ST. PAUL — 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 former 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 it need roughly $101 million in public subsidy?
On Wednesday, Dec. 4, 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 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 Ford site, and city planning documents show the land’s likely sale price to be $61 million — a sum the Ryan Cos. will nearly make back through the TIF infrastructure subsidies alone.
On top of that, the 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.
Highland Park, however, is not a blighted neighborhood. According to the Minnesota Compass Project, the neighborhood’s 2013-17 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.
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 control over a large plaza, or “privately owned public space,” known as POPS in industry jargon.
That frees the city from some maintenance obligations but raises questions about who will be allowed to use that space.
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 that 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 to 90 percent reduction in carbon emissions compared to a building 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 preapproved 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 will collect $53 million — plus interest — from the developer to cover TIF obligations, which will be paid back 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.
$92.6 million in infrastructure
On Wednesday, the City Council will consider budget amendments that lay out $92.6 million in infrastructure costs, including more than $10 million in spending on “privately owned public spaces,” such as a Ryan-owned plaza.
Other expenses include streets and sidewalks ($27.4 million), site utilities ($17.8 million), mass grading ($6.7 million), storm utilities ($16.5 million), publicly owned green space ($5.3 million), off-site improvements ($6.5 million), public art ($147,000), and city oversight ($2 million).
To cover those expenses, the Ryan Cos. would contribute $14.6 million from their own funds.
The St. Paul HRA would issue a TIF-funded “pay-as-you-go” financial note — a contractual obligation to reimburse the developer for expenses as they’re incurred — to generate an additional $34.5 million for infrastructure spending.
On top of that, the city would issue $9 million of general obligation bonds backed by TIF, as well as $9.9 million through a TIF advance.
The city would recoup certain street and utility expenses by assessing project costs of $9.2 million as real estate comes online. Along a similar vein, the city plans to use a stormwater fee 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.