EDSR MEMORANDUM 06-02-1997 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
MEMORANDUM
TO: Economic Development Authority
?c, ROM: Paul T. Steinman, Director of Economic
Development
DATE: May 29, 1997
SUBJECT: June 2nd Worksession Discussion
L Purpose of Memo
The purpose of this memo is to outline the discussion for the
worksession on June 2, 1997, regarding an informal developer request
for tax increment assistance to complete the development project at the
southeast quadrant of Main Street and Hwy. 169.
II. Overview
Developer's representatives have informally requested tax increment
financing (TIF) assistance in order to complete the proposed project.
They have indicated a final decision on whether to proceed with this
project has not been made at this time and will depend upon whether
TIF assistance will be provided for the project. Such a decision is
likely to be made once the results of the eastern corridor feasibility
study have been completed in July. The developer has sited
extraordinary costs already incurred or anticipated which make the
project unfeasible.
It appears through staffs initial research, that a redevelopment tax
increment district could be qualified for a portion of the 70 acre site
which is proposed to be redeveloped. Tax increment dollars generated
could be used for the following eligible activities:
• Land acquisition
• Trunk utility extensions to service the site
• Road improvements necessary to facilitate traffic movement for
the project
• Possible construction of road along the eastern portion of the
• site
P.O. Box 490 • 13065 Orono Parkway• Elk River, MN 55330-1743 • (612) 441-7420 • Fax: (612) 441-7425
Equal Opportunity Housing and Equal Opportunity Employment
• demolition
• relocation
III. Primary Issues to Consider
Staff outlines the following issues for consideration:
• What are the qualifications of a redevelopment tax
increment district?
In order to qualify as a redevelopment tax increment financing district,
the following requirements need to be met on the site:
• At least 70% of the area of a district has to be improved
• More than 50% of the building have to be structurally sub-
standard to a degree requiring substantial renovation or
clearance
• At least 90% of the increment must be used to finance the
cost of correcting conditions that allow designation of a
redevelopment district
It is important to remember that the state now requires cities utilizing
tax increment to pay a penalty in a form of a reduction of local
• government aid or an election for the city to provide a local matching
requirement of 5% of the total tax increment generated.
• What level of tax increment assistance would be provided to
the developer?
Staff has been very clear with the developer regarding the issue that
tax increment will not be provided for this project in order to improve
its competitive position over other similar commercial projects which
have recently been completed. The developer has indicated its
understanding of this issue and has stated that it can show
extraordinary costs which place this project in a poor competitive
position with other similar projects. If the EDA is in favor of providing
tax increment assistance, staff would work with the developer to
identify costs for which tax increment assistance would be requested to
fund. The developer's request would then be examined by the EDA to
determine whether it would be appropriately funded through tax
increment assistance.
It is important to note that it is likely some of the extraordinary costs
identified by the developer would not be eligible TIF activities.
Therefore, the likely scenario would be that the EDA would determine
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• the appropriateness of the request and provide land write down
assistance to fund these activities.'
• What advantage is there to the City to create a tax increment
district for this project?
Staff foresees several financial benefits to the City through the use of
tax increment generated from this site including the possible extension
of trunk utilities from the treatment plant under Hwy. 169 to service
this site. It is also possible that a portion of City costs for public
improvements may also be eligible possibly including construction of a
portion of the road extension south from County Road 12 along the
east side of the development site.
The developer has also discussed the possibility of an industrial
component at the south edge of the proposed project. Staff has
indicated that, should the EDA proceed in agreement with the concept
of a tax increment district, our expectations would be to achieve
ownership of some industrial land on the south edge of this project.
IV. Conclusion
In conclusion, it appears there may be several advantages to the City
in pursuing a tax increment district for this project. The larger
question is likely whether the EDA will agree that some costs
associated with this project would be appropriately funded with TIF
without giving the project and developer a competitive advantage over
other similar projects.
The developers representatives will be available at this meeting to
provide additional information and answer questions from the EDA.
V. Attachments
• Tax increment financing policy
411
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