5.0. HRSR 10-14-1996 ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY
October 2, 1996 HRA Report 96-1
REPAYMENT SCHEDULE - KING AND MAIN
Proposed Action
Staff recommends adoption of the following motion: Move to approve King
and Main loan repayment schedule as attached to this report.
With approval of this action, the Finance Department will establish a
repayment schedule with the HRA and these repayment amounts will be
adopted in future HRA budgets.
Overview
The financing mechanism which was used by the HRA for the purchase of the
King and Main properties was an internal borrowing from the city liquor
store fund. The liquor store fund made a loan to the HRA in the amount of
$401,482.48. In addition,the HRA spent $24,185.26 to complete the legal,
• environmental, survey, and other closing expenses associated with the
properties.
It now appears likely that the city will continue to pursue the construction of
a new liquor store, thereby necessitating the quick repayment of this
obligation by the HRA.
The HRA is being charged 6 percent interest on its loan from the liquor store
fund, which is slightly less than the rate the fund would receive if it were
being invested with other city funds.
Primary Issues to Consider
0 What is the amortization schedule for repayment?
0 What is the effect on the HRA's cash balance and future budgets?
Supporting Documents
0 Expenditure and loan repayment breakdown.
0 H' : . tatement of Financial Activity as of September 30, 1996.
.41 ,42 •`/
• Paul T. Steinman, Director of Economic Development
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
Page 2
• Primary Issues to Consider
The HRA has the following primary issues to consider regarding this issue.
0 What is the amortization schedule for repayment?
The amortization schedule as proposed by the Finance Department is
attached to this report. The significant aspects of this schedule include an
immediate payment of$75,000 from the HRA cash reserves, and the
payment of$225,000 on July 1, 1997, after sale of the property to the
developer (The Chuba Company). In addition, the HRA agreed to budget
$37,000 for a payment on this loan in 1997.
It is projected that approximately $36,000 be paid by the HRA in 1998
and an additional $36,000 be paid in 1999 for total repayment of the debt.
0 What is the effect on the HRA's cash balance and future budgets?
The HRA cash balance as of September 30, 1996, was $109,000. This
would be the source of funds for the initial payment of$75,000.
The primary assumption in the proposed loan repayment schedule is the
payment of$225,000 on July 1, 1997. This assumes the HRA will close on
• the sale of the property to the developer on this date. Although every
effort will be made to complete this transaction on July 1, 1997, it is
foreseeable that issues may arise regarding timing which will affect this
date.
Staff recommends that the HRA make it clear in its discussion of this
issue that the $225,000 payment cannot be made until such a time as the
HRA closes on the sale of the properties to the developer.
Future HRA budgets will include a line item for payment of the King and
Main obligation.
Alternatives
The HRA has the following alternatives regarding this issue.
1. Approve the action as recommended by staff.
2. Continue the item for additional information. With this alternative it is
important to keep in mind that for future budgeting purposes, the HRA
• should take action on this item prior to the end of 1996.
Page 3
3. Deny the action. With this alternative it would be appropriate to
40` recommend an alternative up front lump sum payment, and provide
direction to staff to either stretch the term of the amortization schedule or
take some other action to modify the repayment schedule.
eda\hra\rpt96-1.doc
•
• Sherburne Kuhn Clinic
317 812 307
King Main King TOTAL
Purchase Price $105,000.00 130,000.00 175,000.00 410,000.00
Settlement Charges 19.50 1,118.25 19.50 1,157.25
Prorated taxes 79.24 79.16 166.83 325.23
Subtotal Property Cost 105,098.74 131,197.41 175,186.33 411,482.48
2nd Half 1996 Taxes 1,446.10 1,444.67 3,044.55 5,935.32
Legal 1,283.80
Environmental Audit 5,735.89
Printing & Publishing 30.65
Survey 1,199.60
F
TOTAL EXPENDITURES TO DATE FOR KING & MAIN PROJECT 425,667.74
PROPOSED INTERNAL LOAN REPAYMENT SCHEDULE
PRINCIPAL
PAYMENT DATE PAYMENT PRINCIPAL INTEREST BALANCE
• July 1, 1996 - 401,482.48
1, 1996 75,000.00 75,000.00 - 326,482.48
July 1,1997 225,000.00 225,000.00 16,324.12 101,482.48
December 1, 1997 37,000.00 34,462.94 2,537.06 67,019.54
September 1, 1998 18,500.00 15,484.12 3,015.88 51,535.42
December 1, 1998 18,500.00 17,726.97 773.03 33,808.45
September 1, 1999 18,500.00 16,978.62 1,521.38 16,829.83
December 1, 1999 17,082.28 16,829.83 252.45 0.00
Dece"i,eJ^ 1, teNe
110
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
STATEMENT OF FINANCIAL ACTIVITY
FOR THE HOUSING AND REDEVELOPMENT AUTHORITY
• FOR THE PERIOD SEPTEMBER 30, 1996
1996 Month to Year to
Budget Date Date
Cash Balance $108,663
Revenues
Property Tax 56,460 - 36,348
HACA 5,600 - 2,591
Miscellaneous - 500 4,000
Interest Income - 290 2,100
Total Revenues 62,060 790 45,039
Expenditures
Miscellaneous 500 340 9,341
Improvement Projects 57,000 7,315 24,787
Reserve for Future Projects 10,000 - -
Land - - 10,000
• Transfers 500 - -
Total Expenditures 68,000 7,655 44,128
•