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<br /> <br />Memo – Draft for Review <br /> <br />To: Members of the Joint Finance Committee <br />Amanda Othoudt, Economic Development Director <br />From: Mikaela Huot, Director <br />Date: September 11, 2020 <br />Subject: <br />Application for Tax Increment Financing Assistance related to proposed <br />establishment of Tax Increment Financing Economic Development (TIF) <br />District No. 26 Financial Analysis and But-For Review <br /> <br />Background <br />The City of Elk River received an application from Shoot Steel, INC, the applicant, for financial assistance <br />through Tax Increment Financing (TIF) to assist with financing a portion of the extraordinary development costs <br />related to the construction of a new 20,000 square foot warehousing facility. The applicant is proposing the <br />acquisition of City-owned property located at 17565 Tyler St NW in the City of Elk River for business location <br />and expansion of its existing company operations. The applicant’s company is currently leasing approximately <br />10,000 square feet of space in a neighbouring city and has reached capacity. Due to current capacity <br />concerns, the company has been limited in opportunities for product growth and future development. As a <br />result, it is looking for land that will facilitate existing business needs, as well as allowing for potential additional <br />future expansion. The proposed property for this project has been identified as an ideal location for the <br />company to relocate and meet current demands, as well as allow for future anticipated growth plans, subject to <br />a feasible financing plan. The applicant’s original budget for the project did not account for the level of <br />acquisition and site development costs that are required for construction on the identified proposed site. The <br />increased costs related to acquisition, site development and potential winter construction have created a <br />financial gap of approximately $400,000. <br /> <br />The project is expected to locate 7 full time and 1 part time position to the City of Elk River. The applicant is <br />anticipating hiring an additional 6-7 new employees over the next two years at a minimum wage of $18/hour <br />and would meet the City’s business subsidy policy provisions. <br /> <br />Baker Tilly has been retained by the City to review the application for financial assistance. The purpose of this <br />memorandum is to provide a summary of Baker Tilly’s review of the development project costs and sources of <br />funds, and operating pro forma as provided by the applicant to assist the City with making a determination if the <br />project as proposed would be unlikely to proceed “but-for” the requested Tax Increment Financing (TIF) <br />assistance, and to determine the appropriate amount, if any, of public assistance. Prior to establishing a tax <br />increment financing district, there are findings that need to be made by the City that include: 1) determination <br />that the project qualifies as a TIF district and 2) determination that the project as proposed would not proceed <br />without public assistance (meeting the “but-for” test. When reviewing requests for financial assistance it is <br />important to understand how the level of financial assistance would impact the ability of the project to proceed <br />as proposed and maximize new value created on the current project site. <br /> <br />Applicant Request for Assistance <br />The applicant’s application for financial assistance includes an approximate $2.993 million project that would be <br />funded by an estimated $1.259 million first mortgage from Village Bank, $298,258 of equity from both a private <br />investor ($200,000) and owner cash ($98,258), and a $1.036M SBA loan, leaving a $400,000 gap. The