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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 2 | Page 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 3 | Page 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 4 | Page 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 5 | Page 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. 6 | Page 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. 7 | Page 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 8 | Page 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. 9 | Page 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.