HRSR MEMO 08-12-1996 • ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY
MEMORANDUM
TO: Housing and Redevelopment Authority
FROM: Lori Johnson,Asst. City Administrator/
Finance Director
DATE: August 12, 1996
SUBJECT: King and Main Financing
When the HRA decided to pursue purchasing the King and Main properties, all
allowable financing options were explored. Tax Increment bonds are allowed for
this type of purchase if a Tax Increment Financing Plan has been approved; in this
case a TIF plan will not be certified until after July 1, 1997. Revenue bonds are also
an option but this project did not produce a revenue stream to meet the debt
requirements. Temporary bonds could have been issued pending the purchase by a
developer; because the timing of the project was very uncertain, it was decided that
this was not the best financing tool. The remaining alternative was to borrow
funds from the City. This is the financing mechanism that was used by the HRA for
• the purchase of the King and Main properties.
The Liquor fund made a loan to the HRA in the amount necessary to cover the
property costs of$411,482.48 less the down payment of$10,000.00. (The HRA has
paid for all legal, consulting and other project related costs and will pay for any
environmental escrow items. These costs will be reimbursable from future TIF
increment income.) At the time of the purchase, the terms and details of the loan
were not discussed. It is now appropriate to finalize the loan terms so that the HRA
can program this expenditure into its 1997 budget. Even though the funds may be
recaptured through a payment of$225,000 by the developer and a future TIF
district, the HRA has an obligation to repay the Liquor fund based on an approved
amortization schedule which will require payments even if the development project
does not proceed in 1997.
The HRA currently has a cash balance slightly in excess of$119,000. The HRA may
want to use $75,000 at this time to repay the Liquor Fund. That would leave a
principal balance due of$326,482.48. Assuming the developer proceeds next year
and pays $225,000 the principal balance remaining would then be $101,482.48.
Attached is a proposed amortization,schedule based on the above assumptions. This
HRA is being charged six (6) percent interest which is slightly less than the rate the
Liquor fund would receive if this cash was invested with other city funds.
•
P.O. Box 490 • 13065 Orono Parkway • Elk River, MN 55330-1743 • (612) 441-7420 • Fax: (612) 441-7425
Equal Opportunity Housing and Equal Opportunity Employment