Loading...
HomeMy WebLinkAbout07/14/2005 EDAC Minutes 1 APPROVED CITY OF LINO LAKES ECONOMIC DEVELOPMENT ADVISORY COMMITTEE MINUTES DATE: Thursday, July 14, 2005 MEMBERS PRESENT: J. Schwartz, S. Rymer, B. Combs, K. Corson, J. Kuschke, J. Milbauer, K. Hansmann MEMBERS ABSENT: T. Vacha, J. Helgemoe OTHERS PRESENT: Ms. Divine (part) Al Rolek, Michaela Huot (Springsted) Mike Grochala (part) GENERAL/MINUTES Minutes of June 2, 2005 were approved. TAX ABATEMENT FOR YMCA Ms. Divine introduced Michaela Huot from Springsted, the city’s financial consultant, and Al Rolek, city finance director. The City Council will consider the use of tax abatement for its commitment to the YMCA at the July 25 public hearing. Ms. Huot explained the history of the city’s $1.5 million commitment to the YMCA. Current project costs are $7.5 million. The YMCA has $3 million in donations, they will finance $2.5 million and the city is financing $1.5 million, and contributes $500,000 in land. Separate from the abatement discussion, Mr. Rolek explained that the YMCA is also looking at financing their $2.5 million debt with conduit revenue bonds. They will use the city’s name on the bonds, so the Y can finance at a lower tax exempt interest rate. The city has no liability for repayment. Mr. Milbauer stated Lino Lakes State Bank has agreed to provide the financing for the conduit bonds. In the event of default, the city will be asking for “right of first refusal” on the property, which means the right to assume any debt that would be remaining. Ms. Huot reviewed tax abatement, which is not an actual abatement of taxes, but permits a levy of taxes for development purposes. The amount captured is determined by the local city’s tax rate and can be up to 100% of the land and buildings. To utilize it, you must find that the benefits received are equal the costs to the city and are in the public interest and meet development objectives. Based on the annual levy, the city has a limit of approximately $650,000/year that can be used through tax abatement. The city has one abatement already in place for the Target/Kohls project and that abatement is about $118,000/year through 2009, so even with the new abatement, the city is at only about 50% of its abatement limit. Ms. Huot reviewed the options and the process for financing and why Springsted is recommending a 15-year tax abatement. The G.O. backed abatement bonds are structured to be phased in with the Legacy project to cover principle and interest, so that the levy is offset by the 2 added tax base. Ms. Huot explained that a portion of the Legacy project is inside a TIF district. The tax abatement boundaries are related to the portion of the Legacy project that are outside the TIF district, since a city cannot use taxes generated within a TIF district for tax abatement. Tax abatement works through identifying properties that should experience the growth and generate the taxes needed to offset the levy. The city adds to the levy each year the amount needed for debt service and it is spread among the taxpayers. To use the tool you have to identify the properties that are to be developed to offset the additional levy. The bonds are structured so as development is phased in over five years the amount available for the debt service is also increasing, until the amount of taxes from the project exceed what the city will need to levy for the debt service. Ms. Schwartz clarified that even though it is a levy among the taxpayers, property taxes should not go up, because it is absorbed by the increased tax base. Ms. Huot said the developer estimates $60 million in taxable value on the identified parcels with partial value created for tax available in 2008, with four additional years of phasing, with annual tax revenue from the project to be $305,000/year. For the debt service we’ll need approximately $150,000 -$175,000/year. So the difference not being abated should be able to absorb any increased services of the project itself. Mr. Rolek stated the estimate on the impact on a median value home in Lino Lakes is $17- $22/year. The added tax base should absorb that. The abatement law was changed this year to extend the duration to 15 years and a city does not have to request participation from the county and school district. The city did not request participation because those entities do not generally participate. Ms. Kuschke asked about costs of abatement bonds. Mr. Milbauer asked if the city considered private placement to save costs. Mr. Rolek stated the city generally goes out to bids on abatement bonds but private placement would not be ruled out. Ms. Kuschke asked whether this could restrict the city’s ability to use tax abatement in the future. Mr. Rolek said the amount the city needs to recapture every year is structured so the payment on the bonds remains much the same annually, while the city’s annual levy increases each year. Mr. Rolek said TIF will still remain the major development tool. TIF generates more money for development. Tax abatement is used when development doesn’t qualify for TIF. TIF cannot be used for this project because the YMCA is tax exempt and because a portion of the Legacy project did not qualify for TIF because it had no previous substandard development on it. Mr. Rolek said the abatement bonds are less complicated and have lower rates. It is more cost effective than lease revenue bonds because of GO backing. Committee asked for clarification regarding conduit bonds to finance the YMCA’s debt. The IRS allows cities to lend their bond rating to tax exempt organizations. There is no risk to the city and this is not a debt of the city. The city is lending its name to allow the Y to get lower interest rates. A default does not impact the city’s bond rating. The bank lends directly to the Y. 3 The bank takes all the risk. The city will want the option to sell the facility to recoup its investment and sell the building off in the event of default. A motion was made by Steve Rymer to recommend to the city council that the city finance its $1.5 million commitment for the YMCA project through the issuance of $1.5 million in G.O. Tax Abatement Bonds. Mr. Milbauer seconded the motion. During discussion Mr. Corson questioned the private versus public placement. Mr. Rolek said bond counsel will look at whether a bid process would be more competitive. Motion was amended to include “associated costs” to the $1.5 million in abatement bonds. Motion passed unanimously. OTHER BUSINESS Mr. Grochala gave an update on the AUAR, which is out for public comment. Hardwood Creek LLP is modifying plans based on preliminary comments in the AUAR. A Comprehensive Plan amendment will be required, and that submittal is likely in September or October. The plan has approximately 600,000 sq. ft. of commercial and the remaining will be housing with different types, including townhomes. No apartment or rental is proposed. Wells Fargo will be under construction next month just south of McDonalds. Rud Surveyors will be starting soon on Lake Drive/49. Legacy projects will be coming forward soon. The Vikings stadium developers are concentrating on Blaine. The Suntide proposal on 35E/Cty Rd. 14 on Dick Schreier’s property has a concept of three outlot pads to start, with a future commercial on the balance of the 30 acres. The master plan on 49/J is being completed. There are utility issues there, but residential developers are interested. Ryan Cos. has a building permit for the Marketplace multi-tenant buildings. A developer has introduced a concept for the old Schwan’s site, which is potentially a bank and a retail user and they may apply soon. NEXT MEETING Thursday, August 4, 2005. Meeting adjourned.