Consider Provision of Tax Increment Financing Assistance to Medart, Inc.

The purpose of this case is to consider the provision of Tax Increment Financing Assistance for Medart, Inc. City Staff has been working with Medart, Inc. since July of 2021 to relocate its facilities from Anoka to the City of Ramsey. Originally, Medart was looking for an existing building but they are now looking at constructing a new building to improve operational efficiencies.  City Staff has assisted Medart in its site selection process and they are considering an 11.13 acre site owned by PSD, LLC in Bunker Lake Industrial Park, across the street from Delta ModTech.  The initial building size was estimated to be 98,000 square feet, but now it is 105,157 square feet. This site is large enough to accommodate a 42,000 SF expansion when needed and it maximizes the development of the site. Staff has been persistent in its pursuit to recruit Medart and is hopeful the City of Ramsey will be able to provide the needed Tax Increment incentive to bring Medart to our community instead of relocating to another community.

Initial tax estimates by Anoka County and a preliminary 550K TIF amount provided by the City have resulted in Medart looking at another site in Wright County.  Medart has indicated that the taxes are lower there and the TIF amount being offered by a community in Wright County is much higher than what was proposed initially by the City.  Medart has communicated that there is a delta of approximately $110,000 per year and about 1M total when comparing the preliminary proposal by the City and the Anoka County tax valuation and annual property taxes back on November 2023.  Staff has sat down with Anoka County to re-evaluate the project and to see if the proposed valuation could be revisited.  Anoka County reviewed a sworn construction statement and has provided a range in market valuation and a reduced tax estimates based on the original project. Staff has put together a summary of the preliminary offer and taxes and what a new proposal could look like.  Based on the attached analysis, Staff believes that the city will have the ability to effectively reduce the delta between the Wright County site and the site in Ramsey and to keep the Ramsey site a viable option for Medart.

Company History
Medart, Inc. operates two separate, yet integrated, operating divisions strategically serving the center part of the United States. Medart Engine represents over 100 manufacturers distributing engines, parts and accessories to the outdoor power equipment, lawn and garden, agriculture, construction, industrial and rental industries. Medart Marine represents over 150 brands distributing boating accessories and parts to marine dealers, repair shops and marinas.  Medart started as a single facility business in downtown St. Louis in 1912 as an automotive parts and service specialist. In the 1950’s Medart began distributing small engines and parts, and in the 1970’s Medart acquired a marine accessories and parts distributor to start that segment of the business. In 1984, and sold the automotive parts distribution business.  The corporate headquarters are located in Arnold, Missouri, which is in metropolitan St. Louis. Medart currently has distribution facilities in Arnold; Anoka, Minnesota; Edwardsville, Kansas; Houston, Texas; Olive Branch, Mississippi; and Semmes, Alabama.

Medart is considering locations for an expansion of operations in the Midwest. Medart has considered or looked at properties in the following locations: St. Michael, Albertville, Rogers, Maple Grove, Brooklyn Park, Coon Rapids, Blaine, and Ramsey. They have also explored some build-to-suit options in Roberts & Osceola WI, along with a property in Mason City IA. They also have a one-year lease extension available for their Anoka facilities through December 31st, 2030. Ramsey is a leading candidate for location, but no final decision has been made.

Over the first 4 years, the company intends to have 51 full-time positions working at the Ramsey location. Measured over the first 2 years post occupancy they will have a staff of 47 FTE. Approximately 43 of the 47 FTE coming to Ramsey will have wages of $18.50 / hr. or more.  This project would include the construction of a facility of approximately 105,157 sq ft at an estimated all-in cost of $12.72M. Medart also expects to spend over $1,000,000 for material handling equipment, shelving and racking prior to operating from a new facility. As they have explored options, costs have continued to increase - construction costs, financing costs, operating costs and labor costs, thus Medart is seeking assistance from the City of Ramsey in the form of a 'pay-go' tax increment financing package to help offset the significant private investment Medart would be making.

Business Assistance Application
Medart has provided a complete application and application fee of $5,000. City Staff and Ehlers have completed the required review and analysis for the project.  The project scored a 29 which is on the high end of the moderate range.   Medart has communicated the City preliminary offer of $550,000 in TIF will not be enough to select Ramsey and they began to seriously explore another option in Wright County.  Medart has asked for 1.5M of Pay Go TIF Assistance in the application.  In order to get Medart to select the site in the City of Ramsey, Staff believes that more TIF (1.1M to 1.5M) will need to be provided which means 9 years of TIF (amount TBD) vs. the original 5 year (550K) proposed.  

 

A Public Hearing will be required at a later date (proposed to be April 9, 2024) for consideration of the Business Subsidy and creation of the TIF District. A public hearing is not needed at this time for the proposed EDA action.  Please see the attached proposed schedule to complete the TIF process.

The action being considered by the EDA in this case is to provide a recommendation to the City Council on the framework of a TIF Agreement with Medart, Inc. which includes the type TIF Assistance (Pay-Go), the level of TIF Assistance (TBD) and job creation goals (30 jobs at $18.50/hr).  Staff has asked Ehlers to conduct the analysis at the highest assistance package of 1.5M.  This 1.5M assistance amount represents the closest the City of Ramsey could get to essentially match the proposal shared by Medart from Wright County.  The third party analysis provided by Ehler's indicates the highest Pay-Go assistance the City could provide (1.5M) and does not unduly enrich developer.   The $1.5M note will accrue interest at 0% and is expected to be paid off in about 9 years after tax increment is received.    Once the TIF note is paid off, the TIF district will be able to be de-certified and new tax values can return to the general city tax levy.   If the TIF generated by the project is is short of $1.5M, the City is not responsible to pay the shortfall.  The project would not move forward in the City of Ramsey without a higher assistance package for Medart which supports the "but-for" test required for the provision of TIF. Based on the completed analysis and the relatively high score on the TIF application, Staff believes that this is good project for the City. The EDA will need to determine what level of assistance is appropriate for this project and ultimately make a recommendation to the City Council on the amount, if any.  Jason Aarsvold from Ehler's will be in attendance at the meeting to present the findings of the financial analysis and to discuss the impacts of A election and B election relating to fiscal disparities and available TIF for assistance.  It should be noted that the City of Ramsey has utilized the A-election option for TIF 14 (COR) and the use of it for the Medart project would not be a first.

Project Highlights

• 105,157SF warehouse building (with 42,000 SF expansion possible)
• $12,722,030 in Project Investment
• $12,544,350 Estimated Tax Assessed Valuation
• $338,237 in taxes annually
• $95,171 in annual taxes for City of Ramsey once district ends (estimated to be 2035)
• 51 new jobs to Ramsey over 4 years
• 47 new jobs to Ramsey 2 years after building occupancy
• 43 of the new jobs $18.50/hr or more within 2 years after building occupancy
• Potential to keep existing Anoka County business in Anoka County (Currently in City of Anoka)

Future Actions EDA Actions (if project moves forward)

• March 14, 2024 - The EDA will review the TIF Agreement and TIF Plan and make a recommendation to the City Council

Future Actions by City Council (if project moves forward)
February 13, 2024 - The CC will review the general terms of the TIF Agreement and Call for a Public Hearing for TIF District 19 Approval and Business Subsidy Approval on February 20, 2024
April 9, 2024 - The CC conducts public hearing for TIF District Creation and to award business subsidy to Medart, Inc.

Alternatives:
1) Recommendation to City Council for $1.5M (0% interest) in TIF Pay-GO Assistance and requirement for the creation of 30 jobs with a minimum wage of $18.50/hr or higher by Medart, Inc.; subject to TIF attorney review 
2) Recommendation to City Council for $____ (0% interest) in TIF Pay-GO Assistance and requirement for the creation of 30 jobs with a minimum wage of $18.50/hr or higher by Medart, Inc.; subject to TIF Attorney review
3) Direct Staff to continue negotiations with Medart for a TIF amount less than 1.5M 
4) Something else

All costs for this project will be funded through TIF Application Fee and the proposed TIF District No. 19 which will need to be created.