8.0. EDSR 03-11-1996 rk,/ Al ITEM 8.
(
MEMORANDUM
yofti
t
tlk TO: Economic Development Authority
River
FROM: Pat Klaers, City Ad r i +i to
DATE: March 11, 1996
SUBJECT: Request for Tax In rement Financing
Assistance - Marketech, Inc.
Introduction
The EDA is in receipt of a request for Tax Increment Financing (TIF) from
Rich Duggan, president of Marketech, Inc. This business is currently located
at 16864 Highway 10, Elk River, Minnesota. The request is attached for
your review. This application is not totally complete at this time, but is
expected to be completed by Monday evening or very shortly thereafter.
Marketech is a company that produces products that test fully assembled
• circuit boards. The firm produces the test fixture and the test software. The
request for TIF assistance relates to the proposed construction of an
approximately 9,300 square foot facility. Approximately 1,750 feet would be
for office and the balance, or about 7,550 feet would be for production.
The total cost of the project is in the $335,000 range with the market value
slightly less than this amount. Mr. Duggan is proposing to purchase two lots
in the McChesney Industrial Park. TIF funds of approximately $50,000
would be used to "write down" the cost of the two lots for Mr. Duggan. This
TIF project would be a "pay-as-you-go" project.
Background
It should be noted that this project is proposed for the same lots as the Neos,
Inc. project. This was a Jack Mowry project that the Council authorized as
TIF No. 12. This project is now dead as Jack has released these properties
back to Jerry McChesney and Jerry and Rich Duggan have entered into a
purchase agreement for Lots 6 & 7, Block 1, of the McChesney Industrial
Park.
With previous industrial expansions, TIF funds have been used by the
city/EDA to assist local companies with their projects. Recent examples
include Alltool Manufacturing, Timron Precision Gear, and Tescom
• Corporation. TIF funds have been used to reduce project costs relating to
13065 Orono Parkway • P.O. Box 490 • Elk River, MN 55330 • (612) 441-7420 • Fax: (612) 441-7425
EDA TIF Request Page 2
March 11, 1996
•
land acquisition and the site development components of the project. With
each manufacturing project, an economic development (ED) district is
established.
The ED districts are designed to last only a few years as each one of these
new districts results in either a loss of state aid or a local contribution to the
project. This local contribution option is new (1995 law) and one that the city
favors because it carries a lower overall cost to the city. The local option is 10
percent of the annual tax increment and our source of funds would be the
EDA revenues that have been generated from the sale of the Industrial Park
lot to the School District. With this Marketech project, the local contribution
will be approximately $1,000 per year for the five year life of the district.
More detailed information on the finances of this project and the local
contribution should be available Monday evening.
Due to the fact that a local financial loss is part of all new TIF Districts, it
was the EDA and City Council consensus that they would evaluate new
projects on a case-by-case basis. Based on future job growth with Marketech,
the desire to have Marketech locate in the McChesney Industrial Park, the
fact that Marketech is not asking for a micro loan, and, the fact that city staff
believes that this is the right location for this local business expansion, it is
recommended that this request should be supported by the City Council and
EDA.
On 3/7/96, the Assistant City Administrator Lori Johnson and I met with
Rich Duggan and Tom McNair from First National Bank to review this
project. Items discussed included an overview of the project, the city's strong
desire to do a pay-as-you-go project, and the city's support for business
retention and expansion. Additionally, I had a conversation with the county
commercial appraiser for Elk River on 3/7/96 to discuss this project. This
telephone conversation was important because the final market value drives
the maximum TIF amount available.
Our current TIF policy calls for a maximum TIF subsidy of 15 percent of the
project's finished value. In discussing all of the pros and cons of this project
and the city's support for this project, staff is recommending that the city
offer 17 percent of the finished project as the maximum TIF contribution.
Regardless if the contribution is 15 percent or 17 percent, the TIF increments
will still be collected for five years. The 15 to 17 percent increase is about an
extra $1,000 a year in available increment. The extra 2 percent maximum
TIF subsidy was discussed in order to encourage and support: this expansion
into McChesney Industrial Park, the pay-as-you-go approach, and the city's
strong commitment for business retention and growth.
This 17 percent request will need EDA and City Council approval.
EDA TIF Request Page 3
March 11, 1996
• The EDA should also note that the City Council will be considering a
resolution on 3/11/96 to support Marketech's loan request to the Central
Minnesota Initiative Fund. The City Council has typically supported these
loan requests and it is assumed that this resolution will again be approved
for Marketech.
Below is a proposed timetable to complete this request for TIF assistance.
Please note that this timetable is ambitious and that it could be longer if the
county or school takes the full 30 days as allowed by law to review the
project. At this point, based on past practice, it is assumed that the County
Board and School Board will not require the full 30 days to review the
project.
March 11 - EDA authorizes preparation of TIF Plan for Marketech, Inc.;
EDA recommends that the City Council authorize a public
hearing to consider the adoption of the TIF Plan;
EDA recommends that the City Council approves the resolution
supporting the CMIF Marketech loan request.
City Council establishes public hearing date to consider TIF
•
Plan; City Council adopts resolution in support of the CMIF
loan request.
Mid March TIF Plan is sent to School District and County Board for review
and comment.
March 26 - School Board meeting.
Planning Commission reviews TIF Plan.
March 27 - EDA and City Council -TIF hearing notices published in Star
News.
April 2 - County Board meeting.
April 8 - EDA conducts public hearing and adopts TIF Plan.
April 8 or 11 - City Council conducts public hearing on TIF Plan.
•
EDA TIF Request Page 4
March 11, 1996
Action Requested
After considering the merits of this TIF request, the EDA is asked to
a. Authorize the preparation of TIF Plan for Marketech, Inc., expansion;
b. Schedule a public hearing for April 8, 1996, to consider the adoption of
the TIF Plan;
c. Approve and recommend that the City Council approve a deviation
from the TIF policy and allow a 17 percent maximum TIF subsidy;
and,
d. Recommend that the City Council approve the Marketech CMIF loan
request resolution.
s:\eda\meetings\tifmark.doc
•
•
APPLICATION FOR TAX INCREMENT FINANCING
CITY OF ELK RIVER, MINNESOTA
• APPLICANT
Business Name: MARKETECH, INC.
Address: 16864 HWY 10 NW
Telephone: 441-8664 fax: 441-8692
Officers: RTrIART) R . DTTGCAN PRESIDENT AND CEO
JUDITH A. DUGGAN CONTROLLER
Contact Person: RICHARD R. DUGGAN
Title: PRESIDENT AND CEO
Business Form (Corporation, Partnership, Etc.):
SUB-S CORPORATION
Years In Operation: 6 years 1990 to 1996
• Sales/Revenues: $ $1 ;000, 000.00 199$ sales
Brief Description of Business, Principal Products, etc:
Marketech, Inc. produces test fixturas and software
used to test assemaled printed circuit i arils . They
also proauce the comvutsr syst=c-tas tor the .i►npax index system.
Has applicant ever filed for bankruptcy? Yes No
If yes, provide details on separate page(s).
Has applicant ever defaulted on any bond or mortgage
commitment? Yes No X
If yes, provide details on separate page(s).
Does applicant have commitments for conventional financing for
the project? Yes No IN PROCESS
Please list three financing references:
(Name/Address/Contact/Phone)
TOM MCNAIR FIRST NATIONAL BANK OF ELK RIVER 441-2200
DAVE HARDIE CENTRAL t1TfTS1I A INITtA'iIV . FUNDd,/(2_43Q...603-5
• Name and Address of applicant's legal counsel and accountant:
DAVE BARTLETT CPA 635-0172
PROPOSED PROJECT
Describe Project: PTTReHASF. LAND AND BUTLDING FOR M,ANUFACTING
EXPANSION. TO ACCOMMODATE SALES GROWTH.
Location: LOTS 6 and 7 OF MCCHESNEY PARK.
Site Plan Attached: Yes No x
Type of Project:
Commercial Industrial x Residential
New Construction Expansion Rehab
JOB CREATION
Current Number of Employees: 22
Current Payroll: $475 , 0nn annually
Number of Jobs Created: 5 -96, 4-97, 4-98
Number of Jobs Retained: a l l
Revised Payroll: $585,000.00 - 9e
PROJECT COSTS * SEE ATTACHED SHEET 1
•
Land Acquisition: $
Site Development: $
Construction: $
Machinery & Equipment: $ - -
Architectural and
Engineering Fees $
Legal Fees $
Interest During Const. $
Debt Service Reserve $
Contingencies $
TOTAL $
SOURCE OF FINANCING *SEE ATTACHED SHEET 1
Conventional Loan $ 183, 921 . 25
Equity
SBA Loan"IF $ 100, 000. 00
Revenue Bond $
Tax Increment Financing $ 50. 103.75
• Grant(s) $
Other $
TOTAL $ 114, 095 00
CONSTRUCTION AND DESIGN
Name and address of architect, engineer and contractor for project:
• STRUCTURAL BUILDINGS
WEST HWY 10 BECKER MN 261-4150 1-800-535-9722
MR AL STEWART
Target Dates:
Start of Construction: APRIL 15, 1996
Construction Completed: JUNE 30, 1996
Finished Market Value of Project: $ 3 3 5, 0 0 0. 0 0
STATEMENT OF PUBLIC PURPOSE
Describe why the proposed development or redevelopment would not
reasonably be expected to occur solely through private investment
within the foreseeable future and therefore the use of Tax Increment
Financing is deemed necessary:
MARKETECH INC IS A FAST GROWING SMALL COMPANY WITH
LIMITED RESOURCES WHICH NEEDS TO EXPAND IF THEY CAN
TO CAPTURE EXISTING BUSINESS POTENTIAL AS WELL AS
A NEW BUSINESS PROJECT. MARKETECH NEEDS TO USE THE
AVAILABLE CAPITAL FOR COVERING THE NORMAL BUSINESS
411
EXPANSION NEEDS IE. MATERIALS . AND LABOR_BUT HAS
REOUIREMENTS OF THIS RAPID GROWTH_ RANK ANn rMTP WILL
HELP WITH TIFF TO COMPLETE THIS PROJECT.
The undersigned, (a) (the) -
of applicant, hereby represents an warrants to the City-that - .Fshe) has
carefully reviewed this application, and that the statements and information
contained herein and submitted herewith are accurate and complete to the
best of the undersigned's knowledge and belief.
Dated: MARCH 8, 1996 RICHARD R. DUCCAN HARKETECII, INC.
Applicant
RICHARD R. DUGGAgink
B /` AMO -",„.211,v
MO
Its PRESIDENT AND CEO
The City reserves the right to require additional information and supporting
data from the applicant after the filing of this Application.
Sheet1
• MARKETECH, INC. NEW BUILDING PROPOSAL
ITEMS SOURCES OF INCOME
BUILDING BID $ 242,000.00 TIF $ 50,418.75
SAC CHARGES 2,600.00 CIMF 100,000.00
WAC CHARGES 2,000.00 FNB ER 185,706.25
PERMIT/PLAN/ST 2,795.00
MECHANICAL 200.00 TOTAL $ 336,125.00
ELECTRIC 300.00
GAS 30.00
I PLUMBING 100.00
TIF FEE 5,000.00
MOVING COSTS * 5,000.00
LANDSCAPE 5,000.00
MACHINE HOOK UP * 2,000.00
UTILITIES: * 100.00
WATER * 100.00 ALLOWANCES included in building cost
SEWER * 100.00
POWER COMPANY * 100.00 SHOP FLOOR $ 5,000.00
NATURAL GAS * 100.00 OFFICE FLOOR $ 3,000.00
CABINATES * 1,500.00 EXCAVATING $ 8,000.00
RACKS ETC. * 2,000.00 BLACK TOPPING $ 20,000.00
TOTAL BLDG COSTS $ 271,025.00 *ESTIMATED COSTS
• LAND COST $ 65,100.00
It
TOTAL PROJECT $ 336,125.00
•
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• MARKETECH, INC. was started in March of 1990 and has grown to over$1,000,000.00
in sales as of 1995 year end. Currently Marketech services over 60 accounts through out
the US, Canada and some overseas accounts. Marketech still services the same markets
and services that were identified in the 1990 start up business plan with some expansion
into additional services to the ATE "Automatic Test Equipment" market. The annual sales
has been increasing at an average of 25% per year with a 36%growth in the most recent
year of 1995. 1996 brings continued growth of an expected 25.% along with the addition
of a new project to assemble Pakon Impak Index Systems. The new Index Systems were
projected to be at 500/yr but recent market showings have caused Pakon to increase their
forecast to 200/month by this June(96). This will have an additional impact of 25 to 30%
additional growth to total sales. Total sales for 1996 are estimated to be 1.4 to 1.6M.
Employment is expected to increase from 20 at 1995 year end to 27 by end of 1996.
The annual growth of 25% normal is expected over the next 3 years and should be
attainable due to the new project which has an estimated 5 year market life.
To attain this growth Marketech is in need of both increased line of credit for additional
working capital as well as manufacturing space. Marketech currently occupies 4350 sq. ft.
of manufacturing and office for the core business and has a temporary lease on an
additional 1500 sq. ft. in a nearby industrial building. As the current business was already
causing a space problem the additional space added for the Pakon project will not
• keep pace for both needs. Other suitable space for lease in the Elk River area is not
available so the decision was made to pursue a new facility to consolidate the two
operations. The new facility is planned to be 9250 sq. ft. fully air-conditioned and finished
for offices and electro-mechanical type assembly. The land chosen has 2.2 acres and
allows an expansion to over 30,000 sq. ft. allowing continued expansion for many years.
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