JOINT FINANCE COMMITTEE PACKET 09-16-2020

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applicant has asked for tax increment financing assistance to close the financial gap. The extraordinary acquisition and site development costs that cannot be supported solely by the project alone may justify the need for public financial assistance. The assistance would allow the project to proceed as proposed and to provide appropriate upfront funding and to meet minimum debt coverage requirements. The applicant has indicated in the application that the receipt of City financial assistance is necessary for the project to proceed based on current financing limitations. The sources and uses of funds from the applicant’s financial materials is illustrated in the table below. Sources Amount Uses Amount First Mortgage $1,259,050 Acquisition $378,100 TIF Mortgage * $400,000 Site Development $513,377 Private Investor $200,000 Construction $1,926,944 Owner Cash Equity $98,258 Architectural and Engineering fees $61,365 SBA Loan $1,036,000 Contingencies $113,522 Total $2,993,308 Total $2,993,308 * financed as pay as you go for reimbursement of certain costs Qualifications Providing financial assistance through tax increment financing would require the City to proceed with the establishment of a Tax Increment Financing (Economic Development) District. Tax increment financing is a tool the City may consider using to support financial assistance for the project, subject to meeting the but-for test and need for public financial participation. The definition of an economic development district is included as an attachment to this memo. A public hearing date of October 5 has been established for the City Council to consider taking action on establishment of the Tax Increment Financing District. The Economic Development Authority of the City of Elk River will review the request and tax increment financing documents at its September 21 meeting. 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 applicant’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 applicant 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 applicant. If tax increment revenues are less than originally projected, the applicant 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 project financing would be pay-as-you-go for reimbursement of eligible costs. Tax Increment Revenue Assumptions The County Assessor provided a taxable value estimate for the project. To estimate the amount of available TIF revenues generated by the proposed project, certain assumptions were made based on the value of the project, construction schedule, and anticipated financing terms. • Total existing value of $378,100 o Parcel ID: 75-757-0205 o Base value as of Jan. 1, 2020