1997-02-25 Proposed Senior Housing TIF
.
.
MEMORANDUM
TO: GARY HALE, CITY ADMINISTRATOR, ALBERTVILLE CITY COUNCIL
FROM: MIKE COURI, CITY ATTORNEY
SUBJECT: PROPOSED SENIOR HOUSING TIF
DATE: FEBRUARY 25, 1997
-------------------------------------------------------------------
-------------------------------------------------------------------
Steve Fenies has recently submitted an application for a
senior housing development. As part of his application, he is
asking that the City establish a housing Tax Increment Financing
(TIF) district under which the tax increment from some of the
housing development would be "captured" and would be used to pay
some of the development expenses incurred by the developer. The
TIF is proposed to be a "pay as you go" TIF, in which the City does
not issue a bond but merely reimburses the developer for
development costs as the tax revenue is received by the City.
The particulars of a housing TIF are complex. Steve Bubel of
Kennedy & Graven has recently sent the City a letter regarding some
of the details of the proposed TIF (see attached letter dated
February 25, 1997).
The senior housing development would require two different TIF
districts. The first TIF district would be set up on the rental
housing, assuming that this housing met the strict "qualifying"
criteria as evaluated by the state. This type of TIF would not
carry any "penalty" (either a Local Government Aid [LGA] penalty or
a "local match" requirement).
The second TIF district would be set up on the "for sale"
housing. This TIF would not be a "qualifying" district and would
thus require the City to provide some funding (called a "local
match", usually about 10% of the total tax increment captured) or
to have the city's LGA reduced in an amount approximately 30% of
the tax increments generated by this TIF. The approximate amount
of the penalty cannot be estimated until further information
related to the valuation is obtained from the developer.
Staff is in the process of compiling all necessary information
(including the financial impacts upon the City from either of these
TIFs) so that this issue can be brought to the Council for a
decision, probably at the next Council meeting.
Should the Council desire to establish either of the TIF districts,
at least one special meeting would be required.
1
Kennedy
Anillsbury Center
W~outb Sixth Street
Minneapolis MN 55402
(612) 337-9300 telephone
(612) 337-9310 fax
e-mail: attys@kennedy-graven.com
.
& Graven
CHARTERED
STEPHEN J. BUBUL
Attorney at Law
Direct Dial (612) 337-9228
February 25, 1997
Garrison Hale
City of Albertville
5975 Main Avenue NE
Albertville, MN 55301
RE: Housing Tax Increment District
Dear Gary:
I understand that the City of Albertville is considering a proposal for a senior housing project to be
financed in part with tax increment financing. Mike Couri asked me to explain to explain the rules and
limitations that would apply for such a project. As I understand the facts, the project would involve partly
rental units and partly owner-occupied units. It would be built at a site that is essentially vacant. I also
assume the property has not qualified for "green acres" tax treatment in any of the past five years (see
comments below if this assumption is incorrect).
In this circumstance, the most advantageous choice would be to create two housing tax increment districts:
a "qualified housing district" that is exempt from state aid loss. for the rental component; and a regular
housing district, for the owner-occupied component, which would qualify for an exemption from aid loss
if the City agrees to make a local contribution to project costs. (Note: if the property has qualified for
green acres status in the past five years, the City may only create a qualified housing district; the owner-
occupied district could not be created at all.)
The "qualified housing district" status is available only if tax increment is used solely to assist
development of a rental housing facility that receives, or is eligible to receive, federal low-income housing
tax credits. Tax credit eligibility means that at least 40 percent of the units are occupied by persons or
families with no more than 60 percent of area median income, or 20 percent are occupied by persons or
families wit.~ no more than 50 percent of media.'1 income, and rents in those lh'1its do not exceed 30
percent of the maximum income for those units. Even if the project does not actually receive tax credits
(which requires an allocation from the state), the facility will be eligible for "qualified housing district"
status if the income and rent restrictions described above are met. The limits apply during the entire life
of the tax increment district.
If the proposed rental housing will meet these tests, a qualified housing district could be created, along
with a separate tax increment district for the owner-occupied housing. Tax increment from the qualified
district could be used only within that district; it could not be transferred over to the owner-occupied
district. However, increment from the owner-occupied district could be used in the qualified district.
The owner-occupied district must meet a different set of income limits: at least 95 percent of the units
must be initially purchased by persons or families with no more than 100 percent of area or state-wide
SJB117915
AL141-23
.
.
Garrison Hale
February 25, 1997
Page 2
median income (whichever is greater) for one and two person households, or 115 percent of median
income for any larger households. These limits apply only to the first buyer of the homes.
To avoid state aid loss created by the owner-occupied district, the City may elect to make a local
contribution towards project costs in the amount of 10 percent of the annual tax increment These costs
must be paid from unrestricted City funds, and may not be paid from tax increments or payments from
a developer. The costs must be used for some aspect of the housing project, which could include public
improvements, but the contribution may not be used for any activity the City would have undertaken
absent the project.
If therenral facility wiliJlOi meet tax credii requircmeilts, thefe is stili. another option the . City could use.
A single housing tax increment district would be possible including both the rental and the owner-occupied
housing, if the rental housing meets a more limited income restriction: at least 50 percent of the units are
occupied by persons or families with no more than 80 percent of area median income. There are no rent
limits. The owner-occupied units would have to meet the same income test for first-time buyers described
above.
This single district would not be a qualified housing district, but would be eligible for the local match
option described above. The local match would be larger in this case, because it would be 10 percent of
the increment from both the rental facility and the owner-occupied facility.
Whether one or two districts is created, the duration of each district would be 25 years after the date of
receipt of the first increment (though the City could tenninate earlier if desired). Also, the tax increment
from any of these districts would be restricted to the typical tax-increment eligible costs, such as land
acquisition, site improvements and public improvements. For the rental housing only, another alternative
is that the tax increment could be used to fmance an "interest reduction program" operated by an HRA
(or an EDA using HRA powers). Under this program, tax increment may be used to finance the interest
cost on private construction financing for rental units. However, the increment may be used for only 15
years, rather than the full 25 years that otherwise applies for housing districts.
This is a lot of information to digest. Let me know if you have follow-up questions for need any
additional infonnation.
IlY yours,
~
Srephe J. Bubw
cc: Mike Couri
SJB117915
AL141-23