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City of Elk River, Minnesota <br />Envision Co., LLC (Sportech) request for Tax Abatement <br />June 23, 2015 <br />Page 5 <br /> <br />for 15 years and County participation for 12 years illustrates that sufficient revenues are projected to be available to <br />repay the Development Fund for the full value of the land. <br /> <br />Developer Proforma “But For” Analysis <br />In approving an abatement project, the Elk River EDA has requested that a finding be made that the proposed project <br />would not reasonably be expected to occur solely through private investment within the reasonably foreseeable <br />future. The developer has provided a “but-for” argument stating that the financial assistance from the City is <br />necessary to provide sufficient project cash flow and market returns to investors that will achieve project feasibility. <br />The developer has stated the assistance is necessary due to the costs of developing the site and inability of the <br />project to fully support those costs upon completion. The current estimated project costs are in excess of the <br />estimated future value of the building upon development as provided by the County. Based on this analysis, the EDA <br />could be justified in determining that the project meets the “but for” test and would not proceed without assistance. <br /> <br />As stated tax abatement does not statutorily require a “but for” analysis to determine if the project would proceed <br />without assistance. A city, county or school district may grant a tax abatement, by contract or otherwise, of the <br />taxes imposed by the city on a parcel of property, which may include personal property and machinery, or defer the <br />payments of the taxes and abate the interest and penalty that otherwise would apply, if: <br />● it expects the benefits to the city of the proposed abatement agreement to at least equal the costs to the city <br />of the proposed agreement or intends the abatement to phase-in a property tax increase, as provided in <br />clause (2)(vii); and <br />● it finds that doing so is in the public interest because it will: <br />o increase or preserve tax base; <br />o provide employment opportunities in the political subdivision; <br />o provide or help acquire or construct public facilities; <br />o help redevelop or renew blighted areas; <br />o help provide access to services for residents of the political subdivision; <br />o finance or provide public infrastructure; <br />o phase-in a property tax increase on the parcel resulting from an increase of 50 percent or more in <br />one year on the estimated market value of the parcel, other than increase attributable to <br />improvement of the parcel; or <br />o stabilize the tax base through equalization of property tax revenues for a specified period of time <br />with respect to a taxpayer whose real and personal property is subject to valuation under <br />Minnesota Rules, chapter 8100. <br /> <br />The Developer’s submittal includes a 20 year financial and cash flow projection for the project and company. Review <br />of the financial statements indicates that cash is shown to be depleted in 2015 and 2016 to finance the expansion <br />project. The project is limited to the amount of financing as offered by the lender, Bremer Bank. Absent a reduction <br />in project costs, the result is a financing gap that is proposed to be filled with financial assistance through tax <br />abatement revenues from the City (and County) to assist with purchasing the land.