7.1. EDSR 04-17-2023 - Laserfiche WebLink

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Memo To: Members of the Joint Finance Committee Brent O’Neil, Economic Development Director From: Mikaela Huot, Director Date: March 24, 2023 Subject: Financial Analysis and Review related to Application for Tax Abatement Assistance for Beaudry Oil business expansion Executive Summary The City of Elk River (the “City”) received an application from Beaudry Oil & Service DBA Beaudry Oil & Propane and Harvest Reaper LLC (the “developer”) for tax abatement financing assistance related to the construction of a 25,000 square foot building to further expand their existing operations. The developer’s application for assistance included a request for $645,000 from the City and County over 15-20 years to finance a portion of the site development costs associated with construction of the new building. The total development cost for the project, including land acquisition and site development, is over $4.0 million. The County provided an initial estimated taxable value of the project upon completion of $1,566,000 that includes the land value. That value would equate to new estimated total annual taxes for the project of $43,698 with the estimated City share as $11,350 and County share as $11,028. The remaining amounts would be the School, State and other entities’ share. Baker Tilly has been retained by the City to review the application for financial assistance. The purpose of this memorandum is to provide a summary of Baker Tilly’s review of the development project costs and sources of funds and supporting financial information as provided by the applicant to assist the City with making a determination if the project as proposed meets the merits of the City’s tax abatement policy and verification for need of tax abatement assistance. 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. The level of requested tax abatement assistance may trigger the City’s business subsidy policy and thereby require certain job and wage goals related to the project and public assistance. Without public assistance, the applicant would not be subject to the same requirements. Following review of the request for tax abatement assistance and supporting financial information, including conversations with the applicant, County and City staff, a recommendation can be made to provide some level of assistance to the project as a mechanism to offset a portion of the extraordinary site development costs as necessary for the new development to occur. As described further in the memo regarding tax abatement revenue assumptions and revenue estimates, the amount of tax abatement revenues that would be generated by the project are less than what has been requested. In addition, based on review of financial need, the recommended term of assistance (number of years) would be less than what the applicant has requested. Based on review of the project and for consistency with the City’s tax abatement policy, we can recommend financial assistance of up to $200,000 that could potentially include County participation due to some of the extraordinary site development costs related to the project. 11 years of City assistance assuming 100% of incremental tax abatement revenues and 10 years of County assistance assuming 50% of incremental tax abatement revenues would generate approximately $201,186 of total available tax abatement revenues to the project over the term of the abatement. The estimated present value of the combined total assistance (City and County if approved) would be approximately $152,000 assuming a 4.5% discount/interest rate.