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5.0. EDSR 02-11-2008ITEM # 5. c ~~'~''~ .~.~- iver MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic Development DATE: February 11, 2008 SUBJECT: Consider Recommendation to City Council for Approval of Tax Abatement Assistance for E & O Tool and Plastics Expansion Project Attachments • City of Elk River Tax Abatement & Business Subsidy Policies • E & O Tool Tax Abatement Application • Tax Abatement Application Review Worksheet Issue Staff has been working with E & O Tool owners, Tim Osterman, Jay Caswell and Gary Pearson over the past year to identify a site and financing assistance to retain the company's expansion in Elk River. In addition to Elk River, the company had considered other communities for its expansion. Tim Osterman, President of E & O Tool will be at the EDA meeting to provide background on the company's history in Elk River, its expansion plans and financing assistance request. Company Background E & O Tool and Plastics, Inc. was founded in Elk River in 1986. Since that time the company has developed into a full service injection molding company, manufacturing custom tooling on-site. The company provides these services to a variety of industries including appliances, home construction, sports equipment, agriculture and electronics. The proposed expansion project enables the company to meet the demands of their existing customer base, while adding additional facility capabilities needed to produce components for the medical device industry. The company currently operates in a 62,000 square foot primary facility and a 10,000 square foot secondary facility both of which are leased in the Elk River Industrial Park. In addition the company established a 21,000 square foot molding facility in Monterrey, Nuevo Leon, Mexico to serve clients in that market. The company currently employs a staff of over 120 in Elk River and 30 in Monterrey. Consider "1'ax Abatement for R & O "Tool Expansion Febmary 11, 2008 EDA Meeting Page 2 of 2 Project Description The company proposes to construct a 55,000 square foot light industrial facility on 7.31 acres of the easterly portion of the 17.11-acre Sandpiper Business Park (formerly known as the Gagne property). The facility will be located just east of the Metal Craft Machine facility anticipated for construction spring/summer 2008. The company will occupy the entire 55,000 square feet with the potential to expand up to 80,000 total square feet in the future. Proposed Financing Assistance E & O Tool has submitted the attached Tax Abatement application. A summary of the request and job retention/creation and wage goals are as follows: Up to $411,000 City assistance for a time period of up to thirteen years. Up to $411,000 Sherburne County assistance for a time period of up to ten years (per County policy). 149 full-time jobs retained & to be created (124 retained at an average wage of $18.48 per hour & 25 to be created at an hourly wage not less than $15.00 per City Business Subsidy Policy). Staff has evaluated the company's application based on the attached Tax Abatement and Business Subsidy Policies and the Tax Abatement Application Review Worksheet, which indicates that the project scored 45 out of 45 possible points, which equates to a "highly desirable" project based on the City's project priorities. In addition, the City's financial advisor Ehlers and Associates has completed a "but-for" analysis and determined that the level of assistance requested is necessary for the project to proceed. The company's tax abatement application indicates an EDA Micro Loan in the amount of $100,000 as a proposed source of project financing in addition to the tax abatement. The company has recently submitted an amended Micro Loan application in the amount of $75,000. The micro loan application is awaiting review by the EDA Finance Committee for recommendation to the EDA next month for final action. Action Requested Staff recommends that the EDA recommend the City Council approve providing tax abatement and business subsidy assistance to the E & O Tool and Plastics expansion project with the following terms: • Pay-as-you-go Tax Abatement note in the amount of up to $411,000. • To be provided at a rate of 100% of the Tax Abatement for a maximum period of up to 13 years. • Commitment from the developer to retain the existing 124-full time employment positions, and to create 25 new full-time jobs at an hourly wage not less than $15.00 (exclusive of benefits required by law) within two years of the final certificate of occupancy Next Step A City Council public hearing has been scheduled for Tuesday, February 19, 2008 to consider providing tax abatement and a business subsidy to the E & O Tool expansion project. An EDA Finance Committee meeting will be scheduled to review and provide the EDA a recommendation on the Micro Loan application. X. TAX ABATEMENT APPLICATION REVIEW WORKSHEET TO BE COMPLETED BY CITY STAFF 1. The roject meets the criteria set forth in Section V of the Tax Abatement policy. ~) Meets at least one of the objectives in Section III. ~_~.b) Demonstrates need for Tax Abatement with the but for analysis ~/ ) Consistent with all city plans and ordinances. d) Serves at least two public purposes as defined in Section V(g). 2. Ratio of Private to All Public InvestmentG~Project: $ rivate Investment ~/lcyt~l $ Public Investment S'; / Ratio Private: Public Financing Less than 3. Job Creation in the City of Elk River: 2~ Number of new jobs as a result of the project. ~' Number of existing/retained jobs /4!9 Total Less than Points• 5:1 4:1 4 3:1 3 2:1 2 2:1 1 Points: 25+ 20+ 4 15+ 3 10+ 2 10 1 4. Ratio of Public Investment to Job Creation: Points: $ ~Z pO0 Public Investment $8,000 or less Number of neav jobs created/retained $10,000 or less 4 $ 'SS) `7 of Public Investment per nesv job $12,000 or less 3 $15,000 or less 2 Over $15,000 1 5. Wage Level of neav jobs created/retained Points: Minimum hourly wage ~ Over $21 / hour 5 of jobs created/retained: ~©~ $18-21 /hour $14-17 /hour $10-13 /hour 2 Under $10 /hour 1 6. Project size: Points: 'S The project will result in the construction 40,000+ of square feet '~ s~~ 30,000+ 4 20,000+ 3 10,000+ 2 10,000 or less 1 City of Elk River Tax AUatement Policy Amended May 2006 - 13- 7. Market Value/Tax Base Generation: The project will result in a per square foot es ated market value (land and building) of ~3.3y 8. Type of Project: 100% Owner Occupied Mix Owner Occupied & Investment Investment Property 9. Use: /Industrial or Business Park Project Commercial Rehabilitation/Redevelopment 10. Likelihood that the project will result in unsubsidized, spin-off development. Points: Industrial Commercial $80/sf+ $110/sf+ 5 $70/sf+ $100/sf+ $60/sf+ $90/sf+ 3 $50/sf+ $80/sf+ 2 $40/sf+ $70/sf+ 1 Points• 4 3 Points• 4 Points: l~ High Moderate 3 Low 1 Sub -Total Points: 2 of a possible 45 points. 11. Bonus Points Bonus Points: ~/ The project will be 100% Pay-asyougo Tax Abatement ~ints ~~ The project contributes to the goals of Energy City. 2 points • Product promotes sensible use of energy, OR • Project utilizes significant energy efficient design &/or materials in construction. Total Points• Overall project desirability: High 45- 8 points Moderate 37-29 points Low 28-20 points Not Eligible 19-0 points Ciry of Elk River Tax Abatement Policy Amended May 2006 - 14- VIII. APPLICATION FOR TAX ABATEMENT A. APPLICANT INFORMATION Name of Corporation/Partnership ~~~ ~ eo ~ ~--/~~a-~,~"s ~ ~ c Address l ~, ~~ ~ ~y~V"~5~ ~ Tom! V~ ~ ~ ~ R i •~e^~/ ~~ 5~33C~ Primary Contact ` ~ "^-0" ~7 ~S~ti"1°`^•'~ S a w~ -~. Phone`76?-1~~{ {-6 F cx~ Fax ~6 3 r 4~f i - 6 y 5 2... Email 9 ~ ~ . ~ S ~-~.-v w~ o~. ~? e o~ ~ ~ ~~`i ~-S , ~o w~ Brief description of the corporation/partnership's business, including history, principal pr1o1duct or servicpe: ( + - (~ S d-~' ck-~ ,:.. 1~ 6 ~ rL. ~F-O I ov~ ~Y ~ 1. A 6 ~ G S ~ S U-~-Q o ~ ~~.. ~-b a ~! u ~'`- S~-~/ V i tie. ~ 3 g bo SOO -hQ,.~ S- l~/T_ o ~u c~.xc [.J"Sd-r+w~ a-wA iv~~ bin - S t r~- ~sY' ow w 6d~^~'Y. I.~~ ,~e.tu'~ ~/",~ ~ vb...S~n~e s. i r.c. L., ~, y a.A,p~,~ cw~.ue.. L. o-w.c ccr.,s ~-..r r~ b~.~ . ~ ~.cs~~.-i cs o~r~ o'~"~f. Brief description of the proposed project: ~1 f ~ n ~ ~/ C.rn.S~~G~ o~ u. J~•e..,.~ ~rtj.dgvc-~~S d-a~e ~~ n/ e~ U-DP~D~ S~ fXjJ s~'UWt.d~-~At 4.~7~.n ~re.4c Z- ~ r^^St.~- bD tb`I 4(~ OUD 3I ~•~ n1 -C. V~P~.~ ~s,; ~~ / i/5 rt" u~ r~~. ~n /~,r d~-~^A~•~t/f oLL}--c,.f -c•+liS~~ GySaoy~^V.. u•";`<~ ~2.. ~ ~~^c ~oA~"i~b1•. ~1 ~'T.~i ~~ ~ C•F./Jc~J.(~d-i"fj ~naR.d".Q~ 4D 4~~'"L c.slPar-~..-~S ,rtr ~'zr_ v~^a~ r 11nd~-uS~tr7 '- ~ Attorney Name ~oVi n O D+~Sco1` G,r-~.7 tom- ~ a-~'- IM1noo-~ ¢-1- w Address 100 t„esa 5-4- C7Lr+~^at~n 5-~- ~•4C," bon $ ,L..IG,v ~n,-u Sr33 a Phone 32~-202 - S35 ~ Fax 3zo-ZSZ- ~i48~ Email kc~~•..odv,3wll l'~ 9'~~ L«~/.~~'^ Accountant Name 1`Z' -~~c al bo-S'" U; z~.o •..~ ~va.v b~c- ~ C-~ Ar"1r~rPCC `~]qoo 1C~xeS /'~~ c ,S'o.s~'~ , art 'ZZi07~ 1M i/l~2 c~~0 L~'3 ~ N ~.S`~'!3 PhonegsZ~351-4,3g Fax q52-835-sg~"IS `-~ d~ ~ ' Email RTk- 15 0 ~- ~ y ~ r-c.~ w k ~rru s-c ,row. Contractor Name h~ v~ ~ C~-5 ~--- ~ , ~-~~-- _ Address 13`t~z- g~s~~-SS G~°~-- D,r;~ ~ Z-3 Phone 76 3 X33 - 4 c~ 8 ~ Fax ~6 3 - 6 3 3 -~to $Z Email ~^d''/@ ~~~ c ~s~"~'O~-r`'`N • ~°'"•` Engineer Name Address Phone Fax Email Architect Name ~ p'~ ~ ~ ~ S ~ Address 11`+437 V t ; ew 20 E i ~- iN`lu S a y Phone `tS Z - q `I t - $6 O Fax `~ ~ Z - ~ y 1- Z7 SS~ Email i n {~ ~ w: ~ k~s ~. J ~1.. ca •'^ City of Elk River Tax Abatement Polity Amended May 2006 - 8- B. PROJECT INFORMATION The project will be: ~Industrial~ New Construction Expansion Redevelopment /Rehab. Office/research facility that conforms to Business Park zoning standards Commercial Redevelopment/Rehabilitation 2. In addition to the City of Elk River, applicant is requesting Tax Abatement from: ~_ Sherburne County School District 728 3. The project will be: 4. Project Address S ~ Parcel Identification Owner Occupied Leased Space ~D~,~.o-/ DcJS~lne_5S ~~/~C.. -PjvS~we.-SS C 'f 5. Site Plan and Construction Plans Attached: Yes No 6. Total Amount of Tax Abatement Requested $ ~ Z~ 5 3 3 over ~ ~ years. City Portion: Annual $ Total $ County Portion: Annual $ Total $ ISD 728 Portion: Annual $ Total $ 7. Current Real Estate Taxes on Project Site: $ ~0,~~1Z Estimated Real Estate Taxes upon Completion: Phase I $ Phase II $ 8. Construction Start Date: 2. D'~vw~v ~ 0 ~'~~~'~/ t7~ Construction Completion Date: y ~~ ~ ~ If Phased Project Year Year C. PUBLIC PURPOSE Completed Completed It is the policy of the City of Elk River that the use of Tax Abatement 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 ~ZZ- Number ofjobs created by project x3o ov~/ y~-w Average hourly wage ofjobs created/retamed~ ~°~•"1~ New industrial development which will result in additional private investment in the area. Enhancement and/or diversification ofthe City of Elk River's economic base. The project contributes to the fulfillment of the City's Economic Development Strategic Plan. -Removal of blight. -Rehabilitation of a high profile or priority site. Significantly increase the City's tax base. City of Elk River Tax Abatement Polity Amended May 2006 - 9- D. SOURCES & USES SOURCES NAME AMOUNT Bank Loan R ~~~' F ~ 1~ ~', ., e,~ $ ~~, 6 9 ~, ~o Other Private Funds $ Owner Cash Equity $ S 2 I ; t oc~ Fed Grant/Loan -~~A $ 2! Uvo_ ~~ o 0 State Grant/Loan $ EDA Micxo Loan $ 1 Do. v o y Tax Abatement $ ~? ,- ~ ° ID Bonds $ TOTAL $ USES AMOUNT Land Acquisition $ ~ ~~z ~~v Site Development $ Construction $ 3_~b oT Machinery & Equipment $ Q 5 ate; ~~-~ p Architectural & Engineering Fees $ Legal Fees $ ~ v , UG ~ Interest During Construction $ ~? i~r ~? Debt Service Reserve $ encies in g C o n t $ 1 3 0. o c. o r ~ y ~ ~~ ± ~ T^~ ~- w\ 5, -~ , ~ City of Elk River Tax Abatement Policy Amended May 2006 - 1~- 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 V B) Financial Statements for Past Two Years Profit & Loss Statement -~-Balance Sheet V C) Curren~Financial Statements Profit & Loss Statement to Date ~-Balance Sheet to Date D) Two Year Financial Projections J E) Personal Financial Statements of all Major Shareholders Profit & Loss . / Current Tax Return v F) Letter of Commitment from Applicant Pledging to Complete ' / During the Proposed Project Duration v G) Letter of Commitment from the Other Sources of Financing, ' ~ Stating Terms and Conditions of their Participation in the Project y H) Non-refundable application deposit of $5,000 /r~ I) Construction Plans and Itemized Project Construction Statement Attach the fo owing documentation as Exhibits Exhibit A -Corporation/Partnership Description Exhibit B -Description of Project ~xhibit C -List of Shareholders/Partners /Exhibit D -But-For Analysis /U~ Exhibit E -List of Prospective Lessees /yiE Exhibit F -Legal Description and PID Number(s) Note: All Major shareholders will be required to sign personal guarantees and a minimum assessment agreement 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, verify financial and other information, and share this information with other political subdivisions as needed. The undersigned also agrees to provide any additional information as may be requested by the City after the filing of this application. Applicant Name ~°`~ ~~~ ~ `~~ Lac3~Zs ~ Date ~1 ~ ~ City of Elk River Tax Abatement Polity Amended May 2006 - 11- City of El: Tax Abatement Policy & Application Amended: May 2006 Amended: August 2002 Adopted: April 10, 2000 City of Elk River Economic Development Division 13065 Orono Parkway Elk River, MN 55330 763.635.1040 Table of Contents I. Policy Purpose 3 II. Difference Between Tax Abatement & Tax Increment Financing 3 III. Objectives of Tax Abatement 3 IV. Policies for the Use of Tax Abatement 4 V. Project Qualifications 5 VI. Subsidy Agreement & Reporting Requirements 6 VII. Application Process for Tax Abatement 7 City of Elk River 7 Application to Other Jurisdictions 7 VIII. Application for Tax Abatement 8 Applicant Information 8 Project Information 9 Public Purpose 9 Sources & Uses 10 Additional Documentation and Checklist 11 IX. Sample But-For Analysis 12 X. Application Review Worksheet 13 XI. City of Elk River Business Subsidy Policy 15 City of Elk River Tax Abatement Policy Amended May 2006 - 2- I. POLICY PURPOSE For the purposes of this document, the term `City" shall include the Elk Kiver City Counczl, Economic DevelapmentAuthority, and Housing and KedevelopmentAuthority. The purpose of this policy is to establish the City of Elk River's position relating to the use of Tax Abatement fox private development above and beyond the requirements and limitations set forth by State Law. This policy shall be used as a guide in the processing and review of applications requesting Tax Abatement assistance. The fundamental purpose of providing Tax Abatement in Elk River is to encourage desirable development or redevelopment that would not otherwise occur but for the assistance provided through the Tax Abatement. The Ciry of Elk River is granted the power to utilize Tax Abatement by Minnesota Statutes, Sections 469.1812 to 469.1815 (the "Minnesota Tax Abatement Act"), as amended. It is the intent of the City to provide the minimum amount of Tax Abatement, as well as other incentives, at the shortest term required for the project to proceed. Preference is given to projects in which the total amount of Tax Abatement request includes participation from the county. The City reserves the right to approve or reject projects on a case by case basis, taking into consideration established policies, project criteria, and demand on city services in relation to the potential benefits from the project. Meeting policy criteria does not guarantee the award of Tax Abatement to the project. Approval or denial of one project is not intended to set precedent for approval or denial of another project. II. DIFFERENCE BETWEEN TAX ABATEMENT AND TAX INCREMENT FINANCING The primary difference between Tax Abatement and Tax Increment Financing (TIF) is the way in which the dollars are awarded to the project. When TIF is awarded to a project by the city, the other taxing jurisdictions (the school district and the county) are required to contribute their portion of the increased taxes to the project. Conversely, when Tax Abatement is requested, each political subdivision has the option of granting its portion of the increased taxes to the project. Subsequently, the dollars generated for the project with Tax Abatement are generally less than the dollars generated with TIF. III. OBJECTIVES OF TAX ABATEMENT As a matter of adopted policy, the City will consider using Tax Abatement to assist private development projects to achieve one or more of the following objectives: • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits as defined in the City's Business Subsidy Policy. • To enhance and diversify the City of Elk River's economic base. • To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off 'development. City of Elk River Tax Abatement Policy Amended May 2006 - 3- • To facilitate the development process and to achieve development on sites which would not be developed without Tax Abatement assistance. • To remove blight and/or encourage redevelopment of commercial and industrial areas in the city that result in high quality redevelopment and private reinvestment. • To offset increased costs of redevelopment (i.e. contaminated site clean up) over and above the costs normally incurred in development. • To create opportunities for affordable housing. • To contribute to the implementation of other public policies, as adopted by the city from time to time, such as the promotion of quality urban or architectural design, energy conservation, and decreasing capital and/or operating costs of local government. • To significantly increase the City of Elk River's tax base. IV. POLICIES FOR THE USE OF TAX ABATEMENT a. Tax Abatement assistance will be provided to the developer upon receipt of taxes by the City, otherwise referred to as the pay-a.ryougo method. Requests for up front financing will be considered on a case-by-case basis. b. Any developer receiving Tax Abatement assistance shall provide a minimum often percent (10%) owner cash equity investment in the project. c. Tax Abatement will not be used in circumstances where land and/or property price is in excess of fair market value. d. Developer shall be able to demonstrate a market demand for a proposed project. e. Tax Abatement will not be utilized in cases where it would create an unfair and significant competitive financial advantage over other projects in the area. £ Tax Abatement shall not be used for projects that would place extraordinary demands on city services or for projects that would generate significant environmental impacts. g. The developer must provide adequate financial guarantees to ensure completion of the project, including, but not limited to: minimum assessment agreements, letters of credit, personal guaranties, and etcetera. h. The developer shall adequately demonstrate, to the City's sole satisfaction, an ability to complete the proposed project based on past development City of Elk River Tax Abatement Policy Amended May 2006 - 4- experience, general reputation, and credit history, among other factors, including the size and scope of the proposed project. i. For the purposes of underwriting the proposal, the developer shall provide any requested market, financial, environmental, construction plans or other data requested by the City or its consultants. j. Tax Abatement proposals shall not be used to support speculative office projects. Speculative projects axe defined as those projects which have pre- leasing agreements or letters of intent for less than 50% of the available space. In addition, leasable office projects must meet the following guidelines: 1. Evidence of the 50% occupancy must be reported to the Director of Economic Development six months following an issued Certificate of Occupancy. 2. Of the occupants certified at the six month period, 50% of the jobs must be considered "new" jobs to the City of Elk River, meaning jobs not located in the City at any time prior to occupying space in the project. 3. Business retention jobs will be considered on cone-for-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law. Evidence may include documentation that the company will have to close involuntarily, or the company has received an attractive offer to move to another state or community. k. All Tax Abatement proposals shall optimize the private development potential of a site. V. PROJECT QUALIFICATIONS All Tax Abatement projects considered by the City of Elk River must meet each of the following requirements a. The project shall meet at least one of the objectives set forth in Section III of this document. b. The use of Tax Abatement will be limited to: • Industrial development, expansion, redevelopment, or rehabilitation; or • Commercial redevelopment or rehabilitation; or • Research and development facilities that satisfy Business Park zoning requirements; or • Office facilities with a minimum new construction of 25,000 square feet; or City of Elk River Tax Abatement Policy Amended May 2006 - 5- • Residential development and redevelopment may be eligible for Tax Abatement under a separate set of policies and only with the recommendation of the HRA. c. The developer shall demonstrate that the project is not financially feasible but for the use of Tax Abatement. Evaluation of the project's financial feasibility without Tax Abatement shall be provided by the City's financial advisor on all requests of over $25,000 total public investment. d. The City will consider the use of Tax Abatement assistance fox projects that may not meet the but for and job creation criteria, but rather would be considered as a "location incentive". These projects may result in other public benefits such as a significant tax base increase, the creation of higher paying jobs (at least twice the minimum hourly rate stated in the City's Business Subsidy Policy), and is likely to assist in the marketing and attraction of additional desired developments. e. The project shall comply with all provisions set forth in the Minnesota Tax Abatement Law, State Statues 469.1812 to 469.1815, as amended. f. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. g. The project shall serve at least two of the following public purposes: • Job creation or job retention. • Significantly increase the tax base. • Enhancement or diversification of the city's economic base. • Development or redevelopment that will spur additional private investment in the area. Fulfillment of defined city objectives, such as those identified in the Economic Development Strategic Plan or the City's Comprehensive Plan, among others. Removal of blight or the rehabilitation of a high profile or priority site. VI. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS All developers/businesses receiving Tax Abatement assistance from the City of Elk River shall be subject to the provisions and requirements set forth by the City's Business Subsidy Policy as amended and attached as Section XI of this document, and Minnesota State Statute 116J.993 (the "Minnesota Business Subsidy Law"). City of Elk River Tax Abatement Policy Amended May 2006 - 6- VII. APPLICATION PROCESS FOR TAX ABATEMENT A. CITY OF ELK RIVER Applicant submits the completed application along with a non- refundable $5,000 application deposit. The application deposit will be used toward the cost of services provided in the evaluation of financial feasibility and preparation of legal documents and agreements. Projects that demand professional services in excess of the initial deposit shall be required to reimburse the City for the additional expenses. 2. City staff reviews the application and completes the Application Review Worksheet. 3. Results of the Worksheet are submitted to the appropriate governing authorities (EDA or HRA) for recommendation to the Ciry Council of approval or denial of the request. 4. If preliminary approval is granted, all necessary notices, resolutions and agreements are prepared by City staff and/or consultants. 5. Public hearing(s) on the proposed request are held. The City Council grants final approval or denial of the request. B. APPLICATIONS TO OTHER JURISDICTIONS It is recommended that applicants intending to seek Tax Abatement from Sherburne County and/or School District 728 make their applications to those bodies concurrent with their application to the City of Elk River. For more information on applying for Tax Abatement through Sherburne County and/or School District 728, contact: Sherburne County Administrator 763-241-2701 School District 728 Superintendent 763-241-3400 City of Elk River Tax Abatement Policy Amended May 2006 - 7- City of El: Business Subsidy Policy Amended: May 2006 EDA Adopted: May 8, 2006 City Council Adopted: May 15, 2006 Original Adopted: Housing & Redevelopment Authority November 25, 2002 City Council November 25, 2002 Economic Development Authority December 9, 2002 City of Elk River Economic Development Division 13065 Orono Parkway Elk River, MN 55330 763.635.1040 CITY OF ELK RIVER POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES I. PURPOSE Far the puaposes of this doczament, the terra "City"shall include the Elk Elver City Council, Economic Development Authority, and Housing and RedevelopmentAuthority. 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 State Statute 116J.993 (MN 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" The following types of assistance having a value in excess of $25,000 are defined as a "business subsidy" within the MN Business Subsidy Law: • State and local government agency grants; • Contributions of personal property, real property, or infrastructure; • The principal amount of a loan that exceeds $75,000 at rates below those commercially available; • Reductions or deferrals of taxes or fees; • Guarantees of any payment under any loan, lease, or other obligation; and, • Preferential use of government facilities. Ciry of Elk River Business Subsidy Policy Amended May 2006 III. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES In accordance with the MN 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 ofP' 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, amarket-demand for a proposed project. 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. City of Elk River Business Subsidy Policy Amended May 2006 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 will not be used for retail or service businesses unless it is a redevelopment project that demonstrates that it will result in a substantial increase in tax base and a significant improvement in quality employment. 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 cone-for-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN 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, which is the date that the recipient receives the subsidy, 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 $15.00 per hour, exclusive of benefits 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 MN 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. City of Elk River Business Subsidy Policy Amended May 2006 VI. GUIDELINES FOR REDEVELOPMENT AND RENOVATION BUSINESS SUBSIDIES In accordance with the MN Business Subsidy Law, the following forms of financial assistance related to redevelopment and renovation are not a "business subsidy": A. Assistance provided for the sole purpose of renovating old or decaying building stock or bringing it up to code, provided that the assistance is equal to or less than 50 percent of the total cost; B. Assistance for pollution control or abatement; C. 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 year's estimated market value. VII. 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 $100,000, 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. V111. 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 MN Business Subsidy Law and summarized below: A. Progress Reports The recipient shall file a report annually for two years after the receiving the subsidy 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. City of Elk River Business Subsidy Policy Amended May 2006 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 after the date the subsidy is provided. C. Failure to Comply Businesses failing to comply with the subsidy agreement will be subject to fines, repayment requirements at the rate established within the MN 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. Ciry of Elk River Business Subsidy Policy Amended May 2006