4.5. SR 04-10-2000Item 4.5.
'ity of
,TO:
DATE:
SUBJECT:
MEMORANDUM
Elk River City Council
Marc Nevinski, Acting Director of
Economic Development
April 10, 2000
Public Hearing - Adoption of Tax
Rebate Financing Policy
Issue
The issue before the City Council is to hold a public hearing on and
consider the adoption of the city's Tax Rebate Financing policy.
Background
Tax Rebate Financing (TRF), also referred to as Tax Abatement, is
similar to Tax Increment Financing (TIF) in that the increased tax
dollars generated by a project are used to pay for various
development costs. The primary difference however, is that the
applicant must make a request to each political body (city, county,
school district) to have their portion of the property tax rebated.
Subsequently, applicants are likely to receive less dollars for their
project with TRF than with TIF, as not all the political bodies are
likely to rebate the taxes. However, TRF is much easier to use and
administer than TIF, making it an ideal tool for smaller projects (less
than 25,000 sf). Furthermore, TRF is much more flexible than TIF in
its application and may provide opportunities to complete community
development projects that do not fall within the parameters of TIF.
The EDA will also hold a public hearing on the TRF policy prior to
the City Council meeting and is anticipated to adopt the policy at
that time. The HRA will also hold a public hearing on the policy at its
April 24, 2000 meeting.
Action Requested
State law requires that a public hearing be held on the Tax Rebate
Financing policy before it is adopted. Staff recommends that the City
Council consider any input provided at the public hearing and then
adopt the TRF policies.
Attachments
· Tax Rebate Financing Policy
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
Economic Development Tax Rebate Financing
Policy & Application
Adopted:__, 2000
DRAFT #2
Table of Contents
II.
III.
IV.
V.
VI.
VIi.
Policy Purpose
Difference Between TRF & TIF
Objectives of Tax Rebate Financing
Policies for the Use of TRF
Project Qualifications
Subsidy Agreement & Reporting Requirements
Application Process
City of Elk River 6
Application to Other Political Subdivisions 6
Application
Applicant Information
Project Information
Public Purpose
Sources & Uses
Checklist & Additional Information
7
8
8
9
10
Application Review Worksheet
Exhibits
A
B
C
D
E
Corporation/Partnership Description
Project Description
Shareholders
But-for Analysis
Prospective Lessees
Sample But-For Analysis
3
3
3
4
5
6
6
7
11
13
15
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 Rebate Financing (TRF), otherwise referred to
as Tax Abatement, 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 rebate assistance. The fundamental purpose of tax rebate financing in
Elk River is to encourage desirable development or redevelopment that
would not otherwise occur but for the assistance provided through TRF.
The City of Elk River is granted the power to utilize TRF by the
Minnesota Tax Abatement Act, as amended. It is the intent of the City to
provide the minimum amount of TRF, 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 TRF to the project.
Approval or denial of one project is not intended to set precedent for
approval or denial of another project.
II. DIFFERENCE BETWEEN TRF & TIF
The primary difference between Tax Rebate Financing (TRF) and Tax
Increment Financing (TIF) is way in which the dollars are awarded to the
project. When TIF is awarded to a project by the city, the other political
subdivisions (the school district and the county) are required to contribute
their portion of the increased taxes to the project. Conversely, when TRF
is requested, each political subdivision has the option of granting its
portion of the increased taxes to the project. Subsequently, the dollars
generated for the project with TRF are generally less than the dollars
generated with TIF.
III. OBJECTIVES OF TAX REBATE FINANCING
As a matter of adopted policy, the City will consider using TRF 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 enhance and diversify the city of Elk River's economic base.
· To encourage additional unsubsidized private development in the
area, either directly or indirectly through "spin off' development.
3
lYe
To facilitate the development process and to achieve development
on sites which would not be developed without TRF 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 design, energy conservation, and
decreasing capital and/or operating costs of local government.
POLICIES FOR THE USE OF TRF
TRF assistance will be provided to the developer upon receipt of
taxes 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.
bo
Any developer receiving TRF assistance shall provide a
minimum of twenty percent (20%) cash equity investment in the
project.
c. TRF will not be used in circumstances where land and/or
property price is in excess of fair market value.
do
Developer shall be able to demonstrate a market demand for a
proposed project. TRF shall not be used to support purely
speculative projects.
eo
TRF will not be utilized in cases where it would create an unfair
and significant competitive financial advantage over other
projects in the area.
TRF shall not be used for projects that would place
extraordinary demands on city services or for projects that
would generate significant environmental impacts.
go
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.
4
ho
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.
V. PROJECT QUALIFICATIONS
All TRF projects considered by the City of Elk River must meet each of
the following requirements:
a. The project shall meet at least one of the objectives set forth in
section IV of this document.
bo
The use of TRF will be limited to:
Industrial development, expansion, redevelopment, or
rehabilitation; or
· Commercial redevelopment or rehabilitation; or
· Office or research facilities that satisfy Business Park
zoning requirements;
· Residential development and redevelopment may be
eligible for TRF under a separate set of policies and only
with the recommendation of the HRA.
· New commercial or retail development is not eligible for
TRF.
c. The developer shall demonstrate that the project is not
financially feasible but-for the use of TRF.
do
The project shall comply with all provisions set forth in the
state's Tax Abatement Law, statues 469.1812 to 469.1815, 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:
· Job creation.
· Increase of tax base.
· Enhancement or diversification of the city's economic base.
· Development or redevelopment that will spur additional
private investment in the area.
5
Fulfillment of defined city objectives, such as those
identified in the Strategic Plan for Economic Development
or the city's Comprehensive Plan, among others.
Removal of blight or the rehabilitation of a high profile or
priority site.
VI. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS
All developers/businesses receiving Tax Rebate 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
below.
All developers/businesses receiving TRF 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 TRF 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 borrower shall achieve at least
one of the objectives 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 to receive any loans or grants from public
entities for a period of five years.
6
VII. APPLICATION PROCESS FOR TRF
A. CITY OF ELK RIVER
1. Applicant submits the completed application along with all
application fees.
2. City staff reviews the application and completes the Application
Review Worksheet.
3. Results of the Worksheet are submitted to the appropriate
governing authorities for preliminary approval of the proposal.
If preliminary approval is granted, all necessary notices,
resolutions and certificates ark prepared by City staff and]or
consultants.
Public hearing(s) on the proposed project are held.
The EDA or HRA recommends approval or denial of the proposal to
the City Council.
7. The City Council grants final approval or denial of the proposal.
B. APPLICATIONS TO OTHER POLITICAL SUBDMSIONS
It is recommended that applicants intending to seek TRF from
Sherburne County and]or School District 728 make their applications
to those bodies concurrent with their application to the City of Elk
River. For more information on applying for TRF through Sherburne
County and]or School District 728, contact:
Alex Wikstrom
Sherburne County Budget / Economic Development Coordinator
763-241-2700
Dr. David Flannary
Superintendent - School District 728
763-241-3400
7
VII. APPLICATION FOR TAX REBATE FINANCING
A. APPLICANT INFORMATION
Name of Corporation/Partnership.
Address
Primary Contact
Address
Phone Fax Email
On a separate sheet, please provide tt~e 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
Address
Fax Email
Phone
Architect Name
Address
Fax Email
Phone
Fax
Email
B. PROJECT INFORMATION
1. The project will be:
Industrial: New Construction __ Expansion Redevelopment / Rehab.
__Office/research facility that conforms to business park standards
Commercial Redevelopment/Rehabilitation
Other
2. In addition to the City of Elk River, applicant is requesting TRF funds
from: __ Sherburne County __ School District 728
3. 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.
4. Project Address '
· Include Legal Description and PID Number. Attach as Exhibit F
5. Site Plan Attached: __ Yes No
6. Total Amount of TRF Requested: $. over
City Portion of TRF: Annual $
County Portion of TRF: Annual $
ISD 728 Portion of TRF: Annual $
years.
Total $.
Total $
Total $.
o
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
PUBLIC PURPOSE
It is the policy of the City of Elk River that the use of Tax Rebate
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 and/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.
__Rehabilitation of a high profile or priority site.
Other:
9
D. SOURCES & USES
SOURCES
Bank Loan
Other Private Funds
Equity
Fed Grant/Loan
State Grant/Loan
EDA Micro Loan
Tax Rebate Financing
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
10
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 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
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
11
TAX REBATE FINANCING PROPOSAL REVIEW WORKSHEET
I TO BE COMPLETED BY CITY STAFF I
1. The project meets the criteria set forth in Section V of the Tax
Rebate Financing policy.
a) Meets at least one of the objectives in Section III.
b) Demonstrates need for TRF with the but-for analysis.
c) Consistent with all city plans and ordinances.
d) 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:
25+ 5
20+ 4
15+ 3
10+ 2
10 1
4. Ratio of TRF to new jobs created:
$ TRF request
Number of new jobs created
$ of TRF per new job created
5. Wage Level of jobs created:
Average hourly wage
of jobs created:
6. Project size:
The project will result in the construction
of square feet
Points:
$8,000 or less
$10,000 or less
$12,000 or less
$15,000 or less
Over $15,000
5
4
3
2
1
Points:
Over $21/hour 5
$18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under $10/hour i
Points:
40,000+ 5
30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less I
12
7. Type of Project:
__ 100% Owner Occupied
__ Mix Owner Occupied & Investment
__ Investment Property
Points:
5
4
3
8. Use:
__ Industrial or Business Park Project
Commercial Rehabilitation/Redevelopment
Points:
5
4
9. The project will pay annual
property taxes in the first fully
assessed year of $
Points:
35,000+ 5
25,000+ 4
15,000+ 3
10,000+ 2
Under $10,000 I
10. Likelihood that the project will result in
unsubsidized, spin-off development.
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 TRF.
__ 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
13
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
EXHIBIT F
Legal Description and PID Number
14
XI. SAMPLE BUT-FOR ANALYSIS
Mortgage
Equity
Tax Rebate Financing
TOTAL SOURCES
Land
Site Work
Soil Correction
Demolition
Relocation
Subtotal Land Costs
Construction
Finish Manufacturing
Subtotal Construction Costs
Soft Costs
Taxes
Finance Fees
Project Manager
Developer Fee
Contingency
Subtotal Soft Costs
TOTAL USES
Rent-Space 1
Rent-Space 2
Rent-Space 3
Other
Mortgage
Net Income
Total Return on Equity
WITH NO
TAX REBATE FINANCING
WITH
TAX REBATE FINANCING
SOURCES AND USES SOURCES AND USES
SOURCES SOURCES
9,600,000 8,667,000
2,400,000 2,400,00
0 933,000
12,000,000 12,000,000
USES USES
1,500,000
300,000
468,000
100,000
65,000
2,433,0OO
6,750,000
250,000
7,000,000
350,000
35,000
850,000
542,000
540,0001
250,000
2,567,000!
1,500,000
300,000
468,000
100,000
65,000
2,433,000
6,750,000
250,000
7,000,000
350,000
35,000
850,000
542,000
540,000
250,000
2,567,000
12,000,000 12,000,000
Income Statement Income Statement
Sq. Ft. Per Sq. Ft.
100,000 $8.00 800,000
25,000 $8.50 212,500
25,000 $9.00 225,000
0 $0.00 0
1,237,500
20 Term
9.00% Interest
9,600,000 Principal
1,051,646
Sq. Ft. Per Sq. Ft.
100,000 $8.00 800,000
25,000 $8.50 212,500
25,000 $9.00 225,000
0 $0.00 0
1,237,500
20 Term
9.00% Interest
8,667,000 Principal
949,439
288,061
185,854
7.74% 12.00%
15