7.3. HRSR 01-05-2015 City of
Elk - Request for Action
River O.
To Item Number
Housing and Redevelopment Authority 7.3
Agenda Section Meeting Date Prepared by
General Business January 5, 2015 Jeremy Barnhart,Deputy Director, CODD
Item Description Reviewed by
Housing Tax Increment Financing (TIF) Policy
Reviewed by
Action Requested
Review the Tax Increment Financing
Background/Discussion
Tax Increment Financing is the process by which the incremental taxes generated by a project (the
difference between the tax value of the parcel before the project and the tax value of the parcel after the
project) are returned to the project owner. A critical component of TIF financing is the 'but-or' analysis.
In essence, but for the assistance, the project would not occur.
In February, 2014, the HRA and City Council approved a new Housing TIF policy. This policy,
patterned after, and incorporated in the City's TIF policy framework. To date,the only application
received under this new policy was for Blackhawk Woods,where the application was withdrawn due to
lack of support by the HRA and Council.
It is appropriate to periodically review the policy, and the supporting score sheets,to ensure consistency
with HRA goals.
Staff provides the current policy, anticipating discussion at the annual meeting in February to initiate
desired changes.
Financial Impact
N/A
Attachments
■ TIF Policy
pawIeE0 0
UREJ
City of
er
Tax Increment Financing
Policy & Application
Amended: February 2014
Amended: May 2006
Amended: March 2000
Adopted: August 1991
City of Elk River
Economic Development Division
13065 Orono Parkway
Elk River,MN 55330
763.635.1040
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Table of Contents
I. Policy Purpose 3
II. Objectives of Tax Increment Financing 3
III. City of Elk River Policies for the Use of TIF 4
IV. Project Qualifications 5
V. Subsidy Agreement & Reporting Requirements 6
VI. Application Process for TIF 6
VII. Application for TIF 7
Applicant Information 7
Project Information 8
Public Purpose 8
Sources &Uses 9
Checklist&Additional Information 10
VIII. Sample But-For Analysis 11
IX. Application Review Worksheet:
Commercial-Industrial Projects 12
X. Application Review Worksheet:
Housing Projects 14
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I. POLICY PURPOSE
For the purposes of this document, the term "City"sball include the Elk River City Council, Economic
Development Autbority, and Housing and Redevelopment Autbority.
The purpose of this policy is to establish the City of Elk River's position relating to the
use of Tax Increment Financing (TIF) for private development above and beyond the
requirements and limitations set forth by State Law. This policy shall be used as a guide
in the processing and review of applications requesting tax increment assistance. The
fundamental purpose of tax increment financing in Elk River is to encourage desirable
development or redevelopment that would not otherwise occur but for the assistance
provided through TIF.
The City of Elk River is granted the power to utilize TIF by the Minnesota Tax
Increment Financing Act, as amended. It is the intent of the City to provide the
minimum amount of TIF, as well as other incentives, at the shortest term required for
the project to proceed. The City reserves the right to approve or reject projects on a
case by case basis, taking into consideration established policies,project criteria, and
demand on city services in relation to the potential benefits from the project. Meeting
policy criteria does not guarantee the award of TIF to the project.Approval or denial of
one project is not intended to set precedent for approval or denial of another project.
II. OBJECTIVES OF TAX INCREMENT FINANCING
As a matter of adopted policy,the City will consider using TIF to assist private
development projects to achieve one or more of the following objectives:
• To retain local jobs and/or increase the number and diversity of jobs that offer
stable employment and/or attractive wages and benefits as defined in the City's
Business Subsidy Policy.
• To encourage additional unsubsidized private development in the area, either
directly or indirectly through "spin off' development.
• To facilitate the development process and to achieve development on sites
which would not be developed without TIF assistance.
• To remove blight and/or encourage redevelopment of commercial and
industrial areas in the city that result in high quality redevelopment and private
reinvestment.
• To offset increased costs of redevelopment (i.e. contaminated site clean up)
over and above the costs normally incurred in development.
• To create opportunities for affordable housing.
• To contribute to the implementation of other public policies, as adopted by the
city from time to time, such as the promotion of quality urban or architectural
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design, energy conservation,and decreasing capital and/or operating costs of
local government.
• To enhance and diversify the City of Elk River's economic base.
• To significantly increase the City of Elk River's tax base.
III. POLICIES FOR THE USE OF TIF
a. When possible,TIF shall be used to finance public improvements associated
with the project. The priority for the use of TIF funds is:
1. Public improvements,legal, administrative, and engineering costs.
2. Site preparation, site improvement,land purchase, and demolition.
3. Capitalized interest,bonding costs.
b. It is the City's policy to establish the following types of TIF districts:
1. Economic Development Districts
• It is desired that the project result in a minimum creation of
one full time job per $25,000 of TIF, or
• Result in a significant increase in the tax base.
2. Redevelopment Districts
• The market value of a redeveloped site shall increase by a
minimum of 50% of the current market value.
3. Housing Districts
• May be considered on a case-by-case basis.
Other types of TIF districts,along with specific criteria, may be considered
on a case-by-case basis.
c. TIF assistance will be provided to the developer upon receipt of the
increment by the City, otherwise referred to as the pay-asyougo method.
Requests for up front financing will be considered on a case-by-case basis.
d. A maximum of ten percent (10%) of any tax increment received from the
district may be retained by the City to reimburse administrative costs.
e. Any developer receiving TIF assistance shall provide a minimum of ten
percent (10%) owner cash equity investment in the project.
f. TIF will not be used in circumstances where land and/or property price is in
excess of fair market value.
g. Developer shall be able to demonstrate a market demand for a proposed
project. TIF shall not be used to support purely speculative projects.
h. TIF will not be utilized in cases where it would create an unfair and
significant competitive financial advantage over other projects in the area.
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i. TIF shall not be used for projects that would place extraordinary demands
on city services or for projects that would generate significant environmental
impacts.
j. The developer must provide adequate financial guarantees to ensure
completion of the project,including, but not limited to: minimum assessment
agreements,letters of credit,personal guaranties, etc.
k. The developer shall adequately demonstrate,to the City's sole satisfaction,an
ability to complete the proposed project based on past development
experience,general reputation, and credit history,among other factors,
including the size and scope of the proposed project.
1. For the purposes of underwriting the proposal, the developer shall provide
any requested market, financial, environmental, or other data requested by
the City or its consultants.
m. All TIF proposals shall optimize the private development potential of a site.
IV. PROJECT QUALIFICATIONS
All TIF projects considered by the City of Elk River must meet each of the following
requirements:
a. To be eligible for TIF,a project shall result
i. The new construction of a minimum of 25,000 square feet;
ii. A minimum increase of$37,500 per year in property taxes, excluding
the state portion; and
iii. Have a market value of at least $1,250,000 upon completion.
b. The project shall meet at least one of the objectives set forth in Section II
and satisfy all the provisions set forth in Section III of this document.
c. The developer shall demonstrate that the project is not financially feasible
but for the use of TIF.
d. The project shall comply with all provisions set forth in the Tax Increment
Financing Act,Minnesota Statutes 469.124 to 469.134,inclusive, as amended,
and Statutes 469.174 to 469.1794,inclusive, as amended.
e. The project must be consistent with the City's Comprehensive Plan,Land
Use Plan, and Zoning Ordinances.
f. The project shall serve at least two of the following public purposes:
• Creation of jobs with livable wages and benefits.
• Significantly increase the City's tax base.
• Enhancement or diversification of the city's economic base.
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• Industrial development that will spur additional private investment in
the area.
• Fulfillment of defined city objectives such as those identified in the
City's Comprehensive Plan and the City's Economic Development
Strategic Plan, among others.
• Removal of blight or the rehabilitation of a high profile or priority
site.
V. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS
All developers/businesses receiving Tax Increment assistance from the City of Elk
River shall be subject to the provisions and requirements set forth by the City's
Business Subsidy Policy as amended and Minnesota Statutes Sections 116J.993 to
116J.995 (the "Minnesota Business Subsidy Law").
VI. APPLICATION PROCESS FOR TIF
1. Applicant submits the completed application along with a $10,000 application
deposit,to be refunded for any portions not utilized if the tax increment project
does not proceed. The application deposit will be used toward the cost of
services provided in the evaluation of financial feasibility, establishment or
modification of the TIF district, and preparation of legal documents and
agreements. An additional deposit of$10,000 will be required for projects that
require meeting statutory eminent domain and/or redevelopment substandard
tests. Projects that demand professional services in excess of the initial deposit
shall be required to reimburse the City for the additional expenses.
2. City staff reviews the application and completes the Commercial-Industrial
and/or Housing Worksheets. The Application and Commercial-Industrial
and/or Housing Worksheets are primarily designed to score the desirability of
the proposed project. Industrial, Redevelopment and Housing projects will be
evaluated on a case-by-case basis and as the projects meet the city's desired
objectives.
3. Results of the Commercial-Industrial and/or Housing Worksheets are
submitted to the appropriate governing authorities (EDA or HRA) for
recommendation to the City Council of approval or denial of the request.
4. If preliminary approval is granted,the Tax Increment Financing Plan,along
with all necessary notices, resolutions are prepared by City staff and/or
consultants.
5. Notices are published and sent to the county and school board.
6. Public hearing(s) on the proposed request are held.
7. The City Council grants final approval or denial of the request.
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VII. APPLICATION FOR TAX INCREMENT FINANCING
A. APPLICANT INFORMATION
Name of Corporation/Partnership
Address
Primary Contact
Address
Phone Fax Email
Brief description of the corporation/partnership's business,including history,principal
product or service:
Brief description of the proposed project:
Attorney Name
Address
Phone Fax Email
Accountant Name
Address
Phone Fax Email
Contractor Name
Address
Phone Fax Email
Engineer Name
Address
Phone Fax Email
Architect Name
Address
Phone Fax Email
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B. PROJECT INFORMATION
1. The project will be:
Industrial Greenfield: New Construction Expansion
Commercial Redevelopment: New Construction Rehabilitation
Industrial Redevelopment: New Construction Rehabilitation
Other
2. The project will be: _Owner Occupied Leased Space
3. Project Address
Legal Description&Parcel Identification Number(s)
4. Site Plan and Preliminary Construction Plans Attached: Yes No
5. Amount of Tax Increment Requested for:
Land Purchase $
Public Improvement$
Site Improvement$
6. Current Real Estate Taxes on Project Site: $
Estimated Real Estate Taxes upon Completion: Phase I $
Phase II $
7. Construction Start Date:
Construction Completion Date:
If Phased Project: Year % Completed
Year % Completed
C. PUBLIC PURPOSE
It is the policy of the City of Elk River that the use of Tax Increment Financing should
result in a benefit to the public. Please indicate how this project will serve a public
purpose.
Job Creation/Retention: Number of existing jobs
Number of jobs created by project
Average hourly wage of jobs created/retained
New industrial development,which will result in additional private
investment in the area.
_Enhancement or diversification of the city's economic base.
_The project contributes to the fulfillment of the City's Economic Development
Strategic Plan.
_Removal of blight or the rehabilitation of a high profile or priority site.
_Significantly increase the City's tax base.
Other:
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D. SOURCES & USES
SOURCES NAME AMOUNT
Bank Loan $
Other Private Funds $
Owner Cash Equity $
Fed Grant/Loan $
State Grant/Loan $
EDA Micro Loan $
Tax Increment $
ID Bonds $
TOTAL $
USES AMOUNT
Land Acquisition $
Site Development $
Construction $
Machinery&Equipment $
Architectural&Engineering Fees $
Legal Fees $
Interest During Construction $
Debt Service Reserve $
Contingencies $
TOTAL $
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E. ADDITIONAL DOCUMENTATION AND CHECKLIST
Applicants will also be required to provide the following documentation.
A) Written business plan,including a description of the business,
ownership/management,date established,products and services, and
future plans
B) Financial Statements for Past Two Years
Profit&Loss Statement
Balance Sheet
C) Current Financial Statements
Profit&Loss Statement to Date
Balance Sheet to Date
D) Two Year Financial Projections
E) Personal Financial Statements of all Major Shareholders
Profit&Loss
Current Tax Return
F) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
G) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
H) Application deposit of$10,000,with any unused portion to be
refunded if project does not proceed.
1) Construction Plans and Itemized Project Construction Statement
J) Attach the following documentation as Exhibits
Exhibit A—Corporation/Partnership Description
Exhibit B —Description of Project
Exhibit C—List of Shareholders/Partners
Exhibit D—But-For Analysis
Exhibit E—List of Prospective Lessees
Exhibit F—Legal Description and PID Number(s)
Note: All Major shareholders will be required to sign personal guarantees if up front
financing of the project is required.
The undersigned certifies that all information provided in this application is true and correct to the best of the
undersigned's knowledge. The undersigned authorizes the City of Elk River to check credit references and
verify fmancial and other information. The undersigned also agrees to provide any additional information as
may be requested by the City after the filing of this application.
Applicant Name Date
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VIII. SAMPLE BUT-FOR ANALYSIS
WITH NO WITH
TAX INCREMENT TAX INCREMENT
SOURCES AND USES SOURCES AND USES
SOURCES SOURCES
Mortgage 9,600,000 8,667,000
Equity 2,400,000 2,400,00
Tax Increment Financing 0 933,000
TOTAL SOURCES 12,000,000 12,000,000
USES USES
Land 1,500,000 1,500,000
Site Work 300,000 300,000
Soil Correction 468,000 468,000
Demolition 100,000 100,000
Relocation 65,000 65,000
Subtotal Land Costs 2,433,000 2,433,000
Construction 6,750,000 6,750,000
Finish Manufacturing 250,000 250,000
Subtotal Construction Costs 7,000,000 7,000,000
Soft Costs 350,000 350,000
Taxes 35,000 35,000
Finance Fees 850,000 850,000
Project Manager 542,000 542,000
Developer Fee 540,000 540,000
Contingency 250,000 250,000
Subtotal Soft Costs 2,567,000 2,567,000
TOTAL USES 12,000,000 12,000,000
Income Statement Income Statement
Sq. Ft. Per Sq. Ft. Sq. Ft. Per Sq.Ft.
Rent-Space 1 100,000 $8.00 800,000 100,000 $8.00 800,000
Rent-Space 2 25,000 $8.50 212,500 25,000 $8.50 212,500
Rent-Space 3 25,000 $9.00 225,000 25,000 $9.00 225,000
Other 0 $0.00 0 0 $0.00 0
1,237,500 1,237,500
Mortgage 20 Term 1,051,646 20 Term 949,439
9.00%Interest 9.00%Interest
9,600,000 Principal 8,667,000 Principal
Net Income 185,854 288,061
Total Return on Equity 7.74% 12.00%
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IX. TAX INCREMENT FINANCING APPLICATION REVIEW
WORKSHEET - COMMERCIAL/INDUSTRIAL PROJECTS
TO BE COMPLETED BY CITY STAFF
1. The project meets the criteria set forth in Section IV of the City's Tax Increment
Financing policy.
a) Meets minimum thresholds for size,value, and tax revenue.
b) Meets at least one of the objectives in Section II and satisfies
all of the provisions set forth in Section III.
c) Demonstrates need for TIF with the but for analysis.
d) Consistent with all city plans and ordinances.
e) Serves at least two public purposes as defined in Section N (f).
2. Ratio of Private to All Public Investment in Project: Points:
$ Private investment 5:1 5
$ Public Investment 4:1 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 1
3. Job Creation in the City of Elk River: Points:
Number of new jobs as a result of the project. 40+ 5
Number of existing/retained jobs divided by 2. 30+ 4
Total 20+ 3
10+ 2
Less than 10 1
4. Ratio of Public Investment to Job Creation: Points:
S Public Investment $15,000 or less 5
Number of new jobs created/retained $20,000 or less 4
$ Public Investment per new job $22,000 or less 3
$25,000 or less 2
Over $25,000 1
5. Wage Level of new jobs created/retained: Points:
Minimum hourly wage Over $21/ hour 5
of jobs created/retained: $18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under $10 / hour 1
6. Project size: Points:
The project will result in the construction 80,000+ 5
of square feet 65,000+ 4
50,000+ 3
35,000+ 2
25,000+ 1
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7. Market Value/Tax Base Generation: Points:
The project will result in a per square foot Industrial Commercial
estimated market value (land and building) $80/sf+ $110/sf+ 5
of $70/sf+ $100/sf+ 4
$60/sf+ $90/sf+ 3
$50/sf+ $80/sf+ 2
$40/sf+ $70/sf+ 1
8. Type of Project: Points:
100% Owner Occupied 5
Mix Owner Occupied&Investment 4
Investment Property 3
9. Use: Points:
Manufacturing 5
Research&Development 4
Commercial Redevelopment 3
Warehouse/Distribution 2
Housing 1
10. Likelihood that the project will result in Points:
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
Sub -Total Points: of a possible 45 points.
11. Bonus Points Bonus Points:
The project will be 100%Pay-asyougo TIF. 3 points
The project contributes to the goals of Energy City. 2 points
• Product promotes sensible use of energy,OR
• Project utilizes significant energy efficient design&/or
materials in construction.
Total Points:
Overall project analysis: High 45-38 points
Moderate 37-29 points
Low 28-20 points
Not Eligible 19-0 points
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X. TAX INCREMENT FINANCING APPLICATION REVIEW
WORKSHEET- HOUSING PROJECTS
TO BE COMPLETED BY CITY STAFF
1. The project meets the criteria set forth in Section IV of the City's Tax Increment
Financing policy.
a) Meets minimum thresholds for size,value, and tax revenue.
b) Meets at least one of the objectives in Section II and satisfies
all of the provisions set forth in Section III.
c) Demonstrates need for TIF with the but fog-analysis.
d) Consistent with all city plans and ordinances.
e) Serves at least two public purposes as defined in Section IV (f).
2. Ratio of Private to All Public Investment in Project: Points:
$ Private investment 5:1 5
$ Public Investment 4:1 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 1
3. Job Creation in the City of Elk River: Points:
Number of new jobs as a result of the project. 20+ 5
Number of existing/retained jobs divided by 2. 15+ 4
Total 10+ 3
5+ 2
Less than 5 1
4. Wage Level of new jobs created/retained: Points:
Minimum hourly wage Over $25/hour 5
of jobs created/retained: $21-25/hour 4
$17-20/hour 3
$14-16/hour 2
Under $14/hour 1
5. Market Value/Tax Base Generation: Points:
Project will result in an estimated
market value per unit $135,000/Unit 5
(land and building) of $125,000/Unit 4
$115,000/Unit 3
$105,000/Unit 2
$ 95,000/Unit 1
6. Project provides housing that is restricted Points:
to persons 55 years and older:
5
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7. Project proposes rehabilitation of existing
housing, housing stock, and maximizes
utilization of existing infrastructure: Points:
4
8. Project proposes a location near existing
jobs, transportation, recreation, retail services,
social services, and schools: Points:
2
9. Type of Housing Project: Points:
100% Owner Occupied 2
Investment Property 1
10. Likelihood that the project will result in Points:
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
Sub -Total Points: of a possible 38 points.
11. Bonus Points Bonus Points:
The project will be 100%Pay-asyougo TIF. 3 points
The project contributes to the goals of Energy City. 2 points
• Product promotes sensible use of energy,OR
• Project utilizes significant energy efficient design&/or
materials in construction.
Total Points:
Overall project analysis: High 38-30 points
Moderate 29-22 points
Low 21-13 points
Not Eligible 12-0 points
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