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6.0. EDSR 07-10-2000 ( Item # 6. ty of lkRiver MEMORANDUM TO: Economic Development Authority FROM: Marc Nevinski, Assistant Director of Economic Development DATE: July 10, 2000 SUBJECT: ANC /Opus Proposal Issue A proposal has been submitted by Opus Northwest, in conjunction with Advanced Nutrionals Corporation/PouchPac Industries (ANC) to develop the 14.97 acre Emmerich property in the West Business Park. Opus and ANC are requesting that pay-as-you-go Tax Increment Financing be used to write down the land costs. Background ANC intends to build a state of the art plant in Elk River that will produce, package, and distribute beverage products in stand-up flexible pouches. The facility will be built by Opus Northwest and will consist of a premium fabcon concrete structure of approximately 75,000 square feet in Phase I and may approach 200,000 square feet in subsequent expansions. Six thirty-seven foot storage tanks will be included in the design of the building and will require a conditional use permit. ANC plans to employ approximately 50 people with the initial phase and up to 200 with subsequent expansions. Many of the jobs will be technically oriented and will command higher wages. Staff has proposed the following financial package for the project: • Refund 100% of land costs over a 4-5 year period (interest rate to be negotiated). • $100,000 micro-loan at four (4) points below prime • 20% reduction in water rates for a three-year period of all water usage in excess of 2,000,000 gallons per month. As is often the case, this project is on a very tight schedule and staff is doing its best to accommodate the timeframe where possible. Opus and ANC are in the process of completing the necessary paperwork, 13065 Orono Parkway • P.O. Box 490 • Elk River, MN 55330 • TDD&Phone: (612) 441-7420 • Fax: (612)441-7425 including the TIF application, and submitting site plans. Although the TIF application was not available for inclusion in this packet, it is staffs intention to provide a copy of the application and a rating sheet at the EDA meeting. Action Requested In order to begin the process of establishing a TIF district, staff requests that the EDA consider the attached resolution recommending that the City Council call for a public hearing on the modification to Development District Number 1 and the establishment of TIF District 21. Attachments • Site Map • Resolution requesting the City Council call a Public Hearing for the establishment of TIF District 21 S • R''E .„ . za F n c W r 3I S w T1__� -aCfr d rW� is 3:i;;::;-- :. .---T,ei. z � 5 8 �SE Aa fr =TQ--, : 'E :2 W '�1rg rg E-2 ••:i:J:. IiMic e ; • �.Y E ?S f aae tz =/1 Ori ... �:.v c3 f `5r o s; 1 __`1: t }"fes •'•.. 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(p\ ii 1 THE ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF ELK RIVER, MINNESOTA II/ RESOLUTION#00 - RESOLUTION RECOMMENDING THAT THE CITY COUNCIL OF THE CITY OF ELK RIVER CALL FOR A PUBLIC HEARING ON THE ADOPTION OF A MODIFICATION TO DEVELOPMENT DISTRICT NO. 1 AND THE ESTABLISHMENT OF TAX INCREMENT FINANCING PLANS FOR TAX INCREMENT FINANCING DISTRICTS NO. 21 BE IT RESOLVED, by the Economic Development Authority of the City of Elk River, Minnesota(the "EDA") as follows: WHEREAS, the City Council ("the Council") of the City of Elk River, Minnesota(the "City") established Development District No. 1 pursuant to Minnesota Statutes, Sections 469.090 through 469.1081 and 469.011 through 469.047, inclusive, as amended, in an effort to encourage the development and redevelopment of certain designated areas within the City; and WHEREAS, the City is proposing the Modification of Development District No. 1 and the establishment of Tax Increment Financing Plans for Tax Increment Financing District No. 21,pursuant to and in accordance with Minnesota Statutes, Sections 469.090 through 469.1081 and 469.011 through 469.047 and Sections 469.174 through 469.179, inclusive, as amended; NOW,THEREFORE BE IT RESOLVED by the EDA as follows: • 1. The EDA hereby recommends that the Elk River City Council call for a public hearing on August 21, 2000 to consider the proposed adoption of the Modification to the Development District No. 1 and the proposed adoption of the Tax Increment Financing Plans for Tax Increment Financing District No. 21 and cause notice of said public hearing to be given as required by law. 2. The EDA directs the Executive Director to transmit copies of the Modification to the Planning Commission of the City and requests the Planning Commission's written opinion indicating whether the proposed Modifications are in accordance with the Comprehensive Plan of the City, prior to the date of the public hearing. 3. The Executive Director of the EDA is hereby directed to submit a copy of the Modifications to the Council for its approval. 4. The EDA directs the Executive Director to transmit the Modifications to the county and the school district(s) in which Tax Increment Financing District No. 21 is proposed to be established no later than July 19, 2000. Approved by the EDA July 10, 2000. President,Pat Dwyer ATTEST: illCatherine Mehelich,Executive Director s:\eda\tif\tif21\edaregst.doc • COPY City of Elk River, Minnesota Tax Increment Financing Policy & Application Adopted: August, 1991 Revised: March, 2000 • • Table of Contents I. Policy Purpose COPY II. Objectives of Tax Increment Financing 3 III. City of Elk River Policies for the Use of TIF 4 IV. Qualifications 5 V. Subsidy Agreement & Reporting Requirements 6 VI. Application Process 7 VII. Application 8 Applicant Information 8 Project Information 9 Public Purpose 9 Sources & Uses 10 Checklist & Additional Information 11 VIII. Application Review Worksheet 12 • IX. Exhibits 14 A Corporation/Partnership Description B Project Description C Shareholders D But-for Analysis E Prospective Lessees 2 I. POLICY PURPOSE For the purposes of this document, the term"City"shall include the Elk River City Council, Economic Development Authority, and Housing and Redevelopmeft Azsthority. • The purpose of this policy is to establish the City of Elk River's .o• • ,! 1 relating to the use of Tax Increment Financing (TIF) for private development above and beyond the requirements and limitations set forth by State Law. This policy shall be used as a guide in the processing and review of applications requesting tax increment assistance. The fundamental purpose of tax increment financing in Elk River is to encourage desirable development or redevelopment that would not otherwise occur but for the assistance provided through TIF. The City of Elk River is granted the power to utilize TIF by the Minnesota Tax Increment Financing Act, as amended. It is the intent of the City to provide the minimum amount of TIF at the shortest term required for the project to proceed. The City reserves the right to approve or reject projects on a case by case basis, taking into consideration established policies, project criteria, and demand on city services in relation to the potential benefits from the project. Meeting policy criteria does not guarantee the award of TIF to the project. Approval or denial of one project is not intended to set precedent for approval or denial of another project. • II. OBJECTIVES OF TAX INCREMENT FINANCING As a matter of adopted policy, the City will consider using TIF to assist private development projects to achieve one or more of the following objectives: • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits. • To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off" development. • To facilitate the development process and to achieve development on sites which would not be developed without TIF assistance. • To remove blight and/or encourage redevelopment of commercial and industrial areas in the city that result in high quality redevelopment and private reinvestment. • To offset increased costs of redevelopment (i.e. contaminated site clean up) over and above the costs normally incurred in development. • To create opportunities for affordable housing. 3 • 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 conserva ion, and • decreasing capital and/or operating costs of local gover OPY III. POLICIES FOR THE USE OF TIF a. When possible, TIF shall be used to finance public improvements associated with the project. The priority for the use of TIF funds is: 1. Public improvements, legal, administrative, and engineering costs. 2. Site preparation, site improvement, land purchase, and demolition. 3. Capitalized interest, bonding costs. b. It is the City's policy to establish the following types of TIF districts: 1. Economic Development Districts • It is desired that the project result in a minimum creation of one full time job per $25,000 of TIF. 2. Redevelopment Districts • The market value of a redeveloped site shall increase by a minimum of 50% of the current market value. • Other types of TIF districts, along with specific criteria, may be considered on a case by case basis. c. TIF assistance will be provided to the developer upon receipt of the increment by the City, otherwise referred to as the pay-as- you-go method. Requests for up front financing will be considered on a case by case basis. d. A maximum of ten percent (10%) of any tax increment received from the district shall be retained by the City to reimburse administrative costs. e. Any developer receiving TIF assistance shall provide a minimum of twenty percent (20%) cash equity investment in the project. f. TIF will not be used in circumstances where land and/or property price is in excess of fair market value. g. Developer shall be able to demonstrate a market demand for a proposed project. TIF shall not be used to support purely speculative projects. 4 h. TIF will not be utilized in cases where it would create an unfair and significant competitive financial advantage over other projects in the area. • i. TIF shall not be used for projects that would place e copy demands on city services or for projects that would elle'ate significant environmental impacts. j. The developer must provide adequate financial guarantees to ensure completion of the project, including, but not limited to: assessment agreements, letters of credit, personal guaranties, etcetera. k. The developer shall adequately demonstrate, to the City's sole satisfaction, an ability to complete the proposed project based on past development experience, general reputation, and credit history, among other factors, including the size and scope of the proposed project. 1. 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. IV. PROJECT QUALIFICATIONS • All TIF projects considered by the City of Elk River must meet each of the following requirements: a. To be eligible for TIF, a project shall result in: i. The new construction of a minimum of 25,000 square feet; ii. A minimum increase of$25,000 per year in property taxes; and, iii. Have a market value of at least $1,000,000 upon completion. b. The project shall meet at least one of the objectives set forth in Section II and satisfy all the provisions set forth in Section III of this document. c. The developer shall demonstrate that the project is not financially feasible but-for the use of TIF. d. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. • 5 e. The project shall serve at least two of the following public purposes: • Creation of jobs with livable wages and benef Ls. • • Increase of tax base. COPY• Enhancement or diversification of the city's e • Industrial development that will spur additio ial pi i v ate investment in the area. • Fulfillment of the City's Strategic Plan for Economic Development. • Removal of blight or the rehabilitation of a high profile or priority site. V. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS All developers/businesses receiving tax increment 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 TIF assistance shall enter into a subsidy agreement with the City of Elk River that identifies: the reason for the subsidy, the public purpose served by the subsidy, and the goals for the subsidy, as well as other criteria set forth by statute 116J.993. The developer/business shall file a report annually for two years after the date the benefit is received or until all goals set forth in the application and performance agreement have been meet, whichever is later. Reports shall be completed using the format drafted by the State of Minnesota and shall be filed with the City of Elk River no later than March 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 TIF 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 applicant shall meet the qualifications set forth in Section IV of this document. Developers /Businesses failing to comply with the above provisions will be subject to fines, repayment requirements, and be deemed ineligible by the State of Minnesota to receive any loans or grants from public entities for a period of five years. S 6 VI. APPLICATION PROCESS 1. Applicant submits the completed application along with all S application fees. COPY 2. City staff reviews the application and completes the AppliLaLiuii 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, the Tax Increment Financing Plan, along with all necessary notices, resolutions and certificates are prepared by City staff and/or consultants. 5. Notices are published and sent to the county and school board. 6. Public hearing(s) on the proposed project are held. 7. The EDA or HRA recommends approval or denial of the project to the City Council. 8. The City Council grants final approval or denial of the proposal. III 411 R 7 VII. APPLICATION FOR TAX INCREMENT FINANCING A. APPLICANT INFORMATION COPY Name of Corporation/Partnership D I( h\(U d 7 Wr`2 i , L.-11,4; Address ( 0 7) 5 klP . 01;57- 1-4 1 4e T \IKA--,Mh1. 6554-5 Primary Contact C 6 PATIR604 Address ,A17 Phoneg6 U, �`3 k4.^�� Fax `1' L, (s:)`1 i ,41)I4- Email r,f/a i0. Fe, "yrs-.i(? ppu5col 7), (001 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. 1' (�„}d,ivoGj crr. • A but-for analysis. Attach as Exhibit D. Attorney Name.-A`j CKE. _ (-7QA-1 (4'1NT, 1't(OU7'l Address774-00 Cir Cir- 4.,7) ,. (,- ��. r,��(,� ���1 5400 Phone G i'Z., 7")417 , "Z`14 5 Fax(' i2, J 53, 00t( Email Accountant Name P44O (-iuN 17 1 6 E.17.4 eivacz. Address Oru6 Phoneg51i,, 1,1 , 444-4- Fax 151- A6Vj Email Contractor Name U F uil, t.[o P2714•11,),:--err Address Phone W 61- , 6 j f , 4-4-5 i Fax `fr z , 3 i, , t' Email Engineer Name optA if E- Address Phone `16 r= ,4-444 Fax Email 1110 Architect Name Of t:4' A Address Phone`9rjZ, "4e, 4-44-4 Fax Email 8 B. PROJECT INFORMATION T,hj� project will be: V Industrial Greenfield: /New Construction ExpI..oi,... . Commercial Redevelopment: New Construction Reha Industrial Redevelopment: New Construction Reha� 1 Other /Leased The project will be: Owner Occupied 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. Project Address Legal Description G O7 / ', 2 1. , L X: i C'''t1/47- .f U 5iiii 121.44lji'Y-J,7 CP-i,1 , 7 .� A-6/7,noil Site Plan Attached: i7Yes No Amount of Tax Increment Requested for: Land Purchase $ 1 OU f C)CV 0 Public Improvement $ Site Improvement $ of as DF.4" - M rim.,-O Current Real Estate Taxes on Project Site: $ -?i 3 67 (I1'7) Estimated Real Estate Taxes upon Completion: Phase I $ (�, 0i, 00 0 • Phase II $ Construction Start Date: . I, 00 Construction Completion Date: 4-t 15, 0 t If Phased Project: Year % Completed Year % Completed C. PUBLIC PURPOSE It is the policy of the City of Elk River that the use of Tax Increment Financing should result in a benefit to the public. Please indicate how this project will serve a public purpose. /:.Tob Creation: Number of existing jobs 0 Number of jobs created by project 2 O 6o Average hourly wage of jobs created 4 [3.L0 1 (Fz L ( v New industrial development which will result in additional private Ivestment in the area. ( ancement 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 or the rehabilitation of a high profile or priority • site. Other: 9 D. SOURCES & USES • SOURCES NAME 7 AMOU}C OP 1v Bank Loan L('3 b4-1•1 t< , $ `gip c cC,`O Other Private Funds 'VDU c 4 A I / u7 - $ OOo 000 Equity 0 f2c(47 $ I ; .50. 6J/o'0 G Fed Grant/Loan $ State Grant/Loan $ EDA Micro Loan $ Tax Increment $ ID Bonds $ TOTAL $ i 2- ii 90/000,00 USES AMOUNT Land Acquisition $ -700/ 000 Site Development $ Construction $ 3 , & 00,000 Machinery & Equipment $ 1 CVO 0 D 0 Architectural & Engineering Fees $ ? 000 Legal Fees $ 00 0 Interest During Construction $ co `J ,, 000 Debt Service Reserve $ • Contingencies $ 100/ GL0 TOTAL $ ( (1 50, Ooc), 00 • R 10 E. ADDITIONAL DOCUMENTATION Applicants will also be required to provide the following documentation. • A) Written business plan, including a description of t 1 l business, ownership/management, date establishe 1 products and services, and future plans - -pt;uti w 7,10, 00 B) Financial Statements for Past Two Years Profit & Loss Statement /� Balance Sheet C) Current Financial Statements Profit & Loss Statement to Date N�� Balance Sheet to Date D) Two Year Financial Projections /r- I'critttL1�c t-(U 7,f (,� 0 F) J Personal Financial Statements of all Ma'orareholders Profit & Loss Current Tax Return G) Letter of Commitment from Applicant Pledging to Complete During the Proposed Project Duration r,r cliAC4.Ni t) H) Letter of Commitment from the Other Sources of Financing, • Stating Terms and Conditions of their Participation in Project 'Aizeifik I) Application fee of$5000 (to be returned upon project completion.) Note: All Major shareholders will be required to sign personal guarantees if up front financing of the project is required. The undersigned certifies that all information provided in this application is true and correct to the best of the undersigned's knowledge. The undersigned authorizes the City of Elk River to check credit references and verify financial and other information. The undersigned also agrees to provide any additional information as may be requested by the City after the filing of this application. Applicant Name op f.I b gT (A/F.5r) Date .7 .• 7 C) 0 ByCA-16,4:1, G� C.4A-16 .1741P--4C-'7 , Its V t ' ', TU L..op,if /1 • 11 TAX INCREMENT FINANCING PROPOSAL REVIEW WORKSHEET • 1. The project meets the criteria set forth in Section III of t py Tax Increment Financing policy. X a) Meets minimum thresholds for size, value, and tax c. X b) Meets at least one of the objectives in Section III and satisfies the provision set forth in Section IV. c) Demonstrates need for TIF with the but-for analysis. e) Consistent with all city plans and ordinances. ?( f) Serves at least two public purpose as defined in Section IV. 2. Ratio of Private to Public Investment in Project: Points: S $ I a M Private investment 5:1 5 $ 7Cv,000 Public Investment 4:1 4 17 : I 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: S 60 Number of new jobs as a result of the project. 40+ 5 0 Number of existing/retained jobs divided by 10. 30+ 4 &O Total 20+ 3 10+ 2 II/ Less than 10 1 4. Ratio of TIF to new jobs created: Points: g $ '700,0010 0'0 TIF request $15,000 or less 5 60 Number of new jobs created $20,000 or less 4 $ 11,4“, of TIF per new job created $22,000 or less 3 $25,000 or less 2 Over $25,000 1 5. Wage Level of jobs created: Points: Average hourly wage / Over $21/hour 5 of jobs created: " q/ 1 . $18-21 /hour 4 $14-17/hour 3 $10-13 /hour 2 Under $10 /hour 1 6. Project size: Points: 14 The project will result in the construction 80,000+ 5 of square feet ,000 65,000+ 4 (PH ra, T.) 50,000+ 3 35,000+ 2 • 25,000+ 1 12 7. Type of Project: Points: • 100% Owner Occupied 5 COPY Mix Owner Occupied & Investment 4 X Investment Property 3 8. Use: Points: Manufacturing 5 Research & Development 4 Commercial Redevelopment 3 Warehouse/Distribution 2 Housing 1 9. The project will pay annual Points: 5 property taxes in the first fully 85,000+ 5 assessed year of$ 60, - 70,000+ 4 55,000+ 3 40,000+ 2 25,000+ 1 10. Likelihood that the project will result in Points: 40 unsubsidized, spin-off development. X High 5 Frit�t Q,zvS Cr IN WET- R v✓r.V “' Moderate 3 • Vv rc. Low 1 Sub - Total Points: 40 of a possible 45 points. 9. Bonus Points Bonus Points: 3 X The project will be 100% Pay-as-you-go TIF. 3 points The project contributes to the goals of Energy City. 2 points • Product promotes sensible use of energy, OR • Project utilizes significant energy efficient design &/or materials in construction. Total Points: 3 Overall project analysis: [ High....___ 4538_points Moderate 37-29 points Low 28-20 points Not Eligible 19-0 points S 13 EXHIBIT A Description of the corporation or partnership • COPY 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 • • 14 • COPY EXHIBIT A PouchPac Industries, Inc. Elk River, Minnesota ANC/PouchPac Industries, Inc. intends to build a new, state of the art flexible packaging plant in Elk River, Minnesota. This plant will produce, package and distribute beverage products in stand-up flexible pouches (similar to the Capri Sun© drink pouch produced by Kraft Foods). The creation of new technological advances in packaging machinery has allowed this company to breakthrough into the high speed manufacturing of these products. It has been noted by the packaging industry trade press that this new technology (owned by ANC / PouchPac Industries, Inc.) will revolutionize the way beverages are packaged in North America. Products produced at the Elk River plant will include common name brand products in the following categories: juice drinks, children's beverages and sport drinks. National distribution of these products will be through grocery and convenience stores. The Elk River facility will be built by Opus Northwest, L.L.C. and will consist of a • premium Fabcon concrete structure standing 34-36 feet in height and totaling approximately 75,000 square feet after its first phase of construction. Further expansion is anticipated as part of a multi-phase build-out. The interior will be finished to consider employee satisfaction, while also exceeding all governmental regulations for quality control. The building will also have five to six 37-foot tall stainless-steel syrup storage tanks architecturally integrated into the façade. ANC / PouchPac Industries, Inc., will eventually employ 180-200 people in administrative and manufacturing positions. The production department will consist of many higher paying technically oriented employment opportunities. ANC / PouchPac Industries, Inc., has planned an aggressive training program to help place new employees in these higher pay scale positions. • • coPY EXHIBIT B PouchPac Industries, Inc. Elk River, Minnesota PouchPac Industries, Inc., will sit on approximately 13.9 acres of land along Business Center Drive just west of Joplin Street Northwest. The first phase will consist of approximately 72,000 square feet, of which approximately 8,000 will be office. The building will range between 30'-32' clear height with outside dimensions of approximately 160'deep by 400'wide. The facility will be used to produce, package and distribute beverage products in stand-up flexible pouches. The building will have approximately four dock doors for receiving and eight dock doors for shipping to be located on opposite ends of the building. It will be constructed of pre-fabricated concrete insulated panels that will be combination of the smooth and aggregate in finish. They will be neutral in color with a planned accent stripe. The office area will be located on the northeast corner of the building and is planned to have ribbon glass along the entire office area. Within approximately three years, the facility is planned to expand to approximately • 168,000 square feet, all for expansion of the manufacturing operation. The building will also have five to six 37'tall stainless-steel syrup storage tanks that will be architecturally integrated into the façade of the building. PouchPac Industries, Inc. will eventually employ between 180-200 people in both administrative and manufacturing positions. 4110 EXHIBIT D • "But-For" Analysis COPY WITH NO WITH TAX INCREMENT TAX INCREMENT Source and Uses Source and Uses Sources Sources Mortgage 3,800,000 3,100,000 Equity 1,520,000 1,520,000 Tax Increment 0 700,000 TOTAL SOURCES 5,320,000 5,320,000 USES USES Land 700,000 700,000 Sitework 150,000 150,000 Soil Correction 0 0 Demolition 0 0 Relocation 0 0 Subtotal Land Costs 850,000 850,000 Construction 3,960,000 3,960,000 Finish Manufacturing 0 0 110 Subtotal Constr Costs 3,960,000 3,960,000 Soft Costs 360,000 360,000 Taxes 5,000 5,000 Finance Fees 45,000 45,000 Project Manager 0 0 Developer Fee 0 0 Contingency 100,000 100,000 Subtotal Soft Costs 510,000 510,000 TOTAL USES 5,320,000 5,320,000 Income Statement Income Statement Rent - PouchPac Sq. Ft. PSF Sq. Ft. PSF 72,000 $8.50 612,000 72,000 $8.50 612,000 612,000 612,000 Mortgage 15 Term 462,505 15 Term 377,307 9.00% Interest 9.00% Interest 3,800,000 Principal 3,100,000 Principal Net Income 149,494 234,692 Total Return on Equity 9.84% 15.44% 0 R