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9.0. EDSR 01-11-1993 ITEM 9 -`/ \\ Iltyof TO: ECONOMIC DEVELOPMENT AUTHORITY lk 4,, River FROM: WILLIAM RUBIN, ED COORDINATOR DATE: JANUARY 6, 1993 SUBJECT: ALTERNATIVES FOR TAX INCREMENT FINANCING (TIF) GRANT REQUEST INTRODUCTION Policy direction is sought from the Elk River Economic Development Authority and the Elk River City Council regarding alternatives for a Tax Increment Financing Grant Request. In short, staff is seeking direction from both Boards regarding the potential availability of TIF to assist a manufacturing company with its relocation program into the City of Elk River. BACKGROUND Perf-form Products, Inc. , 21595 County Road 83, Big Lake Township, manufactures oil filters and oil drain systems for original equipment manufacturers (OEM' s) such as Harley Davidson and as after-market products that are available for 111 sale in motorcycle accessory stores. Mr. Douglas Koelfgen is owner and president of the company. He also holds a patent for developing this oil filtration system. The company has been in operation for several years and currently operates in Big Lake Township as a result of a conditional use permit issued by Sherburne County. A check of County records reveals that Perf-form Products has conformed to the County's stipulated conditions, and as a result, has a clean record of operations. This company has been previously outlined in monthly Prospect Status Reports and appears to be close to a decision on expanding in Elk River. Additional information on the company can be obtained from the letter submitted by Mr. Koelfgen and from the brochures included in the agenda packet. Mr. Koelfgen is proposing the construction of a 6,000 square foot facility that can be expanded in the future. In an effort to maximize the land to building ratio, the company has tentatively identified Lot 2, Block 2, Elk River Industrial Park, as a potential site to undertake this expansion project. Lot 2 is a privately owned site located immediately west of the Neary Manufacturing building in the Industrial Park. It is owned by Steven Neary, who also owns the facility and the real estate where Neary Manufacturing conducts its operations . While vacant, Lot 2 was not part of the City/EDA-Associated • Investors transaction of June, 1992 . 720 Dodge Avenue N.W., Elk River, Minnesota 55330 (612) 441-7420 Alternatives for TIF Grant Request Page 2 January 6, 1993 • In reviewing and analyzing potential sources of assistance available to the company, it was concluded that the creation of a new TIF District may not be feasible. That is, based on: - the contemplated level of TIF assistance sought, - the finished market value of the expansion project, - current Assessor's market value of the vacant lot, - likely capitalized interest if EDA-City borrowing is required, - limitation on the number of years tax increments may be collected, the cost of creating a new TIF District outweighs the benefits of TIF assistance. Alternatives to the creation of a new TIF District include: - No TIF assistance - Amending an existing District or Districts where the amount of new tax increments collected exceeds the debt service required by previously issued bonds. In that vein, I am suggesting that the EDA and City Council consider an amendment to TIF Districts No. 1 and No. 3 in order • to provide a TIF Grant to Perf-form Products . Presumably, this request will be similar to the Chuba Company's TIF request in early 1992 . TIF law enables tax increments generated from a "District" to be expended in the broader "project area" or "development district" . In the case of Elk River, the entire community is located in a development district. With the Chuba request for assistance, tax increment funds from Districts No. 1 and No. 3 were expended in the broader development district and the funds were used to reimburse Mr. Chuba for certain demolition and site preparation costs associated with his office project at Evans Avenue and Main Street. Assuming that Perf-form Products can document eligible expenses for which TIF funds can be used as reimbursement, it may be possible to utilize tax increment funds from District No. 1 and No. 3 for this process. Likely eligible expenses for which the company may seek reimbursement includes : - Off site infrastructure improvements (that is, the extension of a frontage road across a portion of Lot 2) - On site utility improvements - General site preparation. Lastly, the advantage of amending an existing district results in the local taxing jurisdictions benefitting immediately from the new development. That is, since a new district is not • created, the project's new property taxes are not captured by an EDA, but rather, the taxes go directly to the County for redistribution to the local jurisdictions. Alternatives for TIF Grant Request Page 3 January 6, 1993 The nuance with a potential request from Perf-form Products centers around what triggers the need for a public hearing to amend an existing TIF Plan. Previously, TIF funds have been expended without a public hearing. An example here is the infrastructure improvements to the Industrial Park 2nd Addition. With other expenditures from Districts No. 1 and No. 3, staff has gone through the public hearing process found in the Tax Increment Act. Examples here include the Chuba project and the City-EDA acquisition of the Main Street redevelopment site. Staff has reviewed the general terms of the Perf-form Products expansion with the City Attorney. Based on the company providing staff with information on "eligible expenditures", the attorney agreed to determine whether or not a public hearing would be required. The fundamental question, however, is whether the EDA and City Council desires to assist a project utilizing this process . As a result, direction is sought from the EDA with the expectation that it would forward a recommendation on to the City Council . As with all requests for City incentives, the applicant must submit financial records and make projections which help ensure the applicant is a credit worthy risk.