In April, 2011, the City Council approved a development agreement with the Northern Hotel for a tax increment grant.  The grant is intended to pay the Northern for some of the eligible tax increment expenses such as demolition, environmental remediation, building facade, landscaping, utilities, sidewalks, etc.  The maximum amount of the grant is $2.1 million over the tax increment district's life, or 2020, whichever is later.  The annual payments begin after the hotel opens and are to be 45% of the "excess" increment.  The "excess" is calculated by starting with the total, annual tax increment and deducting pre-approved expenses such as bond repayment, DBP agreement and the downtown safety program.  The Northern has first position on the excess.  Since the City is committing General Fund money to pay for the final project costs, which will be reimbursed when the City sells the retail units or by the tax increment district, the City requested that the Northern amend its development agreement so that it does not have first claim on the excess tax increment.  The Northern has agreed to the amendment which would divide the Northern payment, with 50% going to the hotel and 50% to the City until the City General Fund loan is repaid.

The City Council may approve or not approve the amendment.  If it does not approve the agreement, the Northern will retain is first position claim on tax increment excess and repaying the General Fund loan will take longer than anticipated.

In 2011, the "excess" tax increment was estimated to be $400,000 per year.  The Northern is entitled to 45% of that remainder, or $180,000.  With the amendment, the Northern would receive $90,000 and the City would retain $90,000 in order to repay the General Fund loan for the garage project.  If Council approves the amendment, the General Fund repayment will be faster than without the development agreement amendment.

Staff recommends that the City Council approve the amendment to the Northern Hotel development agreement.