07-01-2019 Council Packet - Laserfiche WebLink

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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2018 Baker Tilly Virchow Krause, LLP Construction cost audit The City Council has requested additional information on possible options for reviewing the estimated construction costs of the project. There are two general approaches that can be used to achieve this outcome. The City could have an independent review of the costs occur prior to construction to test the estimates as compared to market standards. The City could also hire an independent third party to review and audit the total construction costs following completion of the project. Either approach would be intended to provide the City Council with an understanding of the developer’s assumption of construction costs and actual investment in the project. Background The City of Lino Lakes received an application for financial assistance through tax increment financing (TIF) to assist with financing a portion of the extraordinary development costs related to the construction of a senior care building with approximately 143 independent and assisted living units and approximately 56 skilled care units with 20 detached rental town homes. The project also includes acquisition of several properties on the corner of County Road J and CSAH 49 for demolition and installation of new infrastructure, and where the senior housing development will not occur but will present future development opportunities following redevelopment. The creation of a tax increment financing (housing) district would facilitate the development with the requirement that at least 20% of the units would be occupied by individuals at 50% of the area median income. We have reviewed the application and performed financial analysis for the project, including numerous discussions with the City Council at work sessions to review the financing components of this project and to understand the developer’s request and need for financial assistance. The purpose of this memorandum is to provide an overview of the anticipated financing package to the developer following those discussions, as well as a summary of the draft Tax Increment Financing (TIF) plan or the proposed Tax Increment Financing (Housing) District No. 1-13. Proposed Financial Assistance to Developer The application for financial assistance as submitted by the developer included $5.3 million over 15 years for acquisition and development of the project site, followed by subsequent construction of a senior care campus. Through submission of the tax increment financing application and supporting financial information, the developer indicated that the project as proposed would not occur on the current site without financial assistance from the City due to extraordinary costs associated with acquisition of the additional properties and site development/infrastructure improvements. Following thorough review of the project financing components, we have determined that tax increment financing assistance is necessary for the project to proceed as proposed. The developer is not able to obtain the maximum financing amount without the additional revenue stream provided through tax increment necessary to finance the entire project cost and the projected returns are not anticipated to be feasible. The work sessions provided framework to us and City staff that the goal of the City Council was to reduce the duration of assistance to as short of a term as possible. We have been working with City staff following those meetings to diligently meet that request. The following table provides a summary of the proposed financing package to the developer. Financial Assistance Package Initial request $5,300,000 Reduction of request based on financial review $(1,400,000) Reduction based on fee credits $(300,000) Net Assistance through TIF (est. 9.5 years) $3,600,000 Pooled TIF from Housing District 1-5 $382,000 Proposed TIF Assistance to Developer from TIF 1-13 (New Housing TIF District) over 8.5 years $3,218,000