10.2 SR 03-01-2021Request for Action
To
Item Number
Mayor and City Council
10.2
Agenda Section
Meeting Date
Prepared by
Work Session
March 1, 2021
Colleen Eddy, Economic Development Specialist
Item Description
Reviewed by
Tax Increment Financing Discussion
Cal Portner, City Administrator
Reviewed by
Action Requested
Hear presentation from Baker Tilly and staff on Tax Increment Financing.
Background/Discussion
Staff is working on a project that has requested Tax Increment Financing. The proposed site is in a high traffic
area of the city and has been a blighted property for several years.
Our Financial Advisor, Nlikaela Huot, from Baker Tilly will facilitate a presentation on Tax Increment Financing
and will explain the parameters that need to be met to meet the but fog• requirements. And with the addition of a
new council member, staff felt this would be a good opportunity to explain TIF, as more projects/developers
are requesting this type of financing.
Financial Impact
N/A
Mission/Policy/Goal
The purpose of the Tax Increment Financing policy is to ensure development receiving this financing is
consistent with the long-term city Comprehensive Plan, Strategic Plan, Mississippi Connections Plan and/or the
most recent Housing Study. The City of Elk River shall utilize TIF to encourage desirable development or
redevelopment that would not otherwise occur but for TIF.
Attachments
Tax Increment Financing Policy
Business Subsidy Policy
The Elk River Vision
A welcoming community with revolutionary and spirited resourcefulness, exceptional,` 01 e
service, and community engagement that encourages and inspires pi ospei ly INAMIRE1
Increment
Financi
Tax Increment Financing Policy
Purpose
The purpose of this policy is to ensure development receiving Tax Increment Financing
(TIF) is consistent with the long-term city Comprehensive Plan, Strategic Plan, Mississippi
Connections Plan and/or most recent Housing Study. This is a guide for processing and review
of TIF applications. The City of Elk River shall utilize TIF to encourage desirable
development or redevelopment that would not otherwise occur but for TIF.
The city is empowered to utilize TIF by the Minnesota Tax Increment Financing Act, as
amended in Minnesota Statutes 469-174 through 469-1794. The city provides the minimum
amount of TIF at the shortest term required for a project to proceed. 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. Projects meeting policy criteria are not guaranteed the award of
TIF. Approval or denial of a certain project is not a precedent for approval or denial of
another project.
The City Council and Economic Development Authority and the Housing and
Redevelopment Authority can deviate from this policy for projects that supersede the
objectives identified herein.
Authority
Minnesota Statutes 469-174 through 469-1794 govern the use of TIF and exceed any issues
that conflict with this policy.
Public Purpose
The City of Elk River will consider TIF for projects that achieve one or more of the
following:
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.
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.
Policy Statements
1. The primary intent of TIF is direct funding for public improvements and secondarily
for developer assistance.
2. The use of TIF shall be in accordance with state law. The more restrictive language
will apply when a conflict exists between this policy and state law.
3. Projects must be consistent with the Comprehensive Plan and/or the Mississppi
Connections Plan.
4. Projects must be consistent with the Strategic Plan for Economic Development
and/or the most recent Housing Study.
5. Preferred projects promote the completion of major public improvement projects
within the city such as the installation of trunk sewer and water lines and major
transportation projects.
6. The level of assistance provided will be determined on a case -by -case basis as
referenced in Public Purpose.
Based on the extent to which the project achieves the policy statements (1-6 above), the city
will consider TIF for projects in the following categories:
■ Manufacturing
■ Major office warehouse/production facilities
■ Research and development
■ Commercial projects encouraging substantial redevelopment of substandard
properties
■ Housing needs identified in the most recent city housing study
Assistance for TIF is required to meet the uses identified by statute including, but not
limited to the following:
■ Public improvements
■ Land acquisition and land write down
■ Loans
■ Site preparation and improvement
■ Demolition
■ Legal, administration, and engineering
2. The preferred method of TIF is pay-as-you-go for eligible costs as reimbursement,
upfront financing maybe considered on a case -by -case basis.
3. A maximum often percent (10%) of any tax increment received from the district
shall be retained by the city to reimburse administrative costs.
4. All TIF assistance must be accompanied by a signed development agreement
including a minimum assessment value. The developer must provide additional
financing guarantees to ensure completion of the project, including, but not limited
to: letters of credit, personal guarantees, corporate guarantees, etc.
TIF District's shall be limited to the minimum term necessary to meet the project
needs. Only projects exceeding the objectives identified in this policy will be
considered to exceed the following general thresholds:
■ Redevelopment District 15 Years (Max is 26)
■ Housing District 15 Years (Max is 26)
■ Soils Condition District 15 Years (Max is 21)
■ Renewal and Renovation District 10 Years (Max is 16)
■ Economic Development District 8 Years (Max is 9)
Policy Considerations
■ Each project is required to meet the "but -for" test to determine the need for and
level of assistance. This test and the amount of tax increment generated
determines the district's term. It is difficult to facilitate a redevelopment, housing
or soils condition district for less than the maximum term as the extraordinary
costs involved are usually significant.
■ The term of the district could coincide with the amount of tax increment the city
has to spend on its priorities within a project area.
Of all the TIF districts, the Economic Development District is most often the
one limited to a lesser term. Economic Development Districts are really
"incentive" districts where it is not so much the extraordinary costs as it is an
"incentive" to get a business to locate in a community. In the other districts, the
costs are easily identifiable and usually significant such as demolition, relocation,
environmental remediation, and the cost differential between market rate and
income/rent restricted housing.
7. Developers receiving TIF assistance shall provide a minimum often percent (10%)
cash equity investment in the project. TIF will not be used to supplant cash equity.
8. TIF will not be used in circumstances where land and/or property price is in excess
of fair market value. A third -party appraiser agreed upon by the city and developer
will determine the fair market value of the land.
9. The developer shall demonstrate a market demand for a proposed project. TIF shall
not be used to support purely speculative projects.
10. The developer shall adequately demonstrate, to the city's sole satisfaction, an ability
to complete the proposed project based on past development experience, general
reputation, and credit history, among other factors, including the size and scope of
the proposed project.
11. For the purposes of underwriting the proposal, the developer shall provide any
requested market, financial, environmental, or other data requested by the city or its
consultants.
12. The city of Elk River shall only use TIF to encourage economic growth and
development within the city limits.
Application Process
Applicant submits a complete application and a $10,000 application deposit by the
first Monday of the month. The application deposit will be used toward the cost of
services provided in the evaluation of financial feasibility, establishment or
modification of the district, and preparation of legal documents and agreements. An
additional deposit of $10,000 shall be required for projects requiring statutory
redevelopment substandard tests. The applicant shall reimburse the city for
professional services in excess of the initial deposit. Deposit portions not utilized
shall be refunded.
2. City staff reviews the application for completeness and submits the application to the
city's financial consultant for review and preparation of a financial analysis.
The Joint Finance Committee shall review the proposal's financial strength and make
a recommendation to the appropriate commission with findings of fact.
4. The appropriate authority reviews the proposal and the recommendation to
determine conformance with this policy. The authority makes a recommendation to
the City Council.
5. After meeting the statutory requirements for establishing the Tax Increment District,
the City Council holds a Public Hearing and takes action on the proposal
(Approximately 45-60 days).
APPLICATION FOR TAX INCREMENT FINANCING
A. APPLICANT INFORMATION
Name of Entity
Address
Primary Contact
Address
Phone Fax Email
Brief description of the entity business, including history, principal product or service:
Brief description of the proposed project:
Attorney Name
Address
Phone
Accountant N
Phone Fax Email
Contractor Name
Address
Phone Fax Email
Engineer Name
Address
Phone Fax Email
Architect Name
Address
Phone
B. PROJECT INFORMATION
1. The project will be:
Redevelopment District
Housing District
Soils Condition District
Renewal and Renovation District
Economic Development District
2. The project will be: _Owner Occupied Leased Space
3. Project Address
Legal Description & Parcel Identification Number(s)
4. Site Plan and Preliminary Construction Plans Attached: Yes No
5. Amount of Tax Increment Requested for:
Land Purchase $
Public Improvement $
Site Improvement $
6. Current Real Estate Taxes on Project Site: $
Estimated Real Estate Taxes upon Completion: Phase I $
Phase II $
7. 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 Increment Financing should result in 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 or diversification of the city's economic base.
The project contributes to the fulfillment of the City's Plan.
Removal of blight or the rehabilitation of a high profile or priority site.
Significantly increase the City's tax base.
Other:
D. SOURCES & USES
SOURCES NAME
AMOUNT
Bank Loan
$
Other Private Funds
$
Owner Cash Equity
$
Fed Grant/Loan
$
State Grant/Loan
$
EDA Micro Loan
$
Tax Increment
$
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 $
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 of all Major Shareholders
Current Tax Return
F) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Timeline
G) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
H) Application deposit of $10,000, with any unused portion to be refunded.
I) Construction Plans and Itemized Project Construction Statement
J) Attach the following documentation as Exhibits
Exhibit A
— Entity Documents
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: All Major shareholders will be required to sign personal guarantees if up front financing of the
project is required.
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 and verify
financial and other information. The undersigned also agrees to provide any additional information as may be requested
by the City after the filing of this application.
Applicant Name Date
Tax Increment Financing
Policy History
Adopted by:
On date
Item #
City Council
12/4/2017
EDA
11 /20/2017
HRA
11 /6/2017
Business Subsidy
Table of Contents
Purpose 3
II. Definition of "Business Subsidy" 3
III. Public Purpose Objectives of Business Subsidies 5
IV. General Policies for the Use of Business Subsidies
V. Guidelines for Commercial/Industrial Business Subsidies 6
VI. Subsidy Application Process and Procedure 7
VII. Subsidy Agreement and Reporting Requirements 7
CITY OF ELK RIVER
POLICY AND PROCEDURES RELATING TO
THE USE OF BUSINESS SUBSIDIES
I. PURPOSE
For the purposes of this document, the terra "City" shall include the Elk River City Council, Economic Development Authority, and
Housing and Redevelopment Authority.
The purpose of this policy is to establish guidelines and criteria regarding the use of business subsidies, such
as tax increment financing (TIF), tax abatement, and other business subsidies for private development
projects within the City of Elk River. This policy shall be used as criteria for providing subsidies, in addition
to the requirements and limitations set forth by provisions of Minnesota Statutes Section 116J.993 to
116J.995 (Minnesota Business Subsidy Law), and the City's policy and guidelines of the particular form of
subsidy.
These guidelines shall be used in processing and reviewing applications requesting business subsidy
assistance. The fundamental purpose of business subsidies in the City is to encourage desirable
development or redevelopment that would not otherwise occur "but for" the assistance provided through
business subsidies.
It is the intent of the City to provide business subsidies, as well as other incentives that the City may deem
appropriate, at the shortest term required for the project to proceed. The City reserves the right to approve
or reject projects on a case -by -case basis, taking into account established policies, specific project criteria,
and demand on city services in relation to the potential benefits to be received from a proposed project.
Meeting policy guidelines or other criteria does not guarantee the award of a business subsidy. Furthermore,
the approval or denial of one project is not intended to set precedent for approval or denial of another
project.
Whenever possible it is the City's intent to coordinate the use of business subsidies with other applicable
taxing jurisdictions.
II. DEFINITION OF "BUSINESS SUBSIDY"
"Business subsidy" has the meaning set forth in the Minnesota Business Subsidy Law and may include a
local government agency grant, contribution of personal property, real property, infrastructure, the principal
amount of a loan at rates below those commercially available to the recipient, any reduction or deferral of
any tax or any fee, any guarantee of any payment under any loan, lease, or other obligation, or any
preferential use of government facilities given to a business.
A business subsidy does not include financial assistance excluded by the Minnesota Business Subsidy Law
including the following forms of financial assistance:
1. a business subsidy of less than $150,000;
2. assistance that is generally available to all businesses or to a general class of similar businesses, such
as a line of business, size, location, or similar general criteria;
3. public improvements to buildings or lands owned by the state or local government that serve a
public purpose and do not principally benefit a single business or defined group of businesses at the
time the improvements are made;
4. redevelopment property polluted by contaminants as defined;
5. assistance provided for the sole purpose of renovating old or decaying building stock or bringing it
up to code and assistance provided for designated historic preservation districts, provided that the
assistance is equal to or less than 50 percent of the total cost;
6. assistance to provide job readiness and training services if the sole purpose of the assistance is to
provide those services;
7. assistance for housing;
8. assistance for pollution control or abatement, including assistance for a tax increment financing
hazardous substance subdistrict as defined;
9. assistance for energy conservation;
10. tax reductions resulting from conformity with federal tax law;
11. workers' compensation and unemployment insurance;
12. benefits derived from regulation;
13. indirect benefits derived from assistance to educational institutions;
14. funds from bonds allocated under chapter 474A, bonds issued to refund outstanding bonds, and
bonds issued for the benefit of an organization described in section 501(c) (3) of the Internal
Revenue Code of 1986, as amended through December 31, 1999;
15. assistance for a collaboration between a Minnesota higher education institution and a business;
16. assistance for a tax increment financing soils condition district as defined;
17. redevelopment when the recipient's investment in the purchase of the site and in site preparation is
70 percent or more of the assessor's current years estimated market value;
18. general changes in tax increment financing law and other general tax law changes of a principally
technical nature;
19. federal assistance until the assistance has been repaid to, and reinvested by, the state or local
government agency;
20. funds from dock and wharf bonds issued by a seaway port authority;
21. business loans and loan guarantees of $150,000 or less;
22. federal loan funds provided through the United States Department of Commerce, Economic
Development Administration; and
23. property tax abatements granted under section 469.1813 to property that is subject to valuation
under Minnesota Rules, chapter 8100.
Notwithstanding the definitions listed above under 1 and 21, "business subsidies" as defined also includes
the following forms of financial assistance and is subject to this policy, with the exception of a public
hearing as the amount of assistance is less than $150,000, with limited reporting forms required:
1. a business subsidy of $25,000 or more; and
2. business loans and guarantees of $75,000 or more.
The definition of a "business subsidy" is in compliance with the current Minnesota Business Subsidy Law
and is subject to any law changes that may occur.
III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES
In accordance with the Minnesota Business Subsidy Law, the City will consider using business subsidies to
assist private development projects to achieve one or more of the following public purpose objectives:
• To retain local jobs and/or increase the number and diversity of jobs that offer stable
employment and/or attractive wages and benefits.
• To enhance and diversify the City of Elk River's tax base.
• To encourage additional unsubsidized private development in the area, either directly or
indirectly through "spin off' development.
• To achieve development on sites which would not be developed without business subsidies
assistance.
• To remove blight and/or encourage development of commercial and industrial areas in the city
that result in higher quality development or redevelopment and private investment.
• To offset increased costs of development of specific properties when the unique physical
characteristics of the site may otherwise preclude private investment.
• To create opportunities for the construction, operation and maintenance of affordable housing.
IV. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES
A. Business subsidy assistance will be provided from the City, on a "pay-as-you-go" note method, to
the developer if the business subsidy is tax increment financing or tax abatement. Requests for up
front financing will be considered on a case -by -case basis.
B. A developer requesting business subsidy assistance must demonstrate, to the satisfaction of the City,
sufficient cash equity investment in the project as required within the City's policy for the particular
form of subsidy.
C. Business subsidy assistance will not be provided in circumstances where land and/or property price
is demonstrated by the County Assessor to be in excess of fair market value. This would normally
be where the acquisition price is more than 10% in excess of market value.
D. A developer must be able to demonstrate to the City, or, if applicable, to the underwriting authority,
a market -demand for a proposed project.
0
E. Business subsidy assistance will not be used in cases where the subsidy would create an unfair and
significant competitive financial advantage over other similar projects in the area.
F. Business subsidy assistance will not be used for projects that would place extraordinary demands on
city infrastructure and services.
G. If requested by the City the developer shall provide adequate financial guarantees to ensure
completion of the project, including, but not limited to: minimum assessment agreements, letters of
credit, cash escrows, and personal guaranties.
H. Each developer must be able to demonstrate to the City's satisfaction, an ability to construct,
operate, and maintain the proposed project based on past experience, general reputation, and credit
history.
I. If requested by the City, or its consultants, the developer shall provide sufficient market, financial,
environmental, or other data relative to the successful operation of the project.
I. Projects receiving business subsidy approval from other affected taxing jurisdictions will be more
favorably received by the City.
V. GUIDELINES FOR COMMERCIAL/INDUSTRIAL BUSINESS
SUBSIDIES
A. Business subsidies may be considered for retail or service businesses if it will result in satisfying
a clear strategic goal of the City, including, but not limited to substantial increase in tax base and
a significant improvement in a redevelopment project, quality employment, paying at least 175%
of the state or federal minimum wage, whichever is greater.
B. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning
Ordinances.
C. The project must result in the retention of existing jobs that would be lost "but for" the proposed
development or result an increase and diversification in local jobs. 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.
D. Specific wage and job goals will be determined by the City giving consideration to the particular
form of the subsidy, nature of the development, the purpose of the subsidy, local economic
conditions and similar factors. The recipient will have up to two years from the benefit date, as
defined in the Minnesota Business Subsidy Law, to meet the job and wage goals established by the
City.
E. The minimum wage for a job to be considered a new or retained job shall be the greater of $15.00
per hour or 150% of state or federal minimum wage, whichever is greater, exclusive of benefits
0
required by law. Deviations from the job and wage goal may be considered for projects that will
result in a significant increase in tax base. Deviations less than the wage floor will be considered on
a case -by -case basis and in accordance with the requirements of the Minnesota Business Subsidy
Law.
F. Business subsidies will not be used for commercial/industrial projects that have a history of
inconsistent compliance with applicable environmental rules and regulations.
VI. SUBSIDY APPLICATION PROCESS AND PROCEDURE
A. Application for business subsidies shall be made on the City's forms for the particular type of
assistance. The application for business subsidies shall request information required within the City's
policies on the particular form of subsidy including but not limited to; a detailed description of the
project; a preliminary site plan; the amount of business subsidy requested; the public purpose of the
project; the number and types of jobs to be created; the wages and benefits to be paid new
employees; and verifiable funding sources and uses.
B. Following a review by appropriate City Staff the application shall be referred to the either the
Economic Development Authority, or Housing and Redevelopment Authority, for recommendation
to the City Council for denial or approval.
C. Before granting a business subsidy that exceeds $150,000, the City shall provide public notice and
hold a hearing on the subsidy unless a hearing and notice on the subsidy is otherwise required by
law.
VII. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS
Each company receiving a business subsidy shall be subject to the subsidy agreement and reporting
provisions and requirements set forth by the Minnesota Business Subsidy Law and summarized below:
A. Progress Reports
The recipient shall file a report annually for two years after the benefit date, as defined in the
Minnesota Business Subsidy Law, or until all goals set forth in the subsidy agreement have been
met, which ever is later. Reports shall be completed using the format drafted by the State of
Minnesota and shall be filed with the City's Economic Development Division no later than
March 1 of each year for the progress made the previous year.
B. Maintain Facility
The recipient agrees to maintain and operate its facility at the site where the subsidy is used for a
period of five years from the benefit date, as defined in the Minnesota Business Subsidy Law.
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C. Failure to Comply
Businesses failing to comply with the subsidy agreement will be subject to the terms of the
individual agreement, repayment requirements at the rate established within the Minnesota
Business Subsidy Law, and be deemed ineligible by the State to receive any loans or grants from
public entities for a period of five years.
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Business Subsidy
Policy History
Adopted by:
On date
Item #
City Council
02/19/2019
7.1
City Council
4/20/2015
4.11
EDA
4/20/2019
6.1
HRA
11 /2/2015
7.3
City Council
2/18/2014
4.9
EDA
2/ 18/2014
6.3
City Council
11/25/2002
6.2
EDA
12/09/2002
3.5
HRA
11 /25/2002
6.1
0
Elk
R iVer
Oty of Kok Bluer
Ot y CouncH
Raso�uVcn 0 9- 06
A Resolution of the Cary Cnunca � of the City of E9k River Approving an
Amended Business Subsidy PoUc y
WHEREAS, the City Council (the "Council") of the City of Elk River, Minnesota (the
"City") acknowledges the need to provide financial assistance to businesses to further the
economic development objectives of the City; and
WHEREAS, Minnesota Statutes. Sections 116J.993 through 116J.995, as amended (the
"Business Subsidy Act") requires any state or local government agency with the authority to
grant a business subsidy to establish business subsidy criteria before any new business
subsidy can be provided; and
WHEREAS, the Council previously approved business subsidy criteria and has now
determined to amend the criteria in accordance with the Business Subsidy Act; and
WHEREAS, the Council has performed all actions required by law to be performed prior
to the adoption of an amended version of the City of Elk River, Minnesota Business Subsidy
Criteria (the "Policy"), including the holding of a public hearing on behalf of itself, the
Economic Development Authority of the City of Elk River and the Housing and
Redevelopment Authority in and for the City of Elk River, Minnesota, upon published
notice as required by law.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Elk
River, Minnesota, as follows: 1. The Council hereby adopts the amended Policy, a copy of
which is on file at the City Hall. 2. City staff is authorized to transmit a copy of the Policy to
the Minnesota Department of Employment and Economic Development in accordance with
the Business Subsidy Act.
Passed and adopted this 19"' day of February 2019.
*Jn ietz, yor
ATTEST:
Tina Allard, City Clerk
r
a E I E i I Y
NATURE
City of Elk River
City Council Worksession
Tax Increment Financing Policy
Discussion
March 1, 2021
C'C*
bakertitty
MUNICIPAL ADVISORS
C• bakertitl
y
now, for tornor.ow.
Introduction
• Redevelopment of Saxon site and TIF request
• TIF overview
• Policy considerations
• Financial needs analysis
• City's TIF policy overview
bakertitl
y
now, toi tamer -Ow.
Current Project requesting TIF Assistance
1. Stonewood Development LLC proposing redevelopment of
former Saxon site
2. Construction of two 89-unit market rate rental apartment
buildings for total of 178 units
3. Total estimated development cost of $34.7M
4. Would require establishment of Redevelopment TIF District
5. Developer request for 20 years of TIF assistance requires
a. Policy amendment or
b. Policy deviation
C• bakertitl
y
now, for tornor.ow.
Current Project requesting TIF Assistance
Considerations for level of public assistance parameters
include:
• Financial gap
• TIF policy guidelines
• Public to private investment
• Public assistance (TIF) and private equity
• Extraordinary costs
Tax Increment Financing
bakertitl
y
now, toi tamnr-ovu.
A method of capturing tax base growth resulting from
new development
Fixed term for capture, then new development
capacity is added to existing tax base
Tax increment is generated by the increased property
value that is created when a property is developed
Tax Increment Financing (TIF)
Existing Value
bakertitl
y
now, for tomorrow.
Taxes "captured" for the term
of the TIF District
Taxes continue to flow to
city, county school etc.
CC* bakerti ll
now, for tomorrow.
Fundamentals of Tax Increment Financing (TIF)
Basic TIF Model
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O
6
ssss
O
sss
IncremTaxes
New Tax Baseental
(post -project; flows
CD
(portion used to finance eligible
to General Fund
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expenditures)
and all taxing
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Base Taxes
jurisdictions)
(continues to other taxing
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jurisdictions
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}
Duration of TIF District
}
(Years)
CC* bakerti ll
now, for tomorrow.
Fundamentals of Tax Increment Financing
Project Area (Development District)
— Where portion of TIF dollars can be spent, with limitations
TIF District (Specific Project)
- TIF Plan
- Budget
- Geographic boundaries TIF District 1
- Purpose
- Public Hearing
- Certification TIF District 3 TIF District 2
Project Area/
Development
District
Tax Increment Financing (TIF)
Common Methods for Financing Costs
Upfront
PayG o
bakertitl
y
now, for tomorrow.
Tax increment pays at least 20% of debt
service costs
Obligation to levy for debt issue, if needed
Minimum assessment agreement
Taxable bonds may result
Developer pays for public improvements
Reimbursed by tax increment
Reimbursement limited to amount of TIF
collected
bakertitl
y
now, toi tamer -Ow.
Types of TI F Districts
The type of district dictates for rules regarding use and term
• Redevelopment District- Max term is 26 years
• Housing District- Max term is 26 years
• Soils Condition District- Max term is 21 years
• Renewal and Renovation District- Max term is 16 years
• Economic Development District- Max term is 9 years
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Use of Tax Increment Financing
• Cities use TI F to:
— Stimulate development where it would otherwise not
occur ("but for" test)
— Retain existing tax base
— Encourage development of uses that would otherwise
not occur
— Enhance tax base
— Facilitate infrastructure improvements
— Coordinate new developments with existing plans
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What Drives The "Gap" Or Need For Public
Financing Assistance?
• Extraordinary redevelopment costs
• Hold out property owner, land price too high
• Development needs more than it can pay for
• "Oversizing" of utility and infrastructure needs for future
growth
• Developer wants less risk/more return than typical market
conditions dictate
• Market competition
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Needs Assessment for Public Financing Assistance
• Determine need for and amount of public assistance
• Financing of public improvements that could not be
supported by developer alone without assistance
• Financing of private eligible improvements not supported by
development performance
• Verification of developer assumptions
• Matching funding sources with project costs
• Development would not occur `but -for' assistance
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Due Diligence Review for New Projects
• Statutory authority to use financial tools (Legal)
• Market demand for the use developed (Developer)
• Site control and qualified developer (FA/Legal)
• Healthy growing employer (Industry Evaluation)
• Extent to which the expected positive consequences of a
project outweigh the negative consequences
• Probability that the project will leverage additional private
investment or spin-off investment
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City of Elk River TI F Policy Public Purpose Objectives
1. Demonstrate long-term benefits to the community
2. Retain local jobs and/or increase number and diversity
3. Significantly increase commercial/industrial tax base
4. Demonstrate ability toHencourage unsubsidized private
development through spin off development
5. Facilitate and achieve development on sites that would not
develop "but for" the use of Tl F
6. Removes blight and/or encourages redevelopment of
commercial and industrial areas resulting in high quality
redevelopment and private reinvestment
7. Offset redevelopment costs over and above normal costs
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City of Elk River TIF Policy Statements
1. Primary intent of TIF is direct funding for public improvements
and secondarily for developer assistance
2. The use of TIF shall be in accordance with state law
3. Projects consistent with Comprehensive Plan and/or
Mississippi Connections Plan
4. Projects consistent with Strategic Plan for Economic
Development and/or the most recent Housing Study
5. Preferred projects promote the completion of major public
improvement projects within the city such as the installation of
trunk sewer and water lines and major transportation projects
6. The level of assistance provided will be determined on a case -
by -case basis as referenced in Public Purpose
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City of Elk River TI F Policy Statements
The City will consider TIF for projects that include-
• Manufacturing
• Major office warehouse/production facilities
• Research and development
• Commercial projects encouraging substantial redevelopment
of substandard properties
• Housing needs identified in the most recent city housing
study
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City of Elk River TI F Policy Statements
Assistance for TIF is required to meet the uses identified by
statute including, but not limited to the following:
• Public improvements
• Land acquisition and land write down
• Loans
• Site preparation and improvement
• Demolition
• Legal, administration, and engineering
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City of Elk River TI F Policy Statements
TIF District's 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 following
general thresholds -
Redevelopment District 15 Years (Max is 26)
• Housing District 15 Years (Max is 26)
• Soils Condition District 15 Years (Max is 21)
• Renewal and Renovation District 10 Years (Max is 16)
• Economic Development District 8 Years (Max is 9)
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City of Elk River TIF Policy Considerations
• Each project is required to meet the "but -for" test to
determine the need for and level of assistance
• Developers receiving TIF assistance shall provide a minimum
of ten percent (10%) cash equity investment in the project.
TIF will not be used to supplant cash equity
• TIF will not be used in circumstances where land and/or
property price is in excess of fair market value. A third -party
appraiser agreed upon by the city and developer will
determine the fair market value of the land
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City of Elk River TI F Policy Considerations
• The developer shall demonstrate a market demand for a
proposed project. TIF shall not be used to support purely
speculative projects
• The developer shall adequately demonstrate, to the city's
sole satisfaction, an ability to complete the proposed project
based on past development experience, general reputation,
and credit history, among other factors, including the size
and scope of the proposed project
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Questions
Mikaela Huot, Director
Baker Tilly
380 Jackson Street, Suite 300
St Paul, MN 55101
Phone: 651-223-3036 (office)
651-368-2533 (cell)
Email: Mikaela.Huot@bakertilly.com
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