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AGENDA RECOMMENDATION |
Item No: 4.C.
Economic Development Authority
- Meeting Date:
- 09/14/2026
Agenda Item:
Preliminary review of possible tax abatement assistance.
Recommendation/Action(s):
Review and discussion. The EDA has the following options:
- Request staff to provide clarification or provide additional information to be reviewed at a future meeting; or
- Adoption of a motion directing staff to prepare materials for a hearing on September 28, 2026, regarding tax abatement assistance and approval of a business subsidy agreement.
Summary:
Old Town Riverfront Properties, LLC (the “Developer”) has submitted an application requesting tax abatement financing for the construction of a 63,000 square foot office and indoor organic production and processing facility for cultivation, processing, packaging and distribution of mushrooms and microgreens. The facility would be constructed at 1961 Energy Drive.
The estimated total development cost is approximately $13.56 million and construction is anticipated to begin in late 2026 or early 2027. It is anticipated 17 jobs would be created within year one, and 75 jobs created in year two.
Tax Abatement Review
The Developer initially inquired with City staff about assistance through the creation of an economic development tax increment financing (TIF) district. Per State Statute, to qualify for an economic development TIF district, the business must be manufacturing, warehousing, research and development, telemarking, tourism in qualifying counties, or workforce housing projects. After consultation with the City attorney, it was found that Verdant Organics was not considered a manufacturing business for purposes of qualifying for an economic development TIF district. Additionally, the property is not eligible for a redevelopment TIF district because it is a greenfield site.
As the project doesn’t qualify for TIF, the Developer is requesting financial assistance in the form of tax abatement from the City to assist with the development costs. The Developer requested a 15-year term with annual abatement of $126,000. The Developer would own the facility and lease it to Verdant Organics.
The City engaged Ehlers Public Finance Advisors to review the tax abatement application. Ehlers prepared an analysis memo summarizing their review which is attached. Ehlers conducted a review of the Developer’s current Proforma based on industry standards for construction costs, land costs, rental rates, developer fee, available funding sources, underwriting criteria, and project cash flow. Ehlers found that the project requires Abatement in order to proceed.
Ehlers’ memo notes the following in regard to the number of years of Abatement:
“If the EDA agrees that $6 sq. ft. for the land is a fair market price for the land, based on our review of the Developer’s Proforma and under current market conditions, the proposed Project isn’t feasible without the City Assistance outlined (7-year PAYGO Abatement note of $178,700). If the EDA deems that the land value is excessive, if we reduced the land to $4.50 sq. ft. (where the County has value on smaller lots), they would still require 5 years of Abatement ($122,400).”
If the City awards more than $150,000 in assistance, State Statute requires a business subsidy agreement that would outline job and wage goals attributable to the project. If 5 years of abatement is provided, that would equate to a total of $122,400, which would not require a business subsidy agreement. If 7 years of abatement is provided, that would equate to a total of $178,700, which would require a business subsidy agreement.
The assistance would be provided in the form of a pay-as-you-go (PAYGO) note paid with 90% of the City’s portion of the increased taxes (Abatement) generated annually from the Project over the term of the Abatement.
Ehlers’ also recommends inclusion of a three-prong ‘lookback’ provision in the Abatement agreement. The provision would allow for review of (i) actual project costs when project construction is completed (since everything is just estimates at this time); (ii) project performance and returns on investment against initial projections at stabilization; and (iii) review at sale. If project costs are lower when (i) is completed, we typically see a reduction in Abatement on a $1 for $1 basis. For the other return metrics, we typically see a sharing factor, so only a 50% reduction in the Abatement is needed to make the project financially feasible.
The City is required to hold a public hearing on the abatement. If the City awards more than $150,000 in assistance, a business subsidy agreement would be required along with a public hearing. The agreement would be with the property owner, since they are ultimately responsible for payment of the property taxes and the Abatement note is issued and paid to them.
The estimated total development cost is approximately $13.56 million and construction is anticipated to begin in late 2026 or early 2027. It is anticipated 17 jobs would be created within year one, and 75 jobs created in year two.
Tax Abatement Review
The Developer initially inquired with City staff about assistance through the creation of an economic development tax increment financing (TIF) district. Per State Statute, to qualify for an economic development TIF district, the business must be manufacturing, warehousing, research and development, telemarking, tourism in qualifying counties, or workforce housing projects. After consultation with the City attorney, it was found that Verdant Organics was not considered a manufacturing business for purposes of qualifying for an economic development TIF district. Additionally, the property is not eligible for a redevelopment TIF district because it is a greenfield site.
As the project doesn’t qualify for TIF, the Developer is requesting financial assistance in the form of tax abatement from the City to assist with the development costs. The Developer requested a 15-year term with annual abatement of $126,000. The Developer would own the facility and lease it to Verdant Organics.
The City engaged Ehlers Public Finance Advisors to review the tax abatement application. Ehlers prepared an analysis memo summarizing their review which is attached. Ehlers conducted a review of the Developer’s current Proforma based on industry standards for construction costs, land costs, rental rates, developer fee, available funding sources, underwriting criteria, and project cash flow. Ehlers found that the project requires Abatement in order to proceed.
Ehlers’ memo notes the following in regard to the number of years of Abatement:
“If the EDA agrees that $6 sq. ft. for the land is a fair market price for the land, based on our review of the Developer’s Proforma and under current market conditions, the proposed Project isn’t feasible without the City Assistance outlined (7-year PAYGO Abatement note of $178,700). If the EDA deems that the land value is excessive, if we reduced the land to $4.50 sq. ft. (where the County has value on smaller lots), they would still require 5 years of Abatement ($122,400).”
If the City awards more than $150,000 in assistance, State Statute requires a business subsidy agreement that would outline job and wage goals attributable to the project. If 5 years of abatement is provided, that would equate to a total of $122,400, which would not require a business subsidy agreement. If 7 years of abatement is provided, that would equate to a total of $178,700, which would require a business subsidy agreement.
The assistance would be provided in the form of a pay-as-you-go (PAYGO) note paid with 90% of the City’s portion of the increased taxes (Abatement) generated annually from the Project over the term of the Abatement.
Ehlers’ also recommends inclusion of a three-prong ‘lookback’ provision in the Abatement agreement. The provision would allow for review of (i) actual project costs when project construction is completed (since everything is just estimates at this time); (ii) project performance and returns on investment against initial projections at stabilization; and (iii) review at sale. If project costs are lower when (i) is completed, we typically see a reduction in Abatement on a $1 for $1 basis. For the other return metrics, we typically see a sharing factor, so only a 50% reduction in the Abatement is needed to make the project financially feasible.
The City is required to hold a public hearing on the abatement. If the City awards more than $150,000 in assistance, a business subsidy agreement would be required along with a public hearing. The agreement would be with the property owner, since they are ultimately responsible for payment of the property taxes and the Abatement note is issued and paid to them.