Planning Commission - Regular Meeting

Thank you and good evening for joining us tonight. We'll be talking about amendment number one to the Catalyst Tax Increment Finance District. That Tax Increment Finance District is district number 101. Just quickly before we go into the particulars with it, we do want to just provide a general overview of tax increment financing. Tax increment financing is one of the really few local economic development tools that the state of South Dakota has provided to cities. Essentially, what a TIF does is allow local governments to improve their communities by enhancing either economic development or affordable housing. Within their communities and it's a tool that both municipalities and counties can use and it provides a way for businesses to be able to underwrite some of the higher costs to actually bring in a new project to a community. And so a lot of times that requires some assistance to pay for some of the costs of the infrastructure, which is usually what TIFs are used for. But it also can be used for a few other project costs, which we'll be going over. But in general, it's to pay for the infrastructure or a portion of the infrastructure so that a project is economically feasible to proceed. How does a TIF actually work? Once a TIF district has been established, the county looks at the total assessed value within that tax increment finance district, all the parcels that are within that district, and the total valuation becomes the base value. And then as The valuations increase, which they should because of the new project that is brought on board. The additional tax revenue that is brought in from that, only property tax, not sales tax, but the additional property tax revenue that is brought in does not go to the underlying local tax districts. Instead, it is sent to the city, and then the city uses it to retire the debt that is incurred when a tax increment district is formed. The idea behind it again is to make sure that property owners are held harmless, they end up paying the same tax rate whether you're in a TIF district or not, and also to ensure that the new growth is what is helping to pay for the infrastructure that was required to enable the new growth to occur. School districts in South Dakota are held harmless. They're held harmless through a statewide formula to ensure that the schools receive the same amount of funding with or without a TIF district. The cities and the counties do forego that additional increased tax that is generated, but once the TIF district is paid off or the underlying loans are paid off, then the city or the county ends up receiving the additional tax revenue, which is quite a bit higher. And so in a way, it allows cities and counties to receive the same amount of revenue that they were receiving previously, but allows them to be able to receive new revenue once that TIF is actually paid off. And so just a very quick example that we have on the board before you is that if a piece of land is valued today at $1,000, once the project is completed, say that a structure is built and improvements are made to it, so the water service is brought to it as well as sewer service and the street's been improved so that maybe it's a small strip mall or something like that, At that point, then the valuation becomes $1,730,000. And so that increase of $1.63 million is the additional value or the incremental increase. So the property taxes that are now paid from that additional $1.63 million is collected by the city and used to repay the TIF debt that was incurred to widen the street, to bring the sewer and the water the streetlights, all those things that were necessary in order to build that new structure that was valued at $1.63 million. What this shows is that immediately after construction, there's an increased valuation. That increased valuation leads to additional taxes. But you can see once the underlying debt is repaid, then all of a sudden the city and the county receive a lot of additional taxes. new property tax valuation. I think that's important to know within Rapid City that over a third of our total valuation as a community has come from TIFs that have been paid off. And so a substantial amount of the property taxes that the city receives as well as the county receives are because of the work that has happened from previous TIFs. And so this is an important economic development tool so that we can broaden the tax basis So we can have new revenue to pay for ongoing maintenance as well as operations including for public safety and parks and snow removal and everything that we rely on local governments to provide. Rapid City is one of the unique communities in South Dakota that we have additional regulations that go above and beyond the state statutory regulations. Not only does a TIF have to meet the state mandated requirements, but we also have additional requirements to ensure that TIFs are not used to just enrich the developer, but they're actually used to enhance the community. and to bring forward a project that otherwise, without the tool of a TIF, would not be able to proceed. And so our TIF policy requires that it be used to stimulate economic development in the community. To do this, it has to pass essentially a but-for test. that if it was not for the use of a tiff the project truly would not be able to proceed it's used to stimulate additional private investment we're not looking to supplant private investment instead we're looking to Provide the gap financing so that a project that otherwise that is not economically feasible Would be feasible so that we can induce that private investment in our community so that it can bring immediate New construction jobs it can also bring new sales tax to our community and then also new permanent jobs into our community it also is one of our primary tools and one of the only tools that the city has is to promote affordable housing. Our community, as everyone knows, has a substantial lack of affordable housing, both rental as well as owner-occupied. Over the past three years, more than 500 units of affordable housing have been assisted to be developed in our community using TIFs. And that is a way that we are able to enhance and fill the gap that's needed so that we can use state resources as well as federal resources to actually allow affordable housing to proceed. Also, we use TIFs to enhance our infrastructure in areas that are quickly growing. So when we look at using TIFs to expand our road network or our utility network, If we don't use TIFs to do that, then we have to turn to our capital improvement funds. And so what that means is funds that otherwise could be used to fix our existing road networks, our existing water lines, our existing sewer lines, are instead diverted to complete the network that is needed in some of our growing areas. Instead, we're trying to use TIFs so that growth pays for growth and existing resources can be directed within our existing city-built environment. This is something new that the city has not really done very often in the past, but in the last three years, more than $80 million in infrastructure is being funded through TIFs, and that is infrastructure that would have otherwise been needed to be funded through our capital improvement funds. We're not gonna go over all of this, but essentially within the state statute, it has a specific delineation of the project costs that are needed. And so when a TIF is approved, it can seem significant that maybe there's a large number out there of $10 million or $15 million, whatever that number happens to be. That does not mean that the developer receives that money directly and can do anything they want with it. State statute requires that the city pass a project plan, and that project plan is also approved by the developer as well as the city council or the county commission. That agreement specifically limits the use of TIF funds. And so TIF funds, for example, can't be used to construct a single family house. And so there might be developers that would say, in order for us to build a house or build a subdivision and make it affordable, we need TIF financing to be able to pay for half the construction of the house. That's not allowed by state statute. And so these are the specific items that we can actually use TIF financing for. Just very quickly, what these charts show is the total assessed valuation of all TIF districts within the state. You can see that most TIF districts in the state, as well as within our community, classified as economic development and what that means is that it's job generating and usually also retail tax generating as well but definitely job creating in addition to that there can be tiffs for affordable housing that is a smaller percentage across the state again mostly it is for economic development but also there can be something called a local TIF. What a local TIF means is that it does not generate new jobs, it does not generate new sales tax, and it also is not entirely affordable housing. If it doesn't fit one of those categories, then it ends up becoming what's called a local TIF. Why that's important is, when I said previously that the TIF policy or the TIF statutes make all school districts made whole, that's made across the entire state. If it's a local TIF, it's made within just the school district. So that can and does actually increase the mill levy that is paid for by all properties within the school district. That is something that is very rarely done in Rapid City. We try to avoid that at all costs. And in fact, I think there's only been one that's been approved in the past five years or more that have been a local TIF because we are not seeking to increase property taxes. Instead, we're looking at trying to invest in the community so that we can broaden the tax basis so that eventually the overall tax rate in our community can come down. Just quickly going over the number of active TIFs within the state of South Dakota. You can see that this was actually as of I think 2024. There were 277 active TIF districts in the state of South Dakota. Rapid City has 17. We're actually outpaced by Aberdeen, and if you would look at us on a per capita basis, compared to the state as a whole, we have a smaller number of active TIFs compared to our population than what we would have if we were just average across the state. We should have about 27 active TIF districts if we were with the average in the state, and we're quite a bit below that.

So we'll move on. Onto the amendment request, and what we're talking about today is amendment number one to the project plan for existing TIF, titled the Rapid City Catalyst District, TIF district number 101 in the city of Rapid City. That was approved in September 2nd of last year, and the original approval of that was funding for partial funding for a new sports complex to the community, and then also for public infrastructure improvements throughout the boundary, which I will show you here shortly. Elevate Rapid City has requested to amend the current project plan by approximately 25% to make improvements to construct a new business park within the Catalyst boundaries. So what this will do is Elevate Rapid City is looking to attract new businesses and existing businesses to move into this business park to the community. So it's approximately 128 acres and along with the TIF, the TIF is the gap funding portion of this request. Elevate is seeking some state funding, some grants and some interest or some low interest loans through the state to help complete the financing. So the total request with financing is to add an additional 19 million. So these are the actual TIF boundaries. So the blue here is the actual boundaries for the Rapid City Catalyst District that was approved September of last year. So you can see in the pink is the outlining of the property that Elevate Rapid City is looking to purchase to construct this business park. This will show you the road surrounding, once again, this is within the Catalyst District boundaries. The proposed property is outlined in orange. So it's in North Rapid City and just north of Mall Drive and east of Haynes Avenue. Proposed layout of the business park. So this business park is also proposed to have a small multi-family component to this as well, but this is a proposed layout of the park itself. Once again, the layout, so the blue just to the south of this is Mall Drive, and that is a principal arterial. Off to the west of this would be Haynes Avenue, which is also a principal arterial. But you can see the dotted green portion that outlines this boundary is a proposed collector street, and Elevate is seeking partially of this funding to put that collector street in, which is North Maple Street. So the total estimated cost of the infrastructure, which is including the purchase price of the property, which is at $4 million, is 30,600,000. The TIF itself, the capital portion of this would be 10 million for street utility intersection improvements and grading. And then the financing costs which are eligible by state statute to be included in the request for the TIF portion of this would round out the capital stack. So the sources Elevate would infuse cash itself and then would seek state financing through different programs and grants. So the total approved for the Rapid City Catalyst District in September of last year included financing, it was 84 million. Once again, that was partial funding for the sports complex and public improvements throughout the boundary. So Elevate would be adding, with the interest in there, $19 million to the quest, which has increased it by approximately $25,000. So the total amount of this request would increase to a little over $103 million. So the economic impact as this business park is built out, Elevate does have economic forecasting tools at its disposal, and they're estimating total direct jobs created by this business park at 450, and then you can see here in the top diagram the estimated averages for these manufacture, retail, trade, transportation, warehousing, finance and insurance, and professional scientific and technical services. So a lot of these jobs are above average wages for the community. So the economic impact for as far as the direct payroll is a little over 27 million. And then with this, on the bottom diagram that you see here, is the 450 of the direct jobs that are provided by this business park. There's also direct, indirect, and induced, which is kind of a byproduct of this, of these businesses come to town or they start hiring. They'll need accountants. They'll need lawyers. So accounting firms across the community may need a new accountant and lawyer firms may need a lawyer. So there is kind of indirect with those. And then with the induced with these is with the more wages in the community, there might be some more retail spending. So jobs are created in the retail sector that's outside of this park. So the return on the public investment, once again, the request from Elevate is a little over 19 million. But as you can see here, at year 20 of, so by state statute, TIFs are allowed to repayment of up to 20 years. They can pay off sooner, but they have up to 20 years for repayment. So at year 20 with the build out of this, the TIF's increment is estimated a little over 1.5 million. So the projected sales tax revenue, once again this would go back to the city, that estimates at 4.5 million and then the sales tax revenue back to the state is estimated at 10.3 million. So the total local impact per year on that initial $19 million investment would be $16.5 million per year. Now the important part of the sales tax revenue back to the city, the property tax generated, the 1.6 million approximately is important, but the city itself on average per year collects about 20% of that figure. So every dollar of property tax collected, the city collects 20 cents of that. What's very important to the city of Rapid City is that sales tax revenue, the 4.5 million additional. The Capital Improvement Fund, which is the fund that makes all the infrastructure, the reconstruction of the existing infrastructure, and then also the new construction to the community that happens, the infrastructure, Is primarily funded by sales tax it was very important that the city with these economic tiffs You know the retail or the job creation to collect that sales tax revenue So that that just funds right back to the capital improvement budget that helps with the new infrastructure and then existing infrastructure throughout the community So this is Elevate Rapid City's revenue projections through this project. As you can see, the 20 year total is approximately $21 million of additional property taxes that would be collected through this new development. What's important about this is the current land is undeveloped. As it sits right now, that land has an assessed value of a little over $20,000. So at full build out, the projection at year 20 of this is $120 million. So that's $120 million just on your looking at the assessed value that the community would not have without this project. And then you add in the economic factor of the sales tax revenue for the city and the state, and then the job creation that wouldn't be there without this TIF amendment. So the amortization schedule, once again, this has a full build out at year 20, projected value of 120 million. Then also by state statute, TIFs have up to 20 years for repayment. This is estimated to be repaid in full by 19, which is within the limits by statute. So once again, you can kind of see the increment generation. So with tax increment financing, increments are slow the first few years of development. So as the infrastructure is in place, the development starts going vertical with the construction of the buildings. So you can see that increment starts building and building as the increment creates more value over the years. So the last slide here is the but-for analysis, which is what Rapid City looks for, and then by state statute is filling that gap of this project wouldn't happen without. So without the use of TIF, Elevate could purchase the land, but would not have the money to put in the infrastructure, therefore there would be no construction of this. The construction of the North Maple Avenue and the grading cost, this particular property does have extraordinary grading, so there is a substantial cost component to this grading that could not be completed without this TIF. There would be no money for that. So the infrastructure application for the REDI loans, for the state funding, for the state grants, the state loans, could possibly move forward, but it wouldn't demonstrate that there's local public commitment, so it would make their application weaker without TIF financing. Therefore, they might not be able to be approved for the additional funding through the state. So also without TIF funding it would be able, Rapid City would be uncompetitive for the mid to large primary sector employers due to the lack of pad ready industrial sites. There is one other industrial TIF in the city that is starting to, that's under construction and is starting to attract businesses as well. This further shows the, I guess the state, the nation, the region, how competitive Rapid is to driving to bringing in these businesses in the community. We want these businesses, These are great economic drivers. These are great wages, above average wages that we're showing the region, the state, the nation that we're ready for these businesses to come to town. And then we also, lastly, without the TIF, the additional property tax revenue, 21 million, and then additional 1.6 million per year after the build-out.

In addition to that one, there is one other TIF district that is being considered actively. If the council approves it on June 1st, when they actually consider it, it is not required to have this additional public meeting. However, just in full transparency, we thought it would be valuable for the community to make sure they have the additional information. And so this additional TIF district is called the East Rapid City Transportation District. The purpose of the district is to complete a lot of the infrastructure that is on the city's major future street plan. There are numerous projects that are included within that. However, there's insufficient land immediately adjacent to all those improvements to really recoup the costs that are required to construct those roads. So if a developer is not able to recoup the cost from selling the land, then essentially the land never gets sold and the roads never are constructed and we continue to have these gaps in our transportation system. So the alternative is to use the city's capital improvement fund to help pay for the cost of those streets. Of course, what that means is we have less money then to repave our existing roads and to make the existing road network better. And so this is an example of where the city is going to be partnering with two of the major landowners that are in this area, one being Elevate, the other being Dream Design, to be able to put forward a significant amount of new infrastructure in this area so that the adjacent properties can actually be sold and then use the new growth taxes that are going to be generated from that new development to repay those TIF loans. That way, again, the existing residents are not paying for these improvements. Instead, the new growth is going to be paying for the new roads in this area. Developer number one is Dream Design. Developer number one is going to be required to complete North Valley Drive extension to Anamosa Street. That includes the street, the grading, street lights, sidewalk, and utility improvements. Also, Diamond Ridge Boulevard extension. This is important because this is a section that is required for the school district for them to be able to construct the new school that is going to be going in this area. So by allowing the new growth to pay for that, that will free up school capital dollars that they can use on other needed improvements in other areas. also grading and construction of a detention pond, and also intersection improvements on Highway 44 and North Valley Drive. The second developer is going to be the city itself. We will be using the funds from the TIF to develop the East Anamosa Street extension to Elkvale Road. That includes the street construction, grading, street lights, sidewalk, and utility improvements. And then also utility improvements in a water reservoir and also another detention pond. Those water improvements were going to be paid for out of our water fund, which means existing rate payers were going to be paying for this new growth area. Instead, again, we are allowing or we are essentially requiring that the new growth be paid for by the new growth areas so that our existing rate payers do not have to subsidize us. That is going to free up funds so that in the future we will not have to raise rates as high as what was originally anticipated. Also, very importantly, reconstruction of Valley Drive. That is an area that has seen a substantial amount of traffic as this area has continued to grow. It has deteriorated, and so it will allow for a complete reconstruction of that, as well as some park improvements and land acquisition costs. What you can see is that the total costs that are going to be paid for by the developer, Dream Design, equate to about $15.6 million. And then the costs that are going to be paid for by the city of Rapid City are about $58 million. So the total cost is $73.7 million. Why the city is paying more? These are the larger costs that go above and beyond what the developer is required to do. So again, these are costs that the city would have otherwise paid for out of our water fund, out of our stormwater fund, and out of our capital improvement fund. And then the developer costs, these are costs that would have jointly been paid for by the developer as well as the city, and in some cases, even the school district. Just very quickly, this is the map that shows the existing TIF district. This is actually an overlay, and so there are some properties within this district that are already included in another TIF district, TIF 84. TIF 84 has been a very successful TIF district. The infrastructure that was developed with TIF 84 has allowed That district to grow substantially and so that district is going to be paid off far earlier than what was originally anticipated However, there are still some areas of TIFF 84 that remain undeveloped They remain undeveloped because the cost to construct the roads the water in the sewer exceeds the value of the land that they would be able to open up and to sell and So that land would continue to remain vacant What this overlay will allow is for those areas to be developed, which will allow the underlying TIF, TIF 84, to be paid off even sooner. And then that new increment will be added into this new TIF district so that TIF 84 will be paid off sooner. And the areas of TIF 84 that are not included in this overlay district will go onto the regular tax rolls even sooner. that will generate hundreds of thousands of dollars annually sooner for the city and the county, as well as allow areas that would have otherwise never been to be developed to actually be developed and to be placed on the tax rolls. Just very quickly, here is the master plan for the area. You can see development of schools as well as single family. and some multifamily and a substantial park and open space area that will be included on the east side of Rapid City, which has been something that has been discussed quite frequently and actually has been included, I believe, in our Parks Master Plan as well. And with that, are there any questions? All right. Well, thank you very much. Hope everyone has a great day. Evening.