4.10. SR 04-17-2017 EGty1� ,.,�� Request for Action
River
To Item Number
Mayor and City Council 4.10
Agenda Section Meeting Date Prepared by
Consent Aril 17, 2017 Amanda Othoudt,EDD
Item Description Reviewed by
Tax Abatement Policy and Application Cal Portner, City Administrator
Reviewed by
Action Requested
Approve,by motion, the changes made to the EDA Tax Abatement Policy.
Background/Discussion
The Tax Abatement Policy and Application was approved by the City Council at their September 19
meeting. After further discussion with our financial advisor, and the EDA Finance Committee, the
following changes to the policy were recommended to the EDA for approval.
Tax Abatement Application Review Worksheet: now includes maximum eligibility percentage for
TAF:
Total Points: Rating Points Max Eligibility
Overall project desirability: High 45-38 points 100%
Moderate 37-29 points 75%
Low 28-20 points 50%
Not Eligible 19-0 points 0%
The EDA reviewed these changes at their meeting earlier this evening. Staff can provide an update to the
Council if necessary.
Financial Impact
None
Attachments
■ Property Tax Abatement Policy
POWERED 6T
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City of
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Tax Abatement
Policy & Application
Amended: March 2017
September 2016
Februarys 2014
May 2006
August 2002
April 2000
Cit\r of Elk River
Economic Development Division
13065 Orono Parkway
Elk River,MN 55330
763.635.1040
Table of Contents
I. Policy Purpose 3
II. Difference Between Tax Abatement &
Tax Increment Financing 3
III. Objectives of Tax Abatement 3
IV. Policies for the Use of Tax Abatement 4
V. Project Qualifications 5
VI. Subsidy Agreement & Reporting Requirements 6
VII. Application Process for Tax Abatement 7
city of Elk River
Application to Other Jurisdictions
VIII. Application for Tax Abatement 8
Applicant Information
Project Information
Public Purpose
Sources & Uses
Additional Documentation and Checklist
IX. Sample But-For Analysis 13
X. Application Review Worksheet 14
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I. POLICY PURPOSE
For the purposes of this document, the term "city"shall include the Elk River City Council,Economic
Development Authority, and Housing and Redevelopment Authority.
The purpose of this policy is to establish the city of Elk River's position relating to the
use of Tax Abatement for private development above and beyond the requirements and
limitations set forth by State Law. This policy shall be used as a guide in the processing
and review of applications requesting Tax Abatement assistance. The fundamental
purpose of providing Tax Abatement in Elk River is to encourage desirable development
or redevelopment that would not otherwise occur but for the assistance provided through
the Tax Abatement.
The city of Elk River is granted the power to utilize Tax Abatement by Minnesota
Statutes, Sections 469.1812 to 469.1815 (the "Minnesota Tax Abatement Act"),as
amended. It is the intent of the city to provide the minimum amount of Tax Abatement,
as well as other incentives, at the shortest term required for the project to proceed.
Preference is given to projects in which the total amount of Tax Abatement request
includes participation from the county. The city reserves the right to approve or reject
projects on a case by case basis, taking into consideration established policies,project
criteria, and demand on city services in relation to the potential benefits from the
project. Meeting policy criteria does not guarantee the award of Tax Abatement to the
project. Approval or denial of one project is not intended to set precedent for approval
or denial of another project.
II. DIFFERENCE BETWEEN TAX ABATEMENT AND
TAX INCREMENT FINANCING
The primary difference between Tax Abatement and Tax Increment Financing (TIF) is
the way in which the dollars are awarded to the project. When TIF is awarded to a
project by the city,the other taxing jurisdictions (the school district and the county) are
required to contribute their portion of the increased taxes to the project. Conversely,
when Tax Abatement is requested, each political subdivision has the option of granting
its portion of the increased taxes to the project. Subsequently, the dollars generated for
the project with Tax Abatement are generally less than the dollars generated with TIF.
III. OBJECTIVES OF TAX ABATEMENT
As a matter of adopted policy,the city will consider using Tax Abatement to assist
private development projects to achieve one or more of the following objectives:
• To retain local jobs and/or increase the number and diversity of jobs that offer
stable employment and/or attractive wages and benefits as defined in the city's
Business Subsidy Policy.
• To enhance and diversify the city of Elk River's economic base.
• To encourage additional unsubsidized private development in the area, either
directly or indirectly through "spin off' development.
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• To facilitate the development process and to achieve development on sites
which would not be developed without Tax Abatement assistance.
• To remove blight and/or encourage redevelopment of commercial and
industrial areas in the city that result in high quality redevelopment and private
reinvestment.
• To offset increased costs of redevelopment (i.e. contaminated site clean-up)
over and above the costs normally incurred in development.
• To create opportunities for affordable housing.
• To contribute to the implementation of other public policies, as adopted by the
city from time to time, such as the promotion of quality urban or architectural
design, energy conservation,and decreasing capital and/or operating costs of
local government.
• To significantly increase the city of Elk River's tax base.
IV. POLICIES FOR THE USE OF TAX ABATEMENT
a. Tax Abatement assistance will generally be provided to the developer upon
receipt of taxes by the city, otherwise referred to as the pay-asyougo method.
Requests for up front financing will be considered on a case-by-case basis.
b. Any developer receiving Tax Abatement assistance shall provide a minimum
of ten percent (10%) owner cash equity investment in the project.
c. Tax Abatement will not be used in circumstances where land and/or
property price is in excess of fair market value.
d. Developer shall be able to demonstrate a market demand for a proposed
project.
e. Tax Abatement will not be utilized in cases where it would create an unfair
and significant competitive financial advantage over other projects in the
area.
f. Tax Abatement shall not be used for projects that would place extraordinary
demands on city services or for projects that would generate significant
environmental impacts.
g. The developer must provide adequate financial guarantees to ensure
completion of the project,including, but not limited to: agreements,letters of
credit,personal guaranties, etc.
h. The developer shall adequately demonstrate,to the city's sole satisfaction, an
ability to complete the proposed project based on past development
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experience,general reputation, and credit history,among other factors,
including the size and scope of the proposed project.
i. For the purpose of underwriting the proposal, the developer shall provide
any requested market, financial, environmental, construction plans or other
data requested by the city or its consultants.
j. Tax Abatement proposals shall not be used to support speculative office
projects. Speculative projects are defined as those projects which have pre-
leasing agreements or letters of intent for less than 50% of the available
space.
In addition,leasable office projects must meet the following guidelines:
1. Evidence of the 50% occupancy must be reported to the Director of
Economic Development six months following an issued Certificate of
Occupancy.
2. Of the occupants certified at the six month period, 50% of the jobs
must be considered"new" jobs to the city of Elk River, meaning jobs
not located in the city at any time prior to occupying space in the
project.
3. Business retention jobs will be considered on a one-for-one match to
job creation only in cases where job loss is specific and demonstrable in
accordance with the Minnesota Business Subsidy Law. Evidence may
include documentation that the company will have to close involuntarily,
or the company has received an attractive offer to move to another state
or community.
k. All Tax Abatement proposals shall optimize the private development
potential of a site.
V. PROJECT QUALIFICATIONS
All Tax Abatement projects considered by the city of Elk River must meet each of the
following requirements:
a. The project shall meet at least one of the objectives set forth in Section III of
this document.
b. The use of Tax Abatement will be limited to:
• Industrial development, expansion,redevelopment,or
rehabilitation; or
• Commercial redevelopment or rehabilitation; or
• Research and development facilities that satisfy Business Park
zoning requirements; or
• Office facilities with a minimum new construction of 25,000
square feet; or
c. The developer shall demonstrate that the project is not financially feasible
but for the use of Tax Abatement. Evaluation of the project's financial
feasibility without Tax Abatement shall be provided by the city's financial
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advisor on all requests of over$25,000 total public investment.
d. The city will consider the use of Tax Abatement assistance for projects that
may not meet the but for and job creation criteria,but rather would be
considered as a "location incentive". These projects may result in other
public benefits such as a significant tax base increase, the creation of higher
paying jobs (at least twice the minimum hourly rate stated in the city's
Business Subsidy Policy), and is likely to assist in the marketing and attraction
of additional desired developments.
e. The project shall comply with all provisions set forth in the Minnesota Tax
Abatement Law,Minnesota Statutes 469.1812 to 469.1815, as amended.
f. The project must be consistent with the city's Comprehensive Plan,Land
Use Plan, and Zoning Ordinances.
g. The project shall serve at least two of the following public purposes:
• Job creation or job retention.
• Significantly increase the tax base.
• Enhancement or diversification of the city's economic base.
• Development or redevelopment that will spur additional private
investment in the area.
• Fulfillment of defined city objectives, such as those identified in the
Economic Development Strategic Plan or the city's Comprehensive Plan,
among others.
• Removal of blight or the rehabilitation of a high profile or priority site.
VI. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS
All developers/businesses receiving Tax Abatement assistance from the city of Elk
River shall be subject to the provisions and requirements set forth by the city's
Business Subsidy Policy as amended and Minnesota Statutes Sections 116J.993 to
116J.995 (the "Minnesota Business Subsidy Law"),if applicable
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VII. APPLICATION PROCESS FOR TAX ABATEMENT
A. CITY OF ELK RIVER
1. Applicant submits the completed application along with a $10,000
application deposit,to be refunded for any portions not utilized if the
tax increment project does not proceed. The application deposit will
be used toward the cost of services provided in the evaluation of
financial feasibility and preparation of legal documents and
agreements. Projects that demand professional services in
excess of the initial deposit shall be required to reimburse the
city for the additional expenses.
2. City staff reviews the application and completes the Application
Review Worksheet.
3. Results of the Worksheet are submitted to the appropriate governing
authorities (EDA or HRA) for recommendation to the City Council
of approval or denial of the request.
4. If preliminary approval is granted, all necessary notices, resolutions
and agreements are prepared by city staff and/or consultants.
5. Public hearing(s) on the proposed request are held.
6. The City Council grants final approval or denial of the request.
B. APPLICATIONS TO OTHER JURISDICTIONS
It is recommended that applicants intending to seek Tax Abatement from
Sherburne County and/or School District 728 make their applications to
those bodies concurrent with their application to the city of Elk River. For
more information on applying for Tax Abatement through Sherburne
County and/or School District 728, contact:
Sherburne County Administrator
763-241-2701
School District 728 Superintendent
763-241-3400
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ccYor Financial Incentive Application
EllTax Abatement Financing
River
VIII. APPLICATION FOR TAX ABATEMENT
Public Information Notice
Generally, correspondence to and from Staff is considered public information. Specific data relaxed
to a financial assistance request is deemed not public: Financial Information,Financial Statements,
Net worth Calculations,Business Plans,Income and Expense projections,Balance Sheets, Customer
Lists,Income Tax returns. When public financial assistance is received, only the following remains
not public: Business Plans,Income and Expense projections, Customer lists,Income tax returns,
design,market, and feasibility studies not paid for with public funds. The city does allow an
applicant to submit sensitive financial information directly to the city's financial consultant,for
additional security.
A. APPLICANT INFORMATION
Name of Business Entity's
Address
Primary Contact
Address
Phone Fax Email
Brief description of the business entity,including history,principal product or service:
Brief description of the proposed project:
Attorney Name
Address
Phone Fax Email
Accountant Name
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Address
Phone Fax Email
Contractor Name
Address
Phone Fax Email
Engineer Name
Address
Phone Fax Email
Architect Name
Address
Phone Fax Email
B. PROJECT INFORMATION
1. The project will be:
Industrial: New Construction Expansion Redevelopment / Rehab.
Office/research facility that conforms to Business Park zoning standards
Commercial Redevelopment/Rehabilitation
Other
2. In addition to the city of Elk River, applicant is requesting Tax Abatement from:
Sherburne County School District 728
3. The project will be: _Owner Occupied Leased Space
4. Project Address
Parcel Identification Number(s)
5. Site Plan and Construction Plans Attached: Yes No
6. Total Amount of Tax Abatement Requested: $ over years.
City Portion: Annual$ Total$
County Portion: Annual$ Total$
ISD 728 Portion: Annual$ Total$
7. Current Real Estate Taxes on Project Site: $
Estimated Real Estate Taxes upon Completion: Phase I $
Phase II $
8. Construction Start Date:
Construction Completion Date:
If Phased Project: Year % Completed
Year % Completed
C. PUBLIC PURPOSE
It is the policy of the city of Elk River that the use of Tax Abatement should result in
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a benefit to the public. Please indicate how this project will serve a public purpose.
Job Creation/Retention Number of existing jobs
Number of jobs created by project
Average hourly wage of jobs created/retained
_New industrial development which will result in additional private
investment in the area.
_Enhancement and/or diversification of the city of Elk River's economic base.
_The project contributes to the fulfillment of the city's Economic Development
Strategic Plan.
_Removal of blight.
_Rehabilitation of a high profile or priority site.
_Significantly increase the city's tax base.
D. SOURCES & USES
SOURCES NAME AMOUNT
Bank Loan $
Other Private Funds $
Owner Cash Equity $
Fed Grant/Loan $
State Grant/Loan $
EDA Micro Loan $
Tax Abatement $
ID Bonds $
TOTAL $
USES AMOUNT
Land Acquisition $
Site Development $
Construction $
Machinery&Equipment $
Architectural&Engineering Fees $
Legal Fees $
Interest During Construction $
Debt Service Reserve $
Contingencies $
TOTAL $
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E. ADDITIONAL DOCUMENTATION AND CHECKLIST
Applicants will also be required to provide the following documentation:
A) Written business plan,including a description of the business,
ownership/management,date established,products and services, and
future plans
B) Financial Statements for Past Two Years
Profit&Loss Statement
Balance Sheet
C) Current Financial Statements
Profit&Loss Statement to Date
Balance Sheet to Date
D) Two Year Financial Projections
E) Personal Financial Statements & Current Tax Return of all Major
Shareholders
F) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
G) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in the Project
Application deposit of$10,000,with any unused portion to be refunded
if project does not proceed
1) Construction Plans and Itemized Project Construction Statement
J) Attach the following documentation as Exhibits
Exhibit A—Corporation/Partnership Description
Exhibit B—Description of Project
Exhibit C—List of Shareholders/Partners
Exhibit D—But For Analysis
Exhibit E—List of Prospective Lessees
Exhibit F—Legal Description and PID Number(s)
1. Note: All owners with ownership interests greater than 20%will be required to sign
personal guarantees if up front financing of the project is required.
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The undersigned certifies that all information provided in this application is true and correct
to the best of the undersigned's knowledge. The undersigned authorizes the city of Elk
River to check credit references,verify financial and other information,and share this
information with other political subdivisions as needed. The undersigned also agrees to
provide any additional information as may be requested by the city after the filing of this
application.
The undersigned has received the city's policy regarding the payment of costs of review,
understands that reimbursement to the city of costs incurred in reviewing the application will
be required, agrees to reimburse the city as required in the policy and make payment when
billed by the city,and agrees that the application may be denied for failure to reimburse the
city for costs as provided in the policy.
Applicant Name Date
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IX. SAMPLE BUT-FOR ANALYSIS
WITH NO WITH
TAX ABATEMENT TAX ABATEMENT
SOURCES AND USES SOURCES AND USES
SOURCES SOURCES
Mortgage 9,600,000 8,667,000
Equity 2,400,000 2,400,00
Tax Abatement 0 933,000
TOTAL SOURCES 12,000,000 12,000,000
USES USES
Land 1,500,000 1,500,000
Site Work 300,000 300,000
Soil Correction 468,000 468,000
Demolition 100,000 100,000
Relocation 65,000 65,000
Subtotal Land Costs 2,433,000 2,433,000
Construction 6,750,000 6,750,000
Finish Manufacturing 250,000 250,000
Subtotal Construction Costs 7,000,000 7,000,000
Soft Costs 350,000 350,000
Taxes 35,000 35,000
Finance Fees 850,000 850,000
Project Manager 542,000 542,000
Developer Fee 540,000 540,000
Contingency 250,000 250,000
Subtotal Soft Costs 2,567,000 2,567,000
TOTAL USES 12,000,000 12,000,000
Income Statement Income Statement
Sq. Ft. Per Sq. Ft. Sq. Ft. Per Sq. Ft.
Rent-Space 1 100,000 $8.00 800,000 100,000 $8.00 800,000
Rent-Space 2 25,000 $8.50 212,500 25,000 $8.50 212,500
Rent-Space 3 25,000 $9.00 225,000 25,000 $9.00 225,000
Other 0 $0.00 0 0 $0.00 0
1,237,500 1,237,500
Mortgage 20 Term 1,051,646 20 Term 949,439
9.00% Interest 9.00% Interest
9,600,000 Principal 8,667,000 Principal
Net Income 185,854 288,061
Total Return on Equity 7.74% 12.00%
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X. TAX ABATEMENT APPLICATION REVIEW WORKSHEET
TO BE COMPLETED BY CITY STAFF
1. The project meets the criteria set forth in Section V of the Tax Abatement policy.
a) Meets at least one of the objectives in Section III.
b) Demonstrates need for Tax Abatement with the but for analysis.
c) Consistent with all city plans and ordinances.
d) Serves at least two public purposes as defined in Section V(g).
2. Ratio of Private to All Public Investment in Project: Points:
$ Private Investment 5:1 5
$ Public Investment 4:1 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 1
3.Job Creation in the city of Elk River: Points:
Number of new jobs as a result of the project. 25+ 5
Number of existing/retained jobs 20+ 4
Total 15+ 3
10+ 2
Less than 10 1
4. Ratio of Public Investment to Job Creation: Points:
S Public Investment $8,000 or less 5
Number of new jobs created/retained $10,000 or less 4
$ of Public Investment per newjob $12,000 or less 3
$15,000 or less 2
Over $15,000 1
5. Wage Level of newjobs created/retained Points:
Minimum hourly wage Over $21/ hour 5
of jobs created/retained: $18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under $10/ hour 1
6. Project size: Points:
The project will result in the construction 40,000+ 5
of square feet 30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less 1
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7. Market Value/Tax Base Generation: Points:
The project will result in a per square foot Industrial Commercial
estimated market value(land and building) $80/sf+ $110/sf+ 5
of $70/sf+ $100/sf+ 4
$60/sf+ $90/sf+ 3
$50/sf+ $80/sf+ 2
$40/sf+ $70/sf+ 1
8. Type of Project: Points:
100% Owner Occupied 5
Mix Owner Occupied&Investment 4
Investment Property 3
9. Use: Points:
Industrial or Business Park Project 5
Commercial Rehabilitation/Redevelopment 4
10. Likelihood that the project will result in Points:
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
Sub -Total Points: of a possible 45 points.
11. Bonus Adjustments Bonus Adjustments:
The project will be 100%Pay-asyougo Tax Abatement 3 points
The project contributes to the goals of Energy City. 2 points
• Product promotes sensible use of energy, OR
• Project utilizes significant energy efficient design&/or
materials in construction.
Total Points: Rating Points Max Eligibility
Overall project desirability: High 45-38 points 100%
Moderate 37-29 points 75%
Low 28-20 points 50%
Not Eligible 19-0 points 0%
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