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HomeMy WebLinkAboutItem 03.cCity of Lakeville ' Community & Economic Development Memorandum To: Mayor and City Council Members Justin Miller, City Administrator From: David L. Olson, Community and Economic Development Director Cc: Jerilyn Erickson, Finance Director Date: February 18, 2016 Subject: Review of Proposed Terms for the Post / MOM Brands DEED Minnesota Investment Fund Loan Agreement and City Tax Abatement Agreement City and State of Minnesota staffs have been working with Post Consumer Brands / MOM Brands staff for a number of months to finalize the agreements for the proposed State funded and City funded incentives that were offered last year to retain the Post Cereal Division Headquarters in Lakeville. The following is a summary of the agreements between the City of Lakeville, Minnesota Department of Employment and Economic Development and Post Consumer Brands doing business as MOM Brands Company LLC. DEED Minnesota Investment Fund Assistance The Minnesota Department of Employment and Economic Development (DEED) has awarded the City of Lakeville with a grant in the amount of $750,000 to assist with the retention of employees at Post Consumer Brands. Assistance from DEED's Minnesota Investment Fund (MIF) will be provided in the form of a forgivable loan from the City. The City, DEED and Post have discussed and reached agreement on the language for the documents requiring approval before the funds will be released. The documents include a Grant Contract between DEED and the City and a Loan Agreement between the City and Post. Additionally, Post will submit a Promissory Note and Corporate Guaranty. The terms of the agreement include job and wage goals of 250 retained jobs paying a minimum hourly wage of $18.48 excluding benefits for a period of two years. If the job and wage goals are met by May 4, 2017, the loan will be forgiven. If the job and wage goals are not met by that date, the company will be required to repay a pro rata share of the loan plus interest at a rate of 3.25%. In addition to the job and wage goals, Post agrees to continue operations in the City of Lakeville through May 4, 2020. City of Lakeville Tax Abatement In addition to DEED's proposed job retention incentive, the City proposed an incentive of $375,000 to be provided through Tax Abatement. The proposed terms of the City's incentive are similar to DEED's incentive. The City's Tax Abatement Agreement proposes to provide the $375,000 incentive after the 250 jobs have been retained by Post for one year which will be May 4, 2016. Similar to DEED's requirements, the 250 jobs have to be retained a minimum of two years and Post has to continue their operations in Lakeville for a minimum of five years or until 2020. The properties owned by Post are currently in a Tax Increment Financing (TIF) District until December 31, 2022 unless the City elects to de -certify the TIF District earlier. Staff is recommending an interfund loan of $375,000 from the City's General Fund. When this project was initially discussed last year, it was suggested that the Liquor Fund be used to fund the interfund loan. However, since then the planning for the construction of a fourth liquor store near Keokuk Avenue and Co. Rd. 70 has advanced and it is recommended that the current balance of the Liquor Fund be retained for that purpose. Staff is providing options of an interest rate for 2%,4%, or 6% for the interfund loan (see attached reports). These different interest rate options represent the approximate current City investment earnings rate (2%), current short term prime rate (4%) and long term prime rate (6%). The City Council has the option to establish the interfund loan interest rate it feels is most appropriate. Because the Tax Abatement funds will not be generated for 7 years, it is recommended that interest accrue during this period. ACTION REQUESTED A public hearing is scheduled for Monday, March 7`h for the City Council to consider both the DEED Minnesota Investment Fund Loan Agreement and the Tax Abatement Agreement. Staff would appreciate any comments or questions Council Members may have as well as direction on the preferred interest rate for the proposed interfund loan. Springsted MEMORANDUM TO: David Olson, Community and Economic Development Director Rick Howden, Economic Development Specialist FROM: Mikaela Huot, Vice President/Consultant DATE: February 19, 2016 SUBJECT: MOM Brands LLC Tax Abatement Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com The City of Lakeville has agreed to provide tax abatement assistance to MOM Brands LLC for the retention of at least 250 jobs within the City. A public hearing will be held on March 7, 2016 to consider the tax abatement assistance and business subsidy and Development Agreement between the City and MOM Brands LLC. The anticipated terms of assistance to be considered as a business subsidy is the granting of $375,000 of tax abatement assistance upfront. The property is currently within an existing Tax Increment Financing District and the City will establish the tax abatement following termination of the district (anticipated to be as of December 31, 2022 with first abatement for taxes payable 2023). It is anticipated the City will establish an interfund loan in the amount of the assistance and capitalize the interest on an annual basis until the abatement dollars are available. The City will recapture the tax abatement revenues on an annual basis, presumably with an interest rate component (as further outlined in this memorandum), to pay the accrued and unpaid interest and principal. The maximum term of the abatement is anticipated to be up to 10 years and the interest rate is estimated to have an impact on what the actual term may be. The purpose of this memo is to provide the tax abatement revenue projections and interfund loan amounts based on the information available as outlined below. The tax abatement revenue projections are based on the current land and building values of the properties, as described further in the assumptions. Tax Abatement Background A city may grant a tax abatement, by contract or otherwise, of the taxes imposed by the city on a parcel of property, which may include personal property and machinery, or defer the payments of the taxes and abate the interest and penalty that otherwise would apply, if: • it expects the benefits to the city of the proposed abatement agreement to at least equal the costs to the city of the proposed agreement or intends the abatement to phase in a property tax increase, as provided in clause (2)(vii); and City of Lakeville, Minnesota MOM Brands LLC Tax Abatement February 19, 2016 Page 2 • it finds that doing so is in the public interest because it will: o increase or preserve tax base; o provide employment opportunities in the political subdivision; o provide or help acquire or construct public facilities; o help redevelop or renew blighted areas; o help provide access to services for residents of the political subdivision; o finance or provide public infrastructure; o phase in a property tax increase on the parcel resulting from an increase of 50 percent or more in one year on the estimated market value of the parcel, other than increase attributable to improvement of the parcel; or o stabilize the tax base through equalization of property tax revenues for a specified period of time with respect to a taxpayer whose real and personal property is subject to valuation under Minnesota Rules, chapter 8100. The maximum term of a tax abatement is 15 years if all three entities participate (City, County and School District) and up to 20 years if two or fewer entities participate and a participating entity either receives denial of participation or 90 days from the period in which participation was requested pass with no response. Tax Abatement Assumptions Springsted made certain assumptions to calculate the estimated amount of tax abatement revenues generated by the project. Those assumptions include the following: • City Participation Only • Tax Abatement Term o Maximum up to 10 years o Commencing upon TIF District No. 10 decertification o First year taxes payable 2023 • Abatement of existing land and building o Value as of assess Jan. 1, 2015 for taxes payable 2016 o PID: 22-24500-01-021: $5,949,000 o PID: 22-24500-01-022: $4,494,600 o Total existing land and building value: $10,443,600 • Payable 2016 tax rates remain constant through district term o City: 39.067% o County: 28.589% o ISD 194: 32.682% o Other (v): 5.061 % o Total: 105.399% • Current class rates remain constant through abatement term o 1.5% first $150,000 value and 2% value above $150,000 0 No annual market value inflator City of Lakeville, Minnesota MOM Brands LLC Tax Abatement February 19, 2016 Page 3 Tax Abatement Revenue Estimates The City is financing the abatement assistance on an upfront basis and has agreed to provide assistance in the amount of $375,000 following the scheduled public hearing on March 7, 2016. Because the property is currently within an existing TIF District, the tax abatement on the property will not commence until termination of the TIF District (anticipated to be as of December 31, 2022 with first year of the abatement in 2023). As a result, it is anticipated that the City will finance the assistance as an interfund loan with an interest component to be determined. The following table provides a range of total loan payments based on varying interest rates: Scenario 1 Term Up to 10 Years Fiscal Disparities Election Not From Abatement Property Annual Abatement Revenue $81,307 Interfund Loan Interest Rate 2% Estimated Total Net Revenue $813,070 The City is financing the abatement assistance on an upfront basis and has agreed to provide assistance in the amount of $375,000 following the scheduled public hearing on March 7, 2016. Because the property is currently within an existing TIF District, the tax abatement on the property will not commence until termination of the TIF District (anticipated to be as of December 31, 2022 with first year of the abatement in 2023). As a result, it is anticipated that the City will finance the assistance as an interfund loan with an interest component to be determined. The following table provides a range of total loan payments based on varying interest rates: Thank you for the opportunity to be of assistance to the City of Lakeville. Please let us know if you have any questions or need additional information. Please feel free to contact me by phone at 651.223.3036 and email at mhuot cDsprinasted.com. Scenario 1 Scenario 2 Scenario 1 Maximum Term Up to 10 Years Up to 10 Years Up to 10 Years Interfund Loan Interest Rate 2% 4% 6% Annual Abatement Revenue $81,307 $81,307 $81,307 Estimated Total Net Revenue $813,070 $813,070 $813,070 Loan Principal $375,000 $375,000 $375,000 Loan Interest $77,385 $170,638 $285,210 Total Loan Payments $452,385 $545,638 $660,210 Estimated Surplus Revenues $360,685 $267,433 $152,860 Estimated Total Abatement Years 5.5+ years 7 years 8+ ears Thank you for the opportunity to be of assistance to the City of Lakeville. Please let us know if you have any questions or need additional information. Please feel free to contact me by phone at 651.223.3036 and email at mhuot cDsprinasted.com. 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Rate: 2.00% Amount: $375,000 Cumulative Unpaid Semi -Annual Loan Interest Accrued Net Balance Date Principal Interest P & I Due Interest Revenue Outstanding (1) (2) (3) (4) (5) (6) (7) (8) 375,000.00 08/01/17 0.00 0.00 0.00 10,500.00 10,500.00 0.00 375,000.00 02/01/18 0.00 0.00 0.00 14,250.00 14,250.00 0.00 375,000.00 08/01/18 0.00 0.00 0.00 18,000.00 18,000.00 0.00 375,000.00 02/01/19 0.00 0.00 0.00 21,750.00 21,750.00 0.00 375,000.00 08/01/19 0.00 0.00 0.00 25,500.00 25,500.00 0.00 375,000.00 02/01/20 0.00 0.00 0.00 29,250.00 29,250.00 0.00 375,000.00 08/01/20 0.00 0.00 0.00 33,000.00 33,000.00 0.00 375,000.00 02/01/21 0.00 0.00 0.00 36,750.00 36,750.00 0.00 375,000.00 08/01/21 0.00 0.00 0.00 40,500.00 40,500.00 0.00 375,000.00 02/01/22 0.00 0.00 0.00 44,250.00 44,250.00 0.00 375,000.00 08/01/22 0.00 0.00 0.00 48,000.00 48,000.00 0.00 375,000.00 02/01/23 0.00 0.00 0.00 51,750.00 51,750.00 0.00 375,000.00 08/01/23 0.00 40,653.51 40,653.51 55,500.00 14,846.49 40,653.51 375,000.00 02/01/24 22,057.02 18,596.49 40,653.51 18,596.49 0.00 40,653.51 352,942.98 08/01/24 37,124.08 3,529.43 40,653.51 3,529.43 0.00 40,653.51 315,818.90 02/01/25 37,495.32 3,158.19 40,653.51 3,158.19 0.00 40,653.51 278,323.58 08/01/25 37,870.27 2,783.24 40,653.51 2,783.24 0.00 40,653.51 240,453.31 02/01/26 38,248.98 2,404.53 40,653.51 2,404.53 0.00 40,653.51 202,204.33 08/01/26 38,631.47 2,022.04 40,653.51 2,022.04 0.00 40,653.51 163,572.86 02/01/27 39,017.78 1,635.73 40,653.51 1,635.73 0.00 40,653.51 124,555.08 08/01/27 39,407.96 1,245.55 40,653.51 1,245.55 0.00 40,653.51 85,147.12 02/01/28 39,802.04 851.47 40,653.51 851.47 0.00 40,653.51 45,345.08 08/01/28 40,200.06 453.45 40,653.51 453.45 0.00 40,653.51 5,145.02 02/01/29 5,145.02 51.45 5,196.47 51.45 0.00 5,196.47 0.00 08/01/29 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01/30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 08/01/30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01/31 0.00 0.00 0.00 0.00 0.00 0.00 0.00 08/01/31 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01/32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 08/01/32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01133 0.00 0.00 0.00 0.00 0.00 0.00 0.00 $375,000 $77,385.08 $452,385.08 $452,385.08 Surplus Revenue 360,685.14 Total Net Revenue $813,070.22 City of Lakeville, Minnesota MOM Brands LLC Tax Abatement February 19, 2016 Page 6 Projected Interfund Loan Report City of Lakeville, Minnesota Tax Abatement Project for MOM Brands Company LLC $375,000 Upfront Assistance plus accrued interest at 4% Note Date: 03/07/16 Note Rate: 4.00% Amount: $375,000 Cumulative Unpaid Semi -Annual Loan Interest Accrued Net Balance Date Principal Interest P & I Due Interest Revenue Outstanding (1) (2) (3) (4) (5) (6) (7) (8) 375,000.00 08/01/17 0.00 0.00 0.00 21,000.00 21,000.00 0.00 375,000.00 02/01/18 0.00 0.00 0.00 28,500.00 28,500.00 0.00 375,000.00 08/01/18 0.00 0.00 0.00 36,000.00 36,000.00 0.00 375,000.00 02/01/19 0.00 0.00 0.00 43,500.00 43,500.00 0.00 375,000.00 08/01/19 0.00 0.00 0.00 51,000.00 51,000.00 0.00 375,000.00 02/01/20 0.00 0.00 0.00 58,500.00 58,500.00 0.00 375,000.00 08/01/20 0.00 0.00 0.00 66,000.00 66,000.00 0.00 375,000.00 02/01/21 0.00 0.00 0.00 73,500.00 73,500.00 0.00 375,000.00 08/01/21 0.00 0.00 0.00 81,000.00 81,000.00 0.00 375,000.00 02/01/22 0.00 0.00 0.00 88,500.00 88,500.00 0.00 375,000.00 08/01/22 0.00 0.00 0.00 96,000.00 96,000.00 0.00 375,000.00 02/01/23 0.00 0.00 0.00 103,500.00 103,500.00 0.00 375,000.00 08/01/23 0.00 40,653.51 40,653.51 111,000.00 70,346.49 40,653.51 375,000.00 02/01/24 0.00 40,653.51 40,653.51 77,846.49 37,192.98 40,653.51 375,000.00 08/01/24 0.00 40,653.51 40,653.51 44,692.98 4,039.47 40,653.51 375,000.00 02/01/25 29,114.04 11,539.47 40,653.51 11,539.47 0.00 40,653.51 345,885.96 08/01/25 33,735.79 6,917.72 40,653.51 6,917.72 0.00 40,653.51 312,150.17 02/01/26 34,410.51 6,243.00 40,653.51 6,243.00 0.00 40,653.51 277,739.66 08/01/26 35,098.72 5,554.79 40,653.51 5,554.79 0.00 40,653.51 242,640.94 02/01/27 35,800.69 4,852.82 40,653.51 4,852.82 0.00 40,653.51 206,840.25 08/01/27 36,516.70 4,136.81 40,653.51 4,136.81 0.00 40,653.51 170,323.55 02/01/28 37,247.04 3,406.47 40,653.51 3,406.47 0.00 40,653.51 133,076.51 08/01/28 37,991.98 2,661.53 40,653.51 2,661.53 0.00 40,653.51 95,084.53 02/01/29 38,751.82 1,901.69 40,653.51 1,901.69 0.00 40,653.51 56,332.71 08/01/29 39,526.86 1,126.65 40,653.51 1,126.65 0.00 40,653.51 16,805.85 02/01/30 16,805.85 336.12 17,141.97 336.12 0.00 17,141.97 0.00 08/01/30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01/31 0.00 0.00 0.00 0.00 0.00 0.00 0.00 08/01/31 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01/32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 08/01/32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01/33 0.00 0.00 0.00 0.00 0.00 0.00 0.00 $375,000 $170,637.60 $545,637.60 $545,637.60 Surplus Revenue 267,432.62 Total Net Revenue $813,070.22 City of Lakeville, Minnesota MOM Brands LLC Tax Abatement February 19, 2016 Page 7 Projected Interfund Loan Report City of Lakeville, Minnesota Tax Abatement Project for MOM Brands Company LLC $375,000 Upfront Assistance plus accrued interest at 6% Note Date: 03/07/16 Note Rate: 6.00% Amount: $375,000 Cumulative Unpaid Semi -Annual Loan Interest Accrued Net Balance Date Principal Interest P & I Due Interest Revenue Outstanding (1) (2) (3) (4) (5) (6) (7) (8) 375,000.00 08/01/17 0.00 0.00 0.00 31,500.00 31,500.00 0.00 375,000.00 02/01/18 0.00 0.00 0.00 42,750.00 42,750.00 0.00 375,000.00 08/01/18 0.00 0.00 0.00 54,000.00 54,000.00 0.00 375,000.00 02/01/19 0.00 0.00 0.00 65,250.00 65,250.00 0.00 375,000.00 08/01/19 0.00 0.00 0.00 76,500.00 76,500.00 0.00 375,000.00 02/01/20 0.00 0.00 0.00 87,750.00 87,750.00 0.00 375,000.00 08/01/20 0.00 0.00 0.00 99,000.00 99,000.00 0.00 375,000.00 02/01/21 0.00 0.00 0.00 110,250.00 110,250.00 0.00 375,000.00 08/01/21 0.00 0.00 0.00 121,500.00 121,500.00 0.00 375,000.00 02/01/22 0.00 0.00 0.00 132,750.00 132,750.00 0.00 375,000.00 08/01/22 0.00 0.00 0.00 144,000.00 144,000.00 0.00 375,000.00 02/01/23 0.00 0.00 0.00 155,250.00 155,250.00 0.00 375,000.00 08/01/23 0.00 40,653.51 40,653.51 166,500.00 125,846.49 40,653.51 375,000.00 02/01/24 0.00 40,653.51 40,653.51 137,096.49 96,442.98 40,653.51 375,000.00 08/01/24 0.00 40,653.51 40,653.51 107,692.98 67,039.47 40,653.51 375,000.00 02/01/25 0.00 40,653.51 40,653.51 78,289.47 37,635.96 40,653.51 375,000.00 08/01/25 0.00 40,653.51 40,653.51 48,885.96 8,232.45 40,653.51 375,000.00 02/01/26 21,171.06 19,482.45 40,653.51 19,482.45 0.00 40,653.51 353,828.94 08/01/26 30,038.64 10,614.87 40,653.51 10,614.87 0.00 40,653.51 323,790.30 02/01/27 30,939.80 9,713.71 40,653.51 9,713.71 0.00 40,653.51 292,850.50 08/01/27 31,867.99 8,785.52 40,653.51 8,785.52 0.00 40,653.51 260,982.51 02/01/28 32,824.03 7,829.48 40,653.51 7,829.48 0.00 40,653.51 228,158.48 08/01/28 33,808.76 6,844.75 40,653.51 6,844.75 0.00 40,653.51 194,349.72 02/01/29 34,823.02 5,830.49 40,653.51 5,830.49 0.00 40,653.51 159,526.70 08/01/29 35,867.71 4,785.80 40,653.51 4,785.80 0.00 40,653.51 123,658.99 02/01/30 36,943.74 3,709.77 40,653.51 3,709.77 0.00 40,653.51 86,715.25 08/01/30 38,052.05 2,601.46 40,653.51 2,601.46 0.00 40,653.51 48,663.20 02/01/31 39,193.61 1,459.90 40,653.51 1,459.90 0.00 40,653.51 9,469.59 08/01/31 9,469.59 284.09 9,753.68 284.09 0.00 9,753.68 0.00 02/01/32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 08/01/32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02/01/33 0.00 0.00 0.00 0.00 0.00 0.00 0.00 $375,000 $285,209.84 $660,209.84 $660,209.84 Surplus Revenue 152,860.38 Total Net Revenue $813,070.22