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EDSR MEMORANDUM 03-08-1993 I`/ -\( tyloic TO: ECONOMIC DEVELOPMENT AUTHORITY River FROM: WILLIAM RUBIN, ED COORDINATO 7K DATE: MARCH 3, 1993 SUBJECT: AGENDA MEMO FOR MARCH 8, 1993 EDA MEETING 5 . FINANCIAL UPDATE An update on the Revolving Loan Fund will be given at the March 8, 1993, meeting. The EDA did close on its loan with Coldwell Banker (DBA Designing Women of Elk River) on February 18th. 6 . PUBLIC HEARING ON TESCOM TIF PLAN As its February EDA meeting, Commissioners authorized the preparation of a new Tax Increment Financing Plan for the Tescom Corporation expansion project in the Elk River Industrial Park. In addition, an EDA public hearing on this matter was scheduled for March 8, 1993. Similarly, 411 the Elk River City Council will conduct a public hearing on March 8, 1993, immediately following the EDA meeting. The review process required before the adoption a TIF plan has been completed. TIF District No. 9 will be an "Economic Development District. " Manufacturing uses are permitted in an Economic Development District. District No. 9 is proposed to be comprised of three parcels: Lot 1, Lot 2, Lot 3, Block 2, Elk River Industrial Park 2nd Addition. If the TIF Plan is approved, Tescom Corporation will receive up to $194,000 in Tax Increment Financing assistance. These funds will be used to write-down the acquisition price and to reimburse the developer for the cost of site surveys, civil and engineering, and soil boring and analysis. Exhibit D of the TIF Plan indicates that the EDA/City will collect new property taxes off this project from 1995 through 1999, inclusive. These funds will be used to make the EDA "whole. " That is, new property taxes will be collected exclusively by the EDA/City until the $194,000 in TIF assistance is reimbursed. The TIF Plan for TIF District No. 9 is included in the agenda packet. 411 Action Requested 720 Dodge Avenue N.W., Elk River, Minnesota 55330 (612) 441-7420 EDA Agenda Memo Page 2 March 3, 1993 4 After conducting the public hearing on the TIF Plan for TIF District No. 9, the EDA is asked to adopt EDA Resolution 93-01, which is included in the agenda packet. 7 . PUBLIC HEARING ON TESCOM LAND SALE State law requires that an Economic Development Authority conduct a public hearing on the proposed sale of property owned by the agency. This public hearing relates to the proposed sale of land in the Elk River Industrial Park 2nd Addition. This public hearing was authorized at the February 8, 1993, EDA meeting. EDA Commissioners should understand that this site will be conveyed to Tescom subject to the terms and conditions that will be outlined in greater detail in a contract for private development. Typically, the terms and conditions will include: - Acquisition Price completely written-down - As buyer, Tescom is required to begin construction of an approximately 30,000 square foot facility no later than a specified date and is required to have the building completed no later than, say, December 31, 1993. This will enable the EDA to capture the first S full increment in 1995 . Tescom is required to execute a development agreement and an "assessment agreement" which establishes the minimum market value for tax purposes on the land and building. Action Requested After conducting the public hearing, the EDA is asked to approve the sale of land in the Elk River Industrial Park 2nd Addition to Tescom Corporation subject to the terms and conditions which will spelled out in greater detail in a development contract. 8 . STOCK PURCHASE IN A CERTIFIED DEVELOPMENT COMPANY EDA Commissioners will recall that the 1993 Work Program includes an element on evaluating the merits of a Certified Development Company (CDC) that would assist small businesses in Elk River. Put simply, a Certified Development Company is a nonprofit, development group which assists small businesses with its expansion, consolidation, or relocation programs . The CDC does this by packaging a fixed asset (land, building, equipment) financing program offered through the Small Business • Administration (SBA) . I have concluded that a CDC that operates exclusively in Elk River is not feasible. That is, the Company relies on EDA Agenda Memo Page 3 March 3, 1993 • origination fees and monthly mortgage servicing fees as its fundamental source of revenue. Therefore, a CDC operating in Elk River may not cash flow until it achieves a certain level in its mortgage portfolio. I have, however, discussed the concept of a County-wide CDC with my colleagues in Sherburne County. While this is a better idea, the problem with generating revenues remains the same. Another alternative is to align Sherburne County with an existing nonprofit development company. My colleagues and I have had numerous discussions on this topic with the Administrator from the Coon Rapids Development Company (CRDC) . We believe this alignment makes a great deal of sense. That is, small businesses here can receive the benefit of the services provided by the CRDC, while the County or cities do not incur the start up costs of a new CDC. Several issues emerge with the potential expansion of the CRDC into one or more new counties, including Sherburne. The organization's name will likely change to be reflective of a multi-county organization. Representation on the existing CRDC board will change, and further, additional stock purchases/donations will be required from 110 the new territories served by the CRDC. My colleagues and I have asked the CRDC to prepare projections of expenses and revenues for a multi-county CDC. A projected revenue indicates a $10,000 stock purchase/donation from each new county that would be served by this new organization. We are proposing that several cities, EDA' s, utility companies, and banks each consider a $1,000 stock purchase in this expanded organization. The Administrator of the Coon Rapids Development Company will make a presentation to the EDA Commissioners on March 8 . Additional information on the CRDC and the concept of a multi-county CDC is found in a separate memo. Action Requested Following a presentation by the CRDC Administrator, the Elk River EDA is asked to authorize a letter of support for a multi-county organization and to pledge a $1,000 stock purchase in this new organization. The stock purchase would be payable once the multi-county organization is operational . Since SBA also approves service territory expansions, a likely time frame for this • is October 1, 1993. 9 . REVISIONS TO LOAN POLICY GUIDELINES EDA Agenda Memo Page 4 March 3, 1993 • On January 19, 1993, the EDA Finance Committee met to review and discuss changes to the existing loan policy guidelines. Upon their review, Committee members suggested minor changes to the policy which are reflected in a red-lined/black-lined draft that is enclosed in the agenda packet. Rather than suggesting broad changes to the policy, Committee members desired to retain the policy's flexibility. The revised language, however, attempts to ensure that conventional financing has been maximized and that the proposed project may not occur without a supplemental loan from the EDA. In addition, the financing of projects has been prioritized. That is, first priority is given to manufacturing or industrial loans and a lower priority is for retail, service, or other types of uses. Finance Committee members were mailed a copy of the proposed revisions. Follow-up calls were made and Committee members either concurred with the proposed changes or had no comments. Action Requested The EDA is asked to approve the revisions to the EDA Revolving Loan policy guidelines. • 10. MHFA HOME MORTGAGE PROGRAM Again this year, Minnesota cities or EDA's can reserve a block of MHFA funds for first time home buyers. In 1991, the EDA was awarded nearly $800,000 in mortgage funds. In 1992, the award was $1. 1 million. To review the program, MHFA typically sells $40 million to $45 million worth of revenue bonds annually and the proceeds of these bonds are used for first time home buyer mortgages . The program enables first time home buyers to obtain a 30-year mortgage that is below conventional rates . For example, MHFA recently reduced its interest rate on the balance of the 1992 mortgage funds to 6 .65% (APR 7 .592%) . Because this is a public purpose program, it is subject to a maximum qualifying income and a maximum purchase price. With Sherburne County's designation as part of the metro area, we believe the 1993 maximum qualifying income for this program will be $40,800 . It is not known, however, what the maximum purchase prices will be on both existing homes or newly-constructed homes. In 1992 program, "Metro" homes purchased under this program could not exceed $85,000 (existing homes) or $95,000 (new construction) . The EDA may wish to consider another • reservation for 1993 funds. This requires an application submitted to MHFA no later than April 15, 1993 . A deposit fee equal to 1% of the requested allocation must accompany the application. This deposit, however, is refunded upon EDA Agenda Memo Page 5 March 3, 1993 the sale of the mortgage revenue bonds . In addition, a non-refundable "processing fee" of less than $300 will be required. Action Requested The EDA is asked to authorize staff to prepare an application for a reservation of MHFA funds for first time home buyers in Elk River. The application and amount of the reservation will be finalized at the April EDA meeting. 11. EDA MAIN STREET SITE As EDA Commissioners will recall, City staff and EDA representatives met with Mr. Gary Santwire of REP, Ltd. on January 22 to review its redevelopment project. The fundamental questions coming out of that meeting were: - What is REP proposing? - How much will it cost? - What does REP need from the EDA/City? It was generally understood that specific, detailed information on REP'S proposal would likely not be available for the February meeting. However, it was 411 understood that staff would have an ample opportunity to review elements of this proposal prior to the March 8 meeting. This information is not available and no other comments are offered. 12 . Prospect Status Report The Prospect Status Report has been sent under separate cover.