It’s a 122-acre parcel of vacant land overlooking the Mississippi River in one of the most affluent corners of St. Paul — a blank real estate canvas that any developer might call a dream project.
Most in the development community agree that the now cleared Ford Motor Co. Twin Cities manufacturing campus in Highland Park represents a once-in-a-lifetime “urban infill” opportunity.
But that raises a key question: If the Ford site is so valuable, why does its development need roughly $101 million in public subsidy?
On Wednesday, the St. Paul City Council will convene as the city’s Housing and Redevelopment Authority to approve $53 million in “tax increment financing” for streets, utilities and other city-owned public infrastructure at the Ford site. It’s the kind of tax diversion that allows developers to pay for certain public improvements using money that would otherwise go toward their property taxes.
Ford still owns the site, and city planning documents show the land’s likely sale price to be $61 million — a sum the developer, Ryan Cos., will nearly make back through the TIF infrastructure subsidies alone.
On top of that, Minneapolis-based Ryan Cos. have anticipated an additional $48 million in TIF will be needed, eventually, to subsidize nearly 800 units of affordable housing on site over the next 15 years, including dozens of units for the very poor.
For cities struggling to draw real estate investment to blighted neighborhoods, TIF has proven to be a popular but controversial tool.
While seemingly jumpstarting development, it allows property owners to effectively use their own property taxes on-site, rather than allowing those dollars to flow to the city, county and school district’s general fund for general operations.
But Highland Park, where the Ford site is located, is not a blighted neighborhood. According to the Minnesota Compass Project, the neighborhood’s 2013-2017 household median income was $75,000, well above the city median of $53,000. In fact, 35 percent of Highland households earn annual incomes of $100,000 or more.
Even on St. Paul’s less-affluent East Side, the St. Paul Port Authority has promised to redevelop the former Hillcrest Country Club land — a parcel nearly as large as the Ford site — without using any TIF dollars at all, at least for public infrastructure.
“We will use land sale proceeds to cover infrastructure,” said Port Authority president Lee Krueger, referring to the Hillcrest site. “But the end users may end up asking for TIF to help with affordable housing, but we still don’t know. We’re still in the master planning process.”
KEY QUESTIONS
Two key questions about public infrastructure at the Ford site:
Would Ford’s sale price drop from $61 million if the city approved less TIF money?
And, if $101 million in TIF is tied up at the Ford site — including $48 million for affordable housing — how much TIF will be available for public infrastructure and affordable housing elsewhere in the city?
Under the development agreement, Ryan retains ownership of large plazas, or “privately owned public space,” known as POPS in industry jargon.
That frees the city from some maintenance obligations but has raised questions about who will be allowed to use that space. City officials say a public easement in perpetuity over both of the civic squares will keep the space publicly accessible.
ORIGINAL PLAN: UP TO $275 MILLION IN TIF
While some have criticized the request for TIF subsidies at the Ford site, other observers have expressed relief the request wasn’t higher.
Krueger, the Port Authority president, noted the Port Authority was able to rely on its public levy to finance $10 million in land acquisition at Hillcrest, which Ryan can’t do at the Ford site.
“What they’re doing is right for the planning process for that neighborhood,” Krueger said. “I think everyone is trying to get their arms around it, but I don’t think anything is surprising, considering what the city is trying to deliver. … With the city’s goals of affordable housing, and density, and all the amenities, I think that’s where you’re at.”
In 2012, the St. Paul Housing and Redevelopment Authority hired Compass Rose Consulting to complete a TIF eligibility study of the Ford site.
They found a sizable gap between the dynamic vision laid out by the city in the Ford site master plan and what the private market would be able to afford without charging astronomical rents.
That vision calls for a pedestrian-friendly urban showcase of environmental sustainability: carbon-free electricity, a public plaza, an above-ground storm water feature, the largest urban solar array in the state, buildings that result in an 80 percent to 90 percent reduction in carbon emissions compared with buildings constructed in 2003.
In addition, 20 percent of nearly 4,000 housing units will be set aside as affordable housing, including many units for especially low incomes.
The city also contracted the firm Baker Tilly to examine the appropriate use of TIF.
Based in part on the two consultants’ findings, the City Council in 2016 approved a budget forecasting up to $275 million in TIF subsidies for the site, while acknowledging that figure represented an absolute maximum.
The state Legislature agreed to extend the deadline for using TIF, which is usually within three years of a building demolition.
Under the new plan, the city and developer will use $53 million of tax increment to fund portions of the city-owned infrastructure needed to develop the site. This investment will be repaid, with interest, from the tax increment generated by the development over the course of 26 years from 2022 to 2047.
Meanwhile, the city will retain 20 percent of the profits from any land sales that Ryan executes at the Ford site, above a market rate of return (profit proportional to the risk the developer is taking).
The Ford site, with a base value in excess of $30 million, currently generates over $1 million in property taxes annually. Those funds will continue to flow each year to the city, county and school district. At full buildout, the site is expected to increase in value 30-fold, adding $1 billion in value to the city’s $23 billion property tax base.
$92.6 MILLION IN INFRASTRUCTURE
On Wednesday, the City Council will consider budget amendments that lay out approximately $44 million of the anticipated $92.6 million in public infrastructure costs. This includes street and utility investments of $14.7 million, $14.8 million for a central storm water feature, $5.4 million for green spaces and public art, $6.5 million for offsite street improvements and $2.6 million for city project oversight and financing costs.
The balance includes more than $13 million for streets, $16.6 million for utilities, $6.3 million for mass grading of the future development sites, and more than $10 million in spending on “privately owned public spaces,” such as the Ryan-owned plazas.
Funding would come from a variety of sources. The St. Paul HRA would issue a “pay-as-you-go” TIF note — a contractual obligation to reimburse the developer for TIF eligible expenses — to generate $34.5 million of the $53 million of TIF committed to infrastructure spending.
In addition, the Ryan Cos. would contribute $14.6 million from its own funds.
For the remainder of the $53 million, the city would issue $9 million of general obligation bonds backed by TIF, with another $9.9 million through TIF as it is received on a “pay-as-you-go” basis.
The city would recoup certain street and utility expenses by assessing project costs of $9.2 million over the next 10 years. Along a similar vein, the city plans to use storm water connection fees to generate $8.4 million in “Green Infrastructure” financing.
Capital improvement bonds would cover $5.6 million, mostly for parklands, and municipal state aid would cover another $1.34 million for offsite street improvements.