Consider Provision of Business Assistance for Soderholm and Associates

The purpose of this case is to consider provision of financial assistance for the construction of a 46,000 square foot expansion of manufacturing and warehouse space for Soderholm and Associates.  Soderholm has completed a business assistance application (attached) and provided a $5,000 administration fee to process it and related loan documents if the assistance is approved.  Soderholm has provided all of the financial information needed to evaluate the project and underwrite a potential RLF Loan.  The request is for $100,000 in Tax Abatement and an $150,000 low interest loan which has been negotiated with Staff. This expansion will triple the size of their business that was constructed in 1980 at its current location.  The business currently is on well and septic and will be connecting to City sewer and water as part of the expansion.   Soderholm is an Employee Owned (ESOP) that currently employs 60 workers, mostly from Ramsey and nearby communities with job wages ranging from $60,000 - $160,000 annually.  The business is expected to hire 33 more employees as a result of this expansion between now and 2027.  Development costs for the developer have been 1.5M more than they originally budgeted which is why the business is requesting assistance.

Costs for the building expansion, real estate acquisition, parking lot, machinery and equipment and other costs are eligible costs for the City RLF and Tax Abatement programs.  These programs are in place to help encourage and support the growth of tax base and the creation of quality jobs.  This project meets that criteria.  Although Solderholm is truly committed to moving forward with this project, Staff believes that the EDA should consider providing assistance due to ensure that the business is able to succeed and create the job opportunities here in Ramsey. In addition, the City typically provides assistance to new projects and historically has not provided as much assistance to existing business in need of assistance.

Ehlers has evaluated the project and the amount of assistance is appropriate for this type of industrial project.  The City has never utilized Tax Abatement but the memo by Ehlers and the abatement runs do a good job outlining how it would look.  For demonstrative purposes, Staff and Ehlers are showing what a 100% and 50% abatement scenarios would look like.   In short, only the new city property taxes generated by the expansion would be used to fund the proposed $100,000 in tax abatement.  Staff is proposing a $150,000 3-4% interest loan with a term of 5-7 years to mirror the timing of the tax abatement.  A copy of the complete analysis is attached and some highlights are below. Jason Aarsvold from Ehlers will be present to walk the EDA through the analysis

The EDA should evaluate the amount and type of assistance and make a formal recommendation to the City Council.  If utilization of the RLF is recommended, Staff will work with CMDC to put together the required loan documents and underwriting for City Council consideration.

No notification is required at this time.  However, if the business assistance package is over $150,000K in total, a public hearing to award the business subsidy will be required at a future City Council meeting.

The request for business assistance has been requested late in the development process by Soderholm and Associates. Soderholm is hoping to pull its building permit in August and commence construction on the 46,000 expansion.  Staff does believe that this timing should not prohibit this growing Ramsey business from accessing these business tools to assist the project.  A summary of some of the key points of the project is below:

Project Costs - $7.45M
Owner Equity - $1.4M
Bank Loan - 5.76M
Public Financing - 250K
Project - 46,000 SF expansion, real estate acquisition, machine and equipment purchase, and connection to City sewer and water
New Taxable Value -  $3.47M
New Annual Taxes - $97,000
New City Portion - $18,458
Job Creation - 33 new jobs averaging $40.41/hr

The EDA has a number of options it could consider relating to the business assistance request.  Alternatives include:

1)  A combination of tax abatement and the RLF
2) Aax abatement only
3) RLF only
4) Or not providing any financial assistance at all.  

Once an assistance structure is determined the EDA should also consider the levels of assistance for each assistance type.  It should be noted that the available RLF fund balance is $353,000. It should be noted that the seed money for the RLF was provided from past MIF Loans through the State of Minnesota for other projects (Panther Precision, Zero Zone refrigeration, etc.)

Staff is supportive of the request by Soderholm and Associates but understands that the City has never used tax abatement in the past and this is uncharted waters for the EDA and City Council.

RLF, Tax Abatement

Staff recommends the following assistance package:
$100,000 in Tax Abatement on new taxes generated (100% from City of Ramsey)
$150,000 Loan from the City RLF for a term of 5 years with an interest rate between 3-4% with a term of 5-7 years

Motion to recommend to City Council (Choose one or amend amounts and terms for one option)

1) $100,000 in Tax Abatement (100%) and $150,000 from RLF (3.5%, 6 years)
2) $100,000 in Tax Abatement (100%)
3) $150,000 in RLF (3.5%, 6 years)
4) Not provide any financial assistance at all

If a RLF Option is selected, staff will work with CMDC to underwrite the loan and to create the loan documents for City Council consideration