Loading...
7.1 HRSR 04-06-2015ilk River Request for Action To Item Number Housing and Redevelopment Authority 17.1 Agenda Section Meeting Date Prepared by Workshop Aril 6, 2015 Jeremy Barnhart, Deputy Director, CODD Item Description Reviewed by Review changes to the Housing Tax Increment Reviewed by Financing Policy In 2014, the HRA and the City Council established a Housing TIF policy, formalizing a tool to assist in the development of housing projects that satisfy City goals and require assistance. The Housing TIF policy is very similar to TIF policy employed for economic development, where factures such as job growth and wages are a vital consideration. Wanting to be more responsive to the market, the HRA directed staff to review the Housing TIF program, and suggest amendments. In March, the HRA reviewed the score sheet, changes identified there are reflected in the draft policy attached. Staff will provide verbal comments at the meeting. Attachments ■ Housing TIF Policy and Scoresheet P 0 N E R E 0 8 C NATUR City E Tax Increment Financing Policy & Application HOUSING DRAFT April 2015 Amended: February 2014 Amended: May 2006 Amended: March 2000 Adopted: August 1991 City of Elk River Economic Development Division 13065 Orono Parkway Elk River, NIN 55330 763.635.1040 Table of Contents I. Policy Purpose 3 I1. Objectives of Tax Increment Financing 3 III. Policies for the Use of TIF 4 IV. Project Qualifications 5 V. Subsidy Agreement & Reporting Requirements 6 V1. Application Process for TIF 6 VII. Meeting Schedule 7 VIII. Sample But -For Analysis 9 IX. Application Review Worksheet: Housing Projects 8 Application 1 I City of Elk River Tax Increment Financing Policy & Application- Housing P 0 N E 0 1 0 1 1 Amended DINE INATURE Page 2 of 16 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 RedevelopmentAuthorzty. 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 Housing projects 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 for Housing 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 residential 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 design, energy conservation, and decreasing capital and /or operating costs of local government. City of Elk River Tax Increment Financing Policy & Application- Housing p p w E A E @ B 1 Amended DATE Page 3 of 16 NATURE • To enhance and diversify the City of Elk River's economic basehousing stock. • To significantly increase the City of Elk River's tax base. III. POLICIES FOR THE USE OF HOUSING 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.b. 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.c. 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.d. Any developer receiving TIF assistance shall provide a minimum of ten percent (10 %) owner cash equity investment in the project. £e. TIF will not be used in circumstances where land and /or property price is in excess of fair market value. g.f. Developer shall be able to demonstrate a market demand for a proposed project. TIF shall not be used to support purely speculative projects. h.g. TIF will not be utilized in cases where it would create an unfair and significant competitive financial advantage over other projects in the area. i.h. TIF shall not be used for projects that would place extraordinary demands on city services or for projects that would generate significant environmental impacts. City of Elk River Tax Increment Financing Policy & Application- Housing p 0 M E R E 0 8 Y Amended DATE INATURE Page 4 of 16 j.i. 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.j. 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. l.k. 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.1.All TIF proposals shall optimize the private development potential of a site. IV. PROJECT QUALIFICATIONS All Housing 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 in: i. The new construction of a minimum of 25,000 square feet; ii.i. A minimum increase of $37,500 per year in property taxes, excluding the state portion; and iii.ii. 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. 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 basehousing stock. • Industrial dDevelopment 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 Housing and Redevelopment Strategic Plan, among others. City of Elk River Tax Increment Financing Policy & Application- Housing p p w E A E D 8 1 Amended DATE INATURE Page 5of16 • 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 may 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. City of Elk River Tax Increment Financing Policy & Application- Housing p p E R E l B 1 Amended DATE [NATURE Page 6 of 16 VII. MEETING SCHEDULE 2015 Economic Development Authority & City Council Meeting Schedule For Review of Business Subsidy Applications APPLICATION DEADLINE 1st Monday) EDA Finance Committee (4th Tuesday) EDA (3`d Monday) CITY COUNCIL 3 d Monday) Jan 5 Jan 20 Jan 20 Jan 5 Jan 27 Feb 17 Feb 17 Feb 2 Feb 24 Mar 16 Mar 16 Mar 2 Mar 24 Apr 20 Apr 20 Apr 6 Apr 28 May 18 Ma 18 May 4 May 26 Jun 15 Jun 15 Jun 1 Jun 23 Jul 20 Jul 20 Jul 6 Jul 28 Aug 17 Aug 17 Aug 3 Aug 25 Sep 21 Sep 21 Sep 8 Sep 22 Oct 19 Oct 19 Oct 5 Oct 27 Nov 16 Nov 16 Nov 2 Nov 24 Dec 21 Dec 21 Dec 7 Dec 29 Jan 19 2016 Jan 19 2016 ALL REQUIRED APPLICATION MATERIALS MUST BE SUBMITTED BY THE DEADLINE OR YOUR APPLICATION WILL BE POSTPONED TO THE NEXT MONTH City of Elk River Tax Increment Financing Policy & Application- Housing =1N�AXWORRE] 1 1 Amended DATE Page7of16 VI11. SAMPLE BUT-FOR ANALYSIS City of Elk River Tax Increment Financing Policy & Application- Housing P 0 E 0 E 0 1 1 Amended DATE INATURE Page 8 of 16 WITH NO WITH TAX ABATEMENT TAX ABATEMENT SOURCES AND USES SOURCES AND USES SOURCES SOURCES Mortgage 9,600,000 8,667,000 Equity 2,400,000 2,400,00 Tax Abatement 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%1 12.00% City of Elk River Tax Increment Financing Policy & Application- Housing P 0 E 0 E 0 1 1 Amended DATE INATURE Page 8 of 16 2015 Financial Incentive El Application River Housing Tax Increment Financing I. PROJECT INFORMATION Property Information (Please print) Address: Parcel Number: 75 - The project will be: Industrial: New Construction Expansion Redevelopment / Rehab. Office /research facility that conforms to Business Park zoning standards Commercial Redevelopment or Rehabilitation Other The project will be: If Leased Space Owner Occupied Leased Space Percent Occupied 6 months after Certificate of Occupancy Total Amount of Tax Increment Requested: $ over years. City Portion: County Portion: ISD 728 Portion: Current Real Estate Taxes on Project Site: Annual $ Total $ Annual $ Total $ Annual $ Total $ Estimated Real Estate Taxes upon Completion: Phase I $ Phase II $ Construction Start Date Construction Completion Date Percent of project complete on December 31, current year. 11. CONTACT INFORMATION Public Information Notice Generally, correspondence to and from Staff is considered public information. Specific data related to a financial assistance request is deemed not public: Financial Information, Financial Statements, Net worth Calculations, Business Plans, Income and Expense projections, Balance Sheets, Customer Lists, Income Tax returns. When public financial assistance is received, only the following remains not public: Business Plans, Income and Expense projections, Customer lists, Income tax returns, design, market, and feasibility studies not paid for with public funds. The city does allow an applicant to submit sensitive financial information directly to the City's financial consultant, for additional security. Property Owner Information (Pleaseprint)Name: mail address: City of Elk River Tax Increment Financing Policy & Application- Housing Amended DATE Page 9 of 16 E- P 0 1 E R E 0 1 1 NATURE Address: Street Phone: Legal Name of Business: Check One: Federal ID # City Proprietor Corporation Agent Information (print) Same as Property Owner ❑ Name: Address: Strcct Phone (w): III. SIGNATURE I certify that (Business name) State ID # State Zip Code Partnership Different, as below ❑ (Check one) E -mail address: City State Zip Code is defined as a Small Business, For - Profit and is not a religious, Political, Casino, Sports Facility, or Pornographic Enterprise. I further certify that all information provided in this application is true and correct to the best of my knowledge. I authorize the city of Elk River and the Finance Committee to check credit references and verify financial and other information. I further agree, if approved, to the loan security and guarantees required by the Subsidy policy. I agree to provide any additional information as may be requested by the city. Agreement to Pay Costs of Review It is the policy of the City of Elk River to require applicants to pay costs incurred by the City in reviewing and acting upon applications, so that these costs are not borne by the taxpayers of the City. These costs include all of the City's out -of- pocket costs for expenses, including the City's costs for review of the application by the City's Financial Consultant and City Attorney, or other consultants, recording fees, and necessary publication costs. The application processing fees cover anticipated costs; costs incurred above the application fee will be invoiced as they are incurred, and payment will be due within thirty (30) days. Application fees are not refundable, though any unused portion is returned at the request of the applicant. If payment is not received as required by this agreement, the City may suspend the application review process and may deny the application for failure to comply with the requirements for processing the application. Payment for costs will be required whether the application is granted or denied. The undersigned has received the City's policy regarding the payment of costs of review, understands that reimbursement to the City of costs incurred in reviewing the application will be required, agrees to reimburse the City as required in the policy and make payment when billed by the City, and agrees that the application may be denied for failure to reimburse the City for costs as provided in the policy. Note: All Major shareholders will be required to sign personal guarantees and a minimum assessment agreement if up front financing of the project is required. APPLICANT SIGNATURE: City of Elk River Tax Increment Financing Policy & Application- Housing p 0 E 0 E B 0 C Amended DATE INATURE Page 10 of 16 TITLE: DATE: IV. 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 (Complete table in Section V). New industrial development which will result in additional private investment in the area. _Enhancement and /or diversification of the City of Elk River's economic base. _The project contributes to the fulfillment of the City's Economic Development Strategic Plan. _Removal of blight. _Rehabilitation of a high profile or priority site. _Significantly increase the City's tax base. V. SOURCES & USES SOURCES Bank Loan Other Private Funds Owner Cash Equity Fed Grant /Loan State Grant /Loan EDA Micro Loan Tax Abatement ID Bonds TOTAL USES Land Acquisition Site Development Construction NAME Machinery & Equipment Architectural & Engineering Fees Legal Fees Interest During Construction Debt Service Reserve Contingencies TOTAL AMOUNT AMOUNT VI. ADDITIONAL DOCUMENTATION AND CHECKLIST Please provide one paper and one electronic copy of following: (Incomplete applications will delay the review of an application) A) Application deposit of $10,000, with any unused portion to be refunded if project does not proceed. City of Elk River Tax Increment Financing Policy & Application- Housing p 0 M E A E 0 0 1 Amended DATE NATURE Page 11 of 16 Sources B) Written Narrative: Please give a brief summary of your business, its products or service, the project and how this subsidy will impact your project. The narrative should include a statement demonstrating how the project meets the public purpose in IV (above). C) Business Plan. The business plan should include the following: 1. Description of Business 2. Ownership 3. Management 4. Date Established 5. Products /Services 6. Future Plans 7. Market for Business D) Project Proforma' 1. Sources and uses of funds to finance the project, and 2. Operating cash flow assumptions that include: a. Projected revenues, b. Operating expenses, c. Net operating income, and d. Annual debt service and loan payments. E) Financial Statements for previous Two Years and the Current year to date' Profit & Loss Statement Balance Sheet F) Financial Projections for Term of abatement, up to 10 Years' G) Personal Financial Statements of all Major Shareholders, Partners, Guarantors 11) Letter of Commitment from Applicant Pledging to Complete During the Proposed Project Duration I) Letter of Commitment from the Other Sources of Financing, Stating Terms and Conditions of their Participation in Project Completion J) Written statement of contact information (Name, Company, Address, Email, Phone, Fax) for project team, including: Attorney, Accountant, Financing (lenders, partners, etc...), Parent Company, Architect ' Sensitive financial documents, while not -public information, may be submitted directly to the City's financial consultant by signing the attached confidentiality agreement, for additional confidentiality. The attached Confidentiality Agreement may be signed and included with the application. City of Elk River Tax Increment Financing Policy & Application- Housing p D N E D E D D r Amended DATE INATURE Page 12 of 16 I) Construction Plans and Itemized Project Construction Statement L) Attach the following do( Exhibit A Exhibit B Exhibit C Exhibit D Exhibit E .umentation as Exhibits — Corporation /Partnership Description — List of Shareholders /Partners — But -For Analysis — List of Prospective Lessees (if applicable) — Legal Description NV Site and Construction Plans City of Elk River Tax Increment Financing Policy & Application- Housing p 0 w E A E 0 8 Y Amended DATE INATURE Page 13 of 16 CONFIDENTIALITY AGREEMENT (Sample Agreement) This agreement is made this day of , 20_, by and between , a company, hereinafter "Developer," and Springsted Incorporated, a Minnesota corporation, hereinafter "Springsted." WHEREAS, Developer is (description of project), hereinafter the "Project," pursuant to a (form of agreement) with (public entity), hereinafter the "City," dated ; and WHEREAS, Springsted has been hired by the City to investigate certain financial aspects of the Developer and the Project; and WHEREAS, in conjunction with such investigation, Springsted desires to examine the financial information of Developer relative to Developer and the Project; and WHEREAS, Developer is willing to disclose such information only on the condition that such information be kept confidential. NOW, THEREFORE, in consideration of the terms and mutual covenants contained herein, the parties agree as follows: 1. Developer agrees to make its financial information, development pro forma and projection, budget information, and such other financial information concerning the Project as Springsted may reasonably request, hereinafter the "Information," available for inspection by Springsted, but solely for the purpose set forth above. 2. Springsted shall accept the Information in strict confidence solely for that purpose and shall make no other use of the information, or disclose it to any other person or party, including the City, without the express written consent of Developer. Notwithstanding the foregoing, Springsted may use the Information in summary form only to report its findings to the City provided that Springsted first presents its proposed report to Developer and obtains Developer's written consent to ensure that no inadvertent disclosures of confidential information or other inaccurate information are contained in such report. 3. Inspection of the Information shall take place in such manner and at such place and time as the parties may agree. The Information shall not be copied, duplicated, abstracted, summarized or recorded, directly or indirectly, by any means whatsoever, without the prior consent of Developer. 4. The Information shall remain the property of Developer, and any Information provided in tangible form shall be returned to Developer upon completion of such inspection. Any copies, duplications, abstracts, summaries or other recordings of the Information made with Developer's consent shall be returned to Developer upon demand. 5. Springsted agrees that any breach of the obligation of confidentiality imposed hereby shall constitute irreparable harm to Developer and shall entitle Developer to equitable relief enjoining any further breaches of this Agreement, together and in conjunction with any and all such other remedies as may be available to Developer at law or in equity. IN WITNESS WHEREOF, the parties have hereunto set their hands the day and year first above written. DEVELOPER ... By Its SPRINGSTED INC. By Its City of Elk River Tax Increment Financing Policy & Application- Housing Amended DATE Page 14 of 16 IPDNERED DI' NATURE City of Elk River Tax Increment Financing Policy & Application- Housing P 0 W E 1 E B 1 C Amended DATE ������ Page 15 of 16 IX. WORKSHEET- HOUSING PROJECTS TO BE COMPLETED BY CITY STAFF The project must meet the criteria set forth in Section IV of the City's Tax Increment Financing policy to continue. 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 IV (f). 1. Ratio of Private to All Public Investment in Project: Points: Greater than 7:1 10 $ Private investment 6:1 8 $ Public Investment 5:1 6 Ratio Private: Public Financing 4:1 4 3:1 2 Less than 3:1 1 2. Project provides housing that is restricted Points: to persons 55 years and older: 10 3. 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 4. Project proposes rehabilitation of existing housing, housing stock, and maximizes utilization of existing infrastructure: Points: 10 5. Project proposes a location near existing jobs, transportation, recreation, retail services, social services, and schools: Points: 3 6. Project includes community/ neighborhood: Points: facility (pool, community center, etc.) Points based on scale of improvement (1 -5) 9. Type of Housing Project: 100% Owner Occupied Investment Property 10. Likelihood that the project will result in unsubsidized, spin -off development. Yes 5 Points: Sub - Total Points: of a possible 50 points. 2 1 Points: High 5 Moderate 3 Low 1 11. Bonus Points Bonus Points: The project will be 100% Pay- asyougo TIF. -5 points The project does not require modification to land use plan. 2 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: Rank Points Max eligible High 45 -50 points 100% Moderate 37 -44 points 85% Low 30 -36 points 65% Not Eligible 0 -29 points