7.0. EDSR 03-08-2004 \ ' Item 7.
)4• ",
City of
Elk
River
MEMORANDUM
TO: Economic Development Authority
Mayor & City Council
FROM: Catherine Mehelich, Director of Economic Development /42
DATE: March 8, 2004
SUBJECT: Consider Property Tax Abatement for the Orluck Industries, Inc.
Light Industrial Building Project
Attachments
• Tax Rebate Financing Application from Orluck Industries
• Public Hearing Notice-February 31, 2004
• • Resolution Approving Property Tax Abatement
• DRAFT-Tax Abatement and Business Subsidy Agreement
Issue
At its February 9, 2004 meeting the Economic Development Authority and City Council approved
the Preliminary Expansion Siting Proposal that Orluck Industries be considered for receiving Tax
Rebate (Abatement) Financing for the construction of a 20,000-square foot light industrial/business
park building on the City-owned Joplin Street lot. In addition the Council directed staff to initiate
the land use amendment process to change the land use from"Community Commercial" to "Light
Industrial".
Staff has completed the due diligence process for the land use amendment process, financial analysis
and the City's Tax Rebate Financing process. Staff requests that the EDA consider recommending
the Council's approval of the sale of the lot and tax abatement request. Following the EDA
meeting,the City Council will hold a public hearing on the matter and consider granting final
approval of the tax abatement request. Mr. Orluck is anticipated to be present for the EDA meeting
to discuss the proposed project.
Background
Orluck Industries conducts light,precision machining of plastic and metal components for the
medical, computer, semi-conductor and tele-communications industries. The final product
components consist of either a fixture or testing device for the above industries. The company
currently employs 13 full-time staff and 2 part-time positions with an hourly wage between$15.00-
22.00 per hour. Since the February meeting,Mr.Orluck has added 2 additional full-time employees.
Consider Approval of Property Tax Abatement for the Orluck Industries Expansion
EDA/City Council Meeting March 8,2004
Page 2 of 2
• It is important to note that Mr. Orluck is firm about not committing any additional new job creation
beyond his existing 15 employees. While Mr.Orluck anticipates the creation of 4 to 6 new jobs
within two years,he is unwilling to make any financial commitments for Orluck Industries'job
creation,nor on the 10,000-square feet of multi-tenant space. The MN Business Subsidy Law
Statutes 116J.993-116J.995, by which the City's Business Subsidy Policy follows, does allow grantors
to set wage and job goals at zero following the public hearing. Case in point,the City established
wage and job goals at zero for the multi-tenant building located adjacent to the proposed lot. As a
matter of policy Sherburne County does not require wage and job goals.
Staff has been in contact over the past two and a half years with Mark Orluck,President of Orluck
Industries, Inc. Currently leasing approximately 4,800-square feet in Dayton,MN,the company is
seeking a suitable location within the northwest metro area to expand. The City of Big Lake has
aggressively pursued the company's relocation project,in addition to staff's efforts. In 2002 staff
had proposed the same Joplin Street lot for Mr.Orluck's proposed project.
Mr. Orluck proposes to construct an approximately 20,000-square foot building,in which his
company would occupy 10,000-square feet and balance would be leased to business park district
eligible uses. Staff has had various discussions with Mr.Orluck requesting his consideration of
additional construction on the lot and options for transferring half of the lot upon building
expansion. Mr.Orluck is firm in his commitment to build 20,000 square feet now and will consider
expansion opportunity when necessary in the future. The total cost of the project is projected to be
approximately$1,410,000. Sources of financing include a$1,256,000 loan from The Bank of Elk
S River and$50,000 equity contribution by Orluck Industries.
Mr. Orluck is requesting that the city sell its Joplin Street lot to Orluck Industries for$1 and that the
city and county abate its portion of the property taxes on the project for a period of approximately
twelve years or up to a combined total of$201,520;the amount to reimburse the city for its land
cost. Staff estimates the city portion per year at$8,912 (2004 rates) for a total over twelve years of
approximately$100,760. Mr.Orluck is submitting a request to Sherburne County for tax abatement
for a similar term. Staff believes that the term will likely be shorter than the projected twelve years
simply based upon inflationary market value and tax rate increases.
Upon receipt of Mr. Orluck's TRF application, staff completed the ratings worksheet used to help
analyze such proposals. The proposed project scored a"30",which equates to a"moderately
desirable" project. In addition the city's financial advisor, Ehlers&Associates has reviewed the
application and "But-For" Analysis to arrive at a fair recommendation on the project's total return
on equity of 12.59%with tax abatement assistance.
Action Requested
Staff recommends that the EDA consider recommending the City Council's approval of the
property tax abatement request and sale of the Joplin Street lot for the Orluck Industries project.
Following the City Council's public hearing regarding the use of tax abatement for the project, staff
recommends the Council's approval of the attached Resolution Approving Property Tax Abatement
for the Orluck Industries project and the attached Tax Abatement and Business Subsidy Agreement.
•
\t"4‘
City of
Elk
Rive
• Economic Development
Tax Rebate Financing
Policy & Application
Amended: August 2002
Adopted: April 10, 2000
City of Elk River, Minnesota
Table of Contents
I. Policy Purpose 3
II. Difference Between TRF & TIF 3
III. Objectives of Tax Rebate Financing 3 - 4
IV. Policies for the Use of TRF 4 - 5
V. Project Qualifications 5 - 6
VI. Subsidy Agreement & Reporting Requirements 6
VII. Application Process 7
City of Elk River 7
Application to Other Political Subdivisions 7
VIII. Application 8
Applicant Information 8
Project Information 9
• Public Purpose 9
Sources &Uses 10
Checklist&Additional Information 11
IX. Application Review Worksheet 12
X. Exhibits 14
A Corporation/Partnership Description
B Project Description
C Shareholders
D But for Analysis
E Prospective Lessees
F Legal Description and PID Number
X1. Sample But-For Analysis 15
111
City of Elk River
Tax Rebate Financing ,Amended_-august 2002 -
I. POLICY PURPOSE
For the purposes of this document, the term "Cie"shall include the Elk River City Council,Economic
• Development.4uthority, 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
II 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 IRF 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.
• '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
0 industrial areas in the city that result in high quality redevelopment and private
reinvestment.
City of Elk River
Tax Rebate Financing Police,Amended August 2002 - 3-
• 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-asyou go method. Requests for upfront
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. Projects utilizing the
SBA504 program will be required to provide a minimum of ten percent
(10%) cash equity investment.
c. TRF will not be used in circumstances where land and/or property price is in
excess of fair market value.
III 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: 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, or other data requested by
the City or its consultants.
j. TRF proposals shall not be used to support speculative office projects.
0
Speculative projects are defined as those projects which have pre-leasing
agreements or letters of intent for less than 50% of the available space.
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 4-
In addition,leasible 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. 50% of the jobs within the leasible office building space 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 MN 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 TRF proposals shall optimize the private development potential of a site.
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 III of
this document.
b. The use of TRF will be limited to:
• Industrial development, expansion, redevelopment, or
rehabilitation; or
• Commercial redevelopment or rehabilitation;or
• Research and development facilities that satisfy Business Park
zoning requirements; or
• Office facilities with a minimum new construction of 25,000
square feet and minimum market value of$1,000,000 upon
project completion;or
• Residential development and redevelopment may be eligible for
TRF 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 TRF. Evaluation of the project's financial feasibility without
TRF shall be provided by the City's financial advisor on requests of over
$25,000 total.
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.
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 - 5
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 or job retention.
• 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.
• 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 the
City's Business Subsidy Criteria as adopted, and State Statute 1161993 as
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
subsidy agreement 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 Subsidy
Agreement have been met,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 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 III of this document.
Developers / Businesses failing to comply with the above provisions will be subject
to fines, repayment requirements, termination of the assistance, and be deemed
ineligible by the State to receive any loans or grants from public entities for a period
of five years.
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 - 6 -
VII. APPLICATION PROCESS FOR TRF
0 A. CITY OF ELK RIVER
1. Applicant submits the completed application along with a $5,000 application fee.
The application fee will be used toward the cost of services provided in the
evaluation of financial feasibility and preparation of legal documents. The balance
of the application fee will be returned to the applicant.
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 agreements
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.Alan Jensen
Superintendent- School District 728
763-241-3400
0
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 - 7
VIII. APPLICATION FOR TAX REBATE FINANCING
A. APPLICANT INFORMATION
Name of Corporation/Partnership C)c 1v� �_t�C..i S Tt lP (�C- -
Address t� \ l 1 k j c\.\:)(' . c\. C c\J P tNS S3 t 1
Primary Contact K\CL K Cr\Qc
Address c-'i‘t`l�P
Phone--1 b`" -411S-IfSFax-71::3 Int Email ;c ck.i a( c\-U\.LC)Yn
On a separate sheet,please provide the following:
• Brief description of the corporation/partnership's usiness,including history,principal
product or service,etc... Attach as Exhibit
/
• Brief description of the proposed project.Attach as Exhibit BIV
• List names of officers and shareholders/partners with more thanfive percent (5%)
interest in the corporation/partnership.Attach as Exhibit C.
• A but for analysis and narrative. Attach as Exhibit D./7.
•
Attorney Name
Address
Phone Fax Email
Accountant Name ‘<.cr.'t e ti Lc\c gid\
Address 1 It \ Sar. Nu.1 11e ( ch\ , Mtn S 1i'2- 4.51
Phone 6S I Gil-0_ Fax 451 -& 3 O\Ccs Email C,c,(a) '0\03,Sir ,
Contractor Name
Address
Phone Fax Email
Engineer Name
Address
Phone Fax Email
Architect Name
Address
Phone Fax Email
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 8 -
B.PROJECT INFORMATION
1. The project will be:
Industrial: ,` . New Construction X 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: X
Sherburne County School District 728
3. The project will be: X Owner Occupied X 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 r ,. c. 'CVS cl. 3 (.10
• Include Legal Description and PID Number. Attach as Exhibit F
5. Site Plan Attached: X Yes No
,r' r I -w
6. Total Amount of TRF Requested: $2(--'i fover /2 years. '�
City Portion of TRF: Annual$ 75'7 12. Total$ j %(7 }"
County Portion of TRF: ` Annual$ Total$
ISD 728 Portion of TRF: Annual$ Total$
7. Current Real Estate Taxes on Project Site: $ 2c2C)3• 2«23
• Estimated Real Estate Taxes upon Completion: Phase I $ �>
Phase II $
8. Construction Start Date: Apert , 2
Construction Completion Date: 1, i.017)
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/Retention Number of existing jobs \7 1 ` a ^
Number of jobs created by project Li
Average hourly wage of jobs created/retainedt t S .
New industrial development which will result in additional private
investment in the area.
N./ 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:
City of Rlk River
Tax Rebate Financing Policy,Amended August 2002 9
D. SOURCES & USES
11111 SOURCES NAME AMOUNT
Bank Loan f ,,c,` c`C L i C. 'a t i $
Other Private Funds $
Equity
Fed Grant/Loan $
State Grant/Loan $
EDA Micro Loan / $
Tax Rebate Financing r.,. f, a :: k-.,, ,wk�4:e4w y� $ '' \! r:
ID Bonds / $
TOTAL
e
USES AMOUNT
Land Acquisition $ \ ", ,�
Site Development $ \ mS-/c)ae"r7 ?ir,4/1Cc
Construction
$ r I..; ';'),
Machinery&Equipment $
Architectural&Engineering Fees $
Legal Fees $
Interest During Construction "IL " .0
Debt Service Reserve $
• Contingencies 4 . ', r;.. rw r;; $ '7 :r f°.
TOTAL $ ) : , t : 'i'
411
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 - 10 -
E. ADDITIONAL DOCUMENTATION AND CHECKLIST
Applicants will also be required to provide the following documentation.
• VA) 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
J 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 the Project 2-1'
• I) Application fee of$5000 > ,C 'e, '
J) Itemized Project Construction Statement 1z7r '77,7
K) 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
N 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 a e the filing of this application.
Applicant Name 1.0.> Date
•
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 - 11 -
`EXHIBIT A
• Description of the corporation or partnership
&EXHIBIT B
Description of the proposed project
t,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
HIBIT F
• vEXLegal Description and PID Number
•
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 14 -
•
EXHIBIT A
CORPORATION DESCRIPTION
Orluck Industries, Inc. was established in 1993,with the purchase of a small lapping
company. The first year, sales doubled to $150,000. The second year, sales doubled again
to $300,000. Sales doubled again the third year to $600,000 and again the fourth year to
1.2 million. Since than sales have remained constant at 1.0 million. In 2000 I set a goal of
doubling out sales again within two years. A top salesman and administrator was hired
and $300,000 was invested in new equipment. Unfortunately, it was shortly after that,
that manufacturing in Minnesota went into serious decline, yet Orluck Industries sales
have remained steady at 1.0 million.During this decline, Orluck Industries invested more
than$300,000 in new equipment and is well positioned to take advantage of a growing
economy.
We are manufacturing service company, specializing in precision machining of
various metals and plastics to produce piece parts,tooling, fixturing and assemblies.
Our customer base is strong and diverse, including companies like Medtronic,
Seagate Technology, Everette Charles Corp. and Boston Scientific.
•
•
EXHIBIT B
DESCRIPTION OF PROJECT
LOCATION: 2.79 acre lot
Lot 1, Block 2, Country Crossing Business Center
PROJECT: A 20,000-sq. ft. Industrial Building, 10,000-sq. ft. used by Orluck
Industries and 10,000-sq. ft. for tenant use. Up to an additional 20,000-sq. ft. to be added
at a later date.
•
•
EXHIBIT C
LIST OF SHAREHOLDERS
Mark S. Orluck 50% Shareholder
Cheryl A. Orluck 50% Shareholder
EXHIBIT D
BUT-FOR ANALYSIS
/ f f
SO
EXHIBIT F
LEGAL DESCIPTION
Country Crossing Business Center Lot 1 Block 2
BUSINESS PLAN, ORLUCK INDUSTRIES INC.
Orluck Industries is a precision machine shop with a wide range of manufacturing
services including piece part work(long and short run),prototype and custom machining,
research and development work,tooling, special machine building and assembly.
Capabilities include CNC milling and turning, manual milling and turning, surface
grinding, lapping, wire EDM and sawing. Also a complete inspection department.
We employ first rate machinists and toolmakers, some of whom we trained in our
own workplace.
Management consists of the President,Vice President of Sales and Operations, and
the Office Manager.
Ownership in this C Corporation consists of Mark and Cheryl Orluck.The company
was established in 1993.
Our future plans are to retain and strengthen our core business while gaining new
customers, equipment, and employees. To acquire our own space to facilitate growth and
an atmosphere of professionalism.
• TWO YEAR FINANCIAL PROJECTIONS
ORLUCK INDUSTRIES INC. 2003-2004 1.5 million in sales
2004-2005 1.8 million in sales
2005-2006 2.1 million in sales
ORLUCK LLC 2005 $120,000 Rent
2006 $120,000 Rent
3/4/2004 BUT-FOR ANALYSIS Page 1 of 2
WITH NO WITH
TAX REBATE TAX REBATE
Ill
SOURCES AND USES SOURCES AND USES
SOURCES SOURCES
Mortgage 1,456,000 1,256,000
Equity 50,000 50,000
Tax Rebate Financing 0 ZOO 000
TOTAL SOURCES 1,506,000, 1,506,000
USES USES
Land 185,000 185,000
Site Work 15,000 15,000
Soil correction
Demolition
Relocation 50,000 50,000
Subtotal Land Costs 250,000 250,000
Construction 1,160,000 1,160,000
Finish Manufacturing
Subtotal Construction Costs 1,160,000 1,160,000
4 Soft Costs
Taxes
Finance Fees Cap Interest 54,000 54,000
Project Manager
Development Fee
Contingency 3% 42,000 42,000
Subtotal Soft Costs 96,000 96,000
TOTAL USES 1,506,000 1,506,000
Income statement Income Statement
Sq. Ft. Per Sq. Ft.
Rent-Space 1 10,000 $6.00 60,000 60,000
Rent-Space 2 10,000 $6.00 60,000 60,000
Vacancy 7% Space 2 (4,200) (4,200)
TOTAL INCOME 115,800 115,800
Mortgage TERM 20
RATE 6.00%
PRINCIPAL 1,456,000 1,256,000
DEBT SERVICE PAYMENT 126,941 109,504
• Net Income -11,141 6,296
Total Return on Equity i
BUT-FOR ANALYSIS-orluck-2-pst
0 LETTER OF COMMITMENT (APPLICANT)
I pledge to complete this project, i.e. Country Crossing Business Center, Lot 1, Block 2,
10,000 sq. ft. Orluck Industries Inc. shop and office space and 10,000 sq.ft. adjacent
tenant space, during the proposed project duration.
Mark S. Orluck
TAX REBATE FINANCING PROPOSAL REVIEW WORKSHEET
• Tn RF C t MPI FTFfl RY C`ITV CTAFF
1.Theproject 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. i'oC2
b) Demonstrates need for TRF with the but for analysis.
r/c) Consistent with all city plans and ordinances. /aft
!� d) Serves at least two public purposes as defined in Section V.
2. Ratio of Private to Public Investment in Project: Points:
$ GC's Private investment 5:1 5
$ .2C74 520Public 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
/S Number of existing/retained jobs 20+ 4
Total 1� '
10+ 2
Less than 10 1
4. Ratio of TRF to new jobs created/retained: Points:
$ 20/, SZD TRF request $8,000 or less 5
/ Number of new jobs created/retained $10,000 or less 4
$/3/ '35 of TRF per new job created/retained $12,000 or less 3
<---$T5,-0-06 or less 2
Ober$15,000 1
5. Wage Level of jobs created: Pints.
Average hourly wage -74 O,er$21/ hour 5
of jobs created/retained: /� $18-21 / hour 4
/5 2E. ;14-17 / hour 3
$10-13 / hour 2
Under$10 / hour 1
6. Project size: Points:
The project will result in the construction 40,000+ 5
of square feet 70, 0°0 30 +,4. .. _.. 4
10,000+ 2
10,000 or less 1
411
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 12 -
7. Type
of Project:
• Points:
100% Owner Occupied 5
t.- Mix Owner Occupied&Investment C-----47':--.--
Investment
- -''
Investment Property 3
8. Use- Point
V Industrial or Business Park Project 5
Commercial Rehabilitation/Redevelopment 4
-.--
9.
9. The project will pay annual Points:
_
property taxes in the first fully .--5--,-O--g---f5_ -
00+35,0 5
assessed year of$ '"7 i 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
//Moderat ,
)
Low 1
Sub-Total Points: �C.D of a possible 45 points.
• 9.Bonus Points Bonus Points:
The project will be 100%Pay-asyougo 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: ..h _. 45-38.pooiints
oderate 37-29pomts5,
ow 28-20 points
Not Eligible 19-0 points
III
City of Elk River
Tax Rebate Financing Policy,Amended August 2002 - 13 -
1'tuk
SA....✓, .>'..e.. / 13734+ dwsr
4A99f ;71 F;,J�>+• +_yf s'" a�.c..
x( `" er dN
February 17,2004 - 7 _?". - t,
Director of Economic Development
Catherine Mehelich
13065 Orono Parkway
Elk River, Mn 55330
Dear Mrs. Mehelich,
The following information is what you have requested on PID # 75-572-0205 for Orluck
Industries Expansion/Relocation.
The estimated market value of the proposed building project for 2005.
Estimated Market Value Building $ 871,300.00
• Estimated Market Value Land $ 164,100.00
Improvements to Land $ 21,000.00
$1,056,400.00
The estimated tax payable in 2006 using the 2004 rates would be $37,152.00
If you have any questions,please contact me at(763)241-2885.
Sincerely,
John Cullen
Sherburne County Assessor's Office
Chief Deputy Assessor
S.A.M.A
\114
City of
Elk
•
Business Subsidies Policy
Adopted:
Economic Development Authority November 12,2002
Housing&Redevelopment Authority November 25,2002
City Council November 25,2002
Amended:
Economic Development Authority December 9,2002
City of Elk River
13065 Orono Parkway
Elk River,MN 55330
• (763) 635-1000
• CITY OF ELK RIVER
POLICY AND PROCEDURES RELATING TO
THE USE OF BUSINESS SUBSIDIES
I. PURPOSE
For the purposes of this document, the term "Ci .)"shall include the Elk River City Council,Economic Development
Authority, and Housing and Redevelopment Authority.
The purpose of this policy is to establish guidelines and criteria regarding the use of business
subsidies, such as tax increment financing (TIF), tax abatement, and other business subsidies
for private development projects within the City of Elk River and shall be in addition to the
requirements and limitations set forth by provisions of Minnesota State Statute 1161993
(MN Business Subsidy Law), and by the City's policy and guidelines of the particular form of
subsidy.
These guidelines shall be used in processing and reviewing applications requesting business
subsidies assistance. The fundamental purpose of business subsidies in the City is to
encourage desirable development or redevelopment that would not otherwise occur"but
for" the assistance provided through business subsidies.
It is the intent of the City to provide business subsidies, as well as other incentives that the
City may deem appropriate, 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
account established policies, specific project criteria, and demand on city services in relation
to the potential benefits to be received from a proposed project. Meeting policy guidelines
or other criteria does not guarantee the award of business subsidies. Furthermore, the
approval or denial of one project is not intended to set precedent for approval or denial of
another project.
Whenever possible it is the City's intent to coordinate the use of business subsidies with
other applicable taxing jurisdictions.
II. DEFINITION OF "BUSINESS SUBSIDY"
The following types of assistance having a value in excess of$25,000 are defined as a
"business subsidy"within the MN Business Subsidy Law:
• State and local government agency grants;
• Contributions of personal"property,real property, or infrastructure;
• The principal amount of a loan that exceeds $75,000 at rates below those
commercially available;
• Reductions or deferrals of taxes or fees;
• Guarantees of any payment under any loan,lease, or other obligation;and,
• Preferential use of government facilities.
i
City of Elk River Business Subsidies Policy 2
• III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES
In accordance with the MN Business Subsidy Law, the City will consider using business
subsidies to assist private development projects to achieve one or more of the following
public purpose 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 tax base.
• To encourage additional unsubsidized private development in the area, either
directly or indirectly through "spin off" development.
• To achieve development on sites which would not be developed without
business subsidies assistance.
• To remove blight and/or encourage development of commercial and industrial
areas in the city that result in higher quality development or redevelopment and
private investment.
• To offset increased costs of development of specific properties when the unique
physical characteristics of the site may otherwise preclude private investment.
• To create opportunities for the construction, operation and maintenance of
affordable housing.
IV. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES
i
A. Business subsidy assistance will be provided from the City, by a"pay-as-you-go"
note method, to the developer if the business subsidy is tax increment financing or
tax abatement. Requests for up front financing will be considered on a case-by-case
basis.
B. A developer requesting business subsidy assistance must demonstrate, to the
satisfaction of the City, sufficient cash equity investment in the project as required
within the City's policy for the particular form of subsidy.
C. Business subsidy will not be provided in circumstances where land and /or property
price is demonstrated by the County Assessor to be in excess of fair market value.
This would normally be where the acquisition price is more than 10%in excess of
market value.
D. A developer must be able to demonstrate to the City, or,if applicable, to the
underwriting authority, a market-demand for a proposed project.
E. Business subsidy will not be used in cases where the subsidy would create an unfair
and significant competitive financial advantage over other similar projects in the area.
F. Business subsidy will not be used for projects that would place extraordinary
• demands on city infrastructure and services.
City of Elk River Business Subsidies Policy 3
•' G. If requested by the City, the developer shall provide adequate financial guarantees to
ensure completion of the project,including, but not limited to: assessment
agreements,letters of credit, cash escrows, and personal guaranties.
H. Each developer must be able to demonstrate to the City's satisfaction, an ability to
construct, operate, and maintain the proposed project based on past experience,
general reputation, and credit history.
I. If requested by the City,or its consultants, the developer shall provide sufficient
market, financial,environmental, or other data relative to the successful operation of
the project.
J. Projects receiving business subsidy approval from other affected taxing jurisdictions
will be more favorably received by the City.
V. GUIDELINES FOR COMMERCIAL/INDUSTRIAL BUSINESS
SUBSIDIES
A. Business subsidies will not be used for on-site retail or service businesses unless it is
a redevelopment project that demonstrates that it will result in a substantial increase
in tax base and a significant improvement in quality employment.
B. The project must be consistent with the City's Comprehensive Plan,Land Use Plan,
and Zoning Ordinances.
C. The project must result in the retention of existing jobs that would be lost"but for"
the proposed development or result an increase and diversification in local jobs.
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 MN
Business Subsidy Law.
D. Specific wage and job goals will be determined by the City giving consideration to
the particular form of the subsidy, nature of the development, the purpose of the
subsidy,local economic conditions and similar factors. The recipient will have up to
two years to meet the job and wage goals established by the City. The minimum
wage for a job to be considered a or retained job shall be $15.00 per hour
exclusive of benefits. Deviations less than the wage floor will be considered on a
case-by-case basis and in accordance with the requirements of the MN Business
Subsidy Law.
E. Business subsidies will not be used for commercial/industrial projects that have a
history of inconsistent compliance with applicable environmental rules and
regulations.
•
City of Elk River Business Subsidies Policy 4
• VI. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS
Each company receiving a business subsidy shall be subject to the subsidy agreement and
reporting provisions and requirements set forth by the MN Business Subsidy Law and
summarized below:
A. Progress Reports
The recipient shall file a report annually for two years after the receiving,the
subsidy or until all goals set forth in the subsidy agreement have been met,which
ever is later. Reports shall be completed using the format drafted by the State of
Minnesota and shall be filed with the City no later than March 1 of each year for
the progress made the previous year.
B. Maintain Facility
The recipient agrees to maintain and operate its facility at the site where the
subsidy is used for a period of five years after the date the subsidy is provided.
C. Failure to Comply
Businesses failing to comply with the subsidy agreement will be subject to fines,
repayment requirements,and be deemed ineligible by the State to receive any
loans or grants from public entities for a period of five years.
VII. SUBSIDY APPLICATION PROCESS AND PROCEDURE
A. Application for business subsidies shall be made on forms for the particular form of
assistance provided by the City of Elk River Director of Economic Development, or
designee. A fee of$ 5,000.00 shall accompany any Tax Increment Finance,Tax
Abatement, or grant request application to cover the City's initial legal,
administrative, and planning costs. Micro-Loan applications shall include a fee in the
amount of 1% of the loan requested.
Following a review by appropriate City Staff the application shall be referred to the
either the Economic Development Authority, or Housing and Redevelopment
Authority, for recommendation to the City Council for further action.
B. The application for business subsidies shall request information required within the
City's policies on the particular form of subsidy including but not limited to; a
detailed description of the project; a preliminary site plan; the amount of business
subsidy requested; the public purpose of the project; the number and types of jobs to
be created;the wages and benefits to be paid new employees;and verifiable funding
sources and uses.
•
City of Elk River Business Subsidies Policy 5
• For publication on Wednesday, February 25,2004
Please contact Catherine Mehelich with any questions at (763) 635-1041
CITY OF ELK RIVER
NOTICE OF PUBLIC HEARING
REGARDING PROPOSED PROPERTY TAX ABATEMENT
FOR ORLUCK INDUSTRIES, INC. LIGHT INDUSTRIAL
BUILDING PROJECT
NOTICE IS HEREBY GIVEN that the City Council of the City of Elk River, Minnesota,
will hold a public hearing on March 8, 2004, at a meeting of the Council beginning at
approximately 6:30 p.m., Central Time, in the Elk River Senior High School Little Theater, 900
School Street (enter through Door H on the north side of the building), Elk River, Minnesota, on
the request of Orluck Industries, Inc. (the "Company") to have the City grant to the Company the
tax abatement described below on the Company's proposed development of an approximately
20,000 square foot light industrial building on the property located in the City at the southwest
corner of Joplin Street and Business Center Drive (collectively, the "Project"). The proposed
abatement is as follows: for property taxes payable on the Project beginning in 2006, the City
• would ambe thity mnt eql hCity's local ht tax
capacitybate of theand Pr
reirojectursfor thateCyearan a, andousuch uaproperty tax abatements
tax rate wouldtimes continuetene , if
necessary, in each subsequent year through 2017, provided that the total amount of abatements
granted by the City for the Project shall meet but not exceed the City's land cost estimated at
$100,760. It is estimated that the annual amount of City taxes to be abated would be
approximately $8,912 and that, accordingly, approximately eleven years of City taxes would be
abated for the Project.
This abatement would constitute a "business subsidy" under Minnesota Statutes, Sections
116J.993 through 116J.995, and the City would impose specific wage and job goals for the
Project under that law unless the City Council determines that the creation of jobs is not to be a
goal, the wage and job goals may be set at zero.
The City Council will consider granting this property tax abatement in response to the
request. A draft of a proposed Abatement Agreement between the City and the Company, which
includes the proposed business subsidy agreement, as well as a summary of the terms of the
subsidy, are available for review from the office of the City's Economic Development Director at
City Hall.
All interested persons may appear at the public hearing and present their views orally or
in writing.
Catherine Mehelich
IDDirector of Economic Development
(February 25)
1410047v1 A-1
• RESOLUTION NO.
RESOLUTION APPROVING PROPERTY TAX ABATEMENTS
BE IT RESOLVED by the City Council (the "Council") of the City of Elk River,
Minnesota(the "City"),as follows:
1. Recitals.
(a) Orluck Industries, Inc. (the "Developer") proposes to construct an
approximately 20,000 square foot light manufacturing facility in the City (the "Project").
The Developer has requested that the City provide financial assistance to the Developer
for the Project. The City proposes to use the abatement for the purposes provided for in
the Abatement Law(as hereinafter defined), including the Project. The proposed term of
the abatement will be for up to twelve years in an amount not to exceed $100,760. The
abatement will apply to 100% of the City's share of the property taxes (the "Abatement")
derived from the property described as Lot 1, Block 2, Country Crossing Business Center
(the "Property").
(b) On the date hereof, the Council held a public hearing on the question of
the Abatement, and said hearing was preceded by at least 10 days but not more than 30
• days prior published notice thereof.
(c) The Abatement is authorized under Minnesota Statutes, Sections 469.1812
through 469.1815 (the "Abatement Law").
2. Findings for the Abatement. The City Council hereby makes the following
findings:
(a) The Council expects the benefits to the City of the Abatement to at least
equal or exceed the costs to the City thereof.
(b) Granting the Abatement is in the public interest because it will increase or
preserve the tax base of the City, provide employment opportunities in the City and help
redevelop an area previously blighted by poor soil conditions.
(c) The Property is not located in a tax increment financing district.
(d) In any year, the total amount of property taxes abated by the City by this
and other resolutions, if any, does not exceed the greater of ten percent (10%) of the
current levy or$200,000.
(e) At least 50 percent of the payroll of the operations of the Developer will
be for employees engaged in the material staging and production of tangible personal
property by procedures commonly regarded as manufacturing, processing, fabrication, or
• assembling which changes some existing material into new shapes, new qualities, or new
combinations and consequently the Developer is a "Qualified Business" pursuant to
Section 469.1813 Subd. 6b of the Abatement Law.
1623868v1
• 3. Terms of Abatement. The Abatement is hereby approved; provided, however, the
this approval is contingent upon the approval by Sherburne County of an
abatement program for the Project upon the same terms as set forth below for the
County's share of property tax amount which the County receives from the
Property. The terms of the Abatement are as follows:
(a) The Abatement shall be for up to twelve (12) years and shall apply to the
taxes payable in the years 2006 through 2017, inclusive.
(b) The City will abate 100% of the City's share of property tax amount which
the City receives from the Property, not to exceed $100,760.
(c) The Abatement shall be subject to all the terms and limitations of the
Abatement Law.
(d) The Abatement may not be modified or changed during its term.
The motion for the adoption of the foregoing resolution was made by member
and duly seconded by member and, upon a vote being
taken thereon after full discussion thereof, the following voted in favor thereof:
and the following voted against the same:
• Whereupon said resolution was declared duly passed and adopted.
1623868v1 2
STATE OF MINNESOTA )
) SS
COUNTY OF SHERBURNE)
I, the undersigned, being the duly qualified and acting Administrator of the City of Elk
River, Minnesota(the "City"), by reason of my office as Administrator, DO HEREBY CERTIFY
that I have compared the attached and foregoing extract of minutes with the original thereof on
file in my office, and that the same is a full, true and complete transcript of the minutes of a
meeting of the City Council of the City, duly called and held on the date therein indicated,
insofar as such minutes relate to property tax abatements for the Orluck Industries, Inc. Project.
WITNESS my hand this 8th day of March, 2004.
City Administrator
•
•
1623868v1
TAX ABATEMENT AND BUSINESS SUBSIDY AGREEMENT
BY AND BETWEEN
CITY OF ELK RIVER, MINNESOTA
AND
ORLUCK INDUSTRIES, INC.
•
1623869v1
TABLE OF CONTENTS
• Page
ARTICLE I DEFINITIONS 1
Section 1.1 Definitions 1
ARTICLE II REPRESENTATIONS AND WARRANTIES 3
Section 2.1 Representations and Warranties of the City 3
Section 2.2 Representations and Warranties of the Developer 3
ARTICLE III UNDERTAKINGS BY DEVELOPER AND CITY 5
Section 3.1 Construction of Project and Conveyance of Tax Abatement
Property 5
Section 3.2 Limitations on Undertaking of the City 5
Section 3.3 Commencement and Completion of Construction 5
Section 3.4 Damage and Destruction 5
Section 3.5 No Change in Use of Project 6
Section 3.6 Prohibition Against Transfer of Project and Assignment of
Agreement 6
Section 3.7 Minimum Market Value and Real Property Taxes 6
Section 3.8 Business Subsidies Act 7
Section 3.9 Duration of Abatement Program 8
• ARTICLE IV EVENTS OF DEFAULT 9
Section 4.1 Events of Default Defined 9
Section 4.2 Remedies on Default 9
Section 4.3 No Remedy Exclusive 9
Section 4.4 No Implied Waiver 9
Section 4.5 Agreement to Pay Attorney's Fees and Expenses 10
Section 4.6 Release and Indemnification Covenants 10
ARTICLE V ADDITIONAL PROVISIONS 11
Section 5.1 Conflicts of Interest 11
Section 5.2 Titles of Articles and Sections 11
Section 5.3 Notices and Demands 11
Section 5.4 Counterparts 11
Section 5.5 Law Governing 11
Section 5.6 Duration 12
Section 5.7 Provisions Surviving Rescission or Expiration 12
1623869v1 -1-
IP
TAX ABATEMENT AND BUSINESS SUBSIDY AGREEMENT
THIS AGREEMENT, made as of the _ day of April, 2004, by and among the City of
Elk River, Minnesota (the "City"), a municipal corporation and political subdivision of the State
of Minnesota, and Orluck Industries, Inc., a Minnesota corporation (the "Developer"),
WITNESSETH:
WHEREAS, pursuant to Minnesota Statutes, Sections 469.1812 through 469.1815, the
City has established a Tax Abatement Program; and
WHEREAS, the City believes that the development and construction of a certain Project
(as defined herein), and fulfillment of this Agreement are vital and are in the best interests of the
City, will result in preservation and enhancement of the tax base, provide employment
opportunities and are in accordance with the public purpose and provisions of the applicable state
and local laws and requirements under which the Project has been undertaken and is being
assisted; and
WHEREAS, the requirements of the Business Subsidy Law, Minnesota Statutes, Section
116J.993 through 116J.995, apply to this Agreement; and
WHEREAS, the City has adopted criteria for awarding business subsidies that comply
with the Business Subsidy Law, after public hearings for which notice was published; and
WHEREAS, the Council has approved this Agreement as a subsidy agreement under the
Business Subsidy Law.
NOW, THEREFORE, in consideration of the premises and the mutual obligations of the
parties hereto, each of them does hereby covenant and agree with the other as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. All capitalized terms used and not otherwise defined herein
shall have the following meanings unless a different meaning clearly appears from the context:
Agreement means this Agreement, as the same may be from time to time modified,
amended or supplemented;
Business Day means any day except a Saturday, Sunday or a legal holiday or a day on
which banking institutions in the City are authorized by law or executive order to close;
City means the City of Elk River, Minnesota;
ank County means Sherburne County, Minnesota;
1623869v 1
• Developer means Orluck Industries, Inc., a Minnesota corporation, its successors and
assigns;
Event of Default means any of the events described in Section 4.1;
Project means the construction by the Developer of an approximately 20,000 square foot
light manufacturing facility to be located in the City;
State means the State of Minnesota;
Tax Abatement Act means Minnesota Statutes, Sections 469.1812 through 469.1815;
Tax Abatement Program means the actions by the City pursuant to Minnesota Statutes,
Section 469.1812 through 469.1815, as amended, and undertaken in support of the Project;
Tax Abatement Property means the real property identified as Lot 1,Block 2, Country
Crossing Business Center, located in the City;
Tax Abatements means 100% of the City's share of real estate taxes on the Tax
Abatement Property abated in accordance with the Tax Abatement Program.
i
•
1623869v1 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the City. The City makes the following
representations and warranties:
(1) The City is a municipal corporation and a political subdivision of the State and
has the power to enter into this Agreement and carry out its obligations hereunder.
(2) The Tax Abatement Program was created, adopted and approved in accordance
with the terms of the Tax Abatement Act.
(3) To finance the costs of the Project to be undertaken by the Developer, the City
proposes, subject to the further provisions of this Agreement, to convey the Tax Abatement
Property to the Developer and apply the Tax Abatements to reimburse the City for a portion of
the costs of the Tax Abatement Property as further provided in this Agreement.
(4) The City has made the findings required by the Tax Abatement Act for the Tax
Abatement Program.
Section 2.2 Representations and Warranties of the Developer. The Developer makes the
following representations and warranties:
(1) The Developer has the power to enter into this Agreement and to perform its
obligations hereunder and is not in violation of its articles or bylaws or any local, state or federal
laws.
(2) The Developer is a corporation validly existing under the laws of this State and
has full power and to enter into this Agreement and carry out the covenants contained herein.
(3) The Developer will cause the Project to be constructed in accordance with the
terms of this Agreement and all local, state and federal laws and regulations (including, but not
limited to, environmental, zoning, energy conservation, building code and public health laws and
regulations).
(4) The Developer will obtain or cause to be obtained, in a timely manner, all
required permits, licenses and approvals, and will meet, in a timely manner, all requirements of
all applicable local, state, and federal laws and regulations which must be obtained or met before
the Project may be lawfully constructed
(5) The construction of the Project would not be undertaken by the Developer, and in
the opinion of the Developer would not be economically feasible within the reasonably
foreseeable future, without the assistance and benefit to the Developer provided for in this
• Agreement.
1623869v1 3
(6) Neither the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, nor the fulfillment of or compliance with the terms and
conditions of this Agreement is prevented, limited by or conflicts with or results in a breach of,
the terms, conditions or provision of any contractual restriction, evidence of indebtedness,
agreement or instrument of whatever nature to which the Developer is now a party or by which it
is bound, or constitutes a default under any of the foregoing.
(7) The Developer will cooperate fully with the City with respect to any litigation
commenced with respect to the Project.
(8) The Developer will cooperate fully with the City in resolution of any traffic,
parking, trash removal or public safety problems which may arise in connection with the
construction and operation of the Project.
•
1623869v1 4
•
ARTICLE III
UNDERTAKINGS BY DEVELOPER AND CITY
Section 3.1 Construction of Project and.Conveyance of Tax Abatement Property.
(1) The costs of the construction of the Project shall be paid by the Developer. The
Developer will construct the Project in accordance with the approved construction plans and at
all times prior to the termination of this Agreement will operate and maintain, preserve and keep
the Project or cause the Project to be maintained, preserved and kept with the appurtenances and
every part and parcel thereof, in good repair and condition.
(2) The City shall convey the Tax Abatement Property to the Developer by quit claim
deed for a purchase price of$1.00 simultaneously with the Developer's closing with the provider
of financing sufficient to complete the construction of the Project provided the Developer has
delivered an executed copy of this Agreement to the City and has obtained a building permit for
the Project.
(3) If the Developer fails to substantially complete the Project by December 31, 2005,
then the Developer shall, at its option, either (i) shall re-convey the Tax Abatement Property to
the City by quit claim deed, or (ii) shall remit to the City the sum of$201,520,which is agreed
upon by the parties hereto to represent the fair market value of the Tax Abatement Property, it
being the intent of this Agreement that the conveyance or transfer of the Tax Abatement Property
to the Developer shall be conditioned on the Developer's construction of the Project, and that
upon the failure by the Developer to construct the Project, all the rights and interest in and to the
Tax Abatement Property conveyed to the Developer, and that all rights and interests of the
Developer, and any assigns or successors in interest to and in the Tax Abatement Property shall
revert to the City,and the Developer shall be released from its obligations under this Agreement.
Section 3.2 Limitations on Undertaking of the City. Notwithstanding the provisions of
Sections 3.1, the City shall have no obligation to the Developer under this Agreement convey the
Tax Abatement Property to the Developer, if the City, at the time or times such payment is to be
made, is entitled under Section 4.2 to exercise any of the remedies set forth therein as a result of
an Event of Default which has not been cured.
Section 3.3 Commencement and Completion of Construction.
The Developer shall complete the Project by December 31, 2005. All work with respect
to the Project to be constructed or provided by the Developer shall be in conformity with the
construction plans as submitted by the Developer and approved by the City.
Nothing in this Agreement shall be deemed to impair or limit any of the City's rights or
responsibilities under its zoning laws or construction permit processes.
di Section 3.4 Damage and Destruction. In the event of damage or destruction of the
Project the Developer shall repair or rebuild the Project.
1623869v1 5
• Section 3.5 No Change in Use of Project. During the term of this Agreement, the
Developer shall be subject to the continue to operate the Project as a manufacturing facility in
which at least 50 percent of the payroll of the operations of the Project will be for employees
engaged in the material staging and production of tangible personal property by procedures
commonly regarded as manufacturing, processing, fabrication, or assembling which changes
some existing material into new shapes, new qualities, or new combinations.
Section 3.6 Prohibition Against Transfer of Project and Assignment of Agreement. The
Developer represents and agrees that prior to the termination date of this Agreement the
Developer shall not transfer the Project or any part thereof or any interest therein, without the
prior written approval of the City. The City shall be entitled to require as conditions to any such
approval that:
(1) Any proposed transferee shall have the qualifications and financial responsibility,
in the reasonable judgment of the City, necessary and adequate to fulfill the obligations
undertaken in this Agreement by the Developer.
(2) Any proposed transferee, by instrument in writing satisfactory to the City shall,
for itself and its successors and assigns, and expressly for the benefit of the City, have expressly
assumed all of the obligations of the Developer under this Agreement and agreed to be subject to
all the conditions and restrictions to which the Developer is subject.
(3) There shall be submitted to the City for review and prior written approval all
instruments and other legal documents involved in effecting the transfer of any interest in this
Agreement or the Project.
Section 3.7 Minimum Market Value and Real Property Taxes.
(1) The Developer shall not seek a reduction of the market value of the Tax
Abatement Property as determined by the County Assessor below $1,056,400 for any year so
long as this Agreement remains in effect. Nothing in this Agreement prohibits the Developer
from seeking, through the exercise of legal or administrative remedies, a reduction in such
market value for property tax purposes to a minimum of $1,056,400 if the County Assessor
determines the market value of the Tax Abatement Property is in excess of$1,056,400
(2) The Developer shall, so long as this Agreement remains in effect, pay all real
property taxes with respect to all parts of the Tax Abatement Property acquired and owned by it
which are payable pursuant to the provisions of the Assessment Agreement and any other
statutory or contractual duty that shall accrue subsequent to the date of its acquisition of title to
the Tax Abatement Property (or part thereof) and until title to the property is vested in another
person. The Developer agrees that for tax assessments so long as this Agreement remains in
effect:
(a) It will not seek administrative review or judicial review of the
applicability of any tax statute relating to the ad valorem property taxation of real
property contained on the Tax Abatement Property determined by any tax official to be
applicable to the Project or the Developer or raise the inapplicability of any such tax
1623869v1 6
• statute as a defense in any proceedings with respect to the Tax Abatement Property,
including delinquent tax proceedings; provided, however, "tax statute" does not include
any local ordinance or resolution levying a tax;
(b) It will not seek administrative review or judicial review of the
constitutionality of any tax statute relating to the taxation of real property contained on
the Tax Abatement Property determined by any tax official to be applicable to the Project
or the Developer or raise the unconstitutionality of any such tax statute as a defense in
any proceedings, including delinquent tax proceedings with respect to the Tax Abatement
Property; provided, however, "tax statute" does not include any local ordinance or
resolution levying a tax;
(c) It will not seek any tax deferral or abatement, either presently or
prospectively authorized under Minnesota Statutes, Section 469.181, or any other State or
federal law, of the ad valorem property taxation of the Tax Abatement Property so long
as this Agreement remains in effect.
Section 3.8 Business Subsidies Act.
(1) In order to satisfy the provisions of Minnesota Statutes, Sections 116J.993 to
116J.995 (the "Business Subsidies Act"), the Developer acknowledges and agrees that the
amount of the "Business Subsidy" granted to the Developer under this Agreement is the value of
• the Tax Abatement Property $201,520, and that the Business Subsidy is needed because the
Project is not sufficiently feasible for the Developer to undertake without the Business Subsidy.
The public purpose of the Business Subsidy is to develop new jobs within the City and to
increase the tax base in the City. The Developer agrees that it will meet the following goals (the
"Goals"): It will create at least full-time equivalent jobs in connection with the development
of the Project at a direct hourly wage of at least $ per hour within two years from the
"Benefit Date", which is the date the Project is completed.
(2) If the Goals are not met, the Developer agrees to repay all or a part of the
Business Subsidy to the City,plus interest ("Interest") set at the implicit price deflator defined in
Minnesota Statutes, Section 275.70, Subdivision 2, accruing from and after the Benefit Date,
compounded semiannually. If the Goals are met in part, the Developer will repay a portion of
the Business Subsidy (plus Interest) determined by multiplying the Business Subsidy by a
fraction, the numerator of which is the number of jobs in the Goals which were not created at the
wage level set forth above and the denominator of which is _ (i.e. number of jobs set forth in
the Goals).
(3) The Developer agrees to (i) report its progress on achieving the Goals to the City
until the later of the date the Goals are met or two years from the Benefit Date, or, if the Goals
are not met, until the date the Business Subsidy is repaid, (ii) include in the report the
information required in Subdivision 7 of the Jobs Act on forms developed by the Minnesota
Department of Employment and Economic Development, and (iii) send completed reports to the
City. The Developer agrees to file these reports no later than March 1 of each year commencing
March 1, 2005, and within 30 days after the deadline for meeting the Goals. The City agrees that
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0 if it does not receive the reports, it will mail the Developer a warning within one week of the
required filing date. If within 14 days of the post marked date of the warning the reports are not
made, the Developer agrees to pay to the City a penalty of$100 for each subsequent day until the
report is filed up to a maximum of$1,000.
(4) The Developer agrees to continue operations of the Project for at least five (5)
years after the Benefit Date.
(5) Other than the Tax Abatements, there are no other state or local government
agencies providing financial assistance for the Project other than the City.
Section 3.9 Duration of Abatement Program. The Tax Abatement Program shall exist
for a period of up to twelve years beginning with real estate taxes payable in 2006 through 2017.
The City shall apply the Tax Abatements received by the City to reimburse itself for the cost of
the Tax Abatement Property.
ID
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•
ARTICLE IV
EVENTS OF DEFAULT
Section 4.1 Events of Default Defined. The following shall be "Events of Default" under
this Agreement and the term "Event of Default" shall mean whenever it is used in this
Agreement any one or more of the following events:
(1) Failure by the Developer to timely pay any ad valorem real property taxes, special
assessments, utility charges or other governmental impositions with respect to the Project.
(2) Failure by the Developer to cause the construction of the Project to be completed
pursuant to the terms, conditions and limitations of this Agreement.
(3) Failure by the Developer to observe or perform any other covenant, condition,
obligation or agreement on its part to be observed or performed under this Agreement.
Section 4.2 Remedies on Default. Whenever any Event of Default referred to in Section
4.1 occurs and is continuing, the City, as specified below, may take any one or more of the
following actions after the giving of thirty (30) days' written notice to the Developer citing with
specificity the item or items of default and notifying the Developer that it has thirty (30) days
mk within which to cure said Event of Default. If the Event of Default has not been cured within
lip said thirty (30) days:
(a) The City may suspend its performance under this Agreement until it
receives assurances from the Developer, deemed adequate by the City, that the Developer
will cure its default and continue its performance under this Agreement.
(b) The City may cancel and rescind the Agreement.
(c) The City may take any action, including legal or administrative action, in
law or equity, which may appear necessary or desirable to enforce performance and
observance of any obligation, agreement, or covenant of the Developer under this
Agreement.
Section 4.3 No Remedy Exclusive. No remedy herein conferred upon or reserved to the
City is intended to be exclusive of any other available remedy or remedies, but each and every
such remedy shall be cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to
exercise any right or power accruing upon any default shall impair any such right or power or
shall be construed to be a waiver thereof but any such right and power may be exercised from
time to time and as often as may be deemed expedient.
Section 4.4 No Implied Waiver. In the event any agreement contained in this Agreement
• should be breached by any party and thereafter waived by any other party, such waiver shall be
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111
limited to the particular breach so waived and shall not be deemed to waive any other concurrent,
previous or subsequent breach hereunder.
Section 4.5 Agreement to Pay Attorney's Fees and Expenses. Whenever any Event of
Default occurs and the City shall employ attorneys or incur other expenses for the collection of
payments due or to become due or for the enforcement or performance or observance of any
obligation or agreement on the part of the Developer herein contained, the Developer agrees that
they shall, on demand therefor, pay to the City the reasonable fees of such attorneys and such
other expenses so incurred by the City.
Section 4.6 Release and Indemnification Covenants.
(1) The Developer releases from and covenants and agrees that the City and its
governing body members, officers, agents, servants and employees shall not be liable for and
agrees to indemnify and hold harmless the City and its governing body members, officers,
agents, servants, and employees against any loss or damage to property or any injury to or death
of any person occurring at or about or resulting from any defect in the Project.
(2) Except for any willful misrepresentation or any willful or wanton misconduct of
the following named parties, the Developer agrees to protect and defend the City and its
governing body members, officers, agents, servants and employees, now or forever, and further
agrees to hold the aforesaid harmless from any claim, demand, such, action or other proceeding
whatsoever by any person or entity whatsoever arising or purportedly arising from a breach of
the obligations of the Developer under this Agreement, or the transactions contemplated hereby
or the acquisition, construction, installation, ownership, maintenance and operation of the
Project. -
(3) The City and its governing body members, officers, agents, servants and
employees shall not be liable for any damages or injury to the persons or property of the
Developer or its officers, agents, servants or employees or any other person who may be about
the Project due to any act of negligence of any person.
(4) All covenants, stipulations, promises, agreements and obligations of the City
contained herein shall be deemed to be the covenants, stipulations, promises, agreements and
obligations of the City and not of any governing body member, officer, agent, servant or
employee of the City in the individual capacity thereof.
•
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ARTICLE V
ADDITIONAL PROVISIONS
Section 5.1 Conflicts of Interest. No member of the governing body or other official of
the City shall participate in any decision relating to the Agreement which affects his or her
personal interests or the interests of any corporation, partnership or association in which he or
she is directly or indirectly interested. No member, official or employee of the City shall be
personally liable to the City in the event of any default or breach by the Developer or successor
or on any obligations under the terms of this Agreement.
Section 5.2 Titles of Articles and Sections. Any titles of the several parts, articles and
sections of the Agreement are inserted for convenience of reference only and shall be
disregarded in construing or interpreting any of its provisions.
Section 5.3 Notices and Demands. Except as otherwise expressly provided in this
Agreement, a notice, demand or other communication under this Agreement by any party to any
other shall be sufficiently given or delivered if it is dispatched by registered or certified mail,
postage prepaid, return receipt requested,or delivered personally, and
(1) in the case of the Developer is addressed to or delivered personally to:
Orluck Industries,Inc.
(2) in the case of the City is addressed to or delivered personally to the City at:
City of Elk River
Elk River City Hall
13065 Orono Parkway
Elk River, MN 55330-5600
or at such other address with respect to any such party as that party may, from time to time,
designate in writing and forward to the other, as provided in this Section.
Section 5.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute one and the same instrument.
Section 5.5 Law Governing. This Agreement will be governed and construed in
accordance with the laws of the State of Minnesota.
•
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1110 Section 5.6 Duration. This Agreement shall remain in effect through December 31,
2017, unless earlier terminated or rescinded in accordance with its terms.
Section 5.7 Provisions Surviving Rescission or Expiration. Sections 4.5 and 4.6 shall
survive any rescission, termination or expiration of this Agreement with respect to or arising out
of any event, occurrence or circumstance existing prior to the date thereof.
040
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0 IN WITNESS WHEREOF, the City has caused this Agreement to be duly executed in its
name and on its behalf, and the Developer has caused this Agreement to be duly executed in its
name and on its behalf, on or as of the date first above written.
ORLUCK INDUSTRIES, INC.
By
Its
By
Its
•
This is a signature page to the Tax Abatement and Business Subsidy Agreement by and between
ii• the City of Elk River, Minnesota and Orluck Industries, Inc..
1623869v1
CITY OF ELK RIVER, MINNESOTA
By
Its Mayor
By
Its Administrator
This is a signature page to the Tax Abatement and Business Subsidy Agreement by and between
the City of Elk River, Minnesota and Orluck Industries, Inc..
411
1623869v1