2009-10-19 Memorandum- Preliminary TIF Analysis (Northland Securities)NORTHLAND
STRATEGIES
Specie( Projects Group
MEMORANDUM
To: Larry Kruse and Tina Lannes
From: Rusty Fifield
Date: October 19, 2009
Re: Preliminary TIF Analysis - Guardian Angels Senior Housing
This memorandum presents the initial analysis of tax increment financing for the proposed Guardian
Angels senior housing project. This information is based on the assumptions described in this
memo. It is intended solely to begin the process of evaluating the need for and form of public
financial assistance for this project.
Housing TIF District
The statutes governing the use of TIF define a housing district consisting of a project, or a portion of a
project, intended for occupancy, in part, by persons or families of low and moderate income
(Minnesota Statutes, Section 469.174, Subd. 11). The requirements for the establishment of a housing
TIF district are contained in Minnesota Statutes, Section 469.1761. The primary criteria are income
related. The criteria are different for owned and rental housing.
• For owner occupied property, 95% of the housing units must be initially purchased and occupied
by individuals whose family income is less than or equal to the income requirements for
qualified mortgage bond projects under section 143(f) of the Internal Revenue Code. For
households of one or two people, the threshold under the IRS Code is 100% of the greater of the
area median gross income or the statewide median gross income. For larger households, the
threshold is 115% of the median income.
• The income requirements for rental housing are tied to section 142(d) of the Internal Revenue
Code. There are two options for income restrictions: (1) 20% or more of the residential units are
occupied by individuals whose income is 50% or less of area median gross income, or (2) 40% or
more of the residential units are occupied by individuals whose income is 60% or less of area
median gross income. While the owned housing test applies to the initial purchase, the rental
requirements apply for the duration of the tax increment financing district.
According to the Fannie Mae website, the 2009-10 HUD Area Median Income for Wright County is
$83,900. This makes the current income criteria as follows:
• Owned/115% _ $96,485
Northland Securities, Inc. 45 South 7th Street, Suite 2000, Minneapolis, MN 55402
Main: (612) 851-5900 / Direct: (612) 851-4992 / Email: rfifield@northlandsecurities.com
www.northlandsecurities.com
Member FINRA and SIPC
Preliminary TIF Analysis
October 19, 2009
Page 2
• Rental/50% _ $41,950
• Rental/60% _ $50,340
In addition to the income requirements, several other limitations apply to all housing TIF districts.
No more than 20% of the square footage of buildings that receive TIF assistance may consist of
commercial, retail, or other nonresidential uses.
The tax increment must be used solely to finance the cost of the "housing project" as defined by the
statute. The cost of public improvements directly related to the housing project and the allocated
administrative expenses of the city may be included in the cost of a housing project. No more than
20% of the square footage of buildings that receive TIF assistance may consist of commercial, retail,
or other nonresidential uses.
• The maximum duration for a housing TIF district is 25 years from the date of receipt of the first
increment.
These requirements apply specifically to housing TIF districts. All other general tax increment
financing requirements and procedures also apply.
Preliminary Analysis
The table on page 3 contains the preliminary analysis of the tax increment funding capacity for three
amounts of property value from the proposed development. Your email suggests a value of
$3,500,000 to $4,000,000. I have also included a $3,000,000 value based on values for senior housing
in Monticello. In addition, the analysis is based on the following assumptions:
1. The property will classified as residential nonhomestead.
2. Tax rate for taxes payable 2009 (as provided by the City).
3. Base/original value using EMV for taxes payable 2010.
4. Support provided on pay-as-you-go basis with increment discounted at present value rate of
6.50%.
5. 10% of the increment will be retained by the City.
This analysis is intended solely to illustrate the potential funding capacity of the proposed
development. More work is needed to evaluate the actual need for an use of tax increment financing.
Preliminary TIF Analysis
October 19, 2009
Page 3
Base Value (PIN 101500023401)
EMV 2009/2010
Estimated Tax Capacity Value
City of Albertville
Guardian Angels Senior Housing
Preliminary Tax Increment Projections
265,400
3,318
265,400
3,318
265,400
3,318
Total EMV
4,000,000
3,500,000
3,000,000
Project Total Tax Capacity Value
50,000
43,750
37,500
Est. Original Tax Capacity Value
(3,318)
(3,318)
(3,318)
Captured Tax Capacity Value
46,683
40,433
34,183
Local Tax Rate (Pay 2009)
106.480%
106.480%
106.480%
Estimated Annual Tax Increment
49,708
43,053
36,398
Percent Available
90%
90%
90%
Assumed Interest Rate
6.500/.
6.50%
6.50%
Years of
Total Net
Total Net Present
Total Net Present
present Value
Increment
Increment
Increment Value
Increment Value
5
$223,694 $185,912
$193,736 $161,021
$163,789 $136,131
10
$447,368 $321,605
$387,473 $278,548
$327,578 $235,490
15
$671,052 $420,645
$581,209 $364,328
$491,367 $308,010
20
$894,735 $492,932
$774,945 $426,937
$655,155 $360,942
25
$1,118,419 $545,694
$968,682 $472,634
$818,944 $399,575
The tax increment must be used solely to finance the cost of the "housing project' as defined by the statute. The cost of public
improvements directly related to the housing project and the allocated administrative expenses of the city may be included in the cost of
a housing project. No more than 20% of the square footage of buildings that receive TIF assistance may consist of commercia4 retail, or
other nonresidential uses.