TIF-ed off in Edina! – part two

The Grandview redevelopment

In the original TIF-ed off in Edina! story, I discussed the consequences to, especially, the Edina School District, of the establishment of a TIF district for the redevelopment of the commercial office park in Edina known as Pentagon Park. In the briefest of summary: the establishment of a TIF for Pentagon Park by the City of Edina in 2014 froze tax revenues for the Edina School District at a very low level for up to twenty-six years.

There is another potential TIF project coming down the pike in Edina, though; this one would be for the “Grandview” site, the former location of the public works department. (It’s really at the corner of Eden and Arcadia Avenues, just west of Highway 100, near 50th Street.) There have been a couple of advocacy groups formed, dedicated to keeping the site in public hands. It seems that a lot of people in town want the land to remain public and promote its public use.

But based on the discussion of “public-private partnerships,” and all the developers and consultants finning slowly like koi in a pond at public meetings on the subject, it does not seem as though that is going to happen.

The next and last public meeting it will be held on Wednesday, April 22, 2015, at the Edina Senior Center. The session begins at 5:30 PM. It is at this meeting that the city staff will reveal what it proposes to do. Then, the project is presented at a council work session in May, and will be considered for approval by the council on June 2, 2015, at a regular meeting of the council.

The prospect for a TIF-ed project at the site was explicitly mentioned by the city at the last open house “discovery” session about Grandview that took place on March 11^th.

It’s said that a public-private partnership would result in the construction of some public facilities paid for, in effect, by private development money, as part of a (much) larger development that would include a hundred, or a hundred and fifty, apartment units. That may be true, as far as it goes, but it fails to consider the collateral damage to other taxpayers and other taxing districts, specifically the Edina School District, and Hennepin County, too. A TIF cannot be used to construct the publically-owned portion of any improvements, either. The City might have to lease them from the developer.

The potential loss to the school district and county for a Grandview TIF is significant. You really have to read the original Pentagon Park story, all 3,000 words of it, to understand completely why. Sorry.

Recall that a TIF freezes property taxes at a “certified” level when a TIF is declared or established. There are no property taxes currently payable on the Grandview site, since the city owns it; the taxes could be certified at zero. All taxes payable because the property went into private hands and the assessment was increased from zero when the development is built would be captured by the TIF authority, the HRA in Edina. That’s because they would all be incremental taxes. And as such, these taxes could be rebated to the developer for “eligible expenses,” or to pay for infrastructure (streets, sewer and water, etc.) benefitting the developer, under the TIF, for the duration of the TIF.

Parenthetically, as you would know if you read the original story, not 100% of the school district taxes would be captured by the TIF, “only” the net tax capacity or NTC portion, which is about 57% of the school’s taxes on the Pentagon Park TIF payable in 2015, for comparison. The referendum market value (RMV) tax levy would increase and be payable to the district. But the NTC levy is a material amount of money.

Among the things that make Grandview worse than Pentagon Park is that Grandview as envisioned will attract residents – and therefore kids – who will attend the schools in Edina. Not that we mind kids; we like kids, actually, a lot. But kids are expensive, for parents, and for school districts. I don’t like the idea of attracting families to the district and then denying responsibility for the additional facilities burden they place on the school district. (The state would, of course, still pay for students under the per-pupil formula, but that does not cover the entire education cost, especially the capital cost.)

This is what is already happening at an apartment building called One Southdale Place, in the Southdale 2 TIF. The school district will not receive property taxes on the increase in the net tax capacity from the construction of One Southdale Place until the TIF is done. The TIF-certified EMV of One Southdale Place is presently “frozen” at $2,852,400, although its EMV is $35,485,700.

There are students from the apartment building enrolled in the public schools starting this fall.

In John Reinan’s Strib story linked above, the cost of constructing the cheapest of the three alternatives presented at the recent public meeting was more than $60 million; the most expensive was a lot more, although not specified.

The TIF diversion to the HRA is for all the levels of government involved: city, county, school district, and don’t forget the mosquito control people, and the Minnehaha Creek Watershed District, would likely be a million dollars or more a year, in the early years, once the project is up, and more later, if we assume a general rise in property values. For potentially twenty-six years. If the developer paid $4 – 5 million dollars for the property, probably about what it is worth, it would be peanuts compared to the TIF benefits that would accrue.

So here’s a question:

What is the difference between the cost of constructing a completely public facility at Grandview vs. the cost of the developer incentives that the city will give – and not entirely or even mostly its own tax money – for the public/private deal?

I don’t think the question has ever been posed that way. And if the city has ever considered alternatives in this manner, it hasn’t shared them with the public. But I’ll bet you could build a pretty nice public facility, or get a good start on one, anyway, for the taxes in the aggregate that will be lost and the incentives given to the developer.

I think this is an especially appropriate inquiry, in view of the facts that 1) the property is presently owned by the city and therefore its residents, and 2) that substantial OPM (other people’s money) aspect of the prospective incentives the city would hand out.

A TIFed project would only contribute to the city and county tax base, and perhaps half of the school tax base, after the TIF district was dissolved, perhaps in a generation.

Figuring out the effective tax rates for the county, city, and the NTC portion of the school district isn’t easy. When you approach experts on the subject, they mostly tell you how complicated the system is. I decided to back into the effective rates (for payable 2015, anyway), by selecting some properties in Edina, commercial and non-homestead residential, and dividing the levies for the county, city, and the NTC portion only of the school district levies by the EMVs (estimated market values) for each property.

The resulting percentage, kind of a rump mill rate (for those of you who remember mill rates), was the same from property to property in each of the two classifications. Here is what I got:

Commercial
County: .0062
City: .0035
NTC School: .0026

Non-homestead residential
County: .0058
City: .0033
NTC School: .0023

I picked specimen properties that were either office buildings or apartment buildings: single use. The planned improvements at Grandview are mixed use; we’ll use a blended rate that is the average of the two rates. This is just an estimating exercise, after all.

It is also worth a mention that there are other property taxing authorities that I am ignoring for this exercise: the mosquito control district, the watershed district, the metro rail authority, and others, too.

Also not included is the levy that would result from a successful referendum by the Edina Public Schools next month.

We also have to decide what the private improvements will be worth. As mentioned earlier, the estimates were from $60 million up for the total project, including any public facilities. I am going to use the figure of $100 million EMV for private improvements when the project is built, because it is probably in the ball park, and it’s also round. (If you want to use different estimates, it’s easy: just multiply my figures by your estimate. If you think $60 million is a more realistic figure, for example, just multiply the figures below by .6.)

Using these assumptions, and remember that is what they are, on an annual basis, when the completed project is assessed, and assuming a TIF certification of zero, here are the taxes lost for the big three taxing jurisdictions:

County
$100 million x .0060 = $600,000

City of Edina
$100 million x .0034 = $340,000

School District NTC only
$100 million x .00245 = $245,000

That’s $1.185 million a year. That would be every year for the duration of the TIF; it does not account for any increase in real estate prices, and consequent tax increases in later years. The other taxing district levies would also push that number up.

TIFs vary in duration by type, but the ones that have “redevelop” in their names can be as long as twenty-six years; the city calls it the “Grandview Redevelopment.”

I hasten to repeat this is an estimate only, order of magnitude, exercise. There are many factors that will affect the taxation of the buildings in coming years, including a general rise in real estate values. It doesn’t include any of the externalities of a dense housing project: traffic, noise, and consumption of public services, etc., either.

But it does provide some sense of the cost to the taxpayers, and it provides a foil to a claim, like the one made at Pentagon Park, that the cost to the other taxing jurisdictions would be “zero.”

Update: If you’d like a compact description of what a TIF is, and links to many sources of articles about them, I recommend this post from A Better Grandview.