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HomeMy Public PortalAboutStaff Report to TIF Commission 4-1-16 1 STAFF AND CONSULTANT REPORT TO THE TIF COMMISSION TRUMAN HOTEL TAX INCREMENT FINANCING PLAN TIF COMMISSION PUBLIC HEARING DATE: APRIL 11, 2016 INTRODUCTION On January 21, 2016, Puri Group of Enterprises, Inc. (“Applicant”), and the City of Jefferson (“City”), jointly submitted an application for tax increment financing (“TIF”) in the form of the Truman Hotel Tax Increment Financing Plan (the “TIF Plan”). The proposed Redevelopment Area established in the TIF Plan consists of approximately 8.65 acres of land located in Jefferson City, Missouri in an area generally bounded by Jefferson Street to the southeast, an access road for offices of the Missouri Department of Transportation (“MoDOT”) and Highway Patrol to the southwest, Southridge Drive to the northwest, and Zumwalt Road to the northeast, all in Jefferson City, Cole County, Missouri. The Redevelopment Area comprises all parcels in this block except for the one containing the aforementioned MoDOT and Highway Patrol offices . For your reference, the redevelopment area is depicted on the maps in Section 1 (pages 1-3) of the TIF Plan. As described in the TIF Plan with supporting documentation from the Blight Study, which can be found at Appendix B of the TIF Plan, the proposed redevelopment area is blighted. This is primarily because the Truman Hotel and its supporting structures are approximately 50 years old, and as such have become worn out, outdated, and obsolete. According to the TIF Plan “several of the buildings are completely unusable, due to their poor condition, and the other are not able to generate enough income to produce a profit.” As a result, the existing area creates an increase in the need for public safety services while producing little or no economic value to the community. According to Appendix C of the TIF Plan, the Redevelopment Project will consist of two Redevelopment Project Areas (“RPA”s). The first RPA occupies approximately five acres at the southwest end of the Redevelopment Area. This project involves the demolition of three existing hotel buildings and the construction of a new 5-story, 121 room business class hotel with an indoor pool and restaurant. The Applicant also proposes to reconfigure the parking lots and ingress/egress points for better traffic circulation. The estimated cost of RPA 1 is $22,095,500.00. The second RPA occupies the remaining approximately three and one-half acres at the northeast end of the Redevelopment Area. This project involves the demolition of the remaining buildings and the construction of a new 4-story, 125 room business class hotel. The Applicant also proposes to renovate the existing conference space into an updated 20,000ft2 conference, meeting, and event space and will connect the hotels and conference space with new breezeways. The estimated cost of RPA 2 is $34,702,800.00. The total estimated project costs for completing the Redevelopment Projects is $56,798,300. The Applicant is seeking reimbursement from public sources (TIF revenues (i.e., PILOTs and EATs) for a total of $8,889,468.00 (15.65%), plus financing and interest costs. Broken out by project, the Applicant is requesting $3,577,853 in TIF reimbursement from RPA-1 and an 2 additional $5,311,615 from RPA-2, plus financing and interest costs. The requested reimbursements would be made upon certification by the City on a pay-as-you-go basis, which means that reimbursement could only be made from TIF revenues actually generated by the Redevelopment Projects. Upon completion of the TIF Plan, and the payment of all Reimbursable Project Costs, tax revenue from the proposed Redevelopment Area will be paid to all taxing jurisdictions within such area. REVIEW PROCESS OF THE TIF APPLICATION In accordance with the City’s adopted TIF procedures, the Applicant has submitted an executed funding agreement to the City to provide a funding source for costs incurred by the City in reviewing and considering its portion of the TIF Plan. The City, on behalf of the TIF Commission, mailed the statutorily required 45 day notice of the TIF Commission public hearing to the affected taxing jurisdictions. Statutorily required notices have been, and will be, published in the newspaper and will be mailed to affected property owners. Between the date on which the notice of public hearing was mailed and the public hearing date, the City, on behalf of the TIF Commission, solicited proposals from other applicants to develop the area, as is required by statute. The only proposal received was the proposal by the Applicant. The application was received and reviewed by City staff and determined to be consistent with applicable City policies and requirements, except as noted in this staff report. As part of City staff’s due diligence in reviewing the application for TIF assista nce, the City has utilized Springsted Incorporated, as the City’s financial and economic development advisor. As part of its services related to review of the proposed TIF, Springsted performed an independent “but for” test in the form of an internal rate of return analysis of the proposal by reviewing and analyzing the Applicant’s estimated costs and operating revenues. Springsted has prepared a separate report regarding this issue that is included with your materials. Certified Appraiser Andrew Baker, MAI, of Valbridge Property Advisors prepared a blight study of the proposed Redevelopment Area for the Applicant. In order for the TIF Plan to be adopted, state statutes require that the City Council make the following six findings: 1. The redevelopment area on the whole is a blighted area, a conservation area, or an economic development area, and has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of tax increment financing. Such a finding shall include, but not be limited to, a detailed description of the factors that qualify the redevelopment area or project pursuant to this subdivision and an affidavit, signed by the developer and submitted with the redevelopment plan, attesting that the provisions of this subdivision have been met; 2. The redevelopment plan conforms to the comprehensive plan for the development of the municipality as a whole; 3. The estimated dates, which shall not be more than twenty-three years from the adoption of the ordinance approving a redevelopment project within a redevelopment area, of completion of any redevelopment project and retirement of obligations incurred to finance redevelopment project costs have been stated, provided that no ordinance approving a redevelopment project shall be adopted later than ten years from the adoption of the ordinance approving the redevelopment plan under which such project is authorized and 3 provided that no property for a redevelopment project shall be acquired by eminent domain later than five years from the adoption of the ordinance approving such redevelopment project; 4. A plan has been developed for relocation assistance for businesses and residences; 5. A cost-benefit analysis showing the economic impact of the plan on each taxing district which is at least partially within the boundaries of the redevelopment area. The analysis shall show the impact on the economy if the project is not built, and is built pursuant to the redevelopment plan under consideration. The cost-benefit analysis shall include a fiscal impact study on every affected political subdivision, and sufficient information from the for the commission established in section 99.820 to evaluate whether the project as proposed is financially feasible; 6. A finding that the TIF Plan does not include the initial development or development of any gambling establishment. The TIF Commission must hold a public hearing at which it will hear and consider all protests, objections, comments and other evidence presented. If necessary, the hearing may be continued to another date without further notice other than a motion to be entered upon the minutes fixing the time and place of the subsequent hearing. The TIF Commission must vote on all proposed redevelopment plans, redevelopment projects and designations of redevelopment areas within thirty days following completion of the hearing. The TIF Commission must also make recommendations to the governing body within ninety days of the close of the public hearing concerning the adoption of redevelopment plans and redevelopment projects, and the designation of redevelopment areas. ANALYSIS OF REQUIRED STATUTORY FINDINGS FINDING # 1 - A finding must be made that the development area is a blighted area, a conservation area, or an economic development area and as a whole has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of tax increment financing. Blight Designation Appendix B of the TIF Plan contains a blight study, dated October 1, 2015, prepared for the Applicant by Certified Appraiser Andrew Baker, MAI, of Valbridge Property Advisors. This study concluded that the area as a whole met the TIF statutory requirements for blight due to the predominance of the following primary blighting factors in the redevelopment area: 1) Defective or inadequate street layout: a. Poor vehicular access and/or internal circulation; b. Substandard driveway definition and parking lot layout; c. Offset or irregular intersections; d. Substandard or nonexistent pedestrian circulation; and e. Lack of signage. 2) Unsanitary and unsafe conditions resulting from: 4 a. Defective and inadequate street layout leads to unsafe conditions; b. Black mold infestation; c. Crumbling brick near gas lines; d. Cracked and uneven parking areas; and e. Outdated building systems. 3) Deterioration of site improvements: a. Potholes, cracks, and otherwise damaged parking areas; and b. Deteriorating curbs and pool deck. 4) Improper subdivision or obsolete platting (NOTE: this factor was NOT found): 5) Existence of conditions which endanger life or property by fire and other causes: a. Lack of fire sprinkler system in any area, including the kitchen area. While the TIF Act requires that either an economic or social liability be found, the study concludes that these blighting factors have resulted in both an economic and social liability which means the area meets the statutory requirements to be declared a blighted area. “But For” Test The “but for” test requires that a finding be made that the proposed Redevelopment Area has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of tax increment financing; i.e., “but for” the use of TIF, the area is not anticipated to be developed. As required by the TIF statute, Appendix H of the TIF Plan includes an affidavit from Dr. Ravi K. Puri, as a representative of the owner, Puri Group of Enterprises, Inc., the Applicant, attesting that the statutory requirements for blight for the area on the whole and the “but for” test have been met; i.e., that without TIF assistance the Redevelopment Project would not be reasonably expected to occur and that the project would not be economically viable for the Applicant without such assistance. In addition, Springsted’s independent analysis concludes that the projected internal rate of return for the Applicant would be 7.27% without TIF assistance, which is an unacceptable rate of return for a redevelopment of this type in the current marketplace. Springsted calculates the Applicant’s internal rate of return at 9.2% with TIF assistance. Springsted estimates that the internal rate of return necessary to motivate a developer to undertake a project of the type and size proposed for the proposed Redevelopment Project within the current marketplace is 8.50% to 13.00%. As the Applicant’s estimated rate of return without TIF is below the market range, it is concluded that the Project would not occur without TIF. Staff and Consultant Recommendation: Recommend that the City Council should: 1) declare the proposed Redevelopment Area a "Blighted Area" as described by state statutes; and 2) fin d that the proposed redevelopment area has not been subject to growth and development through investment by private enterprise, and would not reasonably be anticipated to be developed without the 5 adoption of tax increment financing and that the Applicant h as submitted the required affidavit to that effect. FINDING # 2 - A finding must be made that the proposed TIF Plan conforms to the comprehensive plan for the development of the City as a whole. The City’s comprehensive plan is titled the Comprehensive Plan Update for the City of Jefferson, Missouri, originally adopted in June 1996. The Development Plan Map within the Comprehensive Plan Update was last adopted by the Mayor and City Council in March 2013. The Development Plan Map indicates that the Truman Hotel Redevelopment Area may be developed with commercial land uses, including hotel, conference center, and incidental uses. Based on the proposed uses outlined by the applicant in the TIF Plan, the TIF Plan conforms to the City’s Comprehensive Plan for the area. A certificate of compliance issued by the City’s Director of Planning and Protective Services, Janice McMillan, is provided at Appendix E of the TIF Plan. Staff and Consultant Recommendation: Recommend that the City Council should find that the proposed TIF Plan is in conformance with the City’s Comprehensive Plan. FINDING # 3 - A finding must be made that the estimated dates for the completion of projects and retirement of obligations incurred to finance the development do not exceed twenty-three years from the time the first project is authorized, that the first project is scheduled to be authorized within ten years of the adoption of the TIF Plan, and that no property will be secured by eminent domain later than five years from the adoption of the ordinance approving the development project. As indicated on page 8 of the TIF Plan, the Redevelopment Projects are expected to be completed in two phases. RPA-1, which includes demolition of several buildings and construction of the new 5-story, 121 room business class hotel with an indoor pool and restaurant is estimated to begin in Spring 2016 with completion by Fall 2017. RPA-2, which includes construction of the new 4-story, 125 room business class hotel, renovation of the existing conference space, and construction of the breezeways, is expected to commence in Fall 2018 with completion in Spring 2020. Thus the estimated date of completion of the entire Redevelopment Projects established in the TIF Plan is approximately June of 2020, which does not exceed twenty-three years from the anticipated date that the project is authorized. The Applicant initially is not requesting the City (or a separate entity at the City’s request) to issue obligations to borrow public funds for the implementation of this proposed TIF Plan. Without the existence of obligations, there can be no estimated date for retirement of obligations incurred to finance the redevelopment costs of the proposed redevelopment project. In the event that obligations are be issued, the TIF Plan states, and the City would follow, the statutory requirement that such obligations would be scheduled to be retired not more than 23 years after the adoption of the ordinance to approve the redevelopment project. Appendix D indicates that tax increment financing revenues will become available for Redevelopment Project Area 1 beginning in 2017 to begin reimbursement of the Reimbursable Project Costs for that project, which is anticipated to be fully reimbursed in 2038 (22 years). 6 Likewise, tax increment financing revenues will become available for Redevelopment Project Area 2 beginning in 2019 to begin reimbursement of the Reimbursable Project Costs for that project, which is anticipated to be fully reimbursed in 2041 (23 years). Based on the forgoing, the TIF Plan anticipates that the TIF Projects will be completed and fully reimbursed (as requested) within ten years after the adoption of the proposed TIF Plan. All of the property included in the Applicant’s proposed redevelopment area is owned by the Applicant. It will not be necessary to acquire the parcels not owned by the applicant to complete the Redevelopment Project. Therefore, it is not anticipated that any property within the Applicant’s proposed Redevelopment Area will be acquired by eminent domain. Nevertheless, the TIF Act specifically prohibits the acquisition of property by eminent domain later than five years from the adoption of an ordinance approving the redevelopment project. Staff and Consultant Recommendation: Recommend that the City Council should find that the TIF Plan contains information that dates for completion of projects and retirement of obligations incurred to finance the development are not more than twenty-three years from the adoption of the ordinance approving a development project within the development area, that no project is scheduled or permitted to begin more than ten years after the a doption of the ordinance authorizing the TIF Plan, and that the proposed plan meets the statutory requirement regarding the acquisition of property by eminent domain. FINDING # 4 - A finding must be made that a plan has been developed for relocation assistance for businesses and residences. The TIF Plan includes a relocation policy for businesses and residences within the TIF Plan and Redevelopment Project Area, which satisfies the requirement for this finding. The City and the Applicant do not anticipate that relocation assistance will be needed in the Redevelopment Area; however, in case such relocation assistance is needed, a plan has been provided in accordance with the TIF Act. Staff and Consultant Recommendation: Recommend that the City Council should find that the Applicant has developed a plan to provide relocation assistance for businesses and residences affected by the TIF Plan. FINDING # 5 - A finding must be made that a cost-benefit analysis has been prepared showing the economic impact of the TIF Plan on each taxing district which is at least partially within the boundaries of the development area, that the analysis shows the impact on the economy if the project is not built, as well as if it is built pursuant to the development plan under consideration, that the cost-benefit analysis includes a fiscal impact study on every affected political subdivision, and that there is sufficient information from the developer for the commission to evaluate whether the project as proposed is financially feasible. A cost-benefit analysis has been submitted as Appendix G to the proposed TIF Plan to show the economic impact of the TIF Plan on each taxing jurisdiction and political subdivision that is at least partially within the boundaries of the proposed Redevelopment Area. As required by state statute, this analysis shows the impact on the economy if the Redevelopment Project is not built, or is built in accordance with the TIF Plan under consideration. This analysis also includes a 7 fiscal impact study on each affected political subdivision and provides sufficient information to evaluate whether the Redevelopment Project is financially feasible. Appendix F includes a letter from Tim Hagenhoff, senior vice president at Mid America Bank, expressing the bank’s conditional approval of financing for the Redevelopment Project. Appendix F also includes a letter from Dr. Ravi Puri, president and CEO of Puri Group of Enterprises, expressing the company’s conditional commitment to fund the Redevelopment Project. The letters as a whole satisfy the statutory requirement of a “commitment to finance the project costs” as indicated in Section 99.810.1, RSMo. Additionally, it is important to note that with a “pay-as-you-go” TIF such as this, the TIF Plan cannot be implemented without up-front financing by the chosen Developer and/or its private lending institution, if applicable. Thus, financing will be committed well prior to the reimbursement of any Redevelopment Project Costs from TIF revenues. The financial structure of the Redevelopment Project will be in part through the use of private capital in the form of equity, third party funds and debt financing. The Redevelopment Project also is expected to generate TIF revenue based upon the projections shown on Appendix D of the TIF Plan and Reimbursable Project Costs would be repaid by revenues captured through the TIF. While the establishment of the CID is not something the TIF Commission will consider, its existence is integral to the financing as a whole. This is because the CID provides an additional source of EATs (sales tax) revenue that is unaffected by a base year pass through amount (because the CID sales tax will not have been in existence in the year prior to the TIF activation). The specific terms regarding the use of the TIF revenue stream will be addressed in a redevelopment agreement between the City and the developer. The redevelopment agreement will be considered and approved by the City Council simultaneously with its consideration of the TIF Plan or soon thereafter. The Applicant has provided projections illustrating the financial feasibility of the proposed TIF Plan and Redevelopment Project. Because reimbursement is expected to be on a pay-as-you-go basis, the reimbursements actually provided will be limited to only that amount of revenue received. Considering this, City staff and consultants conclude that the Applicant has provided sufficient information to evaluate the financial feasibility of the proposed TIF Plan. Staff and Consultant Recommendation: Recommend that the City Council should find that the Applicant has prepared a cost-benefit analysis showing the economic impact of the TIF Plan on each taxing district which is at least partially within the boundaries of the development area, that the analysis shows the impact on the economy if the project is not built, as well as if it is built pursuant to the development plan under consideration, that the cost-benefit analysis includes a fiscal impact study on every affected political subdivision, and that there is sufficient information for the TIF Commission to determine if the project is financially feasible. FINDING # 6 - A finding must be made that the TIF Plan does not include the initial development or development of any gambling establishment. 8 A review of the TIF Plan and proposed Redevelopment Project indicates that the initial development or development of any gambling establishment is not included for either. Staff and Consultant Recommendation: Recommend that the City Council should find that the TIF Plan does not include the initial development or development of any gambling establishment. CONCLUSION The City staff and consultants’ approach in reviewing requests for TIF assistance overall has been to determine the amount of public benefit the TIF Plan will generate. Adoption and implementation of this TIF Plan and Redevelopment Project will benefit the public by reducing or eliminating blighted conditions existing at the Truman Hotel which, in its prime, was a significant economic driver and gathering place for the City. By implementation of this Redevelopment Plan and Redevelopment Project, the City and the Applicant hope to achieve economic stability and self-sufficiency within the City by restoring the Truman Hotel to its former glory, which will enable it to as a catalyst for further development and redevelopment within the City. In conducting a thorough review of the proposed TIF Plan and Redevelopment Projects along with the assistance of its financial and legal consultants, it is City staff’s conclusion that the Applicant has generally provided sufficient information to demonstrate that the statutorily required six findings have been met and that the TIF Commission should recommend to the City Council that the proposed TIF Plan and Redevelopment Project be approved.