City Council Meeting Date: July 23, 2019
To: Mayor and City Council
City Administrator
From: Nate Carlson, Economic Development Coordinator
Title
Consider Approval of Tax Increment Financing District/Agreement with Maple Brook, LLC.
Body
Action Requested:
The Northfield City Council considers approving the attached Resolution approving the Tax Increment Financing District and TIF Agreement with Maple Brook, LLC d.b.a Schrom Construction.
Summary Report:
Schrom Construction, Incorporated is requesting Tax Increment Financing (TIF) incentives from the City of Northfield to assist with a major planned housing development. The project has the potential to increase affordable housing options in Northfield at Maple Street South and Ford Street East. Mr. Troy Schrom, owner of Schrom Construction and President of Maple Brook, LLC, has submitted an application for Housing Development TIF District, which is attached to this report. The proposed “pay-as-you-go” TIF District requires the developer to pay all development costs with their own funds. The “pay as you go” reference is in relation to the owner taking on the full risk of future TIF increment payments annually to repay eligible up-front development costs. As the net tax capacity of the district increases, the increase in property taxes paid by the developer (tax increment) can be used to reimburse the developer for eligible costs such as land acquisition, site preparation, and public infrastructure.
Community Development staff began working with Mr. Schrom and his development team in Fall of 2017. Housing Coordinator Janine Atchison and several members of the Community Development Department met with the developer regarding the project scope and project area. After examining several potential options, it was determined that no other alternative would accommodate Schrom Construction other than the Maple Street project area.
City Planner Scott Tempel is working with the developer on the site plan and the staff Development Review Committee (DRC) will conduct a formal review of the proposed project once a final site plan is submitted. The Planning Commission conducted a review of the variance requests for the project on Thursday, April 18. The Planning Commission granted those variances.
Schrom Construction has proposed a $3.8 million construction of 24 “workforce-housing” units in the area of Maple Street South and Ford Street East in Northfield, MN. The proposed development will include, four attached townhomes including six units for each one that will provide suitable market rate housing accommodations. Each building will provide an equal amount of two and three bedroom units. Included with each unit, will be individual attached garage parking along with additional parking available in driveways, water and sewer, and individual refuse and recycling. Tenants will be responsible for electric, gas, and cable/internet services. The proposed development will also implement and enforce a no smoking policy inside all units. All buildings are designed for optimal energy efficiency for reduced environmental impacts and long-term reductions in operating expenses. Each unit is equipped with Energy Star appliances and high efficiency HVAC systems.
Building construction will consist of slab on grade foundation with wood framing. Each unit includes attached single stall garage with overhead wind rated garage door and opener. Exterior of the buildings will include CertainTeed 30 year shingles and Hardy board cement board siding. The site will be fully landscaped with trees, shrubs, sod and include a lawn irrigation system.
Schrom Construction has submitted an application for a total of 15 years of TIF to assist with the site improvements, foundation work and the annual cash shortfall.
Staff determined that a Housing Development Tax Increment Finance District would facilitate the needs of this project and has been working with Ehlers, Inc. to review the TIF application. Nick Anhut, a public sector advisor from Ehlers, provided an initial analysis of the TIF request and determined the housing project could create more than sufficient tax increment over the statutory maximum 25-year term of a Housing Development TIF District. Additionally, the developer is amenable to abiding by the regulations of a Housing District to set affordable rents for 20 percent of the units, which is five units at or below 50% of Area Median Income (AMI).
The HRA Board met on Tuesday, February 26 and reviewed the TIF request from Schrom Construction. The HRA Board voted unanimously to recommend City Council approval of the TIF request. Staff has reviewed the application and has determined that this application meets all eligibility criteria for Housing Development TIF District.
The project meets with the HRA Goals of creating a community of housing opportunities available along the entire housing spectrum: from renters to homeownership, first-time homeowners, to senior living, and workforce housing. The HRA recognizes the need for all types of housing, at different affordability levels, in Northfield is significant. A recent market study revealed the current rental vacancy rate is .3%. The Maxfield Housing Study done in January 2018 placed the vacancy rate at less than 1%. A vacancy rate of 5% is considered healthy for a community. More than 5% vacancy, while providing lowered rents, can create an unstable market for rental property owners to maintain safe and decent housing. Less than 5% vacancy can drive rental prices up beyond the reach of new and existing tenants while impacting the ability of local business to maintain or increase their workforce.
Minnesota Statutes require developers/owners to adhere to the District Income Limits for Rental Housing Developments. Utilizing TIF financing will ensure that 20% of the newly developed units are affordable to renters whose incomes are at 50% of the area median income (AMI). This requirement will last the life of the TIF district, or 25 years. In addition, the suggested rental rates listed by the developer, for the other 19 units, are within the affordable range of renters whose incomes are at 80% of AMI.
The Spring Creek II project, if funded, planned for 2020, will be affordable to renters whose incomes are at 50% of the AMI or less. However, this project will only be possible through Low Income Housing Tax Credits (LIHTC) and other federal subsidy programs. Without these “deep” subsidies, the project would not be able to serve renters whose incomes are below 100% AMI.
In 2018, the city of Northfield adopted the Northfield Strategic Plan with affordable housing as one of six top priorities. A desired outcome is to grow and maintain affordable and workforce units in the City. A target was set to add 40 new units by 2020. Although “affordable” is not specifically defined, the Department of Housing & Urban Development (HUD) states that housing costs should be no more than 30% of income. Families who pay more than 30% of their income for housing are considered cost burdened. HRA housing programs follow HUD guidelines and provide assistance to households with incomes at 80% or less of the area median income.
The Maple Brook project proposed by Troy Schrom meets the goals of the HRA and the Northfield Strategic Plan by providing 24 units of workforce housing which will be affordable to families at 50% of AMI (5 units) and 80% of AMI (19 units). The project provides much needed workforce housing while helping to ease extremely tight vacancy rates in Northfield.
Alternative Options:
N/A
Financial Impacts:
• TIF Amount Requested: 15 - 20 years of TIF (Amount to be determined)
• Type of TIF District: Housing Development District (25-year Maximum District Life)
• TIF Uses: Site improvements, irrigation construction and engineering of footings and foundations and assistance with annual cash shortfall
• TIF Funding Structure: “Pay-as-you-go.” The Developer will incur all upfront costs and be reimbursed over time.
Tentative Timelines:
May 8 - Rice County and Northfield School District notified of draft TIF Plan
June 12 - Publication of notice of public hearing for TIF
July 2 - Council holds public hearing on TIF and continues the hearing to July 23
July 10 - Republication of notice of public hearing for TIF
July 23 - Public Hearing on TIF
July 23 - Council consideration of Resolution approving the TIF District/Agreement and Public Improvements Development Agreement