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HomeMy WebLinkAbout5.1 Creation of a TIF District (No.1-19) for Up North Plastics TO: Economic Development Authority FROM: Christine Costello, Economic Development Director DATE: January 2, 2019 RE: Creation of a TIF District (No. 1-19) for Up North Plastics Background Up North Plastics located at 9480 Jamaica Avenue South has been in the Cottage Grove Business Park since 1981. Up North Plastics produces agricultural plastics and construction film at the facility. Up North Plastics is located on 88 acres and currently includes a 451,000 square foot manufacturing and warehouse facility and employs 252 full-time employees. Up North Plastics Facility Up North Plastics has seen tremendous success in their business and they are looking to capitalize on that success by potentially adding an additional 428,353 square foot facility to their site and employ an additional 200 employees. Up North Plastics has considered Cottage Grove as well as other states located in the south and western United States. Up North Plastics is interested in the Cottage Grove location due to the existing facility location that they can benefit from as well as the incentives offered by the State of Minnesota and the City of Cottage Grove to locate their proposed expansion in our community. Economic Development Authority January 2, 2018 Page 2 of 4 View on CP Rail Line looking towards Hastings Proposed Building Addition Economic Development Authority January 2, 2018 Page 3 of 4 Discussion Business Subsidy Agreement Up North Plastics, Inc. when considering their options for expansion were looking for the opportunity to lower costs through business subsidies. The City of Cottage Grove determined the project met the Business Subsidy Policy following objectives: a. Encourage development (Business Park) in areas per the goals and visions established by the City Council and EDA; b. Preserve the local tax base and improve the general economy and vitality of the City; c. Offset increased costs for development over and above the costs that a developer would incur in normal development (determined as part of but-for analysis); d. Provide the highest and best desired use for the property; and e. Afford maximum opportunities, consistent with the needs of the City as a whole, for the redevelopment of the area by private enterprise. As part of the business subsidy incentives offered by the State of Minnesota and the City of Cottage Grove Up North Plastics has applied for two of the State’s business finance programs, Minnesota Investment Fund (MIF) and Job Creation Fund (JCF). The State’s MIF program provides financing to help add new workers and retain high-quality jobs. The program also focuses on industrial, manufacturing and technology-related industries and aims to increase the local and state tax base and improve economic vitality. The Stat’s JCF program provide financial incentive to new and expanding businesses that meet certain job creation and capital investment. The City will be responsible for submitting reports and monitoring these programs for the State. The City of Cottage Grove has participated in these programs previously with other Business Park businesses such as American Logistics and Renewal by Andersen. The incentive offered from the City is in in the form of tax increment financing (TIF) to finance the costs related to the development of the proposed new facility at Up North Plastics. The TIF would be an Economic Development TIF District with a life of nine years. Up North Plastics has submitted a business subsidy application which has been reviewed by our financial advisors, Ehlers Inc., to meet the “but for” analysis and statutory qualifications. Tax Increment Financing (TIF) Agreement Up North Plastics, Inc. submitted to the City of Cottage Grove’s financial consultant, Ehlers, Inc. the project costs, plans for the project, three years of financial statements and a preliminary financial commitment from its bank. Through Ehlers review of the project the determination was made the project met the “but for” test for tax increment financing (TIF). To initiate the process of th establishing the TIF district the EDA at their October 9 meeting requested the City Council call for a public hearing on the proposed modification to the development program for Development District No. 1 and the proposed establishment of Tax Increment Financing District No. 1-19. In November 2018, the Cottage Grove Planning Commission reviewed the program modification and TIF Plan to make sure the project was consistent with the City of Cottage Grove 2030 Comprehensive Plan, and voted 9-to-0 to approve that TIF District No. 1-19 was consistent with the 2030 Comprehensive Plan. The Cottage Grove City Council will approve the establishment of Tax Increment Financing District No. 1-19 at their January 16 meeting. Approval of the EDA’s action will be contingent upon Council’s approval on January 16th. Economic Development Authority January 2, 2018 Page 4 of 4 A Contract for Private Development is the formal contract between the City of Cottage Grove EDA and Up North Plastics, Inc., that defines the terms, agreements, improvements and restrictions that must be made by Up North Plastics, Inc. in order to receive annual distributions of tax increment over nine years, totaling $891,675, which provides a pay as you go amount of approximately $68,259 in financial assistance. If either party breaks the agreement at any time, the agreement sets the process for default. Interfund Loan The creation of Tax Increment Financing District No. 1-19 at the January 16, 2019 City Council meeting will authorize the EDA to use tax increment to pay for certain costs identified collectively in the TIF Plan as qualified costs, which may be financed on a temporary basis from EDA funds available for such purposes. Qualified costs are set in the TIF Plan that was created as part of TIF District No. 1-19. Qualified costs include site improvements/preparation, public utilities, other qualifying improvements, interest and administrative costs. The resolution authorizing an interfund loan allows for up to $20,000 from the City of Cottage Grove’s Future Economic Development Fund be transferred to the EDA’s TIF Fund to pay for a portion of those qualified costs. As the City of Cottage Grove EDA receives tax increment revenue from the TIF District No. 1-19 or other revenue derived from the project, the EDA TIF Fund will repay the Interfund Loan to the City of Cottage Grove’s Future Economic Development Fund. Recommendation By motion: A. Authorize the contract for private development by and between the Cottage Grove Economic Development Authority and Up North Plastics, Inc., and Mars II, Inc. B. Approve the resolution authorizing an interfund loan for advance of certain costs in connection with Tax Increment Financing District No.1-19 (Up North Plastics, Inc.) Attachment 1. Contract for Private Development between the EDA and Up North Plastics, Inc., and Mars II, Inc. 2. Resolution for Interfund Loan COTTAGE GROVE ECONOMIC DEVELOPMENT AUTHORITY CITY OF COTTAGE GROVE WASHINGTON COUNTY STATE OF MINNESOTA RESOLUTION NO. 2019-XXX RESOLUTION AUTHORIZING AN INTERFUND LOAN FOR ADVANCE OF CERTAIN COSTS IN CONNECTION WITH TAX INCREMENT FINANCING DISTRICT NO. 1-19 (UP NORTH PLASTICS, INC.) BE IT RESOLVED by the Board of Commissioners (the “Board”) of the Cottage Grove Economic Development Authority (the “EDA”) as follows: Section 1. Background. 1.01. The EDA has heretofore approved the establishment of Tax Increment Financing District No. 1-19 (Up North Plastics, Inc.) (the “TIF District”) within Development District No. 1 (the “Project”), and has adopted a Tax Increment Financing Plan (the “TIF Plan”) for the purpose of financing certain improvements within the Project. 1.02. The EDA is authorized to use tax increment to pay for certain costs identified in the TIF Plan, including site improvements/preparation, public utilities, other qualifying improvements, interest and administrative costs (collectively, the “Qualified Costs”), which costs may be financed on a temporary basis from EDA funds available for such purposes. 1.03. Under Minnesota Statutes, Section 469.178, Subd. 7, the city of Cottage Grove (the “City”) is authorized to advance or loan money from any fund from which such advances may be legally authorized in order to finance the Qualified Costs. 1.04. The EDA has proposed to borrow funds from the City’s Future Economic Development Fund in the amount of up to $20,000.00 to pay a portion of the costs of the Qualified Costs (the “Interfund Loan”). Such funds are proposed to be deposited to the EDA’S TIF Fund and disbursed to pay a portion of the Qualified Costs. As the EDA receives tax increment revenues from the TIF District or other revenues derived from the Project, it will repay the Interfund Loan to the City. 1.05. It is expected that the City Council of Cottage Grove will adopt a resolution on January 19, 2019, approving the terms of the Interfund Loan to be made to the EDA. Section 2. Terms of Interfund Loan. 2.01. The City shall advance $20,000.00 from the Future Economic Development Fund to the EDA to be used in accordance with the terms herein. The EDA shall reimburse the City for such advances together with interest at the rate stated below. Interest accrues on the principal amount from the date of each advance. The maximum rate of interest permitted to be charged is limited to the greater of the rates specified under Minnesota Statutes, Section 270C.40 or Section 549.09 as of the date the loan or advance is authorized, unless the written agreement states that the maximum interest rate will fluctuate as the interest rates specified under Minnesota Statutes, Section 270C.40 or Section 549.09 are from time to time adjusted. The interest rate shall be 4 percent and will not fluctuate. 1 521909v1 CT165-54 2.02. Principal and interest (“Payments”) on the Interfund Loan shall be paid semi-annually on each February 1 and August 1 (each a “Payment Date”), commencing on the first Payment Date on which the EDA has Available Tax Increment (defined below), or on any other dates determined by the Executive Director of the EDA, through the date of last receipt of tax increment from the TIF District. 2.03. Payments on this Interfund Loan are payable solely from “Available Tax Increment,” which shall mean, on each Payment Date, tax increment available after other obligations have been paid, or as determined by the Executive Director of the EDA, generated in the preceding six months with respect to the property within the TIF District and remitted to the EDA by Washington County, all in accordance with Minnesota Statutes, Sections 469.174 to 469.1794, all inclusive, as amended. Payments on the Interfund Loan may be subordinated to any outstanding or future bonds, notes or contracts secured in whole or in part with Available Tax Increment and are on parity with any other outstanding or future interfund loans secured in whole or in part with Available Tax Increment. 2.04. The principal sum and all accrued interest payable under this Interfund Loan are pre-payable in whole or in part at any time by the EDA without premium or penalty. No partial prepayment shall affect the amount or timing of any other regular payment otherwise required to be made under this Interfund Loan. 2.05. This Interfund Loan is evidence of an internal borrowing by the EDA in accordance with Minnesota Statutes, Section 469.178, Subd. 7, and is a limited obligation payable solely from Available Tax Increment pledged to the payment hereof under this resolution. This Interfund Loan and the interest hereon shall not be deemed to constitute a general obligation of the State of Minnesota or any political subdivision thereof, including, without limitation, the EDA. Neither the State of Minnesota, nor any political subdivision thereof shall be obligated to pay the principal of or interest on this Interfund Loan or other costs incident hereto except out of Available Tax Increment, and neither the full faith and credit nor the taxing power of the State of Minnesota or any political subdivision thereof is pledged to the payment of the principal of or interest on this Interfund Loan or other costs incident hereto. The EDA shall have no obligation to pay any principal amount of the Interfund Loan or accrued interest thereon, which may remain unpaid after the final Payment Date. 2.06. The City may amend the terms of this Interfund Loan, with permission from the EDA, at any time by resolution of the City Council, including a determination to forgive all or a portion of the outstanding principal amount and accrued interest to the extent permissible under law. Section 3. Interfund Loan Approved. 3.01. The Interfund Loan with the terms set forth in Section 2 hereof is hereby approved subject to the approval of the Interfund Loan by the City Council. 3.02. EDA Staff and officials are hereby authorized and directed to execute any collateral documents and take any other actions necessary to carry out the intent of this resolution. Section 4. Effective Date. This resolution is effective upon the date of its approval. 2 521909v1 CT165-54 th Approved by the Board on this 8 day of January 2019. By: Myron Bailey, President Attest: Jennifer Levitt, Executive Director 3 521909v1 CT165-54