7.0. EDSR 03-08-2004 - Laserfiche WebLink

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Consider Approval of Property Tax Abatement for the Orluck Industries Expansion EDA/City Council Meeting March 8,2004 Page 2 of 2 • It is important to note that Mr. Orluck is firm about not committing any additional new job creation beyond his existing 15 employees. While Mr.Orluck anticipates the creation of 4 to 6 new jobs within two years,he is unwilling to make any financial commitments for Orluck Industries'job creation,nor on the 10,000-square feet of multi-tenant space. The MN Business Subsidy Law Statutes 116J.993-116J.995, by which the City's Business Subsidy Policy follows, does allow grantors to set wage and job goals at zero following the public hearing. Case in point,the City established wage and job goals at zero for the multi-tenant building located adjacent to the proposed lot. As a matter of policy Sherburne County does not require wage and job goals. Staff has been in contact over the past two and a half years with Mark Orluck,President of Orluck Industries, Inc. Currently leasing approximately 4,800-square feet in Dayton,MN,the company is seeking a suitable location within the northwest metro area to expand. The City of Big Lake has aggressively pursued the company's relocation project,in addition to staff's efforts. In 2002 staff had proposed the same Joplin Street lot for Mr.Orluck's proposed project. Mr. Orluck proposes to construct an approximately 20,000-square foot building,in which his company would occupy 10,000-square feet and balance would be leased to business park district eligible uses. Staff has had various discussions with Mr.Orluck requesting his consideration of additional construction on the lot and options for transferring half of the lot upon building expansion. Mr.Orluck is firm in his commitment to build 20,000 square feet now and will consider expansion opportunity when necessary in the future. The total cost of the project is projected to be approximately$1,410,000. Sources of financing include a$1,256,000 loan from The Bank of Elk S River and$50,000 equity contribution by Orluck Industries. Mr. Orluck is requesting that the city sell its Joplin Street lot to Orluck Industries for$1 and that the city and county abate its portion of the property taxes on the project for a period of approximately twelve years or up to a combined total of$201,520;the amount to reimburse the city for its land cost. Staff estimates the city portion per year at$8,912 (2004 rates) for a total over twelve years of approximately$100,760. Mr.Orluck is submitting a request to Sherburne County for tax abatement for a similar term. Staff believes that the term will likely be shorter than the projected twelve years simply based upon inflationary market value and tax rate increases. Upon receipt of Mr. Orluck's TRF application, staff completed the ratings worksheet used to help analyze such proposals. The proposed project scored a"30",which equates to a"moderately desirable" project. In addition the city's financial advisor, Ehlers&Associates has reviewed the application and "But-For" Analysis to arrive at a fair recommendation on the project's total return on equity of 12.59%with tax abatement assistance. Action Requested Staff recommends that the EDA consider recommending the City Council's approval of the property tax abatement request and sale of the Joplin Street lot for the Orluck Industries project. Following the City Council's public hearing regarding the use of tax abatement for the project, staff recommends the Council's approval of the attached Resolution Approving Property Tax Abatement for the Orluck Industries project and the attached Tax Abatement and Business Subsidy Agreement.