Municipal Services Committee - meeting_joint_regular

Alright. It's 12:00. I'd like to call the meeting to order. This is for the joint review board. I never did this before, so I apologize.

Pledge of Allegiance. Okay. Thank you. Roll call of membership. Greg isn't here in place of Holly, correct?

Yeah. Greg Hartches, Appleton Area School District. Toni Zosserman, citizen member.

Amy Van Stratton, Fox Valley Technical College. And Jennifer Messerschmidt, City of Appleton.

Kevin Engelbert, Outagamie County.

Okay. A motion to approve the minutes from 09/17/2025 meeting.

Move to approve.

I'll second that. We have a first and a second. Any discussion? All those in favor?

All

right. Public hearing, appearances, public participation. Doesn't look like we have anybody here to speak in on the public side of it so I have call it three times yep anybody from the public that would like to discuss or comment on anything for the joint review board Any member of the public, would you like to comment on anything with the Joint Review Board? Hearing none, we will move on to the next item. Reformation of public member. I'll make a motion to reaffirm Tony Sosserman as our public member.

Second this motion.

Any discussion? All those in favor? Aye.

Aye. That

passes four to zero. Election of chairperson. Anybody wanna make a motion?

I'll make a motion to elect Jennifer as a chairperson.

I'll second that. Any discussion? I will accept the nomination. Bear with me as I get my bearings. It's been a while since I've done a public meeting, so I apologize.

All those in favor?

Aye.

All

those opposed? Hearing none, passes four to zero. Information items, review the role of the Joint Review Board. Okay. Thank you. Oh, sorry. District IV.

So the packet in your packet today, we have the manual specific pages for the DOR, tax incremental financing. Are there any questions from any of the members on that information? Otherwise, I can go into the next. Any questions? No.

All right. So then on to the next information item, review and discuss proposed project plan and boundary for the creation of tax within District Number 14. The proposed boundaries are located on the private property north of Highway 41 and nestled between North Meade Street and North Ballard Street. The plan came together with ample coordination between city departments and our consultant, Ellers. It is worth noting that the projects identified in the plan will require additional future actions of various boards and commissions, and the city is not bound to any of the proposed projects.

Rather, the plan helps outline what projects would be eligible for tax incremental financing. Ehlers has been a wonderful partner helping the city navigate the processes required by section 66.1105 of the Wisconsin State Statutes to implement a new tax increment district. No action is required by the Joint Review Board at today's meeting. However, future action will be required after the Plan Commission and Council both approve the project plan. Greg Johnson from Ellers is here to walk us through the project plan summary documents.

Is it district or director?

Introduction. You have a copy of the TID-fourteen summary PowerPoint deck that includes the key findings that are located in the full project plan document, which you also have received a copy of. But I will walk through the summary presentation to give you the high points proposed to District Number 14. On page two of the presentation is the map that shows the proposed boundary of the district, which Stephanie described the general location of where the district is located. This is a mixed use TIP district, and the required statutory findings for a mixed use TIP district are that at least 50% of the area meets the statutory definition of mixed use development, which means it must have some combination of commercial, industrial, or residential development to be a mixed use TID.

As we'll see when we go through the future land use projections, this district consists of primarily residential and commercial development. There's also a restriction under statutes for mixed use districts that not more than 35% of the gross area of the district is for newly platted residential development. So with this district, we are maximizing the amount of newly platted residential development that is permitted as a mixed use TIF district. On page three of the summary presentation is one of the legal statutory findings that's required to be met any time a TIF district is created. That's referred to as the 12% equalized value test.

What that means is that when you take the incremental value of all existing TID districts in the city, add in the proposed base value of this district, those two numbers combined cannot exceed 12% of the city's total equalized value. So based on the incremental value in each district as of 01/01/2025 and the estimated base value of this district, the city will be at 4.15 towards that 12% test, meaning the city has more than ample capacity to create new TIF districts. On page four of the presentation is the detail that describes the land use findings that are required to demonstrate that this meets the statutory criteria for a mixed use TIF district. So included is the future land use map that was also identified in the project plan, and then a summary chart off to the left that identifies how the gross acreage within the district is anticipated to develop. So you'll see that the total acreage is broken down by what's anticipated to be developed as commercial or business uses, And then all of the residential is newly plotted residential development.

So the area suitable for mixed use development is 50.19%. And the area suitable for newly plotted residential development is about 31. So that meets the two statutory findings for a mixed use district to be created. So we provide that just to demonstrate that we legally satisfy the statutory criteria. On page five is a summary chart that gives an overview of the financial analysis and the illustrations that we included in the project plan and within the summary document.

Just given the large size of the district, about approximately 500 acres, and the anticipated time it's going to take for this area to fully develop, we ran two scenarios just to kind of illustrate the financial potential within the district. So we have a Phase I and then a combination of Phase I and Phase II. So Phase I, as it is built out over about a ten, eleven year timeframe, would generate about $211,000,000 of incremental value. We'll have a chart that breaks that down in a few moments. That incremental value over the twenty year life of the district would generate about 57,200,000 tax increment.

That tax increment revenue stream supports all the project costs identified for Phase one in the project plan, with the exception of Phase two projects and any development incentives that will be necessary potentially for phase two. So for the phase one component only, we would estimate that would to repay all those project costs, that would take the full twenty year maximum life of the district. When we go through the financial analysis for Phase one and Phase two, that generates an estimated $6.00 $7,000,000 of incremental value. The total tax increment collection over twenty years would be approximately $117,400,000 That could support all the project costs identified in the project plan with appropriate phasing. And if phase one and phase two is constructed, the projected closure would be in 2042, so a few years earlier than the maximum life of the district.

So to go a little more in-depth in terms of those figures is there a question?

Yeah, just have a quick I'm a little confused on the timing then. Because you say Phase I will close 2047, which is twenty years. But if you put one and two together, it's 2042. So why did it get shorter when you're including one that you said was going take twenty years?

We'll go through the financial analysis. I think that will kind of help illustrate that point. Essentially, there's more incremental value that's being generated from Phase II than is what's needed to support the project costs. So more value, less cost. So on page six of the presentation is a breakdown of all of the project costs that are proposed within the district and then kind of the prioritization in terms of how those projects are going to be constructed, in terms of some general estimated timing.

As Stephanie mentioned, when a TIP district is created, you identify eligible project cost expenditures within the project plan. That is what is summarized here on the chart on page six. It doesn't require the city to undertake any or all of these project costs. It just identifies what is a TID eligible expense. So for phase one in particular, some of the items we want to call out are some of the initial infrastructure investment that's necessary.

That's Project G, kind of in the center of this chart. That's approximately $11,600,000 of infrastructure costs. And then another key component of the project costs for Phase one is a proposed pay as you go development incentive, also referred to as a municipal revenue obligation. I'll speak to that in more detail in a few moments. But that cost with principal and interest is estimated approximately $25,500,000 You'll see a list of other proposed infrastructure improvements, which ranges from street improvements to utility improvements to bike pedestrian improvements, all of which will be undertaken as development is dictated based on the phasing of development within the district.

On page seven is just a map of a general location of where these project costs are located. So in the first column on the left, in the project ID column on page six, it's just a letter that identifies where that corresponds to the project location on the map on page seven. So again, a 500 acre site. You'll see there's improvements that are identified throughout district in terms of how infrastructure is anticipated to be constructed. In terms of getting into the details of the two phases and the estimated value, that chart is found on page eight of the summary document.

So we list across the top of this chart the various types of development that are anticipated within the district. This kind of an illustration with not only input from the developer in terms of how they're anticipating the timing and the build out within this phase one, but the estimated incremental values that we're using have also been vetted and reviewed by the city assessor in terms of providing some conservative estimates in terms of the amount of value that could be constructed based on the certain types of development that are identified here in this chart. So using some estimated square footage for some of the commercial buildings and then value per unit for some of the other residential construction. So with all those parties that has been kind of involved in this, kind of taking into that input to kind of estimate kind of this initial build out of phase one. CLC constructions anticipated just for this first phase to occur out until 2031.

So kind of that's the initial build out time period for this initial phase of development within the district. So that initial phase of mixed use development is estimated to generate about $211,000,000 of tax incremental value. As I mentioned in the summary chart, the detailed tax increment projection is found on page nine. So that takes that $211,000,000 of value and shows how much tax increment is generated over the twenty year life of the district. That does not include any appreciation on any of that incremental value, and that's based on the current tax rate for the city's TID districts in Allegheny County for this current budget year, 2026.

On page 10 is a detailed cash flow model that kind of illustrates how the district would perform based on some of the financial commitments that are identified in the project list. So on the far left hand side is that tax increment from that $211,000,000 of value estimated from Phase one of development. And then in terms of the project costs that are anticipated to be financed related to Phase one, That roughly $11,600,000 of infrastructure related to Phase one is anticipated to be financed with general obligation debt by the city. And then there's also a development incentive where the principal amount will be capped at $14,000,000 and repaid at 6% interest. That will be on a pay as you go basis and paid out until that cap is reached.

The way the anticipated development agreement is going to be structured for the development incentive, which is a requirement for the city to award a development incentives to have a development agreement, is that the flow of increment will prioritize city debt service first before any development incentives are paid back to the developer. And then in the capital outlay column in this cash flow projection on page 10, that just shows future infrastructure costs related to Phase one really being financed really as we get towards the end of the expenditure period. So the primary costs initially are going to be the infrastructure for Phase one and the development incentive, then other project costs could be supported later on in the cash flow once some of those existing obligations are satisfied. So we show a second financing for illustration purposes occurring in 2041 just prior to the end of the expenditure period. And then there's just some allowances for some annual costs for administration and professional services related to the TIF District over its life.

So here, for just the Phase I component only, you'll see that 2047, the full year of the maximum life, is what is anticipated to support just the Phase I infrastructure based on the increment generated from that phase of development. As I mentioned, there'll be a development agreement that'll be necessary for the development incentive. On page 11 is kind of highlights of, you know, some of the terms that are being contemplated based on the term sheet and eventual development agreement. As I mentioned, there'll be a prioritization of the increment to pay debt service first. I also anticipate that there will be a letter of credit from the developer in the city's name for $11,000,000 to help provide some additional backup for that debt service for the Phase one infrastructure.

And then there'll also be some other security protections built into the development agreement that is still in the process of being finalized. But steps have already been taken kind of throughout this process to really protect the city financially in terms of mitigating some of that risk, mainly by the prioritization of increment to pay debt service and the $11,000,000 letter of credit as an additional backstop. So just to summarize Phase one, the cash flow and financial analysis. The Phase one infrastructure financed about $11,600,000 of debt. The pay as you go development incentive is $14,000,000 at a present value rate at 6% interest.

And then the majority of the remaining projects would be debt financed prior to the end of the expenditure period. In terms of that development incentive, Ehlers did do a review of the developers pro form a just to kind of determine that that level of TIF assistance was appropriate. Looking at their projected internal rate of return over a ten year period without TIF assistance, that was projected to be at 5.7%. Typically, we see a rate of return in the range of 10 to 17% for these types of developments. With the TIF assistance for Phase one, that would take the developer's projected return on investment to 15%, which is really what's necessary for attracting market capital and really for the project to proceed in terms of the developer having sufficient returns to attract that investment to proceed with project.

So the Phase one and Phase two illustration is on page 13 of the summary document. This takes all the incremental value from Phase one and then adds in additional incremental value constructed after 2031 for Phase two. So you'll see that the incremental value here is a little over $6.00 $6,000,000 of incremental value. So in terms of the tax increment for Phase one and Phase two combined, over the twenty year life of the TID, that's approximately $117,400,000 based on the current TID tax rate and no appreciation of that incremental value. So on page 15 is a cash flow model that combines phase one and phase two.

The debt service for the infrastructure for phase one is the same. The pay as you go development incentive the same amount, but it gets paid off quicker as additional and faster as additional incremental value is generated. And then you'll see we have a placeholder for additional development incentives for Phase two up to $10,000,000 and then other cash financing of capital outlay projects and debt financing of the remainder of the projects identified in the project list occurring in 2033. So with the increase of additional value from the second phase of development, even factoring in some additional project costs, really there's more incremental value than cost for Phase two. So that helps accelerate the closure of the TID District, even though you're incurring some additional expense.

The projected closure would be in 2042, taking advantage of the incremental value from Phase two. So the financial summary of the scenario for Phase one and Phase two is that the Phase one and Phase two infrastructure would be financed with debt and that cash flow model. The pay as you go development incentive is the same, dollars 14,000,000 at 6% interest. And all other project costs can be financed with cash as fund balance is available. So we put these two illustrations together just recognizing that the size of the district, the amount of value that could be constructed can vary depending on the pace of development, how quickly if the full area builds out within the life of the district.

But we want to kind of show some different scenarios, really focusing on phase one because that's really where the initial investment by the city will be focused as well as the initial investments made by the developer. But the scenario with phase one and phase two combined really shows an illustration of the full build out of the full 500 acres, if that all occurs within the twenty year life of the district. But the city is really following best practices for TIF districts, which is matching the pace of investment with the pace of development within the district, and then having those financial safeguards built into a prospective development agreement to prioritize city debt service, and then an $11,000,000 letter of credit, which can also act as additional security. So that's the overview of the proposed district and the types of development that are anticipated. As Stephanie mentioned, there's no action required by the Joint View Board at this meeting, but we wanted to give you a detailed overview of the proposed district and the anticipated project costs that have been identified in the plan.

So I'll pause there, see if city staff has anything further they want to add. Otherwise, I'm happy to answer any questions. Thank you.

Questions?

I don't know if it's a city question or if it's for now but can you talk about the incentive being at the 15% mark and you said customary is between ten and seventeen. How do we land on the 15%?

I think the 15% was kind of what the developer had kind of communicated is what they were targeting to kind of achieve their rate of return. We felt just based on their metrics and what they needed to kind of make the development work, that's typical for what we see of these types of developments statewide, not only in Wisconsin, but kind of in the Upper Midwest in terms of what's needed to attract for capital. So we felt that was a fair and reasonable rate of return. And that's part of why the TIF assistance was structured that particular amount, to kind of achieve that kind of middle range rate of return. Okay.

Questions? Any other questions?

Okay.

Go ahead, Kim.

Well, maybe just to bring this down to a more granular level that we can understand better. This obviously is the Thrivent Property, correct, out there. So what is their role in this? And what is the future for them? I assume the new building in these illustrations is a new building for them, but I don't even know that. Could you just I know you can't share a lot because there's probably negotiations that got going on. But whatever you can share to kind of give us an idea of what's actually going to happen with them.

Are you guys looking at a slide show? I can't see any of you and I can't see any presentation. I've been following along on my own TITS and Re document.

So, Kevin, we are actually not displaying the presentation so that we can see your face. So if you have access to the presentation link in the packet Got it. Everyone's just kind of flipping through, so we'll try to reference page numbers.

Yeah. That's helpful.

So, Tony, you referred to a new the new headquarters building in the cash flow analysis. We are modeling a new building to be built by Thrivent for their headquarters. We're modeling it as taxable or the equivalent of taxes paid, knowing they're typically a tax exempt entity. We are still in negotiations with them for all the minutiae of the development agreement, but everything's been modeled with that being part of it. And they have made it known in terms of, public announcement that it is their plan to build a new different headquarters for the site.

Okay. So right now and I don't want to get into a lot of detail now. They make a very generous payment voluntary. They make some to the schools. They make a payment to the city That supports the general fund budget. So now that payment is going to be part of TIF 14 if this goes forward, which is going to put a pretty big hole in the city's budget if I follow this correctly. And again, I'm probably getting into more detail I need to right now. But I guess I just wanna make sure everyone's aware of that that

Currently still in negotiations.

Okay. Okay.

But to be clear, right now, payment is a pilot. It's totally voluntary. Right? Like, we get one at the county. We get one at the city.

It's my understanding it's voluntary.

Yeah. Okay. So they could also just stop that at any time.

My other questions have to do with the residential portion of this. Just historically, the city's never had a large portion of single family residents in a TIF before. This will be quite a change from what we've seen in the past. So I'm just wondering, obviously, there's a lot of development going on on the North Side. A lot of developers have put in subdivisions on their own. And now all of a sudden, we're going to be supplementing this in a TIFF. And I'm wondering about the equity between this development and the ones that developers that have already put their money in and developed on their own. And all of a sudden we say we need TIFF to pay for this one.

Yeah. So if you take a look at the TID boundary, I think that was is that slide three or four? You'll notice we purposefully carved out the northernmost portion of the Thrivent property. In terms of the master plan that they developed, those were the portions of their master plan that we would call traditional subdivision development. We are not including the master plan pieces that are traditional subdivision development within the TID District.

Like you said, we have been seeing traditional subdivision development more or less happening as the market allows, which is why we purposely carved those sections out. The master plan pieces that are included within the TID are the types of development that the market isn't delivering on the North Side. So it'd be mixed use, higher density, multifamily. We've got, I believe, one or two lie tech projects built into the project pro form a. We also are hoping that townhomes and other missing middle or workforce housing will be a piece that's part of the master plan as it gets built out over time.

But to your point, we really took care in making sure the traditional type of subdivision development was carved out of the TID so that we can just let the market solve that as it has been.

Okay. Thank you. That's all I have.

Any other questions?

None from me.

I mean, I have some thoughts on reviewing the TID project plan. I mean, in general, I think it's crafted well to minimize risk for the city. It's typical of what other tax increment financing district structures are, the PAYGO incentive, the infrastructure. But I think it's challenging for me, from my perspective, is just when you look at the site and you see all this open space and you think about the but for test and then you look at the project numbers and you're looking at the city paying for the infrastructure, the city giving a development incentive and to boost that return from 6% to 15%. The question naturally is, well then what is thriving?

What is their contribution to all this? And it's difficult to answer without seeing the pro form a without understanding what their costs are, but maybe you could speak in general terms to describe what kind of investment are they making in this site? Or is this is their investment quite large compared to what we're asking the public to invest? Are they similarly sized? It's just hard to gauge that.

Greg, could you speak to what their total investment is for Phase one infrastructure, including soft costs and then what our city borrowing piece of it is?

Yeah. Can provide a little more detail. I don't have their detailed performer right at my fingertips. We can kind of summarize that. But that's really the threshold of what we were looking at when we did the analysis, was looking at their overall sources and uses, what they're investing in terms of, you know, their equity, their financing to kind of, you know, accomplish their aspects of the project and then factoring in the TIF assistance as well.

And, you know, without some level I mean, the infrastructure investment that's needed here is significant. I mean, the size of the district is large. There's lack of infrastructure there now to kind of facilitate the development. Quite candidly, that satisfies the but for test right there, the fact that there's not sufficient infrastructure. But absent that, there's also, you know, their need to kind of make sure that they can make the development happen with their levels of investment and still have the development be profitable because they won't move forward with it without, you know, kind of that level of return on their investment.

And at times during, you know, the discussions that became a very clear concern in terms of getting this to move forward. So we can provide some additional context without necessarily disclosing their particular details in terms of their financing packages with their lenders. But all of that was really kind of taken into consideration to make the project profitable to take on an area of this size.

Could I also add, Greg, that the city's direct borrowing of approximately $11,000,000 the total phase one infrastructure costs for soft cost plus harder estimated correct me if I'm wrong between 60,000,000 and $70,000,000

Correct. Yeah. That's the range.

So their piece of it, just for the infrastructure, is significant that they're they'll be investing and taking a risk on?

That's yeah. It's essentially what my question was getting at. It's without seeing that, I had no concept in my head of, well, what percentage of the infrastructure city paying for? What are they paying for? And so that helps just to even get some general numbers. I'm not asking for their financing rates and things of that nature, but it'd be helpful to kind of know.

Any other questions, comments, concerns? All right. Setting the next meeting date tentatively planned for Thursday, June 25 at 11AM. Oh, I'm sorry. Five to zero for the meeting and move to adjourn the meeting.

It's adjourned.

It's adjourned. Thank you. Sorry. It's been a hot minute.

Yeah. Thanks, everyone.

Thank you. See you, Kevin.