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RESOLUTION GRANTING A TAX ABATEMENT FOR THE FIRST STREET LOFTS PROJECT, AUTHORIZING A TAX ABATEMENT AGREEMENT WITH ST. LOUIS COUNTY, AND FURTHER AUTHORIZING A DEVELOPMENT AGREEMENT WITH ROERS LAKE & FIRST LLC.
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CITY PROPOSAL:
BE IT RESOLVED, by the city council of the city of Duluth, St. Louis County, Minnesota, as follows:
Section 1. Purpose and Authorization.
1.01 The city, pursuant to the provisions of Minnesota Statutes, Sections 469.1812 through 469.1815, as amended (the “Tax Abatement Act”), is authorized to grant an abatement of the property taxes imposed by the city on a parcel of property, if certain conditions are met, through the adoption of a resolution specifying the terms of the abatement.
1.02 Roers Lake and First LLC (“developer”) owns or controls 1 East 1st Street and 5 East 1st Street at the corner of Lake Avenue and 1st Street in downtown Duluth which it desires to redevelop into approximately 47 rental units, 10% of which will be units with rents restricted to reflect 80% area median income, to assist in addressing an unfulfilled need for such housing in the area (the “project”).
1.03 The tax abatement assistance to be provided to developer constitutes a business subsidy within the meaning of Resolution 18-0515R of the city of Duluth (the “Business Subsidy Resolution”), and the development agreement with developer constitutes a “business subsidy agreement” under the Business Subsidy Resolution.
1.04 Pursuant to Minnesota Statutes, Sections 116J.993 through 116J.995 (“the Business Subsidy Act”), after a public hearing, if the creation or retention of jobs is determined not to be a goal, the wage and job goals may be set at zero.
1.05 Pursuant to the Tax Abatement Act and the Business Subsidy Act, on the date hereof, the city council conducted a public hearing on the desirability of granting an abatement of property taxes on developer’s owned or controlled properties, which properties are located in St. Louis county and legally described as Lots 1 and 3, Duluth Proper 1st Division East 1st Street (the “properties”), and on setting the wage and job goals at zero in accordance with the Business Subsidy Act. Notice of the public hearing was duly published as required by law in the Duluth News Tribune, the official newspaper of the city, on September 13, 2019, which date is no fewer than 10 and no more than 30 days prior to the date hereof.
Section 2. Findings. On the basis of the information compiled by the city and elicited at the public hearing referred to in Section 1.03, it is hereby found, determined and declared:
2.01 The project is in the public interest because it will increase and preserve tax base in the city, provide housing to serve a presently-underserved population of working persons in the city, and will develop unused real property.
2.02 The city expects that the benefits of the proposed abatement are not less than the costs of the proposed abatement. The public benefits that the city expects to result from the abatement include the increase in real property taxes by an estimated amount of $80,000 per annum created by the project, the provision of housing to meet the needs of presently underserved portion of the population, the possibility for workers to find housing in downtown Duluth which will in turn foster economic development by facilitating a healthy work force for businesses in the city, and redevelopment of historic property in the core downtown area.
2.03 The properties are not located in a tax increment financing district.
2.04 The granting of the proposed abatement will not cause the aggregate amount of abatements granted by the city under the Tax Abatement Act in any year to exceed the greater of (i) 10% of the city’s net tax capacity for the taxes payable in the years to which the abatement applies, or (ii) $200,000.
2.05 It is in the best interests of the city to grant the tax abatement authorized in this resolution.
2.06 Without the tax abatement assistance to be provided pursuant to the Development Agreement with the developer, the cost of redevelopment of the project would be more than can be supported by the amounts that are reasonable to be charged for the rental of the units, and the available resources would be inadequate and not economically feasible to redevelop said project, and that therefore, but for the tax abatement assistance to be provided for hereunder, the project could not reasonably be expected to be redeveloped in the foreseeable future.
2.07 Under Section 469.1813, Subdivision 9 of the Tax Abatement Act, it is not necessary for the city to obtain the consent of any owner of any of the properties to grant an abatement.
2.08 The project will require the city to waive certain city tax abatement financing policy requirements, including the current minimum affordability requirement and the maximum abatement term.
2.09 The creation or retention of jobs is determined not to be a goal of the project for the purposes of the Business Subsidy Act, and therefore, the wage and job goals may be and hereby are set at zero.
Section 3. Granting of Tax Abatement.
3.01 A property tax abatement (the “abatement”) is hereby granted in respect of property taxes levied by the city on the properties for 20 years, commencing with taxes payable in 2021 and concluding with taxes payable in 2041 unless the maximum amount of the abatement is provided prior to that date in which case, abatement shall thereafter cease. The abatement will reduce all of the city’s portion of the taxes for each of the properties, and the abatement will not exceed a total aggregate amount of $400,000. Abatement payments will be made only from property tax proceeds received by the city from the project.
3.02 The city shall remit the abatement amounts to the project only when, if and as property tax payments are received by city from the project and only to reimburse for a portion of the costs of constructing the project.
3.03 The abatement may be modified or terminated any time by the council in accordance with the Tax Abatement Act.
Section 4. Authorizing Agreements with St. Louis County and Developer.
4.01 The proper city officials are hereby authorized to enter into a tax abatement agreement with St. Louis county (the “county”), substantially in the form of that attached as Exhibit A, pursuant to which the county agrees to abate taxes in an amount not to exceed $300,000, and provide the same to the city for reimbursement of developer’s construction costs associated with site development and redevelopment of the project, payable into Fund 310-030-4654-02 (Debt Service, Finance, Other Reimbursement and Refunds).
4.02 The proper city officials are hereby authorized to enter into a development agreement with developer, substantially in the form of that attached as Exhibit B, pursuant to which the city agrees to assist the project with a business subsidy in the form of abatement of city and county real estate taxes in an amount not to exceed $400,000 from city abatement and not to exceed $300,000 from county abatement, for a total amount of abatement not to exceed $700,000, payable from Fund 310-030-5479 (Debt Service, Finance, Tax Abatement).
Section 5. Approvals Contingent on County Board Approval.
5.01 The grant of the city tax abatement and the authorizations approving the tax abatement agreement and development agreement are contingent upon the county granting the county tax abatement and authorizing the tax abatement agreement with the city.
Statement of Purpose
STATEMENT OF PURPOSE: This resolution authorizes the abatement of taxes for the purpose of providing assistance for a portion of the costs of the First Street Lofts housing project. The project will consist of the construction of approximately 47 rental units; 10% of these units will be rent restricted at 80% of Area Median Income for the duration of the abatement. Duluth is currently experiencing a lack of availability of such housing which has had an adverse effect on the affordability of housing, and this limited supply-issue increases the difficulty for new businesses to locate in the city and existing businesses to expand as potential employees cannot secure adequate housing.
In addition to the city’s tax abatement assistance, St. Louis county is anticipated to provide abatement assistance to the project of approximately $300,000, contingent upon county board approval. The city will enter into a tax abatement agreement with the county pursuant to which the county agrees to provide the tax abatement to the city. The city will also enter into a development agreement with developer pursuant to which the county and city tax abatements will be provided to developer.
The entire project is expected to have a construction cost of approximately $11 Million with the developer providing equity and securing financing, including historic tax credits, for the costs in excess of the public assistance detailed above.
Attached is the Business Subsidy Pre-Approval Report.
Tax Base Impact Statement: The current market value of the subject property is $1,049,100 and the property is generating $19,482 in net tax capacity. After the redevelopment is completed, the taxable market value will increase to $5,478,864 and the annual taxes generated will be provided to the developer to facilitate the redevelopment. After the abatement term expires, the development is anticipated to generate approximately $84,000 per year in net tax capacity.