5.1 EDSR 10-20-2014 - Laserfiche WebLink

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City of Elk River,Minnesota Stonesthrow Properties,LLC.request for Tax Abatement October 10,2014 Page 5 Scenario 2: Pro Forma with Estimated Abatement Revenue Assuming 12 year City/County Participation: Year Abatement Net Cash Flow Debt Service Coverage Ratio 2015 $26,816 $4,828 1.03 2016 $27,033 $6,594 1.04 2017 $27,252 $8,377 1.05 2018 $27,474 $10,178 1.06 2019 $27,697 $11,997 1.07 2020 $27,923 $789 1.00 2021 $28,151 $2,644 1.01 2022 $28,381 $4,519 1.02 2023 $28,614 $6,412 1,03 2024 $28,849 $8,324 1.04 The purpose of providing the abatement scenarios outlined above is to illustrate the developer's projected need for tax abatement assistance to provide sufficient annual cash flow to support the projected debt service payments for the project. The two scenarios outlined above illustrates that a gap in projected annual cash flow and debt service coverage exists (as the project is currently structured) and that annual tax abatement assistance will aid in reducing that gap. Developer Proforma"But For"Analysis In approving an abatement project, the Elk River EDA has requested that a finding be made that the proposed development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The two scenarios outlined above illustrate that a cash flow and debt service coverage gap exists for the project as currently presented by the developer.The gap would have to be filled through an increase in lease rates (to produce higher revenues), a reduction in operating and/or borrowing costs, additional operating revenues including financial (abatement) assistance, or some combination of one or more of the described gap- fillers, or the project would be unlikely to proceed. The developer has also indicated that without tax abatement assistance it would not be able to acquire the property and relocate to the City of Elk River. Based on this analysis, the EDA could be justified in determining that the project meets the "but for" test and would not proceed without assistance. Tax abatement does not statutorily require a "but for" analysis to determine if the project would proceed without assistance. A city, county or school district may grant a tax abatement, by contract or otherwise, of the taxes imposed by the city on a parcel of property, which may include personal property and machinery, or defer the payments of the taxes and abate the interest and penalty that otherwise would apply, if: • it expects the benefits to the city of the proposed abatement agreement to at least equal the costs to the city of the proposed agreement or intends the abatement to phase-in a property tax increase, as provided in clause(2)(vii);and • it finds that doing so is in the public interest because it will: o increase or preserve tax base; o provide employment opportunities in the political subdivision;