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• FALCON HEIGHTS CITY COUNCIL MINUTES _2_ June 8, 2005 Public hearing on a housing program and the issuance of multifamily housing revenue bonds to finance a housing program under Minnesota Statutes Chapter 462C (continued) Administrator Worthington said the bonds will be utilized to construct a 50-unit independent senior housing facility, The Pines of Hutchinson, LLC, located on a 2.53 acre project site at 1015 Century Avenue SW in Hutchinson. The City of Hutchinson has agreed to lend host approval to this transaction, due to their inability to act as a conduit for these bonds because they are near their bank-qualified limit for 2005. She introduced Ms. Trudy Halla, Bond Counsel with Briggs and Morgan, and Mr. Brian Nelson, Financial Consultant with Oppenheimer Wolff and Donnelly, and said they were in attendance to answer any questions that might arise. Council member Lamb said the City Council has been over this several times and has talked about it in work sessions. But, for clarification, and primarily for the benefit of the viewing audience, what is the absolute worst case scenario and what are the potential liabilities for the City of Falcon Heights? Attorney Halla said the absolute worst case scenario is when the bonds are issued, the project is started, goes bankrupt, and the borrower is not able to pay the bonds • back. There is a mortgage component here, between the borrower and the trustee. The trustee would institute mortgage foreclosure proceedings. Pursuant to Statute 462C and pursuant to the documents, they have no ability to come back to the City for anything so they would just commence a foreclosure action, just as you would with a regular bank loan or a housing loan. They would foreclose on the project, find someone else to buy it and use the money to pay off the bonds. In response to a comment from Council member Lamb that in the worst case scenario Falcon Heights would have no liability, Attorney Halla said there is another worst case scenario that is starting to occur. The IRS is starting to do random audits of these types of financings. This one would probably be below the radar screen because it is small. But, if they were to audit this transaction, they would look to the City as the issuer of the bonds and the City would pass it on to the borrower. The City would know about it, but is totally indemnified against all of those actions and the borrower would have to pick up any legal fees and costs associated with that. So, there are two worst case scenarios: One is if the project goes bad and the other is if there is a random audit of the bonds. Council member Lamb asked what the benefits are. Attorney Halla said that one is the administrative fee, which is a revenue source the City didn't have before. Second, the City is helping out another community. Although it isn't a neighboring city, Hutchinson should have good feelings towards Falcon Heights. Third, the name may not be familiar, Maplewood Senior Housing, but the actual entity standing behind these bonds and the manager of the project will be Ecumen, the Board of Social Ministry. They have facilities near Falcon Heights. They have been a good citizen doing good projects. Council member Lamb asked if the revenue in this particular • case will be $25,000 that the City will realize. Attorney Halla said yes.