HomeMy Public PortalAbout2017-05-11 St Marys TIF - staff report to Commission1 | Page
STAFF AND CONSULTANTS’ REPORT TO TIF COMMISSION
DATE: MAY 11, 2017
TO: CITY OF JEFFERSON TIF COMMISSION
FROM: CITY STAFF AND CONSULTANTS
RE: REVIEW OF ST. MARY’S HOSPITAL TIF PLAN
Project Name: St. Mary’s Hospital Tax Increment Financing Plan (“TIF Plan”)
Redevelopment Area: The TIF Plan area consists of approximately 9.8 acres and is generally
located at the southwest corner of 50 Highway and Bolivar Street,
Jefferson City, Missouri, as described in Exhibit A of the TIF Plan.
Brief Summary
The City of Jefferson, Missouri (“City”), requested proposals from developers for
redevelopment of all or a portion of the Redevelopment Area. Only one developer
submitted a proposal or application to undertake the requested redevelopment. This
summary provides an analysis of the statutory sufficiency of the proposal submitted by F &
F Development, LLC.
Applicant Information
In June 2016, F & F Development, LLC (“Applicant”) submitted an application for tax
increment financing (“TIF”) in the form of a tax increment financing plan. The TIF Plan
was subsequently updated and revised by the Applicant, most recently on May 1, 2017. The
Applicant is a well-established local company with multiple successful development projects.
The entire development team is described in Exhibit K of the TIF Plan.
Project Summary
To remediate the blighted conditions indicated in the blight study found at Exhibit D, the
TIF Plan proposes the redevelopment of approximately 9.8 acres of
real property as described in the City’s request for proposals. The TIF Plan contemplates
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two separate options for redevelopment, either the “Lincoln Project” involving Lincoln
University, or the “Commercial Project,” which does not involve Lincoln University
(collectively referred to as the “Redevelopment Projects”). The Lincoln Project would
include a satellite campus for Lincoln University, along with office space, retail stores, and
restaurants. If development of the Lincoln Project is not feasible, the alternative
Commercial Project would replace the higher education component with additional
commercial space. The table below compares the two options.
Proposed Uses Lincoln Project Commercial Project
Lincoln University Component Yes No
St. Mary’s Hospital Office Redevelopment Yes Yes
Redevelopment of Medical Office Building Yes Yes
Retail/Restaurant Buildings 4 6
Retail/Restaurant Square Footage 21,000 30,200
For the Lincoln Project, the Applicant is proposing to expend approximately $44.6 million
for the following:
1. partial demolition, environmental remediation, and excavation of the Redevelopment
Area;
2. renovation and restoration of historic St. Mary’s Hospital for use as an office
building;
3. renovation and restoration of medical office building;
4. partial demolition and renovation of St. Mary’s Hospital expansions for use as
Lincoln University satellite campus;
5. construction of four (4) commercial pad sites, consisting of approximately 21,000
square feet of commercial space; and
6. construction of associated infrastructure, site work, and site amenities.
For the Commercial Project, the Applicant is proposing to expend approximately $30.9
million for the following:
1. partial demolition, environmental remediation, and excavation of the Redevelopment
Area;
2. renovation and restoration of historic St. Mary’s Hospital for use as an office
building;
3. renovation and restoration of medical office building;
4. complete demolition of St. Mary’s Hospital expansions;
5. construction of six (6) commercial pad sites, consisting of approximately 30,200
square feet of commercial space; and
6. construction of associated infrastructure, site work, and site amenities.
The Applicant currently anticipates that construction activities will commence in 2018 and
conclude in 2020. As will be discussed in greater detail below, the Applicant expects that the
funds necessary for this development to will come from multiple sources, including but not
limited to debt and equity from the Applicant, TIF and CID revenues, and a contribution
from the State of Missouri/Lincoln University for the Lincoln Project. The Applicant is
seeking reimbursement for project costs up to approximately $7.3 million for the Lincoln
Project and $6.7 million for the Commercial Project. For the Lincoln Project, this equates to
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a reimbursement of approximately 16.5% of total project costs. For the Commercial project,
this equates to a reimbursement of approximately 21.7% of total project costs. Both
percentages are well below the limit of 50% for reimbursable project costs identified in the
economic development incentives policies and procedures adopted by the City Council.
Financing Summary
Tax increment financing is generally based on the concept that redevelopment of a
disadvantaged area will result in an incremental increase in tax revenues. All or a portion of
these incremental increases in revenue are captured for the period of time necessary to pay
for the incentives required for the redevelopment to occur, which cannot exceed 23 years
from when capture of the incremental increase commenced. The incremental increases in
property tax revenues are distributed as “payments in lieu of taxes,” which are commonly
referred to as “PILOTs.” The incremental increases in economic activity taxes (the most
common type is sales tax) are commonly referred as “EATs.” The annual PILOTs and
EATs captured by the TIF District are the amount above tax collections within the
Redevelopment Area in the year before tax increment financing is activated. This prior year
tax level is considered the “base.”
The initial costs of the Redevelopment Projects will be borne by the Applicant through
private equity and financing. To the extent that incentive revenues from sources described
in Exhibit F are generated by the Lincoln Project, the Applicant is seeking reimbursement of
up to approximately $7.3 million. To the extent that incentive revenues from sources
described in Exhibit F are generated by the Commercial Project, the Applicant is seeking
reimbursement of up to approximately $6.7 million.
The Applicant will be reimbursed for eligible redevelopment project costs on a “pay-as-you-
go” basis from designated revenue sources (i.e., funds will only be available from tax revenue
deposited in to the Special Allocation Fund, not from any bonds issued by the City). The
sources of revenue proposed for the reimbursement of Redevelopment Project Costs
include statutory TIF (50% of PILOTs and 100% of EATs), non-captured CID sales tax, as
well as supplemental TIF from the City’s general and capital improvement sales taxes not
captured by statutory TIF (Lincoln Project) or the City’s general sales taxes not captured by
statutory TIF (Commercial Project). None of the supplemental incentives include funds
generated by the City’s parks sales tax.
Regarding supplemental TIF, the Applicant proposes to capture a portion of the City’s
EATs that are not captured by TIF by an annual appropriation of the same by the City
(commonly known as a “City Super-TIF”). There is support for this in (1) the importance
of the Redevelopment Projects to the City’s downtown/Capitol area and (2) the Applicant’s
inability to achieve a market rate of return absent such financing. The Applicant proposes
for the Lincoln Project to take 0.75% of the 1% of the City’s Economic Activity Taxes that
are uncaptured by TIF. This amount excludes the half (0.25%) of the City’s dedicated parks
sales tax that is not captured by TIF, as there are no parks or related items within the
Lincoln Project. The Commercial Project would take only 50% of the City’s uncaptured
City Economic Activity Taxes (or 0.50%), which 0.50% would be comprised entirely of the
City’s uncaptured general sales tax (excluding the uncaptured portions of the City’s parks
sales tax and capital improvements sales tax). The purpose of this difference is to incentivize
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the Applicant to undertake the Lincoln Project and to make the returns between the two
projects more equal given the lesser emphasis on sales tax producing businesses in the
Lincoln Project.
The Applicant anticipates that it will obtain private financing or provide other capital to
make up the difference between total redevelopment project costs and all revenues available
for reimbursement of reimbursable project costs discussed above. Additionally, the
Applicant is pursuing New Market Tax Credits, State and Federal Historic Tax Credits and
State Brownfields Tax Credits to support the Redevelopment Projects. A prerequisite to the
Applicant proceeding with the Lincoln Project is the appropriation of funds by the State of
Missouri to Lincoln University for its build-out and/or operating costs associated with the
Lincoln Project.
Eligible redevelopment project costs will be reimbursed from TIF and CID sources of funds
as outlined in the Sources and Uses of Funds & Estimated Redevelopment Project Costs
and Reimbursable Project Costs found in Exhibit F; provided, however, that in no event
shall the aggregate amount of reimbursement from TIF and CID sources of funds exceed
the combined line item amounts for those funds as stated in the Sources of Funds in Exhibit
F. Subject to statutory requirements for the use of the incentives funds, the Applicant may
shift costs among the line item costs in each column of sources of funds categories;
however, the Applicant may not (a) transfer to line items that are not approved as
reimbursable project costs, (b) add to the Developer’s Fee, or (c) add to the Contingency line
item.
Base-year ad valorem property tax revenues and sales tax revenues will continue to pass
through to the taxing jurisdictions affected by this proposed TIF Plan if it were to be
approved. A full analysis of how the taxing jurisdictions are affected is presented in the Cost
Benefit Analysis provided at Exhibit I of the TIF Plan.
The initial total equalized assessed value of the real estate within the Redevelopment Area is
$419,300. It is estimated that the total equalized assessed value of the real estate within the
Redevelopment Area will be approximately $7,580,844 upon completion of the Lincoln
Project; or $4,537,342 upon completion of the Commercial Project. Therefore, the future
increase in equalized assessed value for the Redevelopment Area due to the redevelopment
would total approximately $4.1 million to $7.1 million, depending on which project is
implemented. The sales tax revenue in the Redevelopment Area in 2016, the year prior to
the year in which this plan would be adopted, was $0.
REVIEW PROCESS OF THE TIF APPLICATION
To initiate the process for receipt and review of proposals for the remediation of blight in
the requested Redevelopment Area, the City, on behalf of the TIF Commission, solicited
proposals from developers for plans to redevelop the area and to implement those plans as
submitted. As is common with applications of this type, the City received one proposal,
which is analyzed for this report. In accordance with the City’s adopted TIF procedures, the
Applicant has executed a funding agreement with the City to provide a funding source for
costs incurred by the City in reviewing and considering the TIF Plan. The City, on behalf of
the TIF Commission, mailed the statutorily required 45-day notice of the TIF Commission
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public hearing to the affected taxing jurisdictions. Statutorily required notices were also
published in the News Tribune and sent via certified U.S. mail to the affected property owner.
As part of City staff’s due diligence in reviewing the TIF application, the City engaged
Lauber Municipal Law, LLC, the City’s special economic development counsel, to advise the
City regarding the substantive and procedural issues related to the TIF application and
approval process and also to negotiate any redevelopment agreement.
The City also hired Springsted Incorporated as the City’s financial advisor. As part of its
services related to review of the TIF Plan, Springsted performed an independent “but for”
test in the form of an internal rate of return analysis of the TIF Plan by reviewing and
analyzing the Applicant’s estimated costs and operating revenues. Springsted has
determined that the TIF Plan complies with the statutory requirements, including specifically
that this project would not be possible without incentives. This issue is further addressed in
a separate report contained in your packet.
In order for the TIF Plan to be approved, state statutes require that the City Council
make the following six (6) 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 or developers 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 (23) 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 (10) years from the
adoption of the ordinance approving the redevelopment plan under which such project
is authorized and provided that no property for a redevelopment project shall be
acquired by eminent domain later than five (5) 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 developer for the commission established in Section 99.820, RSMo., 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.
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ANALYSIS OF REQUIRED STATUTORY FINDINGS
FINDING # 1 - A finding must be made that the development 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.
Blight Designation
Exhibit D of the TIF Plan contains a blight study prepared by Andrew Baker, a senior
appraiser with Valbridge Property Advisors. This study concludes that the proposed
Redevelopment Area on the whole meets the TIF statutory requirements for a “blighted
area” due to the predominance of blighting factors existing in the proposed Redevelopment
Area. Specifically, the blight study states that within the Redevelopment Area there exists,
among other factors, a predominance of the following: defective or inadequate street layout,
unsanitary or unsafe conditions, deterioration of existing site improvements, and the
existence of conditions which endanger life or property by fire and other causes. The study
further concludes that these blighting factors have resulted in an economic or social liability
and/or constitute a menace to the public health, safety, morals, or welfare in its present
condition and use.
“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, Exhibit J of the TIF Plan includes the affidavit from 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 the area has not been subject to growth and
redevelopment through investment by private enterprise, and without TIF assistance, the
projects contemplated by the TIF Plan would not be reasonably expected to occur, and that
the project would not be economically viable for the Applicant without such assistance. As
previously stated, Springsted has also determined that the TIF Plan satisfies the “but for”
test.
Staff and Consultants Recommendation: Recommend that the City
Council should: 1) declare the proposed Redevelopment Area a "Blighted
Area" as described by state statutes; 2) find 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, as recommended; and 3) find that the Applicant has submitted
the required affidavit regarding this issue.
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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 City Council in March 2013. Based on
an initial review by City staff, the TIF Plan is consistent with and conforms to the City’s
comprehensive plan.
Staff and Consultants 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 (23) years from the time a redevelopment project is authorized,
that no redevelopment project is scheduled to be authorized within ten (10) years
after of the adoption of the TIF Plan, and that no property will be secured by
eminent domain later than five (5) years from the adoption of the ordinance
approving the development project.
The Applicant proposes to begin the remediation of blighted conditions in 2018 and
complete construction in 2020. The TIF Plan contemplates that all obligations, if any,
funded by TIF revenue will be retired no later than twenty-three (23) years from the
adoption of the ordinance approving TIF within a redevelopment project generating TIF
revenue to service such obligations, though this term may vary depending on project
performance, sales, property valuation, and other variables. That TIF Plan stipulates that in
no event shall any ordinance approving a redevelopment project be adopted later than ten
(10) years from the adoption of the ordinance approving the TIF Plan.
The Applicant owns all of the necessary real property within the Redevelopment Area. No
property for a redevelopment project shall be acquired by eminent domain later than five (5)
years from adoption of the ordinance approving such redevelopment project.
Staff and Consultants 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 (23) 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 (10) years after the adoption 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.
Exhibit M of the TIF Plan includes a relocation plan for businesses and residences within
the TIF Plan Redevelopment Area, which satisfies the requirement for this finding.
Currently, there are no businesses or residences within the Redevelopment Area that require
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relocation; despite that, a relocation plan is necessary. The relocation plan complies with
Missouri State statutes and the City’s policy for relocation assistance.
Staff and Consultants 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 TIF Commission to evaluate
whether the project as proposed is financially feasible.
The Applicant has submitted a cost-benefit analysis as Exhibit I of the TIF Plan, which
shows the economic impact of the TIF Plan on taxing jurisdictions and political subdivisions
that are at least partially within the boundaries of the proposed Redevelopment Area. The
analysis provided shows the impact on the economy if the redevelopment project is not
built, or is built in accordance with the proposed TIF Plan being considered for approval on
the taxing jurisdictions included.
The tables in Exhibit I show projected revenues to the taxing entities. These projections
assume two scenarios: (1) with redevelopment project and (2) without redevelopment
project. For the “with project” scenario, the revenues are essentially those projected for the
Redevelopment Area if one of the projects is built as proposed by the Applicant.
For the “no project” scenario, ad valorem tax receipts stay at current rates with no increase
assumption. The sales tax revenues are $0 because there are currently no businesses in the
Redevelopment Area that generate sales tax.
The total projected revenues to each taxing entity for the Lincoln Project under the “with
project” scenario represents a substantial revenue increase over the “without project”
scenario. The cumulative benefit represented under the “with project” scenario to all taxing
entities is approximately $8.6 million above the “without project scenario.”
The total projected revenues to each taxing entity for the Commercial Project under the
“with project” scenario also represents a substantial revenue increase over the “without
project” scenario. The cumulative benefit represented under the “with project” scenario to
all taxing entities is approximately $11.3 million above the “without project scenario.”
At Exhibit H the Applicant has provided a letter from Rob Kingsbury with Farmer Holding
Company, LLC, the parent company of the Applicant. The letter states that the company
will provide its full support to finance and carry out the project subject to standard
conditions. Section 99.810.1, RSMo. of the TIF Act requires “evidence of the commitments
to finance the project costs.” Recognizing that there are caveats to financing the project, this
letter does appear to provide sufficient evidence of the company’s commitment to finance
the project as required under the TIF Act.
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Springsted has reviewed in detail the overall financial aspects of the proposed TIF Plan and
Redevelopment Projects. This analysis includes assumptions regarding potential tenants and
projected revenues from these uses. Based on the information provided in the TIF Plan and
our analysis and review, the City’s staff and consultants believe that the Applicant has
provided sufficient information in the proposed TIF Plan for the TIF Commission to
evaluate the financial feasibility of this plan and its redevelopment project.
Staff and Consultants 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 was sufficient
information for the TIF Commission to determine that 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.
A review of the TIF Plan indicates that the initial development or development of any
gambling establishment is not included.
Staff and Consultants Recommendation: Recommend that the City
Council should find that the TIF Plan does not include the initial
development or redevelopment of any gambling establishment.
CONCLUSION
City staff and consultants have concluded that the TIF Plan generally provides sufficient
information to demonstrate that the six (6) statutorily required findings have been met; as
such, we recommend that the TIF Commission, through Resolution No. 2017-01,
recommend that the City Council should find that the proposed TIF Plan and the associated
redevelopment area, redevelopment project area, redevelopment projects, and designations,
be approved.