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review the provided assumptions to consider if the project meets the but-for test and, if so, what an appropriate <br />level and type of TIF assistance may be based on the information submitted by the developer. <br /> <br />Following thorough evaluation of the project as provided allows the City to be prepared to make an informed <br />decision based on the likelihood of the project needing assistance, as well as the appropriate level of assistance. <br />To complete this analysis, we reviewed the developer’s provided financial data showing a result if the project <br />received financial assistance as requested and did not receive assistance. Analysis of the project includes a <br />review of the development budget, projected lease rates and operating income and the project’s capacity to <br />support annual debt service on the new debt financing. The purpose of evaluating the operating revenues is to <br />understand the potential cash flow performance through initial development of the project and the annual <br />operations of the project to assist with determining if the project is financially feasible and in need of public <br />participation. <br /> <br />Measuring project feasibility is typically accomplished by analyzing a combination of 1) projected rate of return – <br />both annual and cumulative and 2) estimated debt coverage ratio (DCR). Rate of return (IRR) analysis illustrates <br />the projected return to the investor(s) using the available cash flow after payment of operating expenses and debt <br />repayment as a measurement to the initial equity investment. Industry standards for certain development types <br />indicate the level of investment a developer is willing to make based on projected returns from the project. Should <br />the projected annual and cumulative returns fall below those standards, the project would require a reduced level <br />of equity participation and/or increased cash flow to be feasible. Debt Coverage Ratio (DCR) is a calculation <br />detailing the ratio by which operating income exceeds the debt payments for the project. If the DCR is greater <br />than 1.0 it indicates the project has operating income that is greater than the debt-service payment by some <br />margin; conversely if the DCR is less than 1.0, it indicates the project is incapable of meeting its debt-service <br />payment and would need to seek additional revenue sources in order to pay its debt. <br /> <br />For a project to be considered financially feasible and likely to secure private financing, lenders are going to want <br />to see a project with an estimated net operating income that exceeds the debt-service amount by a specific <br />threshold or more. This is a test based on a stabilized year of revenue. Typically, we see lenders identifying a <br />desired threshold for DCR of 1.10-1.20 or greater, meaning an expectation that the stabilized net income of the <br />project will exceed debt service by 1.10 to 1.20. We anticipate additional review as related to the updated request <br />that includes an additional request for pay-as-you-go assistance as related to site improvements in the amount <br />of $264,520. <br /> <br />City Policy Considerations <br /> <br />The City has a tax increment financing policy to ensure that projects receiving assistance are consistent with <br />the city’s comprehensive plan, strategic plan, Mississippi Connections plan and most recent housing study (as <br />applicable for housing projects). Pursuant to the public purpose considerations of the policy, the City will <br />consider TIF for projects that achieve one or more of the following: <br />1. Demonstrate long-term benefits to the community. <br />2. Retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or <br />attractive wages and benefits through: <br />a. Diversification of the local economy <br />b. Significant addition of permanent, high-wage, full-time jobs <br />c. Addition of jobs attractive to those unemployed or underemployed <br />3. Significantly increases the city’s commercial and industrial tax base <br />4. Demonstrates the ability to encourage unsubsidized private development through “spin off” <br />development. <br />5. Facilitates the development process and achieves development on sites that would not develop “but <br />for” the use of TIF. <br />6. Removes blight and/or encourages redevelopment of commercial and industrial areas resulting in high <br />quality redevelopment and private reinvestment. <br />7. Offsets redevelopment costs (i.e. contaminated site cleanup) over and above the costs normally <br />incurred in development. <br />8. Aids the implementation of the Mississippi Connections Plan <br />