3. EDSR 12-21-2015
Request for Action
To Item Number
Economic Development Authority 3.
Agenda Section Meeting Date Prepared by
Workshop SessionDecember 21, 2015Amanda Othoudt, EDD
Item Description Reviewed by
TIF/Property Tax Abatement Presentation Cal Portner, City Administrator
Reviewed by
Action Requested
Hear presentation by Springsted and staff on Tax Increment Financing and Property Tax Abatement.
Background/Discussion
Staff is working on several projects that are proposed to start construction in 2016. Some, but not all the
sites proposing to be developed are encumbered by significant site challenges.
Our Financial Advisor, Mikaela Huot, from Springsted will present information and identify
developments in other cities that utilized TIF or Abatement for projects encumbered by significant site
challenges. We will then identify and discuss local developments such as the Joplin property where there
developer will encounter a substantial cost to relocate existing utilities and potential development sites
near Natures Edge Business Center Second addition that are encumbered by natural gas pipelines and
wetlands.
With the recent projects currently being developed in Natures Edge Business Center II, staff has getting a
lot of requests from developers to utilize these specific tools. Both Mikaela and staff will highlight the
“need” versus the “convenience” of applying for Property Tax Abatement or TIF.
Financial Impact
N/A
Attachments
Springsted Presentation
Joplin Property Exhibit A
Natures Edge Business Center Aerial
Property Tax Abatement Policy and Application
Tax Increment Financing Policy and Application
City of Elk River
EDA Workshop
December 21, 2015
Mikaela Huot
PRESENTERS:
Vice President
Discussion
•Tax increment and tax abatement
•What is tax increment financing?
•Financing options
•Ways to reduce City risk with participation
•But-for / needs analysis
•What is tax abatement?
2
Tax Increment and Tax Abatement Generally
•Frequently used tools for development
•Different set of rules apply to each
•Tax Increment usually gives control over more revenues
•Tax Abatement is often less restrictive
3
Commonalities
•Locally controlled resources
•Capture taxes and redistribute them to support
development efforts
•Debt issued is not subject to general debt limit
•General obligation backing is permitted
•Use requires certain process steps be followed,
including public hearing(s)
•Business subsidy provisions apply
4
Differences
•Locally controlled resources
–Tax Increment: 100% by initiating entity
–Tax Abatement: City, school, county can each approve/deny
•Capture taxes and redistribute them to support
development efforts
–Tax Increment: 100% from new development value
–Tax Abatement: From old and/or new development value
5
Differences
cont.
•Administration
–Tax increment -Counties provide settlements semi-annually
to Cities with their property tax payments
–Tax abatement -Cities collect revenues through annual levy
•Reporting
–Tax increment –Must submit annual TIF Reports to OSA
–Tax abatement -No financial reporting requirements (yet)
6
What is Tax Increment Financing (TIF)?
•Financing tool used by cities for infrastructure and
other improvements
•A method of capturing tax base growth resulting from
new development
•Captures new local taxes (increment) to pay for public
improvements related to development
•Fixed term for capture, then new development added
to tax base
7
Tax Increment Financing (TIF)
8
Tax Increment Financing (TIF)
•Cities Use TIF to:
–Stimulate development where it would otherwise not occur
(“but for” test)
–Encourage development of uses that would otherwise not
occur, such as low income housing
–Enhance tax base
–Facilitate infrastructure improvements
–Coordinate new developments with existing plans
9
Tax Increment Financing (TIF)
Eligible Costs
•Public Improvements
•Land Acquisition
•Soil Correction-Site Grading
•Site Preparation/Demolition
•Relocation
•Cost of Qualifying Housing
•Financing Fees/Capitalized Interest
•Administrative Costs
10
Tax Increment Financing (TIF)
Public Improvement Costs Allowed
•Streets and Roads
•Utilities
•Bridges and Interchanges
•Parking
•Sidewalks and walkways
•Soft costs related to any of the above
11
Tax Increment Financing (TIF)
Public Improvement Costs Not Allowed
•Public Buildings such as a City Center, Public Safety,
Public Works buildings
•Culture and Recreation such as parks, community
centers, golf courses, etc.
•Administration beyond 10% of TIF collections
12
Tax Increment Financing (TIF)
Common Methods for Financing Costs
•G.O. Tax Increment Bonds
–Can be issued without a referendum if tax increment
contributes at least 20% of debt service costs
•Pay-as-you-go Notes
–Project financed upfront by developer
–Developer is reimbursed over time
•Revenue Bonds
–For seasoned development with a “coverage” factor and/or
guaranteed
13
Public Purpose Benefits (Policy)
•Increased private investment (consequently market value)
through:
–Increased employment
–Added housing units (Affordable or Market Rate)
–Attraction of visitors who contribute to the local economy
–Increased sales volume
–Elimination of negative or blighting influences effecting
surrounding property (Blight Curve)
–Maximize land use
–Addition of infrastructure (public improvements)
14
Determine role of City to encourage
economic development?
•Simply grant the permit and zoning allowance
–Lowest risk
•Reimburse the prospect as benefits are completed
–Low risk
•Be the lender
–Medium risk
•Be the borrower
–Higher risk
•Be the developer
–Highest risk
•It helps to understand real estate development when choosing
the role you choose to take.
15
Ways to Reduce City’s Risk with
Participation
•Value guarantee: developer agrees to certain value of
development prior to commencing
•Shortfall payment: increment collected is less than
debt service, developer pays difference
•Phased development: installation of improvements
and financing of costs
•Minimum coverage requirements
16
But-for / Needs Analysis
•Development would not occur ‘but-for’ the use of tax
increment financing
•Determine the need for and amount of public
assistance
•Financing of public improvements that could not be
supported by developer alone without assistance
17
But-for / Needs Analysis
•How do we make the “but-for” determination?
–Review pro forma of development with and without
assistance to determine potential return to Developer
–Use the level of return without assistance as a measure of
project’s feasibility
–If project is not feasible without assistance it is not likely to
occur
–Use the level of return with assistance as a measure of
the amount of subsidy needed
18
Types of TIF Districts
Determines Timeframe, Uses of TIF and Ongoing
Requirements
•Redevelopment
•Renewal and Renovation
•Economic Development
•Housing
•Soils Condition
•Other
–Hazardous Substance Sub-district
19
Statutory Findings to Approve TIF District
•That the TIF Plan will afford maximum opportunity,
consistent with the sound needs of the City as a
whole, for development by private enterprise
•That the TIF Plan conforms to general plans for
development of the City as a whole
•That the project will qualify as a TIF District
–Specific criteria for each type of district
20
Statutory Findings to Approve TIF District
•That the proposed development, in the opinion
of the City, would not reasonably be expected
to occur solely through private investment
within the reasonably foreseeable future
–The but/for test:
•The proposed development would not occur but/for the
use of tax increment financing
21
Statutory Findings to Approve TIF District
•That the increased market value that could
reasonably be expected to occur withoutthe
use of TIF would be less than the increase in
the market value estimated to result from the
proposed development after subtracting the
total subsidy provided
22
Tax Abatement Basics
•Defined in Minnesota Statutes 469.1812 to 469.1815
(as amended)
•NOT an actual abatement of taxes
•Permits levy of taxes for application toward
development purposes
•Adopted by resolution at a noticed meeting (does not
require property owner consent)
•Abatement resolution indicates terms: amount, length,
public benefit, etc.
23
Tax Abatement Eligible Costs
•Improvements to private property
•Finance or provide public infrastructure
•Acquire or construct public facilities
•Phase in property tax increase/equalization of
property tax revenue
24
Tax Abatement Eligible Costs
•If bonds are issued, eligible costs only include -
–public improvements that benefit the property,
–acquisition and conveyance of land or other property,
–reimbursements to the property owner for the cost of
improvements made to their property, or
–costs of issuance
25
Tax Abatement Constraints
•No back-to-back abatements.
Eight years must pass before a new abatement
may begin on the same parcel.
•Cannot be applied within TIF districts, but can be
used after TIF decertification
•Maximum duration of 15 years if three participants
(City, County & SD), 20 years if two or fewer
26
Tax Abatement Constraints
cont.
•If Tax Abatement Bonds issued -principal may not
exceed the estimated sum of total abatements
•Maximum aggregate annual abatement for any taxing
entity is the greater of:
–10% of the net tax capacity or $200,000
•Maximum parcel abatement is subdivision’s tax rate
times net tax capacity of parcel
27
Tax Abatement –Things to Consider
•Taxing entities often adopt Tax Abatement Policies that
may further constrain abatement terms
•Bonding issues with public versus private improvements
•Political subdivision must add to its levy each year the
estimated abatements
•Abatements may be reviewed and modified every other
year by the governing body, unless abatement bonds
have been issued or resolution indicates no modification
permitted
28
Tax Abatement –Project Examples
•Infrastructure Improvements
–New Interchange
–Highway Improvements
–New Frontage Road
–Public and private improvements for Development
•Construction of Community Center/Senior Center
•Construction of Recreational Facility
29
Questions
3030
7,200 S.F.
RETAIL BLDG.
CAR
W
A
S
H
UHAUL
GAS
"C"
STORE
POND
POND
1
1
1
3
4
4
3,000 S.F.
BLDG.
5
ADJOINED
ENTRY
ACCESS
NEW PYLON
POND
MONUMENT SIGN SITE
SIGN
RET.WALL
RET.WALL
SHORTENED
ISLAND
SIGN
LINES
REMOVE O.H.
2
12
3
14
20 11
11
16
19
'
SITE NOTES:
REMOVE THREE POWER
POLES AND HAVE POWER GO
UNDERGROUND.
1
TOP OF SIGN "C" STORE
MIDDLE OF SIGN FOR
DEVELOPMENT.
2
FIBER OPTICS TO REMAIN IN
PLACE.
3
APPROXIMATE LOCATION OF
EXISTING WATER MAIN.
4
MODIFY EXISTING WATER
MAIN AND POWER LINE
EASMENT.
5
REQUIRED PARKING STALLS
10,200/200= 51
PROVIDED PARKING STALLS
= 87
ADA PARKING STALLS
= 4
PARKING REQUIREMENTS:
TOTAL BLDG AREA = 10,200
S.F.
SITE PLAN
ELK RIVER, MN
DECEMBER 10 2015 / SCALE = 1:60
N
Tax Abatement
Policy & Application
Amended: February 2014
Amended: May 2006
Amended: August 2002
Adopted: April 10, 2000
City of Elk River
Economic Development Division
13065 Orono Parkway
Elk River, MN 55330
763.635.1040
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 2 of 15
Table of Contents
I. Policy Purpose 3
II. Difference Between Tax Abatement &
Tax Increment Financing 3
III. Objectives of Tax Abatement 3
IV. Policies for the Use of Tax Abatement 4
V. Project Qualifications 5
VI. Subsidy Agreement & Reporting Requirements 6
VII. Application Process for Tax Abatement 7
City of Elk River 7
Application to Other Jurisdictions 7
VIII. Application for Tax Abatement 8
Applicant Information 8
Project Information 9
Public Purpose 9
Sources & Uses 10
Additional Documentation and Checklist 11
IX. Sample But-For Analysis 13
X. Application Review Worksheet 14
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 3 of 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 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 Abatement assistance. The fundamental
purpose of providing Tax Abatement in Elk River is to encourage desirable development
or redevelopment that would not otherwise occur but-for the assistance provided through
the Tax Abatement.
The City of Elk River is granted the power to utilize Tax Abatement by Minnesota
Statutes, Sections 469.1812 to 469.1815 (the “Minnesota Tax Abatement Act”), as
amended. It is the intent of the City to provide the minimum amount of Tax
Abatement, as well as other incentives, at the shortest term required for the project to
proceed. Preference is given to projects in which the total amount of Tax Abatement
request includes participation from the county. 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 Tax Abatement 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 TAX ABATEMENT AND
TAX INCREMENT FINANCING
The primary difference between Tax Abatement and Tax Increment Financing (TIF) is
the way in which the dollars are awarded to the project. When TIF is awarded to a
project by the city, the other taxing jurisdictions (the school district and the county) are
required to contribute their portion of the increased taxes to the project. Conversely,
when Tax Abatement 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 Tax Abatement are generally less than the dollars generated with TIF.
III. OBJECTIVES OF TAX ABATEMENT
As a matter of adopted policy, the City will consider using Tax Abatement 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 enhance and diversify the City of Elk River’s economic base.
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 4 of 15
• 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 Tax Abatement 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.
• To significantly increase the City of Elk River’s tax base.
IV. POLICIES FOR THE USE OF TAX ABATEMENT
a. Tax Abatement 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.
b. Any developer receiving Tax Abatement assistance shall provide a minimum
of ten percent (10%) owner cash equity investment in the project.
c. Tax Abatement will not be used in circumstances where land and/or
property price is in excess of fair market value.
d. Developer shall be able to demonstrate a market demand for a proposed
project.
e. Tax Abatement will not be utilized in cases where it would create an unfair
and significant competitive financial advantage over other projects in the
area.
f. Tax Abatement 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 Abatement Policy & Application
Amended February 2014
Page 5 of 15
g. 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, and etcetera.
h. 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.
i. For the purposes of underwriting the proposal, the developer shall provide
any requested market, financial, environmental, construction plans or other
data requested by the City or its consultants.
j. Tax Abatement proposals shall not be used to support speculative office
projects. Speculative projects are defined as those projects which have pre-
leasing agreements or letters of intent for less than 50% of the available
space.
In addition, leasable office projects must meet the following guidelines:
1. Evidence of the 50% occupancy must be reported to the Director of
Economic Development six months following an issued Certificate of
Occupancy.
2. Of the occupants certified at the six month period, 50% of the jobs
must be considered “new” jobs to the City of Elk River, meaning jobs
not located in the City at any time prior to occupying space in the
project.
3. Business retention jobs will be considered on a one-for-one match to
job creation only in cases where job loss is specific and demonstrable in
accordance with the Minnesota Business Subsidy Law. Evidence may
include documentation that the company will have to close involuntarily,
or the company has received an attractive offer to move to another state
or community.
k. All Tax Abatement proposals shall optimize the private development
potential of a site.
V. PROJECT QUALIFICATIONS
All Tax Abatement 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 III of
this document.
b. The use of Tax Abatement will be limited to:
• Industrial development, expansion, redevelopment, or
rehabilitation; or
• Commercial redevelopment or rehabilitation; or
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 6 of 15
• Research and development facilities that satisfy Business Park
zoning requirements; or
• Office facilities with a minimum new construction of 25,000
square feet; or
• Residential development and redevelopment may be eligible for
Tax Abatement under a separate set of policies and only with the
recommendation of the HRA.
c. The developer shall demonstrate that the project is not financially feasible
but-for the use of Tax Abatement. Evaluation of the project’s financial
feasibility without Tax Abatement shall be provided by the City’s financial
advisor on all requests of over $25,000 total public investment.
d. The City will consider the use of Tax Abatement assistance for projects that
may not meet the but-for and job creation criteria, but rather would be
considered as a “location incentive”. These projects may result in other
public benefits such as a significant tax base increase, the creation of higher
paying jobs (at least twice the minimum hourly rate stated in the City’s
Business Subsidy Policy), and is likely to assist in the marketing and attraction
of additional desired developments.
e. The project shall comply with all provisions set forth in the Minnesota Tax
Abatement Law, Minnesota Statutes 469.1812 to 469.1815, as amended.
f. The project must be consistent with the City’s Comprehensive Plan, Land
Use Plan, and Zoning Ordinances.
g. The project shall serve at least two of the following public purposes:
• Job creation or job retention.
• Significantly increase the tax base.
• Enhancement or diversification of the city’s economic base.
• Development or redevelopment that will spur additional private
investment in the area.
• Fulfillment of defined city objectives, such as those identified in the
Economic Development Strategic Plan 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 Abatement assistance from the City of Elk
River shall be subject to the provisions and requirements set forth by the City’s
Business Subsidy Policy as amended, and Minnesota Statutes Sections 116J.993 to
116J.995 (the “Minnesota Business Subsidy Law”).
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 7 of 15
VII. APPLICATION PROCESS FOR TAX ABATEMENT
A. CITY OF ELK RIVER
1. Applicant submits the completed application along with a $5,000
application deposit, to be refunded for any portions not utilized if the
tax abatement project does not proceed. The application deposit will
be used toward the cost of services provided in the evaluation of
financial feasibility and preparation of legal documents and
agreements. 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 Application
Review Worksheet.
3. Results of the Worksheet 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, all necessary notices, resolutions
and agreements are prepared by City staff and/or consultants.
5. Public hearing(s) on the proposed request are held.
6. The City Council grants final approval or denial of the request.
B. APPLICATIONS TO OTHER JURISDICTIONS
It is recommended that applicants intending to seek Tax Abatement 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 Tax Abatement through Sherburne
County and/or School District 728, contact:
Sherburne County Administrator
763-241-2701
School District 728 Superintendent
763-241-3400
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 8 of 15
VIII. APPLICATION FOR TAX ABATEMENT
A. APPLICANT INFORMATION
Name of Corporation/Partnership ___
Address ___________________________________________________________
Primary Contact _____________________________________________________
Address____________________________________________________________
Phone______________ Fax________________ Email______________________
Brief description of the corporation/partnership’s business, including history, principal
product or service:
Brief description of the proposed project:
Attorney Name ________________________________________________________
Address______________________________________________________________
Phone _________________ Fax________________ Email_____________________
Accountant Name ______
Address
Phone Fax Email ______
Contractor Name ______
Address
Phone Fax Email _______
Engineer Name _______
Address
Phone Fax Email ______
Architect Name ______
Address
Phone Fax Email ______
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 9 of 15
B. PROJECT INFORMATION
1. The project will be:
____Industrial: ____New Construction ____ Expansion Redevelopment / Rehab.
Office/research facility that conforms to Business Park zoning standards
____Commercial Redevelopment/Rehabilitation
____Other
2. In addition to the City of Elk River, applicant is requesting Tax Abatement from:
__ Sherburne County _ School District 728
3. The project will be: ___Owner Occupied ____Leased Space
4. Project Address
Parcel Identification Number(s)
5. Site Plan and Construction Plans Attached: ____ Yes ____ No
6. Total Amount of Tax Abatement Requested: $ over years. City Portion: Annual $ Total $ County Portion: Annual $ Total $ ISD 728 Portion: Annual $ Total $
7. Current Real Estate Taxes on Project Site: $
Estimated Real Estate Taxes upon Completion: Phase I $ Phase II $
8. 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 Abatement should result
in a benefit to the public. Please indicate how this project will serve a public
purpose.
___Job Creation/Retention Number of existing jobs
Number of jobs created by project
Average hourly wage of jobs created/retained
___New industrial development which will result in additional private
investment in the area.
_Enhancement 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.
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 10 of 15
D. SOURCES & USES
SOURCES NAME AMOUNT
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 $
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 11 of 15
E. ADDITIONAL DOCUMENTATION AND CHECKLIST
Applicants will also be required to provide the following documentation:
A) Written business plan, including a description of the business,
ownership/management, date established, products and services, and
future plans
B) Financial Statements for Past Two Years
______Profit & Loss Statement
Balance Sheet
C) Current Financial Statements
______Profit & Loss Statement to Date
______Balance Sheet to Date
D) Two Year Financial Projections
E) Personal Financial Statements of all Major Shareholders
Profit & Loss
______Current Tax Return
F) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
G) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in the Project
H) Application deposit of $5,000, with any unused portion to be refunded
if project does not proceed
I) Construction Plans and Itemized Project Construction Statement
J) Attach the following documentation as Exhibits
Exhibit A – Corporation/Partnership Description
Exhibit B – Description of Project
Exhibit C – List of Shareholders/Partners
Exhibit D – But-For Analysis
Exhibit E – List of Prospective Lessees
Exhibit F – Legal Description and PID Number(s)
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 12 of 15
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.
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, verify financial and other information, and share this
information with other political subdivisions as needed. 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
IX. 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 2,400,000
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
City of Elk River Tax Abatement Policy & Application
Amended February 2014
Page 13 of 15
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%
X. TAX ABATEMENT APPLICATION REVIEW WORKSHEET
1. The project meets the criteria set forth in Section V of the Tax Abatement policy.
a) Meets at least one of the objectives in Section III.
b) Demonstrates need for Tax Abatement with the but-for analysis.
c) Consistent with all city plans and ordinances.
d) Serves at least two public purposes as defined in Section V (g).
2. Ratio of Private to All Public Investment in Project: Points: _____
$ Private Investment 5:1 5
$ Public Investment 4:1 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 1
3. Job Creation in the City of Elk River: Points: _____
Number of new jobs as a result of the project. 25+ 5
Number of existing/retained jobs 20+ 4
Total 15+ 3
10+ 2
Less than 10 1
4. Ratio of Public Investment to Job Creation: Points: _____
$ Public Investment $8,000 or less 5
Number of new jobs created/retained $10,000 or less 4
$ of Public Investment per new job $12,000 or less 3
$15,000 or less 2
Over $15,000 1
5. Wage Level of new jobs created/retained Points: _____
Minimum hourly wage Over $21/ hour 5
of jobs created/retained: $18-21 / hour 4
$14-17 / hour 3
TO BE COMPLETED BY CITY STAFF
City of Elk River Tax Abatement Policy & Application
Amended February 2014
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$10-13 / hour 2
Under $10 / hour 1
6. Project size: Points: _____
The project will result in the construction 40,000+ 5
of square feet 30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less 1
7. Market Value/Tax Base Generation: Points: _____
The project will result in a per square foot Industrial Commercial
estimated market value (land and building) $80/sf+ $110/sf+ 5
of $70/sf+ $100/sf+ 4
$60/sf+ $90/sf+ 3
$50/sf+ $80/sf+ 2
$40/sf+ $70/sf+ 1
8. Type of Project: Points: _____
100% Owner Occupied 5
Mix Owner Occupied & Investment 4
Investment Property 3
9. Use: Points: _____
Industrial or Business Park Project 5
Commercial Rehabilitation/Redevelopment 4
10. Likelihood that the project will result in Points: _____
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
11. Bonus Points Bonus Points:
Sub - Total Points: _______ of a possible 45 points.
City of Elk River Tax Abatement Policy & Application
Amended February 2014
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The project will be 100% Pay-as-you-go Tax Abatement 3 points
The project contributes to the goals of Energy City. 2 points
• Product promotes sensible use of energy, OR
• Project utilizes significant energy efficient design &/or
materials in construction.
Total Points:
Overall project desirability: High 45-38 points
Moderate 37-29 points
Low 28-20 points
Not Eligible 19-0 points
Tax Increment Financing
Policy & Application
Amended: February 2014
Amended: May 2006
Amended: March 2000
Adopted: August 1991
City of Elk River
Economic Development Division
13065 Orono Parkway
Elk River, MN 55330
763.635.1040
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
Page 2 of 15
Table of Contents
I. Policy Purpose 3
II. Objectives of Tax Increment Financing 3
III. City of Elk River Policies for the Use of TIF 4
IV. Project Qualifications 5
V. Subsidy Agreement & Reporting Requirements 6
VI. Application Process for TIF 6
VII. Application for TIF 7
Applicant Information 7
Project Information 8
Public Purpose 8
Sources & Uses 9
Checklist & Additional Information 10
VIII. Sample But-For Analysis 11
IX. Application Review Worksheet:
Commercial-Industrial Projects 12
X. Application Review Worksheet:
Housing Projects 14
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
Page 3 of 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 Increment Financing (TIF) for private development above and beyond the
requirements and limitations set forth by State Law. This policy shall be used as a guide
in the processing and review of applications requesting tax increment assistance. The
fundamental purpose of tax increment financing in Elk River is to encourage desirable
development or redevelopment that would not otherwise occur but for the assistance
provided through TIF.
The City of Elk River is granted the power to utilize TIF by the Minnesota Tax
Increment Financing Act, as amended. It is the intent of the City to provide the
minimum amount of TIF, as well as other incentives, at the shortest term required for
the project to proceed. The City reserves the right to approve or reject projects on a
case by case basis, taking into consideration established policies, project criteria, and
demand on city services in relation to the potential benefits from the project. Meeting
policy criteria does not guarantee the award of TIF to the project. Approval or denial of
one project is not intended to set precedent for approval or denial of another project.
II. OBJECTIVES OF TAX INCREMENT FINANCING
As a matter of adopted policy, the City will consider using TIF to assist private
development projects to achieve one or more of the following objectives:
To retain local jobs and/or increase the number and diversity of jobs that offer
stable employment and/or attractive wages and benefits as defined in the City’s
Business Subsidy Policy.
To encourage additional unsubsidized private development in the area, either
directly or indirectly through “spin off” development.
To facilitate the development process and to achieve development on sites
which would not be developed without TIF assistance.
To remove blight and/or encourage redevelopment of commercial and
industrial areas in the city that result in high quality redevelopment and private
reinvestment.
To offset increased costs of redevelopment (i.e. contaminated site clean up)
over and above the costs normally incurred in development.
To create opportunities for affordable housing.
To contribute to the implementation of other public policies, as adopted by the
city from time to time, such as the promotion of quality urban or architectural
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
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design, energy conservation, and decreasing capital and/or operating costs of
local government.
To enhance and diversify the City of Elk River’s economic base.
To significantly increase the City of Elk River’s tax base.
III. POLICIES FOR THE USE OF TIF
a. When possible, TIF shall be used to finance public improvements associated
with the project. The priority for the use of TIF funds is:
1. Public improvements, legal, administrative, and engineering costs.
2. Site preparation, site improvement, land purchase, and demolition.
3. Capitalized interest, bonding costs.
b. It is the City’s policy to establish the following types of TIF districts:
1. Economic Development Districts
It is desired that the project result in a minimum creation of
one full time job per $25,000 of TIF, or
Result in a significant increase in the tax base.
2. Redevelopment Districts
The market value of a redeveloped site shall increase by a
minimum of 50% of the current market value.
3. Housing Districts
May be considered on a case-by-case basis.
Other types of TIF districts, along with specific criteria, may be considered
on a case-by-case basis.
c. TIF assistance will be provided to the developer upon receipt of the
increment by the City, otherwise referred to as the pay-as-you-go method.
Requests for up front financing will be considered on a case-by-case basis.
d. A maximum of ten percent (10%) of any tax increment received from the
district may be retained by the City to reimburse administrative costs.
e. Any developer receiving TIF assistance shall provide a minimum of ten
percent (10%) owner cash equity investment in the project.
f. TIF will not be used in circumstances where land and/or property price is in
excess of fair market value.
g. Developer shall be able to demonstrate a market demand for a proposed
project. TIF shall not be used to support purely speculative projects.
h. TIF will not be utilized in cases where it would create an unfair and
significant competitive financial advantage over other projects in the area.
City of Elk River Tax Increment Financing Policy & Application
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i. TIF shall not be used for projects that would place extraordinary demands
on city services or for projects that would generate significant environmental
impacts.
j. The developer must provide adequate financial guarantees to ensure
completion of the project, including, but not limited to: minimum assessment
agreements, letters of credit, personal guaranties, etc.
k. The developer shall adequately demonstrate, to the City’s sole satisfaction, an
ability to complete the proposed project based on past development
experience, general reputation, and credit history, among other factors,
including the size and scope of the proposed project.
l. For the purposes of underwriting the proposal, the developer shall provide
any requested market, financial, environmental, or other data requested by
the City or its consultants.
m. All TIF proposals shall optimize the private development potential of a site.
IV. PROJECT QUALIFICATIONS
All TIF projects considered by the City of Elk River must meet each of the following
requirements:
a. To be eligible for TIF, a project shall result in:
i. The new construction of a minimum of 25,000 square feet;
ii. A minimum increase of $37,500 per year in property taxes, excluding
the state portion; and
iii. Have a market value of at least $1,250,000 upon completion.
b. The project shall meet at least one of the objectives set forth in Section II
and satisfy all the provisions set forth in Section III of this document.
c. The developer shall demonstrate that the project is not financially feasible
but-for the use of TIF.
d. The project shall comply with all provisions set forth in the Tax Increment
Financing Act, Minnesota Statutes 469.124 to 469.134, inclusive, as amended,
and Statutes 469.174 to 469.1794, inclusive, as amended.
e. The project must be consistent with the City’s Comprehensive Plan, Land
Use Plan, and Zoning Ordinances.
f. The project shall serve at least two of the following public purposes:
Creation of jobs with livable wages and benefits.
Significantly increase the City’s tax base.
Enhancement or diversification of the city’s economic base.
Industrial development that will spur additional private investment in
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
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the area.
Fulfillment of defined city objectives such as those identified in the
City’s Comprehensive Plan and the City’s Economic Development
Strategic Plan, among others.
Removal of blight or the rehabilitation of a high profile or priority
site.
V. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS
All developers/businesses receiving Tax Increment assistance from the City of Elk
River shall be subject to the provisions and requirements set forth by the City’s
Business Subsidy Policy as amended and Minnesota Statutes Sections 116J.993 to
116J.995 (the “Minnesota Business Subsidy Law”).
VI. APPLICATION PROCESS FOR TIF
1. Applicant submits the completed application along with a $10,000 application
deposit, to be refunded for any portions not utilized if the tax increment project
does not proceed. The application deposit will be used toward the cost of
services provided in the evaluation of financial feasibility, establishment or
modification of the TIF district, and preparation of legal documents and
agreements. An additional deposit of $10,000 will be required for projects that
require meeting statutory eminent domain and/or redevelopment substandard
tests. Projects that demand professional services in excess of the initial deposit
shall be required to reimburse the City for the additional expenses.
2. City staff reviews the application and completes the Commercial-Industrial
and/or Housing Worksheets. The Application and Commercial-Industrial
and/or Housing Worksheets are primarily designed to score the desirability of
the proposed project. Industrial, Redevelopment and Housing projects will be
evaluated on a case-by-case basis and as the projects meet the city’s desired
objectives.
3. Results of the Commercial-Industrial and/or Housing Worksheets are
submitted to the appropriate governing authorities (EDA or HRA) for
recommendation to the City Council of approval or denial of the request.
4. If preliminary approval is granted, the Tax Increment Financing Plan, along
with all necessary notices, resolutions are prepared by City staff and/or
consultants.
5. Notices are published and sent to the county and school board.
6. Public hearing(s) on the proposed request are held.
7. The City Council grants final approval or denial of the request.
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
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VII. APPLICATION FOR TAX INCREMENT FINANCING
A. APPLICANT INFORMATION
Name of Corporation/Partnership
Address
Primary Contact
Address
Phone Fax Email
Brief description of the corporation/partnership’s business, including history, principal
product or service:
Brief description of the proposed project:
Attorney Name
Address
Phone Fax Email
Accountant Name
Address
Phone Fax Email
Contractor Name
Address
Phone Fax Email
Engineer Name
Address
Phone Fax Email
Architect Name
Address
Phone Fax Email
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
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B. PROJECT INFORMATION
1. The project will be:
____Industrial Greenfield: ____New Construction ____ Expansion
____Commercial Redevelopment: ____New Construction ____ Rehabilitation
____Industrial Redevelopment: ____New Construction ____ Rehabilitation
____Other
2. The project will be: ___Owner Occupied ____Leased Space
3. Project Address
Legal Description & Parcel Identification Number(s)
4. Site Plan and Preliminary Construction Plans Attached: ____ Yes ____ No
5. Amount of Tax Increment Requested for:
Land Purchase $
Public Improvement $
Site Improvement $
6. Current Real Estate Taxes on Project Site: $
Estimated Real Estate Taxes upon Completion: Phase I $
Phase II $
7. Construction Start Date:
Construction Completion Date:
If Phased Project: Year ____ % Completed
Year ___ % Completed
C. PUBLIC PURPOSE
It is the policy of the City of Elk River that the use of Tax Increment Financing should
result in a benefit to the public. Please indicate how this project will serve a public
purpose.
___Job Creation/Retention: Number of existing jobs
Number of jobs created by project
Average hourly wage of jobs created/retained
___New industrial development, which will result in additional private
investment in the area.
___Enhancement or diversification of the city’s economic base.
___The project contributes to the fulfillment of the City’s Economic Development
Strategic Plan.
___Removal of blight or the rehabilitation of a high profile or priority site.
___Significantly increase the City’s tax base.
___Other:
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
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D. SOURCES & USES
SOURCES NAME AMOUNT
Bank Loan $
Other Private Funds $
Owner Cash Equity $
Fed Grant/Loan $
State Grant/Loan $
EDA Micro Loan $
Tax Increment $
ID Bonds $
TOTAL $
USES AMOUNT
Land Acquisition $
Site Development $
Construction $
Machinery & Equipment $
Architectural & Engineering Fees $
Legal Fees $
Interest During Construction $
Debt Service Reserve $
Contingencies $
TOTAL $
City of Elk River Tax Increment Financing Policy & Application
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Page 10 of 15
E. ADDITIONAL DOCUMENTATION AND CHECKLIST
Applicants will also be required to provide the following documentation.
A) Written business plan, including a description of the business,
ownership/management, date established, products and services, and
future plans
B) Financial Statements for Past Two Years
Profit & Loss Statement
Balance Sheet
C) Current Financial Statements
Profit & Loss Statement to Date
Balance Sheet to Date
D) Two Year Financial Projections
E) Personal Financial Statements of all Major Shareholders
Profit & Loss
Current Tax Return
F) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
G) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
H) Application deposit of $10,000, with any unused portion to be
refunded if project does not proceed.
I) Construction Plans and Itemized Project Construction Statement
J) Attach the following documentation as Exhibits
Exhibit A – Corporation/Partnership Description
Exhibit B – Description of Project
Exhibit C – List of Shareholders/Partners
Exhibit D – But-For Analysis
Exhibit E – List of Prospective Lessees
Exhibit F – Legal Description and PID Number(s)
Note: All Major shareholders will be required to sign personal guarantees if up front
financing of the project is required.
The undersigned certifies that all information provided in this application is true and correct to the best of the
undersigned’s knowledge. The undersigned authorizes the City of Elk River to che ck 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
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
Page 11 of 15
VIII. SAMPLE BUT-FOR ANALYSIS
WITH NO WITH
TAX INCREMENT TAX INCREMENT
SOURCES AND USES SOURCES AND USES
SOURCES SOURCES
Mortgage 9,600,000 8,667,000
Equity 2,400,000 2,400,00
Tax Increment Financing 0 933,000
TOTAL SOURCES 12,000,000 12,000,000
USES USES
Land 1,500,000 1,500,000
Site Work 300,000 300,000
Soil Correction 468,000 468,000
Demolition 100,000 100,000
Relocation 65,000 65,000
Subtotal Land Costs 2,433,000 2,433,000
Construction 6,750,000 6,750,000
Finish Manufacturing 250,000 250,000
Subtotal Construction Costs 7,000,000 7,000,000
Soft Costs 350,000 350,000
Taxes 35,000 35,000
Finance Fees 850,000 850,000
Project Manager 542,000 542,000
Developer Fee 540,000 540,000
Contingency 250,000 250,000
Subtotal Soft Costs 2,567,000 2,567,000
TOTAL USES 12,000,000 12,000,000
Income Statement Income Statement
Sq. Ft. Per Sq. Ft. Sq. Ft. Per Sq. Ft.
Rent-Space 1 100,000 $8.00 800,000 100,000 $8.00 800,000
Rent-Space 2 25,000 $8.50 212,500 25,000 $8.50 212,500
Rent-Space 3 25,000 $9.00 225,000 25,000 $9.00 225,000
Other 0 $0.00 0 0 $0.00 0
1,237,500 1,237,500
Mortgage 20 Term 1,051,646 20 Term 949,439
9.00% Interest 9.00% Interest
9,600,000 Principal 8,667,000 Principal
Net Income 185,854 288,061
Total Return on Equity 7.74% 12.00%
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
Page 12 of 15
IX. TAX INCREMENT FINANCING APPLICATION REVIEW
WORKSHEET – COMMERCIAL/INDUSTRIAL PROJECTS
1. The project meets the criteria set forth in Section IV of the City’s Tax Increment
Financing policy.
a) Meets minimum thresholds for size, value, and tax revenue.
b) Meets at least one of the objectives in Section II and satisfies
all of the provisions set forth in Section III.
c) Demonstrates need for TIF with the but-for analysis.
d) Consistent with all city plans and ordinances.
e) Serves at least two public purposes as defined in Section IV (f).
2. Ratio of Private to All Public Investment in Project: Points: _____
$ Private investment 5:1 5
$ Public Investment 4:1 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 1
3. Job Creation in the City of Elk River: Points: _____
Number of new jobs as a result of the project. 40+ 5
Number of existing/retained jobs divided by 2. 30+ 4
Total 20+ 3
10+ 2
Less than 10 1
4. Ratio of Public Investment to Job Creation: Points: _____
$ Public Investment $15,000 or less 5
Number of new jobs created/retained $20,000 or less 4
$ Public Investment per new job $22,000 or less 3
$25,000 or less 2
Over $25,000 1
5. Wage Level of new jobs created/retained: Points: _____
Minimum hourly wage Over $21/ hour 5
of jobs created/retained: $18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under $10 / hour 1
6. Project size: Points:
The project will result in the construction 80,000+ 5
of square feet 65,000+ 4
50,000+ 3
35,000+ 2
TO BE COMPLETED BY CITY STAFF
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
Page 13 of 15
25,000+ 1
7. Market Value/Tax Base Generation: Points:
The project will result in a per square foot Industrial Commercial
estimated market value (land and building) $80/sf+ $110/sf+ 5
of $70/sf+ $100/sf+ 4
$60/sf+ $90/sf+ 3
$50/sf+ $80/sf+ 2
$40/sf+ $70/sf+ 1
8. Type of Project: Points: _____
100% Owner Occupied 5
Mix Owner Occupied & Investment 4
Investment Property 3
9. Use: Points: _____
Manufacturing 5
Research & Development 4
Commercial Redevelopment 3
Warehouse/Distribution 2
Housing 1
10. Likelihood that the project will result in Points: _____
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
11. Bonus Points Bonus Points: _
The project will be 100% Pay-as-you-go TIF. 3 points
The project contributes to the goals of Energy City. 2 points
Product promotes sensible use of energy, OR
Project utilizes significant energy efficient design &/or
materials in construction.
Sub - Total Points: of a possible 45 points.
Total Points:
Overall project analysis: High 45-38 points
Moderate 37-29 points
Low 28-20 points
Not Eligible 19-0 points
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
Page 14 of 15
X. TAX INCREMENT FINANCING APPLICATION REVIEW
WORKSHEET- HOUSING PROJECTS
1. The project meets the criteria set forth in Section IV of the City’s Tax Increment
Financing policy.
a) Meets minimum thresholds for size, value, and tax revenue.
b) Meets at least one of the objectives in Section II and satisfies
all of the provisions set forth in Section III.
c) Demonstrates need for TIF with the but-for analysis.
d) Consistent with all city plans and ordinances.
e) Serves at least two public purposes as defined in Section IV (f).
2. Ratio of Private to All Public Investment in Project: Points: _____
$ Private investment 5:1 5
$ Public Investment 4:1 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 1
3. Job Creation in the City of Elk River: Points: _____
Number of new jobs as a result of the project. 20+ 5
Number of existing/retained jobs divided by 2. 15+ 4
Total 10+ 3
5+ 2
Less than 5 1
4. Wage Level of new jobs created/retained: Points: _____
Minimum hourly wage Over $25/hour 5
of jobs created/retained: $21-25/hour 4
$17-20/hour 3
$14-16/hour 2
Under $14/hour 1
5. Market Value/Tax Base Generation: Points:
Project will result in an estimated
market value per unit $135,000/Unit 5
(land and building) of $125,000/Unit 4
$115,000/Unit 3
$105,000/Unit 2
$ 95,000/Unit 1
6. Project provides housing that is restricted Points:
to persons 55 years and older:
5
TO BE COMPLETED BY CITY STAFF
City of Elk River Tax Increment Financing Policy & Application
Amended February 2014
Page 15 of 15
7. Project proposes rehabilitation of existing
housing, housing stock, and maximizes
utilization of existing infrastructure: Points:
4
8. Project proposes a location near existing
jobs, transportation, recreation, retail services,
social services, and schools: Points:
2
9. Type of Housing Project: Points: _____
100% Owner Occupied 2
Investment Property 1
10. Likelihood that the project will result in Points: _____
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
11. Bonus Points Bonus Points: _
The project will be 100% Pay-as-you-go TIF. 3 points
The project contributes to the goals of Energy City. 2 points
Product promotes sensible use of energy, OR
Project utilizes significant energy efficient design &/or
materials in construction.
Sub - Total Points: of a possible 38 points.
Total Points:
Overall project analysis: High 38-30 points
Moderate 29-22 points
Low 21-13 points
Not Eligible 12-0 points