CENTERVILLE — Every municipality would love to have a crystal ball when entertaining the idea of establishing a Tax Increment Financing (TIF) district. Will a city reap a return on its investment of tax dollars by subsidizing a start of a future successful development in a difficult area of the city or won’t it?
The Centerville City Council doesn’t have a crystal ball either, so it only dangled the edge of its little toe into the TIF waters at the July 24 meeting.
After much discussion and reservations about a proposed modification of Development District No. 1 and establishment of TIF District No. 1-8 within that district, council voted 4-1 (Council Member Matt Montain opposed) to call for a public hearing on the proposal at 6:30 p.m., Oct. 9 at City Hall.
For help in speculating whether tax dollars invested in establishing a TIF district would be beneficial to the surrounding community, the city is calling on its citizens, commissioners, Anoka County officials and Centennial School District officials for input.
A written plan for the proposed TIF district will be prepared by Northland Public Finance and distributed to the county and school district at least 30 days prior to the public hearing date.
Three criteria for establishing a TIF district require the district to be defined as blighted, a project that can’t be afforded without financial assistance and a project that benefits the entire community and not just the developer.
Exploring whether to establish the TIF district in Block 7 came about because a developer approached the city about developing a portion of Block 1-8 using TIF dollars from the city.
Trident Development, LLC of St. Cloud has proposed to construct multi-family dwellings consisting of 53 housing units within a three-story building. Other components include retail enterprises, surface parking and detached bays. The project is proposed to rent at market rate with an affordable component.
Market rates are currently in the $1,400-$1,500 per month range for a one-bedroom rental, and affordable rates are in the $900-$1,000 range.
The proposed site is on vacant, city-owned at Centerville Road between Sorel Street and Heritage Street. The total cost of the project is approximately $9.5 million, said Trident Development Vice President Patrick Brama.
At the request of the developer, the project would be aided by a tax investment from the city of $1.3 million over 20 years, collected as tax increment and paid on a pay-as-you-go basis.
With “pay-go” assistance, the developer and the city would determine the costs that qualify for public reimbursement. The developer would then spend its own money to finance the upfront costs of the land acquisition and site improvements and provide evidence of the costs to the city. The city would then issue a TIF revenue note to reimburse those costs. This type of “pay-go” assistance does not represent a general obligation of the city.
The establishment of a TIF district would allow the city to capture the increase in property taxes generated from the project (the “tax increments”) for a limited number of years (20), based on the developer’s request. The city may limit the duration to less than 20 years. The maximum life of the TIF district allowed by state law is 26 years.
As it stands now, preliminary terms of assistance for further consideration also include a reimbursement of a maximum of $1.3 million of TIF eligible project costs (an estimated $350,000 for the land and $950,000 for site improvements).
The estimated average annual tax increment collected from the project for the life of the TIF district is approximately $110,000, or a future value of approximately $2.2 million.
The city would retain 5% of the tax increments collected to cover administrative costs for the TIF district.
Council Member Russ Koski wondered how TIF would benefit the community and not just the developer. “So, we put up an apartment building and don’t see tax revenue benefit from it for 20 years.
How does this benefit the city, especially with increasing costs to have 150 more people who need sewage, storm water, road maintenance, more public safety, more people attending elections and another public works person? All the while we’re not getting additional revenue,” he wondered.
“It’s true – for 20 years the city collects no taxes,” City Administrator Mark Statz said. “But the customers are there and they will pay the franchise, storm, sewer and water bills, along with all the connection fees. The people are contributing. But, yes, extra costs like elections will chew up General Fund resources without taxes to account for those people,” he said.
If all the formalities for establishing a TIF district are met, the TIF district is scheduled to be certified by June 30, 2020.
Contingent on the TIF District being established, the city may then enter into a development agreement with the developer with specific terms for tax increment financial assistance.
“I really like the idea of getting this project going and done — and TIF spurs it,” said Council Member Michelle Lakso. “When you look back 20 years there’s nothing there, but when you look ahead there’s something there.”
“The power of TIF means you see rooftops, rooftops – a density of rooftops,” Brama said.
Having all those rooftops means the city might attract commercial enterprises such as Caribou Coffee and others interested in setting up in Centerville, Mayor Jeff Paar said.
“It’s not my first TIF go-round,” Paar said. “I was opposed to (an earlier TIF proposal) because it wasn’t a “pay-go”. The city was subject to much more risk with the previous TIF proposal, he said. “I’m still not a big TIF person . . . but I like this project.”
“I would like more info. For tonight, we’re looking to just initiate the process and call for a public hearing — if you’re ready for that. It is not to approve a TIF,” Paar said.