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7.0. EDSR 02-13-2006ITEM # 7. MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic Development DATE: February 13, 2006 SUBJECT: Discuss Draft Amendments to Micro Loan Fund Policy Attachments • EDA Finance Committee Minutes, September 28, 2005 • 1" Draft Revised Micro Loan Fund Policy dated February 2006 Background At its September 28, 2005 meeting, the EDA Finance Committee discussed the level of financial assistance provided to manufacturing companies entering the City of Elk River. The meeting minutes are attached. Issue Part of the Finance Committee's discussion led to the following suggested amendments to the Micro Loan Fund Policy: • All public financing assistance being requested fox a project must be included in the project's sources and uses at the time of application. • Clarified that job creation goals could not be double-counted if the project is xecciving more than one type of public financing assistance. • Increase the amortization fox real estate uses to 20 years. In addition the draft policy includes several staff suggested revisions. Staff Recommendation Staff recommends that the EDA review the draft revised policy and provide feedback on any additional revisions. Following the F,DA's input staff will make the revisions and bring a final version back fox EDA adoption at next month's regular meeting. Staff is also reviewing the City's Business Subsidy Policy, Tax Increment Financing Policy and Tax Rebate Financing Policy fox amendments to be presented to the EDA for consideration in the next couple months. MEETING OF THE EDA FINANCE COMMITTEE HELD AT THE ELK RIVER CITY HALL WEDNESDAY, SEPTEMBER 28, 2005 Members Present: Chris Carlson, Cliff Lundberg, Tom McNair, Paul Motin, Dave Rymanowski and Dan Tveite Staff Present Community Development Director Scott Clark and Assistant Director of Economic Development Heidi Steinmetz 1. Accept August 17. 2005 EDA Finance Committee Minutes MOVED BY PAUL MOTIN AND SECONDED BY TOM MCNAIR, THE FINANCE COMMITTEE MOVED TO ACCEPT THE AUGUST 17, 2005 FINANCE COMMITTEE MINUTES. 2. Discuss the level of financial assistance provided to manufacturing companies entering the Citv of Elk Ricer Community Development Director Scott Clark indicated that this meeting was prompted by Badger Ventures, LLC and Provo Enterprises, LLC receiving both Tax Rebate Financing (1RF) and Micro Loans for the construction of manufacturing facilities in Elk River. Finance Committee member Tom McNair stated that the Micro Loan program should not be too restrictive because the fund balance is high and is not being used. He added that the loan fund is a better subsidy tool than Tax Rebate Financing because it is an investment as opposed to forgiving taxes for a period of years. Finance Committee member Dan Tveite added that TRF is a tool that forgives taxes the City would not have without the project. Finance Committee member Paul Motin stated that the level of financial assistance provided to Elk River manufacturing companies should not be a matter of providing one program over another. Tom McNair reminded the Committee and staff that the amount of subsidy offered through a Micro Loan is only the amount of interest saved by the company, not the entire loan amount. Paul Motin said that he has no problem offering more than one subsidy to a company, as long as the City's process used to offer an appropriate financing package is more transparent. Dan Tveite concurred. Finance Committee member Cliff Lundberg asked if the EDA could develop a subsidy application that combines more than one program, which may allow fox more transparency. Community Development Director Scott Clark said that this would be possible but stressed the importance of ensuring that the subsidy applications/process is clearly explained to applicants and that all subsidies used fox a project must be included in the project's sources and uses upfront. Finance Committee members Dave Rymanowski and Tom McNair indicated that the issue under discussion seems to be more about the City's application process rather than the amount of subsidy offered. Paul Motin stated that it's important that the City know up front if companies axe going to apply Eox a Micro Loan in addition to TRF ox another subsidy. Assistant Director of Economic Development explained the application process to the Committee, indicating that companies axe made aware of each City financing tool prior to the start of the application process but that staff typically recommends the most appropriate financing option. The Committee discussed the issue of companies requesting an additional subsidy fox the same project shortly after the first subsidy is approved, which could affect the City's financial advisor's initial "but For" analysis fox the project. Dan Tveite suggested that companies making additional requests should pay fox an additional "but for" analysis. Tom McNair concurred. Cliff Lundberg added that it wouldn't take much time fox the financial advisors to modify the numbers anylvay. Dave Rymanowski said that companies must be made aware of the fact that the level of TRF offered by the City may change if additional subsidies axe offered fox the same project. Paul Motin indicated that there is a policy issue that needs to be discussed regarding how job creation would be "counted" if more than one subsidy is used. Finance Committee member Chris Carlson said that the City should still review Micro Loan applications carefully because he doesn't recall denying a company fox a Ivlicxo Loan since he has been on the Committee. CliEELundbexg stated that he prefers using the loan program over TRF and suggested that maybe it could be secured by TRF or be an interest only program until the TRF payments begin. The Committee discussed the current Micro Loan terms, which is a 15-year amortization on real estate uses and a 10-year amortization on equipment uses and afive-year balloon payment fox both uses. The Committee concurred that perhaps the amortization term fox real estate uses should be increased to 20 years. Scott Clark asked the Committee if they ever thought of using the Micro Loan program fox commercial projects. Tom McNair answered no but Paul Motin indicated that perhaps the Committee should discuss the issue since the program could be an incentive to attract a class one xestaurantto Elk River. Staff indicated that the Committee's suggested changes to the Micro Loan Policy would be made and brought to the EDA fox approval. A summary of the changes are as Follows: • All subsidies used fox a project must be included in the project's sources and uses upfront. • Applicants shall pay for an additional "but for" analysis if needed. • Job creation goals clarification if more than one subsidy is used for a project. • The Micro Loan amortization term fox real estate uses should be increased to 20 vears. 3. Schedule follow up meeting The Committee did not schedule a follow up meeting. The Committee agreed that an annual review of the Micro Loan Policy was a good idea. 4. Clo~sine The EDA Finance Committee meeting ended at 7:50 am. Respectfully submitted by, Heidi Steinmetz Assistant Director of Economic Development The Light Industna! Hub of the Northwest Metro Economic Development Micro Loan Fund Policy & Guidelines And Application 1~' Dtak February 2006 -Formatted: Font: 12 pt Revised: une 2004 Formatted: Fon[: 12 pt, Superscript September 1999 Formatted; Font: 12 pt Economic Development Authority for the City of Elk River Formatted: Font: Garamond, 12 pt 13065 Orono Parkway Elk ffiver, MN 55330 763.635.1040 Kiver ELK RIVER ECONOMIC DEVELOPMENT MICRO LOAN FUND POLICY & GUIDELINES ~" Draft Pcbnr ~ 311116 D!I!tld: Revisedlwe ]1104 PURPOSE Formatted: superscript The Economic Development Authority for the City of Ells River (EDA) recognizes the need to stimulate private sector investment into manufacturing facilities and equipment in order to create new jobs, boost productivity and retain existing jobs fox local residents. Additionally, the need exists to encourage investment in the expansion and/ox rehabilitation of commercial and retail buildings in order to maintain the economic viability of Elk River's Downtown llistrict Subsequently, oersted: rentd business a~sr.;<t the purpose of this program is to provide low interest, long-term (i.e. greater than one year) loans as incentives for industrial development within the City of Elk River and to encourage commercial and retail business owners in the Downtown District - celeted: aneai bns;ne~e dams to rehabilitate their existing buildings. 11. LOAN PROGRAMS In order to meet the economic and commurnty development objectives of the EDA, two distinct loan programs exist within the Micro Loan Fund to promote business growth in Elk River. Industrial Incentive Program Purpose: The purpose of the Industrial Incentive Program is to encourage industrial development that supports the tax base and brings quality jobs to the city. Amount: Up to $lOQ,000 of secondary financing not to exceed 20% of the project cost. Equity: Must have private-sector commitments for 50% of the project cost. Borrower to provide ]0% ox more of project financing. Rate: Fixed; 2 points below the lowest prime rate published in the Wall Street Journal the day the loan is closed, or 3%, whichever is greater. Term: Financing with a balloon payment inr5-years. The balloon payment _ celeted: °P m must not be longer than the balloon payment of the participating bank. Loans may be amortized up to the following limits: -years on real estate uses; oekted: is 10-years on equipment uses. Extension: In the event that the Borrower is unable to obtain conventional cekted: ~ iseal°ne zow financing to replace the Micro Loan at the end of five years, the loan Formatted: Superscript Elk River Economic Development Authority Pate 2 of t5 Micro Loan Fund Policy & Guidelines .L" Urafr Pr~b a aq 3006 , may be extended up to two additional years at a market rate of interest. Criteria: 1. Borrower must be an industrial firm and create one new full-time job fox each $20,000 loaned within 2 years. Said jobs must pay a minimum wage of $10.00 per hour excludinh benefits reyuircd by I:1\y~ Loans in excess of $75,000 shall meet the attached City of fSlk _ Deleted: Pt°zneneets RiceLBusiness Subsidy Pohcy fox new job. and wage goals, as well as a _ - pelf; •, 5-}car location requirement - Deleted: s In the case where the multiple sources of public financing am reyucsted (~. llicro Loan and Tax Increment liinaneing~ job aeation ~o~k sh•tll no[ be double-counted. 2. Borrower must comply with the provisions of the city's ~.ndustrial - Deletetl: i and I~tsiness~'ark zoning ordinances as applicables - pele~; y Redevelop ment Financing Program oeleaa. r Purpose: The Redevelopment Financing Program is available to business and Deleted:. property owners in the Downtown District j1>ll~ fox the rehabilitation _ Deleted: °eemi tu.,~e~ distaet lcenl and restoration of their buildings. Amount: Up to (50,000 of secondary financing (not to exceed 40% of the project cost. Equity: Must have private-sector commitments fox 50% of the project cost. Borrower to provide 10% or more of project financing. Rate: Fixed; 2 points below the lowest prime rate published in the Wall Street Journal the day the loan is closed, or 2%, whichever is greater. Temt: Financing with a balloon payment in up to 3-years. Loans may be amortized up to the following limits: ,'~0--years on real estate uses; _ - Deletetl: is 10-years on equipment uses. Extension: In the event that the Borrower is unable to obtain conventional financing to replace the Micro Loan at the end of three years, the loan may be extended up to two additional years at a market rate of interest. Criteria: 1. At a minimum, 20% of Micro Loan dollazs must be used for the improvement of the buddingfa~ade+. - Deleted: •s 2. Borrower must be located in the J~owntown District DD -Deleted: crn~ a°si°ess (see attached map). Deletetl: Revised Junc Jai Formatted: SupetxriD[ Elk River Economic Development eluthority Page 3 of 15 Micro Luan Fund Policy & Guidelines .k' Draft Pchn -¢y 20(16 - , III. USES 1. Permitted Fund Uses: a. Building construction b. Land acquisition e Machinery d. Furniture, fixtures, and equipment (FFBrE) e. Renovation and modernization of buildings f Exterior renovation of retail, commercial and industrial buildings g. Public infrastructure needed for economic development expansions h. Investment real estate with a minimum of 50% of the space pre-leased 2. Ineligible Fund Uses: a. Expenditures for the construction and/or renovation of residential units b. Working capital c. Refinancing of existing debt d. Inventory IV. BUSINESSES ELIGIBILITY Any project meeting the above criteria, and located or proposed to be located within the city lirnits of Elk River as defined by this program, may be eligible for an Economic Development Micro Loan as further defined herein: • Business must be a fox-profit corporation, partnership, ox sole proprietorship. • Business must be a .rma!lbusiness as defined by the Small Business Administration (SBA). • Business must have a positive net worth. • Religious, political, and pornographic enterprises are not eligible to use the Economic Development Micro Loan Fund. V. MICRO LOAN FUND TERMS & CONDITIONS 1. Loan Structure All Economic llevelopment Micro Loans will be strucmxed as portidpation loans and will be serviced by the project's primary lending insdmdon. Such an arrangement allows for the central distribution and collection of funds and simplifies the fmanung process fox all parties involved. A participation agreement will be signed by the boaowex, primary lender and the EDA. The agreement will include the following provisions, among others: • If Borrower does not meet the job and wage goals specified in the Subsidy Agreement, the interest rate will change to 2 points above the participating bank's rate, effective from the two year anniversary of the loan closing. Upon subsequent achievement of the jobs and wage goals, the interest rate will revert back to the rate when the loan was originated, effective from the date of attainment of the job and wage goals. • If Borrower defaults on the loan, the EDA will collect all further payments doting the default based on a pro-rata basis with the participating bank Lak River Economic Development Authority Page 4 of 15 Micro Loan Pund Policy & Guidelines . .L Drift Pcbn ,ry 210i - Dektetl: Eon DellLed: Revrsed June 2007 Formatted: Supetxript excluding the distribution of proceeds resulting from the foreclosure on collateral. The EDA may require additional agreements to be signed by the borrowex (i.e. security agreement, personal guarantees, subsid ~ agreement). Deleted: ~°i, Peet°.,,,,nce 2. Simultaneous Micto Loans The simultaneous use of different Micro Loan Fund Programs by any one borrowex or for any one project is prohibited. 3. Call of Loan A loan shall become due and payable in full if a business relocates outside of the city of Elk River prior to the maturity date of the Joan. celeted: rnn 4. Late Payment Charge A late payment charge of~% of the installment amount may be enforced. Deleted: up t° VI. REGULATION FOR NEW CONSTRUCTION AND IMPROVEMENTS All buildings which public funds will be used for constmction or renovation axe to be brought into conformance with city codes and policies. Repairs may include the following systems and portions of real property: a. Mechanical heating, plumbing, and electrical b. Strucmxal; including the facade of the structure and energy related improvements. c. Hook-up to city services (i.e. water, sewer) VII. LOAN SECURITY AND GUARANTEES Applicant must be able to secure the loan by providing the EDA with a minenum of a subordinate mortgage upon the building and/or assets or other approved collateral. Applicant must demonstrate the financial means to repay the loans, as deternilrted by the Economic Development Authority. Whenever possible, personal guarantees will be made part of any loan agreement. VIII. TIMING OF PROJECT EXPENSES No project should commence until the Elk River Economic Development Authority has approved the loan application. Any costs incurred prior to the approval of the loan application are generally not eligible expenditures. No building construction should commence until the required City permits are secured. The applicant will be responsible for all legal, recording, and other fees required for protection of a security interest in the loan, payable by anon-refundable 1% processing fee, which is paid at the time of application. Deleted: revised June woa Formatted: Superscript Elk }liver Econumic Development Authority Page 5 of 15 Micro Iran Fund Policy & Guidelines .tr~Unfrlh~bn- p~OUG , IX. PROCEDURAL GUIDELINES FOR APPLICATION AND APPROVAL 1. All applicants shall first contact a primary lending institution to determine if additional equity is needed, and if so, how much. 2. The applicant and the primary lender shall then meet with City Staff to obtain information about the Micro Loan program, discuss the project, and obtain application forms. 3. The applicant shall complete and submit an application form to the City, along with a processing Fee of 1% of the loan request. (I'he fee is used to cover processing expenses and will be xetumed aik if application is denied.) The applicant must provide evidence of their ability to meet the equity requirements ox provide a letter of commitment for conventional financing from the primary lending instimtion. 4. The application will be reviewed by the City staff to determine if it conforms to all CiTy policies and ordinances and to consider the following: a. The availability and applicability of other governmental giants and/or loan programs. b. Whether the proposed project will result in conformance with building and zoning codes. c. Whether it is desirous and in the best interests of the public to provide funding fox the project. 5. The EDA Finance Committee and EDA Commissioners will review each application in terms of its consistency with the goals of the Ci 's Comprehensive Plan~nd Economic Development Stratceic Plax>; and in relation Deleted: cm..~m nta.abremem, to the project's overall impact on the community's economy. Redevelopment s"'t`~`~ Loan applications will also be reviewed by an I IRA member in conjunction with Dektetl: s the EDA Finance Committee. They will also evaluate the project application in terms of the following: a. Project Design -Evaluation of project design will include review of proposed activities, time lines and a capaciTy to implement. b. Financial Feasibility - Availability of funds, private involvement, financial packaging and cost effectiveness. • Appropriate ratio of private funds to Micro Loan funds. • Sufficient cash flow to cover proposed debt service as demonstrated by financial statements and projections. • Business must show a positive net worth. elk River Economic Development Authority Miexo Loan fund Policy & Guidelines .1P Drr@ Pcb ., Grp 20U( Deleted: It°vised June 2IXYi Formatted: Superscript Page 6 of 15 • Letter of Commitment from applicant pledging to complete the project during proposed project duration, if the loan application is approved. • Letter of Commitment from other financing sources stating terms and conditions of their participation in the project if applicable. • Sufficient collateral. c. All other information as required in the application and/or additional information as may be requested by the Econottuc Development Authority. d. Project compliance with all city codes and policies. e. Program Objectives - In addition to quality job and wage creation/retention requirements, the applicant must meet all Micro Loan Fund criteria and demonstrate how the proposed activities will meet at least one of the following objectives: • The project contributes to the fulfillment of the city's approved and adopted economic development and/or redevelopment plans. • The project prevents ox eliminates slums and blight. • The project increases the local tax base. • The project brings a structure into compliance with an existing building code violation. 6. A written request fox an extension shall be accompanied by a copy of current financial statements and a $500 upfront processing fee. The processing fee is used to cover processing expenses and will be returned if request is denied. The application fox an extension beyond the original term should include a letter of denial from a conventional lender. Refinancing will not be allowed solely fox the purpose of reducing the interest rate due to lower market interest rates. 7. The EDA Finance Committee will recommend the approval, denial, or request a resubmission. A recommendation from the Finance Committee will be forwarded to the EDA for final action. X. LOAN POLICY REVIEW The above criteria will be reviewed on an annual basis to ensure that the policies reflected in this document are consistent with the economic development goals set forth by the City. Elk River Economic llevelopment Authority Page 7 of 15 Micro loan Fund Polity & CuideGnes .lr' Drtft Pcbn -ot 2017( _ , Deleted: ftevised)une 2ma ' ~ Formatted: Superscript XI. COMPLIANCE WITH STATE STATUTES Each company receiving assistance in excess of $75,000 from the EDA bficxo Loan Fund shall be subject to the provisions and requirements se[ forth by Minnesota State Statute 116].993 and the attached City of Elk River Business Subsidy Policy summarized below: Progress Reports The borrower shall file a report annually fox two years afer the closing of the loan or until all goals set forth in the application have been meet, which ever is later. Reports shall be completed using the format drafted by the State of Minnesota and shall be fled with the City in March of each year fox the previous year. Maintain Facility The borrower agrees to maintain and operate its facility at the site where the loan is used for a period of 5-years after the date the loan is closed. Goal Attainment In addition to attaining ox exceeding the jobs and wages goals set forth in Section IV of the Application, the borrower agrees to achieve at least one of the goals for community development set forth in Section IX, part 5, subdivision (e) of the Micro Loan Fund Policy. Redevelopment loans in the Central Business District are exempt from job creation and wage goals stated m Section IX, part 5, subdivision (e) provided the loan amount does not exceed 50% of the project cost. Failure to Comply Businesses failing to comply with the above provisions will be subject to fines, repayment requirements in accordance with the state statute, and be deemed ineligible by the State to receive any loans ox giants from public entities fox a period of 5-years. XII. RIGHT OF REFUSAL The Elk River Economic Development Authority may deny any project which it deems inappropriate according to the guidelines established in this document. Elk River F'.conomic Development Aut6odty Mino Loan Fund PoGry & Guidelines .L Umk Fcbn ,rl, 2(I(IC Deleted:': Deleted: ar~~sea)u°e zaw Formatted: Superscript Palre 8 of 15 ELK RIVER ECONOMIC DEVELOPMENT MICRO LOAN FUND APPLICATION 1. CONTACT INFORMATION ~.egal Name of Business: Address: City /State /Zip Contact Person(s) Business Phone Home Phone Check One: Social Secuvty No. Federal ID # Proprietor Corporation Partnership 11. NATURE OF LOAN REQUEST Which Micro-Loan Program axe you applying for? Industrial Incentive Program Redevelopment Financing Pxogxam State ID # Amount Requested: $ Total Project Cost: Type of project: New construction for a start up business. New construction for an existing business. On site expansion Equipment purchase Remodeling: (crxxle one) Commercial /Retail /Industrial Other Deleted: co.aea^v Deleted: ~„ Elk River Economic Uevelopment Authority page 9 of 15 Micro Loan Fund Application Re~iscd June 2004 Please give a brief summary of your business and its products or service: Please give a brief summary of the project: Please describe how this loan will impact your project III. FINANCING Iand Site improvements $ Buildings (attach plans & costs) $ Equipment/Machinery/Fixtures (attach kst and estimated costs) $ Remodeling $ Industrial Inventory/Working Capital $ Other (attach description) $ Total Costs $ Cotnments: Elk River Economic Development Authority Page 10 of 15 Micro loan Fund Application Revised June 2004 1'rotzosed Sources of Financi~_ SOURCE NAME RMS AMOUNT Bank Loan $ Bank Loan $ Other Private Funds $ Applicant Contribution P, Other $ Fed Grant/Loan $ State Grant/Loan $ EDA Micro Loan $ Tax Increment Financing 9f Total Financing $ Collateral Assierrments Description of Collateral To Bank 1 To Bank 2 To Private Sources To Other Sources_ To Federal Govt_ To State To EDA Micro Loan Deleted:....... -Formatted: Font: Garamond Formatted: FonC Garamond - Deleted:¶ Lien ¶ ~ Position Elk IBever 8conomic Development Authudty pale 71 of t5 Micro Lnan Fund Application Revised June 2004 Value of Collateral Book Value Cost Existing bens Land $ $ $ Buildings $ $ $ Machinery & Eqtrip. $ $ $ Other $ $ $ Other $ $ $ IV. JOB & WAGE GOALS Present # of Employees Total Payroll Joba To Be Created* Please nrovtde the fnllnurino infnrmarinn nn inhc onu c nrr rn r core \V':r66. ~ .•.••,..~ ob Title Number of Jobs Average Hourly Wage Annual Salary Axe the Jobs Permanent ox Temporary? Expected Hiring Date *lt loan Is Yox lob retentlon only, please explam m Business Plan. P~opram Objectives • (Check all rlru ~lp~i }•1 The project contributes to the tldhllmcry of [he city's approved and adopted economic development and/or redeael~ment ph t~ The project preventc or elimisyes s'hrm~ an 1 bli *ht The project increases the lord ttx base 1'he project brings a stnrenu ~ into cc mpli•uxe with ~m exi -ring buildink code violation. Deletetl:. Formatted: Indent: First line: 0" Formatted: Font: Bold, Underline Formatted: Indent: Flrs[ Ilne: 0.5" I Formatted: Indent: First line: 0" Elk River Economic Development Authority Pabc 12 of 15 Micro Loan P'und Application Revised June 2004 IV. PROJECT CONTACTS Attorney Name Address Phone Accountant Name Address Phone Financing o r s (lendera,,partner Name Address Phone Name Address Phone Name Address Phone Name Address Phone Parent Com any Name Address Deleted: Job Crcatlov Timemble9 In conjunction with the Micro Loan, job and wage awls will 6e expected within wo years. Plc~ae inGcarc on ehe mble Mlow when the above listed individual Jobe will x ctmted.9 9 Jnb'ride 1 P;Ik Rivet Economic Development Authority Page 13 of 15 Micro Lnan Fund Application Realised June 2004 Name_ Addxess Phone Name Addxess V. ATTACHMENTS CHECK LIST Please attach the following: t1) Written Business Plan: i. Description of Business 2. Ownership 3. Management 4. Date Established 5. Products/Services 6. Future Plans B) Financial Statements fox Past Two Years C) Financial Projections for Two Years D) Resume of Owner/Management E) Personal Financial Statements of Proprietor, Patmets, Guarantors F) Letter of Commitment from Apphcant Pledging to Complete During the Proposed Project Duration G) Letter of Commitment from the Other Sources of Financing, Stating Terms and Conditions of thew Participation in Project FI) Other n ,J) Fee (1% of amount of loan request). Elk River Economic Development Authority Page 14 of 15 Micro Loan Fund Application Revised June 2004 VI. AGREEMENT I / We certify that all information provided in this application is true and correct to the best of my/our knowledge. I / We authorize the City of Elk Rivet and the Finance Committee to check credit references and verify fmancial and other information. I / We agree to provide any additional information as may be requested by the City and the Finance Committee. DA APPLICANT F.Ik Rivet Economic llevelopment Authority Pa 15 of 15 Micro lean Fund Application Reused June 2004 Pspa 13: [3] Deleted Cathy MaheOCh 2/10/2006 9A3:00 AM Job Creation Timetable In conjunction with the Micro Loan, job and wage goals will be expected within two years. Please indicate on the table below when the above listed individual iobs will be created. ob Title Number of obs Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 5 Qts. 6 Qts. 7 Qtr. 8 El~k~~ River Business Subsidies Policy Adopted: Economic Development Authority November 72, 2002 Housing & Redevelopment Authority November 2~, 2002 City Council Novembcr 25, 2002 Amended: Economic Development Authority December 9, 2002 City of Elk River 13065 Orono Parkway Elk Rivex,DLN 55330 (763) 635-1000 CITY OF ELK RIVER POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES I. PURPOSE For the puvpoe'e.r of tbi.r document, the term `City"shall include the F.Ik Rfver Cily Coatncil, Economu Develapmertt Authority, arrd Hounng and Redevelopment Authority. The purpose of [his policy is to establish guidelines and criteria regarding the use of business subsidies, such as tax increment financing (PIS, tax abatement, and other business subsidies fox private development projects within the Ciry of Elk River and shall be in addition to the requirements and limitations set forth by provisions of Minnesota State Statute 116J.993 (MN Business Subsidy Law), and by the City's policy and guidelines of the particular form of subsidy. These guidelines shall be used in processing and reviewing applications requesting business subsidies assistance. The fundamental purpose of business subsidies in the Ciry is to encourage desirable development or redevelopment that would not otherwise occur "but for" the assistance provided through business subsidies. It is the intent of the City to provide business subsidies, as well as other incentives that the Ciry may deem appropriate, at the shortest term required fox the project to proceed. The City reserves the right to approve or reject projects on a case-by-case basis, taking into account established policies, specific project criteria, and demand on city services in relation to the potential benefits to be received from a proposed project. Meeting policy guidelines or other criteria does not guarantee the award of business subsidies. Furthermore, the approval or denial of one project is not intended to set precedent for approval or denial of another project. Whenever possible it is the City's intent to coordinate the use of business subsidies with other applicable taxing jurisdictions. II. DEFINITION OF "BUSINESS SUBSIDY" "1'he following types of assistance having a value in excess of $25,000 arc defined as a "business subsidy" within the NIlV Business Subsidy Law: • State and local govemment agency grants; • Contributions of personal property, real property, or infrastructure; • The principal amount of a loan that exceeds $75,000 at rates below those commercially available; • Reductions or deferrals of taxes ox fees; • Guarantees of any payment under any loan, lease, ox other obligation; and, • Preferential use of government facilities. City of Elk 12ivex Business Subsidies Policy III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES In accordance with the MN Business Subsidy Law, the City will consider using business subsidies to assist private development projects to achieve one or more of the following public purpose objectives: • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits. • To enhance and diversify the City of Elk River's tax base. • To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin ofP' development. • 1b achieve development on sites which would not be developed without business subsidies assistance. • To remove blight and/ox encourage development of commercial and industrial areas in the city that result in higher quality development ox redevelopment and private investment. • To offset increased costs of development of specific properties when the unique physical characteristics of the site may otherwise preclude private investment. • To create opportunities for the construction, operation and maintenance of affordable housing. IV. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES A. Business subsidy assistance will be provided from the City, by a "pay-as-you-go" note method, to the developer if the business subsidy is tax increment financing or tax abatement. Requests for up front financing will be considered on a case-by-case basis. B. A developer requesting business subsidy assistance must demonstrate, to the satisfaction of the City, sufficient cash equity investment in the project as required within the City's policy fox the particular form of subsidy. C. Business subsidy will not be provided in circumstances where land and /ox property price is demonstrated by the County Assessor to be in excess of fair market value. This would normally be where the acquisition price is more than 10% in excess of market value. D. A developer must be able to demonstrate to the City, or, if applicable, to the underwriting authority, amarket-demand Eor a proposed project. E. Business subsidy will not be used in cases where the subsidy would create an unfair and significant competitive financial advantage over other similar projects in the area. F. Business subsidy will not be used fox projects that would place extraordinary demands on city infxastrucmxe and services. City of Elk River Business Subsidies Policy G. If requcsted by the City, the developer shall provide adequate financial guarantees to ensure completion of the project, including, but not limited to' assessment agreements, letters of credit, cash escrows, and personal guaranties. H. Each developer must be able Yo demonstrate to the City's satisfaction, an ability to constmct, operate, and maintain the proposed project based on past expexienco, general reputation, and credit history. L If requested by the City, or its consultants, the developer shall provide sufficient market, financial, environmental, ox other data relative to the successful operation of the project. J. Projects receiving business subsidy approval from other affected taxing jurisdictions will be more favorably received by the City. V. GUIDELINES FOR COMMERCIAL/INDUSTRIAL BUSINESS SUBSIDIES A. Business subsidies will not be used for on-site retail ox service businesses unless it is a redevelopment project that demonstrates that it will result in a substantial increase in tax base and a significant improvement in quality employment. B. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. C. "1 he project must result in the retention of existing jobs that would be lost "but fox" the proposed development ox result an increase and diversification in local jobs. Business retention jobs will be considered on a one-fox-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law. D. Specific wage and job goals will be determined by the City giving consideration to the particular form of the subsidy, nature of the development, the purpose of the subsidy, local economic conditions and similar factors. "Phe recipient will have up to two years to meet the job and wage goals established by the City. The minimum wage for a job to be considered a new or retained job shall be $15.00 per hour exclusive of benefits. Deviations less than the wage floor will be considered on a case-by-case basis and in accordance with the requirements of the MN Business Subsidy Law. E. Business subsidies will not be used fox commercial/industrial projects that have a history of inconsistent compliance with applicable environmental rules and regulations. City of l;lk River Business Subsidies Policy VI. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS Each company receiving a business subsidy shall be subject to the subsidy agreement and reporting provisions and requirements set forth by the MN Business Subsidy Law and summarized below: A. Progress Reports The recipient shall file a report annually for rivo years after the receiving the subsidy or until all goals set forth in the subsidy agreement have been met, which ever is latex. Reports shall be completed using the format drafted by the State of Minnesota and shall be filed with the City no later than March 1 of each year for the progress made the previous year. B. Maintain Facility The recipient agrees to maintain and operate its facility at the site where the subsidy is used fox a period of five years after the date the subsidy is provided. C. Failure to Comply Businesses failing to comply with the subsidy agreement will be subject to fines, repayment requirements, and be deemed ineligible by the State to receive any loans or giants from public entities for a period of five years. VII. SUBSIDY APPLICATION PROCESS AND PROCEDURE A. Application for business subsidies shall be made on forms fox the particular form of assistance provided by the City of Elk River Director of Economic Development, or designee. A fee of $ 5,000.00 shall accompany any'1'ax Increment Finance, Tax Abatement, or giant request application to cover the City's initial legal, administrative, and planning costs. Micro-Loan applications shall include a fee in the amount of 1% of the loan requested. Following a review by appropriate City Staff the application shall be referred to the either the Economic Development Authority, or Housing and Redevelopment Authority, fox recommendation to the City Council fox further action. B. The application fox business subsidies shall request information required within the City's policies on the particular form of subsidy including but not limited to; a detailed description of the project; a preliminary site plan; the amount of business subsidy requested; the public purpose of the project; the number and types of jobs to be created; the wages and benefits to be paid new employees; and verifiable funding sources and uses. Ciry of Elk River Business Subsidies Policy