6.0. EDSR 07-08-2002 Item 6 . EDA
• Item 5 . 1 . CC
N
city
ikIN
River
MEMORANDUM
•
TO: Economic Development Authority
Mayor & City Council
FROM: Catherine Mehelich, Director of Economic Development
DATE: July 8, 2002
SUBJECT: Consider Adoption of the City's Tax Rebate Financing Policy as
Amended
Attachments
• Amended Tax Rebate Financing Policy,July 2002
• • Existing Tax Rebate Financing Policy,Adopted April 2000
Background
At its June 24, 2002 meeting the City Council and EDA discussed Tax Rebate Financing
policy issues related to office development. State law provides individual taxing jurisdictions
the flexibility to define their own priorities for the use of tax abatement. The policy is to be
used as a guide in the processing and review of applications requesting TRF assistance.
The attached amended policy incorporates the following items:
• Speculative office development is not eligible for TRF assistance. Speculative
projects are defined as those projects which have pre-leasing agreements for less
than 50% of the available space. In addition, 50% of the jobs within the leasible
office space must be "new" jobs to the City of Elk River,meaning jobs provided by
employers not located in the city at any time prior to occupying space in the project.
(Section IV.j.). Per the Business Subsidy Law, subsidy agreement goals would be
reported and evaluated annually for two years after the date the benefit is received or
until all goals have been met. If the recipient fails to meet the goals they would be
required to pay back the assistance plus interest.
• Office facilities remain eligible for TRF but with the minimum requirements of
25,000 square feet new construction and result in a minimum market value of
• $1,000,000 upon project completion. (SectionV.b.)
Tax Rebate Financing Policy—Amended
July 8,2002
Page 2 of 2
• Applications shall be reviewed by the City's financial advisor for evaluation of 41,
financial feasibility without TRF assistance. The cost of financial review and legal
services will be deducted from the $5,000 application fee. (Section V.c. & Section
VII.A.1.)
• A reduction in the requirement for a minimum 20% cash equity investment in the
project. A reduction to 10%would be consistent with SBA504 financing and allow
businesses to utilize the benefits of SBA financing in addition to TRF.
(Section IV.b.)
• All developer/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 and MN Business Subsidy Law (Section VI).
MN Business Subsidy Law requires subsidy grantors to establish a"Business Subsidy
Criteria" by May 2003. Staff is preparing the draft City of Elk River Business
Subsidy Criteria for review by the EDA and City Council at the August 12, 2002
meeting. A public hearing of the City Council is required prior to adoption of the
Business Subsidy Criteria.
Recommendation
Consider adoption of the amended Tax Rebate Finance Policy. •
•
•
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0 Economic Development
Tax Rebate Financing
Policy & Application
Amended:July 2002
Adopted: April 10, 2000
0
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
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
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 "Ciy"shall include the Elk River Ciy Council,Economic
Development Authority, and Housing and RedevelopmentAuthoriy.
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.
• 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
4111 industrial areas in the city that result in high quality redevelopment and private
reinvestment.
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-asyougo 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
ten percent (210%) 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: 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.
Speculative_projects are defined as those projects which have pre-leasing •
agreements for less than 50% of the available space. In addition. 50% of the
jobs within the leasible office building space must be considered"new"jobs
to the City- of Elk River,meaning jobs provided by employers not located in
the City at any time prior to occupying space in the project. Business
4
retention will be considered only in cases where job loss is specific and
demonstrable.
110 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
• Office or rResearch and development facilities that satisfy
Business Park zoning requirements; or
a Office facilities with a minimum new construction of 25,000
square feet and minimum market value of 51,000,000 upon
project completion
i • 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. Evaluation of the project's financial feasibility
without TRF shall be provided by the City's financial advisor.
d. 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.
•
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.
• 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.
•
•
6
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 Sstate(Statute 116J.993 asap
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
abatement 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, and be deemed ineligible by the State to receive
any loans or grants from public entities for a period of five years.
VII. APPLICATION PROCESS FOR TRF
A. CITY OF ELK RIVER
1. Applicant submits the completed application along with ill a $5,000 application
fees. 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.
•
7
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.Alan Jensen
Superintendent- School District 728
763-241-3400
i
8
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
9
B. PROJECT INFORMATION
I. The project will be:
Industrial: New Construction Expansion Redevelopment / Rehab. 1111
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:
10
D. SOURCES & USES
• 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 $
TOTAL $
•
11
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 the Project •
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
• 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 2
Over$15,000 1
5. Wage Level of jobs created: Points:
Average hourly wage Over$21/ hour 5
of jobs created: $18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under$10 / hour 1
6. Project size: Points:
The project will result in the construction 40,000+ 5
of square feet 30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less 1
•
13
7. Type of Project: Points:
100% Owner Occupied 5
Mix Owner Occupied& Investment 4
Investment Property 3
8. Use: Points:
Industrial or Business Park Project 5
Commercial Rehabilitation/Redevelopment 4
9. The project will pay annual Points:
property taxes in the first fully 35,000+ 5
assessed year of$ 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. •
9. Bonus Points Bonus Points:
The project will be 100%Pay-asyou 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
14
• 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
15
XI. SAMPLE BUT-FOR ANALYSIS
WITH NO WITH
TAX REBATE FINANCING TAX REBATE FINANCING0
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
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% •
16
•
City of
Elk 0-4,4-41%-i--
Rivé?
Economic Development
Tax Rebate Financing
Policy & Application
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
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 I I
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
110 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.
• 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.
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-asyougo 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: 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.
•
4
• 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
• Office or research facilities that satisfy Business Park zoning
requirements;
• Residential development and redevelopment may be eligible for
TRF under a separate set of policies and only with the
recommendation of the HRA.
• New commercial or retail development is not eligible for TRF.
c. The developer shall demonstrate that the project is not financially feasible
bat 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.
• 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.
•
5
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 e 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 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, and be deemed ineligible by the State to receive
any loans or grants from public entities for a period of five years.
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.
6
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
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
7
Contractor Name
Address
Phone Fax Email
110
Engineer Name
Address
Phone Fax Email
Architect Name
Address
Phone Fax Email
B. PROJECT INFORMATION
1. The project will be:
Industrial: New Construction Expansion Redevelopment / Rehab.
Office/research facility that conforms to business park standards
Commercial Redevelopment/Rehabilitation
Other
2. In addition to the City of Elk River, applicant is requesting TRF funds from:
Sherburne County School District 728
3. The project will be: Owner Occupied Leased Space
• If leased space,please attach a list names and addresses of future lessees and indicate •
the status of commitments or lease agreements.Attach as Exhibit E.
4. Project Address
• Include Legal Description and PID Number. Attach as Exhibit F
5. Site Plan Attached: Yes No
6. Total Amount of TRF Requested: $ over 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
•
8
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:
D. SOURCES & USES
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 $
TOTAL $
•
9
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 the Project
•
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
411
By
Its
10
TAX REBATE FINANCING PROPOSAL REVIEW WORKSHEET
• 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 2
Over$15,000 1
5. Wage Level of jobs created: Points:
Average hourly wage Over$21/ hour 5
of jobs created: $18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under$10 / hour 1
6. Project size: Points:
The project will result in the construction 40,000+ 5
of square feet 30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less 1
i
11
7. Type of Project: Points:
100% Owner Occupied 5 •
Mix Owner Occupied&Investment 4
Investment Property 3
8. Use: Points:
Industrial or Business Park Project 5
Commercial Rehabilitation/Redevelopment 4
9. The project will pay annual Points:
property taxes in the first fully 35,000+ 5
assessed year of$ 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.
•
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: High 45-38 points
Moderate 37-29 points
Low 28-20 points
Not Eligible 19-0 points
•
12
• 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
11111
13
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
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% •
14
•
City of
Elk
River
MEMORANDUM
TO: Mayor & City Council
CC: Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Development
DATE: July 8, 2002
SUBJECT: Consider Property Tax Abatement for Elk Path, LLC
Professional Office Building Project
• Background
The City Council held a public hearing on June 10, 2002 regarding the Tax Rebate Financing
(tax abatement) application by Elk Path,LLC for the construction of a professional office
building.
Following the public hearing the City Council held a joint meeting on.June 24, 2002 with the
Economic Development Authority to discuss policy issues related to the use of tax rebate
financing for office developments. It was the consensus of the Council and EDA that the
Elk Path,LLC project be evaluated based on the city's amended Tax Rebate Financing
policy.
Analysis & Recommendation
The proposed Elk Path, LLC professional office building project does not meet the city's
new minimum requirement for 50% of the available office space to be pre-leased.
Since the Elk Path LLC project, as proposed, does not meet the minimum requirement staff
recommends the application be denied. The project may be reconsidered once 50% of the
space is pre-leased, or the project scope is revised.
S:\EDA\TAlXABA rh\E1kPathLLC\7-8-02.doc
City of
Elk ..�.�
River
MEMORANDUM
TO: Mayor & City Council
CC: Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Developmen
DATE: July 8, 2002
SUBJECT: Minnesota Property Tax Abatement - History of Use
Attachments
• Article: "Abatement...the new development tool of choice.",April 29, 2002 MN
Real Estate Journal.
• Staff Research of area communities
• Background
At the June 24, 2002 Council meeting Councilmember Dietz had inquired about the use of
tax abatement in other Minnesota communities.
Analysis
According to the city's financial advisor, Sid Inman of Ehlers &Associates, tax abatement
was introduced in 1997 and its use by communities has been limited to the last 3-years.
Ehlers &Associates have experienced that tax abatement is not commonly used in
metropolitan communities where redevelopment is prevalent and, abatement does not
provide the same amount of benefits as a 25-year tax increment finance district. Ehlers has
found that abatement is more commonly used in Greater Minnesota on economic and
industrial development projects because of its simplicity and less restrictions than TIF.
Abatement is also used on special and unique projects that the municipality strongly desires
but the project would not qualify under statutory TIF requirements (e.g. office or
retail/commercial development).
Staff research of Anoka, Rogers,Ramsey, Otsego,Big Lake and Andover found limited to
no use of tax abatement,nor a policy. The City of Golden Valley and Hennepin County did
participate in tax abatement for the 400,000-square foot General Mills corporate office
development.
• Attached is a MN Real Estate Journal article written by Mr. Inman and Ehler's associate,
Mark Ruff, `Abatement...the new development tool of choice." A copy of the article was provided
in the May 13, 2002 EDA meeting packet. This article provides additional background on
the history and issues related to the use of tax abatement.
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Tax Abatement Research
• City of Anoka
Bob Kirchner, Community Development Director
• Does not have a written policy for tax abatement
• Abatement was used for a downtown theatre project and might be used for a commercial
development in the future
• Mr. Kirchner does not think that Abatement for an office building would pass through the
Council in Anoka
City of Rogers
Patrick Poshek, Assessor
• Has not done TRF
City of Ramsey
Shawn,TIF Specialist
• TRF has never been used in Ramsey-never any discussion of forming a policy
City of Otsego
Judy Hudson, Clerk/Zoning
• Has never done TRF
City of Andover
Vicki Volk, City Clerk
• Has not done TRF on an office building
City of Big Lake
Jim Thares
• Has not done TRF but is forming a policy using Elk River's policy as a guide
City of Coon Rapids
Mark Nevinski, Redevelopment Specialist
• Has only done one TRF project which was used for infrastructure
Hennepin County
Tim Atchison, Senior Commercial Appraiser
• Is only aware of one TRF project-Golden Valley and Hennepin County provided TRF to
ell
General Mills for the corporate office expansion on Hwy 169 and 394
Page 18 Minnesota Real Estate Journal April 29, 2002
ABATEMENT from previous page ,
Before property tax reform, the aver However, some school districts have
age breakdown of the tax bill was as fol- participated in abatement projects in the
lows: One important thing to note is that abatement cannot be past.Typically, they have had short peri-
ods of assistance or have assisted level-
School District: 50 percent opments that increase enrollment in a
County: 30 percent ' used at the same time as a TIF district. However, some mature school district. Counties also
City: 20 percent. have, in the past, been reluctant to favor
urisdictions havetacked abatement to theend of a TIF one business or housing development
Under this breakdown, abatement ion
over another. However, counties seem
was a less powerful tool because it wasmuch more interested in utilizing abate-
difficult for a school board to agree to district, after it has been decertified, to provide additional ment today for job creation efforts now
help a private development when it is that the economy is in a recession.
increasing class sizes or cutting bus assistance to a devel0 ment. Because of these issues, cities tended
routes, even though the funding for the p to be the main source of abatement
abatement is a different source than funds, with the lowest share of the tax
general fund money. dollar. Since property tax reform, the
roles have reversed and cities have more
funds available for abatement, as do
The I I thAnnualWhile great variation exists in the
MINNESOTA' counties.
split ofa tax bill, the average break-
ft Twin Cities Real Estate Professionals '�`: ` ; � � { down is now:
School District: 25 percent
e�
County: 38 percent
CornerHouse Fundraiser City: 37 percent.
Based upon this breakdown in taxes,
Hosted by Dave Mona and Roy Smalley the mechanics of abatement are fairly
easy to grasp. Let's assume that an
existing private medical clinic is going
When: Picnic: 4:00 p.m. Game: 7:05 p.m Where: Picnic area to add 20,000 square feet to its facility,
but the site requires major soil coffee-
Tuesday,June 25, 2002 Music provided by Twins vs. on the SE side of the tion. The existing annual property taxes
onthe NAIOP's Chicago White Sox Metrodome by Gate D addition the clinic are increase$20, , and the new
will taxes by $40,000
for a new total tax bill of$60,000.
u,, ---
IiIPj1U
hs l til p • • -, {v ,- : , Each major taxing jurisdiction is able
� — Registration Form ,, todecidewtherp,0 # Yui ta; ; ,r.._i-',t. s -,+"4t t 5 F r,i
. erty tax bill for a development should
Name be returned to the project for a period of
_,.. __ ._ ____ up to 15 years. The facility will still pay
taxes (unlike the traditional view of an
.)-hiL Pang abatement) and will receive a benefit
through an annual rebate or through a
general obligation (0.0.) abatement
Address bond issued by one of the local govern-
ments (see chart).
Based upon our examplcity
City,State,Zip. • could now rebate up to$22,2 r year
of the new total tax bill of$60,000 for
our clinic project, which is 46 percent
Phone higher than before tax reform. If the
county can be persuaded to participate,
Packages: Individual Tickets: the annual assistance could be teased
II
up to $45,000 (city plus c The Red and White packages include 10 tickets por-
tions). Total assistance avails to the
P 8Includes tickets to the game and the picnic. project, if both the city and county
to the game,picnic and 4 free parking passes. agreed to participate and abate 100 per-
cent of the taxes, could be as high as
$675,000.
liEkitallettie( ,tt, RYTri' Y` Individual Infield Tickets Other innovative uses exist for abate-
,,' " �� meat as well.If new development is tax
pkgs @ $600.00 = @ $60.00 = ing the limits of a roadway intersection,
abatement can be used to finance road
White Package (Lower level tickets) improvements where no specific benefit
Individual Lower Level Tickets can be assessed to one or more proper-
ties. A new single-family housing sub-
pkgs @ $450.00 = @ $45.00 = division with high assessments could be
assisted with abatements to assure
Bjti i
�
Packs e�ell tt kergy - 4 affordability in the new homes. A rental
tit:..
housing development badly in need of
pkgs @ $300.00 = renovation could have its taxes abated
for five years to allow for major
improvements, or a redevelopment area
Package Total $ could be assisted with abatements from
Individual Total $ within and from surrounding properties,
outside the boundaries its area.
One important thing to note is that
GRAND TOTAL AMOUNT ENCLOSED $ abatement cannot be used at the same
time as a TIF district. However, some
Please mail this registration form with your payment jurisdictions have tacked abatement on
by MAY 31, 2002,to reserve your CornerHouse Send to: CornerHouse to the end of a TIP district, after it has
been decertified, to provide additional
Fundraiser Picnic and Twins game tickets. 2502 - 10th Avenue South assistance to a development.
Minneapolis,MN 55404 For example, a western Minnesota
Game tickets will be mailed in advance. city and county extended a nine-year tax
Questions? increment district to more than 20 years
Make checks payable to CornerHouse - Call Karen Larson 952-885-0815 of porkaprocessieng
for the development of a
P y processing plant— thus providing
a 501 (c) (3) charity or email to klarson@rejournals.com needed assistance to secure financing
for its construction.