6.3 EDSR 04-17-2017Request for Action
ToItem Number
Economic Development Authority6.3
Agenda Section Meeting DatePrepared by
General BusinessApril 17, 2017Amanda Othoudt, EDD
Item Description
Reviewed by
Updated Tax Abatement Policy and ApplicationCal Portner, City Administrator
Reviewed by
Action Requested
Approve, by motion, thechanges made to the EDA Tax Abatement Policy.
Background/Discussion
The Tax Abatement Policy and Application was approved by the EDA at their Septembe
After further discussion with our financial advisor, and the EDA
changes to the policy were recommended to the EDA for approval.
Tax Abatement Application Review Worksheet: now includes maximum eligibility percentage for
TAF:
: Rating Points Max Eligibility
Total Points
Overall project desirability: High 45-38 points 100%
Moderate 37-29 points 75%
Low 28-20 points 50%
Not Eligible 19-0 points 0%
Financial Impact
None
Attachments
Property Tax Abatement Policy
Tax Abatement
Policy & Application
Amended: March 2017
September 2016
February 2014
May 2006
August 2002
April2000
City 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
Page 2 of 15
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 Rivers position relating to the
use of Tax Abatementfor private development above and beyond the requirements and
limitations set forth by State Law. This policy shall be used as
and review of applications requesting Tax Abatement assistance. The fundamental
purpose of providing Tax Abatementin 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 Abatementby 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 t
Preference is given to projects in which the total amount of Tax Abatement
includes participation from the county. The city reserves the right to approve or reject
projects on a case by case basis, taking into consideration esta
criteria, and demand on city services in relation to the potential b
project. Meeting policy criteria does not guarantee the award ofTax Abatement to the
project. Approval or denial of one project is not intended to se
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 T 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 t
when Tax Abatement is requested, each political subdivision has the option of granting
its portion of the increased taxes to the project. Subsequently,
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 follo
To retain local jobs and/or increase the number and diversity of
stable employment and/or attractive wages and benefits as defined in the citys
Business Subsidy Policy.
To enhance and diversify the city of Elk Rivers economic base.
To encourage additional unsubsidized private development in the
.
directly or indirectly through spin off development
Page 3 of 15
To facilitate the development process and to achieve development
which would not be developed without Tax Abatement assistance.
To remove blight and/or encourage redevelopment of commercial an
industrial areas in the city that result in high quality redevelopment and private
reinvestment.
To offset increased costs of redevelopment (i.e. contaminated siclean-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 o
design, energy conservation, and decreasing capital and/or opera
.
local government
To significantly increase the city of Elk Rivers 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-as-you-go 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 tenpercent (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 pro
project.
e.Tax Abatementwill 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 sig
environmental impacts.
g.The developer must provide adequate financial guarantees to ensure
completion of the project, including, but not limited to: agreem
credit, personal guaranties, etc.
h.The developer shall adequately demonstrate, to the citys sole satisfaction, an
ability to complete the proposed project based on past development
Page 4 of 15
experience, general reputation, and credit history, among other
including the size and scope of the proposed project.
i.For the purpose of underwriting the proposal, the developer shal
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
space.
In addition, leasable office projects must meet the following guidelines:
1.Evidence of the 50% occupancy must be reported to the Director o
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 demons
accordance with the MinnesotaBusiness 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 anoth
or community.
k.All Tax Abatement proposals shall optimize the private development
potential of a site.
V. PROJECT QUALIFICATIONS
each
All Tax Abatement projects considered by the city of Elk River must meet 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 Abatementwill 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 financia
but-for the use of Tax Abatement. Evaluation of the projects financial
feasibility without Tax Abatement shall be provided by the citys financial
Page 5 of 15
advisor on all requests of over $25,000 totalpublic investment.
d.The city will consider the use of Tax Abatement assistance for projec
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 cre
paying jobs (at least twice the minimum hourly rate stated in thcitys
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 citys Comprehensive Plan, Land
Use Plan, and Zoning Ordinances.
g. The project shall serve at least twoof the following public purposes:
Job creation or job retention.
Significantly increase the tax base.
Enhancement or diversification of the citys economic base.
Development or redevelopment that will spur additional private
investment in the area.
Fulfillment of defined city objectives, such as those identified
Economic Development Strategic Plan or the citys Comprehensive Plan,
among others.
Removal of blight or the rehabilitation of a high profile or pri
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 citys
Business Subsidy Policy as amended and Minnesota Statutes Sections 116J.993 to
116J.995 (the Minnesota Business Subsidy Law ), if applicable
Page 6 of 15
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 documentsand
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 govern
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, resolu
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 applicati
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
Page 7 of 15
Financial Incentive Application
Tax Abatement Financing
VIII. APPLICATION FOR TAX ABATEMENT
Public Information Notice
Generally, correspondence to and from Staff is considered public
to a financial assistance request is deemed not public: Financial Information, Financial Statements,
Net worth Calculations, Business Plans, Income and Expense proje
Lists, Income Tax returns. When public financial assistance isreceived, only the following remains
not public: Business Plans, Income and Expense projections, Customer
design, market, and feasibility studies not paid for with public
applicant to submit sensitive financial information directly to citys financial consultant, for
additional security.
A. APPLICANT INFORMATION
Name of Business Entitys ___
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 ______
Page 8 of 15
Address
l ______
Phone FaxEmai
Contractor Name ______
Address
_______
PhoneFaxEmail
Engineer Name _______
Address
______
PhoneFaxEmail
Architect Name ______
Address
______
Phone FaxEmail
B. PROJECT INFORMATION
1. The project will be:
____
:
IndustrialNew ConstructionExpansionRedevelopment / 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
.
4Project Address
Parcel Identification Number(s)
: ____ ____
5. Site Plan and Construction Plans AttachedYesNo
:
6.Total Amount of Tax Abatement Requested$ over years.
City Portion:Annual $Total $
County Portion:Annual $Total $
ISD 728 Portion:Annual $Total $
.
7Current Real Estate Taxes on Project Site: $
Estimated Real Estate Taxes upon Completion: Phase I $
Phase II $
. ______
8Construction Start Date:
Construction Completion Date: ____
: __
If Phased ProjectYear% Completed
______
Year % Completed
C. PUBLIC PURPOSE
It is the policy of the city of Elk River that the use of Tax Abatementshould result in
Page 9 of 15
a benefit to the public. Please indicate how this project will .
___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 priva
investment in the area.
_Enhancement and/or diversification of the cityof Elk Rivers economic base.
___The project contributes to the fulfillment of the citys Economic Development
StrategicPlan.
___Removal of blight.
___Rehabilitation of a high profile or priority site.
___Significantly increase the citys tax base.
D. SOURCES & USES
SOURCESNAMEAMOUNT
$
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
Page 10 of 15
E.ADDITIONAL DOCUMENTATION AND CHECKLIST
Applicants will also be required to provide the following docume:
A) Written business plan, including a description of the busine
ownership/management, date established, products and services, a
futureplans
B)Financial Statements for Past TwoYears
______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 Proje
______H) Application deposit of $10,000, with any unused portion to be refunded
if project does not proceed
I) 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)
Note:
I.All owners with ownership interests greater than 20% will be required to sign
personal guarantees if up front financing of the project is requ
Page 11 of 15
The undersigned certifies that all information provided in this
to the best of the undersigneds knowledge. The undersigned authorizes the city of Elk
River to check credit references, verify financial and other inf
information with other political subdivisions as needed. The un
provide any additional information as may be requested by the city after the filing of this
application.
The undersigned has received the citys 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 t
city for costs as provided in the policy.
Applicant Name Date
Page 12 of 15
IX. SAMPLE BUT-FOR ANALYSIS
WITH NO WITH
TAX ABATEMENTTAX ABATEMENT
SOURCES AND USES SOURCES AND USES
SOURCESSOURCES
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
USESUSES
Land 1,500,000 1,500,000
Site Work 300,000 300,000
Soil Correction468,000468,000
Demolition100,000100,000
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 Principal8,667,000 Principal
Net Income 185,854 288,061
Total Return on Equity 7.74% 12.00%
Page 13 of 15
X. TAX ABATEMENTAPPLICATIONREVIEW WORKSHEET
TO BE COMPLETED BY CITY STAFF
1. The project meets the criteria set forth in Section V of the TaxAbatementpolicy.
a) Meets at least one of the objectives in Section III.
b) Demonstrates need for Tax Abatementwith 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 Investment5:1 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: _____
$ Public Investment $8,000 or less 5
Number of new jobs created/retained$10,000 or less 4
new
$ of Public Investment per job $12,000 or less 3
$15,000 or less 2
Over $15,000 1
new
5. Wage Level of jobs 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
Page 14 of 15
7. Market Value/Tax Base Generation: Points: _____
The project will result in aper 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 Property3
9. Use: Points: _____
Industrial or Business Park Project 5
Commercial Rehabilitation/Redevelopment4
10. Likelihood that the project will result inPoints: _____
unsubsidized, spin-off development. High 5
Moderate 3
Low 1
Sub - Total Points: of a possible 45 points.
11. Bonus AdjustmentsBonus Adjustments:
The project will be 100% Pay-as-you-go 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.
: RatingPoints Max Eligibility
Total Points
Overall project desirability: High 45-38 points 100%
Moderate 37-29 points 75%
Low 28-20 points 50%
Not Eligible 19-0 points 0%
Page 15 of 15