View Agenda Item

4.2.

Economic Development Authority (EDA)

Meeting Date:: 08/12/2021
Submitted For:: Sean Sullivan
By:: Sean Sullivan, Community Development

Title:

Consider Recommendation to Approve Establishment of TIF District 18, TIF Plan, and TIF Agreement; Case of Oppidan

Purpose/Background:

The purpose of this case is to consider multiple actions related to the Ramsey Industrial Owner LLC (owner) and Oppidan Incorporated (developer) industrial project proposal, herein referred to collectively 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 TIF plan, TIF Agreement and a business subsidy in the form of Pay-go Tax Increment Financing (TIF).

STEP 1 (this case) Consider Recommendation to City Council to approve the creation of TIF District #18 (Oppidan Industrial). Approval would include:

Approving the Modification to the Development Program for Development District No. 1
Establishing Tax Increment Financing District No. 18: (Oppidan Industrial) 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 2 (this case): Consider recommendation that the City Council approve a Tax Increment Financing (TIF) Agreement. This includes the award of a business subsidy of $1,172,000. The award would require the creation of 100 new jobs onsite with minimum wages of $17.50 or greater per hour. The TIF Agreement will include the proposed business subsidy, statutory requirements and a Tax Increment Financing Pay-Go Note with 4.5% interest.

STEP 3 (future City Council Case - August 24, 2021): Council Approval. The City Council is tentatively scheduled to hold a Public Hearing to consider approval of this business subsidy on August 24, 2021, based on EDA recommendations.

and the following actions;

Approving the Modification to the Development Program for Development District No. 1
Establishing Tax Increment Financing District No. 18: (Oppidan Industrial) 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.
Approval of TIF Agreement (business subsidy) with Ramsey Industrial Owner LLC (Oppidan, Inc.)

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 has estimated the following values for each of 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). 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.

At the July 8 EDA meeting the EDA reviewed project benefits and underwriting of project pro-forma by Ehlers (a third party source) and determine if the business subsidy amount was appropriate. This process evaluated the "But For Test" and the return on investment by the Developer to determine if providing assistance is necessary and appropriate and ensure it is within industry standards (not unduly enriching the developer). 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 $1,172,000 in proposed City assistance does not unduly enrich the company.

The Developer has provided $10,000 for the TIF Application and to assist in the legal fees associated with creation of the TIF District and TIF Plan. Staff 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 paying wages of at least $17.45 per hour. In total, this project will likely result in at least 100 new, good paying jobs in Ramsey within the first few years. 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 reference.

Notification:

N/A for the EDA. However the Public Hearing will be properly noticed for the August 24, 2021 City Council Meeting.

Observations/Alternatives:

Project Benefits Summary

100-150 new jobs for the City of Ramsey. 100 new jobs are anticipated to be created paying a minimum wage of at least $17.50 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 $1,172,000 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 Developer will receive 60% of the TIF generated by the project
The City of Ramsey will retain 40% of the TIF generated to help pay for future improvements to Bunker Lake Boulevard adjacent to the site and/or other eligible costs.
The City of Ramsey is seeking retail and restaurant users. Common feedback from the development community and prospects is that Ramsey needs to improve it 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 helps 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 $1,172,000 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 and he TIF Plan.
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 $1,172,000 in proposed City assistance does not unduly enrich the company.

Funding Source:

The Developer has provided $10,000 for the TIF Application Fee and to help cover the costs for the creation of the TIF District and TIF Plan. Additional costs for administration of the TIF District will be paid from revenue generated by the TIF District.

Recommendation:

Staff recommends that the City Council approve the following items:

Approving the Modification to the Development Program for Development District No. 1
Establishing Tax Increment Financing District No. 18: (Oppidan Industrial) 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.
Approval of TIF Agreement (business subsidy) with Ramsey Industrial Owner LLC and Oppidan Incorporated; subject to attorney review.

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.

Action:

Motion to recommend to the City Council:

Approving the Modification to the Development Program for Development District No. 1
Establishing Tax Increment Financing District No. 18: (Oppidan Industrial) 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.
Approval of TIF Agreement (business subsidy) with Ramsey Industrial Owner LLC and Oppidan Incorporated; subject to attorney review

Attachments

Form Review

Inbox	Reviewed By	Date
Sean Sullivan (Originator)	Sean Sullivan	08/05/2021 01:06 PM
Bruce Westby	Bruce Westby	08/05/2021 01:57 PM
Kurt Ulrich	Kurt Ulrich	08/05/2021 02:56 PM

Form Started By:: Sean Sullivan
Started On:: 07/30/2021 04:28 PM
Final Approval Date:: 08/05/2021