Minnesota NAHRO 2017 Redevelopment Symposium

Transcription

1 Minnesota NAHRO 2017 Redevelopment Symposium Getting the Deal Done Legal Nuts & Bolts Andy Pratt & Daniel Burns, Eckberg Lammers, P.C.

2 AGENDA } Redevelopment Law } Elements } Public and private sector roles in Development Agreements } Blight } Acquisition and relocation requirements

3 ELEMENTS: Introduction } Who in here works in (Re)development? } Housing & Redevelopment Authorities (HRAs) } Community Development Agencies (CDAs) } Economic Development Authorities (EDAs) } Port Authorities } Cities, Counties, even Townships } Special joint ventures } EVERYBODY!

4 ELEMENTS: Introduction } Who in here has their own special statutory framework? } Housing & Redevelopment Authorities (HRAs) } Community Development Agencies (CDAs) } Economic Development Authorities (EDAs) } Port Authorities } Cities, Counties, even Townships } Special joint ventures } EVERYBODY!

5 ELEMENTS: Definitions } A Redevelopment Project means any work or undertaking to: 1) acquire blighted areas to remove/ prevent/reduce the blight; 2) prepare, sell or lease sites for uses in accordance with the redevelopment plan; or 3) conduct an urban renewal project.

6 ELEMENTS: Definitions } Blight means: 1) Any area with buildings or improvements which are detrimental to the safety, health, morals, or welfare of the community. No blight in sight Might be blight

7 ELEMENTS: Definitions } Blight means (continued): 1) What s detrimental? Dilapidation Obsolescence Overcrowding Faulty arrangement or design Lack of ventilation, light, and sanitary facilities Excessive land coverage Deleterious land use Obsolete layout Or any combo of the above

8 ELEMENTS: Definitions } A Redevelopment Plan means: } A plan approved by the governing body which provides an outline for the (re)development of the area; and } Is sufficiently complete (1) to indicate its relationship to definite local objectives as to appropriate land uses; and (2) to indicate general land uses and general standards of (re)development.

9 ELEMENTS: Definitions } An Urban Renewal Project means: } undertakings and activities for the elimination or for the prevention of the development or spread of slums or blighted or deteriorating areas and may involve any work or undertaking for that purpose constituting a redevelopment project or any rehabilitation or conservation work.

10 ELEMENTS: Entities } Housing and Redevelopment Authority (HRA) } Minn. Stat } Longstanding HRA traditions } Economic Development Authority (EDA) } Minn. Stat } Newer } May have HRA powers; why create anything else? } Community Development Agency (CDA) } Creatures of special legislation

11 ELEMENTS: Misc. } Ground all Redevelopment Projects in applicable statutes } Consider creating a Redevelopment Project Area coterminous with jurisdictional limits } Public Hearings are required for all new plans and for many plan modifications

12 ROLES: Private } What is the final goal? } Redevelopment Assistance = Gap Financing } Developers often have significant $$ invested

13 ROLES: Public Amenities

14 ROLES: Legal & Policy

15 ROLES: Dev. Agreements } Contract between public entity and developer } May serve as land sale document/purchase agreement if public entity is selling land } Sets construction timelines, nature of public & private improvements, and developer responsibilities } Outlines financing assistance (e.g. TIF, tax abatement, subordinate financing) in great detail.

16 ROLES: Dev. Agreements } Contains important insurance and indemnification language (1) The Developer releases from and covenants and agrees that the City, its governing body members, officers, agents, including the independent contractors, consultants and legal counsel, and employees thereof (collectively, the Indemnified Parties ), shall not be liable for and agrees to indemnify and hold harmless the Indemnified Parties against any loss or damage to property or any injury to or death of any person occurring at or about or resulting from any defect in the Project, provided that the foregoing indemnification shall not be effective for any intentional actions of the Indemnified Parties that are not contemplated by this Agreement. (2) Except for any willful misrepresentation or any willful or wanton misconduct of the Indemnified Parties, the Developer agrees to protect and defend the Indemnified Parties, now and forever, and further agrees to hold the aforesaid harmless from any claim, demand, suit, action or other proceeding whatsoever by any person or entity whatsoever arising or purportedly arising from the actions or inactions of the Developer (or if other persons acting on its behalf or under its direction or control) under this Agreement, or the transactions contemplated hereby or the acquisition, construction, installation, ownership, and operation of the Project. (3) All covenants, stipulations, promises, agreements and obligations of the City contained herein shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the City and not of any governing body member, officer, agent, servant or employee of the City, as the case may be.

17 ROLES: Dev. Agreements } Contains default language (a) Failure by the Developer to timely pay any ad valorem real property taxes assessed with respect to the Development Property. (b) Failure by the Developer to cause the construction of the Project to be completed pursuant to the terms, conditions and limitations of this Agreement or any issued permits for the Project. (c) Failure of the Developer to observe or perform any other covenant, condition, obligation or agreement on its part to be observed or performed under this Agreement. } Condition provision of assistance upon developer incurring qualifying costs } Describe private security to be offered (e.g. cash, performance bond, letter of credit)

18 ROLES: Dev. Agreements } Business subsidy is any grant, contribution of property, loan at below-market interest rates, etc., extended to a private business } If amount of assistance is more than $150,000 and does not meet an exception to the business subsidy law, a business subsidy agreement must be executed } If amount of assistance is more than $25,000 (or is a loan of more than $75,000), no business subsidy agreement required, but City must extend subsidy pursuant to adopted business subsidy criteria

19 ROLES: Dev. Agreements } Theoretically, the use of TIF, tax abatement, and other economic development incentives triggers compliance with business subsidy law } Business subsidy agreement (often contained in Development Agreement) must contain detailed language regarding job and wage goals and public purpose(s) } If business does not meet goals outlined in agreement, business must pay back a proportionate amount of the subsidy } Public hearings and detailed reports are required

20 ROLES: Dev. Agreements } Get structure of Agreement approved by governing body early in process; can make minor changes without bringing back for another approval } Get escrow from developer to pay for Agreement drafting and consultant work } Think about whether Agreement should be assignable

21 BLIGHT: Tax Increment Financing } Basics: } TIF captures new taxes from a development that would not have occurred but for the utilization of TIF. } Example: Prime parcel of land contains dilapidated building. City creates TIF District; land has low value. City/developer demolishes building, prepares new site, installs infrastructure, etc. } New development is constructed. Land has increased value. The difference between the original value and the value after development may be captured by the City to pay for demo/site prep/infrastructure costs, or transferred to developer to reimburse for these costs.

22 BLIGHT: Tax Increment Financing } TIF Districts: } Redevelopment à most common (48% of all Districts) } Housing (31% of all Districts) } Economic Development (18% of all Districts) } Renewal and Renovation (1% of all Districts) } Soils Condition (1% of all Districts) } Uncodified (2% of all Districts)

23 BLIGHT: Tax Increment Financing } Redevelopment TIF District: } 25-year maximum duration. } Parcels consisting of 70% of the District area must be occupied by buildings, streets, improvements, etc., and more than 50% of buildings must be structurally substandard. } Engineer, building inspector, or hired consultant typically makes report with the above substandard findings that Council relies on. } 90% of the TIF revenues received must correct the underlying redevelopment issues (i.e. site preparation, demolition, installing infrastructure, acquiring properties, etc.).

24 BLIGHT: Tax Increment Financing } Blight findings: } Blight must be reasonably distributed throughout the District } Richfield Best Buy case } Blight/structurally substandard findings similar to redevelopment project findings } Document findings } Governing body resolution } Appendices } Pictures

25 BLIGHT: Tax Increment Financing } Blight findings: } NOT structurally substandard if: } Building is in compliance with Building Code } Building could be modified to satisfy Building Code at a cost of less than 15% of the cost of constructing a new structure of the same square footage and type on the site } New office building costs $500K to build hypothetical building repairs must be at least $75,000 } Calculate hypothetical building repair cost based on interior inspection } Inspection not required if access not allowed; then rely on other evidence like property tax appraisals, exterior evidence of deterioration, fire calls, etc.

26 BLIGHT: Tax Increment Financing } Early demolition test: } Property was occupied by substandard building/improvements within 3 years of TIF certification request } Substandard building/improvements were demolished by public entity or through a developer under a development agreement } Public entity found by resolution before demolition that property was occupied by structurally substandard building/improvements } Public entity additionally finds that it intends to include the property within a future TIF District (no mandated timeline for this to happen) } County Auditor values the property at the greater of its current net tax capacity, or the net tax capacity with the demolished building/improvements present

27 Housing TIF Districts } 25-year maximum duration } Intended to promote low- and moderate-income housing, both rental and ownership. Also good for senior housing. } Income limits must be adhered to for TIF-financed housing } Ownership à 95% of units must be initially purchased and occupied by those with family income at 115% or less of Area Median Income } Rental à At least 20% or more of units must be occupied by those with income at 50% or less of AMI, OR at least 40% of units must be occupied by those with income at 60% or less of AMI } Up to 20% of building square footage in a Housing TIF District may consist of commercial, retail, or other non-housing uses.

28 Econ. Dev. TIF Districts } Economic Development } NO blight findings needed } 8-year maximum duration } Limited to the following uses: } Manufacturing } Warehousing/storage/distribution } Research & Development } Telemarketing } Tourism facilities

29 Other TIF Districts } Renewal and Renovation (Redevelopment-lite) } 15-year maximum duration } Same rules as Redevelopment TIF District, but only 20% of buildings must be structurally substandard } Soils Condition } 20-year maximum duration } Finances clean up of contaminated soils

30 TIF Process } Identify parcels or projects that may be eligible } Prepare TIF Plan à contains budget, description of project, anticipated expenditures, etc. } Notify County Board & School District } Planning Commission and EDA/HRA consider } Publish notice of public hearing } Council holds public hearing and approves/rejects TIF District creation } If approved, certify TIF District with County; EDA/HRA administers } Negotiate with developer and/or finance TIF improvements

31 TIF Process } Development would not occur through private investment in reasonably foreseeable future } But for test } Increase in market value of site without TIF would be less than increase expected to result from TIF-assisted development, after subtracting present value of TIF } State Auditor reviews this finding carefully } TIF Plan conforms to comprehensive plan } TIF Plan affords maximum opportunity for development of District by private enterprise

32 TIF Process -- Financing } Traditional method } City pays for up-front development costs from TIF Bonds } Risk on City to meet debt service requirements } Get Minimum Assessment Agreement for property ensures steady stream of TIF revenues } Newer method (PAYGO) } Developer pays for all up-front improvements } City issues TIF Note to Developer } Developer is reimbursed for up-front costs through TIF received over time (no general obligation of City)

33 Main TIF Prohibitions } No government buildings (except for parking structures) } No public parks } No publicly-owned social, recreational or conference facilities } Must have some qualifying activity on each parcel within TIF District within 4 years } Must have some contract or expenditures made within 5 years } Green Acres property typically only usable for housing districts or qualifying manufacturing facilities

34 LAND ACQUISITION & RELOCATION } Municipalities may purchase real property inside or outside of their corporate limits; also may acquire as part of a redevelopment project } If condemning property, must pay relocation assistance to property owners and tenants even if no federal funding is available ($50K cap in relocation assistance for nonresidential moves) } If negotiating the purchase of property, must even pay relocation } Include waiver of relocation benefits in purchase contract, or at least specify the amount of $$ paid for relocation } Any disputes go to an administrative law judge

35 LAND TRANSFERS } HRA s may lease or sell property after a public hearing. If sold, HRA must certify that all construction (if any) is complete by the purchaser before the land may be conveyed again. } EDA s may sell property after a public hearing; taxpayers have the right to contest in court. Purchaser must begin work on intended use within one year of sale if not, EDA may cancel sale and title to property returns to it.

36 NEXT STEPS? } Does blight remain relevant? What about redeveloping communities for other reasons? } Smooth out transportation patterns car, bus, train, bike, walk } Retrofit buildings for better energy efficiency } Encourage higher density? St. Paul example } Is Tax Abatement a viable option? } Other options to redevelop?

37 HOUSE TAX BILL } Eliminates tax-exempt Private Activity Bonds (PAB) } Residential rental housing, airports, hospitals, non-profit & 501(c)(3) financings } Eliminates Advance Refundings } Repeals Tax Credit Bonds } Repeals tax credits related to the rehabilitation of old and/or historic buildings } Terminates new market tax credits } Senate tax bill retains PAB s and new market tax credits but also eliminates advance refundings

38 QUESTIONS? } Andy Pratt } Daniel Burns Eckberg Lammers, P.C Northwestern Avenue Stillwater, Minnesota (Andy) (Daniel) apratt@eckberglammers.com dburns@eckberglammers.com