2.3. SR 08-25-2004 - Laserfiche WebLink

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EHLERS & ASSOCIATES INC From: Date: Subject: Cathy Mehelich, City of Elk River Sid Inman, Ehlers & Associates, Inc. August 20, 2004 Metro Plains But For Analysis As you are aware, the tax increment statute requires that when the city council approves a tax increment plan it makes a finding that the "proposed development" would not be expected to occur solely through private investment within the reasonably foreseeable future. This is sometimes referred to as the "Bur For" test. To evaluate this "But For" test, Ehlers has been reviewing the developer's request and has been preparing certain review documents. These analyses are in three forms. The first looks at the for-sale housing part of the project and measures the amount of assistance needed based on a redeveloper profit standard. The next analysis looks at the retail part of the project and reviews the project from what is referred to as "cash on cash" return. The last looks at the rental housing part of the project and measures the developer fees. These analyses are based on what is currently considered a "market project" and bench marks the developer's request against the market. Any assistance given is used to get the project to what is referred to as financially feasible. Therefore, what is recommended as total assistance in the development agreement is based on this analysis. At this point we have agreed with the redeveloper on what we think will be the costs and the incomes of the project. Since all of our analysis is based on assumptions, there is a chance that the project could perform better, and in that case it could be argued that we provided the redeveloper too much assistance. In order to account for this event we have in the redevelopment contract a "Look Back" provision. This means that after the project is completed, we will review what actually took place, and if the returns and profits were higher that anticipated, the assistance would be reduced. If the project did worse that expected, then the assistance does not change. At the current time the assistance the city could provide may come from three sources. First tax increment assistance, next a reduction of the cost to the developer for buying the Jackson Block and last a reduction of the SAC and WAC charges. The amount of this assistance will be based on the analysis discussed above. If the city provides a land write down and SAC and WAC reductions, these amounts including interest, will be paid back to the city using tax increment based on increase market value over the life of the tax increment district. While the final term will be based on the projects market values, it is currently estimated that if all of the assistance was needed it would take 20-22 years of annual principal and interest payments to pay back the assistance to the city. Please let me know if you have questions or comments. LEADERS IN PUBLIC FINANCE 3060 Centre Pointe Drive Rosevi[Le, MN 55113-1105 Phone: 651-697-8507 Fax: 651-697-8555 sid®eh[ers-inc.com