04-08-2019 Council Packet - Laserfiche WebLink

Home Search

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2018 Baker Tilly Virchow Krause, LLP Generally, should the rates of return lie below a reasonable range without assistance; we could assume the project as proposed would not move forward without assistance. Should the returns lie within a reasonable range with the assistance, we could assume the amount of assistance tested is appropriate for the project. All such estimates should be viewed as general indicators of performance and not exact forecasts. The number of current and future variables affecting these estimates and actual results are great. There is no set rate of return benchmarks that dictates whether a project needs TIF assistance or not; however, there are market/industry standards for certain types of projects, as well as more specific investor/developer thresholds tha t need to be achieved. An additional measure of project 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 significantly greater than 1.0 as a measure of cushion in the event actual revenues and expenses are different than projected. Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay- as-you-go basis. With upfront financing, the City would finance a portion of the developer’s initial project costs through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the developer would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the developer. If tax increment revenues are less than originally projected, the developer receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service payments and would have to use other sources to fill any shortfall of tax increment revenues. With internal financing, the City reimburses the loan with future revenue collections and may risk not repaying itself in full if tax increment revenues are not sufficient. The developer’s financial information includes pay-as- you-go financing. Conclusion Per the submitted application for assistance, the developer has requested approximately $5.3 million over 15 years as related to development of the project site and construction of a senior care campus. Through the submission of the tax increment financing application and supporting financial information, the developer has indicated that the project as proposed would not occur on the current site without financial assistance from the City due to extraordinary costs associated with acquisition of the additional properties and site development/infrastructure improvements. We recommend additional review as the project proceeds rel ating to the following:  Identification of extraordinary project costs for reimbursement o Acquisition of redevelopment properties o Installation of public improvements  Estimated amount of assistance necessary for the project to proceed o Number of years required  City preference of reduced term (as short as possible)  Developer request of 15 years Thank you for the opportunity to be of assistance to the City of Lino Lakes. Please contact me at 651.223.3036 or 651.368.2533 or mhuot@springsted.com with any questions or comments.