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 7 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 projects, and provide a reasonable return on investment. The City also received letters from the anticipated financial lenders for both projects indicating that tax increment financing was necessary to obtain financing. The developer has stated the assistance is necessary due to the costs of developing the site as affordable housing and inability of the projects to support those costs upon completion. Based on the developer's stated position relative to the need for tax increment financing assistance, the City could make its "but for" finding and provide tax increment assistance. We recommend, however, that the City also consider an appropriate level and type of TIF assistance for the project based on the information submitted by the developer. The City's position relative to the use of tax increment will focus on financing of the extraordinary costs with a limited term of assistance. The level of assistance is in part dictated by the `extraordinary' costs of the project and inability of the project to support those costs. Initial discussions about the project indicate the assistance would be provided as reimbursement to assist the developer with the development of affordable housing in the community and a reduction in rental income resulting from the affordable housing units. Following thorough evaluation of the project as provided allows the City to be prepared to make an informed "but -for" decision based on the likelihood of the project needing assistance, as well as the appropriate level of assistance. The "but -for" test is used to determine whether a project is likely to proceed as proposed without the use of public dollars. Without the requested amount of tax increment assistance (15 years of TIF from the new project), the test is to determine if the proposed Jackson Hills site would be developed as an affordable housing project with at least 20% of the units occupied at 50% of the area median income. And alternatively, without assistance, review how the project would be constructed, if at all, and/or at non -income restricted levels or reduced amenities to lower project costs. The but -for test for the Elk River Lodge site is also to determine if the project as proposed would proceed but - for the City assistance. In the application for assistance, the developer has listed the planned improvements for the project site. It is our understanding that some of those improvements have commenced and are required by City code. The determination for the need for assistance (remaining 10 years of TIF from the Jackson Hills new project) is based on the likelihood of the project proceeding as proposed. This includes both the financing of the identified improvements, some of which may be required, as well as providing affordable housing units, as necessary to meet the definition of a housing project. We also reviewed varying documents including the developer's provided operating proforma and financial statements and also constructed similar ten-year project proformas, showing a result if the developer received assistance as pay-as-you-go (reimbursement for TIF eligible costs) and showing a result if the developer did not receive assistance. Our analysis of the proformas included a review of the development budget, projected operating revenues and