St. Paul's Ford site expected to tap into TIF, but how much?

As redevelopment of St. Paul's former Ford Motor Co. factory site gets closer to reality, the project developer is asking the city to consider making several tweaks to the 122-acre site's master zoning plan.

Among them: adding 35 large single-family homes along Mississippi River Boulevard, obtaining the flexibility to build rowhouses near a recreated river through the property, and adding parking space near offices and shops.

What's not yet known, however, is how much money developer Ryan Cos. wants the city to provide for roads, sewers, utilities and affordable housing.

While Ryan and the city aren't saying how much tax subsidy would be part of the deal, it's a good bet that the largest redevelopment project in St. Paul history will also become one of the heftiest tax-increment financing districts in the state.

Tax-increment financing (TIF) is a tool used by cities and other authorities to promote development in areas where it would not otherwise occur. It's used to clean pollution, redevelop blighted areas or pay for public uses such as streets, sidewalks, sewer and water. Tapping TIF reduces developers' costs and gives them more incentive to invest in an area.

It generally works like this: TIF helps finance development by "capturing" incremental increases in property taxes spurred by new development. Over the life of a TIF district, property taxes based on the value of the site before development continue going to the city, county and school district. But the higher taxes based on a district's increasing value are used to pay for public improvements to the site.

Redevelopment districts, such as the Ford site, typically last up to 25 years although they can be paid off sooner. After the TIF commitment is repaid, all the increased property taxes roll into public coffers.

Fully developed, the mixed-use urban village envisioned for the Ford site could reach $1.4 billion in value and generate more than $20 million per year in TIF funds.

"We don't have an 'ask' yet. We're hard at work with the city now," said Tony Barranco, Ryan senior vice president of real estate development.

Given the ambitious development plan, which calls for building 3,800 housing units, including 760 units of affordable housing, and infrastructure for a 40-block area that includes 50 acres of green space, Barranco said public investment will be needed.

"It is likely the largest development in the city," he said last week. "It needs to be the largest [TIF] district."

St. Paul City Council Member Chris Tolbert acknowledges TIF funds likely will be needed. But it's Ryan's job to make the case for how much, he said.

The City Council in 2016 established a TIF district for the site that projects spending up to $275 million on infrastructure and housing, with annual tax increments starting at $315,350 and increasing to $20.3 million once the site is fully developed around 2035.

"Ryan has to show the gap," said Tolbert, who represents Highland Park. "TIF should go to a necessary public use and not to enrich the developers. Our [the City Council's] job is to do good due diligence."

But John Mannillo, a St. Paul commercial developer and broker, said St. Paul is too quick to turn to TIF, especially when a development increases the need for city services but doesn't provide the revenue to pay for those services for 25 years. The Ford site, he said, would attract development without TIF money.

"The theory is that it builds tax base," Mannillo said. "But if you abuse it, it does the opposite."

Supporters argue that without TIF, blighted properties would remain fallow, generating no increase in tax revenue.

Mannillo, though, said St. Paul is so overloaded with TIF that it reduces the city's current tax base. City officials should explore offering other financial incentives, he said, such as historic tax credits, housing credits and the federal government's new Opportunity Zone concepts.

"The reality is that Ford would develop without [TIF]. It's the most attractive site in the region," Mannillo said. "If you need to use TIF there, where don't you need it?"

The Ford site, home to a factory and parking lots for nearly 100 years before being cleared for redevelopment, now contributes $1.2 million a year in property taxes. That sum could jump more than $20 million a year by 2035, according to city projections.

St. Paul, which tries to limit its use of TIF to no more than 10 percent of the city's annual tax capacity, now has about $33.5 million per year going to 58 TIF districts, said Jenny Wolfe, debt manager for the city's Planning and Economic Development Department. After tax rates are applied, about 8.4 percent of St. Paul's tax capacity goes to TIF, she said.

The St. Paul district that captures the biggest increment — about $6.5 million a year — is the Minnesota Events District downtown. That district is set to expire in 2023, Wolfe said, about the same time that a Ford district is expected to start collecting its increments. Because the Ford site would not start collecting until after other city districts sunset, she said, St. Paul will likely stay below its 10 percent of tax capacity target limit.

"We don't think we're going to run into any issues with Ford as we get that off the ground," she said.

If the Ford site eventually captures an annual increment of $20 million, it not only would be St. Paul's largest TIF district but one of the largest in the state.

According to 2017 data gathered by Jason Nord, assistant state auditor in charge of TIF, only one district in Minnesota captures more than $20 million in TIF a year — the Consolidated Redevelopment District in Minneapolis, at $28.5 million. That district, which encompasses multiple sites throughout Minneapolis, is used to fund neighborhood associations throughout the city, as well as Target Center debt. It is set to expire in 2020.

Just where the Ford site eventually ranks will need to be known soon. Barranco said Ryan hopes to close on the purchase of the site with Ford this spring and have a development agreement with the city soon after.

"We still have wild aspirations to be moving dirt this year," Barranco said.

While Tolbert wouldn't commit to a specific TIF amount for Ford, he said some level of it is probably justified for a massive site that will soon need to be built up from scratch.

"Yes, it's a desirable location. But [critics] also should remember that Ford has no electricity, no water, no streets, no sidewalks. No infrastructure of any kind," he said. "When you add up all those things that need to be added to the site, it's a complex thing."

James Walsh • 612-673-7428