Agenda Packets - 1999/04/05 - Laserfiche WebLink

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EDA Memo -Building N Agreement March 29, 1999 Page 2 EDC REVIEW The EDC reviewed this matter at their March 25, 1999 meeting. The EDC had no problems or issues with the proposed housekeeping items. The EDC also reviewed the overall agreement and indicated that without all the background financial information that was reviewed when the initial agreement was approved by the EDA it was difficult to comment on the specifics of the agreement. The consensus of the EDC was that if the EDA wished to review the overall agreement the following items should be reviewed within the context of the long history of negotiations and agreements relating to this project: 1. Amount of assistance. The agreement caps assistance at$1,200,000, or the sum of certain site and public improvements plus $615,000 for the land. The EDC questioned the portion of assistance given for the land. What are the developers's actual land costs (acquisition, development, holding)?Probably less than$615,000. Does it make sense to use actual costs versus the $615,000 fair market value? Were there prior agreements in connection with the industrial park that hold us to using a fair market value vs. Cost? On the other hand,the current fair market value of the land has probably gone up since it was appraised. Also,the EDC noted that the agreement does not allow assistance for other"eligible" costs. 2. Length of the note. Is it necessary to provide assistance until February 1, 2014? The EDC indicated that this should be reviewed in the context of current practices and the rationale of the past approvals. 3. Job and wage goals. The EDC stated that in the future more realistic job and wage goals should be included in development assistance agreements. EDA ISSUES AND CONCERNS: Staff asked EDA members to provide any specific issues and concerns that they had so that they could be addressed at the April 5th work session. One EDA member responded and indicated the following issues and concerns: 1. Is the interest rate the EDA pays on the note too high based on today's market? In a pay-as- you-go tax increment assistance deal the developer assumes all the risk because they pay all the costs upfront and only get reimbursed based on the tax increment that is actually generated. If less increment is generated then they get less assistance. The interest received is their reward for assuming that risk. In this specific case the EDA has limited the types of eligible expenses that the developer can be reimbursed for so the interest also helps the developer get the overall amount of assistance which they believe is necessary to make the project work from an economic standpoint. Because the developer is paying all the costs up front they may also have to borrow money. The interest received from the City can also cover all or a portion of the interest that the developer has to pay. Staff discussed this with Dave Maroney,the City's financial consultant, and he indicated that interest one item that is negotiable within the context of the overall deal. There are no set guidelines to determine_ what if any interest should be paid. Its typically set at a level that is necessary to make the deal work economically. It appears that the 8%rate is in the range of what a developer would have to pay to finance the project. This can vary based on the type of project,the number and type of tenants, and the financial condition of the borrower. I have attached a copy of a