9 PCSR 02-23-1993 ITEM 9
TO: PLANNING COMMISSION
INKlk River FROM: WILLIAM RUBIN, ED COORDINATOR/
DATE: FEBRUARY 16, 1993
SUBJECT: REVIEW OF TAX INCREMENT FINANCING
PLAN FOR TAX INCREMENT FINANCING
DISTRICT NO. 9
INTRODUCTION
On Monday, March 8, 1993, the Elk River City Council will
conduct a public hearing to consider Tax Increment Financing
Plan for Tax Increment Financing District No. 9 . Pursuant to
Minnesota Statutes, a Planning Commission is required to review
and comment on proposed Tax Increment Financing Plans prior to
the City Council conducting a public hearing.
BACKGROUND
Previously, the Planning Commission commented on this Plan in
July, 1992 . Because the applicant for TIF assistance has
switched expansion sites, revisions to the TIF Plan have been
necessitated.
• The Elk River Economic Development Authority (EDA) is proposing
the creation of Tax Increment District No. 9 . The District
will be comprised of up to three parcels, Lots 1, 2, and 3, Elk
River Industrial Park 2nd Addition. The request for Tax
Increment Assistance comes from Tescom Corporation, Inc. , 12616
Industrial Boulevard. The Company seeks Tax Increment
Financing assistance to support its proposed 30,000 square foot
expansion on the vacant site which is adjacent to its existing
34,000 square foot facility.
Tax Increment Funds would be used to "write-down" the cost of
the land, and for survey, topographic, and soil boring analysis
on this site. As with the previous TIF District No. 9, the EDA
is proposing the creation of an "Economic Development TIF
District. " New property taxes from the expansion would be
collected by the City/EDA until the EDA is repaid for its costs
associated with this expansion project. When the costs are
recovered, the TIF District is decertified.
ACTION REQUESTED
Following its review of the Tax Increment Financing Plan for
TIF District No. 9, the Elk River Planning Commission is asked
to adopt the attached Resolution which finds the Plan
III consistent with the City' s Comprehensive Plan. The Planning
Commission' s Resolution and findings will then be forwarded to
the City Council for consideration at the March 8 public
hearing.
720 Dodge Avenue N.W., Elk River, Minnesota 55330 (612) 441-7420
• RESOLUTION 93 - 1
RESOLUTION FOR THE PLANNING COMMISSION
A RESOLUTION OF THE ELK RIVER PLANNING COMMISSION FINDING THE
ECONOMIC DEVELOPMENT AUTHORITY'S TAX INCREMENT FINANCING PLAN
FOR TAX INCREMENT FINANCING DISTRICT NO. 9 LOCATED WITHIN
DEVELOPMENT DISTRICT NO. 1 TO BE CONSISTENT WITH THE
COMPREHENSIVE PLAN FOR THE CITY OF ELK RIVER
WHEREAS, the Economic Development Authority' s Tax Increment
Plan for Tax Increment Financing District No. 9 (the
Plan) , to be located within Development District No.
1, has been submitted to the Elk River Planning
Commission; and,
WHEREAS, the Planning Commission has reviewed said Plan to
determine the consistency of said Plan to the
Comprehensive Plan of the City of Elk River.
NOW, THEREFORE, BE IT RESOLVED by the Elk River Planning
Commission that the Tax Increment Financing Plan for
Tax Increment Financing District No. 9 is consistent
• with the Elk River Comprehensive Plan, and the Elk
River Planning Commission recommends approval of said
Plan to the Elk River City Council .
Adopted this 23rd day of February, 1993 .
Robert Minton, Chair
ATTEST:
Stephen Rohlf, Building & Zoning Administrator
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TAX INCREMENT FINANCING PLAN
TAX INCREMENT FINANCING DISTRICT NO. 9
III
CITY OF ELK RIVER, MINNESOTA
MARCH 8, 1993
• TAX INCREMENT FINANCING PLAN
TAX INCREMENT FINANCING DISTRICT NO. 9
SUMMARY
Tescom Corporation, Inc. , 12616 Industrial Boulevard, Elk
River, Minnesota seeks $194,000 in Tax Increment Financing
assistance to support its proposed 30,000 square foot expansion
on a vacant site adjacent to its existing 34 ,000 square foot
facility in the Elk River Industrial Park. At its Elk River
facility, Tescom produces regulators, valves, and control
devises . The current business grew out of applications in the
1960 ' s which were heavily dependent on aerospace. Sales have
been greatly diversified since that time. This diversity
currently includes the following industries : Semi Conductor,
General Industrial, Specialty Gas, Instrumentation,
Government/Aero Space, and Petroleum/Hydraulic. The Elk River
facility currently employs 200 people, up from 54 when Tescom
moved to Elk River in 1982 . The growth projections forecast
employment at the end of 1994 to be 265 to 270 people.
The Economic Development Authority for the City of Elk River,
Minnesota is proposing the creation of an Economic Development
District pursuant to the Tax Increment Financing Act. Tax
Increment funds will be used to "write-down" the acquisition of
. the development site. In addition, funds will be used to
conduct borings and analysis of the property, site survey, and
for civil and engineering costs .
The 30, 000 square foot facility will have a finished market
value estimated at $900,000, which produces property taxes
estimated at $43,300 . These funds will be "captured" by the
City of Elk River so that the City can recover the $194,000 in
Tax Increment assistance. After recapturing the project debt,
Tax Increment Financing District No. 9 will be decertified,
thereby enabling all local taxing jurisdictions (County,
School, City, etc. ) to share in the project's property taxes .
The Economic Development Authority for the City of Elk River,
Minnesota anticipates that Tax Increment Financing District No.
9 will exist for six (6) to seven (7) .
•
•
• TAX INCREMENT FINANCING PLAN
TAX INCREMENT FINANCING DISTRICT NO. 9
A. STATEMENT OF OBJECTIVES
Tax Increment Financing District No. 9 is located entirely
within the City' s Development District No. 1, a Municipal
Development District created and established pursuant to
the Development District Act. The Development Program for
Development District No. 1, was adopted by the City
Council on April 1, 1985, and was amended on January 27 ,
1986, and November 30, 1987 . The objectives of the
Development District, as amended, and as set forth in the
Development Program, are hereby incorporated into this Tax
Increment Financing Plan. Attached as Exhibit A is a map
of Development District No. 1 .
The specific objectives of the Tax Increment Financing
Plan for Tax Increment Financing District No. 9 are:
1 . To provide incentive financing for the sale of Lots 1,
2, and 3, Block 2, Elk River Industrial Park 2nd
Addition; (the development site) ;
• 2 . To encourage a manufacturing company to expand in the
Elk River Industrial Park; said expansion includes
the construction of a new facility estimated at
approximately 30,000 square feet;
3 . To increase employment opportunities in the community
and in the State of Minnesota; said expansion will
create 45 to 60 permanent full time positions; and,
4 . To preserve and enhance the local tax base and the
tax base in the State of Minnesota; said expansion
will generate new property taxes of approximately
$43, 300 .
B. CLASSIFICATION OF DISTRICT
The City Council of the City of Elk River, Minnesota
determines that it is necessary, desirable, and in the
public interest to designate, establish, develop, and
administer an Economic Development District in the City of
Elk River pursuant to the provisions of the Tax Increment
Financing Act, Minnesota Statutes 469 . 174 to 469 . 179,
inclusive. The purpose of the Tax Increment Financing
Plan is to encourage the expansion of a manufacturing
company in the Elk River Industrial Park, thereby
• increasing local employment opportunities and preserving
and enhancing the local tax base and the tax base of the
State of Minnesota.
• C. DEVELOPMENT PROGRAM
1 . Overview
Tescom Corporation, Inc. , 12616 Industrial Boulevard,
Elk River, Minnesota, seeks Tax Increment Financing
assistance to support its proposed 30, 000 square foot
expansion on a vacant lot adjacent to its existing
34 , 000 square foot facility in the Elk River
Industrial Park.
The Tax Increment funds will be used to "write down"
the acquisition of the development site. In
addition, funds will be used to conduct borings and
analysis of the property, site survey, and for civil
and engineering costs .
2 . Property Included in Tax Increment Financing
District No. 9
The legal description of the property included in TIF
District No. 9 is as follows :
Lot 1, Block 2, Elk River Industrial Park 2nd
Addition (PID No. 75-520-0210)
• Lot 2, Block 2, Elk River Industrial Park 2nd
Addition (PID No. 75-520-0220)
Lot 3, Block 2, Elk River Industrial Park 2nd
Addition (PID No. 75-520-0230)
Attached as Exhibits B-1 and B-2 are maps showing the
exact location of the property included in Tax
Increment Financing District No. 9 .
3 . Property to be Acquired by the Authority
No property is scheduled for acquisition by the
Economic Development Authority for the City of Elk
River, Minnesota.
D. DEVELOPMENT ACTIVITIES
1 . Development Overview
Tescom Corporation, Inc. , proposes to constuct a new
facility of approximately 30,000 square feet on the
Development Property. The facility will have a
• finished market value estimated at $900, 000 .
Construction is scheduled to begin in March, 1993,
and will be completed by the fall of 1993 .
III Tescom currently employs 200 persons at its Elk River
facility. As a result of the expansion, 45 to 60
permanent, full time jobs will be created within a
two year time period.
2 . Contracts
No contracts have been entered into at the time of
the preparation of this Tax Increment Financing
Plan. Proposed contracts for services associated
with Tax Increment Financing No. 9 include:
- Soil borings and analysis .
- Survey, civil and engineering
- Contract for construction of 30, 000 square foot
facility (by Tescom Corporation, Inc . ) .
E. TAX INCREMENT FINANCING DISTRICT NO. 9 BUDGET
1 . Tax Increment Financing District No. 9 Cost
Estimates
Budget Amount
• Land Write Down $165,000
Site Survey, Civil and Engineering 4, 000
Soil Borings and Analysis 25,000
Administration 6,000
Legal -0-
Cost of Issuance Fees -0-
Bond Discount -0-
Capitalized Interest -0-
Miscellaneous
Total $200,000
2 . Bonded Indebtedness
No Bonds will be issued as part of Tax Increment
Financing District No. 9 .
3 . Sources of Revenue to Pay Public Costs
Tax Increments collected from Tescom Corporation' s
expansion will be used to pay the public costs
associated with Tax Increment Financing District No.
9 .
4 . Original Tax Capacity
• Because the property in Tax Increment District No. 9
is tax exempt, the original net tax capacity, based
on the January 2, 1992, valuation, is estimated to be
• $0 . 00 . The County Auditor Certification attributable
to this value is attached as Exhibit C.
5 . Estimated Captured Tax Capacity
The finished market value upon completion of the
improvements in Tax Increment Financing District No.
9 is estimated at $900,000. This value translates
into a completed net tax capacity estimated at
$41, 400 . The captured net tax capacity is estimated
as follows :
Completed Net Tax Capacity $41,400
Less Original Net Tax Capacity -0-
Equals Captured Net Tax Capacity $41,400
One hundred percent of the captured net tax capacity
of Tax Increment Financing District No. 9 will be
required to finance the public costs associated with
District No. 9 . As a result, the City of Elk River
elects, pursuant to Minnesota Statute 469 . 177
Subdivision 2 (a) ( 1) , to retain the full captured
net tax capacity of Tax Increment Financing District
No. 9 .
• 6 . Duration of the Tax Increment Financing District No.
9
The City of Elk River expects that the first
increment it will receive from Tax Increment
Financing District No. 9 will be for taxes payable in
1995 . This is based on a project with a completed
value on January 1, 1994 . The City expects to
continue to receive tax increment from Tax Increment
District No. 9 up to and including 1999, or until
$194 , 000 in Tax Increment has been received.
Thereafter, no further increments may be received and
Tax Increment District No. 9 will terminate.
F. CASH FLOW ANALYSIS
Attached as Exhibit D is the Cash Flow Analysis for Tax
Increment District No. 9 .
G. IMPACT ON OTHER LOCAL TAXING JURISDICTIONS
1 . Estimated Impact of District No. 9 on the Taxing
Jurisdictions Assuming the Captured Net Tax Capacity
410 is Available to the Taxing Jurisdictions Without
Creation of District No. 9 :
III Pursuant to Minnesota law, tax increment generated by
development within the TIF District may be captured
by the City for a period of up to eight years .
During this period other taxing jurisdictions will
continue to receive taxes from the property within
the TIF District based on the current net tax
capacity.
2 . Estimated Impact of District No. 9 on the Taxing
Jurisdictions Assuming None of the Captured Net Tax
Capacity is Available to Taxing Jurisdictions Without
Creation of District No. 9 :
The Economic Development Authority of the City of Elk
River has determined that the Tescom project would
not reasonably be expected to occur without the
creation of TIF District No. 9 and the use of tax
increment financing. Therefore, none of the net tax
capacity captured during the term of this TIF
District would be available to other taxing
jurisdictions without the creation of this district.
3 . Additional information on the impact of Tax Increment
Financing District No. 9 on the other local taxing
jurisdictions can be found in Exhibit E .
•
H. STUDIES AND ANALYSIS USED TO DETERMINE THE NEED FOR TAX
INCREMENT FINANCING
The Elk River EDA and City Council have determined that
the Tescom Corporation, Inc. expansion project cannot
reasonably be expected to occur solely through private
investment within the reasonably foreseeable future.
Therefore, the use of Tax Increment Financing assistance
is deemed necessary.
This determination has been made based on the following:
- The Company was purchased, through a Leveraged
Buy-Out (LBO) , in December, 1986 . While Tescom
Corporation, Inc. is still highly leveraged, it has
proven the ability to service its debt as illustrated
by the significant reduction over the five and one
half years since the LBO. Tax Increment assistance
is needed to reduce overall project costs to ensure
Tescom remains a financially stable and profitable
company after its expansion.
- Tescom Corporation, Inc. owns and operates a second
• facility in Watertown, South Dakota. The Company is
currently reviewing its options for appropriate
locations for expansion. While Elk River offers some
advantages, the financial attraction of South Dakota
• offers significant benefits as well . Tax Increment
assistance is necessary because it would discourage
commerce or industry from moving to another State, it
would increase employment in the State of Minnesota
and it would preserve or enhance the tax base of the
State of Minnesota.
I . PARCELS INCLUDED IN TAX INCREMENT FINANCING DISTRICT NO. 9
Tax Increment Financing District No. 9 is comprised of one
land parcel . It is listed below:
1993 Original
Parcel 1992 EMV Pay 1993 Net Tax Capacity
75-520-0210 $59,400 $0 (Tax Exempt)
75-520-0220 59,400 0 (Tax Exempt)
75-520-0230 50,000 0 (Tax Exempt)
Please refer to Exhibit C for the County Auditor
Certification of this parcel in Tax Increment Financing
District No. 9 .
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EXHIBIT B-2
TAX INCREMENT DISTRICT NO. 9
• EXHIBIT C
COUNTY AUDITOR CERTIFICATION
TAX INCREMENT FINANCING DISTRICT NO. 9
The original net tax capacity of the following listed
parcel (s) , as of January 2 , 1992, is certified to be: $0 . 00 .
The parcel(s) contained in Tax Increment District No. 9
are listed below:
Parcel 1992 EMV 1992 Original
Number Pay 1993 Net Tax Capacity
75-520-0210 $ 59,400 $0 (Tax-Exempt)
75-520-0220 59,400 0 (Tax-Exempt)
75-520-0230 50,000 0 (Tax-Exempt)
Total $168,000
The Base Tax Rate will be the rate calculated for taxes payable
in 1993 . In accordance with Minnesota Statutes, Section
469 . 177, Subd. 1, the average percentage increase in the
• original Net Tax Capacity shall be zero percent (0%) .
E. Dale Palmer
Sherburne County Auditor
SHERBURNE
COUNTY
SEAL March , 1993
•
• ABIT D •
TAX INCREMENT FINANCING DISTRICT NO. 9
CASH FLOW ANALYSIS
1994* 1995** 1996 1997 1998 1999 2000***
Original Net
Tax Capacity $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Total Net Tax Capacity 7, 765 41,400 41,400 41,400 41, 400 41,400 41,400
Captured Net
Tax Capacity $7, 765 $41,400 $41,400 $ 41,400 $ 41,400 $ 41,400 $ -0-
Estimated Tax
Rate ( 1) 104 . 612 104 . 612 104 . 612 104 . 612 104 . 612 104 . 612 104 .612
Captured Increment $43,300 $43, 300 $ 43, 300 $ 43, 300 $ 43, 300 $ -0-
Cumulative Increment $86, 600 $129, 900 $173,200 $216,500 $216,500
( 1) Based on Payable 1992 tax rate. This rate will change for taxes payable in 1993 and in
subsequent years; this will result in a change in the actual amount of increment collected
by the City.
*Taxes will be generated in 1994, but no increment will be collected.
**The first year an increment will be collected is 1995; this is based on a finished market value
as of January 2, 1994 .
***The District is decertified on December 31, 1999 and taxes generated in 2000 will be collected by
the local taxing jurisdictions.
4111 • •
EXHIBIT E
IMPACT OF TAX INCREMENT FINANCING DISTRICT NO. 9
ON OTHER MAJOR TAXING JURISDICTIONS
City of Elk River, Minnesota
Impact of Tax Increment Financing District No. 9
On Other Major Taxing Jurisdictions
Without Project With Project
1992/93 1992/93 1992/93 1992/93 Projected 1992/93 Adjusted Tax Projected Negative
Tax Ad Valorem Tax Tax Captured New Tax Ad Valorem Tax Capacity Captured Impact On
Capacity Taxes Capacity Capacity Tax Capacity Capacity Taxes Capacity Rate Tax Capacity Other Taxing
Value Levied Rate Value Value Value Levied Rate Impact Value Jurisdictions
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
City of
Elk River $ 7,928,363 $ 1,567,370 20.56 % $ 7,928,363 $41,400 $ 7,969,763 $ 1,567,370 19.666% .894% $ 41,400 $ 8,142
Sherburne County 51,850,407 10,298,271 19.883 51,850,407 41,400 51,891,807 10,298,271 19.846 .037 41,400 8,216
ISD 728 15,301,069 9,365,109 61.209 15,301,069 41,400 15,342,469 9,365,109 61.040 .169 41,400 25,270
Other 1.373 41,400 1.373 41,400 568
Totals 103.025% 101.925% 1.10% $ 42,196
Statement 1: The 1992/93 tax capacity value times the 1992/93 tax capacity rate produces 1992/93 taxes generated.
If the captured tax capacity value was available to each taxing jurisdiction, the result would be a
lower or adjusted tax capacity rate which would produce the same amount of taxes. Thus, with the
addition of captured value of $41,400, the tax capacity rate for the above selected major taxing
jurisdictions would be reduced by a rate of 1.10% to an adjusted tax capacity rate of 101.925%. The
captured tax capacity value times the adjusted tax capacity rate of 101.925% would generate $42,196 in
increment income, which represents the loss of new tax revenues if the development had not occurred
without inclusion in a tax increment district.
Statement 2: If no captured tax capacity value is available to each of the taxing jurisdictions, there is no impact
on the taxes heretofore levied and, therefore, no impact on tax capacity rates.
NOTE: The impact on other taxing jurisdictions is negligible since those jurisdictions represent approximately 1.0%
of the overall tax levy.