Consider Recommendation to Establish TIF District 17, Adopt TIF Plan and Approve TIF Agreement for Delta Mod Tech; Case of SLP EX, LLC and AMP EX, LLC

PURPOSE
The purpose of this case is to consider multiple actions related to the SLP EX, LLC and AMP EX, LLC (DeltaModTech) 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 Tax Increment Financing (TIF). 

• Approving the Modification to the Development Program for Development District No. 1
• Establishing Tax Increment Financing District No. 17: Delta Mod Tech 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.

BACKGROUND (project)
The project consists of:
BACKGROUND (subsidy request)
The Developer has asked the City for public financial incentives related to both items above in relation to the Delta Mod Tech project (A and B).  Specifically, the Developer originally requested $1,500,000 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 210,000 square foot building and lot to be leased to Delta Mod Tech.  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 $972,000 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 $972,000.  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 $10,000 non-refundable fee to establish an project escrow.  Staff has reviewed and scored the application.  The application scores a 33 out of 35 which is a moderate to high score.  The application states that this project will bring approximately 120 jobs to Ramsey upon completion of the of construction and opening of the new building.  In addition, 15 or more new jobs will be created within 2.5 years of executing the TIF agreement, paying wages of at least $22.00 per hour.  In total, this project will result in at least 135 new, good paying jobs in Ramsey. The estimated tax assessed value of the completed project is $11.1 Million Dollars and it is expected to generate in excess $375,000 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 $972,000 in assistance and the return on investment for the Developer is within industry standards and does not unduly enrich the Developer.

* NOTE newly created job commitment by developer for TIF Agreement has been reduced from 20 to 15 jobs.  The wage level of the new jobs still remains at $22.00 per hour.  This project will ultimately result in 135 new jobs for Ramsey.

Notification is not required for EDA review. A Public Hearing has been scheduled for the June 25, 2019 City Council, and the proper Notice of Public Hearing was published in the City's Official Newsletter, the Anoka County UnionHerald. 

Project Benefits Summary

• 135 new jobs for the City of Ramsey.  120 jobs will be retained and relocated to Ramsey from a neighboring community by DeltaModTech and an additional 15 jobs will be created paying a minimum wage of at least $22.00 per hour.
• Opportunity for employment for Ramsey Residents.  DeltaModTech is a growing company that will be providing employment opportunities 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 July 2019.
• 19.65 Million Dollar project investment.
• $375,000 in annual property taxes 1.5 years after project is completed. The newly created local tax revenue will be captured by the TIF District 17 for 9 years.  When the district is decertified, the City can expect to receive around $90,000 annually in property taxes (including fiscal disparities) from this project.
• The proposed 210,000 square foot manufacturing building is high-quality and market relevant.  It will be one of the largest industrial buildings 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 17   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 $972,000 in Tax Increment Financing will be through a PayGo Note (pay as you go) 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 $972,000 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 May 30, 2019 and the TIF 17 Plan.
• Projected cash on cost return on investment for the Developer is 8.42% which falls within the industry standard of 7-9%. the analysis by Ehlers concludes that the $972,000 in proposed City assistance does not unduly enrich the company.

Funding for the assistance would come from the establishment of a new Economic Development TIF District (TIF District #17). The Developer is responsible for the cost of application review through the establishment of Escrow of $10,000.

Staff recommends the following:

Adoption of a resolution approving the modification to the Development Program for Development District No. 1, Establishing Tax Increment Financing District No. 17, and approving the the Tax Increment Financing Plan, subject to City Attorney review.

and

Adoption of a resolution authorizing execution of a Tax Increment Financing (TIF) Agreement awarding a business subsidy of $972,000 and requiring the creation of 15 new jobs with minimum wages of $22.00 per hour, subject to City Attorney review.

Motion to Recommend to the City Council:

Adoption of a resolution approving the modification to the Development Program for Development District No. 1, Establishing Tax Increment Financing District No. 17, and approving the the Tax Increment Financing Plan, subject to City Attorney review.

and

Adoption of a resolution authorizing execution of a Tax Increment Financing (TIF) Agreement awarding a business subsidy of $972,000 and requiring the creation of 15 new jobs with minimum wages of $22.00 per hour, subject to City Attorney review.