Boundary change allows Anoka HRA to spend TIF in new areas

Anoka’s Housing and Redevelopment Authority (HRA) will now be allowed to spend funds generated by tax increment financing (TIF) in some new areas of the city.

The Anoka City Council Monday approved the modification of boundaries for the HRA’s TIF district project area, following a review by the HRA, the city’s Planning Commission and a public hearing that took place during Monday’s council meeting.

This move is consistent with similar changes the council made to its own TIF district project boundaries last fall.

TIF is the ability for cities to capture and use most of the increased local property tax revenues from a new development within a defined geographic area, according to Stacie Kvilvang, a financial adviser with Ehlers, the consulting firm hired by the city to evaluate the modification.

For example, if a property inside a designated TIF district is redeveloped and its value goes from $100,000 to $500,000, the city would be able to capture the property tax revenues from that $400,000 increase for a defined number of years.

Without a TIF district, those revenues would normally be split between the city, county and school district.

In turn, TIF money can only be used for specific development activities, like land acquisition and relocation, demolition and clearance, site improvements and parking and public utilities. Recreation and city buildings are not eligible uses for TIF revenues.

To qualify for a TIF district, more than 50 percent of the existing properties within the district must be found substandard – meaning it would cost at least 15 percent of the cost of new construction to bring the building up to code.

“When you have a city that is fully developed it’s hard to get anything done without assistance for those projects and TIF is how we do it,” said Mayor Phil Rice on the challenges of redeveloping an older city.

Often, redevelopment projects are too complicated or expensive for the private market to take care of, he said.

 

A case for change

Monday’s boundary change was prompted by the HRA’s desire to use TIF money for the purchase of the RiverWay Clinic, said Community Development Director Bob Kirchner, who is also serving as the interim director of the HRA.

The HRA has agreed to buy the clinic building as part of a larger development deal that will see HealthPartners build a new clinic on Highway 10, at the current site of Castle Field.

But under the old parameters of TIF project boundaries, using TIF money to buy the clinic at 1833 Second Avenue would not have been possible. The HRA would have been forced to use $450,000 from its general fund for the acquisition.

Monday’s modification expanding those boundaries will include a portion of the South Central Business District covering a two-and-half block area bordered by the Rum River on the west, Monroe Street to the north, Madison to the south and the property line behind properties facing Third Avenue. Additions on the west side of the Rum River include the South Ferry Street District (bordered by the Rum and Mississippi rivers on the west and south sides, Webster Street to the north and Franklin Avenue on west side), as well as an area near the Green Haven Golf Club.

Those expansions would then also allow the HRA to use TIF-generated money along South Ferry Street as well as in the Highland Park neighborhood.

Already the HRA has purchased blighted properties in both of those areas, using money from its general fund.

The expansion of the project boundaries does not change the TIF district established back in 1985, nor does it extend the time on the district, which is set to end in 2014. The HRA’s second TIF district will end in 2017.

“There will be no new parcels and no new revenues,” said Kirchner of the action to expand the project boundaries.

 

Call for decertification

While the boundary changes were supported unanimously by the council, it did open up a debate on TIF policy and its merits.

Pat Walker, a commissioner with the HRA, challenged the council to oppose the expansion of the boundaries and decertify the district.

Walker was the lone opposing vote when the HRA considered the modification last month.

He doesn’t oppose the concept of tax increment financing, but does have a problem with the length of time those captured funds can be used, Walker said.

“TIF is a good financing mechanism for the cities, I’m not here to debate that,” he said during Monday’s public hearing.

According to Walker, once the redevelopment costs within a TIF district are paid, it should be taken offline – returning increased property tax revenues to local governments.

“Once those bills are paid, the money that is being generated is the return on our investment. The money should be returned to the general fund, the county and the school district,” said Walker.

He said continuing to capture those TIF revenues is an abuse of the program.

If the city had TIF revenues in its general fund, Anoka would not have seen a tax rate interest last year, Walker said.

Decertification was not on the table Monday night and members of the council and the HRA feel TIF has allowed the city to do projects that might not have been otherwise feasible.

Over the years amendments to state law have changed the rules for districts created after 1990, including restrictions on pooling, or the use of TIF revenues outside of the district in which they were generated, now limited to 25 percent.

“Let’s say you have a redevelopment district that is doing very, very well and generating increment that you don’t need to take care of all the issues in that district, you can pool up to 25 percent of increment from that district into another district that may not being doing as well and needs additional assistance just because there may be larger costs,” said Kvilvang last month when the HRA considered the modifications.

Walker did not question the legality of the city’s expansion of the project boundaries.

“I know it’s legal, I just don’t think it’s ethical,” he said.

Councilmember Steve Schmidt said if the Legislature didn’t want the cities to use TIF in the way that Anoka has, it would have made changes to the rules.

“If this is not good policy they’ve had the opportunity to change it every year,” said Schmidt.

The state has not set limits on the geographic area of a project, he said.

“It’s not like we’re spending the money to Lower Slobbovia,” said Schmidt. “Find me another town of 17,000 people that has 12,000 jobs. This is an essential tool we need to support the long-term vision our fathers set up.”

Walker also disagreed with the HRA voting on the expansion of the boundaries before the public hearing “as if nothing being presented could possibly affect their vote.”

Planning Commission Chairman Don Kjonaas said he reviewed the boundary changes in great detail.

“This fits within the city’s comprehensive plan,” said Kjonaas. “We are not being unethical. It’s offensive for him to say that.”

HRA Chairman Carl Youngquist agreed.

“If I felt it (the HRA) was an unethical board, I wouldn’t serve on it,” said Youngquist.

He credits the revenues generated by TIF districts to the success of several upcoming development projects in Anoka, including the Volunteers of America senior housing development, the new RiverWay Clinic as well as a new Castle Field ball park.

 

More reach for the HRA

The HRA collects $198,000 each year in a special levy from Anoka taxpayers for its general fund and uses it, along with the captured income from its TIF districts to do projects that meet its mandate focusing on neighborhood improvements and redevelopment. Specifically, the HRA has concentrated on its scattered site program, buying up vacant and blighted properties, usually demolishing them and then offering up the lots for sale.

Last year the TIF generated $292,000 for the HRA. That is expected to drop about 10 percent in 2012 due to declining property values, said Kirchner.

If TIF districts had not been created, those property taxes would be split between the city’s general fund, Anoka County and the Anoka-Hennepin School District.

Longtime HRA Commissioner Merrywayne Elvig said she can recall a time when the HRA was broke.

“We sat at meetings spinning our wheels,” she said, while the HRA wondered how it would accomplish its goals with no money.

But with the advent of TIF money, Elvig said the HRA was able to redevelop areas like RiversPointe Townhomes and Walker Plaza. By creating senior housing the HRA hoped it would open up more homes so young families could stay in Anoka, she said.

By only having its special levy to work with, the HRA would be limited in what it could accomplish, Elvig said.

Councilmember Jeff Weaver is also a past member of the HRA.

“I can’t imagine a HRA that would be broke and not be able to do scattered sites when an opportunity came along,” said Weaver.

TIF funds have allowed the HRA to buy problem properties on places like Tyler and Park streets, demolish them and make way for new homes, he said.

Mandy Moran Froemming is at editor.anokaunion@ecm-inc.com


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