Elk River EDA, city council members express enthusiasm ahead of March 1 meeting, public hearing
by Jim Boyle
Sportech continues to grow its manufacturing business, and officials for Elk River and Sherburne County are looking at doing what they can to help them retain the business, grow the workforce and have it remain a part of the Elk River community and the state of Minnesota.
The Elk River Economic Development Authority on Feb. 16 got behind a proposal for tax abatement for the business’s latest expansion plan.
Their recommendation to the city council sets in motion a meeting and public hearing before the Elk River City Council for it to consider the tax abatement as well as the business subsidy provisions through the lens of its policies. That meeting and public hearing will be on March 1.
Council Members Matt Westgaard and Jennifer Wagner, who also serve on the EDA, voiced their excitement on Feb. 16 about being part of Sportech’s success story.
“When you look for an ideal application for such a program, I don’t know that it gets better than what we’re looking at,” Westgaard said. “To be able to continue to help out a local business grow is great.”
EDA Chairman Dan Tveite said he couldn’t agree more.
The EDA heard from Colleen Eddy, an economic development specialist for the city, and Mikaela Huot, municipal advisor for Baker Tilly Municipal Advisors, who reviewed Sportech’s request.
“We must understand the need, how it would comply with its tax abatement policy and business subsidy (policy) and how it relates,” Huot said.
Sportech has indicated that local and state participation is vital to the project occurring at this location in the reasonably foreseeable future, and they are requesting property tax abatement from the city and Sherburne County but not the Elk River Area School District.
The Elk River City Council approved on Feb. 16 a resolution in support of a Job Creation Fund grant application, which, if awarded, would be used for a 91,000 square for expansion to the businesses existing facility at 10752 168th Circle in Elk River.
The proposed expansion amounts to an $8.4 million investment and create 85 jobs.
The project is proposed to result in an increase in local tax base, provide a direct increase in well-paying local jobs, as well as an increase in indirect and induced jobs in the local economy.
The support of the grant is a vital component for Sportech, a wholly owned subsidiary of Monomoy Capital Partners, a national private equity firm with manufacturing assets across the country, to apply for a Minnesota Department of Employment and Economic Development job creation grant.
The project will also result in the retention of Sportech’s existing operations and encourage future growth within the city and state, as opposed to the relocation of operations to one of several out-of-state locations, Eddy said.
Sportech has been growing mightily in the last five years.
Sportech purchased 14 acres from the city of Elk River in 2014 and built a 105,000-square-foot facility and moved into it in early 2016. The building has since been purchased by Meritex, a private real estate investment and management company, in May 2016, and Sportech (the business leasing the building) was purchased by Off Road Acquisition Co., LLC, becoming a wholly owned subsidiary in December 2019.
Sportech already employs more than 300 people and has two buildings with 201,000 square feet of space to work in.
The Elk River EDA on Tuesday also lent its support of the state grant, and, more importantly, recommended the council consider the abatement request.
According to the city’s tax abatement policy, the city may consider the use of tax abatement assistance for projects that may not meet the traditional “but-for” and/or job creation criteria but rather be considered as a “location incentive.” These projects may have other public benefits such as a significant tax base increase, the creation of higher paying jobs and being likely to assist in the marketing and attraction of additional desired developments.
The project is expected to retain 323 employees who now work out of the existing facilities and the proposed tax abatement agreement would require a minimum of 85 new full-time-equivalent positions within three years of completion. The average wage of new jobs is projected to be $18.20 per hour ($23.04 with benefits).
The building owner, Meritex, proposes an $8,388,775 project funded through private funds ($5.9 million), owner cash equity ($2.425 million). Construction will cost about $5.5 million, and machinery and equipment costs another $2.4 million. Site development, legal fees and contingencies make up the rest of the costs.
Under the proposal on the table, the abatement applicant would be responsible for obtaining upfront funding and using cash flow from the project and (pay-as-you-go) tax abatement assistance to repay obligations.
The county assessor estimates the taxable market value of expansion is $2,825,000.
Baker Tilly reported the city’s share of the abatement would be no more than $362,880 over 14 years. Sherburne County’s share is estimated at $312,300 over 12 years.
The agreement would give the city leverage to ensure the job creation targets are met.
Aligning the level of assistance to the availability of projected revenues provides a method of financing a portion of the project costs and allows the public participation for the project to remain at a reasonable level, Huot said.
She also said without the tax abatement assistance and the business subsidy provisions there’s no requirement to make those same job and wage requirements.