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HomeMy WebLinkAboutCCMin_05Jun08 CITY OF FALCON HEIGHTS MINUTES June 8, 2005 Mayor Gehrz convened the regular City Council meeting at 7:00 PM. PRESENT: Mayor Sue Gehrz, Council members Laura Kuettel, Robert Lamb, Peter Lindstrom and Richard Talbot Also present: City Administrator Heather Worthington, Bond Counsel Trudy Halla, Briggs and Morgan; Financial Consultant Brian Nelson, Oppenheimer Wolff and Donnelly; Fire Chief Clem Kurhajetz, Second Assistant Fire Chief Mark Allen and Mary Shea Kodluboy, Deputy Clerk COMMUNITY FORUM: There was no commentary from the audience. PRESENTATIONS: None Scheduled APPROVAL OF MINUTES: Kuettel moved that the following corrections be made under Presentations on page one, first paragraph: Line two, for girls 15-18 years of age; Line six, grades 6-12; Line six, fitness and media influence on young women, and that the minutes be approved as corrected. The motion was unanimously approved. PUBLIC HEARINGS: Public hearing on a housing program and the issuance of multifamily housing revenue bonds to finance a housing program under Minnesota Statutes, Chapter 462C Mayor Gehrz said the public hearing this evening is about a housing program and the issuance of multifamily housing revenue bonds to finance a housing program under Minnesota Statutes, Chapter 462C. This is complicated because the Council will not be talking about housing in Falcon Heights but will be talking about a joint powers agreement between the cities of Falcon Heights and Hutchinson. She described the public hearing protocol that would be followed. Administrator Worthington said that at its February workshop, the Council discussed the issue of conduit bonding as an alternate revenue source for Falcon Heights. The City has the authority to conduit issue up to $10 million in bank-qualified, tax-exempt 501(c)3 bonds each year. The City lends its authority to a qualified non-profit, tax-exempt entity, and can take an administrative fee in return for lending this authority. Maplewood Senior Housing has agreed to a fee of $25,000, or slightly less than .5% of the total issue of $5,500,000. There is no financial risk or repayment liability to the City and this conduit bonding does not affect the City’s bond rating. The City of Hutchinson, Minnesota, is asking Falcon Heights to utilize its conduit bonding authority in order to help with the issuance of housing bonds for Maplewood Senior Housing, Inc., a Minnesota non-profit corporation and tax-exempt 501(c)3 organization. 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. FALCON HEIGHTS CITY COUNCIL MINUTES -3- 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) Council member Lindstrom asked if the cost of audits is included in the contract—that these costs are passed on. Attorney Halla said the indemnification will specifically mention that they are responsible for all legal costs, not only should anything come up with the project, but specifically for a tax audit. Mayor Gehrz said she had two questions. One goes back to the very basic principle of the ability of cities to utilize their lending authority for non-profit or tax exempt entities, and this is governed by the Federal IRS. Attorney Halla said there are actually two provisions. One is a State provision, 462C, which permits the City to issue bonds, and Internal Revenue Code, Section 103, and some other sections that say that the interest on those bonds is tax exempt. So it is a blending of State authority and Federal tax exemption. If there were no Federal tax exemption, people probably wouldn’t be asking the City to do this. The City has issued general obligation debt before for City purposes, but the way a conduit transaction is set up the City’s name will be on the bonds. The City issues the bonds pursuant to a trust indenture with, in this case, Wells Fargo Bank. Oppenheimer will buy those bonds. The money will be loaned, pursuant to a loan agreement between the City and the borrower to acquire the project, The Pines of Hutchinson. In that loan agreement the borrower will agree to pay everything that the City appears to be obligated to pay on the bonds and they will pay it directly to Wells Fargo. Wells Fargo will turn around and give the money to the bond holders. Once the bonds are issued, the City is totally out. The City will need to sign a raft of documents in connection with this but after that the payment stream runs from the borrower to Wells Fargo Bank. Mayor Gehrz said that in compensation for doing this and dealing with the raft of documents that will involve mostly the City Administrator and her, the City gets $25,000 at the time these papers are signed and the bonds are issued. Attorney Hallas said it is not unusual for cities to charge fees. The Port Authority of Saint Paul and Minneapolis charges a half percent to 1% the first year and then a percent during the following years. A lot of cities have discovered that this is an important source of revenue. In this case, without the City of Falcon Heights stepping in or someone like Falcon Heights, Hutchinson probably would not have done the deal and the borrower would not have gotten tax exempt financing. It is a just compensation for what is happening. Mayor Gehrz said the City auditors attended the May 25 Council meeting and were asked where the $25,000 would show up on the financial report. They provided that information and it was to the City Council’s satisfaction. Council member Talbot said that Hutchinson has a $10 million limit. He asked if they have exceeded it with this bond issue. Attorney Halla said they have not exceeded it but if they were to do this particular bond issue they would exceed it by about $5 million. FALCON HEIGHTS CITY COUNCIL MINUTES -4- 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) Council member Talbot asked if the amount that Falcon Heights co-writes is subtracted from Falcon Height’s limit. Attorney Hallas said yes. If the City were going to do anything else this year and another non-profit 50l(c) 3 group asked you to do the same thing, you would have to watch it so the City stays within the $10 million limit. Mayor Gehrz said the City could go as high as $4.5 more this year. Council member Talbot asked what happens if the City does and all the sewers collapse at once. The City won’t be able to issue its own bonds in the amount of $10 million. Attorney Hallas said the City would be able to issue them but would not be able to be bank qualified, which would give the City a lower interest rate. The City would not be stopped from issuing bonds, it would be the rate difference. Council member Lamb asked about the timeline. Attorney Halla said that Hutchinson has already approved this and wants to close as soon as possible. They had to hold a public hearing also because the building is located there. The building is slated to be completed around the fifteenth. The Public Hearing was opened to the audience for commentary. Mr. Thomas Lageson, 1740 Pascal, said he attended the workshop in February when the Council talked about this. The lawyer who was in attendance at that time talked about a typical 1% fee. Little Canada received a 1% fee for a project they did for Saint Paul. A search of the web showed that Wyoming received half a percent upfront, half a percent at the conclusion, and a tenth of a percent yearly fee. Another one that he saw also had a fee built in so that if a non-profit organization came in and would exceed the $10 million threshold, the host City would pay the fee. Why is the City only getting $25,000? You’re talking about less than half a percent. Who represented the City in getting the fee? It seems awfully low. He doesn’t want to sound greedy, but this isn’t something the City does every day and it seems like some money is being left on the table. He thinks that for what the City is doing here, the City should be eligible to receive the full 1%. If you think about it, the name on the bonds is the City of Falcon Heights and if those bonds should default, which probably is not very likely in this case, Grandma and Grandpa are going to say, even though Ecumen failed on the bonds, that the City of Falcon Heights failed. There is some risk there. Why are we accepting such a low fee? Who negotiated the fee for the City? Mayor Gehrz said this is the City’s first time doing this and she expects the City will be doing more of this in the future. The City Administrator represented the City in these negotiations, as she does as a part of her job. She asked about the basis for the half percent fee. FALCON HEIGHTS CITY COUNCIL MINUTES -5- 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 that is what was offered and since this was the City’s first time doing this, she thought it was better to have a bird in the hand than two in the bush. It was better to have $25,000 than nothing at all. The City agreed to a half percent fee, which significantly undercuts other cities and ultimately gives Falcon Heights business. There is a niche market for a city like Falcon Heights to come into this particular area of alternate revenue sources, and if Falcon Heights asks for a lower fee than other conduit bonding agencies in the area the City can pick up business that they might not be otherwise interested in. Attorney Hallas said she mentioned there are cities that charge large fees. There are also many other cities that charge no fees. This same entity, Ecumen, is going to construct a facility in North Branch and that City has no fee. Mr. Lageson asked if there is any kind of a yearly fee associated with this. Where will this show up on the financial statements? Mayor Gehrz said it will show up as a note on the financial statements. It doesn’t affect the City’s bond rating. It doesn’t show up as a liability. There is no annual fee. Administrator Worthington said an annual fee would represent additional administrative work on the part of City staff, so Falcon Heights decided to take a lump fee upfront rather than take some kind of ongoing administrative fee. There are entities out there that have a lot more staff and they can go ahead and process fees on a yearly basis over the length of a loan or a bond. Since Falcon Heights has such a small staff it made sense to take everything upfront rather than on an ongoing basis. Mr. Lageson said the $10 million is a yearly amount, so January 1 another one could come in that might happen to be a Falcon Heights development. This isn’t hitting us for the next thirty years? Mayor Gehrz said the City has this opportunity every year beginning January 1. The City will be looking for these opportunities actively. Attorney Hallas said that around October, November and sometimes December there may be people looking for issuers for bank qualified bonds. If the City doesn’t issue anything else this year and still has $4.5 million left, people may come knocking on your door again. Council member Lamb said the City would like to get out of the passive waiting for people to knock on the door and get more into the active promotion of this because it is a revenue stream that carries no liabilities. For Falcon Heights, $50,000 to $100,000 is potentially a heck of a lot of money. He asked Attorney Hallas how the City might more actively pursue these opportunities. Attorney Hallas said that obviously the first would be if someone is coming into your city. The other is to work through your bond counsel and City financial advisors. Put the word out that you would be interested in doing this again. FALCON HEIGHTS CITY COUNCIL MINUTES -6- 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) Mr. Bryan Olson, 1592 Roselawn, asked if the $25,000 will be going on the books as general revenue. Will it be earmarked for anything? Mayor Gehrz said it will be general revenue and is not earmarked. There was no further commentary from the audience and the Public Hearing was closed. RESOLUTION 2005-07 Kuettel moved adoption of Resolution 2005-07 providing for the issuance of up to $5,500,000 senior housing revenue bonds, Pines of Hutchinson, LLC Project, Series 2005A and 2005B, and approval of the joint powers agreement for same. The motion was unanimously approved. CONSENT AGENDA: Talbot moved approval of the Consent Agenda, as outlined below. The motion was unanimously approved. General Disbursements through June 2, 2005: $ 35,544.15 Payroll (5/15/05 – 5/30/05) $ 14,908.67 2. Appointment of Beth Mercer-Taylor, 2231 Folwell Avenue, to the Planning Commission to replace Ann Ziebarth, who is retiring from the Commission 3. Appointment of firefighters, subject to satisfactory completion of employment physicals and background checks: Chris Leske, Abraham Kozemi and Abraham Kao POLICY AGENDA: Consideration of Resolution 2005-08 approving the bid for one triple combination pumper apparatus to be built on a 1,500 gallon per minute Fire Department Pumper with Sterling Acterra 2-door chassis cab, Full Response crew cab, Waterous fire pump system, and stainless steel body per City specifications issued March 9, 2005 Mayor Gehrz said the City’s 2005 Capital Improvement Budget allocated $285,000 for the purchase of a new fire pumper. She introduced Fire Chief Clem Kurhajetz and Second Assistant Fire Chief Mark Allen and asked them to discuss the bid. Fire Chief Clem Kurhajetz said the new truck will replace the 1978 LaFrance pumper, which has had pump and transmission problems. Nine requests for proposals (RFP’s) were sent out and only one company responded with a bid, Custom Fire Apparatus, Inc. The City contacted two of the companies that received RFP’s to ask why they didn’t bid. FALCON HEIGHTS CITY COUNCIL MINUTES -7- June 8, 2005 Consideration of Resolution 2005-08 approving the bid for one triple combination pumper apparatus to be built on a 1,500 gallon per minute Fire Department Pumper with Sterling Acterra 2-door chassis cab, Full Response crew cab, Waterous fire pump system, and stainless steel body per City specifications issued March 9, 2005 (continued) Fire Chief Kurhajetz said that Forester, in Iowa, is too busy, and General didn’t like the specifications because they felt they were too proprietary. General bid on a fire vehicle for Falcon Heights two years ago and lost by a small amount. This vehicle is a 1,500 gallon/minute pumper that will seat five firefighters. You can put a hydraulic ladder on it; it has shelves that put the hoses at shoulder height; and it has rollup doors that won’t stick out in traffic. A brief discussion followed. Council member Lamb asked Fire Chief Kurhajetz if, in his mind, there would be any value in waiting and getting another bid. Fire Chief Kurhajetz said that any bids received will be in the ballpark. Forester never said how far behind they are and the Fire Department would like the truck before winter. Council member Talbot asked what the delivery date will be. Fire Chief Kurhajetz said the truck will be delivered in 180-200 days after the City signs the contract. Council member Kuettel commented that she is pretty confident that the Falcon Heights Fire Department takes care of its equipment. This is not a frivolous undertaking. They have not asked for a lot of bells and whistles on the truck. Council member Lamb said that Custom will give a 6% discount if there is a full prepayment. He suggested that Roland Olson, the Finance Director, run the numbers because it appears the City could save about $1,800 by making a full prepayment. RESOLUTION 2005-08 Lamb moved adoption of Resolution 2005-08 awarding the bid to Custom Fire Apparatus, Inc. for one 1,500 gallon per minute Fire Department Pumper with Sterling Acterra 2-door chassis cab, full response crew cab, Waterous fire pump system, and stainless steel body, per the specifications issued by the City on March 9, 2005, for $283,980. The motion was unanimously approved. Lamb moved that staff be directed to examine the possibility of saving the City money by paying for the fire truck in a lump sum. If money can be saved in this way, staff is authorized to make the payment in full. Otherwise, staff is authorized to pay the $58,000 progress payment to Custom Fire Apparatus, Inc., for delivery of the truck chassis. The motion was unanimously approved. FALCON HEIGHTS CITY COUNCIL MINUTES -8- June 8, 2005 REPORTS FROM COUNCIL MEMBERS: None INFORMATION AND ANNOUNCEMENTS: Council member Lindstrom thanked Ann Ziebarth for her years of service on the Planning Commission and welcomed Beth Mercer-Taylor as her successor. Mayor Gehrz said the State of Minnesota has provided the City with eleven CERT kits which, with vests, are worth about $85.00 each. On Tuesday evening, June 14, the Neighborhood Commission is hosting a block party blastoff at 7:00 PM at City Hall, and it is open to anyone in the City who is interested in learning how to organize a block party. She congratulated several Falcon Heights residents who are graduating from the Roseville High School with honors. Administrator Worthington said that next weekend, June 17-19, is the annual Back to the 50’s event at the State Fairgrounds. Public Works, for this event, is installing “no parking” signage on the hydrant side of streets. There will be four extra police officers on duty. She gave a brief storm damage update and said about 60 private property trees were damaged or lost. About five boulevard trees were lost and about 15 boulevard trees were damaged. She reminded the viewing audience that if they hire a tree removal contractor, make sure the company is licensed by the City, which ensures that the contractor is insured. If residents want a copy of the tree contractor’s list, call or stop in to City Hall. The regular City Council meeting was adjourned at 7:55 PM. Respectfully submitted, Mary Shea Kodluboy Deputy Clerk