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EDSR MEMORANDUM 09-08-1997 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY 0 MEMORANDUM TO: Economic Development Authority FROM: Paul T. Steinman, Director of Economic p_.---- Development DATE: September 4, 1997 SUBJECT: Agenda Memo for September 8, 1997, EDA Meeting 5. 1998 Business Incubator Budget Background At its last meeting, the EDA directed staff to bring the Business Incubator budget back before the commission at its September meeting 0 for further discussion and approval. Staff has had some challenges converting originalg the incubator budget, which was based on a lease year, to a Business Incubator budget based upon a calendar year. Attached to this memo is a full description of the incubator budget for 1997, 1998, and 1999. Also attached is the original version which was approved by the EDA which is based upon a lease year scenario which is from April 15, 1997, to April 15, 1999. The bottom line is that the total exposure for the EDA has not changed whether the budget is based upon a lease year or calendar year scenario. The total bottom line (2 yr.) incubator expenditures is estimated to be $153,504. If the EDA determines to end its lease with Larry Hickman at the end of the two year period, Hickman will repay the EDA $56,100 for leasehold improvements which have been made to the building, bringing the EDA expenditures down to approximately $97,000. In approximately July 1998, staff will bring forward the incubator issue to determine if the EDA wishes to continue leasing the facility from Larry Hickman for an additional two years beyond expiration of the original term which is April 15, 1999. 0 13065 Orono Parkway • P. O. Box 490 • Elk RiverMN 55330-1743 • (612) 441-7420 • Fax (612) 441-7425 Equal Opportunity Housing and Equal Opportunity Employment EDA Agenda Memo September 8, 1997,Meeting Page 2 • Recommendation Staff recommends the EDA approve the 1998 Business Incubator budget in the amount of$63,500. 6. Micro Loan Application - Olde Main Eatery and Sweet Shoppe Inc. Background The Olde Main restaurant has submitted a micro loan application requesting $50,000 for a 15 year term at a fixed interest rate of 6 percent. The purpose of this request is to facilitate the purchase, remodeling, and furnishing of the building at 313 Jackson Avenue. The micro loan, in conjunction with bank financing and personal equity, will be used to move The Olde Main's current business operations into 313 Jackson Avenue, a facility which is approximately twice the size of their current space. The EDA Finance Committee met on Tuesday, September 2, 1997, to discuss and review this application with the proprietors of The Olde 1110 Main. After a presentation and discussion of the various issues of this loan, it was unanimously decided to recommend that the EDA proceed with a loan to The Olde Main which would have the following parameters: • a $50,000 loan at prime rate(8.5%), 15 year amortization, 5 year balloon It was determined by the Finance Committee that the request for a 6 percent interest rate could not be approved given the various circumstances and details of this loan and its level of risk. The Finance Committee discussed that there is a somewhat higher level of risk involved in all restaurant operations, including this one, and that this risk issue is a driving force behind the recommendation to proceed with a prime rate interest loan. Also, the fact that in this case the loan is being used as "gap" financing rather than "incentive" financing dictates that it should carry a prime rate. The collateral which will be provided for the EDA loan will be a second mortgage position behind the First National Bank of Elk River, in addition to securing liens on any equipment which will be used within • the business operation. Staff also recommended to the Finance EDA Agenda Memo September 8, 1997, Meeting Page 3 • Committee that personal guarantees be received from The Olde Main proprietors and spouses. Staff has discussed this issue with The Olde Main proprietors and they are planning to proceed with their project given the rate and terms being recommended by the Finance Committee. They will be present at the EDA meeting to address comments and questions. Recommendation Staff, and the EDA Finance Committee, is recommending approval of a loan in the amount of$50,000 at prime interest rate (currently 8.5%), with a 15 year amortization and 5 year balloon for The Olde Main Eatery and Sweet Shoppe, Inc. 7. Strategic Planning Issues-Hohlen Property/Wilson Property Rezonings Background As has been approved in the Economic Development Strategic Plan, di eight specified areas within the City of Elk River are to be brought forward for rezoning to allow industrial and business park development. Of these eight areas, two have been through the Planning Commission process and one has been denied rezoning by the City Council to date. The property which has been denied rezoning is the Hohlen property located at the southwest corner of Main Street and Highway 169 and is approximately 8 acres. The other property which was,identified for possible rezoning to business park is a large tract of the Wilson family property located at the northeast corner of Waco Street and County Road 30 which is approximately 80 acres. At its August 26, 1997, meeting the Planning Commission denied rezoning of this property on a 6-1 vote. The minutes from that Planning Commission meeting will be available for handout on Monday. The Wilson family property rezoning issue is scheduled to go before the full Council for a final,decision on Monday, September 15, 1997. Staff feels it is appropriate at this time to discuss the overall purpose of the Economic Development Strategic Plan as we proceed with the Wilson property rezoning and the remaining six identified areas. The Strategic Plan discussion indicated that of the 440 acres identified in • the eight areas, the end goal of the Strategic Plan was to accumulate a EDA Agenda Memo September 8, 1997,Meeting Page 4 Snet increase in the amount of business park and/or industrial property by 300 acres. The discussion within the strategic planning process was that an additional 300 acres of business park and/or industrial property is necessary to be added to the city's inventory in order to provide an area for future growth of the city's tax base over the next 15 to 20 year period. The strategic planning discussion also very clearly indicated a belief that if the areas identified in the plan aren't rezoned to business park/industrial park, a majority of the acreage will be developed as residential. Staff feels it is an appropriate time to reconfirm the EDA's commitment to this aspect of the Economic Development. Strategic Plan, as these other areas come forward for rezoning. The purpose of this item'is to further discuss this issue, specifically from the EDA members who also serve as the Council and Mayor, as they represent four of the five votes necessary to approve these rezoning efforts. 8. Discuss Options for Expenditure of Excess TIF Dollars from TIF District No. 5 Background 41111 TIF District No. 5 Alltool is scheduled to decertion December 31, 1997. It is projected that at the time of decertification this district will have approximately $247,000 in excess. Through approval of a tax increment plan modification, these excess TIF dollars will be available to utilize on eligible TIF`activities anywhere within the city limits of the City of Elk River (Development District boundaries). It is appropriate for the EDA to make recommendations to the City Council for expenditures of these dollars, however, final approval is determined by the Council due to the fact that this TIF District was approved by that body in,June of 1988. The two primary issues which need to be addressed to facilitate this issue are as follows: • Completion of a TIF District budget modification. • Notification of County and School District * Public hearing held * Full disclosure provided on the activities which will be funded through this excess TIF • All excess TIF dollars are to be expended or committed by • December 31, 1997. EDA Agenda Memo September 8, 1997, Meeting Page 5 * Our first priority and best case scenario is that all of. these excess TIF dollars are actually spent in 1997. If these dollars are simply committed, then the city is required to carry this information over on the 1999 TIF reports which are sent to the State Auditor's Office. Of the,approximately$247,000 in excess TIF available, $66,200 has already been committed for reimbursement to the EDA of its purchase of the last remaining lot in the Elk River Industrial Park. This leaves approximately$184,500 in excess TIF available. Staff has identified the following possible eligible uses for these funds: • Purchase a portion of Tony Emmerich property • Purchase a portion of Gagne property • Purchase a portion of Wilson property • Purchase property east of Highway 169 along the newly proposed transportation corridor • Downtown sidewalk improvements • Riverwalk project • Other land purchase or public improvements. di It is appropriate at this time for the EDA to discuss and provide direction to staff to pursue one of the options identified above. As was indicated earlier in this memo, it is necessary for the Council to either spend all of the excess TIF dollars or, at a minimum, commit these TIF dollars to a specific purpose prior to the end of 1997. If this cannot be accomplished, the excess funds will be required to be returned to the county for redistribution. Staff has attached a schedule to this memo indicating a time frame within which this issue is to be resolved. As is indicated on the schedule, it is appropriate at this meeting of the EDA that a request be put forth to the City Council to call for a public hearing to be held on December 1, 1997, to modify Tax Increment Financing District No. 5. This will allow a decision to be made on this expenditure in the month of September and an opportunity to go through the process of plan modification by December 1 and ultimately complete the expenditure by the end of December 1997. Recommendation Staff recommends that the EDA request the City Council to call for a Aik public hearing to be held on December 1, 1997, to modify Tax 11, Increment Financing District No. 5. EDA Agenda Memo September 8, 1997,Meeting Page 6 9. Discuss Community Venture Network Meeting Attended by Pat Dwyer/Paul Steinman Background Staff and EDA President Pat Dwyer attended a meeting called Community Venture Network which is sponsored by Public Resource Group, Inc. Community Venture Network is a program for communities outside the seven county metro area which matches business leads to interested communities. The program guarantees that on a quarterly basis the communities in the program will be introduced to a minimum of six business prospects, for a total of 24 per year. Staff has attended several of these quarterly programs as a guest of Public Resource Group, Inc., and believes there is some value in hearing a presentation from this group and entertaining a discussion of possibly becoming a member community. Elk River would have one of the most significant advantages of all member communities in that there are no other"metro area" communities involved. Elk River would be eligible because it is di outside the seven county metro area. Also, the level of sophistication IV and access to financial resources tends to tie the hands of most outstate communities involved in this program. Elk River would be in one of the best positions to foster and build relationships with these prospects and provide them access to technical and financial resources to accommodate their growth and expansion in Elk River. If the EDA so desires, staff will schedule a presentation by Public Resource Group for its October meeting. Staff will also include in that packet a summary of the business prospects which were introduced to the member communities at the last two quarterly meetings. This information will provide great detail to the EDA regarding the type of prospects which are being introduced to member communities. There is a cost associated with this program, and in 1997 it was approximately $3,800. It is staffs feeling that Public Resource Group, Inc. is very interested in having Elk River join its program. Due to this, staff feels the cost could be negotiable. EDA Agenda Memo September 8, 1997,Meeting Page 7 10. Discuss Changes to EDA Enabling Resolution -EDA Member Pay Issues A memo is attached from City Administrator Pat Klaers regarding this agenda item. •