Review Site Concept, Project Analysis and Recommendation for Public Hearing for TIF 18; Case of Oppidan

The purpose of this case is to consider multiple actions related to the Oppidan, Inc. industrial project proposal, herein referred to as the Developer.  Please note that this case does not award financial assistance as the City Council has that authority. This case is simply to formulate a recommendation to the City Council for action relating to the approval of a business subsidy in the form of Pay-go Tax Increment Financing (TIF).  STEP 1 (this case): Review project benefits and underwriting of project pro-forma by Ehlers (a third party source) and determine if the business subsidy amount is appropriate. This process will evaluate the "But For Test" and the return on investment by the Developer to determine if providing assistance is necessary and appropriate. Additionally, this review process will evaluate the Developer's return on investment and ensure it is within industry standards (not unduly enriching the developer). The City will also evaluate the City's return on public investment in regards to increased jobs, increased tax base and other positive community impacts. The EDA should adopt a motion for recommendation to the City Council on the level of the Business Subsidy to be provided based on analysis of information provided. STEP 2 (this case): Consider Recommendation to City Council to start process to approve the creation of TIF District #18. Process would include: Calling for a Public Hearing to Establish Tax Increment District No. 18 and to Award a Business Subsidy for Oppidan STEP 3 (this case): Consider recommendation that the City Council approve a Tax Increment Financing (TIF) Agreement. This would be the formal award of a business subsidy of $1,172,133. The award would require the creation of 50 new jobs with minimum wages of $17.45 or greater per hour.  The TIF Agreement will include the proposed business subsidy, statutory requirements and a Tax Increment Financing Note. STEP 4 (future EDA case on August 12, 2021) Consider Recommendation to City Council to approve the creation of TIF District #18. Approval would include: Approving the Modification to the Development Program for Development District No. 1 Establishing Tax Increment Financing District No. 18: Oppidan within Development District No. 1 Approving the Tax Increment Financing Plan. The TIF plan outlines the, boundary of the district, TIF eligible expenses/costs and tax impacts (tax base and taxing jurisdictions). The TIF Plan outlines how the project follows statutory requirements for creation of the TIF District. STEP 5 (future City Council Case - August, 2021): Council Approval. The City Council is tentatively scheduled to consider approval of this business subsidy on August 24, 2021, based on EDA recommendations.  BACKGROUND (project) The project consists of: (A) the purchase of 43 acres of land from Hageman Holdings for Oppidan, Inc and further development of Bunker Lake Business Park. The estimated total cost for this step is $4.05M    (B) within the larger 43-acre parcel, the Developer desires to develop 3 industrial speculative buildings totaling 405,000 square foot for manufacturing and warehousing.    The County Assessor as estimated the following values for the 3 buildings: Building 1 - 8.9M Building 2 - 11.2M Building 3 - 11.5M BACKGROUND (subsidy request) The Developer has asked the City for public financial incentives related to both items above in relation to the project (A and B).  Specifically, the Developer originally requested $2.9M in Tax Increment Financing/Assistance to assist with eligible project costs. The Developer is requesting the City provide 9 years of pay-as-you-go (PayGo) TIF for the development of 405,000 square foot buildings and land purchase.  Based on their modeling and project pro-forma, the Developer believes financial assistance is needed, in order to make this project work. Based on City and analysis by Ehlers, City Staff has communicated that it is willing to support $1,172,133 in pay-as-you-go TIF assistance to write down the cost of the land acquisition. This has been communicated to the Developer and they wish to move forward with a request of $1,172,133.  TIF runs conducted by Ehlers and City Staff support this level of assistance. The Developer has completed and submitted a business subsidy application to staff, including a $5,000 non-refundable fee to establish an project escrow.  If the EDA moves this project forward, additional funds will be requested to pay for the Creation of the TIF Plan and TIF District. Staff has reviewed and scored the application.  The application scores a 30 out of 35 which is a moderate to high score.  The application states that this project will bring approximately 100-150 jobs to Ramsey upon completion of the of construction and opening of the new building.  In addition, 50 or more new jobs will be created within 2.5 years of executing the TIF agreement, paying wages of at least $17.45 per hour.  In total, this project will likely result in at least 150 new, good paying jobs in Ramsey. The estimated tax assessed value of the completed project is $31.6 Million Dollars and it is expected to generate in excess $1M in total property taxes annually.  Attached to this case is the Business Assistance Application and Policy for review. Ehlers has reviewed the updated request and has determined that is satisfies the "But-For" test and has conducted financial analysis determining that $1,172,133 in assistance and the return on investment for the Developer is within industry standards and does not unduly enrich the Developer.

N/A

Project Benefits Summary

• 100-150 new jobs for the City of Ramsey.   50 new jobs are anticipated to be created paying a minimum wage of at least $17.45 per hour excluding benefits.
• Opportunity for employment for Ramsey Residents.
• Payment of required outstanding 2011 and 2017 special assessments for the extension of Bunker Lake Boulevard and City Utilities (Bunker Lake Business Park / Puma Street) attributable to the developed parcel will be made at time of proposed property closing in September 2021.
• 42.7 Million Dollar project investment.
• $1M in annual property taxes after project is completed. The newly created local tax revenue will be captured by the TIF District 18 for 9 years.  When the district is decertified, the City can expect to receive around $400,000 annually in property taxes (including fiscal disparities) from this project.
• The proposed 405,000 square foot manufacturing buildings are high-quality and market relevant.  This industrial complex will be the largest  in Ramsey and be a significant investment for the City's new Bunker Lake Industrial Park.
• The proposed funding sources for the subsidy request would be from a newly created TIF District 18.   Meaning, this subsidy will not have a direct impact on the existing general tax levy and Ramsey taxpayers.  Also, like any TIF project, the existing tax base remains in place, 100%.
• The proposed $1,172,133 in Tax Increment Financing will be through a PayGo Note (pay as you go) at 4.5% interest rather than "up-front" financing or bonding.
• The City of Ramsey is seeking retail and restaurant users.  Common feedback from the development community and prospects is that 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. large employers and destination users).  The development of Bunker Lake Industrial Park will help improve demographics needed by retail and restaurant users (via new vehicle trip generation and increased daytime populations).

Further Analysis

• This business subsidy request has been reviewed and meets Ramsey's business subsidy policy criteria.
• The Developer's request for $1,172,133 is justified and meets State of Minnesota Business Subsidy Statutes. 
• Staff has contracted with Ehler's to conduct a third party analysis of the project and to evaluate if the project meets the "But For" test and it has been determined that this project meets that criteria. Findings satisfying this "But-For" test can be found within the attached Ehlers Memo dated June 30, 2021.
• Projected cash on cost return on investment for the Developer is 6.72% which falls within the industry standard of 6.5-7%. the analysis by Ehlers concludes that the $1,172,133 in proposed City assistance does not unduly enrich the company.

The Developer has submitted a TIF Application Fee of $5,000 to cover the costs to process the TIF Application. Additional funds will be requested from the Developer to pay for the creation of the TIF District and TIF Plan if the EDA recommends proceeding with the project

Staff recommends that the City Council call for a Public Hearing for the Modification to the Development Program for Development District No 1 and the Proposed Establishment of TIF District No. 18: Oppidan Industrial

and

Staff recommends that the EDA recommend to the City Council to provide a $1,172,133 business subsidy to the Developer in the form of Pay-Go TIF Note.

The Planning Commission reviewed the project from a Planning/Zoning perspective. Consensus of the Planning Commission was positive, and recommended moving forward to official Site Plan Review for compliance with the Comprehensive Plan and Zoning Code.


 

Motion to recommend to the City Council:

1 ) To call for a Public Hearing for the Modification to the Development Program for Development District No 1 and the Proposed Establishment of TIF District No. 18: Oppidan Industrial

and

2)  To provide a $1,172,133 business subsidy to the Developer in the form of Pay-Go TIF Note.