02-11-2021 SPECIAL JOINT FINANCE COMMITTEE PACKET

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Memo – Draft for Review To: Members of the Joint Finance Committee Colleen Eddy, Economic Development Specialist From: Mikaela Huot, Director Date: February 8, 2021 Subject: Financial Analysis and Review related to Application for Tax Abatement Assistance for Sportech business expansion Background The City of Elk River received an application from Sportech LLC, the applicant, for financial assistance through tax abatement to assist with financing a portion of the development costs related to the construction of a new 91,050 square foot expansion to the existing building. The applicant is proposing construction of an expansion to their existing building that is located at 10752 168th Circle in the City of Elk River for continued business growth and expansion of existing company operations. In 2015, they purchased 14 acres from the City and built a 105,000 square foot facility and moved into it in early 2016 (removing previous Building 2), bringing their total square footage of buildings in the City to 201,000 sq. ft. The City approved tax abatement assistance related to the original project acquisition and construction. The building was purchased by Meritex, a private real estate investment and management company in May 2016 and Sportech (the business leasing the building) was purchased by Off Road Acquisition Co., LLC (becoming a wholly owned subsidiary) in December of 2019. The expansion project is expected to retain the existing 323 company employees and create a minimum of 85 new FTE employees within 3 years of project completion. The new expansion alone would retain 171 employees (132 FTE), plus the additional 85 full-time employees. The average base wage of the Building 2 employees is $17.92/hr (excluding benefits) and $22.76 (including benefits). Average wage of jobs to be created at the expanded site is $18.20/hr, (excluding benefits) and $23.04 (including benefits) and would meet the City’s business subsidy policy provisions. Baker Tilly has been retained by the City to review the application for financial assistance. The purpose of this memorandum is to provide a summary of Baker Tilly’s review of the development project costs and sources of funds, and supporting financial information as provided by the applicant to assist the City with making a determination if the project as proposed meets the merits of the City’s tax abatement policy and verification of the need for the requested tax abatement assistance. When reviewing requests for financial assistance it is important to understand how the level of financial assistance would impact the ability of the project to proceed as proposed and maximize new value created on the current project site. The level of requested tax abatement assistance would trigger the City’s business subsidy policy and thereby require certain job and wage goals related to the project and public assistance. Without public assistance, the applicant would not be subject to the same requirements. Applicant Request for Assistance The applicant’s application for financial assistance includes an approximate $8.38 million project that would be funded by Meritex (the owner) through private funds and owner cash equity. The applicant has requested