ITEM 2 Development Proposal
First Children’s Finance
111 Third Avenue South, Suite 220
Minneapolis, MN 55401
www.firstchildrensfinance.org
BUILDING STRONGER
CHILD CARE BUSINESSES
Mark P Hanson
Economic Development Consultant
612‐223‐7239
MarkH@firstchildrensfinance.org
Development Proposal:
City of Otsego
Otsego City Council
OCTOBER 23, 2019
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October 23, 2019
To Otsego Mayor and Council,
Following you will find development information for a proposed child care center to be located within
the City of Otsego. This information informs you of the construction costs, monthly mortgage/taxes
expenses, payroll expenses and parental cost for child care.
As part of this development process, we are proposing the City of Otsego consider offering financial
incentives toward the project to include a tax abatement schedule and or a partial to full write‐down of
land costs.
Thank you for the opportunity to present this information. I look forward to working with you in the
future.
Sincerely,
Mark P. Hanson
Economic Development Consultant
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I. Introduction
First Step Preschool and Extended Child Care is currently operating at 555 Railroad Dr. in Elk River,
Minnesota. It serves 140 children ranging in age from 16 month to 9 years. Listed below are the
reasons we seek help from the City of Otsego to relocate this facility to Otsego:
First Step’s current location is for sale, but it is inadequate to allow for growth.
First Step’s ongoing vision is to provide affordable child care and preschool to the
community at current or below market rates.
Currently, no existing buildings in the Elk River area are suitable to remodel.
An Otsego facility would be ideal for maintaining the current cliental and helping with
Otsego’s child care shortfall.
First Step is committed to providing jobs at a reasonable wage to ensure top quality
service.
II. PROJECT SCOPE
Item Amount
Construction of Building $1,630,300
10% Contingency $163,400
Professional Fees $50,000
Approximate Land Cost $370,000
Total Project Cost $2,213,700
Amort in Months Monthly
Bank $1,106,850 240 $ 7,613
SBA $885,480 300 $ 3,972
Cash $110,685 84 $ 1,725
Subordinate funding $110,685 84 $ 1,725
Total Project $2,213700 $ 15,035
Property Tax (estimated) $36,000 $ 3,000
The City Portion $13,000
Total Mortgage/Tax $ 18,035
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The tables below shows the current enrollment in First Step by city and the rate comparisons to the
child care centers in the region.
Total Enrollment : 140 students
Elk River ‐ 76 Otsego ‐ 36 Zimmerman ‐ 10 Ramsey ‐ 4 Monticello ‐ 4
Princeton ‐ 3 Big Lake 4 Rogers ‐ 2 Dayton ‐ 1
FIRST STEP PRESCHOOL AND CHILDCARE
Local Childcare Rate Comparisons
First Step New Horizon Dawn of Discovery Little Lambs
Rate Rate Rate Rate
Registration (One Time Fee) $ 50 $ 125 $ 100 $ 50
Weekly Toddler Full Time Childcare $ 170 $ 328 $ 270 $ 213
Weekly Preschool Age Full Time
Child Care
$ 145 $ 282 $ 270 $ 213
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The table below indicates the 25th, 50th and 75th percentile calculations for each age group and weekly
price model for center‐based child care in Wright County. The 50th percentile is equivalent to the
median. The proposed center’s weekly charges and yearly income by age group are shown in
comparison to other centers throughout Wright County. The totals below are those parents engaging in
year‐round care and contracting for child care services at a weekly rate. Child Care Assistance Program’s
reimbursement rates are $165, $157, and $130 for Toddler, Preschool and School Age respectively.
First Step
Weekly Rate
25th Percentile 50th Percentile 75th Percentile
Toddler $ 175 $ 168 $ 185 $ 199
Preschool $ 150 $ 160 $ 175 $ 185
School Age $ 130 $ 138 $ 150 $ 151
First Step
Yearly Income
50th Percentile 75th Percentile
Toddler $ 127,400 $ 135,680 $ 144,872
Preschool $ 156,000 $ 182,000 $ 192,400
School Age $ 47,320 $ 54,600 $ 54,964
Total Income $ 330,720 $ 372,280 $ 392,236
Savings to Parents $ 41,560 $ 61,516
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The following information depicts the proposed staff income for year 1. First Step’s current payroll level
is well below the area median. The proposed increase in pay to the staff is intended to increase
retention, recruitment efforts, and improve the quality of care for the children in the community.
Current Anticipated Median Current Anticipated
Salaries Salaries Income vs Median vs Median
Asst Director $ 30,680 $ 40,040 $ 41,391 $ (10,711) $ (1,351)
Teacher $ 27,040 $ 34,840 $ 41,391 $ (14,351) $ (6,551)
Teacher** $ 28,600 $ 34,840 $ 41,391 $ (12,791) $ (6,551)
Teacher $ 26,000 $ 28,600 $ 41,391 $ (15,391) $ (12,791)
Teacher $ 26,000 $ 28,600 $ 41,391 $ (15,391) $ (12,791)
Aide $ 22,880 $ 25,480 $ 41,391 $ (18,511) $ (15,911)
Aide $ 20,800 $ 23,400 $ 41,391 $ (20,591) $ (17,991)
Teacher $ 26,000 $ 28,600 $ 41,391 $ (15,391) $ (12,791)
Aide $ 21,840 $ 24,440 $ 41,391 $ (19,551) $ (16,951)
Aide** $ 26,520 $ 29,120 $ 41,391 $ (14,871) $ (12,271)
Teacher $ 29,640 $ 34,840 $ 41,391 $ (11,751) $ (6,551)
AT $ 26,520 $ 27,560 $ 41,391 $ (14,871) $ (13,831)
Teacher $ 29,120 $ 34,840 $ 41,391 $ (12,271) $ (6,551)
AT $ 28,080 $ 30,680 $ 41,391 $ (13,311) $ (10,711)
Teacher $ 27,040 $ 34,840 $ 41,391 $ (14,351) $ (6,551)
Teacher $ 26,000 $ 28,080 $ 41,391 $ (15,391) $ (13,311)
Office $ 28,080 $ 30,160 $ 41,391 $ (13,311) $ (11,231)
Float $ 26,000 $ 28,080 $ 41,391 $ (15,391) $ (13,311)
** New Room Created : Teacher and Aide
Current Staffing Cost Proposed Staff w/Increase
Increase
$ 279,535 $ 378,185 $98,650
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The table below displays figures extracted from the First Children’s Finance’s business analysis tool
which is a snapshot in time and leverages a series of formulas and calculations to provide the
information found within the full report. There are approximations and general assumptions applied
throughout.
The following table shows years 1 ‐5 total projected income, expenses, and profit. As you can see we
are forecasting a loss in the first five years of operation. There are multiple methods to mitigate this:
decrease the pay of the staff (which is already well below the median for the area), increase the cost of
care for the parents, or partner with the City of Otsego to offset expenses.
The table below depicts the estimated values for the proposed incentives requested from the City.
Year 1* Year 2 Year 3 Year 4 Year 5
Income $ 766,906 $ 782,125 $ 782,125 $ 821,231 $ 821,231
Expense $ 741,347 $ 788,798 $ 788,798 $ 828,238 $ 828,238
Profit $ 25,559 $ (5,673) $ (6,673) $ (7,007) $ (7,007)
Land @ 200K $ 39,419 $ 8,187 $ 7,187 $ 6,853 $ 6,853
Land Gift $ 55,727 $ 24,495 $ 23,495 $ 23,161 $ 23,161
Full Tax Abate $ 25,559 $ 7,327 $ 6,327 $ 5,993 $ 5,993
Tax Schedule $ 25,559 $ 7,327 $ 3,727 $ 793 $ (1,807)
200K & Abate $ 64,978 $ 15,514 $ 13,514 $ 12,847 $ 12,847
Gift & Abate $ 81,286 $ 31,822 $ 29,822 $ 29,155 $ 29,155
200K & Schedule $ 64,978 $ 15,514 $ 10,914 $ 7,647 $ 5,047
Gift & Schedule $ 81,286 $ 31,822 $ 27,222 $ 23,955 $ 21,355
*During the first year of operation, no property taxes are due.
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In conclusion, we strongly believe an affordable, high‐quality child care center which pays a living‐wage,
as in First Step, will be a great addition to the City of Otsego. As the city continues to grow and attract
new residents, an increase of the supply of high quality child care would be a tremendous benefit to the
city. A center of this stature is also an asset to the entire business community as it assists in the
recruitment of a quality workforce to the area, while subsequently creating one of its own.
First Step’s current lease is coming to the end. The plan is for a proposed $2 million child care center
projected to be located within your city. As you can understand, a project of this magnitude comes with
significant financial risk. We are looking to partner with the City of Otsego to create a valuable asset for
the community.