� 1 I II T�Af I 1 41 7-L I 1.. -L `... r � � � � �, ',1 C-1 F 9 11sK " HI jj1 a r7 11 1 1 l�—.. 1 I ifil IJ lA i I 11 Jk-Ij I J I altg r _ jH t �14l IT Q ]IF i T73.� ..... rl,i7 ,- Ii FI . - I .�j __ — il ! � I I L J, j 11, 7 J�l III—Tir, ,, , I—, r As q/Jnne 21, 2004 Draft for City Caunci! Review MODIFICATION TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 5 (a redevelopment district) located within DEVELOPMENT DISTRICT N0.4 CITY OF HUTCHiNSON COUNTY OF MCLEOb STATE OF MINNESOTA Public Hearing For Modification: Tune 29, 2004 Modification Adopted: E H L E R S Prepared by: FREERS & ASSOCIATES, INC. 3060 Centre Pointe Prive, Roseville, Minnesota 55113-1105 e n 5 ti 0 L i a T E 5 i rv c 659-697-8500 fax: 651-697-8555 vroxv.ahlers-inacom ~ .~ r1 LJ TABLE OF CONTENTS (for reference purposes only) MODIFICATIpN TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT Np. 5 ....................... ......... 1 Subsection 1.1 Foreword ........................................ ......... 1 Subsection 1.2 Statutory Authority ................................. ......... 1 Subsection 1.3 Statement of Objectives ............................ ......... 1 Subsection 1.4 Duration of the District .............................. ......... 2 Subsection 1.5 Sources of RevenuelBonded Indebtedness ............. ......... 2 Subsection 1.6 Uses of Funds ... . ...... . ......................... ......... 3 Subsection 1.7 Estimated Impact on Other Taxing Jurisdictions .......... . . ...... . 4 APPENpIX A MAPS OF TAX INCREMENT FINANCING DISTRICT NO. 5 ..................... A MODIFICATION TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 5 Subsection 1.1 Foreword The following text represents a Modification to the Tax Increment Financing Plan (the "TIF Plan") for Tax Increment Financing District No. 5 (the "TIF District"). Subsection 1.2 Statutory Authority Within the City, there exist areas where public involvemem is necessary to cause development or redevelopment to occur. To this end, the City of Hutchinson (the "City")has certain statutory powers pursuant to Minnesota Statutes ("M.S.'), Sections 469.124 to 469.134, inclusive, as amended, and M.S., Sections 469.174 to 469.1799, inclusive, as amended (the "Tax Increment Financing Act" or "TIP Act"), to assist in financing public costs related to this project. Subsection 1.3 Statement of Objectives The main objective of the modification to the TiF Plan is to enable the City to capture an increased amount of tax increment in the TIF District by unfreezing the local tax rate which is applied against the captured tax capacity in the TIF District. The additional increment will be available for special deficit pooling to Tax Increment Financing District Ne. G (the "Deficit TIF District"). Between 1997 and 2001 the Minnesota State Legislature made several changes to the property tax code, including the "compression" oftax capacity rates. These changes reduced the amount of increment enllected in tax incrementdiscrictscontainingcommcrcial,industrial,andmultifamilyresidentialproperties. Asaresult, many districts began experiencing deficits in 2002 and 2003. The Legislature in 2001, 20U2, and 2003 provided cities with certain remedies to offset property tax class rate compression. The City is electing that the original Incal tax rate dots not apply [o [he TIF District as allowed by MS., Section 469.1799, Subd. 3. Pursuant to MS., Section 4h9.177, Subd. la, when a tax inurement district is First cenified, the Counry Auditor sets an original local tax rate (or "frozen rate") which is the combined rates of the city, county, school district, and other minor taxing jurisdictions for that particular tax year. During the life of the TIF district, the County Auditor uses the lesser of the original local tax rate nr the combined Inca) taxing districts tax rate to calculate tax increment payments. When the current local tax rate is higher than the original local tax rate, the amount of taxes received by the Cnunly Auditor on the difference between the currcm Incal tax rate and the original local tax rate are redistributed to the major taxing jurisdictions in an amount which is proportional to their increase in tax rates. The original local tax rate for the TIF District is 122.412%. The current Inca) tax rate For taxes Payable 2004 is 149.336%. As a result of this modification, an additional $17,400 of increment will he distributed to the TIF District based on the 2003/Pay 2D04 local tax rate. The City is required under MS., Section 469.1792, Suhd 3h and MS., Section 469.175, Subd. 2 to notify the affected county and school district at least 30 days prior to the holding of a public hearing on the modification of the TIF District. The public hearing is scheduled far June 29, 2004. Ciry nrxmchinson Mwlilicmi°n w the Tox L~oremenl Financing Plan for Tax Increment Financing nisvicl N°.5 1 Subsection 1.4 Duration of the District Pursuant to M.S., Section 4!9.175, Subd. 1, and Section 469.176, Subd. 1, the duration o£thc Districts must be indicated within the TIF Plan. This modification does not change the term of the TIF District. The first incrcmcnt was received in 1994. Thus, it is estimated that the TIF riistrict, including any modifications of the TIF Plan for subsequent phases or other changes, would [ertninate after 2019. Subsection 1.5 Sources of Revenue/Bonded Indebtedness The City reserves the right to incur bonded indebtedness or other indebtedness as a result of the TIP Plan. The total principal amount of bonded indebtedness or other indebtedness related to the use of tax increment financing will not exceed $1,200,000 without a modification to the TIF Plan pursuant to applicable statutory requirements. It is estimated that $1,200,000 in bonded debt will be financed with lax increment revenues. It is estimated that $200,000 in in[erfimd loans will be financed with tax incrcmcnt revenues. The sources and uses of funds in this modifcation (dated Tune 29, 2004) are cumulalivc. The estimated sources of funds for the TIF District is contained in the table below. SOURCES OF FUNDS Tax Increment $3,500,000 Other $200,000 Land Sale Proceeds $130,000 Transfers In $820,000 Interest $300,000 Interfund Loan $200,000 IIond Proceeds $1,200,000 1'1tO.INC'I' ItEVh:Nl1ES $6,350,000 Tax incrcmcnt revenue includes tax incrcmcnt pooled from other districts under special deficit pooling authority. Cily of IlWChinson Modification [n the Tax Increment Financing Plan for Tax Increment Financing UieMcl No. 5 Subsection 1.6 Uses of Funds The estimate of public costs and uses of funds associated with the TIF District is outlined in the following table. USES OF FUNDS LandBuilding acquisition $1,600,000 Transfers Out $5,000 Public Improvements $0 installation of Public Utilities $U Demolition and Relocation $1,000,000 Interest on Bonds $1,350,000 Interest on Interfund Loans $250,000 Administrative Expenses $400,000 Other -Pooling for Deficits to TIh' District No. 6 $345,000 Sub-total $4,950,000 Intcrfund Lnan $200,000 Bond Principal $1,200,000 TOTAL $6,350,000 It is estimated that the cost of improvements, including administrative expenses and pooling For deficits, that will be paid or financed with tax increments, will cyual $4,950,000 as is presented in the budget above. City of Ilmthinsun Mudi4cntien m the Tex tnerement Financing Plen for Tex Increment FimmCing Uixtricl NU. $ 3 r~ L~ ~~ L Subsection 1.7 Estimated Impact on Other Taxing Jurisdlctlons The £sca] impacts are demonstrated in the following table. It is likely that without pooling to the Acficil TiF District, the TIF District would have been decertified prior to the maximum expiration date allowed by law. IMPACT ON TAX BAS>r Pay 2004 Total Pay 2004 Captured Pcrcent of CTC Nct '['ax Capacity Tax Capacity (CTC) to Entity T9ta1 McLeod County 21,530,245 64,628 Q3002% City of Hutchinson 7,937,112 64,628 0.8143"/° ISD No. 423 10,755,023 64,628 0.6009% IMPACT ON TAX RATES Pay 2004 Percent Potentinl Extension Rates of oral CTC Taxcs Mcl.cod County 0.632560 42.36% 64,628 40,881 City of Hutchinson 0.615540 41.22% 64,628 39,781 ISD Nn. 423 0.230940 15.46"/° 64,628 14,925 Other 00 14320 0.9G% 64,628 92~ Total 1.493360 100.00% 64,628 96,513 The tax rates used for calculations are the Pay 2UU4 rates. The total net capacity for the entities listed above are haled nn Pay 2(704 figures. City of Hutchinson M°drficetien w the Tex Increment Fin°ncing Flun fnf Tflx In°remen[ Financing District No. 5 4 APPENDIX A MAPS OF TAX INCREMENT FINANCING DISTRICT NO. 5 AVMtNUIX A Tax Increment Districts - I If~f~7"I:: is-. - i:l -~I .., ~~ ~ ~~~.~ ~. `~•1..~. ~..`,k ,.p., ,~ lir5 ~,='-Ili c I! -. r+ ~ T.. ,. , jr ~ I ~ .., `~~'' ,~,r ~ =Tr ,:, ~,~:, .~, a{ I ~~IT'~I~'~~r~, it ;t, ~. f:.LI'i'I*II'l~~J I f.:,-~-~ i l r i1ti.~.=_jC ----:1~~9i~1-I I[:~~Il,~l:~..lflill~r. -~ I ~~ i ~ 'L~~.rl.ii:_~,;.!J 'rpi.l i~1~4,;~-1I r r-° rr I,LI~i I II III 1 it ~.-\ III I,~ I, i;~~~G.i„~~: ~~' I ~I~~ I~ III ,{ 4 ~~I ` ~ 111 I' =-~i~ _:j r- _~_ .,i i, un:r..r ~i ~i_~.a'.. TAI 1.~-l L~~. i V I I,iICI ,1, ..~;, , I ~,', ~ ;~~. .'1_'. ~'.1_I:,fi-[!~filll'vil'Y'."Ilr.:' J ~; - ;I~--.... r': 1111 •'L t.,.i if {.r ,:~~~~ it I=1f -~ I E_i w4.. ' ~,. ..I '~L, ~ 't ~. rT; t__. _ -. ~~ti \~'~ ~ Id~?~`'~~~ ~E'L,~:, .rr~, .., ~>~ ~~ fh~li~. >~', ili:::r L.:. 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S3. ~'; '~ ~<' ~~ r I As ofJuxe 11, 1004 Draft for City Council Review MODIFICATION TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 6 (a redevelopment district) located within DEVELOPMENT DISTRICT N0.4 . ~4~` CITY OF HUTCHINSON COUNTY OF MCLEOD STATE OIL MINNESOTA Yuhlic Hearing for Modification: 7unc 29, 2004 Modification Adopted: E H L E R S Prepared by: FREERS 8 ASSOCIAtES, INC. 3060 Genire Ppinie Drive, Rpseville, Minnesota 55113-1105 a n s s o c i n r s s I n c fi51-697-8500 fax: 657-697-8555 www.ehlers-inacom r~ u TABLE OF CONTENTS (for reference purposes only MODIFICATION TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 6 ................... ......... 1 Subsection 1.1 Foreword ........................................ ......... 1 Subsection 1.2 Statutory Authority ................................. ......... 1 Subsection 1.3 Statement of pbjectives ........................ . ... ......... 1 Subsection 1.4 Duration of tha District .............................. ......... 2 Subsecticn 1.5 Sources of Revenue/Bonded Indebtedness ............. ......... 2 Subsection l.6 Uses of Funds .................................... ......... 3 Subsection 1.7 Estimated Impact on Other Taxing Jurisdictions .......... ......... 4 APPENDIX A ANALYSIS pF RATE COMPRESSION AND DEFICIT FOR TAX INCREMENT FINANCING DISTRICT Np. 6 .......................... A APPENDIX B ESTIMATED CASH FLOW FOR TAX INCREMENT FINANCING bISTRICT NO. 6 .... B APPENDIX C MAPS OF TAX INCREMtNT FINANCING DISTRICT NO. 6 ..................... C MODIFICATION TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 6 Subsection 1.1 Foreword 7 he following text represents a Modification to the Tax Increment Financing Plan (the "TIF Plan") for Tax Increment Financing District No. 6 (the "TIF bistrict"). Subsection 1.2 Statutory Authority Within the City, there exist areas where public involvement is necessary to cause development or redevelopment to occur. To this end, the City of Hutchinson (the "City")has certain statutory powers pursuant to Minnesota Statutes ("MS. ), Sections 469.124 to 469.134, inclusive, as amended, and MS., Sections 469.174 to 469.1799, inclusive, as amended (the "Tax Increment Financing Act" or "TIF Act"), to assist in financing public costs related to this project. Subsection 1.3 Statement of Objectives The main objective of the modification to the TIF' Plan is to enable the City to capnue an increased atnount of tax increment In the TIF District by unfreezing the local tax rate, pooling from other TIF districts, and if these remedies arc not sufficient, extending the life of the TIF District up to Tour years. Hetwcen 1997 and 2001 the Minnesota State Legislature made several changes to the property tax code, including the "compression" of tax capacity rates. These changes reduced the amount of increment collected in tax increment districts containing commercial,Industrial,andmultifamilyresidentialproperties. Asaresult, many districts, including the TIF District, began experiencing fund balance deficits. The l..egislalure in 2001, 2002, and 2003 provided cities with certain remedies to offset property tax class rate compression as outlined in MS., Scc•tiuns 4h9.1792 thrnu~h 4h9.I794. First, the Ciry is authorized to pool increments from other tax increment districts to the TIP District to pay For outstanding obligations. Second, the City is electing that the original local tax rate does not apply to the TIF District as allowed by M.S., .Section 469.1794, Subd. 3. Pursuant to MS., Section 469.177, Subd. 1 n, when a tax increment district is first certified, the County Auditor sets an original local tax rate (or "frozen rate") which is the combined rates of the city, county, school district, and other minor taxing jurisdictions for that particular tax year. During the life of the TIF district, the County Auditor uses the lesser of the original local tax rate yr the combined local taxing districts tax rate to calculate tax increment payments. When the current local tax rate is higher than the original local tax rate, the amount of taxes received by the County Auditor nn the difference between the current local tax rate and the original Incal tax rate arc redistributed to the major taxing jurisdictions in an amount which is proportional to their increase in tax rates. The original local tax rate for the TIF District is ] 47.230%. The current local tax rate For taxes Payable 2004 is 149.336%. Asaresult of this modification, an additional $370 of increment will he distributed In the TiF District based on the 2003/Pay 2004 local lax rate. Third, to increase the amount of tax increment revenue over the life of the district, the City is proposing to extend the term of the TIF District to pay far deficits in the TIF District balances. A city may extend a district up to a maximum of Four years to pay far qualifying obligations. The actual allowable duration extension is based upon a formula which measures the amount of class rate compression resulting from property tax changes that affected the income of the district. The other factor in the formula is the remaining term nfthe Gry of Hwedinson Mudificaliun 1a the'1'nx Increment Financing Pten for Tax Increment rinencing Uiatncl No. 6 1 TIF District. The basis for the calculations are described below: clry m nutchlneen Calruytlpn m Maximum Fxtenslan m TIF olalrltt m Fund UvBclh Verve Payable 7007 Payeme 2x02 Payable 2003 Average m Tex Remelnlrlg Eeumeletl 2001 ]007 Taxae an 2007 2002 Taxes an 2007 71103 Taxes an 1(10].200$ RMerrn In OlsMlet Mazlmum Reuntlad ease TC Tex Rate fleee 7C ease TC Tax RvM1 Baca TC sees TC Tex rUte ease TC Tax Pvrwnt otter 17/81/07 Extension Tv TIFB 12,722 1.46353 16,819 7,818 1.4%10 11,080 7,616 1.83842 72,478 11,786 38.71% 18 6.61 ayeare Pursuant to M S, Seciian 469.1764, before the district can be cxte,Ktded, the following conditions must be met: (a) the original local tax rate has been "unfrozen' ;and (b) the City has transferred any available increment from other districts. Therefore, the extension of the TIF District will only be effective in the event that, after pooling all available increments from other districts, the increment available to pay qualifying obligations far the District is actually insufficient. The City is required under M.S., Section 469.1792, Subd. 36 and M.S., Section 469.175, Subd. 2 to notify the affected county and school district at least 30 days prior to the holding of a public hearing on the modification of the T1F District. The public hearing is scheduled for lone 29, 2004. Effects of Rate (:ompression The City expects in 2004 that the tax increment revenues will be approximately $25,962 based upon tax increment reports from McLeod County. The debt service in 2004 for pre-existing General Obligation Tax Increment Bonds will be $55,912. Therefore the net annual shortfall for 2UU4 will be approximately $29,950, plus administrative expenses. The TIF District has a fund balance of approximately $4,915 to cure a portion of the shortfall, but will be left wi[It a deficit of approximately $24,688 at the end of 2004 (see Appendix ]3). Appendix A demonstrates that the increments from the TIF District are insufficient to pay preexisting obligations as a result of the class rate changes adopted by the Minnesota State Legislature between 1997 and 2001. In Appendix B, the City demonstrates that these annual shortfalls are expected to continue through 2019, the original term of the district. Subsection 1.4 Duration of the District Pursuant to M.S., Section 469.175, Subd. J, and Section 469.176, Subd. 1, the duration of the TIF District must be indicated within the TIF Plan. The first increment was received in 1995. Thus, it is estimated that without an extension, the TIF DisWet will terminate December 31, 2020.'1"his modification provides for and may result in a four year extension to the term nfthe TIF District from December 31, 2020 to December 31, 2024. Subsection 1.5 Sources of Revenue/Bonded Indebtedness This modification does nn[ contemplate any increased budgetary authority because the purpose is to recapture tax increments which were last due to class rate compression. The estimated amount of increment in the original budget will include increment pooled from other districts. The City reserves the right to incur hooded indebtedness or other indebtedness as a result of the TIF Plan. The total principal amount of bonded indebtedness or other indebtedness related to the use of tax increment financing will not exceed $1,200,000 without a modification to the TIF Plan pursuant to applicable statutory requirements. It is estimated that $1,200,000 in bonded debt will be financed with tax increment revenues. City of Iluahinxan Modificfltion to the Tux Increment Financing Plan Ynr Tax Increme0t Financing t)istriG Nn. fi 2 C7 It is estimated that $700,000 in interfimd loans and/or transfers will be financed with tax increment revenues. The sources and uses of fiords in this modification (dated 7unc 29, 2004) arc cumulative. The estimated souruca of funds for the TIF District is contained in the table below. SOT.7RCE$ OF FiJNAS Tax Increment $1,400,000 Interest $40,000 Other $615,000 Transfers In $280,000 Bond Proceeds $1,200,000 Interfund Leans $700,000 PR03ECT REVENUES $4,235,000 'Tax increment revenue includes tax increment pooled from other districts under special deficit pooling authority. Subsection 1.6 Uses of Funds The estimate of puhlic costa and uses of funds associated w ith the TIF District i5 outlined in the following table. USES OF FUNDS Land/I3uildingAcquisition $1,275,000 Site Improvements $0 Public Intproventents $0 Installation of Pnblic Utilities $0 Demolition and Relocation $0 Interest on bonds $550,000 Interest nn Interfund ].owns $310,000 Administrative Expenses $200,000 Sub-total $2,33.5,000 Bond Principal $1,200,000 Interfund Loans $700,000 TOTAL $4,235,000 It is a stimated that the cost of impmvcments, including administrative expenses, which wi I I he paid or financed with tax increments will equal $2,335,000 as presented in the budget ahnve. Coy of Hutchinson Mndifice~inn to the Tez Inn~ement Finandng Plwn for Tax Incremew Financing pisvict Nn. ! 7 Supsection 1.7 Estim ated Impact on Other T axing Jurisdictions There is na new development pr oposed in the TIF District. The TIF District will be extended up tU Tour ycarS. This modification will increase the term of the TIF District from December 31, 2012 to Dcccmber 31, 2016. IMPACT ON TAX BASE 2003/2004 Total Estimated Captured Percent of CTC Net Tax Capacitv Tax Capacity fCTCI to Entity Total McLeod County 21,530,245 17,634 0.0819% Hutchinson 7,937,112 17,634 0.2222°/u Hutchinson ISD No. 423 10,755,023 17,634 0.1640% IMPACT pN TAX RATES 20D3/2004 Pcrccnt Poten' Extension Rates of Total CT Taxes McLeod County 0.632560 42.36"/° 17,634 11,155 City ofHutchlnsUn 0.615540 41.22% 17,634 10,854 Hutchinson iSD Nn. 423 0.23094D 15.46"/° 17,634 4,072 Other OA1432U D.96% 17.634 253 Total 1.493360 100.00% 26,334 The tax rate used for cslculations is the 2003/Pay 2(104 rite. The total net capacity for the entities listed above are based on Pay 20D4 figures. City of Hutchinson Modification to the Taz Increment Financing Plan far Tax Increment Financing niptrict N°. 6 4 APPENDIX A ANALYSIS OF RATF. COMPRf:SSION AND DEFICIT FOR TAX INCREMENT FINANCING DISTRICT NO. G FIU'I'CIIINSON TAX INCREMENT FINANCING DISTRICT N4. F Hypothetical lax Capacity Using Pay 1997 Actual Difference Class Rates Pav 2002 From 1997-2002 Original Tax Capacity 17,642 7,616 Current Net Tax Capacity 70,289 30.506 Captured Net Tax Capacity 52,647 22,890 29,757 Local Tax Rate -Pay 2003 1.45610 Local Tax Rate -Pay 2004 1.49336 Lass of Increment for Pay 2003 Oue to Rate Compression 43,329 Loss of Increment for Pay 2004 Due to Rate Compression 44,438 Shortfall In Pre-Existing Q611gations Pav 2003 Pav 2004 Expected TIF 25,677 25,962 Pre-Existing Obligations (G.O. TIF Bonds Series 1992) 52,913 55,912 Shortfall in pre-existing obligations -27,238 -29,950 nrrF.Nnix n APPENDIX B ESTIMATED CASH FLOW POR TAX INCREMENT FINANCING DISTRICT NO. 6 Clty o} Hutchinson, MN lax Increment Flnencing Olatrlcl8 Tax TIF 8 71F from Paobd peoNd Leaa: Leae: Inveatmont Annual P-O. TIF Collection Projected Onfroozinq Ineromam~ ' Ineram~M Admin Exp Audlmr Eerninga Not Benda Annual Year Ravanuea Tex Nato From YIF M7 From TIF N6 10% 0.500% 1.SOOYe Nevonuas 1892 Change 8alenca (1) (z) s 4 6 (fi) 171 Is) 9 110) 111 tx 4,975 2004 25,962 370 . 0 26,000 (4,596) (132) 74 48,878 52.813 (4,235) 880 2005 25,962 370 0 ' ~' 26,000 (2,596) (132) 10 48,614 S5.B12 (7,299) (6,618) 2006 25,962 370 0 '~ 18,000 (2,598) (132) 0 41,804 44,046 (2,442) (9,080) 2007 25,962 370 18,000 0 (2,598) (131) 0 0.1,804 42,478 (874) (9,93A) 2008 26,982 370 18,000 ~ 0 (2,598) (132) D 41,800. 40,896 708 (9,225) 2009 25,982 370 18,000 D (2,586) (132) 0 41,604 38.309 2,295 18,930) 2010 25,862 370 18,000 0 (2,596) (132) 0 41,804 42,555 (951) p,8B1) 2011 25,962 370 18,000 0 (2,596) (132) D 41,804 45,475 (3,871) (11.752) 2012 25,982 370 18,000 0 (2,5y6) (132) 0 41,804 43,235 (9,831) (13.303) 2013 25,982 370 18,000" 0 (2,596) (132) 0 41,604 40,895 809 (12,774) 2014 25,982 370 - ~ 18A00 0 (2.596) (132) 0 41,604 39,738 2,888 (9,906) 2015 25,982 370 18,000 12,000 (2,590) (132) 0 53,604 49,300 12,304 2,387 2018 25,982 370 0 0 (2,598) (132) 36 23,640 23,64p 26,037 2017 2$,962 370 0 ~ 0 (2,588) (132) 361 23,995 23,885 50,031 2018 25,962 370 0 0 (2.586) (132) 750 24,355 24,355 74,386 2019 25,962 370 ~ 0' 0 (2.598) (132) 1,1 t6 24,720 24,720 99,106 2020 25,982 370 .0 0 (2.596) (132j 1,487 25,081 25,091 124,197 441,364 6,290 182,000 80000 (44,135 (2,238 3,883 647,134 527,852 119,282 APPENDIX APPENDIX C MAPS OF TAX INCREMENT FINANCING DISTRICT NO.6 nrrsNnix Tax Increment Districts N W~ I So~'rti a I FORK zNO AvE Nw ' ~ I Iii FIR51 HVE NW ::: . n '~ ii iiii~~ o ~ ~ ~' ~ ~ i ~ ::::::::: WASHINGTON AVE W ::: AV :E~::: ... B .. .........:::: N ~i ~ i vwi N 2 ZZZ ~ ' FlpsT nvE F~ReT AVE Rw 9E I ~ Y SCCOND I AVE sw secoNO Ave sE THIRD AVE I SE I ~ TM/1n DII~MrII~~ sw, FOURTH AVE ' D#5 ~ ~ D#6 ~ ~ AVE SW FIFTH AVE Tax Increment Fnancing District Nos. 5, fi, and 7 6evelopment District No. 4 City of Hutchinson McLeod County, Minnesota _- t- - - _ - _ _ r.> - ~~ / - `t _~ ~ -: -_ --- _-~ /. r ter:- _ _ ~ ___- = t , ., _ _ , ._-~ L_ - - _ - _ - - - - . - _ - - - _ _- _ ~. . ... _ _ i _- `, ~-..`1 , 1~. ~ ~`% As of June 21, 2004 Uraft,for City Cnunci7 Review MODIFICATION TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 7 (a redevelopment district) located within DEVELOPMENT DISTRICT NO.4 CITY OF HUTCIIINSDN COUNTY DF MCLEOD STATE DF MINNESOTA Public I-fearing for Modification: lunc 29, 2004 Modification Adopted: u ~ C p ~+ Prepared hy: FREERS & ASSOGIA7ES, INC. f/ C Il a7 3060 Cenlre Pointe give, Roseville, Minnesota 55113.1105 s a s s n c i n* c s i rv c 651-687-8500 fax: 651.697-8555 www.ehlers-Inc.com r ~. TABLE OF CONTENTS (for reference purposes only) MODIFICATION Tp THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 7 ................... . . . . ......... 1 Subsection l.1 Foreword ........................................ ......... 1 Subsection 1.2 Statutory Authority ................................. ......... 1 Subsection 1.3 Statement of pbjectives ............................ ......... f Subsection 1.4 Duration of the District .............................. ......... 2 Subsection 1.5 Sources of RevenuelBonded Indebtedness ............. ......... 2 Subsection 1.6 Uses of Funds .................................... ......... 2 Subsection 1.7 Estimated Impact on Other Taxing Jurisdictions .......... ......... 3 APPENDIX A MAPS OF TAX INCREMENT FINANCING DISTRICT NO. 7 ..................... A ~J MODIFICATION TO THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 7 Subsection 1.1 Foreword The following text represents a Modification to the Tax Increment Financing Ylan (the "TIF Plan") for Tax Increment Financing District No. 7 (the "TIF District"). Subsection 1.2 Statutory Authority Within the City, there exist areas where public involvement is necessary to cause development or redevelopment to occur. To this end, the City ofI3utchinson (the "City")has certain statutory powers pursuant to Minnesota Stanttes ("M.S. ), Sections 469.124 to 969.139, inclusive, as amended, and MS., Sections 469.174 to 469.1799, inclusive, as amended (the "Tax Increment Financing Act" or "TIF Act"), to assist in financing public costs related to this project. Subsection 1.3 Statement of Objectives The main objective of the modification to the TIF Plan is to enable the Cily to capmrc an increased amount of tax increment in the TIF District by unfrecring the local tax rate which is applied against the captured lax capacity in the TIF District. The additional increment will be available for special deficit pooling to Tax Increment Financing District No. 6 (the "Deficit T1F District"). Between 1997 and 2001 the Minnesota State Legislature made several changes to the property tax code, including the "compression" of tax capacity rates. Thcsc changes reduced the amount of increment collected in tax increment districts containing conunercial, industrial, and multifamily residential properties. As a result, many districts began experiencing dcicits in 2002 and 2003. The Legislahue in 2001, 2002, and 2003 provided cities with certain remedies to offset property tax class rate compmssinn. The City is electing that the original local tax rate does not apply to the TIF District as allowed by M.S., Section 469.1794, Subd. 3. Pursuant to MS., Section 469.177, Subd. la, when a tax increment district is first certified, the Cnunry Auditor sets an original local tax rate (or "frozen rate") which is the combined rates of the city, county, school district, and other minor taxing,jurisdictions for that particular tax year. During the life of the TIF district, the County Auditor uses the lesser of the original local tax rate or the combined local taxing districts tax rate to calculate tax increment payments. When the current local tax rate is higher than the original local tax rate, the amount of taxes received by the Cnunry Auditor nn the difference hctwcen the current local tax rate and the original Inca] tax rate are redistributed to the major taxing jurisdictions in an amount which is proportional to their increase in tax rates. The original Incal tax rate for the TIF District is 147.230°/a. The current local tax rate for taxes Payable 2004 is 149336"/n. As a result of this modification, an addition $277 of incretent will be distributed to the TIF District based on the 2003/Pay 2004 local tax rate. The City is required under M.S., Section 469.1792, Subd. 3b and MS., Section 469.175, Subd. 1 to notify the affected county and school district a[ least 30 days prior to the holding of a public hearing on the modification of the TIF District. The public hearing is scheduled for Tune 29, 2004, Ctty of Hutchmsnn M"Aification b the Tax Increment Finflneing rhm fur Tax Increment l~inuncing 1)is[oct Nu, 7 1 Subsection f.4 Duration of the blstrlet Pursuant to M.S., Section 469.175, SuBd. 1, and Secrinn 469.17h, Suhd. 1, the duration of the Districts must be indicated within the TIF Plan. This tnodification does not cltattge the term of the TIF District. The first increment was received in 1995. Thus, it is estimated that the TIF District, including any modifications of the T1F Plan far subsequent phases or other changes, would temtlnate after 2020. Subsection 1.5 Sources of Revenue/Banded Indebtedness The City reserves the right to incur bonded indebtedness or other indebtedness as a result of the T'1F Plan. The total principal amount of bonded indebtedness or other indebtedness related to the use of tax increment financing will not exceed $700,000 without a mndificxtion to the TIF Plan pursuant to applicable statutory rcyuirements. It is estimated that $700,000 in bonded debt will he financed with tax increment revenues. The sources and uses of funds in this modification (dated June 29, 2UU4) are cumulative. The estimated sources of Funds for the TIF District is contained in the table below. SOUItCF.S OF FUNDS Tax Increment $1,526,106 Interest $100,000 Hood Proceeds $7D0,000 _PRO7ECTR~VL_NUES _ ____$2,326106_ Tax increment revenue includes tax increment pooled from other districts under special deFcit pooling authority. Subsection 1.8 lJses of Funds The estimate of public costs and uses of funds associated with the TIF ])istrict is outlined in the following table. UFL`5 of Funds Land/Huilding acquisition $300,000 Site Improvement $300,000 Public Improvements $0 Installation of Public Utilities $0 Demolition and Relocation $0 ]n terest $526,106 Administrative expenses $150,000 Other -Pooling for deficits $350,D00 Sub-total $1,626,106 Hood Principal $700,000 TOTAL $2,326, I U6 C'ily of Hutchinson ModiGtalion to the Tax ]neremenl Financing Ylun for 'I'ex Increment Financing llistrin Nu. 7 2 it is estimated that the cost of improvements, including administrative expenses, which will he paid or financed with tax increments will equal $1,626,106 as presented in the budget on the previous page. Subsection 7.7 Estimated Impact on Other Taxing Jurisdictions The fiscal impacts are demonstrated in the following table. it is likely that without pooling to the Deficit T1F District, the T1F District would have been decertified before it's maximum duration under the Statutes. IMPACT DN TAX BASE McLeod County City of Hutchinson ISD No. 423 Pay 2004 Total Nel Tax Capacity 21,530,245 7,937,112 10,755,023 Estimated Captured Tax Canacity_(CTC~ 13,151 13,151 13.151 LJ Percent of CTC to Entitv Total 0.0611 Q-1657% 0.1223% IMPACT DN TAX RATES Pay 2004 Percent Potential Extension Rates of Total CST ' Taxes McLeod County 0.632560 42.3fi% 13,151 8,319 City of Hutchinson 0.615540 41.22% 13,151 8,095 ISD No. 423 0230940 15.46"/° 13,15] 3,037 Dther 0.014320 0.96"/° 13,151. 188 Total 1.493360 100.00"/" 13,151 19,639 The tax rates used for calculations are the Pay 2004 rates. The tots) net capacity for the entities listed above are based on Pay 2004 figures. City of llul°hin5un M°difiCfl~i°tl ~° the Tfl% h~a'ement Financing Plan for Tax increment Fimmcing UislfiCl N°. 7 3 C.J ~. J I.J APPENDIX A MAPS aF TAX INCREMENT FINANCING IJISTRICT NO. 7 nrraNrnx b u Sri ~ ~' ~ ~ ~ ~~ ©~ ;~ ~:, .~~~ ~U a" 'uT n