7.0. EDSR 05-13-1996 ri
ity of it,
MEMORANDUM
IR
TO: Economic Development Authority
River
FROM: Pat Klaers, Executive i ector
DATE: May 13, 1996
SUBJECT: Request for Tax Increment Financing
Assistance - McChesney Cabinets
Introduction
The EDA discussed the Jerry McChesney request for tax increment financing
assistance for McChesney Cabinets at its 4/8/96 workshop and regular
meeting. Support by the EDA for this TIF request was expressed on 4/8/96.
The application for TIF assistance will be distributed Monday evening.
McChesney Cabinets is a manufacturer of custom cabinets and countertops.
McChesney Cabinets also manufactures wood specialist items. The request
for TIF assistance relates to the proposed construction of an approximately
4111 10,000 square foot facility. Approximately one-half of this facility would be
used by McChesney Cabinets and the other one-half would be used by Winn
Electric. Winn Electric would be a renter or have a lease with Mr.
McChesney for part of this facility. Winn Electric is a wholesale electric
supplier and would be adding one or two new employees with this relocation.
Winn Electric currently has three employees. The total cost of the facility is
estimated to be in the $300,000 range. With this expansion, McChesney
Cabinets would be going from its current 3,000 square feet to 5,000 square
feet and would be going from two full time employees to four full time
employees. The TIF proposal is for a land "write down" on a "pay-as-you-go"
basis.
Background
The location of the proposed 10,000 square foot facility is Lot 9 of the
McChesney Industrial Park. Discussion at the last EDA worksession and
meeting on 4/8/96, related to whether or not the city should write down the
cost of the land for a project where the company already owns the property.
In order to treat companies consistently and show the city's support for local
businesses, it was the consensus of the EDA to write down this land on a pay-
as-you-go basis, based on the fair market price of the property. The need for
• an appraisal to determine this fair market price was discussed along with the
13065 Orono Parkway • P.O. Box 490 • Elk River, MN 55330 • (612) 441-7420 • Fax: (612) 441-7425
possibility of simply using the county assessing department recommendation.
In regards to the value of the lot, the city staff and Mr. McChesney are in
agreement that the value of the lot will be $35,000 and this is the amount
that will be written down through the pay-as-you-go TIF project. Currently,
the county assessing department has a value of$30,000 per acre on the
vacant lots in the McChesney Industrial Park and this value increases to
$35,000 per acre when the lots are improved with the construction of a new
facility.
The actual value of the land may be slightly more than $35,000, but everyone
is comfortable using this amount as the maximum TIF subsidy on a pay-as-
you-go basis. The current city TIF policy calls for a maximum subsidy of 15
percent of the project's finished value. Based on the uncertainty of the
finished market value that will be placed on the project by the county, and
based on the desire to establish an exact amount of TIF subsidy, it is
recommended that the EDA accept this $35,000 TIF subsidy amount on a
pay-as-you-go basis.
With previous industrial and manufacturing 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,
Tescom Corporation, and Marketech, Inc. TIF funds have been used to
• reduce project costs relating to land acquisition and site development
components of the project. With each manufacturing project, an economic
development (ED) district is established. The ED districts are designed to
only last a few years as each one of these new districts results in either a
state aid loss or a local contribution to the project. The 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 a 10 percent contribution of
the annual tax increment. It is recommended that this option be taken by
the city for this project. The 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 McChesney project, the local contribution would be
approximately $1,000 per year for the three or four year life of the district.
More detailed information on the finance of the project and the local
contribution will be available in the next few weeks.
Due to the fact that local financial losses are part of all new TIF districts, it
has been the EDA and City Council consensus that they would evaluate each
project on a case by case basis. I believe this evaluation took place in a
preliminary manner at the last EDA meeting and that support for this
project was voiced. The city would not be incurring any debt on this pay-as-
you-go project, but would be refunding tax revenue as it is collected until the
• cost or value of the land ($35,000) was recaptured and distributed to
• McChesney Cabinets. Staff recommends that this project be supported by the
City Council and the EDA.
Timetable
Below is a proposed timetable to complete this request for TIF assistance.
Please note that this timetable is ambitious and 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
and school will not require the full 30 days to review the project.
May 13 - EDA authorizes preparation of TIF plan for McChesney
Cabinets, Inc. and establishes public hearing dates to
consider TIF plan.
Mid May - TIF plan is sent to School District and County Board for
review and comment.
May 21 - County Board meeting.
May 28 - School Board meeting.
Planning Commission reviews TIF plan.
•
May 29 - EDA and City Council TIF public hearing notices are
published in Star News.
June 10 - EDA conducts public hearing and adopts TIF plan.
June 10 /17 - City Council conducts public hearing on TIF plan.
Action Requested
After considering the merits of this TIF plan the EDA is asked to authorize
the preparation of a TIF plan for McChesney Cabinets and schedule a public
hearing for June 10, 1996, to consider the adoption of the TIF plan.
e da:meetings/tifmcche
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