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Transmittal - 11/22/2023 SALT LAKE CITY CORPORATION 451 SOUTH STATE STREET, ROOM 118 WWW.SLC.GOV · WWW.SLCRDA.COM P.O. BOX 145518, SALT LAKE CITY, UTAH 84114-5518 TEL 801-535-7240 · FAX 801-535-7245 MAYOR ERIN MENDENHALL Executive Director DANNY WALZ Director REDEVELOPMENT AGENCY of SALT LAKE CITY DATE: November 22, 2023 PREPARED BY: Lauren Parisi, RDA Senior Project Manager RE: Proposed HTRZ Tax Increment Reimbursement Policy REQUESTED ACTION: Consider Adoption of the HTRZ Tax Increment Reimbursement Policy POLICY ITEM: Tax Increment BUDGET IMPACTS: N/A EXECUTIVE SUMMARY: The State of Utah enacted the Housing and Transit Reinvestment Zone Act (“HTRZ Act”) in 2021 and subsequent amendments in 2022 and 2023. The Act authorizes municipalities to establish project areas known as Housing and Transit Reinvestment Zones (“HTRZs”) around certain public transit facilities to encourage the development of mixed-use, affordable housing and increase the utilization of public transit. The Act also authorizes the Redevelopment Agency of Salt Lake City (“RDA”) to enter into tax increment reimbursement agreements with project developers or property owners for the development of improvements in an HTRZ that meet the objectives of the HTRZ Act. The attached HTRZ Tax Increment Reimbursement Program Policy (“HTRZ TI Policy”) is provided for the RDA Board of Directors’ (“Board’s”) consideration. If adopted, this policy will guide the disbursement of tax increment (“TI”) in HTRZs. BACKGROUND: Tax increment reimbursement (“TIR”) allows for a portion of the property tax generated by a development to be reimbursed back to the developer over a given period of time. TIRs are a powerful tool to incentivize certain types of development because unlike a loan, the funding is a direct payment that does not need to be paid back. TIRs are post-performance based, meaning that the amount of the reimbursement is calculated as a percentage of the property tax revenue generated by the development. Projects often use TIRs to fund significant development costs, and securing TIRs often allows developers to attract additional funding sources. The RDA’s first HTRZ request centered around the TRAX stop at 200 West/900 South was approved by the State in November 2023. The RDA intends to submit additional HTRZ requests in the future. A Board- approved HTRZ TI Policy will help guide RDA staff in the negotiation and distribution of TIRs to specific projects if/when an HTRZ is approved by the State. 2 ANALYSIS: In the 200 West/900 South HTRZ application, the RDA proposed using 10% to 40% of the tax increment received by the RDA from the HTRZ for large public infrastructure projects in the area. The Agency is authorized to capture 1% for administration costs related to the HTRZ. The remai nder of the increment (60% to 90% of the tax increment received by the RDA) would be available for TIRs to specific developments. Components of the draft HTRZ TI Policy include: 1. TI Reimbursement Thresholds – Projects must • Meet the standards and objectives of the HTRZ Act (Utah State Code 63N-3), approved HTRZ (including any conditions set by the HTRZ Committee), and a future interlocal between the RDA and Salt Lake City • Include activated, ground-floor space • Comply with the RDA’s Sustainable Development Policy • Provide sufficient evidence that tax increment funding is necessary for the project to succeed • Housing Projects: Include affordable housing. The HTRZ Act requires a minimum of 10% of units be affordable to households earning 80% of the Area Median Income (AMI) or less. As drafted, the HTRZ TI Policy requires an increased threshold of 20% of units at 80% AMI or 10% of units at 60% AMI to generate more affordable housing. • Non-Housing Projects: Meet at least two (2) of the RDA’s qualifying livability benchmarks: permanent job creation; affordable commercial spaces; ownership; transportation opportunities; neighborhood safety; community engagement and support; public art; public space; walkability; and, building preservation, rehabilitation, or adaptive reuse . 2. Maximum Reimbursement Rate – Meeting the threshold criteria may allow for a developer to receive up to 60% of the tax increment received by the RDA for the subject property. The draft policy allows for incremental increases in participation rate of 10% for each additional public benefit included beyond the threshold criteria (e.g., increasing the level/amount of affordable housing, adding qualifying livability benchmarks, including 3- and 4-bedroom units in residential projects, and meeting a priority identified in the RDA’s Annual Housing Funding Strategy). The maximum potential participation rate is 90% of the tax increment received by the RDA. 3. Maximum Reimbursement Term – The maximum reimbursement term will be up to fifteen (15) years for an HTRZ centered around a light rail or bus rapid transit station and up to twenty-five (25) years for an HTRZ centered around a commuter rail station, or the total remaining collection years on the project parcels, whichever is less. These terms are established by the State in the HTRZ Act. 3 4. Maximum Reimbursement Amount – The maximum Reimbursement amount will be negotiated based upon a project’s eligible costs, level of public benefits, and demonstrated financial need. NEXT STEPS: • The Board may wish to consider adoption of the attached resolution to approve the HTRZ TI Reimbursement Policy. • Upon the State’s approval of an HTRZ and as required by the HTRZ Act, the RDA will propose an interlocal agreement between the City and RDA to ensure the distribution of tax increment is consistent with this policy, the HTRZ Act, and the approved HRTZ. Pursuant to the HTRZ Act, the RDA cannot receive HTRZ funds prior to the execution of this interlocal agreement. • In addition to the RDA’s recommendations for creating a new HTRZ TI Policy, the current TI Reimbursement Policy, which guides the disbursement of TI in Community Reinvestment Areas (“CRAs”), is in the process of being revised. Staff will return to the Board with a draft CRA TI Reimbursement Policy that is intended to strengthen the criteria by which projects are eligible for a TIR – reserving this tool for only the most transformative projects with wide- reaching public impact. ATTACHMENT: Attachment A – HTRZ TI Reimbursement Resolution & Policy Redevelopment Agency of Salt Lake City RESOLUTION NO. ________ Housing and Transit Reinvestment Zone Tax Increment Reimbursement Program Policy RESOLUTION OF THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF SALT LAKE CITY ADOPTING THE RDA HOUSING AND TRANSIT REINVESTMENT ZONE TAX INCREMENT REIMBURSEMENT PROGRAM POLICY WHEREAS, the Utah Housing and Transit Reinvestment Zone Act (HTRZ Act) was enacted to further a number of objectives including promoting a higher utilization of public transit and increasing the availability of housing including affordable housing. WHEREAS, pursuant to the Act, the Redevelopment Agency of Salt Lake City (RDA) administers the tax increment, including entering into reimbursement agreements (also known as tax increment reimbursement agreements) with project developers or property owners associated with an HTRZ Committee approved Housing and Transit Reinvestment Zone (HTRZ) for the purpose of utilizing the funds as allowed by the HTRZ Act. WHEREAS, the Board of Directors of the Redevelopment Agency of Salt Lake City (Board) supports the distribution of tax increment associated with an HTRZ pursuant to the process outlined below. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF SALT LAKE CITY, that we do hereby establish policy guidelines for the RDA HTRZ Tax Increment Reimbursement Program to include the following: 1. GENERAL a. Purpose The RDA HTRZ Tax Increment Reimbursement Program (Program) may provide project developers or property owners a tax increment reimbursement (Reimbursement) for the development of improvements in or associated with an HTRZ that meet the goals and objectives of the HTRZ Act, the executed interlocal agreement between the RDA and Salt Lake City, and the RDA’s Mission and Values, and provides significant public benefit. The Program is designed to provide reimbursements that are calculated using Salt Lake County’s assessed property value. The developer or property owner will receive a percentage of the tax increment generated from its project for a specified timeframe, and the RDA will receive the residual tax increment generated by the project. b. Authorization The RDA shall determine whether a project meets the goals and objectives of the HTRZ Act, the executed interlocal agreement between the RDA and Salt Lake City, the approved HTRZ, and the RDA’s Mission and Values. As provided in the HTRZ Act, a Reimbursement can only be authorized pursuant to a Reimbursement Agreement (Agreement), the terms of which are approved by the Board. The Board reserves the right to modify or deny a tax increment reimbursement application at any time for any reason. The Board’s approval of an Agreement shall be made by resolution and include a description of the development the applicant will undertake, the amount of funds the applicant may receive, and the terms and conditions under which the applicant may receive the funds. c. Tax Increment Calculation The formula to calculate the Reimbursement generated from the proposed improvements shall be as follows: i. Step 1: Estimate the Total Annual Tax Increment. o Determine the property's taxable value as shown upon the assessment roll last equalized prior to the construction of improvements on the property. This value is referred to as the property’s Base Taxable Value. o Calculate the difference between the Base Taxable Value of the property prior to improvements and the property’s estimated taxable value after the improvements have been made. This difference is referred to as New Growth. o Multiply New Growth by the current effective tax rate. (New Growth) x (Effective Tax Rate) = Total Annual Tax Increment (TI) ii. Step 2: Estimate the Annual TI Received by the RDA. o Total Annual TI multiplied by the percentage of TI received by the RDA. (Total Annual TI) x (% of TI received by the RDA) = Total Annual TI Received by the RDA. iii. Step 3: Estimate the Annual Reimbursement Payment. o Using the developer/property owner reimbursement rate (Reimbursement Rate) established in the Agreement, calculate the estimated annual reimbursement payment. o (Total Annual TI Received by the RDA) x (Reimbursement Rate) = Estimated Annual TI Reimbursement Payment. Refer to Section 2 for more information on calculating the participation rate between the RDA and the developer. iv. Step 4: Calculate the Maximum Amount of Tax Increment Available to the Developer or Property Owner Over the Term of the Agreement. o (Estimated Annual TI Reimbursement Payment) x (the Term of the Reimbursement Agreement) = Total TI Available to Developer or Property Owner Over the Term. An annual growth multiplier based on current economic conditions may be applied to this calculation, at the RDA’s sole discretion. Actual Reimbursement is dependent on the increment being generated by the project. d. Eligible Costs The tax increment reimbursement will be limited by state law as indicated by Section 63N-3-607(4) of the HTRZ Act and Section 11-41-103 of the Prohibition on Retail Facility Incentive Payments Act. The RDA may determine, in its sole discretion, if the entire project or only specific project elements are eligible. e. Design Review Projects approved for Reimbursement must follow the RDA’s administrative design review process. Projects will be required to be in conformance with all Salt Lake City policies, ordinances, and codes. 2. REQUIREMENTS AND STRUCTURE a. Threshold Requirements of Projects that Incorporate Housing i. Projects must meet all applicable standards and objectives of the HTRZ Act and the approved HTRZ; and, ii. At least 10% of housing units within a project must be affordable to those earning 60% the Area Median Income (AMI) and below, or, 20% of units must be affordable to those earning 80% AMI and below. Income averaging of units within a single project may be utilized to achieve AMI thresholds; and, iii. Projects must include activated, ground floor space if not a private residence. Activated, ground floor space means a minimum of 50% of all ground floor, street-facing building facades must contain an active (commercial, retail, or office) use that is not exclusive to the tenants of the building; and, iv. Projects must comply with the RDA’s Sustainable Development Policy; and, v. The applicant must provide sufficient evidence (including, but not limited to the project pro forma, senior lender agreement(s), equity investor agreements, etc.) that tax increment funding is necessary for the project to succeed and to verify that the request is reasonable. b. Threshold Requirements of Projects that Do Not Incorporate Housing i. Projects must meet all applicable standards and objectives of the HTRZ Act and the approved HTRZ; and, ii. Projects must meet at least two (2) of the RDA’s qualifying livability benchmarks: permanent job creation; affordable commercial spaces; ownership; transportation opportunities; neighborhood safety; community engagement and support; public art; public space; walkability; and building preservation, rehabilitation, or adaptive reuse (collectively, Qualifying Livability Benchmarks). iii. Projects must include activated, ground floor space; and, iv. Projects must comply with the RDA’s Sustainable Development Policy; and, v. The applicant must provide sufficient evidence (including, but not limited to the project pro forma, senior lender agreements, equity investor agreements, etc.) that the Reimbursement is necessary for the project to succeed and to verify that the request is reasonable. c. Affordable Housing Requirements. i. Deed Restriction – If the project qualifies for a Reimbursement based on the incorporation of housing, prior to executing an Agreement, a restriction shall be recorded against the property that requires continued use of the specified units as affordable housing for at least 30 years. Both rent and income restrictions shall be included to limit the maximum rent that can be charged for a unit and to require that the unit be made available only to households with qualifying incomes. ii. Bedroom Count Mix – The affordable units shall be located on different floors of the building and spread among bedroom counts (1-bedroom, 2- bedroom, 3-bedroom, etc.) in the same proportion as the units available within the rest of the project. d. Eligible Project Locations Eligible projects shall be located in or associated with an active HTRZ that allows tax increment reimbursements pursuant to the HTRZ Act. e. Maximum Reimbursement Term The Reimbursement term will be negotiated based upon a project’s level of public benefits and demonstrated financial need and shall be consistent with the HTRZ Act. f. Maximum Reimbursement Rate i. Base Level Reimbursement – The maximum reimbursement rate for Projects that only meet the Threshold Requirements is 60%. ii. Increased Reimbursement Incentives – Projects may be eligible to receive an additional 10% increase in the reimbursement rate for meeting elements listed below, with each element being worth an additional 10%. The possible total maximum reimbursement rate is 90%. The elements are: 1. Incorporating Qualifying Livability Benchmarks in the project beyond the Threshold Requirements. 2. Providing an additional 10% of total affordable units at 60% AMI and below beyond the Threshold Requirements. 3. The inclusion of 3- and 4-bedroom units in projects that incorporate housing. 4. Meeting a priority identified in the RDA’s Annual Housing Funding Strategy established pursuant to the Housing Allocation Funds Policy. g. Maximum Reimbursement Amount The maximum Reimbursement amount will be negotiated based upon a project’s eligible costs, level of public benefits, and demonstrated financial need, and shall be consistent with the HTRZ and HTRZ Act. 3. EVALUATION AND APPROVAL PROCESS a. Applications that meet the requirements detailed in Section 2 will be evaluated and processed as detailed below. i. Step 1: Application Processing and RDA Staff Review. All applications shall be made to RDA staff, on standard RDA forms. All applications must be complete to be evaluated, and if either the applicant or proposed project fails to demonstrate the ability to meet application requirements, RDA staff may deny the application. ii. Step 2: RDA Finance Committee Review. RDA staff shall forward complete applications that meet the threshold requirements to the RDA Finance Committee. The RDA Finance Committee shall evaluate applications, supplemental materials, and other documentation necessary to thoroughly review the application and formulate a recommendation to the Board. iii. Step 3: Board Consideration of the Tax Increment Reimbursement Agreement Terms. Upon review of the application and supporting material, the Board may consider for approval a resolution detailing the Agreement terms. iv. Step 4: Agreement Finalization. Once the terms of an agreement have been authorized by the Board through an approved resolution, the RDA and developer will execute an Agreement consistent with the terms approved by the Board, and any other legal agreements (including an affordable housing restriction) deemed necessary by the City Attorney’s Office. 4. AGREEMENT TERMS a. Participation and Reimbursement Agreement Terms In addition to any other terms as recommended by legal counsel, the following terms shall be included in the Agreement: i. Reimbursement to Benefit Owner: RDA Discretion The RDA intends that the beneficiary of the Reimbursement will be the owner of the project for the life of the Agreement. In the event of a transfer or sale of the project or property, the Agreement and all benefits conferred under the Agreement shall benefit the project and be recorded against the property to run with the land, with the intent that all Reimbursements will remain with the owner of the real property and project. In the event that the ownership of the real property and improvements are severed, the RDA will have sole discretion to determine the beneficiary of the tax increment. If the Agreement is executed and the real property and project are conveyed to a third party while the improvements are still being constructed, the RDA will retain the right to consent to the transfer the Agreement to the new owner, in order to ensure that the benefits the RDA anticipated receiving under the original Agreement with the original developer are consistent with the new developer. If RDA does not consent to the transfer of the Agreement, the Reimbursement will cease and the Agreement will terminate. ii. Tax Appeals All reimbursement recipients shall be required to notify the RDA if they have applied for a property tax appeal with Salt Lake County. In the event that any such appeal results in a reduction in property taxes, the percentage share of the Reimbursement payable by the RDA to the recipient will decrease, and the percentage share of the tax increment received by RDA shall be increased, so that the dollar amount received by the RDA is the same as if no appeal of the assessed value had been made. iii. Recapture Provisions in the Event of Default Agreements shall require the recapture of Reimbursement funds allocated to a project that fails to meet the requirements as provided in the Agreement. iv. Participant Reporting Requirements Agreements shall require the following reporting from Reimbursement recipients as per the following: 1. Project Completion: Upon project completion, Reimbursement recipients shall provide a report that includes, but is not limited to, the total cost of improvements, a summary of completed improvements, and outcome metrics relating to project-specific requirements. 2. Annual Pre-Reimbursement: Contingent upon receiving an annual Reimbursement, Reimbursement recipients shall provide a report that includes a notification of any tax appeals and outcome metrics relating to project-specific requirements. As applicable, the report shall include relevant data that is certified by a financial officer or public accountant. b. Interest Interest will not accrue against the RDA on the anticipated or projected tax increment to be reimbursed to the developer. 5. REPORTING REQUIREMENTS a. Reporting The RDA shall provide a written briefing to the Board once per fiscal year, which contains an update on the RDA’s Reimbursement portfolio. Such briefing shall include a summary of new Agreements, anticipated budget impacts, and project metrics. 6. EXCEPTIONS The Board, by a majority vote of those present, may waive requirements or make exceptions to the foregoing criteria and procedures with a finding that the RDA’s mission and values will be furthered by such waiver or exception. RDA staff will prepare a written recommendation and statement regarding the waiver or exception. The statement will be placed in the project file. Passed by the Board of Directors of the Redevelopment Agency of Salt Lake City, this day of , 202_. ________________________ , Chair Approved as to form: __________________________________ Salt Lake City Attorney’s Office Allison Parks Date:____________________________ The Executive Director: does not request reconsideration requests reconsideration at the next regular Agency meeting. ________________________ Erin Mendenhall, Executive Director Attest: ________________________ City Recorder November 21, 2023