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515 Little Canada Road, Little Canada, MN 55117 -1600 <br />(612) 484 -2177 / FAX: (612) 484 -4538 <br />MEMORANDUM <br />TO: Mayor Fahey & Members of the City Council <br />FROM: Joel Hanson, City Administrator <br />DATE: July 17, 1998 <br />RE: Kandice Heights TIF Guarantee <br />MAYOR <br />Michael L Fahey <br />COUNCIL <br />Beverly Scalze <br />Jim LaValle <br />Steve Morelan <br />Bob Pedersen <br />ADMINISTRATOR <br />Joel R. Hanson <br />Development agreements were executed for Kandice Heights I and Kandice Heights II in 1990 <br />and 1991 respectively. Mr. Loren Brueggemann was the developer we were dealing at that time. <br />Within the development agreement, there are two provisions enacted to protect the City in its <br />ability to generate sufficient tax increments to retire the debt issues associated with each of these <br />projects. These two provisions are summarized as follows: <br />♦ Assessment Agreement (Attachment "A ") <br />Each property was assigned a minimum market value which could not be contested by <br />the owners of the property as long as the value was not above the agreed upon amount. <br />In the case of Kandice Heights I, that amount is $1,017,200 and for Kandice Heights II, it <br />is $489,500. <br />♦ Guarantee of Tax Increment Shortfall (Attachment `B ") <br />Also enacted was a provision that required minimum tax increments collected in any <br />calendar year to be equal or greater to a set amount. In the case of Kandice Heights I, <br />this amount is $54,675. For Kandice Heights II, the amount is $33,000. Keep in mind <br />this is tax increments not property taxes which would be even higher. <br />Staff had not paid a great deal of attention to either of these provisions until recent changes in <br />class rates involving commercial/industrial property. With the reduction in class rates, we were <br />concerned that the increment may not be sufficient to cover debt service. Attachment "C" is a <br />debt service cash flow projection that our Accountant, Julie Manville -Camp, put together for this <br />tax increment district. You will note that even with the reduced class rates, the district still has <br />sufficient cash flow to retire debt service payments. However, we will not be generating a <br />surplus of tax increment proceeds until debt is retired (after 2005) as current income streams and <br />debt service payments will be closely matched. The concem in this regard is that we will not be <br />able to fund any further property acquisitions in this area unless there is a project associated with <br />the purchase. <br />Page 9 <br />