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HomeMy WebLinkAboutMemo - Read Before Packet - 1/15/2013 (7)City of Fort Collins MEMORANDUM DATE: January 14, 2013 TO: Mayor and Councilmembers THROUGH: Darin Atteberry, City Manager Mike Beckstead, Chief Financial Officer FROM: Josh Birks, Economic Health Director Economic Health Office 300 LaPorte Avenue PO Box 580 Fort Collins, CO 80522 970.221.6505 970.224.6107 - fax fcgov.com RE: RE: ROCKY MOUNTAIN INNOSPHERE — TAX INCREMENT PLEDGE The memorandum provides additional information based on questions at the January 8, 2013 City Council work session. Members of the Fort Collins City Council inquired about the amount of tax increment generated by the Rocky Mountain Ionosphere (RMI) project at the January 8, 2013 work session. Josh Birks indicated that the original estimate of tax increment projected was $4.3 million in revenue. However, it was also stated that actual tax increment collections had not achieve the projected amount. Finally, it was stated that the North College Urban Renewal Area (North College URA). would have sufficient Tax Increment Financing (TIF) capacity to meet the pledge of up to $2.8 million in assistance to RMI. The original estimate of tax increment was based on a projected project cost of $7.1 million; based on the anticipated construction cost and following the accepted appraisal valuation approach called the cost -approach. In addition, the estimate assumed the generated increment would reach stabilization in 2010 with 2 percent in annual property value growth. The 2013 market value, as determined by Latimer County (County), places the value of the RMI building at $5.3 million. The Finance and Economic Health departments are currently investigating the difference between the assumed $7.1 million project cost and the actual County value of $5.3 million. The original estimated TIF revenue of $4.3 million and the revised estimate of $2.8 million are shown in Table 1. The result is a variance of $1.5 million between the original estimate, prepared in 2009, and the revised forecast based on current valuation. The variance comes from three differences, as shown in Table 2: 1. $348,000 is the result of the increment stabilizing in 2012 not 2010 as originally projected; 2. $877,000 is due to the difference in valuation - $5.3 million versus $7.1 million; and 3. $240,000 is due to a more conservative estimate of property value growth — 1 percent annual growth versus 2 percent. Despite the variance, the forecast of cash flow for the total North College URA shows sufficient revenue to cover the TIF pledge to RMI as well as all outstanding obligations. It is important to note, the pledge of TIF assistance to RMI will not take the form of a check or cash. The pledge will be credited towards the $5.3 million in principle lent to RMI. The TIF Pledge is also contingent on RMI refinancing the remaining portion of the loan from the URA with an outside entity ($5.3 loan less $2.8 TIF Pledge — $2.5 that RMI would refinance). RMI will not receive the benefit of , ,of tlCollins NZ7 the TIF pledge unless it refmances the $5.3 million it borrowed from the URA by March 31, 2017. The URA will then use the TIF revenue as received each year to repay the remaining balance on the URA loan with the City. Furthermore, the Redevelopment Agreement between the Fort Collins Urban Renewal Authority (Authority) and RMI clearly states that the $2.8 million in pledged TIF assistance is intended to offset specific construction costs, also known as the eligible costs (Section 4.3). Therefore, the amount of the pledge is subject to the actual, costs incurred by RMI for these eligible costs. Due to the timing of construction, RMI was able to take advantage of lower labor and materials costs resulting from constrained economic conditions. As a result,.it is probable that the actual costs may come in lower than the $2.8 million pledged amount. Staff is working to finalize the actual reimbursable amount. Table 1 Tax Increment Comparison - Original vs. Revised 2009 URA Actual and Estimate Forecasted (2%annual TIF Collections (1% growth rate) Annual growth Rate Difference 2009 2010 178,934 178,934 2011 178,934 9,415 169,519 2012 186,091 140,892 45,199 2013' 186,091 144,825 41,266 2014 193,535 147,721 45,813 2015� 193,535 147,721 45,813 2016 201,276 150,676 50,600 2017� 201,276 150,676 50,600 2018 209,327 153,689 55,638 2019� 209,327 - 153,689 55,638 2020 217,700 156,763 60,937 2021� 217,700 156,763 60,937 2022 226,408 159,898 66,510 2023' 226,408 159,898 66,510 2024 235,465 163,096 72,368 2025� 235,465 163,096 72,368 2026 244,883 166,358 78,525 2027� 244,883 166,358 78,525 2028 254,678 169,685 84,993 2029 254,678 169,685 84,993 4,296,595 2,830,908 1,465,687 Table 2 Tax Increment Comparison - Variance Analysis RMI2 TIF Variance Analysis Explanation Total Timing of first full TIF payment (2010 in the estimate and 2012 actual) 348,452 Building Valuation ($7.1 million in the estimate with a $5.3 million county valuation) 877,357 Assessment Rate Growth Assumption (2% annual growth rate in the estimate Ad a 1% annual growth rate in the URA forecast) 239,878 Total 1,465,687