PUBLIC HEARING: Adopt Resolution #19-143 Establishing TIF District 17 and Resolution #19-144 Approving a TIF Agreement and Approving a Business Subsidy Request, Case of SLP EX, LLC and AMP EX, LLC (Delta ModTech)

 

PURPOSE
The purpose of this case is to consider multiple actions regarding the Delta ModTech TIF Business Assistance Application which was received by Staff in March 2019 and reviewed by the EDA at the June 13 meeting.  This request is specifically related to Delta ModTech's proposed 210,000 square foot manufacturing facility

1. TIF PLAN AND INTERFUND LOAN: Consider support of the attached Resolution #19-143 Approving the Modification to the Development Program for Development District No. 1 and Establishing Tax Increment Financing District No. 17: Delta ModTech. This step does not award TIF but is a step in the process that allows the City to award TIF. Awarding the TIF Request is covered in Step 2 below. Some highlights included in the TIF Plan:
   1. Geographical boundary of Development District No. 1 and TIF District 17
   2. Statutory requirements relating to type of TIF District being created, duration of TIF District and impacts to future tax base. This district is considered an Economic Development District. Staff will provide a brief overview of types of TIF Districts at the meeting.
   3. Provision of a a not-to-exceed budget number ($1,317,235) for eligible development activities to take place within the proposed TIF District 17 that can be financed ($972,000 in business assistance, remainder for uses such as administration of district).
   4. Findings and "But For" Test (Appendix C) documenting that the TIF plan and project is in compliance with Minnesota Statutes.
   5. The TIF Plan does not include inter fund loan language. However, Resolution #19-143 establishes an "ability" for the City to utilize an inter fund loan to pay for up front administrative/legal costs associated with TIF District #17; and repay said inter fund loan with TIF District #17 proceeds. The City is not borrowing any money in this request. It is set up as a 'pay as you go' package, meaning assistance is only provided if tax increment is created.
2. (2) TIF AGREEMENT: Consider support of the attached Resolution #19-144 authorizing execution of a Tax Increment Financing (TIF) Agreement: Delta ModTech.  This is the actual TIF award for SLP EX, LLC and AMP EX, LLC and Delta Industrial Services, Inc. ($972,000 Pay-Go TIF Note).  This document includes all terms and conditions for this specific deal.  

BACKGROUND (project)
The project consists of:

1. The purchase of 43 acres of land from Hageman Holdings for the Delta ModTech site/expansion and further development of Bunker Lake Business Park. The estimated total cost for this step is $3.6M. Assistance is only provided the the area related to the Delta ModTech project site, not areas for future development.
2. Within the larger 43-acre parcel, the Developer desires to plat 16.03 acres to construct a 210,000 square foot manufacturing building to lease to Delta ModTech.  The estimated total cost for the Delta ModTech first building is $16M.

BACKGROUND (subsidy request)
The Developer has asked the City for public financial incentives related to both items above in relation to the Delta ModTech project (A and B).  Specifically, the Developer originally requested $1,500,000 in Tax Increment Financing/Assistance to assist with eligible project costs. See analysis below outlining Staff recommendation of $972,000. The Developer has accepted Staff's recommendation. 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 ModTech.  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 for the Delta ModTech site (not the future development area). 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 TIF Assistance.

The Developer has completed and submitted a business subsidy application, including a $10,000 non-refundable fee to establish a 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 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.

Both the the Anoka Hennepin School District and Anoka County have been notified of this action, as required by Statute. The Public Hearing has been properly noticed and a copy of the notice has been attached to this case.

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 Delta ModTech 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. Delta ModTech is a growing company that will be providing employment opportunities for Ramsey Residents.
• Payment of pro-rated share 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 project investment (building plus site improvements).
• $375,000 in additional annual property taxes kicks in 1.5 years after project is completed. The newly created local tax revenue will be captured by the TIF District 17 for 9 years (as allowed for Economic Development TIF Districts).  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. 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 TIF 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 proposed by Delta ModTech in 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 Ehlers 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.

New 9-year TIF District (TIF #17) for the business subsidy and $10,000 fee from the Developer for processing the Application.

STAFF
Staff recommends moving forward with this proposed project and supports the motions outlined in this case.  Staff believes this project meets several goals outlined within the City's Adopted Strategic Plan and EDA Work Plan.  Please see observations section for benefits and considerations regarding this request. 

EHLERS
Ehlers completed the underwriting for this project.  Please see the attached Ehlers MEMO.  In summary, Ehlers' findings support moving forward with approving this request. 

EDA
The EDA reviewed this project, completed application and analysis by Staff and Ehlers on June 13, 2019.   The EDA in favor of moving forward with this project with the $972,000 in TIF Pay-Go-Note Assistance.   The EDA determined that this request is consistent with with the City of Ramsey Business Subsidy Policy.  The EDA unanimously passed a motion recommending approval the two attached resolutions.  Attached to this case are draft EDA minutes.

Motion to adopt Resolution #19-143 Approving establishing Tax Increment Financing District No. 17 and associated TIF financing plan, subject to review by the City Attorney as to legal form.

 --and--

Motion to adopt Resolution #19-144 Authorizing Execution of a Tax Increment Financing (TIF) Agreement: Delta ModTech; subject to review by the City Attorney as to legal form.