5.0. 6.0. HRSR 05-22-2000 ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY
MEMORANDUM
TO: Housing Redevelopment Authority
FROM: Marc Nevinski,Acting Director of
"(/ Economic Development
DATE: May 22, 2000
SUBJECT: Meeting Agenda
5. Public Hearing Tax Rebate Financing (Tax Abatement) Policy
Issue
As you will recall, the HRA reviewed the proposed Tax Rebate Financing
policy at its April 24, 2000 meeting and provided feedback to staff. Staff
requests that the HRA now hold a public hearing and then consider the
adoption of the policy.
• Background
Tax abatement differs from TIF primarily in that each political body is
given the option to "abate" its portion of the project's property taxes.
Generally, this will result in less dollars being generated for the project
than with TIF, although abatement is easier and less costly to administer.
The tax abatement policy that staff has drafted is very similar to the
revised TIF policy, and also includes a ratings worksheet. The primary
difference between the tax abatement and TIF policies is that no minimum
threshold for building value or size is stipulated in the tax abatement
policy. This is due to the fact that the smaller amount of dollars generated
with tax abatement, combined with less administrative time and costs, will
make tax abatement more appropriate for smaller scale projects.
The tax abatement policy emphasizes industrial development, however,
certain redevelopment and commercial projects will be eligible to utilize
tax abatement as well. The use of tax abatement for residential projects is
not allowed under the proposed policies. However, staff has recommended
and the council and EDA have concurred, that a separate set of residential
criteria should be drafted for the use of tax abatement in certain
situations.
•
P.O. Box 490 • 13065 Orono Parkway • Elk River, MN 55330-1743 • (612) 441-7420 • Fax: (612) 441-7425
Equal Opportunity Housing and Equal Opportunity Employment
•
It should also be noted that staff is proposing that tax abatement be
referred to as Tax Rebate Financing (TRF), which more accurately reflects
how the tool functions. Sherburne County, which is also drafting a tax
abatement policy, is considering a similar name modification to avoid
confusing the tool with other, more established forms of tax abatement.
Requested Action
Staff requests that the HRA:
1. Hold a public hearing on the proposed Tax Rebate Financing policy.
2. Consider adoption of the Tax Rebate Financing policy.
Attachments
• Tax Rebate Financing Policy
• Public Hearing Notice
6. King & Main Update
Staff will provide a brief update regarding King & Main.
•
•
•
City of Elk River, Minnesota
Economic Development Tax Rebate Financing
Policy & Application
Adopted: April 10, 2000
i
•
Table of Contents
• I. Policy Purpose 3
II. Difference Between TRF & TIF 3
III. Objectives of Tax Rebate Financing 3
IV. Policies for the Use of TRF 4
V. Project Qualifications 5
VI. Subsidy Agreement & Reporting Requirements 6
VII. Application Process 6
City of Elk River 6
Application to Other Political Subdivisions 6
VIII. Application 7
Applicant Information 7
Project Information 8
Public Purpose 8
Sources & Uses 9
Checklist &Additional Information 10
IX. Application Review Worksheet 11
X. Exhibits 13
A Corporation/Partnership Description
B Project Description
C Shareholders
D But-for Analysis
E Prospective Lessees
XI. Sample But-For Analysis 15
2
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 the 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
• 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.
IV. POLICIES FOR THE USE OF TRF
a. 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.
• b. 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.
d. Developer shall be able to demonstrate a market demand for a
proposed project.
e. TRF will not be utilized in cases where it would create an unfair
and significant competitive financial advantage over other
projects in the area.
f. TRF shall not be used for projects that would place
extraordinary demands on city services or for projects that
would generate significant environmental impacts.
g. The developer must provide adequate financial guarantees to
ensure completion of the project, including, but not limited to:
41).
assessment agreements, letters of credit, personal guaranties,
etcetera.
4
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, 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.
b. 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;
S
• 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.
d. 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.
f. 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
110 later than March 1 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.
4. If preliminary approval is granted, all necessary notices,
resolutions and certificates are prepared by City staff and/or
consultants.
5. Public hearing(s) on the proposed project are held.
6. 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 SUBDIVISIONS
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 the following:
• Brief description of the corporation/partnership's business,
including history, principal product or service, etc... Attach as
Exhibit A .
• Brief description of the proposed project. Attach as Exhibit B.
• List names of officers and shareholders/partners with more than
• five percent (5%) interest in the corporation/partnership. Attach as
Exhibit C.
• A but-for analysis and narrative. Attach as Exhibit D.
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
8
B. PROJECT INFORMATION
1. The project will be:
IllIndustrial: 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 years.
City Portion of TRF: Annual $ Total $
County Portion of TRF: Annual $ Total $
ISD 728 Portion of TRF: 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 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:
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D. SOURCES & USES
i SOURCES NAME AMOUNT
Bank Loan $
Other Private Funds $
Equity $
Fed Grant/Loan $
State Grant/Loan $
EDA Micro Loan $
Tax Rebate Financing $
ID Bonds $
TOTAL $
USES AMOUNT
Land Acquisition $
Site Development $
Construction $
Machinery & Equipment $
Architectural & Engineering Fees $
Legal Fees $
Interest During Construction $
Debt Service Reserve $
Contingencies $
I).
TOTAL $
10
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
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 theProject
I) Application fee of$5000 (to be returned upon project
• completion.)
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
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,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
By
• Its
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TAX REBATE FINANCING PROPOSAL REVIEW WORKSHEET
•Ill.
TO BE COMPLETED BY CITY STAFF
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: 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 divided by 10. 20+ 4
Total 15+ 3
10+ 2
Less than 10 1
4. Ratio of TRF to new jobs created: Points:
$ TRF request $8,000 or less 5
Number of new jobs created $10,000 or less 4
$ of TRF per new job created $12,000 or less 3
$15,000 or less
Over $15,000
5. Wage Level of jobs created: Points:21
Average hourly wage Over $21/hour 5
of jobs created: $18-21 /hour 4
$14-17/hour 3
$10-13 /hour 2
Und $10/hour 1
6. Project size: Points:
The project will result in the construction 40,000+er 5
of square feet 30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less 1
12
7. Type of Project: Points:
100% Owner Occupied 5
Mix Owner Occupied & Investment 4
• Investment Property 3
8. Use: Points:
Industrial or Business Park Project 5
Commercial Rehabilitation/Redevelopment 4
9. The project will pay annual Points:
property taxes in the first fully 35,000+ 5
assessed year of$ 25,000+ 4
15,000+ 3
10,000+ 2
Under $10,000 1
10. Likelihood that the project will result in Points:
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
Sub - Total Points: of a possible 45 points.
III9. Bonus Points Bonus Points:
The project will be 100%Pay-as-you-go TRF. 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 analysis: High 45-38 points
Moderate 37-29 points
Low 28-20 points
Not Eligible 19-0 points
•
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XI. SAMPLE BUT-FOR ANALYSIS
, WITH NO WITH
• TAX REBATE FINANCING TAX REBATE FINANCING
SOURCES AND USES SOURCES AND USES
SOURCES SOURCES
Mortgage 9,600,000 8,667,000
Equity 2,400,000 2,400,00
Tax Rebate 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
III
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%
•
15
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
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