Agenda - Council - 05/24/2005 - Laserfiche WebLink

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The combined operating divisions currently employ approximately 120 people, Following the relocation to the new building in Ramsey, many more jobs will be added, Part of our discussions to attract the company to the City of Ramsey centered on available financing incentives. Several financing options were reviewed and discussed with company representatives. Ultimately, our attention focused on the use of Industrial Revenue Bonds for financing the acquisition of the building and the construction of related improvements. Tax-exempt Industrial Revenue Bonds are securities issued by a local government agency or city to finance qualified capital projects for use by private business and industry. The city acts as a conduit for the IRB financing. The loan is made to the city and the city in turn lends the funds to the business entity. The action of passing a ioan through a government entity enables the bonds that are issued to be treated as tax-exempt for the investors who purcha_se the bonds. As a result of the tax-exempt status~ rates on IRBs are. substantially lower than taxable financing products because the interest income earned on the IRB is exempt from Federal income taxes. In a nutshell, investors are willin, g to accept a lower face value "rate of return" when the return is exempt from federal income taxes. The resultant savings are passed on to the business entity in the form of a below market rate loan. Federal law restricts the use of IRBs to financing prelects involving manufacturing, or the production or processing of.a tangible product. Equipment intensive industries -plastics, printing, metalworking', paper and assembly- are a few likely candidates for IRBs. The Sign~tion project meets this definition and is eligible for IRB financing, The planned capital expansion also must provide a public benefit- create new jobs, retain existing jobs or expand the real estate tax base. The proposed project will retain jobs in the State of Minnesota, create new jobs in the City of Ramsey and improve the City's tax base by occupying a currently 'vacant facility, IRBs are limited to $10 million locally (within the jurisdiction of the issuing authority) and $40 million nationwide per corporation over a six-year period. The minimum IRB is $1 million. It is important to note that the "full faith and credit" of the City of Ramsey is not being pledged though the issuance of these types of bonds. Bondholders look to the operating company for repayment, not the city or issuing authority. Sign-Zone, Inc. is in need of $3,835,000. to acquire the property and make improvements to the building, The first ~,p in the process is to seek approvat of a preliminary resolution indicating the city'.s~,~ent to assist the project by