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HomeMy WebLinkAbout6. Consideration of Request for Economic Development Assistance with Open Systems-Res. No. 2005-3, Res. No. 6236 E Ol't fa COu.JJQL lr It 7 CITY OF SHAKOPEE Economic Development Authority To: Shakopee EDA Mayor and City Council From: Jeffrey Jansen, EDA Consultant Mark McNeill, City Administrator Kris Wilson, Asst. to the City Administrator/EDA Subject: Open Systems Application for Business Subsidy Date: May 2, 2005 INTRODUCTION Open Systems, Inc. an existing business located at 1157 Valley Park Drive, Suite 105 has filed an application for Business Subsidy with the City of Shakopee. In the application, Open Systems, Inc. is requesting that the City take the necessary steps to put in place a Tax Increment Financing District. Staffs recommendation is to implement a Tax Increment Financing package of an estimated $170,478 of future value, based on the financial analysis completed by the City's financial consultant, Springsted Inc. NOTE: See attached TIF analysis. COMPANY BACKGROUND Open Systems, Inc. is an existing software company, founded in 1976, providing open architecture accounting software for small and midsized businesses. The product they manufacture, distribute, sell and support is known as Open Systems Accounting Software. Not only does Open Systems, Inc. sell software, they also provide consulting services for custom software development and modification/enhancements. Presently, Open Systems, Inc. is leasing space in the building at the above address. It is the company's decision not to renew the existing lease, and instead to purchase or build their own new business headquarters. Presently, Open Systems, Inc. is in discussions with other communities in the west and southwest metro area. One of the construction options that Open Systems, Inc. is considering is a building/construction proposal from Ryan Co. in the Dean Lakes Development. The proposed 25,000 sq ft facility would be located near the western end of the industrial area along the southern edge of Hwy 169 North. The one-story facility would have approximately 22,000 sq ft dedicated for office/manufacturing and 3,000 sq ft for warehouse space. The estimated market value of $2.4 million dollars for this 25,000 sq ft facility meets and exceeds the minimum requirements outlined in the policies set by the City of Shakopee for business subsidies. It is possible that the construction value may increase, and as such, the TIF benefit would be increased proportionately. Presently, Open Systems, Inc. has 58 positions working at its present location. The new facility would provide enough room for the company to grow and employ approximately 120 people. This new facility gives Open Systems, Inc. the ability to double in size and increase its ability to increase training and education. Open Systems, Inc. offers fairly high wage and benefit packages to their employees do to the required talent and educational needs of its employees in this very competitive industry. The ?ay and benefit packages of Open Systems, Inc. meets and exceeds the minimum requirements outlined in the policies set by the City of Shakopee for business subsidies. DISCUSSION Rationale for Public Financial Assistance The rationale behind the Open Systems, Inc. request for public financing assistance is based on four separate requirements that are unique to building within the Dean Lakes Development and not required at any of the other options that Open Systems, Inc is considering. The four separate items along with their costs are as follows: 1 - Street/Road ImprovementlUtility Costs - related to the improvement of County Roads 83 & 16, and to the construction of the roadways and public utilities throughout the Dean Lakes Development. The proposed building site has a total of $125,000 or $1 per square foot of land. 2 - Site Balancing/Grading Costs - Do to the need to bring in and grade large amounts of soil to balance and drain the Dean Lakes Development properly, per the approved "Conservation-Oriented Storm Water Plan". The additional cost associated with this work is $108,000 or $0.88 per square foot ofland. 3 - Landscaping Costs - With the unique landscaping requirements resulting from the "Conservation-Oriented" nature of the development requiring mostly native Minnesota plant palette, Open Systems, Inc. is limited on its' options for overall landscaping design. The estimated additional cost related to this unique landscaping requirement is $10,000 or $0.08 per foot ofland. 4 - Power line Easement Costs - Because of the high voltage transmission lines and their easements, running through and across the Dean Lakes Development, Open Systems, Inc. is required to purchase an additional .3 acres of land for an additional $65,000. The $65,000 does not include any of the additional assessments and property taxes that Open Systems, Inc. will have to pay for years to come. Financial Analvsis The City of Shakopee authorized their financial consultant to develop and run a financial analysis for Tax Increment Financing and Tax Abatement to determine if the project could generate any financial assistance that would meet the City of Shakopee's Business Subsidy Policies. Of the two scenarios. that were developed and run, the Tax Increment Financing scenario seemed to generate the amount of dollars desired by Open Systems, Inc, making the Dean Lakes Development option or proposal acceptable for them. The Tax Increment Financing option generates an estimated $170,478 over a TIF capture of 7 years. Note that the statutory maximum for a TIF of this classification is 9 years, which provides for .8 years' of additional increment from the time of capture of the first increment (which is primarily the increase in market value after January 1, 2004). An eighth year of increment would generate an added $24,254 The reason for the 7 year duration, vs. 8 years, is that the 7 years is closer to the 6 year tax abatement economic assistance that has been the practice for Shakopee (and Scott County) in recent years. While the EDA has the ability to increase this by the additional year, it should keep in mind that the economic assistance which is provided here will likely be seen as a precedent for future economic development applications in the Dean Lakes area. Project Time Schedule Open Systems, Inc has indicated the need to be able to pull a building permit on or before June 15, 2005 in order to meet their time schedule for completing the construction and occupation of their new facility. Open Systems, Inc. has made the decision not to renew their lease at their present location. If the time needed to get the TIF district set up and approved exceeds the June 15,2005 date, Open Systems, Inc. will have to take that into consideration when determining the best building site and location. In order to meet the schedule requested by Open Systems, the EDA will need to recommend for the City Council to call for a Public Hearing at its meeting of June ih, to consider the TIF assistance for Open Systems. Recommendation bv EDAC At the April 12, 2005 EDAC meeting, the committee listened to a presentation by Mark Schoening from Ryan Co. regarding the Business Subsidy Application submitted by Open Systems, Inc. In the application, Open Systems, Inc. is asking for assistance in the amount estimated under the tax increment-financing scenario. By a unanimous vote, the EDAC voted to recommend approval of the Open Systems business subsidy application. Options for Citv EDA 1. Accept the recommendations of the EDAC and approve the business subsidy application for TIF as recommended. If other than the recommended duration, it should set some other duration (and thus the amount of subsidy). 2. Do not accept the recommendations of the EDAC and do not approve the business subsidy application for TIF incentives by Open Systems, Inc. 3. Table the request and application and take no action. RECOMMENDATION: Staff recommendation is to call for a Public Hearing to consider the establishment of a Tax Increment District of 7 years' duration, totaling a future value of $170,478, to benefit the Open Systems, Inc. proposal. ACTION REQUIRED: If the EDA concurs, it should, by motion, adopt the following resolution: RESOLUTION CALLING FOR A PUBLIC HEARING ON A TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 13 AND A MODIFIED REDEVELOPMENT PLAN FOR THE MINNESOTA RIVER VALLEY HOUSING AND REDEVELOPMENT PROJECT NO.1 If the City Council concurs with a positive recommendation from the EDA, it should adopt the following resolution: RESOLUTION REQUESTING THE CITY OF SHAKOPEE HOLD A PUBLIC HEARING TO CONSIDER APPROVING A TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 13 AND A MODIFIED REDEVELOPMENT PLAN FOR THE MINNESOTA RIVER V ALLEY HOUSING AND REDEVELOPMENT PROJECT NO. 1. . ~0L ~.fU.;vUJ Mark McNeill City Administrator ECONOMIC DEVELOPMENT AUTHORITY FOR THE CITY OF SHAKOPEE RESOLUTION NO. 2005-3 RESOLUTION REQUESTING THE CITY OF SHAKOPEE HOLD A PUBLIC HEARING TO CONSIDER APPROVING A TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 13 AND A MODIFIED REDEVELOPMENT PLAN FOR THE MINNESOTA RIVER V ALLEY HOUSING AND REDEVELOPMENT PROJECT NO.1. BE IT RESOLVED By the Board of Commissioners ("Board") of the Economic Development Authority of the City of Shakopee ("Authority") as follows: WHEREAS, the City of Shakopee ("City") has previously established its Minnesota River Valley Housing and Redevelopment Project No.1 (the "Project") pursuant to Minnesota Statutes, Sections 469.001 to 469.047, as amended ("HRA Act") which is now administered by the Authority; and WHEREAS, the City and Authority have received a request from Open Systems, Inc. ("Open Systems") to modify the boundaries of the Project and provide certain financial assistance in order to make feasible the development of a new manufacturing, office, and storage facility to be constructed within the Project; and WHEREAS, the Authority requests that the City consider a modification of the redevelopment plan ("Project Plan") for the Project and the adoption of a tax increment fmancing plan ("TIF Plan") for the proposed TIF District No. 13, and to hold a public hearing regarding those actions in accordance with the HRA Act and Minnesota Statutes, Sections 469.174 to 1799, as amended (the "TIF Act"). NOW, THEREFORE, BE IT RESOLVED by the Board of Commissioners of the Economic Development Authority for the City of Shakopee that: 1. The Authority hereby requests that the City hold a public hearing on June 7, 2005, to consider a modification of the Project Plan for the Project rod the adoption of a TIF Plan for the proposed TIF District No. 13. Approved by the Board of Commissioners of the Economic Development Authorityfor the City of Shakopee this 3rd day of May, 2005. President ATTEST: Executive Director 262224v.l(JAE) SH155-162 RESOLUTION No. 6236 RESOLUTION CALLING FOR A PUBLIC HEARING ON A TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING DISTRICT NO. 13 AND A MODIFIED REDEVELOPMENT PLAN FOR THE MINNESOTA RIVER VALLEY HOUSING AND REDEVELOPMENT PROJECT NO.1 WHEREAS, the City of Shakopee ("City") has previously established its Minnesota River Valley Housing and Redevelopment ProjectNo. 1 (the "Project") pursuant to Minnesota Statutes, Sections 469.001 to 469.047, as amended ("HRA Act"); and WHEREAS, the Project is now administered by the Economic Development Authority for the City of Shakopee (the "Authority"); and WHEREAS, the City and Authority have received a request from Open Systems, Inc. ("Open Systems") to modify the boundaries of the Project and provide certain [mancial assistance in order to make feasible the development of a new manufacturing, office, and storage facility to be constructed within the Project; and WHEREAS, the City is evaluating tax increment financing as a form of assistance to Open Systems, and to that end the City and Authority have determined to consider a modification of the .redevelopment.plan ("Project Plan") for the Project and the adoption of a tax increment fInancing plan("TIF Plan") for the proposed TIF District No. 13, and to hold a public hearing regarding those actions in accordance with the HRA Act and Minnesota Statutes, Sections 469.174 to 1799, as amended (the "TIF Act"). NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Shakopee, that: 1. The Authority, and its staff and consultants, are hereby authorized and directed to cause to be prepared a modification to the ProjectPlan and a TIF Plan for TIF District No. 13, and to file a copy of such documents in City Hall. 2. The City Clerk is authorized and directed to prepare a notice for publication in the City's official newspaper setting a joint public hearing before the City Council.and the Authority's Board of Commissioners on June 7, 2005, at 7:00 p.m. in the council chambers on the Project Plan and TIF Plan. The notice shall be in substantially the form attached hereto as Exhibit B, shall be published in the newspaper at least 10 but not more than 30 days prior to the public hearing, and shall include a map of the Project area and the proposed TIF District. 262221v.l (JAB) SH155-162 3. The Authority, its staff, and consultants are authorized and directed to transmit a copy of the modified Project Plan and the TIF Plan to the County Board and School Board at least 30 days before the date of the public hearing. 4. The Authority, its staff, and consultants are directed to take all other actions necessary to bring the modified Project Plan and the TIF Plan before the City Council at the time of the public hearing. Approved by the City Council of the City of Shako pee this 3rd day of May, 2005. Mayor ATTEST: City Clerk '. 262221v.l (JAE) SH155-162 Exhibit A NOTICE OF PUBLIC HEARING NOTICE is hereby given that the Board of Commissioners of the Economic Development Authority of the City of Shakopee and the City Council of the City of Shakopee will hold a joint meeting in the City Hall, 129 Holmes Street,Shakopee, Minnesota at 7:00 p.m. on Tuesday, June 7, 2005, to conduct a public hearing on: (1) the modification of the Redevelopment Plan for the Minnesota 1Uver Valley Housing and Redevelopment Project No. 1 (the "Project") and a Tax Increment Financing ("TIP") Plan for a proposed economic development district within the Project ("TIP District No 13"), and (2) the business subsidy to be provided under the TIF Plan. The proposed boundaries of the Project and the proposed TIF District are shown in the maps below. The purpose of the proposed action is to facilitate development of a new manufacturing, office, and storage facility to be constructed within TIF District No. l3. Details on the proposal are contained in the Modified Redevelopment Plan and TIF Plan, a draft copy of which will be available for public inspection at the Shakopee City Hall during regular business . hours. The assistance to be provided under the TIF plan constitutes a "business subsidy" under Minnesota Statutes, Section 116J.993 to 1161.995. Information concerning the proposed project, including a summary of the terms of the business subsidy agreement, will be on file at City Hall on and after the date of this notice. Any person wishing to express an opinion on the matters to be considered at the public hearing will be heard orally or in writing. BY ORDER OF THE CITY COUNCIL. Dated: [Date of Publication] /s/ Mark McNeill City Administrator City of Shakopee, Minnesota 262221v.1 (JAB) SH155-162 I Assumptions Report - TIF I City of Shakopee, Minnesota Tax Increment Financing (Economic Development) District No. Open Systems Project Scenario B - $2.4M EMV - Update May 2005 Projections -7 Year~ Type of Tax Increment Financing Distric Economic Developmen1 Maximum Duration of TIF Distric 8 years from 1 st incremenl Projected Certification Request Date 06/30105 Decertification Date 12/31/13 (7 Years of Increment; 2004/2005 Base Estimated Market Value · $182,155 Ori~inal Net Tax Capacit) $2,893 Assessment/Collection Yea 2005/2006 2006/2007 2007/2008 2008/2009 Base Estimated Market Value $182,155 $182,155 $182,155 $182,155 Increase in Estimated Market ValuE 0 2,217,845 2,217,845 2,217,845 Total Estimated Market Value 182,155 2,400,000 2,400,000 2,400,000 Total Net Tax Capacit} $2,893 $47,250 $47,250 $47,250 City of Shakopee 32.433% Scott County 36.635% ISO #720 21.517% Other 5.197% Local Tax Capacity Rate 95.782% 2003/2004 Fiscal Disparities Contribution FromTIF Distri( 36.0773% Administrative Retainage Percent (maximum = 10% 10.00% Pooling Percen1 0.00% Bonds Note (Pav-As-You-Go~ Bonds Dated NA Note Dated 06/30/05 Bond Issue @ 2.74% (NIC: NA Note Rate 6.00% Eligible Project Costs NA Note Amount $125,200 Present Value Date & Rate 06/30/05 5.00% Notes * For estimation purposes, assume base value to be $182,15~ Calculations do not account for potential future changes to market values, class rates or tax capacity rates; a are using 2004 tax capacity rates Prepared by: Springsted Incorporated (printed on 5/3/2005 at 2:44 PM) Shakopee TIF $2.4mIl 7yrs.xlsAssumptions I Pro~ected Pay:Go Note Report - TIF I City of Shakopee, Minnesota Tax Increment Financing (Economic Development) District No. Open Systems Project Scenario B - $2.4M EMV - Update May 2005 Projections - 7 Years Note Date: 06/30/05 Note Rate: 6.00% Amount: $125,200 Semi-Annual Loan Net Capitalized Balance Date Principal Interest P&I Revenue Interest Outstanding (1 ) (2) (3) (4) (5) (6) (7) 125,200.00 02/01/06 0.00 0.00 0.00 0.00 4,402.87 129,602.87 08/01/06 0.00 0.00 0.00 0.00 3,888.09 133,490.96 02/01/07 0.00 0.00 0.00 0.00 4,004.73 137,495.69 08/01/07 8,052.13 4,124.87 12,177.00 12,177.00 0.00 129,443.56 02101108 8,293.69 3,883.31 12,177.00 12,177.00 0.00 121,149.87 08/01/08 8,542.50 3,634.50 12,177.00 12,177.00 0.00 , 112,607.37 02/01/09 8,798.78 3,378.22 12,177.00 12,177.00 0.00 103,808.59 08/01/09 9,062.74 3,114.26 12,177.00 12,177.00 0.00 94,745.85 02/01/10 9,334.62 2,842.38 12,177.00 12,177.00 0.00 85,411.23 08/01/10 9,614.66 2,562.34 12,177.00 12,177.00 0.00 75,796.57 02/01/11 9,903.10 2,273.90 12,177.00 12,177.00 0.00 65,893.47 08/01/11 10,200.20 1,976.80 12,177.00 12,177.00 0.00 55,693.27 02/01/12 10,506.20 1,670.80 12,177.00 12,177.00 0.00 45,187.07 08/01/12 10,821.39 1,355.61 12,177.00 12,177.00 0.00 34,365.68 02/01/13 11,146.03 1,030.97 12,177.00 12,177.00 0.00 23,219.65 08/01/13 11,480.41 696.59 12,177.00 12,177.00 0.00 11,739.24 02/01/14 11,739.24 352.18 12,091.42 12,091.42 0.00 0.00 08/01/14 0.00 0.00 0.00 0.00 0.00 0.00 02/01/15 0.00 0.00 0.00 0.00 0.00 0.00 08/01/15 0.00 0.00 0.00 0.00 0.00 0.00 02/01/16 0.00 0.00 0.00 0.00 0.00 0.00 08/01/16 0.00 0.00 0.00 0.00 0.00 0.00 02/01/17 0.00 0.00 0.00 0.00 0.00 0.00 08/01/17 0.00 0.00 0.00 0.00 0.00 0.00 02/01/18 0.00 0.00 0.00 0.00 0.00 0.00 08/01/18 0.00 0.00 0.00 0.00 0.00 0.00 02/01/19 0.00 0.00 0.00 0.00 0.00 0.00 08/01/19 0.00 0.00 0.00 0.00 0.00 0.00 02/01/20 0.00 0.00 0.00 0.00 0.00 0.00 08/01/20 0.00 0.00 0.00 0.00 0.00 0.00 02/01/21 0.00 0.00 0.00 0.00 0.00 0.00 08/01/21 0.00 0.00 0.00 0.00 0.00 0.00 02/01/22 0.00 0.00 0.00 0.00 0.00 0.00 08/01/22 0.00 0.00 0.00 0.00 0.00 0.00 02/01/23 0.00 0.00 0.00 0.00 0.00 0.00 08/01/23 0.00 0.00 0.00 0.00 0.00 0.00 02/01/24 0.00 0.00 0.00 0.00 0.00 0.00 $137,496 $32,896.73 $170,392.42 $170,392.42 $12,295.69 Surplus Tax Increment 85.58 Total Net Revenue $170,478.00 Prepared by: Springsted Incorporated (printed on 5/3/2005 at 2:44 PM) Shakopee TIF $2.4mil 7yrs.xls I Projected Tax Increment Report I City of Shakopee,Minnesota Tax Increment Financing (Economic Development) District No. Open Systems Project Scenario B - $2.4M EMV - Update May 2005 Projections -7 Years Less: Less: Retained Times: Less: Less: Annual Total Original Fiscal Captured Tax Annual State Aud. Admin. Annual Period Net Tax Net Tax Disp.@ Net Tax Capacity Gross Tax Deduction Retainage Net Ending Capacity Capacity 36.0773% Capacity Rate Increment 0.360% 10.00% Revenue 1 2 3 4 5 6 7 8 9 10 12/31/05 2.893 2.893 0 0 95.782% 0 0 0 0 12/31/06 2,893 2,893 0 0 95.782% 0 0 0 0 12/31/07 47,250 2,893 16,003 28,354 95.782% 27,158 98 2,706 24,354 12/31/08 47,250 2,893 16,003 28,354 95.782% 27,158 98 2,706 24,354 12/31/09 47,250 2,893 16,003 28,354 95.782% 27,158 98 2,706 24,354 12/31/10 47,250 2,893 16,003 28,354 95.782% 27,158 98 2,706 24,354 12/31/11 47,250 2,893 16,003 28,354 95.782% 27,158 98 2,706 24,354 12/31/12 47,250 2,893 16,003 28,354 95.782% 27,158 98 2,706 24,354 12/31/13 47,250 2,893 16,003 28,354 95.782% 27,158 98 2,706 24,354 12/31/14 0 0 0 0 95.782% 0 0 0 0 12/31/15 0 0 0 0 95.782% 0 0 0 0 12/31/16 0 0 0 0 95.782% 0 0 0 0 12/31/17 0 0 0 0 95.782% 0 0 0 0 12/31/18 0 0 0 0 95.782% 0 0 0 0 12/31/19 0 0 0 0 95.782% 0 0 0 0 12/31/20 0 0 0 0 95.782% 0 0 0 0 12/31/21 0 0 0 0 95.782% 0 0 0 0 $190106 $686 $18,942 $170478 Prepared by: Springsted Incorporated (printed on 5/3/2005 at 2:44 PM) Shakopee TIF $2.4mil 7yrs.xls TIF DISTRICT #13 OPEN SYSTEMS. (2.7 Acres) HIGHWAY 101/169 8Y-PASS PASS 0"'44- /169 8'0"- J ,. /) y 101 <~"'S' rJlGrJWA . OUTLOT D I -"/-I'S';- I 40a DEAN LAKes fiL m 1'''04- OUTLOT K OUTLOT I OUTLOT G ~ OUTLOT E <;; '" <;; OUTLOT J '" g -"/-I'S';- OUTLOT G ,~ 1ei ~ I ~ m 1 '" I~ 7 ~ CO. RD. NO. 16 1 r - - - ..--..---. --- , I CITY OF SHAKOPEE TIF PROJECT AREA ~ CITY OF SHAKOPEE Memorandum TO: Economic Development Authority FROM: Toni Huber SUBJECT: Request for Economic Development Assistance with Open Systems DATE: April 29, 2005 A memo will be coming on Monday.