7.1 SR 06-03-2024 (2) - Laserfiche WebLink

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Of all TIF districts, the Economic Development District is most often the one limited to a lesser term. Economic Development Districts are really “incentive” districts where it is not so much the extraordinary costs as it is an incentive” to get a business to locate in a community. In the other districts, the costs are easily identifiable and usually significant such as demolition, relocation, environmental remediation, and the cost differential between market rate and income/rent restricted housing. Consideration: The developer has stated the project would not happen ‘but-for’ the assistance. The assistance will also facilitate the creation/retention of a minimum 70 jobs and wage levels consistent with the City’s business subsidy policy. As the City has also received an application for other City forms of assistance, including a business microloan, the City may consider assigning within the business subsidy agreement a portion of the jobs as applicable to the TIF assistance and a portion to the microloan. Developers receiving TIF assistance shall provide a minimum of ten percent (10%) cash equity investment in the project. TIF will not be used to supplant cash equity. Consideration: the developer will have at least 10% equity investment. Most of the required equity will come from the sale of existing building property. The owner/business will provide initial cash down payment for the project at the closing of the land and construction financing and will be reimbursed when the property sells. The developer will also be using land as equity for securing financing. TIF will not be used in circumstances where land and/or property price is in excess of fair market value. A third-party appraiser agreed upon by the city and developer will determine the fair market value of the land. Consideration: the City hired a commercial broker to help it determine listing price and fair market value. This sales price would meet expectations of fair market value. The developer shall demonstrate a market demand for a proposed project. TIF shall not be used to support purely speculative projects. Consideration: existing business operations. 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. Financial Needs Analysis) Upon approval of a TIF district and project, the City must make several findings, including the “but for” test: that the proposed development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The developer has stated that without assistance being provided as upfront through land write down, the project would not be able to secure the structure and level of debt financing necessary for the project to be viable due to the following factors: 1) using equity to pay for upfront land costs would impact HMI’s working capital. It would rely on higher cost funding and potential hinder future abilities to remain price competitive and subject it to less reliable source of working capital to support operations, 2) the bank would require higher equity investment from PLM properties if upfront assistance were not provided. This may strain or limit the project scope due to capital constraints, 3) there are limitations on the level of bank financing the project can secure due to the size of the capital investment and project. The developer’s submittals have indicated that the upfront land write would alleviate the financing risks and concerns, provide PLM with the necessary financial stability to secure a more favorable loan structure with a lower debt burden that would allow HMI to maintain sufficient cash flow to meet operational needs, and to ensure business continuity during construction of the project. Additionally, reduced equity requirements from the bank resulting from land write down and availability of more working capital may allow PLM properties to accelerate the possibility of constructing the 40,000 square foot expansion. Based on the developer’s stated position relative to the need for tax increment financing assistance, the City could make its “but for” finding and provide tax increment assistance. We recommend, however, that the City Page 42 of 64Page 403 of 464