Council approves TIF for Guardian Angels

Sports Reporter

by Eric Oslund
The Otsego City Council and staff met with representatives from Guardian Angels on Monday, July 17, during a public hearing to approve the tax increment financing portion of a pact the two sides agreed upon earlier.

Another portion of the deal involving the two parcels of land Guardian Angels is deeding back to the city will be voted on at the Otsego City Council’s July 24 meeting.

Guardian Angels was looking to get 90 percent of tax increment over a 26-year period, which is the maximum term for a housing district, but there were some measures they need to meet to qualify their 142-unit development as a housing district.

“In a housing district, you have a choice – either 20 percent of units need to be affordable to those at 50 percent median income, or 40 percent of the units need to be affordable to those at 60 percent median income,” said Jason Aarsvold, a municipal advisor at Ehlers Associates who spoke at the meeting. “In this case, the selected option was 20 percent of the units will be affordable to those at 50 percent of median income. So by virtue of that piece, then it qualifies to be created as a housing district.”

As things sit right now, Guardian Angels is expected to receive TIF revenue of $5.8 million over a 26-year period, which is the total tax increment collection adding a 2 percent inflation factor.

TIF payments will be made in August and February, and are expected to begin in August of 2020. But Guardian Angels will need to continue to provide proof that it is meeting the proper percentage of affordable housing units.
“Prior to making and issuing those payments of those checks, you need to make sure those units still have the income-verified tenants that are located within that,” Aarsvold said. “Because if they don’t, you can’t legally continue to have the district open and collecting tax increment.”

Since the City Council has chosen to go with a pay-as-you-go financing format, the city will not be paying Guardian Angels the money upfront, but instead reimbursing it over time. So the developer will be responsible for its own financing and equity.

When first deciding if Guardian Angels would qualify for TIF, the City Council had to perform a “but-for test.” Basically, it’s a test that finds out if the project would not happen “but for” the TIF assistance. The city hired Ehlers Associates to do the test, and the results came back as yes, it does need the assistance.

“Nick (Aarsvold’s partner in the project) went through a very detailed analysis that he did with respect to this particular project, and found that in this case, with the way it’s been set up, is that 26 years of tax increment payments are sufficient then to meet the developers’ requirements, which is that they’re really trying to make sure they have 120 percent coverage,” Aarsvold explained. “Their revenue is 120 percent of their annual debt service, so providing that TIF over those years maintains that appropriate level of debt coverage in this case.”

In the end, the City Council voted 4-0 to establish a TIF district and to authorize the development agreement. Council Member Jason Warehime was not present for the meeting.

There were no comments from the public.