Agenda Packets - 1997/07/07 - Laserfiche WebLink

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City of Mounds View Staff Report July 5, 1997 Page 2 • for this purpose. The typical charge is 2-1/2% of the value of the bond, with a minimum charge of$300. The percentage charged slides downward as the size of the bond increases. Consideration is given to the credit worthiness of the client. They typically deal with contractors and developers, and not with individual homeowners. This type of surety does not appear feasible for small homeowner projects. The cost of the fee alone may be equal to or larger than the cost of the work needed to be done. Letters of credit issued by banks include a specific description of the work or list of improvements which is now guaranteed by the letter of credit. If the person giving the letter of credit to the City fails to perform, then the City can present the letter of credit to the bank, and the bank will pay the amount of the letter of credit to the City. Banks usually require collateral to issue a letter of credit, which could be the assets of the applicant's company or cash or a certificate of deposit where the applicant places an equivalent amount of money on deposit with the bank in exchange for the letter of credit. Banks charge between 1% and 2% annualized for issuing letters of credit, with a minimum fee of$100. For large projects, the City can notify the bank as improvements are completed and the amount of the letter of credit can be lowered, thus reducing the fee. For a homeowner, however, the most likely situation is that they will have to put money in an account with the bank to get the letter of credit, which will tie up the funds until the project is complete. They will also have to pay a fee. Both of the bank representatives suggested alternatives for small projects, such as removing of • sheds or driveways. The homeowner would provide cash, bank money order or a certified check • to the City which would be deposited in an escrow account, and either returned when the work is completed or used to complete the work: A money order costs $4.00; a certified check costs $10.00. The City has an agreement form which specifies that the funds are to be held, and returned upon completion of the work with interest. (See Attachment 1). All of these alternatives require money to be put in escrow or held, to guarantee the improvements. There is no other way to get a guarantee. Certified checks are usually good for six months, so the City could hold the check and not cash it, if the project was expected to take less time. If a certified check or money order is not deposited, it could be signed over to the homeowner when the project was done, and they could re-deposit it in their account. During this time, however, the bank has moved the money from the homeowner's account into an escrow account because the bank has guaranteed it will pay on demand. Therefore, the funds are not available for the homeowner's use. It appears from our research, that the most cost effective way to deal with guarantees for small projects is to require cash, a bank money order or certified check to be deposited in an account with the City where the funds are held until the project is completed. We would not recommend a guarantee for the actual project itself, as is discussed in the next section, but for other work needed to bring the site into compliance with current codes. • Current Code Requirements Section 1006.06, Subd. 4 of the Mounds View Municipal Code requires a developer to enter into • a development contract prior to final approval of any subdivision, rezoning, special use permit,