PSD LLC Business Park Proposal: Accept Business Subsidy Request Application and Call for Public Hearing

 

PURPOSE
Consider multiple actions related to the PSD LLC business park proposal.  For a detailed outline of future steps, please see the attached schedule.

BACKGROUND (project)
Please see attached background document for details.  In summary, the proposed project includes two major components:

BACKGROUND (subsidy request)
PSD LLC has asked the City for financial incentives related to both items above (A and B).  Specifically, PSD LLC is requesting the City construct the first phase of the public road, as part of the mass site improvements (about $200K-$250K, or 4.7%-5.9%).  Secondly, PSD LLC is requesting the City provide 9 years of TIF for the their first speculative industrial building (about $277K PV, or 5%).  Based on their modeling and project pro-forma, PSD LLC believes both requests are needed, in order to make this project work.

PSD LLC has competed and submitted a business subsidy application to staff, including a $10,000 non-refundable fee.  Staff and Ehlers are ready to formally process this request (underwriting, establish a new TIF district, draft a TIF agreement).  Attached to this case is the request documentation from PSD LLC.

NOTE: the PSD LLC request will not meet the job creation requirements outlined in the City’s official business subsidy policy, due to the fact this project is a speculative building.  Guaranteeing job creation on a speculative building is very challenging.  The PSD LLC subsidy request will require an exception to the City’s policy, in order to be approved.  A similar exception was provided to Platinum Properties, for their speculative construction building proposal, in 2016.

More information on TIF is included in the attached LMC TIF background document and the attached mock TIF run.









 

Project Benefits

• Supporting a speculative construction building puts the City of Ramsey in a very competitive position to attract economic development projects.  Often times, communities that win economic development projects are the "most-ready-to-go-now."
• The proposed building is high-quality and market relevant.  It will be one of the nicest industrial buildings in Ramsey.  It will be prominent on Highway 10, and will set a positive image, and create a big splash for the City's new business park.
• PSD LLC is jump-starting the City's new business park with this project.  This is important, as staff commonly receives feedback from prospects interested in the new business park--that don't want to be the first-one-in.  There is a fear associated with that perspective, as it is considered to be high-risk.  Momentum matters in the development industry.
• The proposed funding sources for the subsidy request are a former TIF district and a new TIF district.  Meaning, this subsidy will not have a direct impact on the general tax levy and Ramsey taxpayers.  Also, like any TIF project, the existing tax base remains in place, 100%.
• The proposed 60,000 sf project will create annual total property tax revenues of $116K.  Upon full build out of the PSD LLC business park (45 acres), the entire PSD LLC development will generate an estimated total annual property tax of $812K.  It should be noted, about 65 acres of additional business park land is located north of the proposed PSD LLC business park.
• A 60,000 square foot commercial/ industrial building will create jobs, it's simply a matter of time, and how many jobs.  Staff estimates, based on past projects in Ramsey, a 60,000 sf building will produce 30-200 jobs, depending on the end user(s).
• The City of Ramsey is seeking retail and restaurant users.  Common feedback from the development community and prospects is--Ramsey needs to improve their demographics, in order attract these users.  Ramsey can do that by increasing both population (rooftops) and increasing trip generation (i.e. destination users).  This PSD LLC business park will help generate demographics needed by prospect retail and restaurant users (via new vehicle trip generation).

Project Considerations

• This project must be underwritten and must meet Ramsey's business subsidy policies.  The PSD LLC request must be justified and must meet State Statute.  PSD LLC must demonstrate that "but-for" this assistance, they cannot move forward with this project.  Staff will be working will Ehlers to underwrite PSD LLC financials/ project pro-forma.  The outcome of underwriting this project will determine if, and how much, city subsidy is justified.
• The City does not need to take on this project (i.e. provide a business subsidy).  The City could wait for the market to naturally develop the new business park.   By taking on this project, we are associating the City with a speculative development.  In the event the PSD LLC project isn't successful (i.e. the economy takes a bad turn), it would look unfavorable for the City, and will likely result in opposition from tax payers.
• By dedicating TIF funding to this project, the City is losing the opportunity to use said funding on other projects.  However, but for this subsidy, the project would likely not happen at all.

New 9-year TIF District (TIF #16), existing TIF District (TIF #1), and $10,000 fee from PSD LLC.

Staff is comfortable accepting the PSD LLC business subsidy request application.  Staff believes this request needs to be underwritten and checked against our policies.  Staff believes the request made by PSD, from a preliminary/ high-level perspective, appears to be reasonable for the City to further consider.

NOTE: as mentioned in the background section of this case, the PSD LLC business subsidy request will require the City make an exception to our business subsidy policy, related to the creation of new jobs.

EDA Review

• The EDA reviewed this case on 04/13.  The EDA did not have a detailed discussion.
• The EDA was generally supportive of accepting the attached application and calling for a public hearing.
• The EDA was generally excited for this project, and was generally comfortable with the proposal from PSD (from a preliminary perspective), and desires to find a reasonable solution to push this project forward.
• The EDA is interested in the results from the financial underwriting process (from Ehlers).

MOTION TO:
Adopt Resolution #17-04-091, to call for a public hearing on June 27, 2017, to modify Development District #1, to establish TIF District #16 (PSD Business Park A), and to adopt a TIF Plan.

-and-

Direct Staff to formally accept a business subsidy application from PSD LLC and complete underwriting in preparation of the June 27, 2017 public hearing.