City Council Worksession

South St. Paul WORKSESSION AGENDA SSP City Hall 125 3rd Avenue North Training room Monday, August 23, 2021 7:00 pm AGENDA: 1. Closed session pursuant to Minnesota Statutes § 13D.05, Subd. 3(b) for a confidential attorney-client discussion regarding active litigation in the matter Sanimax USA, LLC v. City of South St. Paul 2. 2022 Budget Update 3. Housing TIF Discussion 4. Council Comments & Questions A COUNCIL WORKSESSION REPORT DATE: AUGUST 23, 2021 2 DEPARTMENT: FINANCE & ADMINISTRATION Prepared by: Clara Hilger & Joel Hanson ADMINISTRATOR: JRH AGENDA ITEM: 2022 Budget Update DESIRED MEETING OUTCOMES: Review & discuss potential 2022 Budget Modifications as they relate to the proposed property tax levy OVERVIEW: With our first run at the 2022 Budget, the proposed total levy increase was $1,508,720 or 11.14% increase over 2021. Since our last discussion, we have received our Workers Compensation Renewal. Those numbers have negatively impacted the General Fund Budget by $95,067. That increase was caused by two primary factors: 1. Our experience modification increased from .83 to 1.10. 2. LMCIT did not apply the “Non-smoking” discount to our police rates. The criteria the League of Minnesota Cities Insurance Trust uses only allows us three smokers among our police officers. Staff will be verifying if we have actually exceeded that limit. We also have one more adjustment to Library personnel costs and their Workers Compensation which increases their levy support by $2,177. With those two changes and without any further modifications, the total levy from the initial proposal would increase to $1,605,964 or an 11.86% increase. Staff has also been reviewing possible budget modifications to lower the levy impact. Below are some possibilities for your consideration. It should be emphasized that there are other options we are still evaluating and they should be available for your consideration at our next Work Session (9/13) with the goal of certifying our preliminary levy at our Business Meeting of September 20th. Here are some possible modifications for your consideration:  Eliminate the levy associated the 2017 Airport Bonds - $125,717 Because revenues have not kept pace with bond payments due to BRS vacating the premises, we would need to levy to make bond payments pursuant to our general obligation pledge. However, with the pending purchase of the property by Wipaire, this issue would be solved and the levy would not be needed. There  is some risk associated with this action given the transaction has not been finalized. Should the transaction not close, staff would propose an interfund loan to make the 2022 Debt Service payments to give us one more year to evaluate our options before impacting the levy.  Move the Stump Grinder Purchase to the Capital Programs Fund - $52,500 By moving this purchase to the Capital Programs Fund, we avert the impact to the property tax levy. Another option would be to delay the purchase to a subsequent budget year. However, there appears to be a decent payback by making this purchase versus renting a stump grinder or hiring a contractor. This work is also taking place between winter/spring seasons so we are staffed appropriately to handle this task. When considering the number of trees we will be removing in the coming years to the Emerald Ash Borer (EAB), this purchase makes sense.  Reduce the increase in funding to address EAB - $20,000 As was discussed in the Stump Grinder item, EAB is an issue we need to address. We have allocated $20,000 for tree services in recent budgets and the initial request for was a $40,000 increase. With the help of the EAB Grant we received, staff believes it is reasonable to lower this increase by $20,000  Eliminate placeholder for Parks & Recreation Supervisor - $106,047 With the transition in Parks & Recreation Services, we initially had held a placeholder for replacing the 2nd Supervisor position. While we are still early in the process, we believe we can forego this position for 2022 with the understanding it may need to be budgeted for in 2023 depending on how things play out.  Eliminate Assistant City Engineer Position for 2022 - $64,405 In a further evaluation of our needs, we believe we can forego this position for 2022 given the Concord project will consume the bulk of our time. For 2023, we already have the Stickney project ready to go. If we are successful in our State Bonding request, we may also have around $4.5 million of water system improvements for 2023 that would largely be farmed out to a consultant. Therefore, the need for the Assistant position can be postponed. Please note that we are still recommending the Engineering Tech position that will enable us to bring erosion inspections in-house and get some useful training with the Concord project in 2022.  Reduce Mayor & Council Conferences, Training, & Travel - $3,000 While not a huge item, it appears a reduction is possible in this area. With the reduction, there would still be $5,000 available in this account which would cover what was spent in 2019. This may mean reducing the number of Council Members attending the National League of Cities Conference. These options total $371,669 and would reduce the levy increase to 9.11%. Council Member Podgorski would like further discussion on the need for additional police officers. Under separate cover, Chief Messerich forwarded the Calls for Service analysis based on 2016 data. He also included additional call data for 2017 through 7/31/2021. Council Member Podgorski would like to have a discussion focused on adding two additional officers over the next three years. His concerns are based on the heavy call volume per officer, limited ability to have proactive interactions with residents, and officer wellness factors. For reference purposes, adding an officer was projected around $105,000. (Council Member Podgorski’s analysis is below.) Chief Messerich and I will be prepared to discuss this in greater detail at Monday’s meeting. The Council’s direction on these options is needed. SOURCE OF FUNDS: Property Taxes For SSP with adding the two additional officers for a total of 21 patrol officers our 2016 data would then have an average number of calls per officer at 906 instead of the shown 1002.21. For our SSP officers to get to the average of 691.41 calls per officer we would need to add an additional SIX OFFICERS in patrol. Adding an additional six officers would bring our SSP average to 705.25. This is still above average but reasonably close for the average Joe Citizen to understand. I welcome my math being double checked by you or staff, so I don’t speak untruthfully about how hard our officers are working. I have already had a comment from a concerned citizen about adding additional firefighters while there is more concern about crime than fire in our community. These numbers are especially frustrating as in the next year or two we hope to add an additional 1,000 residents off Concord St. I understand adding 6 officers would be challenging for our budget and our police office space concerns as well. Can we have a conversation with Council soon about a plan that looks at hiring 2 officers a year over the next 3 years? Even this maybe not enough if our population grows and our crime numbers don’t improve. Is there an alternative plan you or staff would prefer? Our current numbers make it very difficult for our officers to have many proactive interactions with our citizens. I also am concerned about the heavy workload for our officers and its impact on future PTSD cases. I hope my concerns are understood regarding the preliminary budget plan to not add any additional police in the 2022 budget and that it can be amended before or at the time of our September preliminary tax levy meeting. A COUNCIL WORK SESSION REPORT DATE: AUGUST 23, 2021 3 DEPARTMENT: ECONOMIC & COMMUNITY DEVELOPMENT PREPARED BY: Ryan Garcia ADMINISTRATOR: JRH AGENDA ITEM: Housing TIF Discussion DESIRED MEETING OUTCOMES: • Provide an overview of Tax Increment Finance – Housing Districts as an Economic Development Tool • Discuss possible misconceptions about TIF-supported housing • Discuss South St. Paul’s existing policies and programs relating to workforce and other inclusive housing • Generate consensus about the City’s Policy towards utilizing its TIF Authority to support the development of new affordable housing OVERVIEW: Tax Increment Financing (TIF) provides a city (or EDA, HRA, port authority, or County) with a way to capture and use increased property taxes that a new real estate development generates to finance certain costs of the development. TIF cannot just be applied anywhere; TIF developments must take place within a defined geographic area and for a defined period of time, as established through a public process. There are two fundamental purposes for which TIF might be used: • Providing financing for those portions of a development or redevelopment project that (in the absence of TIF) would prevent the development project from being undertaken. The development results in increased property taxes, which are used to pay for those costs, such as land acquisition or environmental remediation, up front. • To finance new or expanded/improved/extended public infrastructure, such as roadways, sanitary sewer, water, or parking facilities, that are related to a development or redevelopment project. State Law allows for a number of TIF District “types” (check out this link for a concise summary of the types of TIF Districts permissible in Minnesota), each of which have their own unique set of statutory provisions and terms for utilization by a TIF Authority. In South St. Paul, the most commonly utilized TIF District is the Redevelopment TIF – in fact all of SSP’s existing and previous TIF Districts are or were Redevelopment TIFs. The Council will recall from our August 9 Worksession that there are currently 4 active Redevelopment TIF Districts in South St. Paul. Council will also recall that there has been mention by both staff and Council Members, in the context of TIF discussions, of the possibility of utilizing the Housing TIF tool to assure that public assistance is helping with the creation of housing that is attainable for residents earning moderate incomes. Affordable Housing When referring to “Affordable Housing”, there appears to be a general misconception about how such housing is financed, developed, and administered. It seems that the two most commonly cited examples of “affordable housing” for most people is “Public Housing” and “Section 8 Housing” (which is part of the public housing program). Very seldom are newer (and more commonly used for new construction) tools/examples, such as Tax Credit Financed Housing or Tax Increment Financed Housing, referenced as “top of mind” examples when the topic of Affordable Housing comes up. In any event, there is not a single physical manifestation of what “affordable housing” is – it takes many shapes and sizes and there are numerous tools in the development community’s (developers, lenders, communities, equity partners) toolbox if developing new housing that is not exclusive to high-income households is a goal. Staff speculates that perhaps because of some previously executed “affordable housing” projects resulting in negative impacts to the community, there is hesitance to directly support (through some of these tools) the development of additional “affordable housing” in SSP. There is some interesting research from Minnesota Housing Finance Agency that provides a broad overview of community and neighborhood impacts of affordable housing development, and study after study after study seems to suggest that key issues such as property value and crime are by and large not effected – with the understanding that execution and ongoing management are both key determinants of success. Particularly in the mid-20th Century, government subsidized housing projects (new developments) were often massive in scale, in some ways isolated from the surrounding community, designed in a generally institutional manner, and exclusively restricted to households of extremely low to moderate incomes. They were also almost always publicly owned. There are literally dozens of examples in the Twin Cities metro area alone of this type of housing, including the John Carroll and Nan McKay buildings here in South St. Paul. That said, Public Housing has come in all shapes and sizes, including single-family homes, townhomes, and lo-rise apartments in addition to high- rise buildings. “Section 8” housing has also been subject to scrutiny over the years and most commonly referenced when the topic of Affordable Housing comes up in South St. Paul. It should be understood that in today’s environment, no buildings are constructed as “Section 8” projects. Section 8 is a certificate/voucher program that is tied to either individual households or individual units/projects, and the EDA/City have no role in whether/where a Section 8 voucher can be utilized to help a household afford a roof over their head or help a landlord pay their mortgage. Conceivably, any residential unit in SSP, or any qualifying household, could utilize the benefit of the Section 8 program. This includes (again, at least conceivably) newly constructed apartments in Redevelopment TIF districts. Currently, there are no Project-Based Section 8 developments in South St. Paul, nor any planned or proposed. Establishing a Housing TIF District is neither of the above examples. Housing TIF assists in the financing of the development of a privately-owned residential community, and does not directly subsidize the rent transaction. In essence, a development benefitting from Housing TIF receives financial assistance commensurate to a portion of the increase in tax capacity in exchange for an agreement by the developer/owner to maintain “affordable” rents for at least some of the units throughout the life of the district. The development can (and oftentimes, such development do) have a mix of market-rate units, or even commercial space, but at least 20% (if the units are dedicated at 50% of Median) or 40% (if the units are dedicated at 60% of Median) must be leased to households meeting the income criteria. All rents can continue to grow (or decline) if the areawide income changes over time. In 2021, the rent limits in a Housing TIF would be: # Bedrooms 50% AMI 60% AMI Studio $918 $1,101 1 Bedroom $984 $1,180 2 Bedroom $1,181 $1,417 3 Bedroom $1,363 $1,635 4 Bedroom $1,521 $1,825 For context, staff thought it might be helpful to examine the average rental rate within “Developed” Dakota County (second column) and South St. Paul (third Column), as revealed in a June 2020 study by Maxfield Research Reveals: # Bedrooms Dakota Co. South St. Paul Studio $997 $859 1 Bedroom $1,090 $877 2 Bedroom $1,318 $1,045 3 Bedroom $1,625 $1,350 As evidenced – a theoretical project subject to the income/rent limits in a Housing TIF would introduce units that rent higher, on average, than the average rent in South St. Paul, and if the 60% AMI route was chosen rents would be higher than both the Dakota County and SSP Averages. Thus, the term “market-rate” housing – in South St. Paul’s case – is actually renting at a lower rent level than what is legally considered “affordable”. There are over 500 active Housing TIF Districts in the State of Minnesota. Housing TIF is a tool utilized in all contexts (suburban, rural, urban) as there is significant consensus across the state that safe, quality affordable housing is in short supply for a growing Minnesota. Within the Metro, Staff encourages the Council to review these recent examples in our neighboring communities: • Texa-Tonka Apartments (St. Louis Park) – 101 Units, 20% of which are affordable at 50% AMI • The Birke (Minnetonka) – 175 Units, 20% of which are affordable at 50% AMI If Housing TIF were to be utilized as a tool in South St. Paul, Staff’s intention would be to focus primarily concepts that were structured similarly to the examples cited in this memo. Philosophically we believe that for “affordable housing” to be successful long-term it should be integrated seamlessly into a mixed-income development where individuals of varying walks and stages of life and with diverse socioeconomic experiences can call one another neighbors. Existing Policies South St. Paul’s 2040 Comprehensive Plan includes numerous policies that speak to the issue of providing a balanced, inclusive range of housing options:  • Policy 4.7.3 – “Plan for areas that can accommodate work force housing and areas that can accommodate affordable housing. Plan for areas to accommodate senior housing and assisted living housing.” • Policy 4.8.1 – “Use regulations and incentives to produce new infill neighborhoods that are attractive, diverse and have lasting value. Require infill and redevelopment buildings to be designed with sensitivity to their context, including features such as land use type, building height, bulk and placement, architectural details, parking, landscaping and lighting.” • Policy 6.3.1 – Use regulations and incentives to produce new infill neighborhoods that are attractive, diverse and have lasting value. • Goal 6.5 – Promote safe, affordable, and high-quality housing options for all. • Policy 6.5.2 – Support housing development opportunities that will yield a diverse array of housing affordability options. • Policy 6.6.1 – Support, incentivize, and encourage a diverse array of housing options for people of all ages and life stages. • Policy 6.6.2 – Encourage housing and land use policies that produce and maintain housing that is attractive to families, younger residents, and newcomers. • Policy 6.6.3 – Encourage housing and land use policies that allow residents to “age in place” and stay in South St. Paul as they become older. • Policy 6.8.8 – Provide more opportunities for life cycle housing from workforce, senior, market-rate, as well as opportunities for higher end housing products. SOURCE OF FUNDS: N/A, currently a policy discussion. As the Council is aware, TIF is an economic development financing mechanism whereby increases in tax capacity from new development are captured within a targeted geographic area in order to pay for, over time, the initial investment into that area.  Figure 5.3: Percentage of Income Needed for Housing in the Twin Cities Metropolitan Area Assembly Worker | Median Salary: $34,640 Child Care Worker | Median Salary: $23,587 Can Afford Monthly Housing Can Afford Monthly Housing Costs of: $855 Costs of: $590 % of income required to: % of income required to: Rent a 2-Bedroom Apartment Rent a 2-Bedroom Apartment 39% 390+610= 56% 560+440= Own a House Own a House 53% 530+470= 76% 760+240= Groundskeeper | Median Salary: $27,602 Restaurant Cook | Median Salary: $24,690 Can Afford Monthly Housing Can Afford Monthly Housing Costs of: $690 Costs of: $617 % of income required to: % of income required to: Rent a 2-Bedroom Apartment Rent a 2-Bedroom Apartment 48% 480+520= 54% 540+460= Own a House Own a House 65% 650+350= 73% 730+270= Security Guard | Median Salary: $28,350 School Bus Driver | Median Salary: $33,987 Can Afford Monthly Housing Can Afford Monthly Housing Costs of: $709 Costs of: $850 % of income required to: % of income required to: Rent a 2-Bedroom Apartment Rent a 2-Bedroom Apartment 47% 470+530= 39% 390+610= Own a House Own a House 63% 630+370= 53% 530+470= Maid/Housekeeper | Median Salary: $21,778 Salesperson | Median Salary: $21,424 Can Afford Monthly Housing Can Afford Monthly Housing Costs of: $544 Costs of: $536 % of income required to: % of income required to: Rent a 2-Bedroom Apartment Rent a 2-Bedroom Apartment 61% 610+390= 62% 620+380= Own a House Own a House 83% 830+170= 84% 840+160= Nursing Assistant | Median Salary: $29,931 Receptionist | Median Salary: $29,910 Can Afford Monthly Housing Can Afford Monthly Housing Costs of: $748 Costs of: $748 % of income required to: % of income required to: Rent a 2-Bedroom Apartment Rent a 2-Bedroom Apartment 44% 440+560= 44% 440+560= Own a House Own a House 60% 600+400= 60% 600+400= Source: Family Housing Fund “Working Doesn’t Always Pay for a Home”. Updated July 2015 5 - 53 2040 SOUT H ST. PAU L CO MP R E HE NSIVE P LAN