East Bethel considering TIF for private development

The East Bethel City Council is contemplating tax increment financing (TIF) to help a private developer get his project up and running.

Todd Hagen, vice president and senior financial adviser, and Stacie Kvilvang, executive vice president and financial adviser, work for Ehlers, which is the financial consultant for the city of East Bethel. Kvilvang was at the Sept. 19 council workshop meeting to talk about tax increment financing. File photo by Eric Hagen

Todd Hagen, vice president and senior financial adviser, and Stacie Kvilvang, executive vice president and financial adviser, work for Ehlers, which is the financial consultant for the city of East Bethel. Kvilvang was at the Sept. 19 council workshop meeting to talk about tax increment financing. File photo by Eric Hagen

The council will hold a public hearing during its regularly scheduled 7:30 p.m. Wednesday, Oct. 3 meeting at East Bethel City Hall, 2241 221st Ave. N.E.

Aggressive Hydraulics is a hydraulics cylinder manufacturer located in Blaine. Its owner, Paul Johnson, an East Bethel resident, wishes to move from the three separate buildings that house his current operations and build a brand new building near the East Bethel Theater and Village Bank in the city’s developing sewer and water district.

Due to the appraisal coming in lower than the estimated project costs, Johnson has a funding gap that has considerably shrunk from $900,000 to $225,000 after he obtained another loan, re-negotiated the land purchase price and reduced the scope of the project.

To bridge the funding gap and bring in a company that will hopefully attract more developers to its sewer and water district, the city is looking at creating a TIF district that would encompass Aggressive Hydraulics’ desired site and give it $225,000 to close the funding gap. The nearby Village Bank will front the $225,000 and the bank would be paid back once the increased tax payments from this property come in.

“It’s really a no risk proposition to you (the city),” said Stacie Kvilvang of Ehlers, the city’s new financial adviser, regarding this TIF proposal. “It’s a risk proposition to the developer and to Village Bank, who is fronting the money.”

The simple explanation of TIF is the additional revenue created by the development can be used to pay off the debt obligations of a TIF district. Some districts are “pay as you go,” meaning revenue is only received if development happens. The alternative is to issue general obligation bonds.

The biggest issue of “pay as you go” is the developer must have the funds to start the project. Aggressive Hydraulics had the shortfall of approximately $225,000. That is where Village Bank comes in.

City Administrator Jack Davis said TIF would be a win-win situation. Aggressive Hydraulics gets financial help to complete its project. The city brings in a developer that will bring it a step closer to paying for the sewer and water project and meeting Metropolitan Council requirements for the amount of sewage flow to its water reclamation plant.

The fact that the company will employ 45 to 50 people with plans to add more in subsequent years is another positive, Davis said, because this means more people will be buying gas and food in East Bethel and this could help spur other development.

“If we don’t do it and the project doesn’t go forward we still have a corn field that we collect $220 a year in taxes from,” Davis said, referring to the annual tax revenue the city receives for the 6.06-acre site that Aggressive Hydraulics is purchasing.

Including the county, school district and city economic development authority, the site generates $660 in revenue. Once the 60,000 square-foot building and all the road and utility infrastructure improvements are in, the site is estimated to generate $84,000 in taxes annually based on current tax rates, Davis said.

According to Davis, these TIF funds would only be used for the street extension to this project and stormwater improvements. Therefore, if Aggressive Hydraulics’ project falls through, the city still has the infrastructure in place to help any future developer, Davis said.

Ever since Johnson came to the July 5 council meeting to let the city know about the budget shortfall, the city has been working on finding a solution. The city met with Greater MSP and the Minnesota Department of Employment and Economic Development (DEED) July 11, but found out that no funding would be coming from state grants, Davis said. Therefore, city staff continued to weigh other options.

“This is kind of a learning experience,” Davis said. “This is the first TIF district in the city, so we’re all getting our feet wet on this. In the same vain, I’d like to thank all the players that were involved in it… Everybody worked very closely and very cooperatively to get this done and the fact that we started out with a $900,000 gap in financing and whittled it down to $225,000 and then were able to get a pay-as-you-go TIF is quite an accomplishment.”

 

Development district

The six-acre TIF fistrict for Aggressive Hydraulics will not be the only part of the presentation Wednesday evening. The city is considering the creation of a “development district” that would along Highway 65 from 181st to 245th avenues.

Simply put, a development district is an area where the city would promote development and redevelopment. The city’s comprehensive plan already points out that the city’s long-term goal is for sewer and water development to be along this major corridor. Creating a development district is a statutory requirement when a city wants to create a TIF district, according to Kvilvang.

Although Aggressive Hydraulics’ six-acre parcel would only be a minuscule part of this whole development district, Kvilvang said it is easier and less expensive in the long run to set up a larger development district now rather than paying to redraw the boundaries later.

Multiple TIF districts could be created within this development district if a future council chooses to do this, she said.

However, Kvilvang said that the city would not be obligated to create one TIF district after another. The boundaries are merely projections of where development could happen.

“Just remember that just because you have the boundaries out there doesn’t mean you provide assistance,” she said. “It’s really trying to project out over the next five years where you think development will happen. If you don’t think it will happen in certain spaces or areas then reduce it by all means. But if you think something may potentially come in, then look to include it.”

Councilmember Heidi Moegerle said this emphasizes the council’s point that development will be concentrated along Highway 65.

Aside from the development district, the council Oct. 3 will look at creating a business subsidy policy so there are standards in writing when a business does seek assistance.

According to Kvilvang’s presentation, assistance could include a TIF district, city tax abatement or fee reduction, for example. This policy has minimum employee numbers and wage standards a subsidized business would have to receive.

Eric Hagen is at eric.hagen@ecm-inc.com


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