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HomeMy WebLinkAbout02-28-2008 Charter PacketLINO LAKES CHARTER COMMISSION SPECIAL MEETING AGENDA Thursday, February 28, 2008 1. Call to Order and Roll Call 6:30 PM 2. New Member Sworn In: Chris Lyden 6:32 PM A. Introduce new member to Commission 6:33 PM New Commissioner: two -minute introduction 3. Pledge of Allegiance 6:35 PM 4. Approval of Agenda 6:36 PM 5. Open Mike 6:37 PM 6. Old Business A. On-going reports from city administrator: Budget, Five -Year Plan (Read Only) B. Discussion of Charter's Amendment 6:38 PM C. Resolution accepting Commissioner Robert Bening's Resignation 7:45 PM Adjourn 7:47 PM Memorandum Date: February 21, 2008 To: Charter Commission From: Gordon Heitke Re: Agenda Item 6A — Administrator's Report on Budget and Five -Year Financial Plan The 2008 General Operating Budget and the Five -Year Financial Plan have been adopted by the Lino Lakes City Council. The adopting resolutions are attached as well as the budget sheet relating to the Charter Commission. (Entire budget is on the city's web site.) Council Member 0' Donnell introduced the following resolution and moved its adoption: CITY OF LINO LAKES RESOLUTION NO. 07-209 RESOLUTION ADOPTING THE FINAL 2008 GENERAL OPERATING BUDGET FOR THE CITY OF LINO LAKES. WHEREAS, Pursuant to State Statute, the Lino Lakes City Council is required to adopt a resolution setting out final General Fund revenues and expenditures for the upcoming fiscal year. NOW THEREFORE BE IT RESOLVED: That the following final General Fund operating budget be adopted for 2008: 2008 FINAL GENERAL FUND BUDGET REVENUES: Property Taxes $7,778,236 Intergovernmental Revenue 657,000 Licenses and Permits 642,500 Charges for Services 250,500 Fines & Forfeitures 110,000 Interest on Investments 200,000 Miscellaneous 269,562 TOTAL FINAL GENERAL FUND REVENUES $9,907,798 EXPENDITURES: Administration $1,375,702 Community Development 1,126,188 Public Safety 3,942,918 Public Services 2,671,990 Other 791,000 TOTAL FINAL GENERAL FUND EXPENDITURES $9,907,798 Adopted by the Lino Lakes City Council this 17th day of December, 2007. The motion for the adoption of the foregoing resolution was duly seconded by Council MemberStoltz and upon vote being taken thereon, the following voted in favor thereof: O'Donnell, Stoltz, Reinert, Carlson, Bergeson The following voted against same: none Whereupon said resolution was declared duly passed and ad nne Bartell, Ci A-3 CITY OF LINO LAKES CHARTER ADMINISTRATION 001-40) Object Actual Actual Budget Adopted Increase( ,--N3escription Code 2005 2006 2007 2008 Decrease SUPPLIES OFFICE SUPPLIES 4200-000 0 0 0 0 0 0 0 *** OTHER SERVICES AND SUPPLIES PROFESSIONAL SERVICES 4300-000 628 0 0 0 `** PROF SERVICES - CHARTER COMM 4300-999 0 1,018 1,500 5,000 233.33% MUNICIPAL ATTORNEY 4301-000 1,532 1,027 500 500 0.00% POSTAGE 4322-000 35 0 0 0 *** PRINTING & PUBLISHING 4340-000 27 36 200 200 0.00% NEWSLETTER 4343-000 152 0 0 0 *** LEGAL NOTICES 4344-000 0 0 0 0 *** 2,374 2,081 2,200 5,700 159.09% CAPITAL OUTLAY EQUIPMENT 5000-000 0 0 0 0 TOTAL CHARTER ADMINISTRATION 0 0 0 0 2,374 2,081 2,200 5,700 159.09% D-23 Council MembeP' Donnell introduced the following resolution and moved its adoption: CITY OF LINO LAKES RESOLUTION NO. 08-12 RESOLUTION ADOPTING THE 5 -YEAR FINANCIAL PLAN FOR 2008-2012 WHEREAS, Chapter VII, Section 7.05 of the City Charter calls for the preparation of a five-year financial plan, and, WHEREAS, City staff has prepared such five-year financial plan for the years 2008 —2012, including all elements as listed in the City Charter, and, WHEREAS, City staff has reviewed the proposed 2008-2012 Five -Year Financial Plan with the City Council, and, WHEREAS, the City Council has held a public hearing and taken public comment on the proposed 2008-2012 Five -Year Financial Plan as required by the City Charter. NOW, THEREFORE, BE IT RESOLVED, that the Lino Lakes City Council hereby adopts the proposed 2008-2012 five-year financial plan. In accordance with the City Charter, the City Council hereby orders a summary of the Five -Year Financial Plan be published in the official newspaper. Adopted by the Lino Lakes City Council this 28th day of January, 2008. The motion for the adoption of the foregoing resolution was duly seconded by Council Member Gallup and upon vote being taken thereon, the following voted in favor thereof: O'Donnell, Gallup, Reinert, Bergeson The following voted against same: none (absent Stoltz) Whereupon said resolution was declared duly passed and adopted. Julie the Bartell, C CI Joh Ber son, layor 3 Charter Commissioner introduced the following resolution and moved its adoption: LINO LAKES CHARTER COMMISSION RESOLUTION NO. ACCEPTING THE RESIGNATION OF COMMISSIONER ROBERT BENING Whereas, Charter Commissioner Robert Bening has submitted a written notice of resignation to the Charter Commissioner Chairperson; and ' Whereas, Mr. Bening's resignation is effective February 12, 2008; and Whereas, the term of appointment for Mr. Bening's position on the Commission will expire on December 31, 2009; NOW, THEREFORE, BE IT RESOLVED BY THE CHARTER COMMISSION OF THE CITY OF LINO LAKES: That the Commission hereby accepts the resignation of member Robert Bening. Be It Further Resolved that the Charter Commission Chair will initiate the process to fill the vacant position on the Commission. Cori Duffy, Chairperson Attest: Julianne Bartell, City Clerk Adopted by the Lino Lakes Charter Commission this 28th day of February, 2008. The motion for the adoption of the foregoing resolution was duly seconded by Charter Commission member and upon vote being taken thereon, the resolution was declared duly passed and adopted. COMPARISON OF ASSESSMENT RULES UNDER CHAPTER 429, EXISTING CITY CHARTER, TASK FORCE PROPOSAL, CHARTER COMMISSION PROPOSAL, AND CITIZEN PROPOSAL Prepared by Stephen Bubul Kennedy & Graven, Chartered February 18, 2008 1. SCOPE/APPLICAPILITY. Chapter 429: Existing Charter: Task Force Proposal: Charter Commission Proposal: Citizen Proposal: 212 s Governs the undertaking of all "improvements" "defined in Section 429.021, but only if financed in whole or in part with special assessments. Substantially same as Chapter 429. Same as Chapter 429. The terms "public improvements and "local improvements" are not defined. All public improvements funded in part through either general revenue or special assessments must be "primarily designed to give a direct benefit to property currently occupied by residents or businesses in the City." Section 8.01, subd. 2. The "direct benefit rule" applies to all types of improvements, even where special assessments are not used. However, the balance of the proposal only describes procedures for special assessments, so the procedures for improvements funded by general revenue (without assessments) are unclear. The proposal goes beyond the scope of Chapter 429 and the Existing Charter in three additional ways: (i) prohibits use of special assessments and general revenues to fund improvements "primarily designed to open up new areas of the City for development;" (ii) prohibits use of special assessments for maintenance; and (iii) prohibits City from requiring property to connect to sanitary sewers if served by a properly working private sewage disposal system (with provision for later connection). Same as Charter Commission Proposal. 1 2. MEASUREMENT AND ALLOCATION OF ASSESSMENTS. Chapter 429: Section 429.051 provides that cost "may be assessed upon property benefited by the improvement, based upon the benefits received, whether or not the property abuts on the improvement." Section 429.061 states that the clerk (with assistance of the engineer or other qualified person), shall calculate the proper amount to be assessed against each parcel, without regard to cash value. Otherwise, the spread of assessments is governed by case law. Generally, property must receive a "special benefit," measured by the increase in market value attributable to the improvement. Existing Charter: Generally consistent with Chapter 429. Indicates that the total assessment may not exceed the cost of the improvement, and assessments may not exceed the "benefits to the property." Section 8.01. Task Force Proposal: Substantially the same as Existing Charter. Charter Commission Proposal: Varies from Existing Charter and state law in three ways: Citizen Proposal: (i) As noted above, requires "direct benefit" to property that is "currently occupied." Substantially narrower than state law and Existing Charter. (ii) Requires a special benefit to "adjacent or nearby properties." Section 8.03, subdivision 1. Somewhat narrower than state law and Existing Charter, as benefit may not always depend on proximity to the improvement. (iii) Requires that assessments be imposed "uniformly on similar properties." Possibly narrower than state law and Existing Charter. Case law requires that assessments be uniform upon the same "class" of property, often restated as a requirement that the assessments on various properties be "roughly proportionate" to the benefits accruing. See, e.g., Anderson v. City of Bemidji, 295 NW2d 555 (Minn. 1980). Unclear how courts would interpret the specific language in the Charter Commission Proposal. Same as Charter Commission Proposal. 2 3. IMPROVEMENTS INITIATED BY 100% PETITION. Chapter 429: Existing Charter: Petition must be signed by owners of "all real property abutting upon any street named as the location of any improvement," requesting assessment of the "entire cost against their property. Section 429.031, Subdivision 3. No hearing needed, and council may approve by majority vote. Petition must be signed by 100% of the "benefited owners." The improvement may not be approved until after a public hearing (described below). After hearing, another 60 -day waiting period is required before council action unless all petitioners file a second petition to waive 50 of the 60 days. Task Force Proposal: Same as Chapter 429. Charter Commission Proposal: Substantially the same as Chapter 429. Petition must be signed by 100% of the "property proposed to be specially assessed," and must be accompanied by an agreement to pay 100% of the cost of the improvements. No hearing needed, and council may approve by majority vote. Citizen Proposal: Same as Charter Commission Proposal. 4. IMPROVEMENTS INITIATED BY LESS THAN 100% PETITION. Chapter 429: Existing Charter: Petition must be signed by owners of at least 35% in frontage of the real property abutting streets named in the petition. Public hearing is required (described below), and council may approve by majority vote. If the petition is signed by less than 35%, or the council itself initiates the improvement, the council must approve by 4/5 vote (after the same hearing process as for a 35% petitioned project). Petition must be signed by 25% "in number of the "benefited owners." Section 8.04, subd. 1. The council may initiate the petitioned improvement by a majority vote. Or, the council may initiate an improvement by a 4/5 vote. In either case, improvements may not be finally approved until after the hearing and petition process described below. 3 Task Force Proposal: Charter Commission Proposal: In counting the number of benefited owners, an owner of multiple parcels can only sign once, and each benefited parcel can only have one signature. Petition must be signed by 35% of the owners of the real property abutting on the streets named in the petition. Public hearing is required as under Chapter 429 (subject to the objection and petition process described below), and the council may approve by majority vote. If the petition is signed by less than 35%, or the council itself initiates the improvement, the council must approve by 4/5 vote (after the same hearing and petition process as for a 35% petitioned project). In counting the number of owners, the same rules apply as in the Existing Charter (i.e., owners of multiple parcels sign once, each parcel gets one signature). Petition must be signed by owners of "more than 25%, but less than 100%, of the property proposed to be specially assessed." Section 8.04, subd. 4. The council may then order a feasibility study by majority vote. Or, the council may initiate an improvement by ordering a feasibility study, by 4/5 vote. In either case, improvements may not be finally approved until after the hearing and petition process described below. The rules for counting owners are slightly different from the Existing Charter and the Task Force Proposal. As in those other documents, owners of multiple parcels can only sign once, and each benefited parcel can only have one signature. However, the Charter Commission Proposal also indicates that signers must own at least 25% of the total number of lots, and that if multiple owners of a lot also own an additional lot or lots, only one signature will be counted for all their lots. Further, the Existing Charter refers to 25% of the "benefited property owners," while the Charter Commission Proposal refers to 25% of the owners (or lots?) "proposed to be specially assessed." Citizen Proposal: Same as Charter Commission Proposal. 5. HEARINGS, SUBSEQUENT PETITIONS. Chapter 429: After Council receives feasibility study, public hearing is required with 10 days mailed notice and published notice twice in consecutive weeks, with the second one at least 3 days before the hearing. Council may approve resolution ordering the improvement (by the vote 4 Existing Charter: Task Force Proposal: Charter Commission Proposal: described above) any time within 6 months after the hearing. [As noted above, this step is not needed for 100% petitioned projects.] After Council receives cost estimate (the equivalent of a feasibility study), public hearing required with notice similar to Chapter 429, except contents are more detailed and mailed notice is two weeks rather than 10 days. [This step is needed even for 100% petitioned projects] After hearing, owners have 60 days to file a petition against the improvement (requires at least the same number who petitioned for the project in a 25% petitioned scenario, majority of owners in a council - initiated scenario). If a petition against is filed, owners who favor the improvement may file a counter -petition within the same 60 -day period. If the improvement is not barred by a petition against, Council may by resolution "proceed on the improvement" at any time within a year after the hearing (subject to the referendum requirement discussed below). [This step is needed even for 100% petitioned projects, except that petitioners can reduce the waiting period to 10 days, as noted above.] The hearing and notice requirements are the same as Chapter 429, except that if more than 50% of the owners abutting streets named in the mailed notice file objection at or before the hearing, the council must hold a special meeting at least 45 days after the first one, and must provide at least 10 days mailed notice of that meeting. The council may adopt a resolution ordering the improvement within six months after the date of the special meeting (by the vote described above), but the resolution is not effective for 30 days after adoption. If more than 50% of the affected owners file objections within that 30 -day period, the improvements are not ordered. The Charter Commission Proposal creates a process significantly different from Chapter 429, the Existing Charter and the Task Force Proposal. It contains these elements: (i) If more than a single public improvement is proposed, the feasibility study must include information on alternatives (including combinations of alternatives); and if the improvement consists of street reconstruction, one alternative must be to do only the street. 5 Citizen Proposal: (ii) The feasibility study must include (for each alternative) five listed items in addition to any requirements under Chapter 429. (See Section 8.05, subd. 1) (iii) A public hearing must be held with (apparently) the same notice requirements as Chapter 429, except that the mailed notice must include detailed information about each alternative from the feasibility study. (The notice under Chapter 429 requires a description of the general nature of the improvement, the estimated cost, and the proposed area to be assessed). (iv) After the hearing, owners have 60 days to indicate their preferences for all the proposed improvements, a specific alternative combination, or none of the improvements. (v) The Council must approve the alternative approved by the largest number of owners, and shall not approve any of them if the largest number of owners indicated a preference for none. (vi) If owners indicate a preference for a street improvement without utilities that were recommended by staff, such utilities may not be installed using any City general revenue within five years after completion of the street. (vii) If the owners preferred some alternative (rather than "none"), there is a second 60 -day waiting period for final council action on the improvements. [This period seems to be relevant only for projects funded in part with general revenues, discussed below, but the proposal literally imposes this waiting period on all improvements] The Citizen Proposal calls for a public hearing that generally follows the rules of Chapter 429, but with a more detailed feasibility study and hearing notice (incorporating most of the language on these topics in the Charter Commission Proposal). However, instead of the "owner preference for alternatives" system in the Charter Commission Proposal, the Citizen Proposal provides a two-step opportunity for petitions against the improvements: 6 (i) If more than 50% of the owners file a petition against the improvements within 30 days after the hearing, the Council shall not approve the improvements. (This is essentially identical to the petition process in the Task Force Proposal.) (ii) If a street is improved without utilities recommended by staff, then utilities may not be installed in that street using any City general revenue within 15 years after completion of the street. (iii) If a valid petition from the owners is not filed, there is a second 60 -day period to allow for a petition from all City taxpayers. [As with the Charter Commission reverse -referendum, this period seems to be relevant only for projects financed in part from the general fund, but the proposal literally imposes this waiting period on all improvements] (iv) When the improvement is financed in part through the City general fund, if more than 19% of the registered voters in the last City election file a petition to stop the improvements within 60 days after Council approval, the Council shall not proceed. If a valid petition is not filed, the Council may approve the improvements at any time during the next year. [In the November 2006 election, there were 10,824 registered voters in the City, so 2,057 registered voters would be needed to file a successful petition today] 6. REFERENDUM REQUIREMENTS Chapter 429: Existing Charter: No referendum required for approval of an improvement. Referendum is required to issue general obligation improvement bonds only if less than 20% of the cost to the City is paid with special assessments. Referendum required if less than 100% of the cost is paid by special assessments, connection charges, or any outside funding sources other than the City general fund. Must submit the proposed improvement, and the assessment formula, to the voters within 120 days after the public hearing. If a majority those voting on the question are opposed, the Council shall not proceed with the improvement. 7 Task Force Proposal: None; same as Chapter 429. Charter Commission Proposal: Reverse referendum only, when an improvement is funded in part through "general revenue." Section 8.09, subd. 1. If registered voters equal to at least 12% of the number of votes cast in the last mayoral election file a petition before the first regular Council meeting following the 60 -day period after the public hearing, the Council shall order the question to be put on the ballot at the next general or special election. If a majority of those voting on the question are opposed, the Council shall not proceed with the improvement. [In the November 2006 election, 2,116 votes were cast for mayor, so 254 registered voters would be needed to file a successful petition today.] Citizen Proposal: None; see taxpayer petition against the improvements described above. 7. COST INCREASE PROVISIONS. Chapter 429: Existing Charter: No express provision limiting cost increases over the amounts estimated at the time of the hearing. However, Section 429.031, subd. 1 (g) provides that the resolution ordering the improvement may not increase the "extent of the improvement" as stated in the notice of hearing. If bids exceed the cost estimated by the engineer at the time of the public hearing by more than 10%, the council may not award the contract. The Council may re -bid the improvement one time only. Task Force Proposal: Same as Chapter 429. Charter Commission Proposal: Same as Existing Charter. Citizen Proposal: Same as Existing Charter. 8. SPECIAL RULES IN IDENTIED COMMERCIAL AREAS. Chapter 429: Not applicable. Existing Charter: Chapter 429 governs in identified areas around Hodgson Road and Lake Drive; Interstate 35-E and Main Street; and Interstate 35-W and Lake Drive. However, owners of single family, owner -occupied units that existed on September 30, 1993 may opt out of any special assessments. This right terminates when an owner - occupied residential unit no longer exists on the parcel. 8 Task Force Proposal: Charter Commission Proposal: Citizen Proposal: Same as Existing Charter, except that the opt -out for owner -occupied residential units is deleted. That is, Chapter 429 governs without exception in the three areas. Eliminates two of the special areas, leaving only the area around Interstate 35-W and Lake Drive. Also revises the rules for the single-family opt -out, and applies the new rules on scope and measurement (described in points 1 and 2 above) within the 35-W/Lake Drive special area. Same as Charter Commission Proposal. 9 COMPARISON OF SPECIAL ASSESSMENT RULES, CITY OF LINO LAKES Topic Chapter 429 Existing Charter Task Force Proposal Charter Commission Proposal Citizen Proposal 1. Scope/Applicability Governs only imps. paid in part with assessments. Same as Ch. 429. Same as Ch. 429. Governs imps. paid with assessments or general revenues. No assessments or gen. revs. to open new areas. No assessment for maintenance. Same as Charter Conunission Proposal. 2. Measurement/ Allocation Benefits=market value increase. Roughly proportionate. Same as Ch. 429. Same as Ch. 429. Direct benefit to occupied property. Adjacent/nearby. Uniform. Same as Charter Commission Proposal. 3. 100% Petition Owners of all abutting property, assess all cost. No hearing, majority vote. All benefited owners, assess all cost. Hearing required. 60 -day waiting period (waivable to 10 days). Same as Ch. 429. Same as Ch. 429._ Same as Charter Commission Proposal. 4. < 100% Petition If 35% of frontage, majority vote to approve. If <35% or council initiated, 4/5 vote to approve. If 25% of benefited owners, majority vote to initiate. If <25% or council initiated, 4/5 vote to initiate. If 35% of abutting owners, majority vote to approve. If <35% or council initiated, 4/5 vote to approve. If 25% of owners (or lots?), majority vote to initiate. If <25% or council initiated, 4/5 vote to initiate. Same as Charter Commission Proposal. Topic Chapter 429 Existing Charter Task Force Proposal Charter Commission Proposal Citizen Proposal 5. Hearings, Subsequent Petitions 10 days mailed, two weeks published notice of hearing. Approve w/in 6 mos. after hearing. Two weeks mailed, published notice of hearing. 60 days to file petitions against/for. 10 days mailed, two weeks published notice of hearing. If >50% owners object, special meeting at least 45 days later. If >50% file petition against within 30 days after special mtg., no project. 10 days mailed, two weeks published notice of hearing. Feasibility study of alternatives. 60 days to vote for preferred alternative. Council must approve alternative with most votes; or no project if most prefer none. 10 days mailed, two weeks published notice of hearing. If >50% file petition against within 30 days, no project. If funded partly from general fund, 60 days for taxpayer petition against. If >19% of registered voters file against within 60 -day period, no project. 6. Referendum None. If funded in part from general fund, must hold referendum. Same as Ch. 429. If funded in part from general revenue, 60 days for petition to hold referendum. If 12% of votes in last mayoral election file within 60 days, must hold referendum.. Same as Ch. 429; but see petition against, above. 7. Cost Increase No limitations. Bids can't exceed estimate by >10%. Only one re -bid. Same as Ch. 429. Same as Existing Charter. Same as Existing Charter. 8. Special Areas Not applicable. Ch. 429 governs in three special areas. Single family opt- out. Same as Existing Charter, except no single family opt- out. Ch. 429 partly governs in one special area; two special areas deleted. Revised single family opt - out. Same as Charter Commission Proposal. Spr ngsted January 29, 2008 Mr. Gordon Heitke, City Administrator City of Lino Lakes 600 Town Center Parkway Lino Lakes, MN 55014-1182 RE: Responses to City Ordinance Amending City Charter Mr. Heitke: Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com We have reviewed, the Lino Lakes City Charter substitute amendment as proposed by the Lino Lakes Charter Commission as well as the draft Review Letter prepared by Steve Bubul, Kennedy & Graven, City's bond counsel. There are many terms and definitions throughout the proposed Charter that allow for multiple interpretations or are contradictory. Mr. Bubul has thoroughly addressed these points in his letter. As requested, we have focused on the financial impact on the City with regard to bonds and the City's credit rating. The City's bond credit rating, assigned by Moody's Investor Service, is currently an Aa3, which is the second highest category grouping possible. This bond rating is based on several criteria including: tax base size, infrastructure management, capital financing strategies, debt management, fund balances, Tong -term strategic planning, economic development and growth, financial management, leadership and overall city management. Credit ratings group and compare cities to each other so losing or gaining in areas may move a city up or down in these ratings. The higher the credit rating, the lower the city's interest rate on bonds, resulting in lower interest costs. A credit rating is also a measure of how well a city is managed... Rather than a section -by -section review of the proposed Charter, there are five areas we address: • Quality of Roads and Streets • Reverse Referendum • Taxability of Bonds for Special Exceptions • Marketability of Bonds • Administrative Efficiency and Flexibility Quality of Roads and Streets Minnesota cities primarily use two bonding methods to finance roads • Special Assessment Bonds. Such bonds do not require a referendum under state law. A city council may vote to use special assessment bonds if at least 20% of the debt service or the total project costs are paid for with special assessments. • Street Reconstruction Bonds. Such bonds allow the 20% minimum assessment criteria to be waived for reconstruction projects if a city approves a five-year road plan following a public hearing and adopts the plan which identifies reconstruction bonds to be used. Both the plan and bonding amounts must be approved unanimously by a vote of the entire city council. Street reconstruction bonds are subject to reverse referendum. Public Sector Advisors City of Lino Lakes, Minnesota January 29, 2008 Page 2 These options are the primary tools to carry out pavement management plans which facilitate street and road maintenance on a timely basis. Engineers develop optimization plans which identify the most cost effective time to seal coat, overlay and replace roads and streets. The cost savings resulting from extending the life of each road and street provide millions of dollars of savings. Such a plan was completed for the City of Lino Lakes calculating potential savings of an estimated $18 million, if the plan was followed. By employing more restrictive standards than in state law for approving such bonds, the likelihood of delaying the improvements increases. As part of the credit review, Moody's uses depreciation of the existing roads to determine whether a community is deferring maintenance or keeping up with needs by improving infrastructure at a pace equal to or near depreciation. If the Proposed Charter is subject to interpretation and may be challenged, it may cause deferment of street and road maintenance. This may place Lino Lakes at a competitive credit rating disadvantage when comparing to other communities that are more aggressive in maintaining infrastructure. Lino Lakes may also be at a competitive disadvantage in appearance when potential homeowners and businesses are making location choices. This may have an impact on tax base overall, which is another important credit factor. Reverse Referendum Section 8.08 When a proposal is to be funded, in part by general revenue, the Proposed Charter proposes that the taxpayers may petition for a referendum on the public improvements. While this is less restrictive than the existing Charter, this provision could allow taxpayers who do not directly benefit from the improvement to stop improvements if the project uses general revenue. Mr. Bubul points out that the term general revenue is not defined. This opens the door for challenges or interpretation. Street and road replacement plans (pavement management plans) provide for fairness in road conditions, by setting the city-wide timetable to keep all roads in the same state of repair. Reverse referendums may prevent those streets most in need of repair from being repaired due to the ability to reverse the decision to follow the plan. Taxpayers, who do not benefit from the project, may choose to vote it down leaving those who could benefit without the opportunity to have their road improved to the level that is in place for other neighborhoods or business districts. Faimess in the level of service or quality of streets for all neighborhoods or projects could be achieved by following a plan and defining the level of road quality, assessment level and general tax support throughout the city by improvement type. The City of Lino Lakes has millions of dollars invested in roads and streets that could be maintained with timely projects, or they could deteriorate over time to a point where costly replacement is necessary. We encourage the City to consider all roads and streets as one asset that requires planned maintenance rather than as several small projects. Deferral and degradation of infrastructure is costly and, if prolonged, it will become a negative factor in the City's credit rating review. Taxability of Bonds for Special Exceptions Section 8.10. This section is similar to the provision in the existing Charter that carves out special areas of the City where different rules apply. Providing special rules for a specific area of the City that have the ability to opt out or who are not subject to the bonding criteria other areas of the City are required to adhere to, may result in the bonds issued to finance their improvements being taxable. The difference in interest rates between taxable and tax-exempt bonds is somewhere between 0.75% and 1.50% depending on the market conditions at the time of sale, structure, term and amount. Assuming a $2,000,000 bond with a 15 -year term, the extra 0.75% to 1.50% for taxable bonds would cost from $120,000 to $240,000 over the life of the bonds. This extra expense is recovered from assessments and debt service levies from property owners. City of Lino Lakes, Minnesota January 29, 2008 Page 3 If the City were to decide to eliminate the geographic boundary exception and instead differentiate by type of improvement, extra interest costs related to taxable bonds could be avoided. New development could be assessed at one threshold and redevelopment assessed at another, but all geographic areas could be treated equally in terms of criteria, process and cost allocation methods in order to avoid special treatment and higher interest costs. Marketability of Bonds While the City's high credit rating provides a great deal of comfort in the market place, the complications noted in Mr. Bubul's letter related to the Proposed Charter increase the likelihood of a legal challenge by citizens or a specific group. Such challenges may require removing the bond sale from the market before or during the sale or for their issuance to be challenged after the sale. It is important for the underwriting and financial community to be comfortable that any City of Lino Lakes debt instruments they purchase as investments are transferable and remain marketable without any concern of a challenge or added conditions placed on them. If the City has to cancel a sale at the last minute or after the purchase but before closing, the bond community may be less likely to bid aggressively on bonds in the future, lessening competition and possibly affecting interest rates. Challenges after the fact will tamish the City's name in the market place and the workout could be expensive. Investors may seek to recover any losses incurred after the sale due to a cancellation. We encourage consideration of the streamlined and the well -tested processes already in state law in order to minimize or avoid any legal or market exposure. Administrative Efficiency and Flexibility A charter is difficult to change or modify. There are many administrative details in the Proposed Charter that are already in state law or they are only slight variations of what is already state law. In cases where the intention is to follow state law, or to follow it closely, removing it from the proposed charter will make it easier to adopt state law changes. For administrative and procedural items, using an ordinance rather than a charter as the enforcing document provides flexibility to allow changes in a timely manner. Moody's looks for flexibility when rating bonds. The City's ability to adapt quickly, the amount of reserves or available options to address changes as well as local control by the City Council for efficiency purposes are all important factors that make the City stronger in the rating agencies eyes. State laws have been goveming road and street improvements effectively for decades. The more restrictive language in the Proposed Charter restricts flexibility and efficiency. Closing From a financial standpoint, the City is more likely to efficiently maintain street and road assets by simplifying the project approval process to the greatest extent possible while following the state bonding and assessment laws. Deviations may result in challenges of legality and taxability, increase administrative effort and may dilute the City's credit rating strengths. Please let me know if you have any questions or wish to discuss further. Sincerely, Terri Heaton, Senior Vice President Client Representative Kennedy C H A R T E R E D Offices in Minneapolis Saint Paul St. Cloud 470 U.S. Bank Plaza 200 South Sixth Street Minneapolis, MN 55402 (612) 337-9300 telephone (612) 337-9310 fax http://www.kennedy-graven.com Affirmative Action, Equal Opportunity Employer STEPHEN J. BUBUL Attorney at Law Direct Dial (612) 337-9228 Email: sbubul@kennedy-graven.com January 28, 2008 Gordon Heitke City Administrator City of Lino Lakes 600 Town Center Parkway Lino Lakes, Minnesota 55014 Re: Responses to Charter Commission Amendment to City Charter On July 9, 2007, the City Council of the City of Lino Lakes (the "City") approved the first reading of an ordinance amending Chapter 8 of the Lino Lakes City Charter. Subsequently, the Charter Commission submitted to the City Council an alternative amendment to Chapter 8 of the City Charter (the "Commission Amendment"). You asked us, as the City's bond counsel, to review the Commission Amendment and report to you regarding any legal or financial concerns we might have with that proposal. My report follows. Section 8.01. Power to Make Improvements. f Subdivision 1: This subdivision is a simple statement 44knpowering the City to make any type of "public improvements" not forbidden by law. It is identical to the first clause of the first sentence in existing Chapter 8 of the City Charter. However, the term "public improvements" is not defined anywhere in the Commission Amendment. By contrast, existing Chapter 8 defines the term "local improvement" as any public improvement financed partly or wholly from special assessments. That is, the current City Charter clearly explains that Chapter 8 is relevant to public improvements only if some portion of the cost will be financed with special assessments. The lack of a defined term introduces a significant question about the applicability of the charter to improvements that are not specially assessed, which in turn creates a potential problem for City financing of improvements generally. 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 Page 2 of 13 Subdivision 2. This subdivision heightens concerns raised above about the scope of Chapter 8. I will address the two sentences separately. First Sentence. The first sentence states that all public improvements, whether financed from general revenues or special assessments, "shall be primarily designed to give direct benefit to properly currently occupied by residents or businesses in the City." This language creates several difficulties. First, it purports to lay down a general principle for all improvements, whether financed by assessments or "general revenues." As such, it suggests that Chapter 8 now governs almost all improvements the City might undertake, including (potentially) parks, public works and city administrative facilities. That result makes little sense, as there is no apparent reason why special assessment rules and procedures should have any relevance to improvements fmanced without special assessments. (Indeed, Minnesota Statutes, Section 429.021, subd. 3 expressly states that improvements financed without assessments are not governed by that chapter.) This result also raises significant questions about the City's ability to finance any type of improvement supported in part by general revenues: if all such improvements must be primarily designed to benefit currently occupied property, many types of improvements will fail that test (a new fire station is one example). Aside from the problem of scope, the language itself is ambiguous, requiring that improvements financed with "general revenues" be "primarily designed" to give "direct benefit" to property "currently occupied." Each phrase is fraught with difficulty. The term "general revenues" is not defined—is it broader than general tax dollars? Does it include utility revenues? When is an improvement "primarily designed" to benefit property? Is the council's intent a factor in the analysis? What is a "direct benefit" as compared to an indirect benefit? A large body of Minnesota case law provides guidance about how "benefit" is determined in the context of special assessments (i.e., by an increase in market value), but these new terms would raise questions about whether some new standard applies under this charter. And if the improvement must benefit properties that are currently occupied by residents or businesses, what happens to property that enjoys an increase in market value but is not "occupied?" Nor is it clear what the term "currently occupied" means. It could mean "developed with existing improvements," but there are other interpretations. Suffice it to say all these ambiguities would raise questions of fact and interpretation, in turn hampering the ability of citizens, staff and legal counsel to understand and use the Charter. Second Sentence. The second sentence seems to prohibit the use of assessments to finance "public improvements primarily designed to open up new areas of the City for development." As in the first sentence, the key terms are undefined, leaving large questions of interpretation (particularly regarding whether an improvement "opens up new areas" and whether it was "primarily designed" to do so). Further, this sentence goes beyond the arena of special assessments, barring the use of any general revenues for these types of improvements. In effect, the charter would prevent the city from undertaking these types of improvements at all unless funded with resources that are 327632v3 SIB LN140-86 Gordon Heitke January 28, 2008 Page 3 of 13 neither assessments nor the undefined "general revenues." The result would be a significant impairment of the city's ability to undertake improvements in these areas. A more fundamental question is whether the City Charter may absolutely prohibit special assessments for all or certain types of improvements that would otherwise be assessable under Chapter 429. Minnesota Statutes, Section 429.021, subdivision 3 indicates that when the cost of any improvement is defrayed by special assessments, "the procedure in this chapter shall be followed unless the council determines to proceed under charter provisions." Clearly, a charter may establish an alternative procedure for carrying out special assessment financing (as the Lino Lakes Charter has done in the current Chapter 8). It is not clear, however, that a charter may supersede the substance of Chapter 429 and flatly prohibit the use of assessments as a financing tool. A full discussion of the relationship between city charters and state law is beyond the scope of this letter. However, in our view Subdivision 2 creates the potential for litigation based on a claim that the charter is preempted by (or conflicts with) state law. Section 8.02. Relation to State Law. This subdivision clarifies that state law "relating to local improvements" applies except as otherwise provided in the charter. However, this subdivision uses the term "local improvements" without definition, while the rest of the Commission Amendment uses the term "public improvements." As noted above, the lack of defined terms creates ambiguity and uncertainty. Section 8.03. Power to Impose Special Assessments. Subdivision 1. This subdivision partially reiterates state law regarding the general rule of special assessments, i.e., they can be imposed only when the improvement provides a "special benefit." The only concern we have is the statement that such special benefit must be enjoyed by "adjacent or nearby properties." As noted above, there is a large body of law about measurement of benefit, and the proximity of a property to the improvement is not always critical in that analysis. Arguably, adding these terms in the charter limits the ability to find benefit where it would otherwise exist under state law (i.e., where the property's market value is increased by the amount of the assessment). As such, this provision could impair the city's ability to undertake certain kinds of improvements, and could also raise the question about preemption by state law (similar to the issue raised under Section 8.01, subdivision 2). Subdivision 2. This provision prohibits the use of special assessments for maintenance (except in the case of a 100% petition). As with the prohibition on assessments for improvements designed to open up new areas of the city, this provision might conflict with or be preempted by state law. Further, reading this provision together with the first sentence of Section 8.01, subdivision 2, the charter leaves almost no authority to undertake street maintenance at all. Section 8.01, subdivision 2 indicates that all improvements funded with general 327632v3 SJB LNI40-86 Gordon Heitke January 28, 2008 Page 4 of 13 revenues (even absent special assessments) must be designed to give a direct benefit to property currently occupied. Under Section 8.02, subdivision 2, the city may not assess any property for maintenance, which presumably means that maintenance is not "primarily designed" to provide a direct benefit. As such, this work may not funded with general revenues either. Even if maintenance is construed as "primarily designed" to provide a direct benefit (and thus eligible for funding with at least general revenues), that would apply only to property that is currently occupied by residents or businesses; streets adjacent to unoccupied property could not be maintained unless financed with some revenue source other than general revenues or assessments. The net result, under these two charter amendments, is a significant limitation on the City's ability to carry out routine street maintenance. If the charter inhibits the City's ability to perform street maintenance, the useful life of streets will probably be shortened, full reconstruction will probably be needed more often, and total costs will probably be higher over the long term. Finally, aside from the above obstacles, there is no "bright line" that distinguishes maintenance from reconstruction. Many projects involve some elements of both, even within the same stretch of a street. Determining when a project is "maintenance" that falls under this subdivision would be difficult. Subdivision 3. This subdivision prohibits the city from requiring properties to connect to sanitary sewers if the property has a working private system, unless the system fails or the property is conveyed to a new owner. This provision is similar to policies or ordinances in some cities. My only observation is that by including this language in the charter, the City is precluded from revisiting this policy decision in the future without the cumbersome process of a charter amendment. Subdivision 4. Like subdivision 1, this subdivision partially reiterates state law regarding how assessments should be calculated. However, the reiteration contains two apparent variations from state law. One is the statement that assessments shall be imposed "uniformly on similar properties." Case law on the spread of assessments is well-developed, and generally requires that similar properties are treated similarly. The new phrase may or may not represent a change in law; the intent is not perfectly clear. The other variation is the statement that special assessments not exceed the "benefit," without a qualifying reference such as "in accordance with state law." Under state law, the test is whether a property receives a "special benefit," as acknowledged in Section 8.03, subdivision 1 of the Commission Amendment. Again, it is not clear whether the intent is to follow the standards of state law or to create some new test. Since state law governs all procedures except as otherwise provided in the charter (see Section 8.02), these phrases are not necessary if they are not intended to vary from state law. If these phrases are intended to vary from state law, they are unclear and troubling. In our view, the entire subdivision introduces another element of uncertainty that is best avoided. 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 Page 5 of 13 Section 8.04. How to Initiate Public Improvements for Which Special Assessments may be Imposed. Subdivision 1. This subdivision describes the city's desire to protect residents from having to pay assessments for improvements they do not want. As such, it is a statement of philosophy and policy rather than a rule or procedure. While broad statements of policy were once common in legislation, they are typically avoided now because they add nothing of legal significance and could have unintended consequences in future litigation. Subdivision 3. This section describes the process for a 100% petition. The only concern relates to the Council's action on receipt of a petition. The subdivision indicates that the council may adopt a resolution to "initiate" the relevant improvements by a simple majority vote. It is not clear what the term "initiate" means. Under Chapter 429, improvements must be "ordered" by the council before bonds may be issued. Also, since the subdivision also indicates that state law governs these improvements aside from the requirements of this subdivision, the language should be clarified to harmonize better with Chapter 429 (which, for example, calls for a resolution finding that the required number of signatures has been filed with the city). Subdivision 4. This subdivision describes the process for a 25% petition. Our concerns relate to the technical language. First, the language calls for a petition by owners of more than 25% of the "property proposed to be assessed." Under this language, petitioners identify who should be assessed for the subject improvement. However, which properties benefit is a question of fact that must be determined by the city. In Chapter 429, the 35% petition requirement calls for signature by owners of at least 35% of property abutting the named streets. See, Minnesota Statutes, Section 429.031, subd. 3. In the existing Charter, the petition requires signature by 25% in number of the benefited property owners. See City Charter, Section 8.04, subdivision 1. In either case, the required owners are identified objectively, not by the petitioners themselves. The proposed language could lead to the undertaking of improvements that in fact benefit property beyond that identified by the petitioners, and the petitioners may not represent 25% of the actual benefited property. Further, this language could permit manipulation of a petition to exclude certain property in order to reach the 25% requirement. Second, the rules on signature are ambiguous. Clause (1) calls for signers to own at least 25% of the total number of lots to be assessed. The body of subdivision 4 calls for signers to own more than 25% of the property. More importantly, it is very difficult to reconcile the clause (1) statement that signers must own 25% of the lots, with the clause (3) statement that the signature of a person who owns more than one lot will be counted only once. What happens to the "vote" of an owner who owns multiple lots? The dilemma is best explained by an example: 327632v3 STB LN140-86 Gordon Heitke January 28, 2008 Page 6 of 13 Assume the area "proposed to be assessed" contain 100 lots, 77 of which are owned by one person. Each of the remaining 23 lots is owned by a different person. If the owner of the 77 signs a petition, that signature is counted only once. But what does that mean? One possibility is that, even though this person owns 77 lots, he or she gets only one vote out of 100. If 22 of the remaining 23 lots also sign the petition, there are a total of 23 votes out of 100 lots. The petition fails even though the owners of 99 out of 100 lots approve. Likewise, the petition fails if the owners of all 23 separate lots sign the petition but the owner of 77 lots does not. Another interpretation is that when a person owns multiple lots, those lots are "collapsed" into one, and the petition becomes measured by the percentage of owners. In our example, the result would be a total of 24 owners. If the owner of 77 lots signs the petition, that would be one out of 24, or 4.2% of the total. Unless another 5 lot owners sign (in order to reach the 6 votes needed to reach 25%), the petition would fail even though the owner of 77 lots approves. Or, if all 23 separate owners sign and the owner of 77 lots does not, the 23 would make up 95.8% of the 24 total owners. The petition succeeds even though the signers own only 23% of the actual number of lots. (This is the result under the existing charter as well, but is opposite the result under the interpretation of the proposed amendment described in the previous paragraph). Both interpretations raise questions of fairness, but it is more troubling that the rules are so unclear. As a practical matter, the City would probably need to treat all projects as City -initiated (and thus approved with a 4/5 vote) unless this matter were resolved judicially. Third, clause (4) is simply difficult to understand. It seems to describe a situation where a lot is owned by a group of joint tenants, and the same group owns another lot. In that case, the apparent intent is to clarify that the lots will be treated as one—that is, it will not matter if one owner sign for one lot and different owner signs for a different lot. This result would already be implied by clauses (2) and (3) and could be more easily handled by revising those clauses accordingly. Another interpretation is that this clause describes one lot owned by a group of joint tenants, and another lot owned by some of those joint tenants but also an unrelated party. In that case, this clause might require that the two lots are treated as one, despite the fact that ownership is not identical. In sum, the intent of this clause is unclear, leaving uncertainty about the validity of a petition under this subdivision. Further, the second sentence of Clause (4) is a commentary that is inadvisable in the body of a city charter. Section 8.05. Feasibility Study. Subdivision 1. This subdivision describes the feasibility study process for projects initiated by 25% petition or by the Council. We observe one technical problem and one practical. The technical problem is that the subdivision begins by stating that the City 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 Page 7 of 13 Council shall direct staff to do a feasibility study "once the public improvements have been initiated" under Section 8.04. However, under Section 8.04 the Council will have already ordered the feasibility study. Section 8.05 suggests that the council must take a second action to order the feasibility study. Moreover, the reference to staff is inappropriate (or requires a definition), as feasibility studies may be undertaken by consultants instead of (or in cooperation with) staff. The practical problem is that the list of items to be included in the feasibility study may not be available at this early stage in the process --especially clause 2 (changes in appearance) and clause 5 (the assessment per lot). Chapter 429 now requires that the methodology of spreading assessments must be available at the improvement hearing, but the actual dollar amount per lot may depend on many factors that are unknown at the feasibility stage. Subdivision 2. This subdivision calls for the feasibility study to address various alternatives in any case where more than a "single public improvement" is proposed. As in other portions of the Commission Amendment, the major difficulty with this approach is that compliance will be difficult (if not impossible) to determine with certainty. There is no guidance as to what constitutes a "single public improvement," and what combinations or alternatives must be considered. This provision would invite claims that the feasibility study did not describe all possible alternatives or all possible combinations, or that a "single public improvement" was not really single and therefore the alternative scenarios should have been triggered. If the proposal calls for multiple improvements, and every possible combination must be addressed, the total number of combinations increases almost exponentially—it is possible that literally dozens of options must be addressed, each with a full scale feasibility analysis. A further problem is a mixture of practical and legal concerns. Some alternatives may be literally impossible, financially infeasible or not cost-effective. Examples might include a street -only project where utilities must be replaced, or a utilities -only project that would only be financially prudent as part of a street project. Assuming the provisions of Chapter 429 govern except as otherwise specified in the Charter (See Section 8.02 of the Commission Amendment), the engineer is required to advise whether the proposed improvement is necessary, cost-effective and feasible. The engineer may not be able to make such a certification for all alternatives, leaving a question whether an alternative not so certified should be submitted to the preference process under Section 8.07. Section 8.06. Public Hearing. This subdivision describes the public hearing process after completion of the feasibility study. There are two technical concerns. First, the language mixes specific charter provisions and state law, creating uncertainty as to what rules apply. The language calls for the hearing to be "at least two weeks away," and references a mailed notice, but does not specify a time period for the notice or reference a published notice. Under Minnesota Statutes, Section 429.031, subdivision 1, the notice must be published twice a week a part, and the hearing must be at least three days after the second publication. The mailed notice must be sent at least 10 days before the hearing. To avoid confusion, the notice provisions should explicitly reference this statute 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 Page 8 of 13 or describe the rules directly in the charter (including rules on who is an owner for purposes of receiving notice). Second, this subdivision requires that the hearing notice shall contain, in addition to the requirements of state law, all the information described in Section 8.05. However, Section 8.05 describes the contents of and requirements for the entire feasibility study. Literally, this notice provision might require that the substance of the feasibility study be included in the mailed notice. This provision would leave doubt about the adequacy of the mailed notice unless the actual feasibility study were mailed to each owner. Such a mailing is possible but would increase the cost of all projects. Section 8.07. Indication of Preferences. Subdivision 1. The presentation of alternatives is problematic for the reasons discussed above under Section 8.05. Further, it is not clear how preferences would be expressed and counted. Does the language mean that owners have only three choices—all alternatives, one specific alternative, or no alternatives? If so, is a vote for two out of three alternatives rejected as invalid? Does a vote for "all alternatives" mean that each alternative gets a vote, which is then added to any individual votes for each alternative? And what if the highest number of votes goes to "all alternatives?" There is also confusion about the timing for filing of preferences. Subdivision 1 indicates that "there shall be a period of at least 60 days prior to the next Council action." It goes on to say that owners are given "this 60 -day period" to indicate their preferences. However, the Council meeting is unlikely to be scheduled exactly 60 days after the public hearing, and the language does not directly state when the owners must file a preference—presumably, within 60 days after the hearing, but one might also argue that a petition could filed by the date of the council meeting. (See similar problem under Section 8.09) Any requirement for petitions or preferences should clearly state when the action must be taken. Subdivision 2. This subdivision describes additional rules regarding how preferences are counted. The first sentence indicates that owners who signed a petition at the outset (under the 25% petition provision) are presumed to have indicated a preference for "all of the public improvements described in the petition," unless they indicate a different preference during the 60 -day waiting period. However, the preference procedure is essentially a vote on the various alternatives presented in the feasibility study under Section 8.05. Therefore, it is difficult to understand how a signature on a petition can constitute a vote for a particular alternative developed after the petition was filed. Must a petition be treated as a vote for all possible alternatives, whatever they may be? At a minimum, this provision would complicate the count of votes, and raise questions about the validity of the preference process if the city relied on the original petition as the sole evidence of an owner's preference. 327632v3 SJB LNI40-86 Gordon Heitke January 28, 2008 Page 9 of 13 This subdivision also states that the rules for counting signatures under Section 8.04, subd. 4 apply to preferences under Section 8.07. Section 8.04, subd. 4, clause (3) directs that where a lot has multiple owners, only one signature will count (so the ambiguities discussed under that section carry over into this section). However, Section 8.07 subdivision 2 states that if multiple owners of a lot indicate different preferences, no preferences shall be counted for that lot. These two provisions seem contradictory. It is true that two owners might disagree and file conflicting preferences, and a question then arises about which one to "count." But simply discarding the votes from that lot seems likely to invite challenge. There might be other solutions, but this problem underscores the practical and legal challenges imposed by the "owner preference" voting system (which, to my knowledge, has no precedent in the State of Minnesota). Finally, the preference system is essentially an election, but one without rules regarding the form of the "ballot," the time and place of filing, canvassing of votes, and similar issues. Municipal elections are governed by a large body of statues and rules, designed to address the myriad of problems and disputes that arise in the course of a complex process. The Commission Amendment creates a new election system, without the supporting legal or administrative "infrastructure." As such, the system is likely to generate high legal and administrative costs. Subdivision 3. This subdivision creates a special rule for utilities in cases where "property owners prefer an alternative which results in a street being improved without utilities recommended by staff." In that situation, utilities may not be undertaken in that street within five years after completion of the street unless the utilities and any related street repair are financed without general revenue. Apparently, the intent of this provision is to encourage owners to vote for the most cost-effective improvement, i.e. street improvements that include utilities (at least where that combination is recommended by staff). However, the language leaves many open questions. When are utilities "recommended by staff?" Who constitutes staff? Does the term include consulting engineers? What evidence of a staff recommendation is needed? Would one sentence in a staff memo suffice? If the feasibility study includes an option of streets without utilities (as it must, under Section 8.05, subdivision 2), and the study concludes that such street -only project is feasible, necessary and cost-effective (as Chapter 429 requires), does that constitute a staff recommendation of no utilities? What if the recommendation is qualified in some way? If those hurdles are overcome, when is the street "completed" and what constitutes "installation" of utilities" for purposes of measuring the five-year waiting period? Taken together, these difficulties render this subdivision unenforceable as a practical matter. Further, the opening sentence of the subdivision is another example of editorial commentary that is not appropriate in a charter. The charter is a form of legislation, and comments or explanation should be reserved for background materials 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 Page 10 of 13 Section 8.08. City Council Action. Subdivision 1. This subdivision describes the procedure for council approval of the preferred alternative. There are three significant concerns with the language. First, the council acts on the alternative "preferred by the largest number of property owners." This apparently means that an alternative may be approved—or all the alternatives disapproved—by a plurality vote of the owners who filed preferences, with no minimum portion of all owners being represented. The effect is that significant decisions about a public project could be made by a small minority of affected owners. Second, the language indicates the council shall approve the alternative with the most votes, which deprives the council of its legislative discretion altogether. The result could be that the council is required to undertake a project that implicates city finances (other than special assessments), perhaps against the wishes of a majority of the elected council and at the direction of a minority of the affected owners (i.e., those who filed their preferences). There is some question whether this system represents an unlawful delegation of legislative power, which conflicts with a fundamental statewide policy and is therefore beyond the authority of a city charter. Third, as noted in the discussion under Section 8.07, there are many questions about who can file preferences and how they are counted. In order to ascertain that an improvement is properly ordered, bond counsel is presented with a significant challenge of both interpretation and factual evidence (requiring detailed review of the petition and preference records, perhaps reaching to review of title to clarify ownership). It may not be possible to conclude without qualification (which is the standard for a bond opinion) that projects under this system are properly ordered and bonds secured by related assessments are validly issued. Subdivision 2. This subdivision calls for a second 60 -day waiting period after Council approval of the project, to allow for a reverse referendum described in Section 8.09. This subdivision contains two significant flaws. First, on its face it applies the reverse referendum process to all projects approved by the Council under Subdivision 1. However, Section 8.09 by its terms applies only when an improvement is funded in part through general revenue. The two provisions cannot be reconciled where a project is financed with special assessments and other funds that are not "general revenues." Second, the subdivision states that taxpayers are given "this 60 -day period so that they may petition for a referendum," implying that a petition must be filed within 60 days after the date of council action on the improvement. However, Section 8.09, subdivision 2 expressly states that a petition must be submitted "[p]rior to the first regular City Council meeting occurring after the end of the 60 -day period described in Section 8.08, subdivision 2." In other words, the filing period is not 60 days, but the period from council approval of the improvement to the date of the next council meeting after expiration of the 60 -day waiting period. This is a technical point, but such imprecision creates confusion for citizens and legal counsel alike. 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 Page 11 of 13 Section 8.09. Taxpayer Referendum. Subdivision 1. This subdivision states the general rules for reverse referendum. Assuming the conflict with Section 8.08 above was corrected, the petition process applies only when an improvement is funded in part through "general revenue." That term is defined nowhere in the charter, leaving significant questions about when a petition for referendum is called for. Does the term refer only to the City general fund? Or does it mean any revenues without legal limitations on their use (which might include at least portions of specialized funds like water and utility funds). Given the significance of this provision, a more precise definition is imperative. Subdivision 2. This subdivision describes the council action after expiration of the petition period; confusion about the length of that period is discussed under Section 8.08 above. The only other concern in this subdivision is that if a valid petition is timely filed, the Council is required to submit the public improvements to the voters. This result deprives the council of its legislative discretion to abandon the project or find alternative financing rather than move forward with an election. It is also inconsistent with reverse referenda provisions in other areas of law, where a successful petition simply means that the activity in question may not proceed unless approved by the voters. See, e.g., Minnesota Statutes, Section 475.521 (capital improvement bonds) and Section 412.301 (city certificates of indebtedness). Subdivision 3. This subdivision describes the ballot and I have no comments on the language. However, it is important for all parties to understand that the actual ballot is required by state law to contain other information, including the statement "by voting yes on this ballot question, you are voting for a property tax increase." See Minnesota Statutes, Section 275.60. Further, if the election is successful, any tax levy will be made against the so-called "referendum market value" rather than tax capacity. This means that homestead owners pay at a higher rate than for activities that are not subject to referendum (such as special assessment bonds that are secured in part by assessments and in part by tax levies). Subdivision 4. This subdivision indicates that the "City Council may not initiate the same or substantially similar public improvements" within twelve months after an improvement is defeated by referendum. There are two areas of ambiguity. First, it is not clear if this language limits only an improvement initiated by the Council under Section 8.04, subdivision 5, or any improvement financed in part with general revenues (even if initiated by a 25% petition), or even a 100% petitioned project (which is "initiated" by the council under Section 8.04, subdivision 3). Second, the phrase "same or substantially similar improvement" is vague. Is an improvement with a higher or lower cost the same or substantially similar? How much deviation from the prior project is needed to permit initiation before the end of the twelve-month waiting period? Similar language in the existing Charter has proven difficult to interpret, requiring the council to wait for the full period in virtually all cases to avoid questions about the validity of a project initiated earlier. 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 Page 12 of 13 Subdivision 5. This subdivision describes the final council action on improvements, and imposes limitations on cost increases. The first sentence states that the Council "shall adopt a resolution approving the public improvements" when the proposed public improvements are "allowed under Subdivision 3." First, this language apparently requires the Council to approve the improvements, which is questionable given that the Council may have prudent reasons even at this step of the process to abandon the project. Second, Subdivision 3 simply describes the ballot, so that cross-reference is confusing. Further, the term "allowed" seems misplaced, as the question is whether a timely petition was filed, and if so whether the question was approved by voters. Confusion could be avoided by avoiding the introduction of a new undefined term. In addition, this entire subdivision seems to address only projects that are subject to reverse referendum (as it is included only in Section 8.09 dealing with that topic). There is no comparable final action on improvements financed with special assessments and other revenues that are not "general revenues." Arguably, in those cases Council's final action is the approval under Section 8.08, subdivision 1. However, Section 8.08 subdivision 2 seems to call for subsequent action (though as discussed above, that provision makes sense only in the case of improvements financed in part with general revenue). To maintain consistency within the Charter (and with state law), final council action should be required for all improvement projects, in the form of a resolution "ordering" the project. Such a resolution is required for bonds to be issued under Chapter 429, so ambiguity about whether such action has occurred must be avoided. Regarding cost increases, the major difficulty is one of practicality. Given the time frames necessary to move from feasibility study to bidding (nearly six months under the fastest track), cost increases may be reasonably expected. It is important to keep in mind that before assessments are levied, a second notice and hearing process must be followed, which gives owners another chance to provide input (and in fact to file legal objections challenging the amount of the assessment). A further observation is that this cost increase provision, like the final council resolution, apparently applies only to improvements that were subject to reverse referendum. This has the odd result of allowing cost increases where assessments are likely to be the largest source of funds (i.e., where costs are paid mostly from special assessments and the balance from non -general revenues), but putting limits on such increase where special assessments might finance only a fraction of the improvement cost (e.g., where only 20% of the cost is assessed and the balance paid by a tax levy). Section 8.10. Specified Commercial Area. Subdivision 1. This section is similar to the provision in the existing Charter that carves out special areas of the city where different rules apply. The existing Charter indicates that those special areas are entirely governed by Chapter 429 (with one exception). However, the proposed revision exempts the special area only from Sections 8.04 to 8.09. 327632v3 SJB LN140-86 Gordon Heitke January 28, 2008 �-. Page 13 of 13 As such, the significant limitations discussed in Sections 8.01 to 8.03, above, would apply even in the specified area. Subdivision 2. The revision includes only the Lake Drive/I-35 area, excluding two other areas given similar treatment under the existing Charter. The excluded areas would now be subject to all the rules in the amended Charter. Subivision 3. Similar to provisions in the existing Charter, this subdivision grants a special exemption from assessments to certain single family residences located in the special area. We have previously advised the City that the existing provision violates federal regulations that apply if bonds fmanced by assessments are issued on a tax- exempt basis (because one class of property has the right to "opt out" of the assessment). As a result, any improvement projects financed by assessments in the special area may be financed only with taxable bonds, which increases the cost to property owners and all taxpayers in the city (to the extent the bonds require a general tax levy). The proposed amendment retains this feature, with minor changes. Aside from the fundamental problem created permitting certain owners to opt out, there is some confusion about when a property is considered "owner -occupied." The term is not defined and is not self-evident. The language indicates a residence is deemed owner - occupied if it was "empty between owners," but property always has an owner—what happens when property is empty after the current owner moves out? Does that always count as occupied, or only when the owner expects the property to be sold (or already has a purchase agreement)? Is a residence considered empty if a short-term renter occupies the residence? If a bank has title after foreclosure? These interpretive problems exist in the existing charter and are not resolved by the proposed amendment. CONCLUSION I apologize for the length of this letter, but the issues are many and complex. The City Charter is the City's most important legal document—in a sense, its "constitution"—and amendments should be undertaken with great care. I have not attempted to suggest revisions or corrections for the problems cited. Rather, I have simply attempted to describe the legal and practical problems that, in my professional judgment, appear in the language presented. I will be available for further discussion with the City Council at its work session on February 4, 2008. If you have questions before then, please contact me. SJB ru urs J. ubul 327632v3 SJB LN140-86 Charter Amendment Timelines The following timeline illustrates the timing required for consideration of proposed City Charter amendments to Chapter VIII of the City Charter (Public Improvements and Special Assessments). Charter Amendments a es (Chapter 429, modified task force, Bening proposal, o other Task Force Proposal Ordinance No. 07-07 rir harter Commission ubstitute FIMIRMPII e ruary- : oun Session; March 24: Council meeting (for 1St reading & referral to Charter Commission) tv , ut r v eerhtel- . �:�e :; ,. ern er'` Statutory 60 day period for Charter Commission review (allows time for delivery to Comm) HMS: Statute allows the Charter Comm to request an addnl 90 day review period /WM" counci m g 111 before ballot submission deadline of Sept 11 (council must have 2nd rdg, hearing and approve ballot language Before Sept 11, council must have 2nd reading of ordinance, hearing and approve ballot language Before Sept 11, council;.. ,A have 1 .1 2nd reading of ordinance, hearing and approve ballot language General Election Day Nov 4: General Election Day ov . Election Day Timeline is based on the provisions of Minnesota Statutes, Section 410.12 (attached) For election purposes, amendment would require a 51% approval vote to pass If approved, amendment would take effect 30 days from election or as fixed in the amendment