06/06/2024 EDAC Combined Packet - Laserfiche WebLink

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ECONOMIC DEVELOPMENT ADVISORY COMMITTEE AGENDA ITEM 3A STAFF ORIGINATOR: Mike Grochala, Community Development Director EDAC MEETING DATE: June 6, 2024 TOPIC: Financial Securities – New Development BACKGROUND During the May 2, 2024 meeting the EDAC questioned what requirements the City has to make sure that improvements are completed for development projects. The City, through our “Official Controls”, has the authority to require the deposit of a financial security to assure the City that the improvements will be constructed or installed according to the specifications of the City. The City’s subdivision and zoning ordinance include requirements for the posting of securities. The city requires a cash escrow, surety agreement, irrevocable letter of credit, in the amount of 35% of the cost of work for private improvements and 125% for public improvements. A surety agreement is an agreement between a bank, a developer and City in which the construction funds are placed in an escrow account and cannot be released without approval by the City, upon satisfactory completion of improvements. In the event of default by the developer, the City can access the funds to complete the improvements. An irrevocable letter of credit (ILOC) is a financial instrument guaranteeing payment for goods and services purchased by the party requesting the letter. It cannot be canceled or modified in any way without the consent of the affected parties involved. In the event of default, the City has the right to draw upon the cash deposit or letter of credit for the purpose of guaranteeing the terms and conditions of the agreement. A letter of credit must be in a form, and from a bank, as approved by the City. Letters of credit must be automatically extended for a period of one year unless the City is notified 60 days prior to the expiration date that the letter will not be extended. Bank approval is typically granted to national banks and regional or local banks located within Minnesota. We do not have requirements for minimum holdings of banks. However, as a matter of practice, the City Attorney advises that, for smaller banks, the City verifies how much a bank has on hand. Typically, the City has received an ILOC from national or regional banks, but the size of the project can impact that. An ILOC could range from $25,000 on a small commercial project with no public improvements to $5 million for a larger residential project.