3.0. EDSR 03-06-2006ver
MEMORANDUM
TO: Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Development
Scott Clark, Community Development Director ~i,, ,
DATE: March b, 2006 11 ~
SUBJECT: Discuss Potential Financial Incentive for a Business Seeking
Location within the City of Elk River
Attachment
• Table: Recent Assisted Industrial Development Projects
Background
A business that is seeking location within the City of Elk River has recently requested
financial assistance from the city. The purpose of the special EDA meeting is not to
establish a formal policy on this type of request but rather to provide staff direction in the
response for this particular request. As with most projects timing is of the essence as the
company wishes to start construction by August 2006. It is staff's understanding that Elk
River is now among the top two ox three communities in which the company is considering
a location and they axe attempting to expedite their selection process. The company wishes
to remain anonymous until a community is selected.
Approximately two months ago staff was contacted by the company's site selection
consultant. The company has identified approximately 20-acres in the City to acquire fox the
construction of a 180,000 square foot data technology center. The company's estimated cost
of the project is $125 million including land, design and construction, equipment and
extensive mechanical systems, albeit that the end real estate value may have a range of
$10-20 million. The company anticipates a minimum of 15 full-tune employment positions
within the project with an average annual salary of $70,000 each. The company is Minnesota
based and among the top 50 Fortune 500 ranking and one of the largest employers in the
state.
Issue
There are a number of issues for the EDA to consider with this particular request, the
following provides background information fox policy consideration and discussion:
Discuss Location Incentive fox Prospect
March 6, 2006 Special EDA Meeting
Page 2 of 3
1) In the past the city's use of public financial assistance has most typically been to
expedite the development of industrial property in the city with the key component being
job creation. Typically financial assistance requests axe reviewed based upon the number of
jobs to be created at a minimum hourly wage of $15.00/hour and upon completion of a
financial gap analysis ox "but-fox" test. A "but-fox" test is not required by state statute fox
the city's use of tax abatement, although the City of Elk River's policy normally requires it.
This particular request does not fit the city's tax abatement application model far the
financial "but-fot" test although it appears that "but-fot" the offering of assistance this
company would not select Elk Rivet as a location but rather a community that is offering a
location incentive.
2) This particular request is different from requests in the past in that job creation is not
a significant component to the project. However this project would result in significant tax
base generation. Therefore this request should be considered as a "location incentive" fox
the purpose of tax base generation and not based on a proven financial need nor on a large
number of jobs.
3) When considering this particular project it is important to note that the market value
hasn't been established. The company has estimated a market value upon completion of $20
million. Based on staffs research of a similar use in Brooklyn Paxk the value would range
from $60-75 per square foot, which equates to a range of $10.8 to $13.5 million for the
proposed 180,000 square foot project.
The following table indicates the level of tax base generated fox the city depending on the
final market value determination:
Estimated Market Value $10.8 million
$60/s $13.5 million
($75/sf) $20 million
($111/sp
Total Annual Tax Payable
Cit , Couo ~, S[am, School, e[c $385,000 $482,000 $714,000
Annual Ciry Portion $94,000 $118,000 $175,000
Annual County Portion $93,000 $117,000 $173,000
* Estimates based on 2006 Proposed Tax Rates
4) The attached table indicates recent assisted industrial development projects in which
the city and county provided financial assistance. The table includes the percentage of
financial assistance to the estimated market value as a result of the project. Based on past
projects an average of 20% total assistance was provided to market value, although market
value previously has not been a measurement fox the amount of assistance to be provided.
Requested Action
Staff requests the EDA's discussion and direction as to the willingness to provide a location
incentive fox this particular project and if so, under what terms.
Discuss Location Incentive for Prospect
bfaxch 6, 2006 Special EDA Meeting
Page 3 of 3
If the EDA desires to provide a location incentive for the proposed project in the form of a
pay-as-you-go tax abatement, then staff recommends the EDA provide staff direction with a
percentage of financial assistance to the end market value and a cap dollar amount since the
market value of the project is undetermined at this point. Staffls reasoning fox the range of
"percentage of assistance" given is: 1) Since the City's portion of past incentives has been
approximately 10%, the range in the below table of 3% to 6% appropriately discounts the
small number of jobs being created and 2) The effective actual dollar amounts being
proposed should be in the range to compete as a location incentive.
The following table indicates a range of financial assistance amounts based on a percentage
of Financial assistance to market value. The number in parentheses is the estimated
number of years it would take to amortize the amount of assistance from the city
alone.
Market Value
Percentage
of
Assistance
$10.8 millon $13.5 million $20 million
3% $324,000 4 $405,000 (4) $600,000 4
4% $432,000 5 $540,000 5 $800,000 5
5% $540,000 G $675,000 6 $1,000,000 (G
6% $648,000 7 $810,000 7 $1,200,000 7