11-12-1997 Council Agenda - Laserfiche WebLink

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Mayor & City Council November 7, 1997 Page 2 ♦ From the City's standpoint, it is also imperative that closing occur in 1997 in order to avoid IRS regulations regarding limitations on bank qualified tax exempt issues. Any time you issue over $10,000,000 in tax exempt financing, additional bonding is subject to bank qualified limitations. By not being a bank qualified bond, the issuer is subject to higher interest costs. Due to the fact we have not issued any bonds in 1997, this is an excellent year for us to undertake this project; especially in light of our potential work on the Rice Street/Little Canada Road redevelopment area next year. We cannot afford higher interest rates on our project and HADC would not be able to reimburse while maintaining the same improvement program. ♦ HADC could undertake this acquisition with conventional financing. However, the higher interest costs associated with that type of debt would substantially reduce the amount of improvements available to the property and eliminate the option for sprinklering. ♦ Mr. Echtenkamp has talked with the Ramsey County Sheriff's Department regarding Montreal Courts calls for police service. In the attached correspondence, he is indicating efforts they will undertake to address these concerns. He has also noted that a complete management plan for the property has not yet been developed. This cannot occur until they are in control of the property and can gather more in depth, information on -site. ♦ An important issue we should be very concerned with is the opportunity for Montreal Courts to seek a lower tax classification rate effective in 1999. In 1997, the legislature enacted a new "4d" class rate. This lowers the property's percentage of market value for tax capacity calculations from 3.4% in 1997 to 1% in 1999. (1998's rate is being reduced to 2.9% of market value for apartments with a target rate of 2.5 %.) While this property is eligible to take advantage of this new class rate irrespective of our financing, I have asked the prospective owners to consider a payment in lieu of taxes to keep the City whole. ♦ HADC's proposal to keep the City whole in terms of real estate taxes is to pay us 10% of the decrease in tax payments associated with the reduction from the 4d class rate. Attached to this memo is an analysis sheet I put together which attempts to measure the impact of the 4d class rate and HADC's reimbursement proposal. Even with an estimated increase in market value to $15,500,000, their proposal would still leave us short based upon taxes generated in 1997. To truly keep us whole, we should be receiving 14% of the reduction in taxes associated with this class rate change escalated by some inflationary factor to keep future dollars at 1997 levels. I have been informed by Mr. Echtenkamp that they feel they have pushed their financing program to the maximum extent possible and that any change in the formula will impact the timing of the fire suppression system installation. I informed him that the City Council would have to provide direction in this area. It is my opinion that this financing offers the City a significant opportunity to enhance the Montreal Courts property while also protecting us financially from property tax changes imposed by the legislature. I feel it is doubtful that this issue can be resolved at Wednesday night's Page 6