Monday, September 16, 2024
By Bert Lehman
The New London Planning Commission recommended a new TID be formed to include the Aldi construction, as well as adjusting the boundaries to TID 5 to include a proposed new apartment building complex.
The recommendation will now go before the New London Common Council for approval.
A tax increment district is a financing tool, the only tool that is used at the local level to fund economic development type activities, Harry Allen, associate municipal advisor for Ehlers, told the commission.
All the taxes go to a special fund controlled by the city to pay for costs necessary to attract new development and growth in that area, Allen said.
“If you didn’t have an incremental tax district, you’re really just getting the city’s portion of that new tax bill, so this allows the city to recover more money on the front end so you can incur the costs necessary to go after these economic development projects.” Allen said.
The creation of a TID starts with the Joint Review Board, which includes the county, city, technical college and area school district, which all have a say in whether a TID can be created.
“The idea here is that everybody benefits from economic development, because once this district closes, all that value does roll on to the tax rolls of all the overlapping bodies, and there’s that shared benefit at that point,” Allen said.
The TID would be located in the north side of town.
“Largely, this district is being created to capture the incremental value that’s going to be created by Aldi, and then any other development that could occur in this area,” Allen said. “The thought here is to create the district, is to create a financing mechanism to pay for the necessary infrastructure to make this area developable.”
By doing it this way, Allen said the infrastructure cost would stay off the tax levy and find another financing mechanism to attract additional development to the city.
The proposed TID would be a mixed-use district, which means it would have a 20-year lifespan.
The district would be created as of Jan. 1, 2024.
“Which means you’re kind of going back in time and setting the base of anything that existed on January 1 of this year,” Allen said. “Anything after January 1 of this year, that will go into incremental value and create dollars within this tax increment district. So, by creating that district at this point in the year, Aldi will be fully incremental value in this district.”
He added that there is potential for an Ascension medical facility to be added south of where Aldi is being constructed.
Allen said the projected value for the TID from Aldi would be $2.5 million, based on research from other locations Aldi has been constructed.
The proposed costs for the TID are primarily infrastructure costs. The city would likely borrow funds for the infrastructure, Allen said.
From the Aldi development, Allen said the city expects to collect around $820,000 in tax increment revenue over the 20-year life of the TID.
The costs for infrastructure would be around $1 million for the first phase.
Allen acknowledged expenses are proposed to be higher than the revenue.
“The solution here that we modeled, is you issue that upfront financing as some general obligation type pledge, which allows the city the ability to levy a property tax to make up any shortfall in the district,” Allen said. “So, you can get creative in how you structure that financing and you can delay principal until the later years, so hopefully you get some additional development on top of the Aldi, so you have more revenues coming into this district to pay that debt service.”
The proposed TID would close in 2045.
New London City Administrator Chad Hoerth was asked if Ascension was currently working with the city to build a medical facility in the city. Hoerth said Ascension purchased property in the city around four years ago.
“I’ve had some talks with them a year or two ago,” Hoerth said. “They don’t have any plans at that point in time. There’s an assumption there’s going to be something down the road with that.”
He added that there is little chance for development in the area unless infrastructure is added.
“We wanted to make it eyes wide open, it’s not financially solvent unless we get more development in that area,” Hoerth said. “I want to make that crystal clear.”
Allen was asked what it would take to get the project “right side up” financially.
Allen said the TID would probably need around three more “Aldi-type” developments in the TID to make the TID financially solvent. That would be for the first phase of infrastructure. To make phase two solvent, more development would be needed.
“And the whole purpose of this, is obviously, we don’t see the ability to get more development in this area without that infrastructure,” Hoerth said. “It just can’t happen. We’re encouraging more of that ability for that development to happen around that area.”
TID 5 was created several years ago, and is comprised of a good portion of the downtown area of the city. The TID was amended in 2022 to support First State Bank. The proposed new boundaries would include a new apartment development that needs financial incentive to make the project feasible. The addition to the TID would be just under an acre, Allen said.
“This is directly to support the construction of those apartments,” Allen said.
TID 5 is designated as mixed-use with a 20-year life span. With the proposed amendment to the district, that doesn’t change.
By the time the TID closes, it will have generated around $21 million of incremental value, Allen said.
Allen said there was overspending on the prior project plans for the TID. He added that they are estimated there could be $800,000 in infrastructure costs in the TID in the future. The new expense that would be added to the TID would be a developer incentive estimated at $300,000 based on 50% of the tax bill on the new apartment building, adding that that has not been finalized yet.
Including borrowing costs, the total cost being added to the TID is $4.3 million.
“We are showing that this district would need all the remaining years of it’s life to recover its costs so it closes out in 2042,” Allen said.
