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 4 would have to use other sources to fill any shortfall of revenues. With internal financing,the City reimburses the loan with future revenue collections and may risk not repaying itself in full if revenues are not sufficient. The form of financial assistance proposed in this case would be pay as you go financing whereby the applicant would incur all project costs upfront and be reimbursed annually as tax abatement revenues are generated. The applicant has illustrated in the sources of revenue that the project would be financed with a combination of debt financing, equity and City tax abatement. The applicant would be responsible to provide financing for the full project cost amount upfront, including any portion that would be reimbursed by the City, through additional debt or equity that would be subject to project feasibility and market, Should the tax abatement be approved, the City would collect the annual abatement revenues from the proposed project and provide as reimbursement to the applicant. No interest component would be incorporated. Applicant Proforma"But For"Analysis In approving an abatement project,the Elk River EDA has requested that a finding be made that the proposed project as proposed would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The applicant has provided a"but-for"argument stating that the financial assistance from the City is necessary to provide sufficient project cash flow and market returns to the investor that will achieve project feasibility, through an increase in estimated total return on equity upon project completion. The applicant plans to lease the space to the current tenants (Elk River Ford and Elk River Chrysler) and use the rental income to support annual debt service payments on the expansion mortgage with any tax abatement assistance providing additional cash flow. In the application the applicant states it cannot wait for the expansion to be completed prior to filling many of the estimated additional positions; however it would not be able to hire the needed employees without the anticipated expansion. Our analysis of the financial information provided by the applicant indicates that the tax abatement has a positive impact on the projected returns and cash flow of the proposed project. Due to the size of the estimated tax abatement amount and request in relationship to total estimated project costs, the projected impact could be viewed as relatively small. As stated tax abatement does not statutorily require a "but for" analysis to determine if the project would proceed without assistance; however a city, county or school district may grant a tax abatement, by contract or otherwise, of the taxes imposed by the city on a parcel of property, which may include personal property and machinery, or defer the payments of the taxes and abate the interest and penalty that otherwise would apply,if: • it expects the benefits to the city of the proposed abatement agreement to at least equal the costs to the city of the proposed agreement or intends the abatement to phase-in a property tax increase, as provided in clause(2)(vii); and • it finds that doing so is in the public interest because it will: o increase or preserve tax base; o provide employment opportunities in the political subdivision; o provide or help acquire or construct public facilities;