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EDSR MEMORANDUM 11-13-1995 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY MEMORANDUM TO: Economic Development Authority FROM: William Rubin, Executive Direct DATE: November 13, 1995 SUBJECT: Agenda Memo for November 13, 1995, EDA Meeting 6. November Financial Update Please refer to the financial summary prepared by Assistant City Administrator Lori Johnson. Action Requested The November financial update is an informational item only and no Aft action is requested. 8. Micro Loan Request:Frank and Jody Galli (The Vault Hearth Bakery) Commissioners should refer to a copy of a memo that was sent to the EDA Finance Committee on this matter. The Finance Committee met on November 8 to review this request. Committee members Simpson, Brutlag, Birrenkott, McNair, and Houlton were present at this meeting. Following a presentation by Mr. Frank Galli of The Vault Hearth Bakery, the Finance Committee voted 4-0 (Bud Houlton left the meeting before the vote) to recommend that the EDA approve this loan. The Committee's motion recommended that the EDA deviate from the Micro Loan policy guidelines and approve this loan at an interest rato of 6% (fixed) instead of the usual rate at prime (currently 8.75%). The rationale here is that a lower interest rate will likely help attract investment or reinvestment into the central business district. • 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 EDA Agenda Memo Page 2 November 13, 1995 • Action Requested The EDA is asked to approve a $50,000 loan to Frank and Jody Galli doing business as The Vault Hearth Bakery, subject to the conditions listed above. The Micro Loan will be broken out as follows: $17,500 Real Estate 6% Fixed 15 Years* $32,500 Equipment 6% Fixed 7 Years** The loan would be further secured by a promissory note and personal guaranty. *Secured by a second real estate mortgage **Secured by UCC Filing 9. Loan Request from Internet 5 Following its review of the Micro Loan request from Internet 5, the Finance Committee voted to table action on this matter until additional information can be obtained and until the Central • Minnesota Initiative Fund considers its portion of the Internet 5 financing request. Action Requested The EDA is asked to deleteItem 9 fromm its November 13 agenda. 10. Neos, Inc., Contract for Private Development (TIF District No. 12) Following a public hearing on June 12, EDA Commissioners approved a request for tax increment financing assistance from Jack T. Mowry/Neos, Inc., to assist with the vInstruction of a 12,000 square foot precision machining facilit 4XeMcChesney Industrial Park. On June 19, the Elk Rive Ay uncil finalized the request for TIF assistance by also appri6li the TIF Plan. Based on the TIF policy guidelines, the maximum TIF grant for the Neos project is limited to 15 percent of the project's finished market value (for tax purposes). Utilizing the 15 percent maximum TIF grant, the following illustrations are offered: EDA Agenda Memo Page 3 November 13, 1995 • FINISHED MARKET VALUE MAXIMUM TIF GRANT $375,000 $56,250 $400,000 $60,000 $425,000 $63,750 $450,000 $67,500 Because this TIF District is structured as a pay-as-you-go district, the developer/company incurs all of the up front costs, including the acquisition costs and site development and site preparation costs. As the new project begins to generate taxes, the EDA/city reimburses them back to the developer/company twice a year in July and in December. As a result, the contract for private development is much more simplified because the city's risk is minimized. Although no construction activities will begin during 1995, all parties agree that it is advisable to execute a contract for private development under the known set of TIF restrictions. Execution of a contract also enables the county auditor to certify the legal descriptions as being in a TIF District. City Attorney Peter Beck was asked to prepare the contract for private • development. Its approval will also be subject to City Council action at a future date. EDA Commissioners should note that an integral component of the contract is a Tax Increment Revenue Note. This Note ndebts the city to Mowry/Neos so long as the pay-as-you-go activities are required of the project. Action Requested The EDA is asked to authorize its president and executive director to execute its portion of the contract for private development with Jack T. Mowry/Neos, Inc. 11. Central Minnesota Development Company Resolution of Support The Elk River Economic Development Authority is in receipt of correspondence from Central Minnesota Development Company (CMDC) concerning its exploration to expand its service territory beyond Anoka County. Given CMDC's response from targeted lenders and economic development professionals, it has agreed to proceed with an application to the Small Business Administration in order that it may expand its service territory to include Sherburne, Isanti, and Chisago counties. Toward that end, letters and/or resolutions of • EDA Agenda Memo Page 4 November 13, 1995 support have been solicited from lenders, civic and opinion leaders, • and economic development professionals, etc. A locally-oriented SBA certified development company that would assist lenders, small businesses, and economic development agencies in Elk River and in Sherburne County is not a new topic. By way of review, the following chronology is offered: Mid 1992 - ED Coordinator explores the merits of establishing a non-profit certified development company (CDC) for Elk River and/or Sherburne County Early 1993 - Conclusions are made that a new CDC to serve Elk River/Sherburne County is not feasible due to subsidies required before CDC becomes a self sustaining or self supporting organization. Early 1993 - Discussion begins with Coon Rapids Development Company(CRDC)a successful non profit CDC which was organized in the early 80's to provide SBA financing to small businesses in Coon Rapids; subsequently.CRDC expanded its service territory to include all of Anoka • County. Mid 1993 - Discussions with CRDC suggest that its staff and board of directors may desire to take on the shape of a multi-county CDC; issues such as a name change to reflect its new focus and an expanded board of directors would have to be posed to its shareholders. Mid 1993 - Various letters of support from Sherburne County based organizations are offered to assist CRDC with its territorial expansion. CRDC Board decides to establish a subsidiary named Central Region Development Company which would act as a loan packaging agency. Elk River EDA pulls its support for the CRDC territory expansion. Elk River EDA offers a resolution of support to enable Twin Cities-Metro Certified Development Company the opportunity to expand its service territory to include Sherburne County. EDA Agenda Memo Page 5 November 13, 1995 • State law establishes changes to the state-wide CDC; changes include a new name (Minnesota Business Finance, Inc.) as well as an outstate office headquartered in St. Cloud instead of St. Paul. In the absence of a locally-oriented CDC, MBFI becomes the SBA loan originator/packager for Elk River and Sherburne County. Late 1993 - CRDC shareholders approve a name change to that of Central Minnesota Development Company. Twin Cities-Metro chooses against submitting a request to SBA for territory expansion to include Sherburne County. Mid 1994- Elk River EDA offers a letter of support and resolution in favor of CMDC related to a temporary, one- year expansion of its service territory to include Sherburne County. Late 1994 CMDC shareholders approve a bylaw change which expands its board of directors. • October 1995 - Letter from CMDC regarding its proposal to expand service area. Although one could suggest that Elk River and Sherburne County is serviced by an existing CDC- that of the statewide MBFI - the issue concerning service territory matters is that of whether a locally- oriented CDC can provide better service to lenders, small businesses, and economic development organizations. Action Requested The EDA is asked to adopt a resolution requesting that Central Minnesota Development Company extend its service territory to include the corporate limits of Elk River, Minnesota.