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2. Tax Increment PolicyDRAFT ONLY APPLICATION PROCESS TAX INCREMENT FINANCING I. INTRODUCTION The existence of blighted areas within the municipalities of Montana has been identified by the state legislature as a problem which requires government action. Enabling legislation has given local governing bodies the authority to establish urban renewal districts, utilize urban renewal powers, and implement urban renewal projects through the use of tax increment financing. Tax increment financing (TIF) is a significant element of the urban renewal law, allowing urban renewal programs to be financed locally without reliance on limited federal funds. The principal behind TIF is the ability of the local governments to use the increase in taxes within a specified district above an established base year for redevelopment projects. In 1979 Kalispell adopted an urban renewal plan and designed the central business district as a blighted area. Property taxes continue to be paid to all taxing jurisdictions on the basis of the 1979 taxable valuation. Any subsequent tax increases due to new development, inflation, or re -appraisals, however, are set aside for the City of Kalispell which has been delegated the authority to undertake urban renewal efforts. After the expiration of urban renewal authority on 1987 or after retiring of all bonded indebtedness incurred for renewal activities, the base year restriction is eliminated and the local taxing jurisdictions obtain the additional tax revenues generated through redevelopment. Kalispell subsequently approved Ordinance No. 1259 creating the West Side Urban Renewal Plan, establishing January 1, 1997 as the base year for calculating the Tax Increment, and Ordinance No. 1242 creating the City Airport/Athletic Complex Redevelopment Plan. II. UTILIZATION OF FUNDS Tax increment financing is not an abatement program for new development. Revenues obtained, however, may be utilized to encourage the implementation of public or private projects. Priority in funding assistance will be given to publicly owned utility improvements for a development vs. a request for on -site utility improvements assistance in the form of a low interest loan. As specified in state law, the City of Kalispell may utilize TIF for the following activities: 1) 2) 3) 4) 5) 6) 7) Land acquisition; Demolition and removal of structures; Relocation of occupants Public improvements; and Costs incurred in the exercise of urban renewal powers, including urban renewal projects as authorized by Kalispell City Council, Ordinance 933. Loans and grants may be eligible under this provision. Acquisition of infrastructure -deficient areas or portions thereof; Administrative costs associated with the management of the industrial district; 12/13/98 DRAFT ONLY 8) Assemblage of land for development or redevelopment by private enterprise or public agencies, including sale, initial leasing, or retention by the municipality itself at its fair value; 9) The compilation and analysis of pertinent information required to adequately determine the infrastructure needs of secondary, value -adding industries in the industrial district; 10) The connection of the industrial district to existing infrastructure outside the industrial district; and 11) The provision of direct assistance to secondary, value -adding industries to assist in meeting their infrastructure and land needs within the industrial district. Costs to be paid with TIF monies may not be incurred by the applicant prior to the effective date of funding approval and the satisfaction of any conditions of such approval. Additionally, TIF assistance to a proposed project shall not exceed 10% of the entire project cost. The City Council will evaluate the "but for statement" of each project in determining that private investment is contingent on TIF, based on cash -on -cash return and internal rate of return. The City Council has chosen to create a low interest loan fund available to qualifying developers for on -site work covering: ■ Acquisition ■ Land assemblage ■ Landscaping ■ Site Lighting ■ On -site Utility Work and Utility Taps ■ Parking — Paving and Striping ■ Direct assistance in the rehabilitation, retention or development of affordable housing for the low and very low income residents. Development activities such as building, plan review, design or management fees are not eligible activities to be funded with TIF. The eligible amount of on -site development activities will be considered as part of the 10% limit based on the total project cost. The interest and repayment terms for a low interest loan for on -site redevelopment purposes are: 3% for loans not exceeding $75,000 for a maximum 15 year term 5% for loans ranging from $75,000 to $125,000 for a maximum 15 year term 5% for loans over $125,000 for a maximum 20 year term III. APPLICATION PROCESS The City Council of the City of Kalispell has the authority to assist developers in the implementation of redevelopment projects. The following procedure has been developed to process TIF funding requests. 12/13/98 2 DRAFT ONLY The Community Development staff will assist the developer in preparing a formal application. Upon submittal by the developer of all necessary information, the staff will arrange for a presentation by the Developer to the City Council at a workshop session. IV. APPLICATION REQUIREMENTS 1) Project Description — A description of the project, type of development and scope of work including: ■ Plans/schematics ■ Project schedule — proposed timetable for completion of project ■ Project feasibility — substantiate the market and economic feasibility of the project 21 Project Financing — A description of the financial arrangements of the project to include: ➢ Source of funds — detailing terms and conditions. ➢ Lender commitments — evidence of commitments of funds necessary for completing the project. ➢ Cost breakdown — estimated cost of project ➢ pro forma —projections of anticipated income, expenses, cash flow and depreciation for the first five years of the project. 3) Development Entity — A public disclosure of the development entity and other involved parties including information on qualifications and past experience. 4) Financial Disclosure — Full financial disclosure of development entity with evidence that the developer as both the financial and legal ability to complete the proposed project. As per adopted policy, this information will be kept confidential, subject to a challenge of this policy in a court of law. Provide a letter from financial source. 5) Necessity of TIF — A "but for statement" that private investment is contingent on TIF, based on cash -on -cash return and internal rate of return. 6) Leverage Ratio — Ratio of public to private investment. 7) Employment Generated —Best estimate of construction and permanent jobs to be generated by the project and a wage/salary scale for employment created. 8) Letters of Intent from tenants for lease project. 9) Tax Generation — The existing tax base of the property upon which TIF assistance is requested must be compared to the anticipated tax base resulting from the proposed project and must demonstrate that the increase in taxes generated by proposed project will cover TIF assistance over a period of ten years. 12/13/98 3 DRAFT ONLY IV. CRITERIA. FOR REVIEW The submission of an application for tax increment assistance begins the review process by City Council. Materials contained in the application provide information needed to assess the merits of the project in relation to the goals and objectives of the Urban Renewal Plan. This will allow the City Council to decide between competing projects or determine if a proposal has sufficient benefits to warrant assistance. The City Council will evaluate: ■ Economic Stimulus ■ Employment Generation ■ Tax Generation ■ Elimination of Blight ■ Financial Assistance — Other forms of financing associated with the project including equity, lender participation, industrial development revenue bonds, and state or federal monies will be examined to assess the need for TIF assistance. ■ Developer Past Performance ■ Project Feasibility ■ Impact Analysis/Assessment — This is based on environmental impacts, design and dislocation associated with the project. ■ Special or Unique Opportunities — The extent to which the project represents a special or unique opportunity to meet local priority needs that are consistent with economic revitalization and urban redevelopment objectives. ■ Timely Completion ■ The Amount of TIF Assistance requested. 12/13/98 4