Tax-Exempt Review Committee

Boards, Commissions & Committees

Tax-Exempt Review Committee - May 22, 2018 Minutes

Regular Meeting, Tuesday, May 22, 2018

The March 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, May 22, 2018.

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

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

A motion was made by Mayor Mahoney, seconded by Jessica Ebeling, to approve the minutes from the March meeting held on March 27, 2018. Motion carried.

Presentation by Jim Gilmour of Proposed Changes To Downtown Incentive Policy
Jim Gilmour said that we should discuss how we get to the end of this review and get to the point of recommending adoption of the policy changes. He said that he will bring the recommended scoring criteria to the June meeting and hopefully finalize the changes, put it out for public comment as well as to the Renaissance Zone Authority, the County, and School, and then to City Commission for adoption. He said that Commissioner Grindberg suggested that when this gets adopted in July, that it would be for a term of at least two years so developers would know this would be the policy at least until the next election cycle. He asked if anyone has any additional input.

Bruce Grubb asked about the previous discussions regarding a look back process for projects receiving an incentive. Mr. Gilmour said that part of it is an issue of which projects would be subject to the look back. He said that there is also a question of what type of information would be part of that review. He said that there was a certain amount of push-back from some developers questioning exactly how this would be done. Mr. Gilmour said that we’d need to look at how we would do the audit and who would do it and pay for it. Jessica Ebeling said that we had talked about only doing it for the larger projects and that it may not be cost effective to do for all projects.

Commissioner Piepkorn asked if this could be made available online as well as having some type of summary highlighting what is being changed.

Ben Hushka asked Mr. Gilmour about his suggestions at the last meeting for the evaluation criteria. Mr. Gilmour said that he sees the evaluation criteria being a little different that the previous point system. He stated that we have three different types of projects. There is commercial redevelopment, affordable housing, and downtown mixed use. He suggested that there would be three different score sheets; one for each type of project. He suggested that there could be eight or nine different goals for each type of project and that you would need to meet at least five to qualify.

Mayor Mahoney said that there should not only be a look back on incentives granted for the purpose of claw-backs if they are unsuccessful but, also to show where they are successful and are working to attract businesses and low income housing. The Mayor said that some of the incentives today need to go up to 10 to 15 years because of the lower tax rates requiring a longer term to get the return on the investment. Commissioner Piepkorn said that these incentives are very low risk because there are no actual cash outlays on the City’s or taxpayer’s part.

Mayor Mahoney asked about how the new opportunity zones will work and what will the City of Fargo do now that the zones are established? Jim Gilmour said that the IRS and the State will be issuing some guidance later this year. He said that we should work with the EDC and Downtown Partnership to publicize that these areas are opportunity zones and there are advantages for developers and investors.

Mayor Mahoney asked if there could be a goal set for the number of low income housing units we would like to see over the next few years. Jim Gilmour said that we could look back at the last housing study that was done. He said that with the cutback in State funding for low income housing units, we need to look at other things we can do in our policy. Mayor Mahoney said that with the upcoming legislative session, we should be putting together what Fargo needs to assist in the development of low income housing.

Continued Discussion on the Review of the Apartment Incentive Policy
Jim Gilmour gave a brief history of how the current policy came to be, dating back to 1999. He said that most of the downtown housing units were lower income and there was no middle or higher end housing units. Gilmour said the goal then was mostly to get more housing units downtown. He said the policy was that new housing units downtown would get a 100% improvement exemption for 5 years and a 75% improvement exemption for 5 years. He said there was no pro-forma or “but-for” test. Gilmour said that a proposed policy for market rate apartments would be a standard 100% exemption for five years, similar to the Renaissance Zone exemption, with no “but-for” test required. If the development needed more than that, there would be a “but-for” test required. He said that we would go up to 15 years if the test showed that it was needed. Mr. Gilmour said that some suggestions from developers on the scaling of the decreasing exemption amount over time, was that it be more gradual. He suggested an exemption scale of 100% for 4 years and then for the remaining 11 years, scaling the exemption off in 10% increments per year (90%, 80%, 70%,…). He said with a scale like that, tax entities would begin to get money sooner. Mr. Gilmour said that he compared the taxes per year, per apartment unit, in a couple of downtown projects and they were about $1,700/per year/per unit. He said other projects outside of downtown, out on 12th Avenue north were
$1,300. Commissioner Piepkorn said that he really likes the idea of the more gradual phase-out of the exemption because it makes it a little easier to plan.

Jim Gilmour addressed the policy for low income housing units. Mr. Gilmour suggests that the policy would include 15 year, $0 payment and require a “but-for” test and the determination of the incentive would be based on need. He spoke of the two different types of low income housing tax credits; 9% credit and 4% credit. He said that they have not really figured out how to use the 4% credit to make them work. He said that we may need to allow higher density than what can be built now. Gilmour said that statute has addressed the non-profit projects by providing for a payment in lieu of tax based on actual income and expenses.

Jim Gilmour presented and described the proposed changes to the map of the PILOT incentive area for downtown. He said that he feels we should be able to approve the downtown and housing incentive policy changes as well as the map changes now and the TIF policy changes later.

Commissioner Piepkorn asked if there can be additional blocks added for another Renaissance Zone. Jim Gilmour said that he would have to review the statute but, he believes that several satellite blocks can be added to the existing plan. Mr. Gilmour said that development could also be done as effectively with Tax Increment Financing.

Jim Gilmour said that the Renaissance Zone and Opportunity Zones are currently layers on the City of Fargo GIS maps.
Robert Wilson said that the follow-up and dialogue with the County Commission will be critical. He said that there is a demarcation in the minds of a number of commissioners for going above the 10-year mark. Commissioner Piepkorn said that we need to have a joint meeting with them to discuss these things. Mr. Wilson said that the County Commission did go along with a West Fargo incentive for longer than 10 years after long dialogue. Mayor Mahoney said that we should have a brown bag session with graphs and charts. Commissioner Piepkorn said we should also invite developers and the City of West Fargo.

The meeting adjourned at 1:39p.m., Tuesday, May 22, 2018.