Subject: General Business
Title
A Resolution of the Board of Commissioners of the Town of Erie Urban Renewal Authority Approving an Amendment to the Cooperation Agreement with the Town of Erie
Body
Department: Economic Development
Presenter(s): Julian Jacquin, Economic Development Director
Stefanie Furman, Finance Director
Time Estimate: 5 minutes
only required for non-consent items
Staff Recommendation:
Recommendation
Approve the Amendment to the Cooperation Agreement between the Town of Erie and the Town of Erie Urban Renewal Authority.
End
Summary and Background of Subject Matter:
The current Cooperation Agreement was adopted on March 10, 2020, and formalizes the fiduciary obligations of the Town of Erie Urban Renewal Authority (TOEURA) to the Town of Erie for any advances of funding or loans to TOEURA.
The Historic Old Town URA (HOTURA) Plan Area was adopted by the Board of Trustees on Nov. 10, 2013, explicitly instructing TOEURA to capture both property tax increment and municipal sales tax increment revenue (TIF) within the Tax Increment Area. The Tax Increment Area was established in Appendix II of the URA Plan. It includes the commercial and residential parcels within the Plan area (see Figure 2, below).
Within the Plan Area, the “base level” is that portion of the municipal sales tax revenue, and the property tax revenue produced by the levy for each public body (Town, County, School District, Special District) on the taxable property valuation in the Tax Increment Area last certified prior to the effective date of the URA Plan. That base level of tax revenue continues to go to each taxing body. TIF is the incremental tax revenue above that base level that occurs after the effective date of the URA Plan. The URA plan directs TOEURA to allocate TIF to “the tax increment revenue fund to pay the principal of, the interest on, and any other premiums due in connection with the bonds of, loans or advances to indebtedness incurred by, whether funded, refunded, assumed, or otherwise, [TOEURA] for financing or refinancing, in whole or in part, the Urban Renewal Project”. TOEURA is authorized to expend TIF revenue to finance the Urban Renewal Project (in this case various public improvements and incentives in Downtown) and for expenses associated with administering the URA Plan.
TIF Sales Tax Increment
For reasons current Town staff could not determine, after the Board of Trustees approved the HOTURA in 2013, the Town did not begin transferring sales tax TIF to the URA TIF revenue fund (controlled by the TOEURA). Instead, all municipal sales tax generated within the HOTURA, except for $133,535, which was transferred to TOEURA to fund existing sales tax incentive agreements, was allocated to the Town General Fund as unrestricted revenue. This resulted in TOEURA receiving significantly less TIF revenue over the last 10 years than it would have had the Town transferred all TIF sales tax increment generated within the HOTURA to the TOEURA since the Board adopted the HOTURA in 2013.
Once Finance staff discovered this, they estimated the municipal sales tax revenue generated by businesses within the HOTURA TIF area boundary since 2013. This estimate indicates the General Fund should have transferred approximately $1.2 million in TIF sales tax increment to TOEURA over the past 10 years. The table below illustrates this calculation.
URA Expenditures
Since the HOTURA was established in 2013, TOEURA has expended funds from the URA account to pay for various services and improvements within the HOTURA. TOEURA provided funding to support new development and redevelopment projects, anticipating those funds would be recouped after TIF increment is generated, paid, and allocated to the HOTURA account. TOEURA’s programs and projects have included the Downtown Revitalization Incentive Grant program, providing matching grants to support façade renovations, supporting business expansions, and funding new capital improvements in Downtown Erie within the HOTURA. Apart from the bond funded capital improvements, each of these programs was funded through TOEURA by advancing funds from the Town General Fund as a loan, to be repaid when the URA balance was sufficient to repay the General Fund. In the last 10 years, TOEURA has paid out more than it received in TIF increment. Consequently, the HOTURA has a negative fund balance.
The Finance Department’s accounting of HOTURA expenditures and advances from the Town General Fund from 2013 to 2022 indicates the HOTURA account has expended approximately $1.1 million more than revenues allocated to the account. This amount is reflected as negative fund balance for the HOTURA and represents the amount due to the General Fund as of Dec. 31, 2022. As staff has discussed with the Board of Trustees and the TOEURA previously, this negative fund balance will be repaid with future TIF increment, after costs for public improvement development projects in the URA are paid, and reimbursement obligations for incentive projects are paid in full. However, if TOEURA had been receiving TIF sales tax increment since 2013, the HOTURA fund balance would be net positive $100,000 ($1.2 million - $1.1 million). The table below shows revenues, expenditures, and fund balances for 2022.
Projected Future TIF Revenue
In 2021 and 2022, businesses within the TIF area boundary generated approximately $265,800 and $294,900 in TIF sales tax increment, respectively, more than the base amount. Based on that recent history, Town staff expects the HOTURA to continue generating at least $300,000 in annual TIF sales tax increment, for the 15 years remaining on the 25-year TIF clock (the HOTURA expires in 2038). This amount will likely increase as additional development and redevelopment occurs, and additional sales tax generating businesses locate and expand in this TIF area.
Recommendation
The TOEURA discussed this item in detail during the April 4, 2023, TOEURA meeting and the Authority voted to continue the issue to its next meeting to have legal review and incorporate three changes to the proposed First Amendment to the Cooperation Agreement as follows:
1. Town forgiving the full indebtedness owed by HOTURA to the General Fund, as of December 31, 2022 as reported in the final audited financial statements, instead of the estimated unaudited amount of approximately $1.1 million.
2. Town transferring the net difference of approximately $100,000 in TIF sales tax increment owed to HOTURA by the General Fund, in addition to forgiving the full indebtedness owed by HOTURA (to reflect the approximately $1.2 million in sales tax owed by General Fund minus the $1.1 million indebtedness owed by HOTURA).
3. Removing the provision in the draft First Amendment to Cooperation Agreement that said TOEURA relinquishes any and all claims to municipal sales tax increment not allocated to HOTURA as of December 31, 2022.
Adopting these changes will establish an accurate balance in the HOTURA account to reflect sales tax TIF the Town should have transferred to the URA TIF revenue fund beginning in 2013 while also reflecting the value of General Fund advances made to HOTURA account since that time. TOEURA will begin capturing all TIF sales tax increment in the TIF area boundary of the HOTURA, effective Jan. 1, 2023. Staff estimates this will amount to approximately $300,000 in 2023. This will provide new revenue to HOTURA to complete new projects and improvements within the TIF area boundary.
Fiscal Impact: Approximately $100,000 net increase in funds available to the HOTURA for projects eligible for TIF funding and a net decrease of approximately $100,000 to the General Fund. TOEURA begins capturing approximately $300,000 annually in new TIF sales tax increment, effective Jan. 1, 2023.
Board Priority(s) Addressed:
ü Prosperous Economy
ü Effective Governance
ü Fiscally Responsible
Attachment(s):
1. Resolution 23-002
2. First Amendment to Cooperation Agreement
3. 2020 Cooperation Agreement
4. Historic Old Town Erie Urban Renewal Plan