08-13-2003 Council Agenda - Laserfiche WebLink

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0-1 o Little can dQ,d COMMUNITY PRIDE 1953 - 2003 AL-41'0R Michael I. Pahey COUNCIL, Jim LaValle Matt .Anderson Rick Montour Bill Blesene,r 515 Little Canada Road, Little Canada, MN 55117 -1600 (651) 766 -4029 / FAX: (651) 766 -4048 ADA'IINIS "L'Rf1TOR wwwci.httle- canada.mn.ns Joel R. Hanson MEMORANDUM TO: Mayor Fahey & Members of the City Council FROM: Joel Hanson, City Administrator DATE: August 8, 2003 RE: Development Agreement for District Council 82 Project Attached is the proposed development agreement with District Council 82 for TIF assistance for their new 57,000 square foot building to be constructed on the former Knox site (Attachment A). As you will recall, the City is being asked to advance the funds for this project much like a bonded transaction versus the safer "pay as you go" concept. We would not actually issue bonds. Rather, we would do an intrafund loan and use this advance as an investment of City funds. The pros and cons of this approach are as follows: Pros: Cons: • Assists District Council 82 in the financing of their project to help make it a reality. • Provides an investment option for the City at a better yield than we can earn today (5.5% for the projected 17 year term). I am also exploring the possibility of having this rate be rebased should rates rise. (State Statutes govern this provision.) • Security for our investment is provided by an assessment agreement with a $4,000,000 market value (another $500,000 higher than initially projected), a cash deposit equal to one year's TIF payment, and a guarantee of a minimum tax increment collection every six months of $23,165, which enables us to retire the debt. (See attachments 13 & C) • The biggest risk once the building is constructed relates to changes to State property tax laws. If these changes result in tax reductions, then the guarantee will kick in. While the Developer will be obligated to pay us, Bond Counsel tells me there have been instances when developers have not made these guarantee payments willingly. • The Developer could also encounter financial difficulties and not be able to pay taxes or their guarantee (evaluations of their cash flow do not indicate this is likely). In this event, we should ultimately receive our payments as it is unlikely the mortgage holder will let the building go tax forfeit. This would be a cash flow drain for us, but not one that is unmanageable. ▪ Interest rate rise rapidly making a 5.5% interest rate a poor use of the City's money. (We may be able to solve this if we can rebase the interest rate.) There are some corrections to the attached agreement that are still being made. Subject to those changes, I would recommend adoption of the agreement as proposed. cc: Mark Ruff, Ehlers & Associates Mary Ippel, Briggs & Morgan Frank Dunbar 1