4.1. SR 03-13-2000'~ity of
ITEM f 4.1.
MEMORANDUM
iver o:
Elk River City Council
DATE:
Marc Nevinski, Acting Director of
Economic Development
March 13, 2000
SUBJECT: Public Hearing - Consider Modifications
to the Tax Increment Financing Policy
18sue
Modifications to the city's Tax Increment Financing policy have been made to
comply with new state statues and to more clearly state the city's position for the
use of TIF. At its February 14, 2000 meeting the EDA was presented with a
draft of the modifications made by staff and provided additional input on the
proposed revisions. The issue before the council tonight is to hold a public
hearing on the modified policies and consider their approval.
Background
The new state statues regarding business subsidies mandates that cities
modify their current incentive and subsidy policies to include provisions
stipulated by the business subsidy law. The law also requires that the city
hold a public hearing on such modified policies before providing subsidies.
The primary modification includes the addition of a ratings scale for various
project applicants. Such a rating scale will enable staff, as well as the HRA,
EDA, and City Council, to better analyze a given project for its eligibility for TIF.
Staff presents this rating scale under the assumption that every project that
requests TIF may not necessarily qualify for it under these guidelines. For
applicants who do not qualify based upon the rating method, tax abatement may
be a potential financing alternative.
Recommendation
Staff recommends that the City Council consider any input provided at the
public hearing and then adopt the revised tax increment policies.
Attachment
· Modified TIF policies
13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330 · TDD & Phone: (612) 441-7420 · Fax: (612) 441-7425
City of Elk River, Minnesota
Tax Increment Financing
Policy & Application
Adopted: August, 1991
Revised: March, 2000
Table of Contents
ge
II.
III.
IV.
V.
VI.
VII.
Policy Purpose 3
Objectives of Tax Increment Financing 3
City of Elk River Policies for the Use of TIF 4
Qualifications 5
Subsidy Agreement & Reporting Requirements 6
Application Process 7
Application 8
Applicant Information 8
Project Information 9
Public Purpose 9
Sources & Uses 10
Checklist & Additional Information 11
Application Review Worksheet
Exhibits
A
B
C
D
E
Corporation/Partnership Description
Project Description
Shareholders
But-for Analysis
Prospective Lessees
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I. POLICY PURPOSE
For the purposes of this document, the term "City" shall include the Elk River City
Council, Economic Development Authority, and Housing and Redevelopment Authority.
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 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.
· 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.
III.
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 design, energy conservation, and
decreasing capital and/or operating costs of local government.
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.
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It is the City's policy to establish only 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.
2. Redevelopment Districts
· The market value of a redeveloped site shall
increase by a minimum of 50% of the current
market value.
Other types of TIF districts may be considered on a case by case
basis.
TIF assistance will be provided to the developer upon receipt of
the increment by the City, otherwise referred to as the pay-as-
you-go method. Requests for up front financing will be
considered on a case by case basis.
A maximum often percent (10%) of any tax increment received
from the district shall be retained by the City to reimburse
administrative costs.
Any developer receiving TIF assistance shall provide a
minimum of twenty percent (20%) cash equity investment in the
project.
TIF will not be used in circumstances where land and/or
property price is in excess of fair market value.
Developer shall be able to demonstrate a market demand for a
proposed project. TIF shall not be used to support purely
speculative projects.
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TIF will not be utilized in cases where it would create an unfair
and significant competitive financial advantage over other
projects in the area.
TIF shall not be used for projects that would place extraordinary
demands on city services or for projects that would generate
significant environmental impacts.
The developer must provide adequate financial guarantees to
ensure completion of the project, including, but not limited to:
assessment agreements, letters of credit, personal guaranties,
etcetera.
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.
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.
IV. PROJECT QUALIFICATIONS
All TIF projects considered by the City of Elk River must meet each of the
following requirements:
To be eligible for TIF, a project shall result in:
i. The new construction of a minimum of 25,000 square feet;
ii. A minimum increase of $25,000 per year in property
taxes; and,
iii. Have a market value of at least $1,000,000 upon
completion.
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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 must be consistent with the City's Comprehensive
Plan, Land Use Plan, and Zoning Ordinances.
The project shall serve at least two of the following public
purposes:
· Creation of jobs with livable wages and benefits.
· Increase of tax base.
· Enhancement or diversification of the city's economic base.
· Industrial development that will spur additional private
investment in the area.
· Fulfillment of the City's Strategic Plan for Economic
Development.
· Removal of blight or the rehabilitation of a high profile or
priority site.
· Additional proposed public purposes deemed appropriate
and acceptable by the City Council.
V. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS
All developers/businesses receiving tax increment financing assistance
from the City of Elk River shall be subject to the provisions and
requirements set forth by state statute 116J.993 and summarized be]ow.
All developers/businesses receiving TIF assistance shall enter into a
subsidy agreement with the City of Elk River that identifies: the reason
for the subsidy, the public purpose served by the subsidy, and the goals
for the subsidy, as well as other criteria set forth by statute 116J.993.
The developer/business shall file a report annually for two years after the
date the benefit is received or until all goals set forth in the application
and performance agreement have been meet, whichever is later. Reports
shall be completed using the format drafted by the State of Minnesota
and shall be filed with the City of Elk River no later than March I of each
year for the previous calendar year. Businesses fulfilling job creation
requirements must file a report to that effect with the city within 30 days
of meeting the requirements.
The developer/business owner shall maintain and operate its facility at
the site where TIF assistance is used for a period of five years after the
benefit is received.
In addition to attaining or exceeding the jobs and wages goals set forth in
the Subsidy Agreement, the applicant shall meet the qualifications set
forth in Section IV of this document.
Developers / Businesses failing to comply with the above provisions will
be subject to fines, repayment requirements, and be deemed ineligible by
the State of Minnesota to receive any loans or grants from public entities
for a period of five years.
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APPLICATION PROCESS
Applicant submits the completed application along with all
application fees.
City staff reviews the application and completes the Application
Review Worksheet.
Results of the Worksheet are submitted to the appropriate
governing authorities for preliminary approval of the proposal.
If preliminary approval is granted, the Tax Increment Financing
Plan, along with all necessary notices, resolutions and certificates
are prepared by City staff and/or consultants.
Notices are published and sent to the county and school board.
Public hearing(s) on the proposed project are held.
The EDA or HRA recommends approval or denial of the project to
the City Council.
8. The City Council grants final approval or denial of the proposal.
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VII. APPLICATION FOR TAX INCREMENT FINANCING
A. APPLICANT INFORMATION
Name of Corporation/Partnership.
Address
Primary Contact
Address
Phone Fax Email
On a separate sheet, please provide the following:
Brief description of the corporation/partnership's business,
including history, principal product or service, etc... Attach as
Exhibit A.
· Brief description of the proposed project. Attach as Exhibit B.
List names of officers and shareholders/partners with more than
five percent (5%) interest in the corporation/partnership. Attach as
Exhibit C.
· A but-for analysis. Attach as Exhibit D.
Attorney Name
Address
Phone
Accountant Name
Address
Fax
Email
Phone
Contractor Name
Address
Fax
Email
Phone
Engineer Name
Fax
Email
Address
Phone
Architect Name
Fax
Email
Address
Phone
Fax
Email
B. PROJECT INFORMATION
The project will be:
Industrial Greenfield:
__Commercial Redevelopment:
Industrial Redevelopment:
Other
New Construction
New Construction
New Construction
__ Expansion
Rehabilitation
Rehabilitation
The project will be: __Owner Occupied Leased Space
If leased space, please attach a list names and addresses of future lessees and indicate
the status of commitments or lease agreements. Attach as Exhibit E.
Project Address
Legal Description
Site Plan Attached:
Yes No
Amount of Tax Increment Requested for:
Land Purchase $
Public Improvement $
Site Improvement $
Current Real Estate Taxes on Project Site: $.
Estimated Real Estate Taxes upon Completion: Phase I $
Phase II $
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: Number of existing jobs
Number of jobs created by project
Average hourly wage of jobs created
__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 Strategic
Plan for Economic Development.
__Removal of blight or the rehabilitation of a high profile or priority
site.
Other:
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D. SOURCES & USES
SOURCES
Bank Loan
Other Private Funds
Equity
Fed Grant/Loan
State Grant/Loan
EDA Micro Loan
Tax Increment
ID Bonds
TOTAL
NAME
AMOUNT
USES
Land Acquisition
Site Development
Construction
Machinery & Equipment
Architectural & Engineering Fees
Legal Fees
Interest During Construction
Debt Service Reserve
Contingencies
TOTAL
AMOUNT
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E. ADDITIONAL DOCUMENTATION
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 ~tatements 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
F)
Personal Financial Statements of all Major Shareholders
Profit & Loss
Current Tax Return
G) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
H)
Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
I) Application fee of $5000 (to be returned upon project
completion.)
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 financial 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
By.
Its
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TAX INCREMENT FINANCING PROPOSAL REVIEW WORKSHEET
1. The project meets the criteria set forth in Section III of the City's
Tax Increment Financing policy.
__ a)
b)
c)
e)
Meets minimum thresholds for size, value, and tax capacity.
Meets at least one of the objectives in Section III and satisfies
the provision set forth in Section IV.
Demonstrates need for TIF with the but-for analysis.
Consistent with all city plans and ordinances.
Serves at least two public purpose as defined in Section V.
2. Ratio of Private to Public Investment in Project:
$. Private investment
$. Public Investment
Ratio Private: Public Financing
Less than
Points:
5:1 5
4:1 4
3:1 3
2:1 2
2:1 I
3. Job Creation in the City of Elk River:
__ Number of new jobs as a result of the project.
__ Number of existing/retained jobs divided by 10.
Total
Less than
Points:
40+ 5
30+ 4
20+ 3
10+ 2
10 I
4. Ratio of TIF to new jobs created:
$ TIF request
Number of new jobs created
$ of TIF per new job created
Points:
$15,000 or less
$20,000 or less
$22,000 or less
$25,000 or less
Over $25,000
5
4
3
2
1
5. Wage Level of jobs created:
Average hourly wage
of jobs created:
Points:
Over $21/hour 5
$18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under $10/hour I
6. Project size:
The project will result in the construction
of square feet
Points:
80,000+ 5
65,000+ 4
50,000+ 3
35,000+ 2
25,000+ i
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7. Type of Project:
100% Owner Occupied
Mix Owner Occupied & Investment
__ Investment Property
8. Use:
~ Manufacturing
~ Research & Development
~ Commercial Redevelopment
Warehouse/Distribution
Housing
9. The project will pay annual
property taxes in the first fully
assessed year of $
10. Likelihood that the project will result in
unsubsidized, spin-off development.
Points:
5
4
3
Points:
5
4
3
2
1
Points:
85,000+ 5
70,000+ 4
55,000+ 3
40,000+ 2
25,000+ I
Points:
High 5
Moderate 3
Low I
Sub - Total Points:
of a possible 45 points.
9. Bonus Points
Bonus Points:
__ The project will be 100% Pay-as-you-go TIF.
__ The project contributes to the goals of Energy City.
· Product promotes sensible use of energy, OR
· Project utilizes significant energy efficient design &/or
materials in construction.
3 points
2 points
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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EXHIBIT A
Description of the corporation or partnership
EXHIBIT B
Description of the proposed project
EXHIBIT C
Names of officers and shareholders/partners with more than five
percent (5%) interest in the corporation/partnership.
EXHIBIT D
But-for analysis
EXHIBIT E
Prospective Lessees
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