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Mr. David Loch <br /> August 11, 1998 <br /> Page 4 <br /> • • Jarmoluk Dental Clinic <br /> • King and Main (vacant site) <br /> TIF No. 19 is not necessarily a 25 year TIF District. Since it is a <br /> redevelopment TIF District it is "allowed by law" to be in <br /> existence for a total of 25 years from the date the first increment <br /> is received. The tax increment plan for TIF No. 19 bases all of <br /> its assumptions on the maximum duration of 25 years. The city <br /> will only know the precise duration of the District at the time of <br /> execution of the final development agreement which will <br /> identify the amount of assistance being provided to the <br /> developer and the amount of tax increment which may be used <br /> for other eligible project expenses, i.e., streets, sewer and water <br /> improvements, etc. At the time this package has been <br /> negotiated and the final development agreement executed, the <br /> city can potentially "guarantee" a specific year for decertification <br /> of the TIF District. It is unlikely that increment will be <br /> collected for an entire 25 year period in TIF No. 19. <br /> It is important to note that, over the past several years, new <br /> state laws with regard to TIF have eliminated "pooling" of tax <br /> 111) increment. What this means is that prior to 1990, cities had an <br /> incentive to keep a district in place for the maximum duration <br /> allowed by law because of the ability to use excess tax increment <br /> generated in that district for various other legal uses. Pooling <br /> of tax increment is no longer allowed, therefore there is <br /> no incentive or legal authority to keep a tax increment <br /> district in place once the developer and other costs have <br /> been paid. New state laws have actually added a penalty <br /> clause for cities creating new tax increment districts. This <br /> monetary penalty is equal to 10 percent of the tax increment <br /> generated, or in the case of TIF No. 19, up to $1.6 million. This <br /> is a cost the city is required to bear from a funding <br /> source other than tax increment from the district. The <br /> purpose of this penalty is to assure that cities are committed to <br /> the projects and share a portion of the risk of these projects <br /> through paying the penalty. I can assure you the city of Elk <br /> River does not take lightly its decision to pay a potential penalty <br /> of up to $1.6 million to facilitate the proposed development <br /> within TIF No. 19. <br /> • <br />