Adopt Resolution #23-301 Approving Loan to SA Group, Inc. from City RLF - Please Note: this case was moved from the Consent Agenda - 5.15 to the Regular Agenda - 7.0(A)

The purpose of this case is to consider provision of a $149,999 loan from the City RLF to assist in costs 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.  The request before the City Council is a $149,999 loan, with a 6 year term, at 3.5% interest rate. This expansion will nearly quadruple 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.  The proposed Loan Agreement sets a goal of 15 new jobs with hourly wages of $19.50 / hr. or higher. Development costs for the developer have been 1.5M more than they originally budgeted which is why the business is requesting assistance.  Soderholm has provided all of the financial information needed to evaluate the project and underwrite a potential RLF Loan and CMDC has completed its analysis which supports the loan amount and terms.  

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, the EDA has recommended the City Council should provide assistance to ensure that the business is able to succeed and create 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 businesses that are expanding and 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 that was discussed b y the EDA.    However,  this information is only being provided for demonstrative purposes as Tax Abatement is NOT being proposed here.  A copy of the complete analysis by Ehler's is attached and some highlights are below for reference. It should be noted that the EDA DID NOT recommend Tax Abatement but did recommend a $150,000 loan from the RLF.  SA Group, Inc. has agreed to accepting only the $149,999 loan from the City RLF.

No notification is required as the loan request is for $149,999 which is not considered a business subsidy and does not require a public hearing. 

As previously mentioned, request for business assistance was requested late in the development process by Soderholm and Associates but the EDA was supportive of the timing and helping an existing business . Soderholm pulled its building permit after the EDA recommendation for a 150K loan from the RLF in August and now commenced construction on the 46,000 expansion.    Please note that the requested loan amount is now $149,999, which does not require a public hearing and is not considered a business subsidy from the State of Minnesota.  CMDC has underwritten the $149,999 Loan request and has drafted loan documents and recommends approval.  A Loan Agreement and Promissary note are attached for review.  Please note that dates will be modified based on the time that the project is completed and the loan is closed and funded (anticipated sometime in April or May of 2024).  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 - $149,999 from City RLF
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 (15 jobs included in Loan Agreement)

Alternatives include:

1) $149,999 loan from RLF (3.5%, 6 years) to SA Group Inc.
2) Not provide any financial assistance at all
3) Something else

It should be noted that the available RLF fund balance is $353,000. It should be also 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 for the $149,999 loan from the City RLF.

$149,999 from the City RLF Fund

The EDA met on August 10, 2023 and unanimously adopted a motion to recommend to the City Council financial assistance in the form of a $150,000 loan from the City RLF for a term of six years with an interest rate of 3.5 percent. (minutes of meeting are attached)

Based on the revised request suggested by TAFT Law and supported by SA Group, Inc. for a $149,999 loan amount, Staff recommends approval of the following:

Adoption of Resolution #23-301 approving a $149,999 loan from RLF (3.5%, 6 years) to SA Group Inc.
 

Motion to Adopt Resolution #23-301 Approving a $149,999 loan from RLF (3.5%, 6 years) to SA Group Inc. from City RLF; subject to City Attorney Review.