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4.5. SR 01-21-2014 City of Elk=' Request for Action River To Item Number Mayor and City Council 4.5 Agenda Section Meeting Date Prepared by Consent January 21, 2014 Brian Beeman,Director of Economic Development Item Description Reviewed by Bank of Elk River Amended Business Subsidy Jeremy Barnhart,Deputy Director, CODD Agreement Reviewed by Cal Portner, City Administrator Action Requested Approve by motion,the Amended Business Subsidy Agreement as recommended by the EDA. Background/Discussion At its December 16, 2013, regular meeting, the EDA directed staff to work with the Bank of Elk River to amend the current Business Subsidy Agreement. The amendment reduces the number of jobs required to the 13 achieved by the Bank in December of 2010, allows tax abatement payments to continue as contemplated under the agreement up to a maximum of$195,000 within the 12-year period provided under the agreement, and to consult with the bank on how they would like the remainder of the abatement paid out. Staff has completed the amendment,which the bank has signed. Upon signing of the approved amended agreement by both parties, the abatement payments will continue as they have in the past until a maximum of$195,000 has been met or the 12-year period has been reached per the subsidy agreement, whichever comes first. Once either of these terms has been met,the tax abatement will cease. The city will invoice the Bank of Elk River as agreed to in the revised agreement to be reimbursed for all legal fees associated with this project. Financial Impact N/A Attachments • Bank of Elk River Staff Memo from December 16,2013. • Copy of Revised Business Subsidy Agreement. pawIHL0 0 UREJ City of Elk Request for Action River To Item Number Economic Development Authori 6.2 Agenda Section Meeting Date Prepared by General Business December 16, 2013 Jeremy Barnhart,Deputy Director, CODD and Brian Beeman,Director of Economic Development Item Description Reviewed by Bank of Elk River Business Subsidy Agreement Tax Abatement Default Reviewed by Action Requested A motion to approve the EDA Finance Committee's recommendation of Option 2 set forth below as the next step to be taken by the City under its Tax Abatement and Business Subsidy Agreement with the Bank of Elk River in light of the Bank's failure to meet required wage and job goals. Background/Discussion The EDA's Finance Committee met on Tuesday,December 10 to review the Bank of Elk River's information regarding their satisfaction of the job and wage goals set forth in its 2006 Tax Abatement and Business Subsidy Agreement with the City. The Agreement provided for reimbursement of up to $300,000 of the Bank's project costs associated with the construction of the downtown bank through tax abatements over a 12 year period. The Agreement required the Bank to create 20 jobs above the 63 existing downtown jobs at a wage of 15$ per hour or higher within a 2 year period from the date of the subsidy. This time-period has been extended through November of 2013 and no further extensions are allowed by law. The Finance Committee has determined that the maximum number of new jobs added at the Downtown branch was 13 full time jobs,in December,2010. Thus, the Bank did not meet the job goals required under the Agreement,which constitutes a default of the Agreement. When a default exists, the Agreement authorizes the City to terminate the Agreement and future tax abatement to be paid. In addition, the Agreement requires reimbursement of all subsidy received on a pro-rated basis based on the pro-rated portion of the job goal met. Since the Bank met 65% of the job and wage goals,it would be required to repay 35% of the subsidy received to date. To date,the Bank has received approximately 42% of the maximum tax abatement amount authorized under the Agreement. The EDA can enforce the Agreement as noted above or it can amend the Agreement to better clarify the intent of the City concerning default and remedies. Staff has identified the following options: Option 1. Determine that the Bank failed to meet the job and wage goals and that a default in the Agreement exists, terminate the Agreement, discontinue future tax abatement and require return by the Bank of 35% of all tax abatement payments paid. P O w E A E D A Y UREJ Option 2. Amend the Business Subsidy Agreement to reduce the number of jobs required to the 13 achieved by the Bank in December 2010 (its "highwater mark"), allow tax abatement payments to continue as contemplated under the Agreement up to a maximum of$195,000 (65% of the original $300,000) within the 12 year period provided under the Agreement. Include indemnification of the City by the Bank for any liability associated with the amendment or subsidy paid pursuant to the amendment. The FDA Finance Committee recommends Option 2 as it reflects the impact of the downturn in the economy,but retains the job to subsidy ratio originally proposed for the Project. With this option, staff would prepare an amendment to the agreement,to be approved by the City Council, likely in January 2014. Financial Impact N/A Attachments ■ Finance Committee packet dated December 10, 2013. NAPublic Bodies\Agenda Packets\01-21-14\Final\x4.5 at 16.9 at 16.1 sr Bank of Elk River Default.docx AMENDMENT TO TAB ABATEMENT AND BUSINESS SUBSIDY AGREEMENT Y AND BETWEEN CITY OF ELK RIVER, MINNESOTA AND THE BANK OF ELK RIVER AMENDMENT dated , 2014,by and between the CITY OF ELK RIVER,a Minnesota municipal corporation(referred to herein as "City"), and THE BANK OF ELK RIVER, a Minnesota corporation(referred to herein as "Developer"). RECITALS A. City and Developer entered into a Tax Abatement and Business Subsidy Agreement dated April 17,2006 for the real property identified as Parcel Identification Numbers 75-405-0340 and 75-405-0320 ("Agreement"); B. The Agreement required Developer to meet the following job creation and wage goals: twenty full-time jobs in connection with the Development Project at a wage of at least $15.00 per hour, including benefits not required by law,within two years of the date that a certificate of occupancy was issued for the building to be constructed by Developer; C. Because Developer had not met the job goals under the terms of the Agreement within the time period provided under the Agreement,it requested an extension from the City. On December 21, 2009,the City extended the time period to meet the job creation goals under the Agreement for an additional 2 years ("First Extension"); D. Because Developer had not met the job goals under the First Extension of the Agreement,it requested an additional extension from the City. On November 11,2011,the City 1742530 1 extended the time period to meet the job creation goals under the Agreement for an additional 2 years("Second Extension"); E. As a result of the down-turn in the economy following the execution of the Agreement,Developer indicates that, following the Second Extension, it is still unable to meet the job creation goals under the Agreement. F. The City has determined, based on records provided by Developer,that Developer was able to create a total of 13 jobs at the required wage rate during 2010. G. The City ceased payments of tax abatements to developer under the Agreement after the expiration of the Second Extension; H. To date, Developer has received $126,898.12 of tax abatement under the terms of the Agreement. I. The parties desire to amend the Agreement to reduce the job and wage Goals to 13 full time jobs at a wage rate of$15,including benefits not required by law and to reduce the Business Subsidy accordingly. NOW,THEREFORE,the parties agree as follows: 1. Representations and Warranties of the Developer. The Developer represents and warrants that during the term of the Agreement and the extensions to the Agreement, it has created a total of 13 full time jobs at a minimum wage rate of$15.00 per hour,including benefits not required by law, which constitutes 65%of the Goals under the term of the Agreement. 2. Amendment to Section 3.1(2) of the Agreement. Section 3.1(2) of the Agreement is amended to read as follows: (2) The City shall reimburse Developer for construction costs of the Project located on the Tax Abatement Property for costs actually incurred in an amount not to exceed $195,000.00 (the "Reimbursement Amount")pursuant to the Abatement Program in Section 3.9. 174253v4 2 3. Amendment to Section 3.8(1) of the Agreement. Section 3.8(1) of the Agreement is amended to read as follows: (1) In order to satisfy the provision of Minnesota Statutes, section I I6J.993 to 116J.995 (the"Business Subsidy Act"),the Developer acknowledges and agrees that the amount of the"Business Subsidy" granted to the Developer under this Agreement is the value of a portion of the Tax Abatement Property, which is approximately$195,000.00, and that the Business Subsidy is needed because the Project is not sufficiently feasible for the Developer to undertake without the Business Subsidy. The public purpose of the Business Subsidy is to increase the tax base in the City. The Developer agrees that they will meet the following goals (the"Goals"): it will create at least thirteen(13)full time jobs in connection with the development of the Development Project at a wage of at least $15.00 per hour,which includes benefits not required by law,prior to the date of this Amendment. Developer represents that these Goals have been met. 4. Amendment to Section 3.8(2) of the Agreement. Section 3.8(2) of the Agreement is amended to read as follows: (2) If none of the Goals are met,the Developer agrees to repay all of the Business Subsidy to the City,plus interest("Interest") set at the implicit price deflator defined in Minnesota Statutes, Section 275.70, subd. 2, accruing from and after the Benefit Date, compounded semi-annually. If the Goals are met in part,the Developer will repay a portion of the Business Subsidy(plus Interest from the Benefit Date) determined by multiplying the Business Subsidy by a fraction,the numerator of which is the number of jobs in the Goals which were not created at the wage level set forth above and the denominator of which is thirteen(13) (i.e. number of jobs set forth in the Goals). 5. Enforcement.Developer shall reimburse the City for costs incurred in the enforcement of the Agreement and this Amendment, including reasonable attorney's fees. Developer shall pay in full all bills submitted to it by the City within thirty(30) days after receipt. Bills not paid within thirty(30) days shall be subject to an eight percent(8%)per annum interest charge. 6. Indemnification. The Developer shall hold harmless and indemnify the City and its governing body members, officers, agents, servants and employees,from any claims, 1742530 3 demands, actions or other proceedings whatsoever by any person or entity in connection with this Amendment, 7. Breach. A breach of any material term of this Amendment shall constitute an Event of Default under the Agreement. 8. Miscellaneous. A. If any material portion, section, subsection, sentence, clause,paragraph, or phrase of this Amendment is for any reason held invalid as a result of a challenge brought by Developer,their agents or assigns,the City may, at its option, declare the entire Agreement null and void. B. The action or inaction of any party shall not constitute a waiver or amendment to the provisions of this Amendment. To be binding, amendments or waivers shall be in writing, signed by the parties, and approved by written resolution of the City Council. The City's failure to promptly take legal action to enforce any term of this Amendment shall not be a waiver or release. C. This Agreement shall be binding upon the parties,their heirs, successors, or assigns, as the case may be. D. Third parties shall have no recourse against the City under this Agreement. E. This Amendment may be executed in counterparts. Signatures may be transmitted via facsimile or in"PDF" format via e-mail. F. This Amendment shall be considered an integral part of the Agreement and shall be binding upon the City and Developer from the date first above written. 174253v4 4 IN WITNESS WHEREOF.the parties hereto have executed this Amendment as of the date first written above,in multiple counterparts, each of which shall be deemed an original and all of which shall evidence but one agreement. CITY OF ELK RIVER By: John J. Dietz Mayor And Calvin Portner, City Administrator THE BANK OF ELK RIVER By: f Its: d 1742530 5 I