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Ehlers is often asked how cities justify the amount of tax increment assistance y � <br /> that is given to.developers. It has been our experience that there are two <br /> questions that cities grapple with when providing tax increment assistance. <br /> j The first is what is referred to as the"but/for analysis." That simply says that f <br /> the project would not go forward without tax increment. In most cases, the - <br /> answer to that question does not require numerical analysis but relies upon <br /> specific economic ans site factors affecting the development. <br /> t Once a city has established that the development needs tax increment, the tougher question is "how <br /> much." Cities use a variety of methods to analyze this question depending on a number of factors. Some <br /> jcities have determined that due to the number of positive attributes that their city has,.they simply will <br /> not provide any tax increment assistance for any reason. Other cities have determined that their objective <br /> j is to attract as many jobs and as much tax base as they can and therefore will provide the maximum <br /> amount of tax increment available.- Most cities are somewhere in between. <br /> a The question then is how do you determine the amount of assistance. Real estate transactions are <br /> extremely complicated and difficult for a citizen to understand in the context.of a council meeting. <br /> ! j• Therefore when we have been asked to conduct an analysis we have'determined that the best way to <br /> • present the material is to reduce it down to a simple proforma analysis. We attempt to display the <br /> amount of return on equity that the developer will receive with and without the use of tax increment. <br /> n ; Using this method,people analyzing the transaction will be able to identify those returns with their own • <br /> a personal investments. This gives the reviewer the opportunity to quantify the amount of tax increment <br /> that their city is providing in terms that are understandable to them. <br /> . Ilikrainfill',, Attached is of a project proforma with and without tax increment assistance for your review. You will <br /> 111-611,14 note that without tax increment,the project returns a little over 7.74% <br /> to equity partners. This is to say <br /> that anyone investing in this project could expect to••receive around 7.74%return. When one understands <br /> that real estate transactions are highly speculative and risky venture for the investors,you'quickly arrive <br /> at the conclusionthat 7.74%is not sufficient enough return to attract any equity capital. <br /> .• kininiMategg: <br /> ! When one evaluates the pro forma with tax increment assistance, the return is almost 12%. When <br /> reviewing this return in today's market,it is our opinion that this approaches a level sufficient to attract <br /> equity capital to a project. <br /> 1,11,661, <br /> F i It is important to understand that when evaluating these types of transactions, no one can-be totally <br /> • <br /> Ej <br /> accurate as to the eventual returns or outcome of the project. The.simple objective is to try within certain <br /> variables to come•up with an analysis that provides a comfort level to all those participating in the <br /> 18,1111181:A project. <br /> (: <br /> € r <br /> f <br /> 4 <br /> t <br /> 11.111111.11 <br /> a <br /> k K <br /> i <br /> t a EHLERS&ASSOCIATES, INC. 3060 .Centre Pointe Dnve, Roseville, Minnesota 55113 (651)697-8500 <br />