Wednesday, November 14, 2007

Memo From City Administrator To Council re: North Prairie Productions Project Suspension

November 13, 2007
To: Common Council
From: Dan Wietecha, City Administrator
Re: Effect of NPP Suspension

In spring 2007, City bonds and loans were issued totaling $4,065,000 to support biodiesel and associated infrastructure improvements. Approximately $1,710,000 of this is improvements benefiting neighboring properties and will be assessed accordingly; much of this property is not currently in the city so the assessments will be deferred until future annexation and/or development. Net result is $2,355,000 to directly support biodiesel; the full amount of which is expected to be financed through TIF and state grants.

The TIF assistance is scheduled to be paid during construction rather than all up front. The City has limited expenditures for the biodiesel facility to the following amounts:
$330,000 County Road M improvements specifically benefiting NPP site.
$ 80,000 Electric service and transformer for NPP site.
$ 60,000 Legal, engineering, and fiscal costs for development agreement.
$470,000 TOTAL approximate expenditures to date.

All costs are TIF eligible, meaning the collection of future tax increments may be used to satisfy any debts associated with the costs. This assumes that the project proceeds and will generate increment.

The Development Agreement requires construction of the biodiesel facility by January 1, 2009, and the TIF projections are based on this date.The Development Agreement also contains a guarantee that in any year that an insufficient amount of increment is generated (including the possibility of no increment), then NPP will pay the shortfall.So between the TIF and the guarantee, the City’s expenditures are contractually covered. As long as NPP meets it guarantee, the City will not need to levy taxes against other residents and businesses to service the TIF debt supporting the project.

The City has received $250,000 in CDBG-PFED and TEA grants from the state. These require construction of the biodiesel facility and creation of 25 jobs by December 31, 2008. The state may require repayment or penalties for not creating 25 jobs; any required repayment or penalty is passed on to NPP in the Development Agreement. The City has not taken any of the grant money and has notified the Department of Commerce that it does not intend to draw funds with the project on hold. If the project does not proceed, this may cause a $250,000 cash flow problem for the City in spring 2008; this may reduce the amount of TIF provided as a development incentive to NPP.

Additional safeguards:
The TIF projections are conservatively based on $10 million in taxable equalized value; whereas, actual value after construction will more likely run $14-16 million. This means that (when completed) the facility should generate roughly 40-60% more increment than needed to make the projections.3

The $2.3 million in TIF depends on revenues projected through 2027. A delay does not lengthen the end date; it simply reduces the time frame for collecting revenues. The longer the delay, the less TIF support for the project.

The $330,000 in County Road M improvements may be levied as a special assessment against the NPP property. This would provide an additional degree of protection for the City in the event the delay is lengthy, the project folded altogether, or it were impossible to collect on the guarantee that NPP cover any shortfall in the anticipated increment.Development Agreement requires NPP to cover any repayment or penalties that may be imposed under the two state grants.

Development Agreement requires Landmark to pay taxes to Town of Union over next five years (total $36,000) if not covered by TIF.

Next Steps:
City meeting with representatives of North Prairie Productions and Landmark Service Cooperative anticipated within the next week to review Development Agreement and obligations therein.

Negotiate project extension for state grants beyond December 31, 2008.

Run TIF projections based on delay; consider revisions to Development Agreement to ensure progress of project without jeopardizing the City.

Consider impacts of additional development (crushing facility) on TID #7.

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