5. Tax increment plan amendments r.
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C ITYOF -
CH ANHA SSEN
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690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317
' (612) 937 -1900 • FAX (612) 937 -5739
MEMORANDUM
TO: Mayor and City Council
Housing and Redevelopment Authority
FROM: Don Ashworth, City Manager
DATE: October 29, 1992
SUBJ: Consider Tax Increment Plan Amendments
1 BACKGROUND
' During the past five years, I have met with the School Board and Carver County Commissioners
each year. They have asked but one question--"When will your tax increment district cease to
exist ?" For five years the answer has been the same, "By 1995/96, all existing debt/contracts will
be fully funded through maturity." Both the school and county agree that the city will become
a "loser" when the district ceases, but each (primarily the county) sees benefits of ceasing the
district (see attached, "Who Wins/Who Loses ? ").
The plan amendments from one year ago included City Center Park, Cooperative Highway 5
Project (entry monuments /south Highway 101), and Market Square, which, in the aggregate,
' added one year to the life of the district. With the projected ending date being about the same
(end of 1996), eye brows at the county and school district level did not go up.
' During the past year the commission has considered, and for practical purposes approved, a
Conference Center plan ($6.0 M), West 78th Street Upgrade ($2.0 M), Realigned Highway 101/
Taco/Red -E -Mix ($2.0 M), and a new Library ($1.0 M). Although the commission may consider
that these decisions have been made, they cannot become a reality until an official plan
amendment is made—an action which cannot occur without submitting the total financial impact
of such to the school and county for their comments. We have attempted to keep our County
Commissioner aware of our actions, but it will be the final totals that will "raise the eye brows
of the county board and school district." They do not have final veto powers, but be assured that
the political winds in St. Paul will blow and we will have achieved a new record in "tax
increment abuses" according to the Ann Rests and Ember Richgots (State Legislators who oppose
tax increment) of the world.
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L s, PRINTED ON RECYCLED PAPER
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1 Mayor and City Council
Housing and Redevelopment Authority 1.
October 29, 1992
1 Page 2
1 Current Dilemmas: As stated earlier, staff has met with the county and school each year for the
past five years. During the past year, those work efforts have been more intense recognizing that
both the county and school district are facing some serious challenges if not dilemmas. Those
1 dilemmas include:
- r Carver County: The county road systems are in deplorable condition. The proceeds of
1 the county road referendum, which was sold several years ago, are currently depleted.
Many of the county's resources are now being channelized to the criminal justice system.
In essence, they have no additional monies to pledge to roads. Unfortunately, many of
I these roads exist within the Cities of Chaska and Chanhassen. The projected costs for
county road improvements in Chanhassen is $11.5M, and $8.0M in Chaska (see attached
sheets - "County Road Needs "). Roadways such as County Road 17, Audubon, County
I Road 117, and Lyman Boulevard are critical roadways to our community if we are to
continue to grow and have adequate road systems. The possibility that the City of
I Chanhassen will not cease its tax increment district in 1996 is extremely excruciating to
the county as they were looking forward to these dollars to help solve a part of their
county road problems.
1 Dick Stolz, County Administrator, will be present Monday evening to describe the
county's road needs as well as estimated costs; and
1 - School District 112: Our school district is facing an extremely critical juncture. The
school will need an additional 12 classrooms by 1993 and 25 additional classrooms by
I 1994. The problem continues years into the future. The current elementary class will
transform itself into 600 -700 students by graduation. That is in comparison to the
existing 250 to 300 in a typical class. The current high school can hold approximately
I 1,000 students. By the time that elementary class gets to high school, there will be over
3,000 students in that building.
I The school district recognizes that a need exists. They have estimated that to meet that
need, over $40M will be spent in additional school buildings. The thought of Chanhassen
continuing its tax increment district during 1996 -2000 is not as damaging to the school
1 district as the county. Again, their estimated losses because of our district are $400,000
to $500,000 per year. Of greater concern is the fact that if a referendum is presented, that
that assuredly will create a general tax increase of 10% to 15%. That increase would also
1 be applied to parcels within the tax increment district which means that the city would
see an additional $500,000 to $750,000 increase in tax increment receipts. Adding these
two "losses" together produces a whopping $900,000 to $1.2M lost revenue to the school
I district. It is this aggregate which will assuredly be of major concern to our school
district.
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Mayor and City Council 1
Housing and Redevelopment Authority
October 29, 1992
Page 3
Conclusion: As stated earlier, current projects such as the conference center cannot become a
reality until our redevelopment plan is amended to include these items and their associated costs.
The plan will also have to be amended to reflect the loss in revenues by both the county and
school district as a result of those plan amendments, i.e. the plan amendment will show that the
city needs to continue receiving tax increment during the period of 1996 -2000. Also as stated
earlier, we can be reasonably assured that these plan amendments will be distressful to both the
County Board and School District in light of the financial dilemmas that they currently face.
However, the process does not have to produce World War III. In fact, by simply sharing a
portion of the monies that would be lost to Fiscal Disparity Contribution and Fiscal Disparity
Distribution with both the county and school, we could assure that each of those two entities
would be receiving more money than would have been received had the district in fact closed
in 1996. For example, it is estimated that if we were to cease the district in 1996, we would
lose approximately $2.6M due to Fiscal Disparities Contribution and Distribution (see "City of
Chanhassen Property Values/Taxes and Trends "). The amount of money that the school and
county would be gaining as a result of those actions would be approximately $400,000 and
$600,000, respectively. By our including in the Redevelopment Plan a proposed expenditure of
$500,000 and $700,000 /year, during the time frame of 1996 - 2000 to the school and county,
respectfully, we would be assuring them of a greater amount of money than they would have
received if the district would have closed. The plan amendment could also include two additional
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features - -1) a statement that should the school district be successful in passing a referendum for
school purposes, that the distribution back to the school would be increased to reflect the
additional increment received by the city during the 1996 -2000 time frame, and 2) that the school
district, county, and city jointly approach the legislature to allow collection of increment during
2000 -2003 as was originally set by the district plan. [Note: All "Redevelopment Districts" had
their "collection years" artificially shortened by the legislature in 1989.] The revenues being
generated during those three years is proposed to be divided between the county and school
district. This action would add approximately $6M to both the school and the county and,
therefore, produce a much higher package than could be achieved by solely considering the 1996-
2000 distributions, i.e. a total of $8M (school) and $9.2M (county). This point is important as,
if the city agreed to the proposed plan amendments, the county would sell bonds to accelerate
road construction and the school district would agree to use these dollars for tax relief as a part
of the referendum literature.
It should be noted that the City of Chaska has been a part of each of the meetings with the 1
school district and county during the past five years and the more intense meetings of this past
year. In fact, it was the City of Chaska which noted that the proposed referendum would
generate significant new dollars to each of the tax increment districts which could then be used
to decrease taxpayer costs (see attached "School District Referendum Options "). It is my
understanding that the Chaska City Council has approved a modification to their tax increment
plan to include each of the recommendations being made in this memorandum, i.e. a plan
amendment to add county road construction costs for roads in Chaska and a plan amendment
1
Mayor and City Council
Housing and Redevelopment Authority
' October 29, 1992
Page 4
agreeing to pay the school district for TIF dollars lost because of the district and to return excess
referendum dollars if the referendum passes. Both of the amendments regarding the school
district would be conditioned on those dollars being used for property tax relief. The school
' district would also agree to restructure the proposed referendum so as to set a majority of debt
to mature when the Chanhassen/Chaska districts retire (again, see "School District Referendum
Options ").
' As noted earlier, Mayor Chmiel and I have been a part of each of the meetings with the school
district/county /cities attempting to reach agreement as to how all of the entities can be financial
"winners" during the next ten year period of time. We believe that the recommendations being
brought to you make sense, and more importantly, are simply the right thing to do. We do
recognize that the education process will be necessary to ensure that all of our citizens recognize
that joint efforts that have been achieved by having the county, cities, and school district
cooperatively working. If you agree, the action proposed to be taken by the Council/HRA is to
authorize staff to prepare the specific plan amendments which would include the plan additions
made this past year, i.e. conference center, library, and senior housing ( ?). In addition, staff
should be instructed to include in that draft county road construction dollars (specific listing of
roads to be completed/estimated time frames) as well as including estimated "excess levy
' distribution" to School District 112. In addition, the school district plan amendment would
include wordage agreeing to distributing additional tax dollars that may become available to the
HRA as a result of a positive referendum by the school district. Both of the school district plan
amendments would be conditioned upon the school district using those dollars to help reduce
overall referendum costs.
' I should note that the proposed plan amendment as listed above would consume all revenues
available to the HRA through the year 2000. This statement does dot include potential new
construction during that time frame; however, construction started after 1996 will basically return
no increment given the delay in first tax receipts after initial construction. Approval of the
recommendations presented in the above paragraph are recommended.
VI
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Who Wins/Who Loses- -
An Analysis of Tax Increment as it Affects
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City, County and School Districts
General Overview: Minnesota tax laws are extremely complex and difficult to understand.
Generally there is a group of interrelated policies that 1) permeate all of the tax laws, 2) share
the wealth of the "haves" with the "have riots," and 3) to consider tax base/per capita
income /disposal income in determining the basis of need. Most of these policy positions
originated during the 1970s when there truly were "haves" and "have nots ", i.e. Maplewood (3M
and Maplewood Mall equalled 80% of Maplewood's tax base), Burnsville (the Black Dog Utility
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Plant produces a similar 75% tax base for that city/county/school district), Rosemont (Koch
Refinery), Edina, etc. In an effort to achieve equalization, the pendulum has now swung 180°
to the point where the suburban communities are now subsidizing the core cities, if not the entire
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state. Laws such as Fiscal Disparities Contribution, Fiscal Disparities Distribution, Local
Government Aid, Equalized Aid, Excess Levy Distributions, etc. create a sea of mediocrity and
beg the question, "Why strive for excellence ?" Communities such as Chaska, Eden Prairie, and
Shakopee pay millions each and every year into these diffused programs while local referendums
continue to be defeated for less money than is being taken out of the tax base, i.e. Eden Prairie
shares more tax dollars with the rest of the metropolitan area in one year than it would have cost
for the total (defeated) community park referendum two years ago.
General Overview - Tax Increment Districts: Similar to general tax laws, tax increment district
laws are equally as complex. The laws that were in effect when your district was created are
generally the rules that exist today. However, each year for the past 15 years has produced a
more restrictive set of rules has emerged each year. And more importantly, the rules have
changed as to the amount of money which must be shared with the rest of the metropolitan area.
Accordingly, it is not fair to state that all tax increment districts hurt county financing or hurt
school financing. Instead, you must look at each district individually and recognize the rules in
effect for that district. For example, Chanhassen's primary TID is a "pre- 1979" district. We do
not lose the 40% of our tax base to Fiscal Disparities. By contrast, we receive Fiscal Disparities
Distribution payments as we are seen as an industrially starved community. And finally, we are
not required to make "excess levy distributions." Chaska's TIDs and Chanhassen's "McGlynn
District" were created during the 1980s. Accordingly, they are subject to each of the "sharing
laws" referred to above. As each of these districts receive full tax increment and each must pay
into the "sharing pools," a shortfall exists which is then paid by the "community as a whole."
[Note: The McGlynn district is basically tax base neutral as 33% of its tax base is shared and
36% distributed to Fiscal Disparities, i.e. a net loss of 3% in 1992 and projected 0% during 1993-
98.] The contention by the school district and county that "our tax base is being eroded" because
of tax increment is a true statement in Chaska, but is not true in Chanhassen.
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Tax Increment District Effects on School District 112 Finances: The school district
administration recognizes that the City of Chanhassen is a loser if our district ceases to exist, i.e. 1
administrative costs directly charged to the district represent higher costs in a diluted pot, and
local projects, such as the conference center, would never happen. However, the school district
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' Housing and Redevelopment Authority
October 29, 1992
Page 2
1 does not feel as though they are a part of the band wagon if we let the district "ride its course
through the year 2000." All school districts are in a precarious position in that their primary
' funding source is not set locally, but in St. Paul. For 1992, our district could spend no more than
$3,050 per weighted pupil unit (figure varies as to the percent of high school students versus
middle versus grade). For our district, this cap is approximately $15M. Approximately 27% of
' the local tax base is to be used for education on a statewide basis, which in our case, produces
approximately $8M. The state then pays the difference between the maximum revenues of $15M
and the amount collected locally - -$8M. If the district did not exist, $10M would be derived
locally which means that the state's share would go down. In either case, the school district
cannot receive more than the $15M for general education purposes. Richgot and Rest distort the
truth when they say that TIDs hurt our school districts. They would be more honest if they
' would say that TIDs hurt the state budget. At issue is whether you honestly think that the $2M
given to the state, by our ceasing our tax increment district, would in any way find its way back
to our local school district. I think not.
' In summation, TIDs do not affect the bigger picture of school district financing. They do affect
the minor, and for some people, the most important part of school district needs -- excess levy
1 referendums and new school referendums. If the existing TID did not exist, there would be a
broader tax base to absorb these local types of costs.
1 It's difficult to put a number associated with the potential loss of revenue to the district because
of our TID. The School Superintendent and Finance Director agree that it is minor. You could
argue that the excess levy distribution is lost, which means a loss of approximately 13%. You
' could argue a strict state formula loss which would yield 8%. In today's tax dollars this would
yield a spread of $400,000 to a high of $650,000 per year as lost revenue to the school district
' if our district were to cease to exist during the time frame of 1996 - 2000.
Affects of Tax Increment Districts on Carver County; Without question, the county is the
primary loser as a result of tax increment districts. If our tax increment district were not to exist,
and after reducing the current increment for fiscal disparity contribution losses ($2M) and fiscal
disparity distribution losses ($600,000), the overall tax base would be approximately $2.4M
' higher than it is today. With the county collecting 25% of the total tax bill, they could be
considered losers of $600,000 per year. Before conceding that they should receive $600,000 per
year during the years 1996 -2000, it must be noted that the ci ►, not the county, took the risk in
making this $2.4M happen. Every "inducement" which the city has made has paid significant
returns. Paying $2.4M for the "old Instant Web Building," by the city, was seen as outrageous
at the time. Today, the taxes paid by the four firms that were created by leveraging that payment
' has transformed itself into the construction of Instant Web, United Mailing, Victory Envelope,
and the Press. These four firms pay more taxes per year than the city paid for their original
relocation. The $2.5M incentive to Rosemount would have been unheard of prior to creation of
1 the district, but today, Rosemount pays more than $1M per year in taxes.
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Housing and Redevelopment Authority 1
October 29, 1992
Page 3
At issue is the fact that the ci took the risk in each of these ventures. Our dividends have been
enormous. The county now wishes to share in those dividends. The question is, "What if the
city had invested in hotels as St. Paul did, would the county wish to share in the losses ?" If
someone goofed up the projected income from Rosemount, would the county wish to share in
the deficit? The answer is no as history will collaborate, i.e. the city invested in the "North
Service Sewer Project" at a cost of $6.0M. The manager /financial consultant/engineers were later
to be found over ambitious in their revenue projections. The Chanhassen taxpayers, once the
• -error was unveiled, ate $3M in shortfalls. The county never asked to take on any portion of that
burden. The point of this longer paragraph is two -fold: 1) our existing tax increment district is
revenue neutral to the county in that it does not erode the county's tax base, and 2) the county
could contend that they would be losing $600,000 per year during the time frame of 1996
through 2000, but such would be premised on the fact that the city did make that revenue
happen. Without the district, I sincerely believe that it would not have. I know that projects
such as Instant Web transforming itself from a $87,000 per year taxpayer to a $1M per year
taxpayer would not have happened without inducement from ourselves, the grocery store and
retail center would not have occurred, and finally, the $SM to $10M in infrastructure
improvements (storm sewer, sanitary sewer, water) would not have occurred without the tax
increment district.
Tax Increment District Affects on the City of Chanhassen: The city becomes the biggest loser
if the tax increment district ceases to exist. We move from a position of collecting
approximately $5M per year, albeit that restrictive uses exist for spending those dollars, to a
position of seeing that reduced to a real tax base increase of $2.4M. As the city receives
approximately 20% of the total tax base, our net position would be approximately $480,000 or
a loss of approximately $4.5M. We would then be working with 10 -cent dollars.
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NM 1111 MI MI NM M EN MI On OM MI IN MI OM MI In MN 11111 MN
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ISO 112, Chaska
School Budding Program
Page 1
345,000000 39.000,000
G.O. School Bldg. Bonds, Series 1992 G.O. School Bldg. Bonds, Series 1998
Mature Cunent Coupon Bonds 08/01/93 Current Coupon Bonds 08/01N8
02/01
Total
Levy in the Principal Coupon Principal Coupon New
Year Year Principal Interest & Interest Rate Principal Interest & Interest Rate Debt
( ( ( ( (5) ( ( ( . ( ( (
1990 1992 0.000% 0
1991 1993 0 0 0.000% 0 0
1992 1994 500,000 N 1.363,894 1,863.694 3.850% 0 0 0.000% 1,663,894
1993 1995 505,000 lee 2.708,538 3,213538 4.250% 0 0 0.000% 3,213,538
1994 1996 820,000. 2,687.075 3.307,075 4550% 0 0 0.000% 3,307,075
1995 1997 740000 2,658.865 3.398,865 4.750% 0 0 0.000% 3.398.865
1996 1998 875,000 2,623,715 3,498,715 4.950% 0 0 0.000% 3,498,715
1997 1999 695,000 2,580,402 3,275,402 5.150% 322.501 322,501 6.100% 3,597,903
1998 2000 510,000 2544609 3.054,609 5.350% 0 645.002 645.002 6.200% 3,699,611 '
1999 2001 965000 2.517,324 3,462,324 5.550% 0 645,002 643002 6.300% 4,127.326
•, 2000 2002 600.000 2,463.766 3.263,766 5.750% 505,000 645,002 1,150,002 6500% 4,413.766
'2001 2003 1.760.000 2,417,766 4,197,766 5.800% 535,000 612,177 1,147,177 6.700% 5,344943
2002 2004 2,245,000 2,314,526 4.559,526 5.900% 570,000 576,332 1,146,332 6.850% 5,705,856
2003 2005 2,555.000 2,182,071 4,737,071 6.000% 810,000 537,287 1,147,287 7.000% 3864,358
2004 2006 2,630,000 2.026,771 4.856,771 8.100% 655,000 494,587 1,149,587 7.100% 8,006,358
2005 2007 3.125.000 1,656,141 4,981,141 6.200% 700,000 448,062 1,148082 7.200% 3129.223
2008 2008 3,445,000 1.662,391 5,107,391 6.250% 755,000 397,662 1,152,662 7.250% 8,260,073
2007 2009 3,600,000 1.447,078 5.247,078 6.300% 805,000 342,945 1,147,945 7.300% 6,395,023
2008 2010 4,170,000 1,207,678 5,377,678 6.300% 865,000 284,180 1,149,180 7.300% 6,526,858
2009 2011 4,575.000 944,968 5.519,968 6.350% 930,000 221.035 1,151,035 7.350% 8,671003
2010 • 2012 5,010,000 854,455 5,664,455 6.350% 1,000000 152,680 1.1SUMO 7.350% 8017,135
2011 2013 5,255,000 336,320 5,591,320 6,400% 1,070.000 79,180 1,149,180 7.400% 6,740,500
2012 2014 0 0 0 0000% 0 0 0 0.000% 0
2013 2015 0 0 0 0.000% 0 0 0 0.000%, 0 .
Totals 45,000000 39200,353 84.200.953 9.000.000 6.403,674 15.403,674 99,604,027
Annual Interest.....-: 39,200,353 Annual Interest 6.403,674
Plus Olsoota4 .,. ......: 720.000 Plus Discount...... • 153,000
Net Interest Cost_.... 39,920,353 Net Interest Cost • • 6,556.674
Pand Years....-......: 630,565.00 Bond Years.............: 66,350.00
Average Ma0NNy .......: 14.01 Average Maturity • 9.82
Net Interest Rate......: 6.3309% Net Interest Rite......: 7.4212%
True Interest Rate.... 6.3850% True Interest Rate.._ 7.5000%
Prepared: 06- Oct -92
By SPRINOSTED Incorporated
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ISO 112, Chaska, Minnesota
G.O. chool Building Bonds, 1993 a 1998 Pre pared
October 7, 1992
G.O 98
By SPRINGSTED Incorporated .
Impact of $54,000,000 p
.Impact on Taxes Payable 1992*
Chanhassen /Chaska
Residential Homestead Property Net Tax Capacity Rate:
Minnesota Property Class: lA 127.875%
I
I Market Net Tax Increase
Value ** Tax W ithout I E. Without I
Estimated Net Increase 1
Ca Tax )
Al. . With
. c , al Tax 1
I Tax Capacity Rate Increase; 1 1 id "'' i
Tota Ne T x Ca _ 1 1 i 13.91 1
1 7.72 1
1 1 7.1
100,000 $500
780 s99y 1, $15 9 5100 5709 7 1
$50,000
I , 1,280 i 63 2 155 1 $ 0 I
23 T I 1,891 ( 1,106 109 1
150,000 1,830 2,340 1 2,703 3 1 1,815 178 1
125,000 I 2,455 3,139 1 3,627 3 1 3,481 255 1
175 488 i
,000 3,080 3,939 1 4,550 3,481 342
175 ,000
II 000 3,705 4,738 3 5 1 5,473 7 5 1 4,367 2 3 428 (
6 205 - 166 735 1 8,798 515
1 23 8 798 863
1 * The above schedule shows the estimated increase in taxes p a y able
market values if the estimated tax capacity rate increase due to the above
project were added to the current tax capacity rate for t at various
II1** Estimated market value is the basis from which axes payable in o
1992.
This value is not necessarily the price the rope tax u is ca
II p proper net
woulld daci bring if sold.
calculated.
1
1
1
.
Levy Impact
Nev Issue
Kaxiaize Debt Bqualizatioa aid
Nev Reduce Net
Levy Issue Tax Increa
Year Iapact Increase Iapact
1992 11.831 11.831 f
1993 13.931 7.111 6.761
1994 13.921 7.531 6.391
1995 13.881 7.551 6.341 r
1996 13.881 7.781 6.091
1997
13.851 7.691 6.161
1998 13.821 5.641 8.181 I
2001 13.861 4.111 9.691
13.891 1.191 12.701
2001 14.031 1.251 13,781
2002 14.041 14.041 ill
2013 14.031 14.031
2004 14.011 14.011
II
2005 13.971 13.970
2006 13.941 13.941
2007 13.910 13.911
2008 13.871 13.871 II
2009 13.641 13.641
2010 13.611 13.611
2011 14.531 14.531
2812 0.001 I
2013 0.001
Ave 0.1382195 0.1137322739
1
1
1
1
1 Market Tax Impact
Capacity
1 $51,001,01 $511.11 $56.87
$75,800.01 $780,01 888,71
$101,080.00 $1,280.00 8145.58
8125,000,80 81,830,00 8208.13
8150,000,00 82,455.01 $279.21
5175,000.11 83,880,00 $351,30
8200,000,00 83,105.01 8421.38 i_
S300,000.11 $6,205,00 $715.11