EDSR MEMORANDUM 02-02-1998 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
MEMORANDUM
TO: Economic Development Authority
FROM: Paul T. Steinman,Director of Economic
Development
DATE: February 2, 1998
SUBJECT: EDA Worksession
3.1. Review/Discuss Tax Increment Request from Morrells
Morrell &Morrell, Inc., has requested tax increment assistance in the
amount of$300,000 to facilitate construction of a new trucking facility
on 171st Avenue. As per the attached schedule for establishment of
TIF District 18, staff is moving through the process of putting together
the Tax Increment Plan and a Development Agreement for this project.
411 There are several significant issues with regard to providingthe
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requested assistance to this project. These issues are as follows:
• Is the amount of the tax increment request within the
guidelines of the Tax Increment Policy?
The Morrell's current estimate of construction costs of their new
facility is approximately $2.2 million. Staff typically uses this
estimated construction amount to estimate the finished market value
of the project. The finished market value is used to determine the
amount of tax increment assistance provided to the project the
guidelines indicate this to be 15 percent maximum. In this case staff
is using $2 million as the finished market value of the project, of which
15 percent equals $300,000 the precise amount being requested by
Morrell & Morrell.
• Up front payment of tax increment versus pay-as-you-go.
The EDA provided direction to staff to proceed with the plan based
upon providing the requested assistance over time on a pay-as-you-go
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EDA Worksession
February 2, 1998
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basis. The Morrells have,in turn, requested that an interest rate be
gip applied to the $300,000. This is allowed by State Statute. Staff has
calculated an interest rate of 6 percent in its pro formas on this project.
Total dollars provided to Morrells over time with the 6 percent rate
will be approximately,$400,000. If the rate were 8.5 percent the total
dollars of assistance provided would be approximately $440,000.
• Will there be tax increment dollars available for other public
improvements?
If an 8.5 percent rate is applied, this TIF district will generate
approximately$65,000-$70,000 in the years 2007 and 2008 (The
Morrells request that they receive their assistance first - in this case
they will be paid in years 2000-2006). The increment received in 2007-
2008 will be eligible to be spent for payment of the city's share of the
construction of the signalization of Highway 10/17 Pt Avenue and
potentially for construction of a controlled railroad crossing on 1718t
Avenue. A pay-as-you-go rate of 6 percent will allow one additional
year of increment, (an additional$70,000) to be available for these
public improvements.
Staff suggests if the pay-as-you-go interest rate is negotiated to be
di higher than 6 percent, the city and Morrells share proportionately
each year of increment received. In this case the Morrells will receive
their assistance over the entire life of the District (2000-2008) and the
city also will have an income stream from the District for the same
years which can be used to pay the cost of the planned public
improvements. In this scenario the Morrells would receive
approximately $45,000 per year and the city would receive$20,000 per
year from the year 2000 to 2008.
Attachments
• Draft TIF Plan for TIF District No. 18 and TIF District Boundary
Map
• Schedule for Establishment of TIF District No. 18
3.2. Review/Discuss Development Agreement Issues
Staff received direction from the EDA to pursue putting together a
Development Agreement to address issues regarding the condition of
the Morrell site at the corner of Jackson Avenue and School Street
upon the businesses relocation to their new facility. Staff has
EDA Worksession
February 2, 1998
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addressed these and other issues regarding their new facility on pages
i9 & 10 of the Development Agreement which outlines the issue and the
date of completion of that activity/issue. These issues/activities as
listed will be required to be completed to the satisfaction of the city
prior to releasing any of the requested $300,000 tax increment
assistance, of which the first payment would be made to the Morrells
in approximately July/August 2000. It is appropriate to require the
completion of these activities prior to providing any tax increment
dollars for the project.
The major issues are with regard to the timing of demolition of the
buildings (not mini storage) and environmental clean up of the current
site. The Morrells have indicated these activities would occur, and will
propose a timeframe within which to accomplish these activities. Staff
has indicated an outside date for accomplishing these activities would
be approximately December 1999. Another issue which was brought
up by a Councilmember is that the we should require the Morrells to
discontinue the other businesses which are being operated on the
current site. The Morrells have indicated they would like to allow the
wood sales to continue until the site is sold.
The issue of zoning and replatting the current site is not proposed to
di be tied into this Development Agreement. Staff feels that is an issue
which has its own process and can be pursued by the Morrells at a
later time. The Morrells would like to have a discussion with the EDA
specifically Councilmembers represented on the EDA, regarding their
approach to this issue. Also, the issue of zoning and replatting the
current site could not be tied into this Development Agreement
because this Agreement works in conjunction with approval of the Tax
Increment Plan and would have to be approved at the same time as
the Plan April 6, 1998. Staff does not see the zoning and replatting
issue being resolved sufficiently to be able to proceed with the current
tax increment/development agreement time schedule.
Attached to the Development Agreement is a "Tax Increment Revenue
Note." This Note is to be,executed upon completion of construction of
the Morrell facility and will indicate the amount of tax increment
dollars which have been approved to facilitate the project. In this case
a draft of such Note is attached to the Development Agreement and
indicates the provision of$300,000 plus interest.
Attachment
• • Morrell Development Agreement