HomeMy WebLinkAboutCC RES 03-062 A RESOLUTION APPROVING INTERNAL LOAN TO FUND THE REDEVELOPMENT OF THE ST. ANTHONY VILLAGE H OFF -SALE LIQUOR STORE Meeting Sheet
IIIIIIVIIIVIIIVIIIVIIIVIIIIIIIIIII
ioassi
Box: 31
Folder: RES 2003
Document: CC RES 03-062 A RESOLUTION APPROVING INTERNAL
LOAN TO FUND THE REDEVELOPMENT OF THE ST. ANTHONY VILLAGE
H OFF -SALE LIQUOR STORE
•
CITY OF ST. ANTHONY VILLAGE
RESOLUTION 03 - 062
A RESOLUTION APPROVING INTERNAL LOAN TO FUND
THE REDEVELOPMENT OF THE SAV lI OFF-SALE LIQUOR STORE
WHEREAS, the City entered into a development agreement with AMCON to redevelop the
Stonehouse/SAV 11 site; and
WHEREAS, the goal is to develop a financial plan that provides funding for the construction
of the new store at the most affordable price; and
WHEREAS, the issuance of liquor revenue bonds or the use of reserves is not
cost affective for the project; and
WHEREAS, the best alternative for funding the new store is an Internal Loan from the
• Water Filtration Fund; and
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of St. Anthony,
hereby approves an internal loan from the Water Filtration Fund (not to exceed $400,000) to
fund the City's portion of the construction of the new SAV 11 off-sale store.
Adopted this— I day of ig�-,41 e- , 2003.
Mayor
ATTEST:
City Clerk
Reviewed for Administration: Ad k�
City Nknager
•
•
MEMORANDUM
DATE: May 1, 2003
TO: Mike Morrison, City Manager
FROM: Roger Larson, Finance Director
ITEM: STONEHOUSE REDEVELOPMENT
Per your request, I reviewed the funding options for building of the new SAV 1I off-sale
store.
Ehlers provided me with the following numbers to work with:
Cost of a new store $950,000.00
Less: Sale of Existing Property ($640,000.00)
$310,000.00
Add: Hennepin County Easement $ 55,000.00
Cash Needed to Build New Store $365,000.00
With all projects, the goal is to develop a financial plan that provides funding at the most
affordable price. Factoring in such things as revenue streams, affordability of borrowing,
current operating budgets and long-term cash needs, often provides the potential
alternatives/funding sources for a project.
The funding options for this redevelopment include:
1) Issue Liquor Revenue Bonds.
2) Cash on Hand/Reserves.
3) Internal Loan.
Option #1 —Liquor Revenue Bonds
Liquor revenue bonds, totaling $940,000.00, were used to finance the redevelopment of
SAV I. However, given the small amount of cash needed to build the store ($365,000.00
is considered quite small in the bond market), the cost of issuance and interest of the debt
makes a small issue not as attractive as that of a larger one.
Adding the issuance costs and interest expense for a ten-year bond, the total cost would
• be approximately $550,000.
• Option #2—Cash on Hand
Current budget concerns and recent allocation of reserves (such as the funds used to
redevelop Central Park)has reduced our reserves. The recent balancing of the State's
operating budget impacted all Cities. Further reductions in State Aid are not out of the
picture, which could require additional budget adjustments. In uncertain/changing
economic times, it seems financially prudent, to not spend down our reserves.
Option #3 —Internal Loan
Given the cost of issuing debt, interest payments and the need to retain our reserves, an
internal loan appears to have the most merit. In reviewing potential funds for an
internal loan, the water filtration funds can support this project.
A review of the fund balance is as follows:
Fund Balance on 12/31/2000 $5,785,715
Central Park Allocation ($1,000,000)
2001 Interest Earnings $ 198,579
2001 Operation/Maintenance ($ 149,192)
•
12/31/2001 $4,835,102
2002 Interest Earnings $ 293,149
2002 Operation/Maintenance ($ 67,849)
12/31/2002 $5,060,402
The present financial plan for use of these funds is to use the annual interest earning of
the money to pay for cost of the operation and maintenance of the plant. In order to
accomplish that goal, an amount of$4,000,000 should remain in the fund.
Recently, as part of the new Public Works/Fire Station projects, Council authorized the
transfer of$437,000 from the water filtration fund to the lease revenue bond reserve
account. While serving as a back up, those funds will earn interest. When the lease
revenue bonds are paid off, the principal and interest earnings will be paid back to the
water filtration funds.
When considering an internal loan, the goal is to receive a fair return on investment.
Funding of the new off sale, with an internal loan, allows for repayment of the principal
with interest earnings. To establish a fair rate of return, the interest rate should be equal
to the amount of interest we could earn by investing the funds. When doing so, the
interest rate should be set at 5%.
•
e
•
Structure of the Internal Loan:
$365,000
Term 10 Years
Interest Rate 5%
Declining Principal
Year Principal Interest Total Cost
2004 $ 9,125 $ 9,125
2005 $ 36,500 $ 18,250 $ 54,750
2006 $ 36,500 $ 16,425 $ 52,925
2007 $ 36,500 $ 14,600 $ 51,100
2008 $ 36,500 $ 12,775 $ 49,275
2009 $ 36,500 $ 10,950 $ 47,450
2010 $ 36,500 $ 9,125 $ 45,625
2011 $ 36,500 $ 7,300 $ 43,800
2012 $ 36,500 $ 5,475 $ 41,975
2013 $ 36,500 $ 3,650 $ 40,150
2014 36,500 $ 1,825 38,325
$365,000 $109,500 $474,500
The total amount of the payments for the internal loan is $75,000 less than borrowing the
money through the issuance of a liquor revenue bond.
Recommendation:
Council authorize an internal loan(not to exceed $400,000) to fund the new SAV II
liquor store. The term of the loan is 10 years; interest is based on declining principal at a
rate of 5%.
•