4.12. SR 05-04-2015
Request for Action
To Item Number
Mayor and City Council 4.12
Agenda Section Meeting Date Prepared by
ConsentMay 4, 2015Amanda Othoudt, EDD
Item Description Reviewed by
Housing Tax Increment Financing (TIF) Policy Cal Portner, City Administrator
Reviewed by
Action Requested
Approve, by motion, the amended Housing TIF policy and score sheet.
Background/Discussion
In 2014, the Housing and Redevelopment Authority (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 factors such as job growth and wages are a vital consideration.
In April, the HRA reviewed the policy, application, and score sheet. Changes identified there are reflected
in the draft policy attached.
Financial Impact
N/A
Attachments
Draft 2015 Housing TIF Policy
Draft 2015 Revised Score sheet
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, MN 55330
763.635.1040
Table of Contents
I.Policy Purpose 3
II.Objectives of Tax Increment Financing 3
III.Policies for the Use of TIF 4
IV.Project Qualifications 5
V.Subsidy Agreement & Reporting Requirements 6
VI.Application Process for TIF 6
VII.Meeting Schedule 7
VIII.Sample But-For Analysis 9
IX.Application Review Worksheet:
Housing Projects 8
Application 11
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
Page 2 of 14
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 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
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
Page 3 of 14
.
local government
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-as-you-go 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.
f.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
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
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impacts.
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.l.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.
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 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
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
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Housing and Redevelopment 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 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
Amended April 8 2015
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VII. MEETING SCHEDULE
2015 Economic Development Housing and Redevelopment Authority & City
Council Meeting Schedule
For Review of Business Subsidy Applications related to Housing assistance
APPLICATION EDA Finance HRA CITY
st
DEADLINE Committee (1 Monday) COUNCIL
(Lastthst
Monday) (4 Tuesday) (1 Monday)
Jan 26 Feb 24 April 6 April 6
Feb 23 Mar 24 May 4 May 4
Mar 30 April 28 Jun 1 Jun 1
Apr 27 May 26 July 6 July 6
May 26 Jun 23 Aug 3 Aug 3
Jun 29 Jul 28 Sep 8 Sep 8
Jul 27 Aug 25 Oct 5 Oct 5
Aug 31 Sep 29 Nov 2 Nov 2
Sep 28 Oct 27 Dec 7 Dec 7
Oct 26 Nov 24 Jan 4 (2016) Jan 4 (2016)
Nov 30 Dec 22 Feb 1 (2016) Feb 1 (2016)
Dec 28 Jan 26 (2016) Mar 7 (2016) Mar 7 (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
Amended April 8 2015
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VIII. SAMPLE BUT-FOR ANALYSIS
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% 12.00%
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
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2015 Financial Incentive
Application
Housing Tax Increment
Financing
1. PROJECT INFORMATION
Property Information
(please print)
Address: _________________________________Parcel Number: 75 - _____ - _________
The project will be:
____ Housing
____ Other
The project will be: ____Owner Occupied ____Leased Space
If Leased Space ____ Percent Occupied 6 months after Certificate of Occupancy
Total Amount of Tax Increment Requested: $ over years.
City Portion: Annual $ Total $
County Portion: Annual $ Total $
ISD 728 Portion: Annual $ Total $
Current Real Estate Taxes on Project Site: $
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. ___________
II. 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
(please print)Name: _______________________________ E-
mail address: ___________________________________
Address: ______________________________ _____________________ ______
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
Page 9 of 14
________
Street City State Zip Code
Phone : __________________
Legal Name of Business:
Check One:Proprietor CorporationPartnership
Federal ID #State ID #
Agent Information
(print) Same as Property Owner Different, as below(Check one)
Name: ____________________________ E-mail address: _______________________________
Address: _____________________________ _________________ ______ ________
Street City State Zip Code
Phone (w): _______________________
III. SIGNATURE
I certify that ___________________ is defined as a Small Business, For-Profit and is not a religious,
(Business name)
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: _______
TITLE: DATE:
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
Page 10 of 14
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
SOURCESNAMEAMOUNT
$
Bank Loan
$
Other Private Funds
$
Owner Cash Equity
$
Fed Grant/Loan
$
State Grant/Loan
$
EDA Micro Loan
$
Tax Abatement
$
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
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.
_______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).
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
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_______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
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
1
______ Profit & Loss Statement
______ Balance Sheet
_______ F) Financial Projections for Term of abatement, up to 10 Years
1
_______ G) Personal Financial Statements of all Major Shareholders, Partners, Guarantors
_______ H) 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
Sources (lenders, partners, etc…), Parent Company, Architect
Sensitive financial documents, while not-public information, may be submitted directly to the City’s
1
financial consultant by signing the attached confidentiality agreement, for additional confidentiality.
The attached Confidentiality Agreement may be signed and included with the application.
K) Construction Plans and Itemized Project Construction Statement
L) Attach the following documentation as Exhibits
Exhibit A – Corporation/Partnership Description
Exhibit B – List of Shareholders/Partners
Exhibit C – But-For Analysis
Exhibit D – List of Prospective Lessees (if applicable)
Exhibit E – Legal Description
_______M) Site and Construction Plans
City of Elk River Tax Increment Financing Policy & Application- Housing
Amended April 8 2015
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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 April 8 2015
Page 13 of 14
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) Yes 5
7. Type of Housing Project: Points: _____
100% Owner Occupied 2
Investment Property 1
8. Likelihood that the project will result in Points: _____
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
Sub - Total Points: of a possible 50 points.
9. Bonus Points Bonus Points: _
The project will not be 100% Pay-as-you-go 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