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Ul/IV/too rai 14.41 rAA lUlL44ULU44 1/UAOGl "al ltliGl VJ 003 33 ; Nursing Home approached the Ci • St. Anthony Nur g has a pp City about issuing refunding bonds to refund the 1985 Bonds. The 1985 Bonds bear interest at a high interest rate (over 10%) and are callable on each June 1 and December 1 at a premium which is presently equal to 5%. It is zny understanding that St. Anthony Nursing Home is proposing that the refunding bonds be insured by FHA. We are scheduled to meet with representatives of-St.-Anthony Nursing Home on Monday, January 19th to discuss the:refur}ding: Normally-"a'refundlxig-,of,revenue bonds like the 1985 Bonds would not be of much concern to a dt since_tl ;d-'r is merely a conduit issuer of the bonds. However, the refunding of,the 1985.`86nds"raises a number of issues for the City and HRA because of the Reserve Fund.Loan, the TIF District and the proposed FHA insurance. I suspect that-the-owner of.Chandler Place will attempt to renegotiate the terms of the Reserve Fund Loan so that it can remain outstanding longer and proceeds can be used to defer costs of.-the issuance of the refunding bonds. It is likely that the proposed financing will;:consist of a series of tax exempt bonds and taxable bonds which together"will,`exceed.$6,350,000; so the HRA will not be obligated to subordinate its mortgage to the".mortgage securing the refunding debt. Roger should check his records to determine the"present outstanding balance of the Reserve Fund Loan. To do this he will need.to determine the accrued interest that was added to • the principal balance of the Reserve Fund Loan on December 1, 1995. If the refunding.bonds are-insured by FHA, it is my understanding that the FHA insurance will En ke tl-pirojec .eligible for treatment as class 4c property for real estate tax purposes.vride.Mhtnesota-Statutes, Section 273.13, subdivision 25, during the life-of tlte.bor 6. .ClUs-,4c praperty:has a class rate of 2.3% for real estate tax purposes. Presently the project-is class 4a•property with a class rate of 3.4%. If the project qualifies as class 4c propertytheare will be a substantial reduction in real estate taxes paid with respect to the project with a corresponding reduction in revenues from the TIF District. The City and HRA are relying on tax increment from the TIF District to help pay the recently issued bonds for the new community center and for other redevelopment activities in the City. There is no reason that I can think of for the City to particpate in a transaction which results_in a reduction.in real estate taxes and tax increment without some payment or arrangement-by-the owner to reimburse the City for the lost tax revenue. The City is under no obligation to issue the refunding bonds. If the City refused to issue the refunding-bonds the owner still may be able to obtain conventional FHA insured financing to refinance the 1985 Bonds and the project would then be eligible for the lower.class rate. However, this would bear a higher interest rate than tax exempt financing and is not as attractive to the owner. DORSEY & WHITNEY P.L.L.P. -2-