4.1. EDSR 02-23-2016 - Laserfiche WebLink

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City of Elk River, Minnesota Cornerstone Ford LLC Tax Abatement Project February 19,2016 Page 3 The above table illustrates the projected net revenues that the tax abatement project could generate based on the applicant request. The application for abatement assistance includes a proposed term of 15 years from the City only with an estimated total abatement revenue amount as requested from the City of $136,000. Based on assumed partial value collected for the first year (taxes payable 2018) the total estimated available amount over 15 years would be$134,037. The maximum abatement term for the City is up to 20 years if only 1 or 2 entities participate in the abatement or the City receives written denial of participation from one of the other taxing entities (County or School District). Revenues captured through tax abatement and provided as reimbursement to the property owner for certain costs must be used only for those properties that benefit from the tax abatement. Applicant Request for Tax Abatement Assistance The applicant submitted a request for tax abatement assistance from the City of Elk River to assist with financing the proposed $7.1 million expansion project on an existing facility currently located within the City. The applicant has requested approximately $136,000 in abatement assistance over 15 years from the City, which equates to approximately 1.90%of the total project costs. The applicant's submittal includes a preliminary total project budget of $7,166,000 as shown in the table below. Project Costs Total Cost Sources of Funds Total Sources Site Development $490,000 Bank Loan $4,800,000 Building Construction 5,033,000 Equipment Loan 730,000 Machinery&Equipment 730,000 Equity 1,500,000 Architectural&Engineering 320,000 Tax abatement(City) 136,000 Legal 3,000 Construction interest 80,000 Debt Service Reserve 70,000 Contingency 440,000 Total $7,166,000 Total $7,166,000 Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay-as you go basis. With upfront financing, the City would finance a portion of the applicant's initial project costs through the issuance of bonds or as an internal loan. Future revenues would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan.With pay-as-you-go financing,the applicant would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay- as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the nsk for repayment to the applicant. If revenues are less than onginally projected, the applicant receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service payments and