TAX INCREMENT PROJECT PLAN

Transcription

1 TAX INCREMENT PROJECT PLAN THE VILLAGE ON MONROE CITY OF RAPID CITY Prepared by the Rapid City Community Planning and Development Services Department May 2017

2 INTRODUCTION Tax Increment Financing is a method of financing improvements and development in an area which has been determined to be blighted or which has been determined to create economic development according to the criteria set forth in SDCL All this is done without incurring a general obligation for the taxpayers of the entire City. The assessed value of a district is determined by the South Dakota Department of Revenue at the time the district is created by the City Council and effective per SDCL This valuation is termed the Tax Increment Base Valuation for the district, or simply the base valuation. When the assessed valuation of the district increases in succeeding years, the total property taxes paid by the owners of property in the district will increase accordingly. That increase in taxable valuation is the increment. When the tax bills are paid, only that portion of the tax bill which results from the Base Valuation, is paid to the taxing entities (City, County, School, etc.), which levy property taxes. The tax increment revenue is deposited into a special fund. It is this plan that determines how these accumulated increment funds will be used. The properties in this proposed Tax Increment District will be used for residential purposes and will require an additional levy to the properties within the School District to make up for the School District s share of the property taxes included in the Tax Increment. This financing method is invaluable for encouraging economic growth since the amount of funds available for use by the project plan is directly related to the increase in valuation which a given project or development will create. OVERVIEW The purpose of the proposed Tax Increment District is to create affordable workforce housing on the southeast quadrant of Dilger Avenue and Monroe Street in Rapid City, through a joint effort between NeighborWorks and Dakota Land Trust. These two entities provide options for individuals that may be unable to accumulate down payment funding and/or may be unable to qualify for a conventional mortgage. With the tax increment funding assistance, the five one- and two-bedroom townhome units provide housing in the $109,900 and $139,900 price range. The developer anticipates using the tax increment funds for land acquisition related expenses. The US Department of Housing and Urban Development has determined that the 2017 area median income is $63,600 for the Rapid City HUD Metro Fair Market Rate Area. This affordable workforce housing project targets residents at or just above the Low Income definition (80% of the area median income) where no more than thirty percent (30%) of income including utilities is allocated for rent and/or mortgage payments. These Prepared 5/25/2017 Page 1

3 five units provide home ownership opportunities for targeted wage earners making $13 to $25 per hour. Creating a residential tax increment financing district requires an additional tax levy to ensure that the Rapid City Area School District receives its $5,060 yearly portion of the increment. All property owners within the School District are assessed an additional tax levy, estimated at per $1,000 in property valuation. The estimated cost, based on the additional levy, for a $200,000 home within the School District is $0.15 per year or $2.00 for the 13 year life of the proposed Tax Increment District. Tax Increment Financing Committee The Tax Increment Financing Committee met on March 29, 2017 to discuss the affordable workforce housing and denied the application. On April 6, 2017, the Planning Commission overturned the Committee s recommendation to create a new tax increment district, basing the decision on the requirements of SDCL , wherein: (1) Not less than twenty-five percent, by area, of the real property within the district is a blighted area or not less than fifty percent, by area, of the real property within the district will stimulate and develop the economic welfare and prosperity of the state through the promotion and advancement of industrial, commercial, manufacturing, agricultural, or natural resources; and (2) The improvement of the area is likely to enhance significantly the value of substantially all of the other real property in the district. This new district will be financed by the Developer. The Planning Commission confirmed that based on the information provided in the application, the purpose of the tax increment district is to: (1) encourage the redevelopment of deteriorated, or otherwise blighted real property in Rapid City through the investment of public funds; (2) stimulate economic development in the community by assisting projects that promote the long term economic vitality of the community; (3) stimulate increased private investment in areas that would have otherwise remained undeveloped or under-developed and which will, in the long term, provide a significant source of additional tax revenues; and (4) stimulate the construction of safe and affordable housing units for low and moderate income residents and workers in the community. The project complies with the following local mandatory criteria established within the City of Rapid City s Tax Increment Policy: Prepared 5/25/2017 Page 2

4 1. The project must be located within a proposed district in which a minimum of twenty-five percent (25%) of the area of the District is determined to be "blighted" and the improvements are likely to enhance the value of substantially all of the other real property in the district. For the purposes of TIF, a "blighted area" is defined as: B. The vacant site substantially impairs or arrests the sound growth of the municipality, retards the provision of adequate housing accommodations, constitutes an economic or social liability and is a menace to the public health, safety, morals, and welfare as a result of substandard, unsafe or deteriorating development. The Developer anticipates constructing five new townhomes, increasing the total valuation from $26,500 to $639,500. C. The vacant lot is appropriate for infill development and supports a cost effective use of existing utilities and services. With the exception of the Developer s cost to extend approximately 120 feet of an eight (8) inch public sanitary sewer main to serve the increased residential use, the existing utilities and other public services currently provided will remain the same. This infill development provides an effective use of the existing services provided to the proposed District. 2. The project complies with the adopted Comprehensive Plan and all other appropriate plans and regulations. The proposed District meets the following Policies within Plan Rapid City: BPG-1.2A: Priority Infill Areas: Other highly desirable areas for infill development include Urban Neighborhoods. NR-NA-1.1: Residential Neighborhoods: Encourage reinvestment and promote targeted infill development and/or redevelopment to add vitality to the area s established neighborhoods. Support the development of new residential neighborhoods that increase the variety of housing options. 3. The use of TIF for the project will not result in the net loss of pre-existing tax revenues to the City and other taxing jurisdictions. The Developer anticipates constructing five new townhomes, increasing the total valuation from $26,500 to $639,500. The applicant indicated that the proposed development also meets the following local criteria established within the City of Rapid City s Tax Increment Policy: Prepared 5/25/2017 Page 3

5 (3) the project will not provide direct or indirect assistance to retail or service businesses competing with existing businesses in the Rapid City trade area; (6) the project will result in the construction of affordable housing units defined as housing where the occupant is paying no more than thirty percent (30%) of gross income for housing costs including utilities and complies with the following requirements: b. affordable housing is required to remain affordable as defined above for ten (10) years. If affordability is less than ten (10) years, repayment of prorate share of increment benefit will be due and payable to the City. The applicant also indicated that the additional discretionary criteria met by this proposal includes the following: (5) the building or site that is to be redeveloped itself displays conditions of blight as established by the provisions of SDCL The property value comparison from 2008 to 2016 indicates a nearly 70% decrease in valuation based on the demolition of the fire-damaged structure previously occupying the lot(s). (10) the developer agrees to waive the five-year tax abatement. The City Finance Officer will review and analyze the proposed financing terms and forward a recommendation for approval or disapproval to the City Council along with the Developer s Agreement or proposal for refinancing. For purposes of developing the project plan, all interest expenses are to be calculated utilizing a fixed rate not to exceed 9 percent annual interest as directed by the adopted Tax Increment Financing Guidelines. However, the applicant has requested that a 6 percent annual interest rate be used, as this will allow the district costs to be paid in full within 13 years, one-half of the timeframe allowed within SDCL With the City Council s approval, this 6.0 percent interest amount shall be included in the project plan and at no time during the term of the project shall the actual interest expense exceed the amount budgeted in the project plan nor shall any interest expense be reallocated to another project line item cost. An Imputed Administrative Fee in the amount of $20,000 shall be charged by the City of Rapid City to every Tax Increment District for which a is approved. This fee shall be paid to the City from the tax increment fund balance in year five of the Tax Increment District. All project expenditures must be completed within five years of the creation of the district. Should the tax increment revenues exceed the anticipated loan payments, the district debt would be retired early resulting in the full value of the property being returned to the tax rolls more quickly. Prepared 5/25/2017 Page 4

6 Summary This plan establishes the total project costs, as well as the Tax Increment District funded costs. This, as required by SDCL , will address the following elements: 1) Public Works and Other Improvements; 2) Economic Feasibility Study; 3) Project Costs; 4) Fiscal Impact Statement; and, 5) Financing Method Description. Additionally, the following exhibits are offered: I. General Vicinity map; II. Tax Increment District Boundary Map; III. Map of Existing Zoning; IV. Map of Existing Land Use; and, V. Map of Public and Other Improvements. No persons will be displaced with approval of this Plan, nor are there any changes needed in the City s Master Plan, existing Building Codes or Ordinances in order to implement this Plan. ELEMENTS OF THE PROJECT PLAN 1. PUBLIC WORKS AND OTHER IMPROVEMENTS The project plan includes $60,000 in land acquisition costs and $2,000 for an appraisal associated with the project. Interest expenses, at a 6% rate, in the amount of $35, are also included. 2. ECONOMIC FEASIBILITY STUDY Current Valuation Tax Increment District has been created in accordance with SDCL to A vicinity map as well as a boundary map is attached. As of this date, the 2016 assessed valuation for the proposed district is projected at $26,500. In accordance with SDCL , the certification of the base value will be requested from the South Dakota Department of Revenue following creation and approval of the district by the City Council. ANTICIPATED CERTIFIED BASE VALUATION OF PROPERTY $26,500 Prepared 5/25/2017 Page 5

7 Expected Increase in Valuation ESTIMATED FUTURE VALUATION OF PROPOSED DISTRICT Estimated 2016 Assessed Value of District $26,500 Estimated 2026 Assessed Value of project (year 10) $639,500 Other Anticipated Increases in Assessed Value $0 Estimated Increase in Assessed Value of Land* $0 Estimated 2026 Total Valuation (year 10) $639,500 *For purposes of this Tax Increment District, the increase in land value is not included in these estimates. Land valuation increases will pay off the loan earlier than anticipated. Any property sold to a non-profit facility will impact future land values as well as taxing revenue projections. Revenue Estimates from Tax Increments The Plan anticipates 26 semi-annual payments over 13 years. The potential negative short-term impact on the various taxing entities will be offset by the increase in the tax base in future years Non Agriculture Tax Levies and Percentage of Total Levy Percentage of Taxing Entity Tax Levy Total Levy Rapid City Area School District % Pennington County % City of Rapid City % West Dakota Water District % Total Mill Levy % Anticipated 2016 Owner Occupied Tax Rate: The estimated tax increment available to pay for project costs in the Plan can be calculated by multiplying the anticipated tax rate by the increment in valuation. This calculation results in the following tax increments, which become available as taxes are paid for the applicable periods. Prepared 5/25/2017 Page 6

8 PROJECTED TAX INCREMENT INCOME TIF Year Assessment Year Year Taxes Paid Projected Total Valuation Estimated Taxable Value Increase Tax Increment Payments 6 Month Total 1 Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, Nov $639,500 $613,000 $9, $4, TOTAL TAX INCREMENT EXPECTED TO ACCRUE BY 12/31/36: $199, NOTE: Tax increment payments are calculated using 100% of estimated future property valuation and 100% of expected 2016 mill levy. The Estimated Taxable Value Increase is an estimated based on the incremental revenue generated from the proposed valuation increase. 3. PROJECT COSTS Real Property Assembly Costs The real property assembly costs of $60,000 included in the are for the land acquisition for the project. Financing Costs The financing costs for this are dependent on the interest rate obtained. The interest rate used for this project plan is 6.0%. It is estimated that the financing costs will total $35, If a lower interest rate is obtained, the project costs will be repaid more quickly and the property will be returned to the tax rolls sooner. Professional Service Costs Professional service costs for the property appraisal fees in the amount of $2,000 are anticipated in the. Prepared 5/25/2017 Page 7

9 Imputed Administrative Costs All Tax Increment District actions require municipal staff time to prepare and enact. The City shall be reimbursed on June 6, 2022, for its administrative costs in the amount of $20,000. However, in no case shall the City be reimbursed less than $1 on June 6, Project Cost Description Total Estimated Project Costs TIF Funded Project Costs TIF Funded % Developer Capital Costs Property Acquisition $60, $60, % Site Improvements $65, New Construction $425, General Requirements $11, Contractor Profit $32, Contractor Overhead $10, Building Fees & Permits $5, Total Developer Capital Costs $610, $60, % Developer Professional Fees Architectural Fee $3, Attorney Fee $1, Engineer / Survey $3, Land Appraisal Fees $2, $2, % Other - Inspections $1, Total Developer Professional Fees $11, $2, % Financing Costs Construction Insurance $4, Origination Fee $4, Title and Recording $ TIF Loan Interest Expense $35, $35, % Total Developer Financing Costs $44, $35, % Developer Other Costs and Fees TIF Application Fee $1, Other - Marketing $5, Total Developer Professional Fees $6, TOTAL ASSOCIATED DEVELOPMENT COSTS $672, $97, % Imputed Administrative Costs* $20, City of Rapid City Prepared 5/25/2017 Page 8

10 Costs of Public Works or Improvements. In accordance with SDCL , the previous table represents the kind, number, location and dollar amount of estimated Project Costs, costs of public works and improvements. DETAIL OF PROJECT COSTS Kind of Project Number of Projects Location (1) Amount Reference (2) Capital Costs (1) Financing Costs 1 District $35, (2) Real Property Assembly 1 District $60, (3) Professional Fees 1 District $2, (4) Administrative Costs 1 District $20, (5) Relocation Costs (6) Organizational Costs (7) Discretionary Costs and Grants (8) Eligible Project Costs $117, (1) District shall mean the Tax Increment District (2) SDCL Project costs defined. Project costs are any expenditures made or estimated to be made, or monetary obligations incurred or estimated to be incurred, by a municipality which are listed in a project plan as grants, costs of public works, or improvements within a tax incremental district, plus any costs incidental thereto, diminished by any income, special assessments, or other revenues, other than tax increments, received, or reasonably expected to be received, by the municipality in connection with the implementation of the plan. SDCL Specific items included in project costs. Project costs include: (1) Capital costs, including the actual costs of the construction of public works or improvements, buildings, structures, and permanent fixtures; the demolition, alteration, remodeling, repair, or reconstruction of existing buildings, structures, and permanent fixtures; the acquisition of equipment; the clearing and grading of land; and the amount of interest payable on tax incremental bonds or notes issued pursuant to this chapter until such time as positive tax increments to be received from the district, as estimated by the, are sufficient to pay the principal of and interest on the tax incremental bonds or notes when due; (2) Financing costs, including all interest paid to holders of evidences of indebtedness issued to pay for Project Costs, any premium paid over the principal amount thereof because of the redemption of such obligations prior to maturity and a reserve for the payment of principal of and interest on such obligations in an amount determined by the governing body to be reasonably required for the marketability of such obligations; (3) Real property assembly costs, including the actual cost of the acquisition by a municipality of real or personal property within a tax incremental district less any proceeds to be received by the municipality from the sale, lease, or other disposition of such property pursuant to a ; (4) Professional service costs, including those costs incurred for architectural, planning, engineering, and legal advice and services; (5) Imputed administrative costs, including reasonable charges for the time spent by municipal employees in connection with the implementation of a ; (6) Relocation costs; (7) Organizational costs, including the costs of conducting environmental impact and other studies and the costs of informing the public of the creation of tax incremental districts and the implementation of project plans; and (8) Payments and grants made, at the discretion of the governing body, which are found to be necessary or convenient to the creation of tax incremental districts or the implementation of project plans. Prepared 5/25/2017 Page 9

11 4. FISCAL IMPACT STATEMENT The impact on taxing entities is determined from the tax increment anticipated during the life of the district. The true impact on taxing entities of the Plan is the increase in valuation of the property within the Tax Increment District. The taxing entities are only foregoing that income during the life of the district and will realize that income as soon as the debt from the project costs in the Plan is retired. The purpose of this Plan is to encourage that increase in valuation. The property owners within the School District will pay for the estimated annual $5,060 owed to the School District for this proposal. At first glance it may appear that the negative impact on the various entities is notable. But when it is considered that without the use of the Tax Increment Finance proposed in this plan it is very likely that there would be a minimal increase in the taxable value of the property within this district, the impact can be considered truly positive. Year Paid Valuation Increase NET IMPACT ON TAXING ENTITIES School County City Water Yearly Total 2019 $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, $613,000 $0 $2,945 $1,962 $18 $4, FINANCING METHOD The financing method to be used in the funding of this Plan is to be obtained by the applicant. The applicant will be responsible for any interest payments due that are not Prepared 5/25/2017 Page 10

12 available from Tax Increment District 79. If the tax increment revenues exceed the anticipated loan payments, the debt will be retired early. The debt on the Tax Increment District Project Costs covered in the Plan will be retired by deposits made in the Tax Increment District as taxes are paid on the property in succeeding years. The City of Rapid City Finance Officer will make the disbursements from that fund in accordance with this Plan. According to SDCL , positive tax increments will be allocated to that fund until the debt from the project costs is retired or fifteen years following the last expenditure from the whichever comes first. The final payment from this Plan is anticipated to be made on December 31, The projected amortization rate schedule shown below identifies the amount financed by the Developer using a 6.0% interest rate. PROJECTED AMORTIZATION TABLE Proposed Village on Monroe TID Estimates as of May 4, 2017 Annual Interest Rate 6.00% Expires 6/5/2037 Pmt Date Days Outstanding Beginning Balance Payment Amount Interest Amount Principal Amount Ending Balance 6/1/ ($62,000.00) - (62,000.00) 62, /1/ , , /1/ , , (1,865.10) 63, /1/ , , (1,910.70) 65, /1/ , , (1,978.68) 67, /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , (1,454.55) 50, /1/ , , (1,506.30) 51, /1/ , , (1,543.13) 53, /1/ , , (1,598.03) 54, /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , , , , /1/ , , , , /1/ , , , , /1/ , , , , /1/ , , , , Prepared 5/25/2017 Page 11

13 6/1/ , , , , /1/ , , , , /1/ , , , , /1/ , , , Total $62, $35, $35, $97, Revenue Estimates 3 units $139, $419, , units $109, $219, , $639, , Annual Tax Revenue $10, $613, Increment Revenue $9, Owner Occupied Tax Rate: per $1, Prepared 5/25/2017 Page 12

14 JOY AVE NEW YORK ST Village on Monroe Proposed Tax Increment District Boundary Map NORTHEAST DR CUSTER ST VAN BUREN ST ALLEN AVE N 7 ST DILGER AVE ADAMS ST FARLOW AVE HAINES AVE WOOD AVE FILLMORE ST MONROE ST NORTH ST N MOUNT RUSHMORE RD N 5 ST DENVER ST PHILADELPHIA ST N 3 ST 17TI002 N 4 ST

15 17TI002 DILGER AVE MONROE ST Rapid City-Pennington County GIS Division

16 JOY AVE 17TI002 - Proposed Tax Increment District Village on Monroe VAN BUREN ST FILLMORE ST ALLEN AVE N 7 ST DILGER AVE FARLOW AVE ADAMS ST HAINES AVE MONROE ST WOOD AVE NORTH ST N MOUNT RUSHMORE RD DENVER ST N 5 ST Future Land Use Categories N 4 ST N 3 ST Subject Property r Community Activity Center Low Density Neighborhood Urban Neighborhood Mixed Use Commercial Parks and Greenway Public/Quasi-Public

17 17TI002 - Proposed Tax Increment District Village on Monroe SILVER ST GOLD ST NICKEL ST WEST BLVD N ANAMOSA ST JOY AVE HORACE ALL EN AVE FILLMORE ST N MOUNT RUSHMORE RD MANN DR N 7 ST DILGER AVE ADAMS ST FARLOW AVE N 5 ST VAN BUREN ST HAINES AVE N 4 ST COLLEGE AVE WOOD AVE WILLSIE AVE DENVER ST N 3 ST LEMMON AVE MONROE ST NORTH ST N 2 ST NEW YORK ST BLAINE AVE ST OMAHA ST 5 ST MAIN ST 7 ST 6 ST ST 44 3 ST 2 ST Major Street Plan Subject Property Collector Minor arterial Principal arterial Proposed collector Proposed minor arterial

18 JOY AVE 17TI002 - Proposed Tax Increment District Village on Monroe VAN BUREN ST FILLMORE ST ALLEN AVE N 7 ST DILGER AVE ADAMS ST FARLOW AVE HAINES AVE MONROE ST WOOD AVE N MOUNT RUSHMORE RD NORTH ST DENVER ST N 5 ST N 4 ST Rapid City Zoning Subject Property Civic Center Hotel/Motel Medium Density Residential Planned Development Flood Hazard Low Density Residential-1 Office Commercial

19 17TI002 - Village on Monroe Tax Increment District Public Improvements Map DILGER AVE MONROE ST FARLOW AVE NORTH ST Legend Land Acquisition TID Boundary