Tax-Exempt Review Committee

Boards, Commissions & Committees

Tax-Exempt Review Committee - June 26, 2018 Minutes

Regular Meeting Tuesday, June 26, 2018

The June meeting of the Tax Exempt Review Committee of the City of Fargo, North Dakota, was held in the City Commission Room at City Hall at 1:00 p.m., Tuesday, June 26, 2018.

The committee members present or absent are:
Present: Dave Piepkorn, Mayor Tim Mahoney, Bruce Grubb, Kent Costin, Jim Gilmour, Ben Hushka, Robert Wilson, Erik Johnson, Chuck Hoge, Jackie Gapp, Mark Lemer, Jim Buus
Absent: Jessica Ebeling
Others Present: Mark Vaux representing FMEDC

Commissioner Piepkorn called the meeting to order at 1:00 p.m.

A motion was made by Jum Buus, seconded by Chuck Hoge, to approve the minutes from the May meeting held on May 22, 2018. Motion carried.

Presentation by Jim Gilmour of Proposed Changes To TIF Policy
Jim Gilmour went through a summary of the proposed changes to the TIF policy. Gilmour said that policies #1 & #2 define the differences between projects where there is slum and blight and those where there is new development. He said the policy #6 change removed the cap of 50% of costs for land acquisition and policy #8 reduces TIF assistance from 15% to 10% because of the lower mill levies. Gilmour said that the financial consultant recommended, for policies #12 & #15, fees and interest rates be set by schedule. He also said the consultant suggested a lower fee than the current $5,000 be set for smaller projects. Gilmour said that policy #16 is new and requires the developer to be in good standing on taxes and code compliance. He said that policy #17 calls for the City to do a follow-up review of the financials after 3 to 5 years. Mr. Gilmour said that policy #18 allows for some assistance for new housing replacement when there is development of higher density housing where lower density existed.

Commissioner Piepkorn asked about the options and availability for public comment. Mr. Gilmour said that these changes were posted online and the next step would be to meet with the County and school districts. Mr. Gilmour stated that he would encourage interested parties to submit written public comment. He said that the evaluation criteria has been added since the last meeting. The new criteria recommendations are in the format of listed objectives and a project needing to meet a certain number to be eligible.

Kent Costin asked about policy #6 for land write-down where the 50% for total assistance was eliminated. He said that was there to limit excessive payment for developer land write-downs. Mr. Gilmour said that he has kept two important criteria to prevent paying excessive amounts for land. He said that land acquisition assistance would be no more than 150% of the Assessor’s value and the other is the difference between what the developer paid for the property less the Assessor’s land value (not including buildings).

Commissioner Piepkorn stated that the next important step should be to meet with the County and schools. Mayor Mahoney said that those meetings should show graphs and charts showing the impact on taxes with these incentives. Mr. Gilmour said that, for the next steps, he will put this item on the Renaissance Zone Authority agenda, then contact the County and school districts to get on their agendas as well as solicit public comment. Mark Lemer suggested trying to have a joint meeting with the County and schools. Rob Wilson concurred that the County would favor a joint meeting.

Mark Lemer asked if there was a 15 year TIF and has whatever entities are a part of that, and there are amendments to the TIF, if the County and schools still have a say. Jim Gilmour said that state law says that when there are tax incentives under certain circumstances the County and schools must be a part of the discussion. He said that he assumes if the amendments affect the incentive, that they would also have to be included. He also said that any time amendments are made to TIF agreements, they are required to give notice to the County and affected school district.

Continued Discussion on the Review of the Apartment Incentive Policy
Jim Gilmour addressed the apartment incentive policy change recommendations. Within the downtown area, the current policy is 100% for five years and 75% for five years with no financial review. The new policy recommendation would be 100% for five years. He said it could go up to 15 years but that would require a financial “but-for” test with the amount exempt capped at a max of 90%. Gilmour said there could be language added that it could be scaled down on a graduated scale. He said that, for lower income housing, the maximum could be up to 20 years and a maximum of 100% exempt based on the financial review. Mr. Gilmour spoke about the federal Low Income Housing Tax Credit projects. He said that many of these, depending on the credits used, could probably afford no tax liability during the affordability term.

Mr. Gilmour spoke of the policy in the University Mixed Use Zone where, subject to financial review, would provide 100% exemption for five years and 50% for five years. He is not recommending a change to that policy

Public Comments Received
Larry Nygard representing Roers Development addressed the committee.

Mr. Nygard said that they will likely also submit some of their comments in writing.

Mr. Nygard said that he wasn’t clear about he change in the land write-down policy. He said that he wasn’t clear if it refers to the aggregate or the individual properties where there is an assemblage of a number of properties. He said here may need to be some clarification on that.

Mr. Nygard addressed the 10% cap in policy #8. He said that he was wondering if the expenses addressed in policy #12 are included in the 10% cap in policy #8. Mr. Nygard stated that they have experienced some major expense for public infrastructure, like a lift station. He suggested that those things that are by request of the City should not be included in the 10% cap.

Mike Allmendinger, representing Kilbourne Group, addressed the committee.

Mike said that he echoes some of the comments that Mr. Nygard made. He said that the 150% of land policy could be looked at by seeing what land is being assessed at on surface parking lots and other land compared to what it is selling for.

Mike said that he also has a concern about the 10% of hard capital cost in policy #8. He said that rather having the hard rule of 10%, to use the “but-for” test to determine the limit.

Mike also questioned how the post-project review, according to policy #17, would be done. He said that we would like to know exactly what we would be signing up for beforehand.

Mr. Allmendinger also expressed concerns about the design standards for projects using TIF. He said that the Renaissance Zone has pretty good design requirements.

Jim Roers, representing Roers Development, addressed the committee.

Mr. Roers said that he also agrees with the comments made previously about the 10% cap. He says that he feels the “but-for” test is very thorough and effective. He said that rather than going down to 10% from 15%, you should go up to 20% giving latitude to deal with some of the extraordinary expenses. He said on the 19th Avenue project, they paid for a $350,000 lift station. Mr. Roers said that these projects pay back a big dividend to the community. He said the taxes on that project were less than $25,000 a year before he assembled them and today they are about $250,000 and that TIF will expire this year.

Mr. Roers said that another thing that should be addressed . He said that some of the projects they are doing in blighted areas include assembling some pretty rundown properties that need to be boarded up until the assemblage can be completed enough to develop. He said they would like to temporarily maintain the blighted status until they can develop the sites. Mr. Gilmour said that they can write some of that into the renewal plans.

Austin Morris, representing Enclave Development, addressed the committee.

Mr. Morris said he has concerns about the post-project financial review after year five. He said there is no criteria defined of what a fair financial return is. He suggested that if there is some sort of bracketed financial model that they could look at and be able to forecast, that would help.

Mr. Morris also expressed concern about the policy being in place for only two years. He said two years is not enough time on some projects to be able to assemble and work on them. He also stated that, regarding affordable housing, he feels there are opportunities downtown to provide mixed affordability projects. He said that some design standards may have to be changed to be able to develop them.

Final Discussion
Jim Gilmour said that the language in policy #17 for the post project review is pretty new and vague.

Kent Costin said that we look at assumptions of certain reasonable rates. He said it would be good if we can look back and verify if the assumptions were accurate or if they have changed. He said we probably need more language in there.

Mayor Mahoney said that we need to take our time and consider what reasonable returns should be. We need to work with the developers and find out from them what their concerns are.

Mark Lemer asked about policy #16 regarding good standing. He asked if the part about no code violations is reasonable. Does that mean that they have never have had a code violation. Jim Buus suggested that it could read no current code violations. Jim Gimour said that he can look at that language. Kent Costin said that the policy should also include any open accounts with the City.

The meeting adjourned at 1:50p.m., Tuesday, June 26, 2018.