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City of Lino Lakes, Minnesota Legacy Project April 30, 2008 Page 5 interest, which may allow the loan to be fully paid off. Subsequently this would allow additional tax increment to flow towards payment of the $556k internal loan, but even in this case there will still be only $3,141,976 in available increments to pay out regardless how the loan is calculated. Both interfund loan notes are attached to this report. Our recommendation is to continue to calculate the interfund loans using capitalized interest thereby maximizing the amount of the City's total payout. Showing the maximum payout is beneficial should the district generate tax increments over and above our current projections meaning there would be additional transfers of funds to pay on the internal loans. Tax Abatement Abatement Bonds were issued to provide a source of funds to affirm the Councils previous financial commitment to the YMCA project. A number of statutory mechanisms were discussed as funding sources for this money including Capital Appreciation Notes, EDA Lease Revenue Bonds, etc. It was determined that the least expensive (lowest borrowing rate) was to issue GO Tax Abatement Bonds. Such bonds require that abatement parcels be described which have a nexus too and /or will receive some benefit from the recipient project of the abatement dollars — the YMCA. Other than identification of these properties for meeting the statutory requirement, repayment was never dependent upon development on these properties. Abatement Bonding was only a mechanism (the most efficient mechanism) to make good on a commitment, which had previously been made to the YMCA. As of this date, no tax capacity has been constructed on the abatement parcels. Such additional tax capacity would have had the affect of offsetting the impact of the tax abatement levy. Upon the sale of the abatement bonds, the City committed to an abatement levy each year to pay debt service on those bonds, regardless of the level of development on the tax abatement parcels. GO Improvement Bonds General Obligation Improvement Bonds were also issued. The costs were assessed back to the benefiting property owners within and outside of TIF District 1 -11. The assessments become part of the property owner's tax bill and are almost entirely guaranteed to be paid eventually, even if a property is in bankruptcy leading to foreclosure. The City however, may have to wait up to 3 years to be reimbursed for back taxes and assessments, and in the interim, has to pay debt service on the Improvement Bonds. Conclusions Scenario 3 appears to be the most likely. For it to become reality, the primary assumptions we are dependent upon are: • The construction of 33 town home or similarly taxed units in 2011, followed by 33 in 2012 and 34 in 2013 o This equals about $6.73M of residential value constructed in each of the years 2011, 2012, and 2013 for a total of $20.2M • That the value of the hotel and tax credit housing currently existing will not decline (this is a solid assumption given the minimum assessed value agreements in place)