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97 City of Saint Anthony July 28, 2000 Page 2 • ♦ The.pay-as-you-go note will be paid by the City on an annual basis starting in 2002 through_ 2018 with interest at the rate of 9.5%. ♦ The pay-as-you-go note is paid from additional taxes (tax increment) generated on the Apache site as a result of improvements the developer makes. o If the developer doesn't make the expected improvements which will in turn increase the value of the mall, then, due to his own shortcomings, tax increment will not be generated in an amount sufficient to repay the developer the total amount of the note. The City or HRA has NO obligation to make up any such shortfall from alternative sources. ♦ Similarly, if the developer decides NOT to pay the property taxes owed on the mall in a given year, then there wouldn't be any tax increment available to make a payment to the developer on the note, and again the City or HRA would have no obligation to make up the shortfall from alternative sources. There is little, if any, financial risk to the City and taxpayers in this project. • The City is not"bailing out" US Bank on this protect: . ♦ The developer began negotiation on the purchase of the property prior to knowing whether the City was interested in providing tax increment to the project. ♦ US Bank was not originally motivated to discuss the sale of the property. ♦ The developer is proposing to pay for the value of the land only, recognizing that the building itself, in its current state, is of little or no value. • The City does not bear the financial risk associated with the condemnation proceeding. ♦ The developer will pay all costs, including legal fees, associated with the condemnation, should it proceed. ♦ The Council should be aware, however, that if the condemnation process is exceedingly more expensive than originally anticipated, it might have a direct impact on the project. ➢ If condemnation costs more than projected, the developer may attempt to adjust other budget items in the project to make total costs don't exceed the budget. However, most if not all of the original budget will likely have already been spent long.before the final cost of condemnation has been determined. Regardless of the lack of financial risk, there are a couple other risks associated with this project identified in the following scenarios: • Scenario A: An agreement is made with the City and the purchase of the site is completed,.then the developer does absolutely nothing. (Chance of this happening is minimal —Why would the developer spend $3 million to purchase the site to simply hold it?) Result of Scenario A: Still no financial risk to the City, but the outcome would certainly be disappointing. Scenario B: Developer purchases site, completes the $1 million storm water improvements, receives $300,000 from the HRA, and then does absolutely nothing additional to the property. Result of Scenario B: The City will have received $1 million worth of storm water improvements at a total cost to the City of $300,000.