11-30-2021 JOINT FINANCE COMMITTEE PACKET

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Memo To: Members of the Joint Finance Committee Brent O’Neil, City of Elk River From: Mikaela Huot, Director Date: November 29, 2021 Subject: Financial Needs Analysis for proposed Tax Increment Financing Housing (TIF) District No. 28 (Jackson Hills Housing Project) Executive Summary The City of Elk River received an application from The Briggs Company for financial assistance through Tax Increment Financing (TIF) to assist with financing the construction of a new 44-unit affordable housing development referred to as Phase 2 of Jackson Hills Residential Suites. The project is proposed to include 20% of the units as affordable to occupants with incomes no greater than 50% of the area median income. The request is for 90% of the incremental revenues for the maximum term allowable by City policy of 15 years. The current taxable value of the project is $233,700. The estimated taxable value of the project upon construction completion is estimated to be approximately $6,300,000. Included within the application are identified TIF-eligible expenditures in the range of $760,000-$850,000 related to site development and soils corrections work. The applicant has indicated in the request that the project would be unable to proceed without City financial assistance due to inability of the project to support those extraordinary costs. The project financing includes a provision and need for 15 years of tax increment assistance as an additional source of revenue to repay the debt obligation. Based on current tax increment projections, as further described in this memo in Table 2 on page 3, it is estimated to take approximately 15 years of increment collections to fulfil the request. The applicant would finance the total development costs of $8.5 million (further described in Table 1 on page 2) upfront with debt and equity and would be reimbursed for a portion of those costs on an annual basis using future tax increment revenues. Background The purpose of this memorandum is to provide a summary of Baker Tilly’s review of the development project costs and operating pro forma as provided by the applicant (The Briggs Company) to assist the City with making a determination 1) if the project as proposed would be unlikely to proceed “but-for” the requested Tax Increment Financing (TIF) assistance, and 2) if assistance was necessary, to determine the appropriate amount and terms, if any, of public assistance. Prior to establishing a tax increment financing district, there are findings that need to be made by the City that include: 1) determination that the project qualifies as a TIF district and 2) determination that the project as proposed would not proceed without public assistance (meeting the “but-for” test). 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.