10-27-2021 Council Packet - Laserfiche WebLink

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Tax Increment Revenue Estimates Tax Increment Revenue Estimates Existing ‘Base’ Land Value $469,200 Estimated Total Taxable Value $6,429,200 Estimated annual available increment (full buildout year 1) $86,848 Total gross tax increment (9 years) $890,908 City retainage (15%) $133,636 Net amount available for development (85%) $757,272 Estimated Present Value Revenues (9 Years) at 4% $575,513 Developer Pro forma Analysis including But-For Upon approval of a TIF district and project, the City must make several findings, including the “but for” test: that the proposed development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The developer has stated that but for the provision of tax increment financing, the project as proposed would not occur. The developer has provided preliminary financial information that includes total development costs and supporting due diligence materials that illustrate an approximate $1,023,000 gap due to increased costs of the project relating to site development and other soils correction costs. Ability to support the total project costs would be subject to financial feasibility and availability of annual revenues to support repayment, as well as willingness of a lender to provide funding. Based on the developer’s stated position relative to the need for tax increment financing assistance, the City could make its “but for” finding and provide tax increment assistance. We recommend, however, that the City review the provided assumptions to consider if the project meets the but-for test and, if so, what an appropriate level and type of TIF assistance may be based on the information submitted by the developer. Following thorough evaluation of the project as provided allows the City to be prepared to make an informed “but-for” decision based on the likelihood of the project needing assistance, as well as the appropriate level of assistance. As stated previously, the developer’s request for financial assistance of $1,023,000 is more than the projected available tax increment revenues generated by the project. As a result, any level of financial assistance provided would be less than what has been requested. In addition, the City may have additional public improvements that may be required as related to development of the proposed project site. To complete the but-for analysis, we will review the developer’s provided sources and uses of funds and operating proforma, showing a result if the developer received the assistance as pay-as-you-go (reimbursement for TIF eligible costs) and showing a result if the developer did not receive assistance. Our analysis of the proformas included a review of the development budget, projected operating revenues and expenditures, and the project’s capacity to support annual debt service payments. The purpose of evaluating the operating proformas is to understand the potential cash flow performance and projected rates of return of the project over a 10-year period to assist with making the determination that 1) tax increment assistance is necessary and 2) an appropriate level of assistance will be provided. An additional measure of project need and financial feasibility is the Debt Coverage Ratio (DCR), which is a calculation detailing the ratio by which operating income exceeds the debt-service payments for the project. If the DCR is greater than 1.0 it indicates the project has operating income that is greater than the debt-service payment by some margin; conversely if the DCR is less than 1.0 it indicates the project is incapable of meeting its debt-service payment and would need to seek additional revenue sources in order to pay its debt. Typical lending standards will require a DCR of greater than 1.0 as a measure of cushion in the event actual revenues and expenses are different than projected. The amount of financing available for the project is typically based on net operating income, which is lease revenues less operating expenses. The annual cash flow is based on assumptions relative to lease revenues, operating expenses and debt repayment. Debt repayment is based on payments to be made to the lender with remaining cash flow available as returns to the equity investor(s).