Laserfiche WebLink
Other factors that may impact project feasibility include review of the City’s current TIF policy and implications to <br />the proforma assumptions. The maximum amount of assistance that could be provided for the project following <br />the policy guidelines is 15 years. Based on current projections of tax increment revenues, the actual term <br />would be less than 10 years to meet the requested level of $780,000, assuming an interest rate component. <br />With these adjusted assumptions regarding term of tax increment, subject to how the debt is structured, there <br />may be potential cash flow concerns once the tax increment revenue stream has ended, unless there is an <br />increase in revenues, alternate revenue source or restructuring of the financial obligation. Also related to policy <br />guidelines is the requirement of owner cash equity of 10%. The financing structure of this project is through tax <br />credits, bonding, rebates and deferred developer fee. Because it is a LIHTC project and not market rate, the <br />capital stack is not a traditional one that comprises private mortgage and owner equity. <br /> <br />Conclusion <br />The developer has requested financial assistance related to construction of the new project. Through <br />submission of the tax increment financing application and supporting financial information, the developer has <br />indicated that the project would not occur as proposed without financial assistance from the City due to the <br />reduced rents for all 55 housing units. Using the developer’s assumptions, with assistance, the project would <br />be able to obtain sufficient financing to support total project costs. Using the same assumptions, without <br />assistance, the project is expected to have a financial gap of $780,000. The developer has stated that applying <br />the City’s tax increment revenues to the project would provide the funding levels necessary to close that gap. <br /> <br />The projected rental rates are based on approximate 50% AMI affordability levels for 100% of the units. The <br />TIF statute requires at least 20% of the units at 50% AMI or 40% of the units at 60% AMI, putting this project at <br />a higher level of affordability than what is statutorily required for the tax increment financing tool. LIHTC project <br />requirements include 100% of the units at 60% AMI and this project proposal also exceeds those affordability <br />requirements. An increase in annual rental rates up to 60% AMI is projected to have a similar impact of <br />providing additional cash flow as would annual tax increment revenues and would eliminate the need for <br />assistance. Actual performance would be subject to market and developer’s ability to receive the required <br />funding sources and levels. <br /> <br />The maximum term of assistance pursuant to the City’s policy is 15 years and based on current revenues, the <br />actual term of assistance is projected to be closer to 10 years. The term of the bonds for the project is based <br />on 40 years and LIHTC requirements for affordability would be 30 years. The term of the tax increment <br />financing would be for a much shorter period than projected debt payments, which may lead to cash flow <br />considerations subject to restructuring. Consistent with development projects, including affordable housing <br />LIHTC projects, a developer fee has been included in the project costs. The developer is deferring just over <br />50% of those costs to provide additional upfront funding. <br /> <br />Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at 651.368.2533 <br />or Mikaela.huot@bakertily.com with any questions or comments.