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EDSR MEMORANDUM 12-08-1997 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY • MEMORANDUM TO: Economic Development Authority ors FROM: Paul T. Steinman, Director of Economic Development DATE: December 3, 1997 SUBJECT: Agenda Memo for December 8, 1997, Meeting 4. West Business Park Issues, Elk River Industrial Park Lot Issue The issue for discussion by the EDA at this meeting is two-fold: • Which property in West Business Park should be purchased with excess tax increment dollars from District No. 5 (Alltool) • Should a portion of these excess tax increment dollars be used to repay the EDA for its purchase of the Elk River Industrial Park lot, or should all of the excess dollars be used to purchase land in West Business Park? Background There is approximately $195,000 available in the tax increment fund for Tax Increment District No. 5 which, after recent modification of the budget in this district, is available to be used to purchase land in the West Business Park. By state statute, one of the following two issues need to be addressed prior to December 31, 1997, regarding these excess dollars: • The dollars need to be actually expended; or, • The dollars need to be committed through a formal development agreement. • 13065 Orono Parkway • P. O. Box 490 • Elk River, MN 55330-1743 • (6I2) 441-7420 • Fax (612) 441-7425 Equal Opportunity Housing and Equal Opportunity Employment EDA Agenda Memo December 3, 1997 Page 2 110 Elk River Industrial Park In June 1997, the EDA proceeded witha purchase of the last remaining lot in Elk River Industrial Park for a total cost of approximately $65,000. The EDA used its reserve account for this purchase. At the time of this purchase it was discussed that, upon modification of the budget in TIF District No. 5, $65,000 of the excess TIF funds would be used to repay the EDA for its purchase of the Industrial Park lot. The effect of this transaction would be that the EDA reserve dollars were simply used as an interim financing mechanism until the TIF'District No. 5 modification had been approved so that TIF dollars could then be used for this purchase. Should we proceed as previously discussed and use $65,000 of excess TIF dollars to repay the EDA, we will have in effect used tax increment dollars to purchase the Industrial Park lot. State law would then not allow us to establish a new tax increment district for a project on this Industrial Park lot due to the fact that the lot was purchased by the Authority with tax increments. It is appropriate at this time to discuss an alternate scenario for ‘IF repayment of this $65,000 to the EDA reserve. This alternate scenario would be very simple in that we would NOT use excess TIF dollars to repay the EDA, but rather establish a new TIF District on this lot at the time we had a project. We would then use the tax increment income stream over a three to four year period to repay the EDA reserve for its purchase of this lot. Staff is making the assumption that in order to induce a project on this lot, the EDA will have to provide it at no cost to the developer/business. The major risk in counting on establishment of a new TIF District to repay the EDA is that the legislature may modify the TIF legislation in a way that would make this an ineligible activity. Staff has not yet heard if there will be possible major changes to the TIF laws during this legislative session. Staff is currently working with three developers and a business entity that is interested in leasing approximately half of a 30,000 square foot building which would be constructed on this lot. The developers and the business have requested consideration of the concept of providing the lot to the project up front at no cost to either the developer or the business. Considering the timing of these discussions and the plan for a possible project on the lot by next spring or summer, staff could . proceed at this time with establishing a TIF District on the lot and EDA Agenda Memo December 3, 1997 Page 3 • have such District in place prior to the end of the 1998 legislative session. Pending the legislature making any changes to the TIF laws retroactive, this would assure-a repayment mechanism to the EDA reserves for the cost of the Industrial Park lot. West Business Park The discussion of the Industrial Park lot is integral to a discussion of a land purchase in West Business Park. The difference is between having $195,000 available for a land purchase versus spending $65,000 to repay the EDA and only having $130,000 available for a West Business Park land purchase. Staff has discussed and negotiated a possible land purchase with two property owners/developers in the West Business Park: • Tony Emmerich • Chuck Christian has an agreement with Bill Gagne for the purchase of 20 acres east of the County Administration Building STony Emmerich Property-Issues • $1 per s.f. - covers cost of land and assessments • $195,000 (the excess from TIF District No. 5) _ 195,000 s.f. or approximately 4.48 acres • Staff has negotiated a purchase of 4.48 acres fronting on Joplin Street as indicated on the attached map • Mr. Emmerich has agreed to enter into an exclusive joint development agreement for the remainder of this property at the time of closing on the EDA purchase of 4.48 acres • Staff has, over the past several months, been working with a prospect showing interest in development of approximately 6 acres along the west side of the Emmerich property • The lot at the southwest corner of Business Center Drive and Joplin Street (2.79 acres)is not under Emmerich ownership. It has been necessary to wait to finalize the details of a possible purchase from Tony Emmerich due to a foreclosure process which was not completed until Tuesday, December 2, 1997. It appeared at one point over the past month that a redemption of this property was possible due to a Notice of Intent to Redeem being filed with the ak county. Staff was unsure if the redeeming party would be interested EDA Agenda Memo December 3, 1997 Page 4 10 in facilitating a city land purchase by the end of this year, so efforts to negotiate with Chuck Christian were stepped up. Chuck Christian -Purchase Agreement with Bill Gagne Various Issues • Christian not scheduled to close with.Gagne until June 1998 • $1 per s.f. would purchase land and pay assessments • $195,000 for a possible land purchase by end of 1997 may be incentive enough for Chuck Christian to close on the entire 20 acre parcel by the end of 1997 • Advantage is if Christian is in an ownership position,it is staff's feeling that a project would be more likely • There is an incentive to purchase property from Christian because this will move him into an ownership position on the entire parcel • Christian currently working with two prospects for development of approximately 50 percent of the parcel • Christian has informally requested up front land write down and payment of future frontage road assessments as part of an incentive to complete this project • • City could purchase approximately 4.48 acres along the east side of the 20 acre parcel - see attached map Complete Transaction by December 31, 1997 Staff has begun the platting and title work for purchase of a portion of the Emmerich property and it is likely this will be completed by the end of 1997. In the case of working with Chuck Christian, however, it may be necessary to escrow the funds with a title company and close on the transaction in 1998. Either of these two scenarios meet the intent of the state statute to either spend or commit these excess TIF funds prior to the end of 1997. Attachments • Letter from Bill Gagne • Draft of West Business Park Joint Development Agreement • Overall West Business Park Map • Original Plat Concept - Emmerich Property • Current Plat Concept • Possible Plat Concept - Gagne Property EDA Agenda Memo December 3, 1997 Page 5 • Recommendation Staff recommends the following: • That 100 percent of the excess TIF funds from District No. 5 be used for a land purchase in West Business Park • That staff finalize negotiations and execute a Purchase Agreement with Tony Emmerich for purchase of approximately 4.48 acres at $1 per square foot for a lot which fronts on Joplin Street • That staff proceed with creation of a new.Tax Increment District on the Industrial Park lot at such a time when a formal request for assistance is received. 5. Approve Resolution Modifying Development District No. Land Establishing Tax Increment Financing District No. 17 Issue The issue before the EDA is to review and approve the Plan for Tax Increment Financing District No. 17 - Dave Decker project. Background As you can see on the attached schedule for establishment of this TIF District, the EDA is required by State Statute to approve the TIF Plan prior to the City Council holding a public hearing and taking final action on February 17, 1998. A number of activities need to take place after the EDA has approved this Plan such as: • Planning Commission reviews the TIF Plan for compliance with the Comprehensive Plan • TIF Plan is forwarded to the School District and County Boards prior to the public hearing on February 17, 1998 • A public hearing notice and map is published in the Star News prior to the public hearing by the City Council on February 17, 1998 • City Council takes final action-February 17, 1998 As is indicated in the attached Tax Increment Plan for Tax Increment District No. 17, staff is recommending that the City Council elect to take the local contribution rather than a reduction in state aids as a result of creation of this District. This local contribution will cost the EDA Agenda Memo December 3, 1997 Page 6 fibcity's economic development fund approximately $20,000 (10 percent of the tax increment received). This local contribution is required to be made from funds other than tax increment funds. The local contribution will be made in the following manner: • In December of each year, a tax increment settlement is received for District No. 17 from Sherburne County • A calculation will be made to determine 10 percent of this tax increment settlement • An annual transfer will occur(in the amount of 10 percent of the tax increment settlement) from the development fund to the Tax Increment District No. 17 fund • Essentially this means there will be a larger pot of money in the TIF District No. 17 fund with which to use topay the developer the approved amount of assistance • In most cases this means the developer will receive the approved amount of tax increment assistance over a shorter time period than initially projected • Staff projected a pay-as-you-go pay back over a six year time period, but due to the city's local contribution, this time period may be shortened to five years. 111 As allowed byState Statute, 10 percent of the annual increment settlement received for this District will be transferred from the TIF District No. 17 fund into the development fund for administrative purposes. As indicated in the financial analysis attached to the Plan, this District will generate approximately $36,000 per year in.increment. As stated earlier, staff projects a payoff of the $160,000 request in the following manner: • Beginning in the first full tax year (2000) and ending at the end of the year 2005 for a total of six years of increment. Prior to final approval of TIF District No. 17 by the City Council, staff will have negotiated a Development Agreement which will provide for the following: • Outline the timing of payments to developer • Developer to agree to lease space to businesses which are identified as being eligible recipients of tax increment as ipidentified in Minnesota Statutes EDA Agenda Memo December 3, 1997 Page 7 • This Development Agreement will be fairly simple due to the fact that this is a pay-as-you-go tax increment district. This puts the risk in the hands of the developer, rather than the city. A pay-as-you-go tax increment district is most beneficial for the city because basically if the developer does not build the building or pay their taxes on a timely basis, the city cannot reimburse them because there would be no funds available. Therefore, the developer bears 100 percent of the burden of completing the project and paying taxes on the project. Attachments • Resolution 97 • TIF Plan No. 17 • Cash Flow/Financial Analysis of District,No. 17 • Schedule for Establishing TIF District No. 17 Recommendation Staff recommends approval of Resolution 97- , a Resolution Modifying Development District No. 1 and Adopting the Development Program Therefor; and Establishing Within Development District No. 1, Tax Increment Financing District No. 17, and Adopting the Related Tax Increment Financing Plan Therefor. 6. Request City Council to Call for Public Hearing on April 6, 1998, to Establish Tax Increment Financing.District No. 18 (Morrell Companies) Issue The purpose of this item is to set in motion the schedule for establishment of Tax Increment District No. 18 by requesting the City Council to call for a public hearing to be held on April 6, 1998. Background A tax increment application has been received by Morrell Companies and is attached to this report. This application indicates a requested tax increment subsidy of and an overall project cost of . Staff has had several discussions with the applicants regarding the method of providing this assistance. Although the applicant has requested that the assistance be provided up front,staff EDA Agenda Memo December 3, 1997 Page 8 iphas discussed with them that this would be an unlikely scenario based upon the following: • An unavailability of funds should a West Business Park project proceed • A trucking facility may not warrant the best incentive the city has to offer (i.e. up front tax increment dollars) • The city has provided street improvements and is committed to paying a portion of the cost of a signal at 171st Avenue to facilitate this project at no cost to the business Staff has discussed a pay-as-you-go with Morrell Companies and feels they will agree that this is an accepted method of providing this tax increment incentive. Attachments • Morrell TIF Application • Schedule for Establishing TIF District No. 18 Recommendation Staff recommends the EDA request the City Council to call for a public hearing to be held on April 6, 1998, to establish Tax Increment Financing District No. 18. •