81-07
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CITY OF CHANHASSEN
CARVER AND HENNEPIN COUNTIES, MINNESOTA
RESOLUTION
Date: March 16, 1981
Motion by Counci1member Gevinq
Resolution No. 81-07
Seconded by Councilmember Horn
ESTABLISHMENT OF INDUSTRIAL DEVELOPMENT REVENUE FINANCING CRITERIA
WHEREAS, the Minnesota Industrial Development Act is designed to:
1.
Aid in the development of economically sound industry and
commerce.
2.
Prevent the emergence of blighted areas and marginal lands,
and provide for the redevelopment thereof.
3.
Aid in increasing employment.
4.
Increase the tax base of a municipality and other taxing
authorities.
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PrQtect existing jobs by discouraging migration of Minnesota
firms to other states.
NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City
of Chanhassen, that the following criteria are hereby adopted as guidelines
in considering applications for industrial and commercial revenue financing.
MINIMUM FISCAL CRITERIA
I.
Existing Business.
A.
Definition. An "existing business" is defined as a presently
operating industrial or commercial venture with five (5)
years of operational history.
Proposals which will be considered are those which involve
the expansion of an existing business, or a new business
venture proposed to be undertaken by an existing business.
B. Applicable Criteria.
1. Only new construction or plant expansion amounting to
$500,000 or more, not including land cost or value, shall
be eligible for financing.
2.
The applicant's past three years average ratio of "earnings"
(defined as income before provision for income taxes and
deduction for "fixed charges") to "fixed charges" (defined
as interest expense, other recurring charges, and 1/3 of
annual rent payments, which are deemed representative
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3.
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of the interest factor) shall be at least 1-1/2 to 1
(on pro forma basis for latest year including interest
on proposed new debt) .
The annual fair market rental value of the structures
to be erected shall equal or exceed the total amount of
annual principal and interest due on industrial revenue
financing. An appraisal may be required to verify fair
market rental value.
The net worth of the applicant as reflected by its
balance sheet for the fiscal year immediately preceding
application shall equal or exceed outstanding indebtedness
as determined by City staff and its fiscal consultant.
5.
Past three years' average ratio of debt service (maximum
annual principal and interest requirements on total
long-term debt, including proposed issue on pro forma
basis for latest year) coverage at least one to one,
using revenue available for debt service defined as
net income before provision for income taxes but excluding
depreciation and interest.
6.
Capitalization shall be in the range of 50% stockholders'
equity, 50% presently outstanding long-term debt; to
33-1/3% equity, 66-2/3% debt.
7.
Long-term debt, including proposed new issue shall be
not more than two times net working capital (current
assets minus current liabilities) .
8. Working capital ratio (current assets divided by current
liabilities) shall be at least two to one.
9. After the third year of operation, the estimated payroll
shall at least equal the amount of the proposed financing.
10. Total amount of new financing shall be less than the value
of the project.
11. The debt service term of the proposed indebtedness shall
not exceed the useful life of the project.
12. The debt service shall coincide with the useful life of
the equipment which is not considered an integral part
of the structure.
13. The preferred type of financing for commercial development
issues shall be a mortgage revenue note or similar debt
obligation to be sold only to institutional investors.
14.
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100% financing may be considered acceptable to the City
in the case of revenue bonds sold as a private placement.
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15.
In the event the proposed financing takes the form of a
mortgage revenue note or similar debt obligation privately
placed with a responsible lender, the lending policy of
the private placement lender as it applies to the applicant
for industrial development revenue financing may be
considered acceptable to the City; provided, however, that
all financial data of the applicant submitted to the
private placement lender shall be submitted to the City
Council and staff for confidential review prior to
consideration by the Council of the final resolution
approving the industrial revenue financing.
16. A proposal for industrial revenue financing of an industrial
or commercial undertaking by an existing business which
involves a public offering of the debt securities may be
given preliminary approval when, in its discretion, the
City Council finds that:
a. The proposed investment of the applicant in the
project equals or exceeds 20%.
b. The applicant has established by means of reliable
projections, estimates and other supporting data,
that the proposal will satisfy all of the Positive
Nature of Use Criteria herein set forth.
New Business.
A.
Definition. A "new business" is defined as any industrial or
commercial venture eligible for industrial revenue financing
under state law, but which does not qualify as an existing
business as defined above.
B.
Applicable criteria.
1. Existing business fiscal criteria, as applicable.
2. Only new construction or plant expansion amounting to
$500,000 or more, not including land cost or value, shall be
eligible for industrial revenue financing.
3. New business proposals, as herein defined, which contemplate
a public offering of the financing shall not be considered
by the City Council.
4.
The lending policy of the private placement lender as it
applies to the applicant for industrial development
revenue financing may be considered acceptable to the
City; provided, however, that all financial data of
the applicant submitted to the private placement lender
shall be submitted to the City Council and staff for
confidential review prior to consideration by the Council
of the final resolution approving the industrial revenue
financing.
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CRITERIA DEMONSTRATING POSITIVE NATURE OF USE
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Proposals meeting the minimum guidlines set forth above under Fiscal
Criteria shall be weighed additionally by the City Council on the basis
of the desirability and positive nature of the proposed facility,
employing the following standards:
1.
2.
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The applicant shall demonstrate that the proposed facility has a
positive effect on employment in the City of Chanhassen.
The applicant shall demonstrate that the proposed facility has a
positive effect on the tax base for the City. A general guideline
is hereby established of market value of land and structures to
requested industrial revenue financing of 2 to 1.
3.
The applicant shall demonstrate that any proposed facility of a
commercial nature is compatible with the downtown core area
redevelopment plan and is a priority in the development of the plan.
4.
The applicant shall demonstrate that the proposed facility meets
development criteria of a tax increment district, or meets the
development criteria of an industrial park.
5.
The applicant shall demonstrate that the proposed facility will
not require further public expenditures for public improvements.
7.
The applicant shall demonstrate that the proposed facility is within
the priority development area for the City.
The applicant shall demonstrate that the proposed facility is not
in conflict with existing businesses and industries within the City
and that said facility will have a positive effect on the economy
of the City.
PROCEDURE
1. An industrial or commercial revenue financing proposal which:
a. is for a single purpose facility, or
b. includes more than 10% of equipment as a part of the financing
proposal, or
c. competes directly with an existing business in the City,
shall be considered only if the proposed financing is to be privately
placed.
2. Industrial revenue financing proposals for housing projects shall
not be considered by the City Council.
3.
Prior to consideration by the City, applicants for new business
proposals shall submit three (3) year financial projections for
the new business, including pro forma income and expense statement.
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Prior to adoption of the final resolution authorizing issuance of
the industrial revenue financing, the applicant shall deliver
satisfactory evidence of a firm financing commitment by an established
underwriter or private placement lender acceptable to the City Council.
5.
A senior investment grade rating by Moody's Investors Service or
Standard & Poor will be given weight in considering applications
for industrial revenue financing.
6.
The City staff in conjunction with the fiscal consultant shall
adopt administrative procedures setting forth minimun documentation
which shall be required by the applicant to assist City Council in
making its judgment.
7.
The City staff shall establish an amount of an initial escrow deposit
required to be paid by the applicant at the time of making the
preliminary application for consideration of industrial revenue
financing by the City Council, said deposit being intended to be
sufficient to cover all administrative, legal, and public hearing
expense associated with the Council's initial consideration of
the request. ' The applicant shall agree in writing to pay upon
demand such amount of expense in excess of the initial escrow deposit.
8.
In the event the City Council enacts a resolution giving preliminary
approval to the application, authorizing the submission of the
application to the State Commissioner of Securities and authorizing
the preparation of necessary documents and materials in connection
with said project, the City staff shall establish a further escrow
deposit which shall be paid by the applicant prior to further action
by the City on said application, said deposit being intended to be
sufficient to cover all administrative, legal, and fiscal consultive
expense incurred in the making of comprehensive financial analyses
by the City fiscal agent and attorney, and preparation of industrial
revenue financing documentation, including the final resolution
authorizing the issuance of the debt obligation.
9. Upon any issuance and sale of the debt obligation, whether in the
form of bonds, a mortgage revenue note or similar obligation, the
applicant shall pay to the City an administrative fee one-half of
one percent of the principal amount of the obligation to
reimburse the City for debt administration expenses over the term
of the bond issue, less any amount heretofore paid by the applicant
under the provisions of Section 8 hereof.
10. The City reserves the right to deny any application for industrial
development revenue financing at any stage of the proceedings prior
to the adoption of the resolution authorizing issuance of industrial
development revenue financing.
Industrial development revenue financing proposals which do not
meet 75% of the foregoing fiscal ariteria shaLl not be given prelim-
inary approval except upon a 4/5ths affirmative vote of the City
Council.
11.
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12. Resolution No. 78-74, adopted December 18, 1978, is hereby rescinded.
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Passed and adopted by the City Council
e Chanhassen this 16th day of March
Attest:
;(2 . (JiL~~
City Clerk/Manager
Yes
No
Absent
Hamilton
Gevinq
Horn
None
Neveaux
Swenson
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Rev.3/4/8l RHL
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ADMINISTRATIVE MEMORANDUM
(TO ACCOMPANY CITY OF CHANHASSEN,
MINNESOTA, INDUSTRIAL AND COMMERCIAL
DEVELOPMENT REVENUE FINANCIAL
APPLICATION)
In addition to the items requested in the Application, the following
material will assist the City Staff and Consultants in considering
the financial feasibility of the proposal:
1.
Historical summary of Earnings Statements for past five
years.
2.
"Stub" Financials, if latest fiscal year end was more
than three months from date of proposed financing.
3.
Capitalization table.
4.
"Use of Proceeds" and "Source and Application of Funds"
Schedules, showing such costs as building, land and equip-
ment, fees of bond attorneys and other legal counsel,
auditors, engineers, architects, charges for printing,
securities registration with Securities Commission, mortgage
registration tax, trustee, pa~ing agent, insurance, rating
agency, discount, capitalized interest and reserve.
5.
Management's statement of business, including such matters
as type of business entity (corporation, partnership, other),
resume of principal officers, industry and trade risks,
competition, labor relations, pension funding, litigation,
estimated annual payroll increase in the City over the next
three years, and a list of all other facilities owned or
operated by applicant.
Independent Appraisal of value of proposed facility (if
available. )
6.
7.
Bank references.
8.
Dun & Bradstreet's most recent Rating Report (if available.)
9.
Evidence of Title Insurance "binder" or recognized
attorney's title opinion acceptable to City Attorney.
10.
Proposed debt maturities and depreciation schedules.
A certification warranting that together with company's
l~gal counsel, the Underwriter will prepare and be responsible
for an Official Statement (if necessary) and will hold the
City, members of the Council, Staff and City Consultants
harmless with regard thereto.
11.
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\ '~. :-..:~ "AdITlinistrative r.lemorandum
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12.
Form of financing commitment. If public issue, include
five recent similar offerings of Underwriter. If private
placement, include name of proposed institutional investor.
13.
If interim financing is required, a showing of a binding
commitment for that financing from a reputable lender.
REV 12/14/78 RHL
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