7.4. SR 05-18-2015 - Laserfiche WebLink

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City of Elk River, Minnesota GATR request for Tax Abatement April 24, 2015 Page 3 The above table illustrates the projected net revenues that tax abatement would generate for the proposed term of 15 years for the City. The company has also requested tax abatement assistance from the County for a term of 12 years. The estimated total abatement revenues as requested from the County are equal to $481,848. The maximum abatement term for the City is up to 20 years if only 1 or 2 entities participate in the abatement or the City receives written denial of participation from one of the other taxing entities (County or School District). All participation levels and amounts would be subject to individual policy and Board decisions following anticipated public hearings. Revenues captured through tax abatement and provided as reimbursement to the property owner for certain costs must be used only for those properties that benefit from the tax abatement. 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 assist with financing the proposed $13.25 million acquisition and subsequent construction of City-owned property located in the 2nd phase of the Nature’s Edge Business Center. The developer has requested approximately $546,810 in abatement assistance over 15 years from the City and $481,848 over 12 years from the County. The Developer’s submittal includes a preliminary total project budget of $13,249,495 as shown in the table below. Project Costs Total Cost Sources of Funds Total Sources Land Acquisition $1,316,695 Bank Loan $5,200,000 Site Development $1,400,000 Equity $8,049,495 Construction $5,450,000 Machinery & Equipment * $1,082,800 Parts/Inventory * $1,500,000 Contingency $2,500,000 Total Costs $13,249,495 Total Sources $13,249,495 * assumed to be business costs, as opposed to real estate investment costs Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay-as- you-go basis. With upfront financing, the City would finance a portion of the Developer’s initial project costs through the issuance of bonds or as an internal loan. Future revenues would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the Developer would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the Developer. If revenues are less than originally projected, the Developer receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service payments and