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City Council Regular Meeting Minutes <br /> June 8, 2004 ®� <br /> Page 3 <br /> 1 development was completed(within a three year period). Under this loan structure, Fannie Mae <br /> 2 requires the City to provide a collateral deposit with them consisting of 25 percent of the loan <br /> 3 amount($837,500). The City was going to utilize its Water Filtration Funds for this deposit <br /> 4 requirement (If the City was to "back"the loan with their General Obligation taxing powers,no <br /> 5 collateral would be required). In addition, the loan was a full recourse debt to the City and they <br /> 6 would need to pledge any assets to repayment of the loan. <br /> 7 <br /> 8 After review of the loan documents by the City Attorney, it was determined that State Statutes <br /> 9 would not allow the City to pledge funds to a loan without it being considered a General <br /> 10 Obligation. Therefore, the loan documents are being redrafted to reflect this. <br /> 11 <br /> 12 Ms. Kvilvang noted the following were preliminary issues to consider: <br /> 13 <br /> 14 1.How is this loan structure different from what was originally proposed? <br /> 15 2.What is the risk to the City/HRA in obtaining these loan funds and providing their General <br /> 16 Obligation taxing powers? <br /> 17 3.What are the terms of the loan agreement? <br /> 18 <br /> 19 Ms. Kvilvang summarized the analysis of the following issues: <br /> 20 <br /> 21 1. How is this loan structure different from what was originally proposed? <br /> 22 <br /> 23 The original loan structure anticipated that the City would borrow the funds, provide the <br /> 24 necessary collateral ($837,500 set aside for up to a three year term) and not provide its <br /> 25 General Obligation authority up front(less risk). The loan was going to be paid back as <br /> 26 land sale proceeds were received and then when the development was finished being <br /> 27 constructed and paying taxes, the City/HRA was going to pay off the remaining balance <br /> 28 of the loan by utilizing its General Obligation authority and issue a GO TIF bonds. The <br /> 29 GO TIF bond would then be repaid by tax increment generated by the new development. <br /> 30 <br /> 31 Under the new structure, the City/HRA would be authorizing utilization of its General <br /> 32 Obligation taxing powers up front, which would not require the City/HRA to provide <br /> 33 $837,000 in collateral for the loan. This option would provide the City much more <br /> 34 flexibility.in completing other capital improvement projects as defined by the City <br /> 35 Council and HRA since it would not require tying up a large sum of money for a three- <br /> 36 year period. The loan will still be repaid as originally anticipated,which is through land <br /> 37 sale proceeds and through the issuance of a GO TIF bond when the development is <br /> 38 completed. <br /> 39 <br /> 40 The City/HRA always intended to pledge its General Obligation taxing powers to repay <br /> 41 the debt. The only difference between the two aforementioned loan structures is when <br /> 42 the GO would be required, meaning up front(more risk)before the development is <br /> 43 constructed or after the development is constructed (less risk). <br /> 44 <br /> 45 2. What is the risk to the City/HRA in obtaining these loan funds and providing their <br /> 46 General Obligation taxing powers? <br /> 47 <br />