10.1. SR 02-05-2018 - Laserfiche WebLink

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City of Elk River, Minnesota Tax Increment Applications for Proposed Jackson Hill Residential Suites Housing Project and Elk River Lodge and Residential Suites, LLC January 25, 2018 Page 5 TIF Construction $950,000 Architectural & Engineering $20,000 Legal Fees $10,000 Interest during Construction $20,000 Total $1,500,000 Total $1,500,000 The developer's submitted information provides that the request for assistance would be pay -as -you -financing as reimbursement for extraordinary development costs. The developer has also indicated that a portion of the units would be considered 'affordable' and meet the definition of a housing project to be eligible to receive tax increment assistance. Based on review of the project components and understanding of the improvements to be constructed, the project as proposed is not expected to generate tax increment revenues sufficient to support the request for assistance. The proposed improvements may result in minimal increases to the existing taxable value. Any building permits pulled prior to district approvals would be included in the 'base' value of the district. It is our understanding that the developer's intent would be to receive increment from the other proposed housing district (Jackson Hills) as a financing source to this project, capturing the remaining 11 years of increment following payment to the Jackson Hills TIF district. 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 developer's initial project costs through the issuance of bonds or as an internal loan. Future tax increment 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 developer 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 risk for repayment to the developer. If tax increment revenues are less than originally projected, the developer 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 would have to use other sources to fill any shortfall of tax increment revenues. With internal financing, the City reimburses the loan with future revenue collections and may risk not repaying itself in full if tax increment revenues are not sufficient. The developer's financial information for both applications includes pay-as-you-go financing as annual reimbursement. The City also has the ability to spend tax increments from a tax increment financing district on other eligible projects within the City. The type, location and amount of eligible projects that can be financed is subject to the district(s) from which the tax increments would be spent from. This spending is referred to as 'pooling' of tax increments.