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Project Summary and Qualifications <br />The project is proposed to include the construction of 44 residential apartment buildings comprising of studio, 1, <br />2- and 3-bedroom units with separate garages. In order to qualify for inclusion within a housing TIF district, one <br />of the two following income qualifications need to be met by the residents: <br />• at least 20% of the units must be occupied by persons or families at 50% area median income or <br />• at least 40% of the units must be occupied by persons or families at 60% area median income. <br /> <br />The project as proposed would provide for at least 20% of the units being occupied and affordable to persons at <br />50% area median income. The applicant would need to annually certify the project qualifies for the duration of <br />the TIF district. This income requirement would allow for the establishment of a Tax Increment Financing <br />Housing District. Tax increment financing is a tool the City may consider using to support financial assistance <br />for the project, subject to meeting the but-for test and need for public financial participation. <br /> <br />Applicant Request for Assistance <br />Financial assistance through pay-as-you-go tax increment financing from the City of Elk River has been <br />requested to provide additional revenues to support the required level of debt and project cash flow to repay <br />annual debt service payments. The request is for 90% of incremental revenues for up to 15 years related to the <br />extraordinary development costs of the project site that include site development and soils corrections in an <br />estimated amount of $760,000-$850,000. The application includes an approximate $8.5 million project funded <br />through a combination of debt and equity. The applicant’s supporting financial information includes sources <br />and uses of funds with 70% as debt financing and 30% as private equity. Debt repayment would be supported <br />by annual cash flows of the project and would also require additional revenues through tax increment financing. <br />The applicant has provided a letter from its potential lender indicating that 15 years of TIF revenues would be <br />needed to support the project financing. Typical extraordinary development costs that cannot be supported <br />solely by the project alone could justify the need for public financial assistance and allow the project to proceed <br />as proposed to provide appropriate upfront funding and meet the minimum debt coverage requirements. The <br />applicant has indicated the receipt of City financial assistance is necessary for the project to proceed. <br /> <br />Table 1: Sources and Uses of Funds <br /> <br />Sources Amount Uses Amount <br />First Mortgage $6,000,000 70% Acquisition (2) $400,000 5% <br />Equity $2,588,174 30% Site Development $850,000 10% <br />Deferred Developer Fee Construction $6,828,174 79% <br />TIF (1) Arch & Eng. Fees $75,000 1% <br /> Legal Fee $10,000 .12% <br /> Construction Interest $175,000 2% <br /> Contingency $250,000 3% <br />Total $8,588,174 Total $8,588,174 <br /> <br />(1) Tax increment financing has been requested as pay-as-you-go and would not be an upfront funding <br />source <br />(2) Acquisition price includes entire 6.64-acre site. Only portion of property to include the proposed project <br />would be included within the TIF District <br /> <br />Project Financing <br />There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay- <br />as-you-go basis. With upfront financing, the City would finance a portion of the applicant’s initial project costs <br />through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and <br />used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the <br />applicant would finance all project costs upfront and would be reimbursed over time for a portion of those costs <br />as revenues are available. <br /> <br />Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the <br />risk for repayment to the applicant. If tax increment revenues are less than originally projected, the applicant <br />receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, <br />in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to <br />make debt service payments and would have to use other sources to fill any shortfall of tax increment revenues.