7.8. HRSR 02-05-2018
Request for Action
To Item Number
Housing and Redevelopment Authority 7.8
Agenda Section Meeting Date Prepared by
Work Session February 5, 2018 Amanda Othoudt, EDD
Item Description Reviewed by
Jackson Hills Residential Suites, LLC and Elk River Cal Portner, City Administrator
Lodge Suites, LLC Housing TIF Application
Reviewed by
Action Requested
Provide recommendation to the City Council regarding potential Tax Increment Financing District No.
25.
Background/Discussion
The Jackson Hills Residential Suites project is a proposed 40-unit market rate and affordable housing
project located at the intersection of 6th Street and Jackson. The developer applied for Tax Increment
Financing (TIF) assistance through the establishment of a housing TIF district over 26 years to finance
the portion associated with affordable housing.
In addition, the developer also submitted a request to pool increment generated by the Jackson Hills
Residential Suites project to reimburse the developer for interior and exterior renovations to convert the
existing Elk River Lodge site into affordable housing.
The Joint Finance Committee reviewed the application at their meeting on January 31, 2018, and a
motion was made by Mr. Provo and seconded by Ms. Magnussen recommending the HRA approve
establishing a 26-year, non-contiguous Housing TIF District No. 25. The motion carried 7-2 with Mr.
Hardin and Mr. Toth opposed.
According to the city’s policy adopted by Council on December 14, 2017, TIF districts shall be limited to
the minimum term necessary to meet the project needs. Only projects exceeding the objectives identified
in the policy will be considered to exceed the maximum term allowed for housing projects of 15 years (26
Max) for housing districts.
Staff’s concern is the Jackson Hills project whether pooled with the ER Lodge garage construction or
alone does not “exceed” the objectives identified in the policy as required to merit the TIF extension. The
Jackson Hills project should not extend beyond a TIF term of 15-years per the city’s policy. In addition,
pooling increment from Jackson Hills to the Elk River Lodge project should not be needed as this project
was already approved as an apartment complex by the City Council on its own merit in order to come
into compliance with the city zoning code.
The City Council will be holding a work session following the HRA meeting this evening to review the
proposed project, financial application, and recommendation provided by the HRA.
The Elk River Vision
A welcoming community with revolutionary and spirited resourcefulness, exceptional
service, and community engagement that encourages and inspires prosperity
Financial Impact
The Jackson Hills Residential Suites Housing Project is estimated to generate $1,340,872 in total gross tax
increment from city, county and school district taxes over 26 years. The net amount available to the
developer is $1,206,790 or 90 percent of those taxes, with the city retaining 10 percent for administrative
expenses over the term of the district.
Per the city policy, the total estimated gross increment available over 15 years for housing projects is
$773,580. The developer could receive 90 percent of the gross increment over 15 years of $696,225.
Attachments
Joint Finance Committee Packet
Housing TIF Timeline
N:\\Departments\\Community Development\\Economic Development\\HRA\\Administrative\\Agenda\\2018\\02-05-2018\\Laserfiche\\7.8 sr Jackson
Hills Residential Suites and Elk River Lodge Housing TIF Application.docx
Meeting
of the
Joint Finance
Committee
AGENDA
Tuesday, January 30, 2018
7:30 a.m.
Elk River City Hall
Upper Town Conference Room
1. CALL MEETING TO ORDER
2. CONSIDER AGENDA
3. CONSENT AGENDA
Considered to be routine and noncontroversial by the Economic Development Finance Committee and will be approved by one
motion. There will be no separate discussion of these items unless a Committee member, staff member, or citizen so requests, in
which case the item will be removed from the consent agenda and considered under the regular agenda.
3.1 Minutes
July 25, 2017
3.2 Revolving Loan Fund Balance Reports
4. GENERAL BUSINESS
4.1 Tax Increment Financing Applications – Jackson Hills Residential Suites and The
Elk River Lodge Suites, LLC
5. ANNOUNCEMENTS
6. ADJOURNMENT
Meeting Protocol
No sidebar discussions
No interruptions
State your concern
Ensure you understand
Don’t take things personally
Adhere to time limits
Come prepared
Ensure all are heard
Meeting of the Elk River EDA Finance Committee
Held at the Elk River City Hall
Tuesday, July 25, 2017
Members Present: Larry Toth, Ryan Hardin, Dan Tveite, Jim Gromberg, Bryan Provo, Chad
Vitzthum, Nate Ovall, and Michelle Eder
Members Absent: None
Staff Present: Amanda Othoudt, Economic Development Director and Colleen Eddy,
Economic Development Specialist
Others Present: Rhonda Magnussen (7:47 am)
1. Call Meeting to Order
Pursuant to due call and notice thereof, the meeting of the Elk River Finance Committee
was called to order at 7:32 a.m.
2. Consider Agenda
Motion by Ovall and seconded by Gromberg to approve the agenda. Motion carried
8-0.
3.0 Consent Agenda
Motion by Toth and seconded by Gromberg to approve the consent agenda. Motion
carried 8-0.
4.1 Application for Committee – Rhonda J. Magnussen
Ms. Othoudt presented the staff report and reviewed Rhonda’s application. She also
introduced Michelle Eder to the group as the newly appointed HRA representative. The
group discussed Rhonda’s application.
Motion by Thoth and seconded by Gromberg to approve Rhonda J. Magnussen’s
appointment to the Joint Finance Committee. Motion carried 8-0.
5.1 Announcements
5.1 Ethanol Technology Verbal Update
Ms. Othoudt gave a verbal overview of this case. Currently there is talk of facilitating a
mediation with both parties. Ms. Othoudt is working with our legal representative at
Campbell Knutson and will keep the group updated and any future activities. Mr. Provo
asked how much the city has spent on collecting on this debt. Ms. Othoudt stated that the
city has spent around $8,000 so far. Mr. Hardin asked if the outstanding funds could be
assessed to the company’s taxes. Ms. Othoudt stated that that was not an option in this case.
Before adjournment the group and the newest member, Rhonda J. Magnussen introduced
themselves to each other.
6. Adjournment
There being no further business, Mr. Tveite adjourned the meeting at 7:55 a.m.
Minutes prepared by Colleen Eddy.
_____________________
Tina Allard, City Clerk
___________________
Amanda Othoudt, Economic Development Director
ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
MICRO LOANS
Current Current 1/26/18
Loan Loan Interest Term Monthly Principal
Borrower Date Amount Rate (Months)Payment Outstanding Current
Die Concepts 6/3/2016 $185,200 2.00%60 $936.90 $173,699.31 Y
Ethanol Technology 8/25/2008 $74,000 3.00%60 $716.03 $66,729.66
Heritage Millwork 12/22/2016 $100,000 3.00%60 $965.61 $91,368.65 Y
Patriot Converting 5/5/2016 $200,000 3.00%60 $3,593.74 $136,550.07 Y
Preferred Powder 10/1/2013 $100,000 3.00%60 $967.61 $61,142.04 Y
Ralphies 9/10/2013 $74,999 3.00%120 $724.20 $44,800.57 Y
TOTAL MICRO LOANS $574,290.30 Micro Loan Fund 240
Distinctive Iron 3/3/2015 $126,000 2.03%60 $874.72 $103,559.62 Y
Scott Morrell LLC 8/6/2015 $200,000 2.00%60 $1,011.77 179,812.75 Y
$283,372.37 DEED Jobs Incentive Loan Fund 242
Fund Cash Balances 1/26/18:
Micro Loan Fund - 240 $685,887.15
State DEED Jobs Incentive - 242 $212,990.30
Summary Judgement Filed
The Elk River Vision
A welcoming community with revolutionary and spirited resourcefulness, exceptional
service, and community engagement that encourages and inspires prosperity
Request for Action
To
Joint Finance Committee
Item Number
4.1
Agenda Section
General Business
Meeting Date
January 30, 2018
Prepared by
Amanda Othoudt, EDD
Item Description
Jackson Hill Residential Suites, LLC and Elk River
Lodge and Residential Suites, LLC Housing TIF
Application and Financial Review
Reviewed by
Reviewed by
Action Requested
Review application and provide a recommendation to the Housing and Redevelopment Authority to
establish Tax Increment Financing District No. 25.
Background/Discussion
The Jackson Hills Residential Suites project is a proposed 40-unit market-rate and affordable housing
project located at the intersection of 6th Street and Jackson. The developer applied for Tax Increment
Financing assistance through the establishment of a Housing TIF District to finance the portion
associated with affordable housing. In addition, the developer also submitted a request to pool increment
generated by the Jackson Hills Residential Suites project to reimburse the developer for interior and
exterior renovations to convert the existing Elk River Lodge site into affordable housing.
The Jackson Hills Residential Suites Housing Project is estimated to generate $1,340,872 in total gross tax
increment over 26 years, the maximum term for a Housing District. The net amount available for housing
projects is $1,206,790 or 90 percent, with the city retaining 10 percent for administrative expenses over
the term of the district.
The developer requested $1,206,790, or 90 percent of increment over 25 years with an estimated present
value of $677,707.
Per the city policy, the total estimated gross increment available for housing projects is $773,580 over 15
years, or the maximum term allowed under the policy. The developer could receive 90 percent of the
gross increment over 15 years of $696,225 at a present value of $480,523.
The developer’s proposed financial package for the Jackson Hills Residential Suites project includes long-
term, private financing of $4,719,804 from Lakewood Mortgage, $1,179,804 in equity from the owner, for
a total estimated project budget of $5,899,018.
The developer’s proposed financial package for the Elk River Lodge project includes long-term private
financing of $1,250,000 from Klein Bank, $250,000 in equity from the owner, for a total estimated project
budget of $1,500,000.
N:\Departments\Community Development\Economic Development\EDA\Administrative\Agenda\EDA Finance Committee Agenda
Packets\2018\January 30 2018\4.1 sr Jackson Hills and ER Lodge TIF Application Review.docx
The developer is proposing a pay-as-you-go method for eligible costs as reimbursement. To qualify as a
Housing TIF District, at least 20% of the units would be occupied by persons or families with incomes
no greater than 50% of county median income or at least 40% of the units would be occupied by persons
or families with incomes no greater than 60% of county median income for the duration of the district.
Policy Review
Staff completed a review of the application in accordance of the city’s Tax Increment Financing Policy
adopted on December 4, 2017.
Based on the Estimated Market Value of the project as calculated by Sherburne County, the project’s
EMV is approximately $3,310,000 or $82,800 per unit. Taxes generated by this project would be
approximately $64,277 or $1,610 per unit.
Public Purpose
The project must achieve one or more of the following public purpose statements:
1. Demonstrate long-term benefits to the community.
2. Retain local jobs and/or increase the number and diversity of jobs that offer stable
employment and/or attractive wages and benefits through:
Diversification of the local economy
Significant addition of permanent, high-wage, full-time jobs
Addition of jobs attractive to those unemployed or underemployed
3. Significantly increases the city’s commercial and industrial tax base.
4. Demonstrates the ability to encourage unsubsidized private development through “spin
off” development.
5. Facilitates the development process and achieves development on sites that would not
develop “but for” the use of TIF.
6. Removes blight and/or encourages redevelopment of commercial and industrial areas
resulting in high quality redevelopment and private reinvestment.
7. Offsets redevelopment costs (i.e. contaminated site cleanup) over and above the costs
normally incurred in development.
8. Aids the implementation of the Mississippi Connections Plan.
The proposed project meets public purpose objective #1.
TIF District Term
According to the city’s policy adopted by Council on December 14, 2017, TIF Districts shall be limited to
the minimum term necessary to meet the project needs. Only projects exceeding the objectives identified
in the policy will be considered to exceed the maximum term allowed for Housing projects of 15 years
(25 Max) for Housing Districts.
The developer is requesting a term of 25 years of tax increment, which exceeds the general term
allowed by the policy for Housing Districts.
Policy Considerations
1. Each Project is required to meet the but for test to determine the need for and level of assistance.
Springsted completed a but for analysis and determined without TIF assistance the project
would not proceed due to the income restrictions of occupants and insufficient cash flow
to finance monthly expenses and debt service.
N:\Departments\Community Development\Economic Development\EDA\Administrative\Agenda\EDA Finance Committee Agenda
Packets\2018\January 30 2018\4.1 sr Jackson Hills and ER Lodge TIF Application Review.docx
2. Developers receiving TIF assistance shall provide a minimum of ten percent cash equity
investment in the project. TIF is not to be used to supplement cash equity.
The developer indicated Owner Cash Equity in the Jackson Hills Housing project of
$1,179,804, equivalent to 20 percent equity in the project.
The developer indicated Owner Cash Equity in the Elk River Lodge Housing project of
$250,000, equivalent to 20 percent equity in the project.
The developer has indicated that a portion of the equity listed in in the performa is in the
value of the land they currently own.
3. TIF will not be used in circumstances where land and property price is of fair market value.
The developer will be required to provide the city with recent appraisals, as required for
financing, performed by a third-party, hired by Lakewood Mortgage and Klein Bank to
determine the fair market value of the land.
4. The developer shall demonstrate a market demand for the proposed project.
The most recent housing study completed on December 4, 2015 indicates a need for 133
units of affordable rental.
Financial Impact
Per the city policy, the total estimated gross increment available over 15 years for housing projects is
$773,580. The developer could receive 90 percent of the gross increment over 15 years of $696,225, or a
present value of $480,523.
It is at the city’s discretion to capture the remaining 11 years of estimated surplus increment from this
project to assist in future housing projects.
Attachments
Jackson Hills Residential Suites, LLC TIF Application and Supporting Materials
Elk River Residential Suites, LLC TIF Application and Supporting Materials
Springsted’s analysis and supporting documents dated January 25, 2018
MEMORANDUM – DRAFT FOR REVIEW
TO: Amanda Othoudt, City of Elk River
FROM: Mikaela Huot, Vice President/Consultant
DATE: January 25, 2018
SUBJECT: Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
The City of Elk River has received two applications for financial assistance through Tax Increment Financing (TIF) to
assist with financing a portion of the development costs related to the construction of two projects. One is a 40-unit
residential rental multi-family affordable housing project to be constructed by Jackson Hills Residential Suites, LLC.
The other is an additional residential rental multi-family affordable housing project managed by Elk River Lodge &
Residential Suites, LLC that would include the renovation of the existing Elk River Lodge building to include interior
improvements, construction of a 25-unit garage, new parking lot and other exterior improvements.
The developer of both sites has requested tax increment assistance to finance a portion of the costs associated with
construction and renovation of the projects to provide a portion of the residential units as affordable. The purpose of
this memorandum is to provide a summary of Springsted’s review of the proposed projects to determine project
eligibility, financial feasibility and to understand the need for assistance. The review will be used to assist the City
with making a determination if the projects as proposed would be unlikely to proceed “but-for” the requested Tax
Increment Financing (TIF) assistance, and also to determine the appropriate amount, if any, of public assistance.
The developer had submitted applications for assistance for both projects approximately 6 months ago under the
City’s previous TIF Policy and Application. Developer applications were resubmitted following City approval of an
updated Policy and supplemental application. As a result, information analyzed has been a combination of originally
submitted materials, as well as the documents provided in the newly submitted applications.
Background: Jackson Hill Residential Suites Housing Project
The developer submitted a request for TIF assistance related to the proposed construction of an approximate 40 unit
multi-family housing project in which a portion of the units would be affordable. The Sherburne County Assessor
provided a new assessed value of the building to be approximately $3,310,000 (land and building). Assistance has
been requested for financing a portion of the costs associated with construction of the project. The developer has
proposed the approximate $5.9 million project will be funded by an estimated $1.179 million of equity and $4.719
million of private financing with tax increment financing used to provide annual cash flow. The developer’s submitted
Springsted Incorporated
380 Jackson Street, Suite 300
Saint Paul, MN 55101-2887
Tel: 651-223-3000
Fax: 651-223-3002
www.springsted.com
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 2
information provides that the request for assistance would be pay-as-you-financing as reimbursement for
extraordinary development costs. The developer has indicated the receipt of City financial assistance is necessary for
the project to proceed to finance a portion of the project costs. The developer has requested 90% of the available tax
increment for a 25 year term. Based on current projections, this would equate to approximately $1.2 million with an
estimated present value of $677,000. See complete sources and uses below from the developer’s supporting
financial materials submitted to Springsted.
Sources Amount Uses Amount
Equity $1,179,804 Land Acquisition 400,000
Debt $4,719,804 Site Work 834,071
TIF Construction 4,316,772
Architectural & Engineering 75,825
Legal Fees 10,000
Interest during Construction 82,350
Contingencies 180,000
Total $5,899,018 Total $5,899,018
There was some discussion during the first application process at a previous EDA Finance Committee regarding the
size of the proposed district (one or two properties) and related acquisition price. The acquisition price included in
the project sources and uses is for the 1.76 acre parcel that will comprise the 40-unit housing project. Reducing the
existing purchase price from $5.21/square foot to something less is expected to have a positive impact on the
performance of the project. It could ultimately reduce the amount of assistance necessary but is not expected to
eliminate the need for assistance.
Tax Increment Assumptions (Jackson Hills)
In order to estimate the amount of TIF revenues generated by the proposed project, certain assumptions were made
based on the value of the project, construction schedule, and anticipated financing terms.
Total project area (2 parcels)
o 75-134-2303 (EMV of $71,900)
o 75-134-2305 (EMV of $233,700)
o Base value of TIF District
o Estimated original net tax capacity of $3,820
Classified as residential rental class rate
Estimated total market value upon completion
o 40 units at $82,750/unit
o Total estimated completed value: $3,310,000
o Based on Assessor review
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 3
Maximum term of housing district (26 total years)
Increment based on difference between existing land value and new land/building value
Construction commences in 2018 and is completed in 2018
o 100% assessed in January of 2019 for taxes payable in 2020
Payable 2017 tax rates remain
o City : 46.193%
o County: 50.458%
o School: 36.659%
o Other: 4.509%
o Total 137.819%
Class rates remain constant through term
o Residential rental rate of 1.25%
o Classification of existing property as rental
0% annual market value inflator assumed
Present Value assumptions
o 4.5% discount rate
o 8/1/18 present value date
Developer PayGO
o 90% pledged to developer
o 10% retained by City
Tax Increment Revenue Estimates (Jackson Hills)
The tax increment revenue estimates are based on collection of revenues for the full term of the Jackson Hills
housing TIF district. Based on the assumptions previously outlined, the projected tax increment revenues to be
generated from the project are shown in the chart below. Actual revenues generated by the project will be based on
realized assumptions once the project is constructed and may be altered.
Jackson Hills Residential Suites Housing Project TIF Amounts
Total Gross Tax Increment (26 years) $1,340,872
City Retainage (10%) $134,082
Net Amount Available for Project(s) (90%) $1,206,790
Developer Requested Terms
25 years of tax increment at 90% $1,206,790
Estimated Present Value at 4.5% $677,707
Total estimated maximum amount per City policy (15 years) $773,580
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 4
15 years at 90% $696,225
Estimated Present Value at 4.5% $480,523
Estimated surplus increment (remaining 11 years) $510,565
Estimated Present Value at 4.5% $197,184
It is important to note that the maximum term of a housing district is 25 years after receipt of first increment for a total
of 26 years. The application for assistance includes a request for 90% of tax increment revenues for 25 years with
the City retaining 10%. The City’s general policy provides for a maximum term of assistance of 15 years for a
housing TIF district. It is our understanding that the request is for 15 years of tax increment revenues for the
Jackson Hills project with the remaining 11 years pledged to the Elk River Lodge project site (as will be described in
greater detail below).
Background: Elk River Lodge and Residential Suites Redevelopment Project
The developer submitted a request for TIF assistance related to the proposed renovation and redevelopment of the
existing Elk River Lodge site as a housing district. The developer has currently provided financial information related
to the project which would include interior and exterior improvements to the existing Elk River Lodge building,
construction of a 25-unit garage and new parking lot. The developer has estimated the total cost of the project to be
approximately $1.5 million and financed with a combination of debt and equity. The mini-perm financing would be
used to refinance an existing mortgage and provide new proceeds to finance the identified improvements.
Correspondence from the applicant’s potential lender has indicated that financing for the new improvements is
subject to receiving tax increment financing assistance as a means of repaying the debt. The applicant needs
$750,000 to refinance the existing mortgage with $500,000 for improvements necessary for rehabilitating the current
site. $200,000 of the improvements have already been completed and the applicant anticipates completing the
remaining $300,000 following consideration for tax increment financing assistance.
The developer has requested tax increment assistance for a 10 year term. Based on the current project and timing
for improvements, it does not appear that the Elk River Lodge site would be a viable stand-alone housing TIF district.
Any tax increment assistance would need to come from surplus available revenues from another funding source, and
presumably based on the applications for assistance would be from the Jackson Hills site (if established).
See complete sources and uses below from the developer’s supporting financial materials submitted to Springsted
for the Elk River Lodge project site. It is our understanding that the applicant has previously acquired the project site
and the land acquisition price as listed is not a current expenditure of the project.
Sources Amount Uses Amount
Equity $250,000 Land Acquisition $200,000
Debt $1,250,000 Site Work $300,000
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 5
TIF Construction $950,000
Architectural & Engineering $20,000
Legal Fees $10,000
Interest during Construction $20,000
Total $1,500,000 Total $1,500,000
The developer’s submitted information provides that the request for assistance would be pay-as-you-financing as
reimbursement for extraordinary development costs. The developer has also indicated that a portion of the units
would be considered ‘affordable’ and meet the definition of a housing project to be eligible to receive tax increment
assistance. Based on review of the project components and understanding of the improvements to be constructed,
the project as proposed is not expected to generate tax increment revenues sufficient to support the request for
assistance. The proposed improvements may result in minimal increases to the existing taxable value. Any building
permits pulled prior to district approvals would be included in the ‘base’ value of the district. It is our understanding
that the developer’s intent would be to receive increment from the other proposed housing district (Jackson Hills) as a
financing source to this project, capturing the remaining 11 years of increment following payment to the Jackson Hills
TIF district.
Project Financing
There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay -as-
you-go basis. With upfront financing, the City would finance a portion of the developer’s initial project costs through
the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay
debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the developer would
finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are
available.
Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the risk for
repayment to the developer. If tax increment revenues are less than originally projected, the developer receives less
and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay
as you go financing may not be financially feasible. With bonds, the City would still need to make debt service
payments and would have to use other sources to fill any shortfall of tax increment revenues. With internal financing,
the City reimburses the loan with future revenue collections and may risk not repaying itself in full if tax increment
revenues are not sufficient. The developer’s financial information for both applications includes pay -as-you-go
financing as annual reimbursement.
The City also has the ability to spend tax increments from a tax increment financing district on other eligible projects
within the City. The type, location and amount of eligible projects that can be financed is subject to the district(s)
from which the tax increments would be spent from. This spending is referred to as ‘pooling’ of tax increments.
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 6
Revenues from a housing district may be spent anywhere within the City as long as the project that is being financed
meets the statutory definition of a housing project. Revenues from a redevelopment district may be spent within the
boundaries of a project area, subject to certain percentage limitations and timing restrictions. Based on the tax
increment revenue analysis provided in the chart above, it is anticipated that should the Jackson Hills Residential
Suites project proceed, there may be surplus revenues available that could be spent on other eligible housing
projects. An example of this may include the improvements to the Elk River Lodge site, as well as any other
affordable housing projects that may be identified within the City.
Policy Application
The City’s tax increment financing policy and application has been under review by the EDA, EDA Finance
Committee, HRA and City Council for the past year. Following review, the updated policy and application has been
approved and is currently being utilized. The policy provides the public purposes for which the City will consider the
use of TIF for projects, as well as the policy objectives to be considered with TIF projects. The policy also addresses
the terms of TIF projects and indicates they will be limited to the minimum term necessary to meet the project needs.
Only projects exceeding the objectives identified in the policy will be c onsidered to exceed the policy’s general
thresholds. The public purpose objectives as listed in the policy and application are as follows:
1. Demonstrate long-term benefits to the community.
2. Retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or
attractive wages and benefits through:
Diversification of the local economy.
Significant addition of permanent, high-wage, full-time jobs.
Addition of jobs attractive to those unemployed or underemployed.
3. Significantly increases the city’s commercial and industrial tax base.
4. Demonstrates the ability to encourage unsubsidized private development through “spin off” development.
5. Facilitates the development process and achieves development on sites that would not develop “but for” the
use of TIF.
6. Removes blight and/or encourages redevelopment of commercial and industrial areas resulting in high
quality redevelopment and private reinvestment.
7. Offsets redevelopment costs (i.e. contaminated site cleanup) over and above the costs normally incurred in
development.
8. Aids the implementation of the Mississippi Connections Plan.
The policy thresholds for a housing district are 15 years (maximum is 26 years), with consideration that each project
must meet the “but for” test. Meeting this test and verifying the amount of assistance that is needed will assist with
determining the ultimate term of a district. The applicant has requested tax increment revenues be captured for the
maximum 26 year term of a housing TIF district with the first 15 years pledged for the Jackson Hills housing project
and the remaining 11 years pledged to the Elk River Lodge housing project.
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 7
Developer Pro forma But-For Analysis
In approving a TIF district and project, the City must make several findings, including the “but for” test: that the
proposed development would not reasonably be expected to occur solely through private investment within the
reasonably foreseeable future. The developer has provided financial information showing that the operating cash
flow requires financial assistance from the City to reduce the amount of debt and equity necessary to finance total
project costs, as provided through the annual tax increment revenues from the projects, and provide a reasonable
return on investment. The City also received letters from the anticipated financial lenders for both projects indicating
that tax increment financing was necessary to obtain financing. The developer has stated the assistance is
necessary due to the costs of developing the site as affordable housing and inability of the projects to support those
costs upon completion. Based on the developer’s stated position relative to the need for tax increment financing
assistance, the City could make its “but for” finding and provide tax increment assistance.
We recommend, however, that the City also consider an appropriate level and type of TIF assistance for the project
based on the information submitted by the developer. The City’s position relative to the use of tax increment will
focus on financing of the extraordinary costs with a limited term of assistance. The level of assistance is in part
dictated by the ‘extraordinary’ costs of the project and inability of the project to support those costs. Initial
discussions about the project indicate the assistance would be provided as reimbursement to assist the developer
with the development of affordable housing in the community and a reduction in rental income resulting from the
affordable housing units.
Following thorough evaluation of the project as provided allows the City to be prepared to make an informed “but-for”
decision based on the likelihood of the project needing assistance, as well as the appropriate level of assistance.
The “but-for” test is used to determine whether a project is likely to proceed as proposed without the use of public
dollars. Without the requested amount of tax increment assistance (15 years of TIF from the new project), the test is
to determine if the proposed Jackson Hills site would be developed as an affordable housing project with at least
20% of the units occupied at 50% of the area median income. And alternatively, without assistance, review how the
project would be constructed, if at all, and/or at non-income restricted levels or reduced amenities to lower project
costs. The but-for test for the Elk River Lodge site is also to determine if the project as proposed would proceed but-
for the City assistance. In the application for assistance, the developer has listed the planned improvements for the
project site. It is our understanding that some of those improvements have commenced and are required by City
code. The determination for the need for assistance (remaining 10 years of TIF from the Jackson Hills new project)
is based on the likelihood of the project proceeding as proposed. This includes both the financing of the identified
improvements, some of which may be required, as well as providing affordable housing units, as necessary to meet
the definition of a housing project.
We also reviewed varying documents including the developer’s provided operating proforma and financial statements
and also constructed similar ten-year project proformas, showing a result if the developer received assistance as
pay-as-you-go (reimbursement for TIF eligible costs) and showing a result if the developer did not receive assistance.
Our analysis of the proformas included a review of the development budget, projected operating revenues and
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 8
expenditures, and the project’s capacity to support annual debt service on the first mortgage and any secondary
notes.
Conclusion
The City has received two applications for tax increment financing assistance. Both projects involve multi -family
affordable housing. The first application relates to the construction of a 40-unit multi-family affordable housing project
with a request for tax increment assistance of 90% for 25 years. The second application relates to the renovation of
an existing facility that will include affordable housing. The applicant has stated that both projects would meet the
definition of a housing district with at least 20% of the units restricted for occupants at 50% of the area median
income.
The developer has provided financial information related to the construction of the 40-unit housing project referred to
as Jackson Hills and for the renovation the existing Elk River Lodge indicating that financial assistance is necessary
to provide annual cash flow and meet required debt coverage ratios and market returns. With assistance the projects
are expected to generate returns that the developer has indicated are sufficient to allow the project to proceed, with
tax increment necessary to obtain financing for both the Jackson Hills project construction and the additional
improvements related to the Elk River Lodge housing project. An overall reduction in project costs and/or increase in
revenues may assist with achieving greater market feasibility in the future, and/or reduce the need for tax increment
financing assistance.
Both projects as proposed would include a provision of affordable housing units within the City. By establishing a
Housing TIF District for the Jackson Hills Residential Suites project, the developer would be agreeing to maintain a
portion of the units as affordable (meeting the income requirements as outlined previously) over the life of district.
Without tax increment assistance the developer is not required to maintain any affordable units. As shown in the
estimated tax increment revenue section of this memorandum, there are projected to be surplus revenues available
from the Jackson Hills Residential Suites project that could be used to finance other eligible affordable housing
projects within the City. Further discussion regarding how those surplus funds could be used, whether thro ugh a
pooling program or on an annual basis, is recommended to occur.
In addition, the City’s newly updated Tax Increment Financing Policy and Application provides a general limit on the
term of a housing TIF district to 15 years. The request for assistance between the two submitted applications would
be for a 25 year TIF district with 15 years applied to the Jackson Hills project site and the remaining 11 years pledged
to the Elk River Lodge project site. We recommend further discussion on how the projects meet the City’s policy
criteria and the ability to extend beyond the desired minimum term.
Attachments: Project Qualifications: Definition of Housing Districts
City of Elk River, Minnesota
Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and
Elk River Lodge and Residential Suites, LLC
January 25, 2018
Page 9
Project Qualifications: Definition of Housing Districts
Housing districts are a type of tax increment financing district that consist of a project intended for occupancy, in
part, by persons or families of low and moderate income. Low and moderate income is defined in federal, state, and
municipal legislation. A project does not qualify if more than 20% of the square footage of buildings that receive
assistance from tax increments consist of commercial, retail or other nonresidential use.
In addition, housing districts are subject to various income limitations and requirements for residential property. For
owner occupied residential property, 95% of the housing units must be initially purchased and occupied by individuals
whose family income is less than or equal to the income requirements for qualified mortgage bond projects under
section 143(f) of the Internal Revenue Code. For residential rental property, the property must satisfy the income
requirements for a qualified residential rental project as defined in section 142(d) of the Internal Revenue Code which
states the following:
at least 20% of the units will be occupied by persons or families with incomes no greater than 50% of county
median income or
at least 40% of the units will be occupied by persons or families with incomes no greater than 60% of county
median income.
Tax increments derived from a housing district must be used solely to finance the cost of housing projects as defined
in section 469.174, subd. II and 469.176 of the TIF Act. The cost of public improvements directly related to the
housing projects and the allocated administrative expenses of the City may be included in the cost of a housing
project. The City anticipates using tax increment revenues to finance a portion of the extraordinary costs associated
with providing the affordable housing units.
The term of a Housing District is 25 years after receipt of first increment.
City of Elk River, Minnesota
Timeline for
Establishment of Tax Increment Financing (Housing) District No. 25
(Jackson Hills and Elk River Lodge Residential Housing Projects)
Schedule of Events
Date Event Responsible Party
January 2018 Submission of Tax Increment Financing Application and Request for Assistance Developer / City
January/February City/ Springsted/
Initial review of project components and tax increment analysis
2018 Kennedy & Graven
Prior to January 25,
Tax Increment Analysis complete for City staff review Springsted
2018
January 31, 2018 Elk River Joint Finance Committee meeting to review application and analysis EDA Finance Committee
7:30 AM and provide recommendation to HRA / City staff / Springsted
Elk River Housing and Redevelopment Authority (HRA) review of TIF application
Monday, HRA/City
and supporting materials (financial and policy) to provide recommendation to City
February 5, 2018 staff/Springsted
Council in advance of City Council work session discussion
Monday, City Council work session to review TIF application and supporting materials City/City staff/
February 5, 2018 (financial and policy) Springsted
Tuesday, City/City staff/
City Council meeting to review and take action on TIF application
February 20, 2018 Springsted
Wednesday, County Commissioner receives notification letter
Springsted
February 28, 2018 (at least 30 days prior to publication of notice of public hearing)
County and School District receive impact letters & draft TIF plan
Wednesday,
Springsted
(at least 30 days prior to public hearing)
March 14, 2018
Tuesday, March 27 City / Springsted /
Planning Commission reviews and adopts resolution
6:30 PM Kennedy & Graven
Wednesday, March 28 Deadline to submit Hearing Notice to paper (Elk River Star News) for
Springsted
5:00 PM publication on March 31, 2018
Saturday, Publication of notice of public hearing in Elk River Star News for City TIF District
Springsted
March 31, 2018 establishment (at least 10 days prior to public hearing)
Monday, City Council holds public hearing and considers resolution approving TIF Plan City / Springsted /
April 16, 2018 and TIF District (resolution provided by Bond Counsel) Kennedy & Graven
6:30 PM
April 16, 2018 City Council considers resolution approving Development Agreement (resolution City / Springsted /
6:30 PM provided by Bond Counsel) Kennedy & Graven
Prior to June 30, 2018 State filing and request for county certification Springsted