4.1. EDSR ATTACHMENT 03-28-2017 - Laserfiche WebLink

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City of Elk River, Minnesota But For Analysis of Jackson Hills Residential Suites TIF Project March 24,2017 Page 4 It is important to note that the maximum term of a housing district is 25 years after receipt of first increment. The current assumptions would include providing 90% of the revenues to the developer with the City retaining 10%. Based on the developer qualifying for up to 65%of the requested amount,there are different ways that the deal could be structured should the City be interested in retaining a greater portion of the increment to finance other eligible affordable housing costs. The City could retain a greater percentage than 10% each year. This would result in the City retaining more increment on an annual basis but would also result in the term of assistance to the developer extending beyond the estimated 10.5 year term. Project Qualifications Housing districts are a type of tax increment financing district that consist of a project intended for occupancy, in part, by persons or families of low and moderate income. Low and moderate income is defined in federal, state, and municipal legislation. A project does not qualify if more than 20% of the square footage of buildings that receive assistance from tax increments consist of commercial, retail or other nonresidential use. In addition, housing districts are subject to various income limitations and requirements for residential property. For owner occupied residential property, 95%of the housing units must be initially purchased and occupied by individuals whose family income is less than or equal to the income requirements for qualified mortgage bond projects under section 143(f) of the Internal Revenue Code. For residential rental property, the property must satisfy the income requirements for a qualified residential rental project as defined in section 142(4)of the Internal Revenue Code which states the following: • at least 20%of the units will be occupied by persons or families with incomes no greater than 50% of county median income or • at least 40% of the units will be occupied by persons or families with incomes no greater than 60%of county median income. Tax increments derived from a housing district must be used solely to finance the cost of housing projects as defined in section 469.174, subd. II and 469.176 of the TIF Act. The cost of public improvements directly related to the housing projects and the allocated administrative expenses of the City may be included in the cost of a housing project. The City anticipates using tax increment revenues to finance a portion of the extraordinary costs associated with providing the affordable housing units. Developer Pro forma But-For Analysis In approving a TIF district and project, the City must make several findings, including the "but for" test: that the proposed development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The developer has provided financial information showing that the operating cash flow requires financial assistance from the City to reduce the amount of debt and equity necessary to finance total project costs, as provided through the annual tax increment revenues from the project, and provide a reasonable return on investment. The developer has stated the assistance is necessary due to the high costs of developing the