7.1 SR 07-01-2013 - Laserfiche WebLink

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City of Elk River, Minnesota Preferred Powder Coating request for Tax Abatement June 20,2013 Page 2 There are several methods available to determine if a project would proceed "but for' the assistance. An analysis comparing the rates of return with and without assistance is a common method used to analyze the "but for" test. However, in some cases, a review of the project's sources and uses of funds and operating cash flow performance is done to determine the project meets the "but for' test. If following the review, it is determined that the project has a shortage of debt and/or equity based on the projected value of the project upon completion and net operating income available to support debt service, it can be determined that the project would not proceed "but for" the assistance. It is important to note that tax abatement does not statutorily require a "but for" analysis to determine if the project would proceed without assistance, however it must be determined that the project is in the public interest and that the benefits outweigh the costs. The purpose of this memo is to outline our analysis of the project including review of the developer's request for assistance, tax abatement revenue projections, and review of the developer's project proforma. Following initial discussions with City staff, Springsted is providing several revenue scenarios that include abatement projections for City and County participation for the maximum authorized term (20 years when one or two entities participate). County participation of tax abatement based on these projections is subject to any policy discussions and approval by the county board. Additional assumptions and terms of the proposed abatement project are outlined further below. Background Preferred Powder Coating is a metal powder coating company that works with ferrous and non-ferrous substrates including steel, aluminum, stainless, cast iron and zinc die castings. Some of the industries that require this type of service include aeronautics, automotive, athletic equipment, medical equipment, die casting and recreational/industrial sheet metal. The developer has proposed the construction of an approximately 100,000 square foot manufacturing facility in the City of Elk River. The developer has also indicated that operations would be relocated from the current Rogers facility to Elk River, and will create 8-10 new jobs over the next two years. The facility will require an approximately 10.36 acre site to construct a building to maximum efficiency specifications. The property on which the developer intends to erect this building is in close proximity to a protected wetland and currently has a 1 acre natural gas line (accompanied by an encroachment agreement) running through its center. Construction is proposed to commence in August 2013,with the building ready for occupancy by November 2013. Developer Request for Tax Abatement Assistance The developer submitted a request for tax abatement assistance from the City of Elk River and Sherburne County to finance extraordinary site development and acquisition costs associated with building on the selected parcel. The total sources and uses of funds for the project is approximately $6,192,695. The total requested amount of assistance is approximately 12 years and $1,153,878 for land acquisition, wetland delineation and other site improvements necessary to meet TEP requirements. We have assumed (based upon the sources and uses provided in the application) the developer will fund approximately 82% of the project costs through a combination of private financing, equity and EDA loans and grants. The financing gap of$1,153,878 equates to approximately 18% of the