7.1. EDSR 04-17-2023 - Laserfiche WebLink

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County Share Total Estimated Annual Revenue Full Buildout (estimated up to 50% of annual tax abatement revenues and subject to Board approvals) $6,298 School Share Total Estimated Annual Revenue Full Buildout $0 Total Annual Gross Revenues $18,862 Estimated City Share (11 Years) $138,204 Estimated County Share over 10 Years (50% annual tax abatement revenues and subject to Board approvals) $62,982 Estimated School District Share $0 Total Potential Assistance $201,186 Applicant Financial Pro forma Analysis including But-For In approving an abatement project, the Elk River EDA and City Council’s tax abatement policy includes a provision that projects are reviewed to assist with determining that a finding be made that the proposed project would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The City’s tax abatement policy outlines the general considerations and desired outcomes for which tax abatement may be offered as a financing tool for new development projects. The policy also includes a provision for which the but-for (financial needs) test need not be solely met if the assistance for a project is considered more as a “location incentive”. Public benefits to be considered when offering tax abatement financial assistance may include significant tax base increase, the creation and retention of higher paying jobs (at least twice the minimum hourly rate stated in the city’s Business Subsidy Policy), and is likely to assist in the marketing and attraction of additional desired developments. The County has indicated it is willing to provide tax abatement assistance to the project based on job creation criteria that would be consistent with the County’s tax abatement policy. County staff has indicated a potentially supportable level of assistance that may include up to 50% of the County’s share of incremental taxes generated by the project over an up-to 10-year period. As shown in the table above, this equates to approximately $62,000 of assistance and in addition to any assistance the City may consider providing to the project. The applicant has provided minimum expected job creation (14-20 new FTE) and wage goals (average range of $29-$32/hour) based on completion of the business expansion. Without financial assistance, it will not be committed or required to meet those job and wage goals. Financial assistance from the City allows for additional revenues to provide sufficient project cash flow and market returns to investors that will achieve project feasibility and facilitate the targeted job creation and wage goals. The applicant has stated the assistance will offset a portion of the costs associated with construction of the building and additional site development costs, as well as related costs for the tenant of retaining existing employees and hiring the new employees. In addition, the current estimated project costs are in excess of the estimated future value of the building upon development as provided by the County. Based on this analysis, the EDA and City could be justified in determining that the project meets the “but for” test and would not proceed without assistance. As stated previously, tax abatement does not statutorily require a “but for” analysis to determine if the project would proceed without assistance and the City’s tax abatement policy provides considerations for when the but-for test may not be entirely met. We reviewed the developer’s operating proforma for the project using the developer’s assumptions for square footage and lease rates of the new building. The proforma is based on the real estate transaction only and not the projected annual net revenues of the lubricants warehouse business. The developer is assuming a lease rate of $11.61/square foot to generate approximately $290,400 of annual revenue to support debt service repayment. Financing terms for the project include a maximum loan based on 80% loan to value and 20% down payment. The anticipated loan amount would be $2,960,000 with 6.5% interest rate for annual debt service payments of approximately $240,816. The 20% down payment would be owner cash equity and land value. Annual tax abatement revenues from the City and County would provide additional cash flow (reducing the property tax burden) that allows the project to better meet minimum debt coverage ratios.