6.2 EDSR 07-20-2015 - Laserfiche WebLink

Home Browse Search

Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul,MN 55101-2887 Springsted Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com DRAFT MEMORANDUM TO: Amanda Othoudt, Economic Development Director FROM: Mikaela Huot,Vice President/Consultant DATE: June 23,2015 SUBJECT: Morrell Proposed Tax Abatement—Project Analysis The City of Elk River has asked Springsted to evaluate a tax abatement request for assistance submitted by the developer, Scott Morrell, LLC/Morrell Oversize. The developer proposes to purchase land from the Economic Development Authority of the City located within the 2nd phase of the Nature's Edge Business Center and construct an approximate 13,824 square foot building that would be expanding their business in addition to the existing 36,000 square foot facility already located in the City. Morrell Companies is a full service carrier which offers a vast variety of standard and specialized transportation services. The company is purchasing land from the City for a total purchase price of$349,351. The company currently employs 105 people with an average hourly wage of$23/hour. Of the 105 employees, 13 FTE are employed by Morrell Oversize with an average hourly wage of$27.94/hour. The applicant expects to hire 8 FTE employees with the planned expansion. According to the applicant, the tax abatement assistance will be used as annual cash flow to support debt service on the approximate $2.380M project to be financed with a combination of debt,equity and EDA microloan. The purpose of this memo is to summarize the analysis that Springsted prepared, including the estimate of tax abatement revenues for the project and to assist with determining whether the project as proposed is likely to proceed "but for" the requested tax abatement assistance. The analysis is based on our review of the project components and financials and general rationale for assistance as submitted by the developer. 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 if an operating gap exists or if the project performance is not expected to meet minimum financing requirements and return thresholds to assist with determining that a project meets the"but for"test. If,following the review, it is determined that the project has a shortage of debt, cash, and/or equity based on the projected value of Public Sector Advisors