The Savage City Council voted earlier this month to grant tax increment financing (TIF) district approval for the second phase of the Big Sky Estates residential development, which will be located on the Prior Lake Aggregates (PLA) gravel mining site in south Savage.

The council held a public hearing about the proposed TIF district at its Monday, May 16 meeting. After no residents elected to speak, the council voted to grant approval for the TIF district.

There is a three-phase plan in place to put as many as 425 single family homes on the 296 acre site, which is bordered on the south by County Road 44 and on the east by County Road 27. The TIF district for the second phase will cover approximately 106 acres of the proposed residential development.

Developers may have to adjust their plans, however, due to a decision by Prior Lake-Savage Area School District voters on Tuesday to reject a referendum that included funding for facilities and technology. If passed, the referendum would have included money for a new elementary school to be built on a 16.5 acre outlot within the Big Sky project area.

According to City Administrator Barry Stock, the developers could now choose to build more single family homes on the outlot, or they could choose to keep it as an outlot for the foreseeable future. That way, should the school district come back with another referendum, that land would still be available for an elementary school at some point. Either way, the fate of the outlot is in the developers’ hands.

“From the city perspective it is an outlot and will continue as an outlot until such time that the property owner looks to change it,” Stock said in an email to the Pacer.

PLA had requested TIF assistance for the second phase because site preparation costs are currently projected to exceed the value of the land in its current condition. TIF is an economic development tool that uses the increased property taxes that a new development is expected to generate in the future to finance the costs of development.

Three TIF notes were approved as part the new district for up to $9.2 million with 3 percent interest. The TIF notes would have to be paid off in 21 years, though the property owner expects to pay them off in 15 years.

PLA officials estimate that grading costs for the second phase will be about $7.7 million (though that includes some grading costs for the third phase), and that acquisition costs for a neighboring 62-acre parcel will come in around $1.5 million. The TIF note for the first phase approved around this time last year was for $7.3 million, also with 3 percent interest.

PLA will initially put up that $9.2 million to get the site of the second phase ready, but they will be reimbursed for those costs through the remittance of the increment. PLA will be paid back using 70 percent of the increment generated from the site in the future, with the other 30 percent of the increment going back to the city. The city can use its share of the increment to pay for public infrastructure improvements on the site. Essentially, the city would pay for the improvements up front – either through bonding or interfund loans – then could re-pay itself through the increment. The city has already bonded for some of the improvements, which will include a new lift station and trunk sewer work.

But in the city’s long-term financial plans, officials have not committed to how they will use their share of the increment. The increment is basically being looked at as a bonus for the city, and Stock said at the May 16 meeting that the city could use it to get the TIF notes paid off sooner so the property could make it onto the city’s tax rolls earlier than expected. The council will ultimately decide what to do with the city’s share of the increment.

“There are a lot of different possibilities to consider,” Stock said.

The TIF plan is structured in a “pay-as-you-go” fashion, limiting the city’s financial risk. Because PLA is spending the money up front, and because they have to show receipts for those expenditures before getting the increment remitted, there is essentially no risk on the part of the city. If the economy went sour and development stopped, the city would no longer have to remit that increment.

Homes will not be built on the site until 2020, and developers don’t expect to bring plans for the third and final phase before the council until about 2022 – the same time the increment will start being collected. Mining operations on the site continue, though the business is expected to taper off over the next several years. Once home construction begins, developers hope to build about 40 homes a year.

The first phase is expected to consist of 160 single family homes, while the second phase will consist of 207 single family homes. The Savage City Council voted in April 2015 to grant TIF district approval for the project’s first phase, which was initially expected to include the elementary school. Both TIF districts have been classified as “soil deficiency” districts.