JOINT FINANCE COMMITEE PACKET 04-30-2024

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The developer shall adequately demonstrate, to the city’s sole satisfaction, an ability to complete the proposed project based on past development experience, general reputation, and credit history, among other factors, including the size and scope of the proposed project. Consideration: the developer and related business entities have shared financials representing sufficient resources to complete the project. For the purposes of underwriting the proposal, the developer shall provide any requested market, financial, environmental, or other data requested by the city or its consultants. The City of Elk River shall only use TIF to encourage economic growth and development within the city limits. Conclusion The developer has requested financial assistance to facilitate construction of a new 110,000 square foot industrial building on approximately 14 acres of City-owned property. The request is for a reduction in upfront costs through a City land write down. Pursuant to the City’s tax increment financing policy, assistance for this type of project would be consistent with policy considerations. The request for a land write down in which the City would use future tax increments to pay for the land costs is also a consideration that is approved on a case-by-case basis. Through submission of the tax increment financing request and supporting financial information, the developer has indicated that the project would not occur as proposed without financial assistance from the City due to the significant capital investment needs and limitation on level of debt financing that may be achieved. Based on the developer’s financing assumptions and considerations of current market environment, without financial assistance, the project would not be financially feasible. The requested assistance would allow for additional working capital needed by the company to complete Phase 1 of the project as proposed, with potential acceleration of Phase 2. With public assistance through tax increment assistance and supplemental city programs, the project is projected to achieve feasibility. The developer has requested tax increment assistance to close a financial gap in the project. An additional test to assist with understanding 1) if the project would proceed without assistance and 2) if assistance is required, what a reasonable level of assistance would be, is to adjust the upfront project costs and net income for debt payments to test feasibility of the project and potential reduction in tax increment assistance. The viability of these scenarios is subject to additional financial review and is intended to provide an illustration of what adjustments may be needed to reduce and/or eliminate the assistance. The additional analysis has verified the assistance as requested to include land write down due to debt financing constraints and need for sufficient working capital. Considered parameters for level of public assistance include the following: • Return on Investment: (City benefits) • Purchase price and other development costs: (reasonable ranges and supported by project) • Public to private investment: (public participation 10%) • Public assistance (TIF) and private equity: (public does not exceed private equity) • Extraordinary costs: (development) • Financial gap: (limit on private debt and equity) • Market conditions (financing limitations) • Term of district collection: (up to 9 years for economic development) • Other identified public improvements: (case by case basis to be determined) The assistance would also constitute as a business subsidy and would be required to comply with the City’s business subsidy policy requirements that includes certain wage and job goals as outlined in the policy. Thank you for the opportunity to be of assistance to the City of Elk River. We look forward to discussing the project and financing assumptions in greater detail.