HomeMy WebLinkAboutItem 3City of Lakeville
Community & Economic Development
Memorandum
To: Mayor and City Council
Economic Development Commission
From: David L. Olson, Community & Economic Development Director
Copy: Justin Miller, City Administrator
Kati Bachmayer, Economic Development Specialist
Travis Scoles, Executive VP - QA1 Precision Products Inc.
Chris Schastock, CBRE
Rachel Gradner, CBRE
Date: January 19, 2019
Subject: Proposed Tax Increment Financing Terms and Conditions– QA1 Precision Products
Inc. Project
QA1 Precision Products Inc. submitted an application in October of 2018 for Tax Increment
Financing (TIF) to assist in the development of a new 100,000 square foot manufacturing
facility. This new manufacturing building is proposed to be the third project developed in
Interstate South Logistics Park located at the southwest quadrant of Co. Rd. 70 and Dodd
Blvd. The proposed new 100,000 manufacturing facility would replace two existing adjacent
buildings owned by QA1 in Airlake Industrial Park. The proposed project would result in the
retention of 95 existing jobs with an average salary of $51,000 and the creation of 44 full-time
jobs in Lakeville over the next five years with an average wage level of $40,600 per year, not
including benefits. Both the EDC and City Council recommended proceeding with the
creation of a new Tax Increment Financing District at their meetings in October and
November.
QA1 was established in 1993 and is a manufacturer of high performance automotive after-
market parts including shock absorbers, carbon fiber driveshafts, bearings, rod ends, ball
joints and other related items for the racing industry and other markets including
construction, fitness, and agriculture industries. QA1 has acquired several other companies
and through continued growth and technology developments, has become one of the
leading U.S. manufacturers of high performance aftermarket suspension components and
carbon fiber driveshafts. The need for this expansion is being driven by projected growth,
customer demands and capacity constraints in their current facilities. The estimated total
development cost of this new proposed manufacturing facility is $11,459,000. The TIF
application has identified a financing gap of $3,000,000 for the project.
The County Assessor’s Office has provided an estimate of market value of the proposed QA1
building of $6,000,000. Staff is recommending that this project receive 95% of the captured
increment for a period of seven years. This would result in a not-to-exceed amount of
$526,015 in TIF assistance. This would be two years less than the maximum duration of nine
years for an Economic Development TIF District. The City would have the option of
terminating the TIF District which would result in the property going back on the tax rolls two
years early or use the remaining two years of increment for other TIF eligible activities in the
Airlake Redevelopment Project Area. This seven years of increment would be paid out over a
period beginning in 2021 through 2027. Attached is a Project Tax Increment Report that
shows the estimated increment amount for each year. It should be noted the projected
report assumes a 3% increase in estimated market value which may or may not occur.
The TIF application indicates that “but for” Tax Increment Financing, it is not economically
feasible for QA1 to construct a new manufacturing building in Lakeville. QA1 indicates that
the estimated costs of expanding in Lakeville versus an out-of-state market is approximately
$3 million more over a 10-year period. The cost gap is caused by the cost of labor, real estate
taxes, and sales taxes on the one-time costs. TIF support will make the project feasible from a
Return-on-Investment (ROI) standpoint.
This project is consistent with the City’s current Business Subsidy Policy and Tax Increment
Policy. Springsted has prepared a draft Tax Increment Financing Plan for this project and the
required notice of fiscal impact to Dakota County and ISD 194 was sent on January 4th. The
City Council will be holding a public hearing on the creation of a Tax Increment Financing
District for this project on February 4th.
In exchange for reimbursement of 95% of the captured increment for seven years, QA1
commits to completing its new 100,000 square foot manufacturing facility by the end of 2019
or early 2020 and will retain the 95 jobs it presently has in Lakeville with an average wage rate
of $51,000 plus benefits and will create an additional 19 jobs over the next two years with a
starting wage rates between $29,100 to $72,100 plus benefits. QA1 has indicated it would
create an additional 25 jobs in years three through five however this would not be an
obligation of the TIF Agreement. A summary of the jobs to be created and proposed wage
rates is attached. QA1 is also obligated to keep its operation in Lakeville for five years after
approval of the agreement.
QA1 is also seeking approval of a $100,000 Minnesota Investment Fund forgivable loan and
reimbursements of up to $350,000 from the Minnesota Job Creation Fund from the
Minnesota Department of Employment and Economic Development.
Action Requested: Staff is seeking a recommendation to approve the proposed terms for
the QA1 Tax Increment Financing assistance. A public hearing is tentatively scheduled for
February 19th for the City Council to consider the formal TIF agreement.
Projected Tax Increment ReportCity of Lakeville, MinnesotaTax Increment Financing (Economic Development) District No. 24QA1 Precision Products, Inc. ProjectDraft TIF Revenues: $6.0M Taxable Value with 3% MV inf and 7yr termLess: Less: Retained Times: Less: Less:Annual Total Total Original Fiscal Captured Tax Annual State Aud. Subtotal Admin. AnnualPeriod Estimated Net Tax Net Tax Disp. @ Net Tax Capacity Gross Tax Deduction Net Tax Retainage NetEnding Market Value (1)Capacity (2)Capacity (3)36.8992% CapacityRate (4)Increment0.360% Increment5.00% Revenue(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)12/31/19 149,783 2,247 2,247 0 0 98.012%0000012/31/20 149,783 2,247 2,247 0 0 98.012%0000012/31/21 6,000,000 119,250 2,247 43,173 73,830 98.012% 72,363 261 72,102 3,605 68,49712/31/22 6,180,000 122,850 2,247 44,502 76,101 98.012% 74,588 269 74,319 3,716 70,60312/31/23 6,365,400 126,558 2,247 45,870 78,441 98.012% 76,882 277 76,605 3,830 72,77512/31/24 6,556,362 130,377 2,247 47,279 80,851 98.012% 79,244 285 78,959 3,948 75,01112/31/25 6,753,053 134,311 2,247 48,731 83,333 98.012% 81,677 294 81,383 4,069 77,31412/31/26 6,955,644 138,363 2,247 50,226 85,890 98.012% 84,183 303 83,880 4,194 79,68612/31/27 7,164,314 142,536 2,247 51,766 88,524 98.012% 86,764 312 86,452 4,323 82,129$555,701 $2,001 $553,700 $27,685 $526,015(1) value based on estimate provided by County assessor with 3% annual market value inflator(2) tax capacity based on commercial-industrial class rate of 1.50% for first $150,000 of value and 2% for value above $150,000(3) original net tax capacity will be based on existing land values and commercial-industrial class rate for proposed payable 2019(4) combined local tax capacity rate of City of Lakeville, ISD 194 and Dakota County for proposed payable 2019Prepared by: Springsted Incorporated (printed on 1/4/2019 at 7:27 AM) Lakeville TIF 24 Draft revs Scen 5-95 split 7yrs 010219
WORKFORCE DATA
HIRING SCHEDULE 2019 2020 2021 2022 2023 TOTAL AVERAGE
STARTING WAGE
Admin Support 1 1 1 1 1 5 $50,000
Customer Service/Tech Support 1 1 1 1 4 $37,000
HR 1 1 $55,000
Purchasing 1 1 $40,000
Sales 1 1 2 $72,000
Marketing 1 1 $46,000
CNC 2 1 1 1 1 6 $48,000
Material Handling 1 1 2 $32,000
IT 1 1 $37,500
Engineering 1 1 1 3 $51,000
Assembly 4 3 2 2 2 13 $29,100
Welding 1 1 1 1 1 5 $36,800
TOTAL 10 9 11 7 7 44
AVERAGE WEIGHTED SALARY (rounded) $40,600
December 5, 2018 Mr. David Olson
Community & Economic Development Director
City of Lakeville
20195 Holyoke Avenue Lakeville, Minnesota 55044 Pursuant to your request, I have provided a market value estimate for a proposed 100,084-square-foot manufacturing building for QA1 Precision Products, Inc., to be built on a yet-to-be-platted development parcel in the Interstate South Logistics Park in Lakeville, Minnesota. The proposed building site would include portions of three existing
parcels: 22-37510-00-030, 22-37510-00-040, and 22-03100-75-01. It is our understanding that following completion
of the project, QA1 Precision Products, Inc., would own and occupy the entire building, which is being designed for a
potential 38,000-square-foot future expansion along the southern elevation of the proposed structure. The value herein is based on the following assumptions: (1) The proposed property is constructed and generally configured as indicated on preliminary site and building plan documents prepared by the aforementioned Pope Architects, dated October 11, 2018, for the purpose of an approval submission to the City of Lakeville; and (2) that the development and construction of the facility is hypothetically completed as of January 2, 2019.
Our value is arrived at following a review and analysis of comparable building sales data; consideration of cost data
(including land development); an analysis of the income-producing characteristics of the subject property, including evidence of prevailing market rents, vacancies, and expenses in the market area for similar properties; and a consideration of assessed values of like properties in the immediate market area. No personal property is included in the valuation.
The value is based on the limited property information and construction data made available by the City of Lakeville to our office. Given actual construction will not be completed until a future date, please note that if building plans are
modified and/or market conditions change between January 2, 2019, and the actual date of completion, this opinion of value may be impacted. Please note that any improvements completed in 2019 would not become taxable until 2020 (pay 2021) at the earliest. Please don’t hesitate to contact our office if additional questions arise.
Regards,
Scott Lyons Deputy Director Dakota County Assessor’s Office 651-438-4436
PRELIMINARY VALUE CONCLUSION
Value Scenario Interest Appraised
Market Value As Complete Fee Simple
Value
$6,000,000
Value Date
January 2, 2019