Minutes - Economic Development Authority - 06/06/2013

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fiscal consultant have made a determination that this site would qualify as an economic development district. Chairperson Steffen asked if it has been the City's past practice that any subsidy equals the present value of the increment. Mr. Mulrooney replied that historically the City has been able to capture increment to pay for its costs; in this case, the City is talking about paying for the value of the site, not the costs of the site. He stated the costs are less than this in terms of acquisition of the site, but this site is an asset of the City so the City could sell the property and in theory collect the value of the site. He advised in this case, the prospect is requesting a full write -down of the land and one of their reasons is liquidity, adding they are a rapidly growing company, cash is at a premium, and to the extent that some of the project costs could be underwritten, that helps with their overall financing. He reviewed the sources and uses of funds information and stated that bank financing is shown as $2.85 million and the SBA loan is $2.35 million and a land write - down of $191,469. He stated the Minnesota Investment Fund (MIF) through DEED has indicated they would participate in the project for $300,000 in the form of a forgivable loan assuming the company achieves certain wage and job goals. He noted that under this structure, the Ramsey RLF, the land write -down, and the MIF loan are all viewed as equity in the transaction by primary lenders, with no cash going in by the prospect. He stated the project costs associated with extending the utilities and constructing a cul -de -sac are estimated at $265,000, noting that the cul -de -sac would require an agreement with an existing property owner to take a small portion of their property for the cul -de -sac. He stated that moving costs are not eligible from an SBA standpoint or under the State program and under this scenario the owners themselves would pay their moving costs. He stated that DEED also indicated it would provide a grant to the City of $100,000 to help offset the utility costs, leaving $315,000 in cash equity being put into the project by the owners. He stated that based on his review of the company's financial statements, the owners have limited personal liquidity and limited liquidity on the part of the company, adding he felt it would be difficult for the prospect to make this happen under this financing structure. Mr. Mulrooney then distributed another scenario and stated this scenario more accurately reflects the desire of the prospect and includes a full land write -down of $758,000, noting that project costs remain the same. He stated if there were a full land write -down, the debt service from the standpoint of bank financing and SBA financing deceases. He advised that under this scenario, the company's debt service would be $383,000 whereas the debt service under scenario #1 with a partial land write -down would be $426,000, an annual savings of $43,000, which is closer in line with what the company could support. He indicated this scenario still requires owner equity of $315,000 or having that financing come from another source. He stated that staff also conducted an analysis of tax increment financing for the project and explained that the land cost that could be captured partially by tax increment financing is $191,469 and it would take nine years to recover that cost. He stated that tax abatement is another option but tax abatement does not provide enough revenue to come close to handling the amount of project costs that TIF would handle. He indicated the City's RLF account has a current balance of $274,000 and the EDA Fund has a current balance of $450,000. Member Skaff asked if all of the City's costs have been factored into the project, i.e., moving the existing public works facility. Economic Development Authority /June 6, 2013 Page 3 of 7