7.0. EDSR 08-13-2001 Item 7.
Crty
Elk
River
MEMORANDUM
TO: Economic Development Authority
iiFROM: Marc Nevinski, Assistant Director of Economic Development
/
DATE: August 13, 2001
SUBJECT: Conduit Bonding Policy
Background
Another development tool available to the EDA, in addition to TIF, tax abatement,
and micro loans, is conduit bonding. Essentially, conduit bonding allows a developer
or business to borrow larger sums of money at a lower interest rate.
To utilize such financing, the city first authorizes the issuance of tax-exempt bonds,
• which are sold on the open market. The proceeds are then "passed through" the city
(the conduit) to the borrower for qualified project costs. Because the bonds are issued
by the city, the interest earned on the bonds is tax free, which lowers the interest rate
on the bonds and subsequently the borrower's debt service.
The city's role in issuing conduit bonds is minimal. The majority of the work is done
by the bond underwriters, who ensure that the project and the use of funds comply
with the IRS tax code. This eliminates the need for the city to regulate and monitor
the project financing. Additionally, the city bears no risk as it is not the bondholder
and is not responsible for repaying the bonds.
Action Requested
Attached for your review is a draft of a policy for the issuance of conduit bonds. Both
legal counsel and the HRA have reviewed the policy, and their comments have been
incorporated into the document. No formal action is requested at this time. However,
staff requests that the EDA review and comment on the policy, particularly sections A
and B, before the policy is brought to the Council for review and adoption.
•
S:\EDA\AGENDA\Conduit Bond Memo.DOC
i CITY OF ELK RIVER
Conduit Bonding Policy
July 2001
PURPOSE
Under the Minnesota Municipal Industrial Development Act, Minnesota Statutes,
Sections 469.152 to 469.165 (the "IDR Act"), the City of Elk River has authority to issue
industrial development, and health care facility bonds or notes to attract or promote
economically sound industry, commerce and health care in the City.
Under Minnesota Statutes, Chapter 462C (the "Housing Act"), the City is authorized to
issue housing revenue bonds to finance multi-family residential housing projects for low
and moderate income persons and elderly persons. Projects must be embodied in a
Housing Program, as defined in the Housing Act.
The Council is aware that such financing for certain private activities may be of benefit to
the City and will consider requests for conduit bonding subject to this Policy.
It is the judgment of the Council that conduit bonding is to be used on a selective basis to
• encourage certain development that offers benefit to the City as a whole, including
significant employment and housing opportunities. It is the applicant's responsibility to
demonstrate the benefit to the City, both in writing and at the public hearing. The
applicant should understand that although approval may have been granted previously by
the City for the issuance of financing for a similar project or a similar debt structure, the
Council is not bound by that earlier approval. Each application will be judged on the
merits of the project as it relates to the public purposes of the Housing Act or the IDR Act
and benefit to the City at the time the request for financing is being considered.
GUIDELINES
A. Standards
Applications must meet all of the following standards to be eligible for
consideration:
1. The applicant shall divulge that private activity conduit bonding will be
requested at the time of application for rezoning or site plan approval.
2. The project must meet the objectives of and be otherwise consistent with the
IDR Act or the Housing Act and any other controlling laws.
1 August 1,2001
• 3. The projects must be compatible with the Comprehensive Plan and the
development plans and objectives of the City.
4. A project application requesting a public offering must provide reasonable
assurance of security resulting in at least an A rating.
5. A project application must demonstrate equity participation of in the form
of cash or depreciable assets.
6. Industrial and health care projects must not be speculative, i.e., they must
either be for the applicant's sole use or 60% of the square footage must be
pre-leased.
7. The use of conduit bonding for commercial development shall be limited to
the presently developed areas for the purpose of accomplishing
redevelopment or revitalization.
8. The total principal amount of tax exempt obligations for a single project will
be limited to the sum of the following costs:
a. Land or land improvements.
• b. New construction or existing building improvements for a new,
redeveloped, or expanded business or housing project.
c. Capital equipment and machinery for manufacturing purposes.
d. Fees for professional services associated with the project.
e. Bond issuance costs and capitalized interest during construction.
Those applications that exceed the minimum standards will generally be considered more
favorably than those that only meet these standards.
B. Additional Review Standards
Those applications meeting all of the standards listed above will be further reviewed
to determine compliance with the following additional review standards.
Applications meeting more of the following standards will generally be considered
before those that only meet some of them or meet them less extensively:
• 1. Facilitation of the City's development or redevelopment objectives.
2. The number and type of additional jobs created or retained in the City.
2 August 1,2001
• 3. For housing projects, the number, type and affordability of new or newly
available housing units.
4. The projected increase in property tax revenue.
5. The amount of equity participation above 20%.
6. The quality of the project, as represented by renderings, site plans, the
applicant's record of development, etcetera.
7. The project's impact on additional City services.
The view of individuals and businesses expressed at the public hearing on the project
will also be considered.
C. Procedural Provisions
1. A project will not be given final approval until all City planning and zoning
requirements have been met and all related permits and approvals have been
issued. Planning and zoning matters may be considered simultaneously with
preliminary approval of the project.
2. City officials will not deliver documents for the issuance of tax exempt
obligations until all required fees have been paid by the applicant to the
City.
3. The Council resolution giving preliminary approval to a project shall
specify:
a. That the approval given terminates one year from the date of the
resolution and may be renewed only upon request of the applicant.
b. That the applicant agrees to pay all required fees and reimburse the
City for any and all costs incurred by it in the financing, whether of
not the bonds are issued.
c. That the City reserves the right in its sole discretion to withdraw the
preliminary approval at any time prior to the issuance of the
obligations of the project.
4. The Director of Economic Development is responsible for the
administration and processing of applications for conduit bonding. The
• Director of Economic Development is to prepare and revise from time to
time, necessary application forms and informational material in order to
carry out the objectives of this policy.
3 August 1,2001
5. The following fees for the processing of applications are established:
a. A fee of$5000 due upon the submission of the application, and
b. One-half of one percent of the principal amount of the bond due
upon issue of the bond.
The City is to be reimbursed and held harmless for any out-of-pocket
expenses related to the conduit bonding including, but not limited to the
City's issuer counsel and other legal fees, financial analyst fees, bond counsel
fees, and the City's administrative expenses in connection with the
application. The applicant must execute a letter to the City undertaking to
pay all such expenses even if they exceed the deposit.
6. The applicant must select a financial advisor or underwriter reasonably
acceptable to the City to assist the applicant in preparing all necessary
application documents and materials. The financial adviser will submit
a letter that establishes the financial feasibility of the project. Applications
may, in the alternative, include a signed letter from a responsible financial
institution or underwriter indicating that the project is economically feasible
and viable and stating that bonds can be successfully sold for the project or
that an individual or institution intends to purchase all of the bonds.
All documents shall be subject to the review and comment of the City's own
bond or issuer's counsel
The applicant must receive approval from the appropriate state agencies,
secure financing and commence construction within one year of the date of
the resolution giving preliminary approval to the project or the housing
program. The Council may approve an extension of the preliminary
approval.
D. Miscellaneous Matters
1. Refunding - The Council may approve the refunding of an obligation upon
a showing by the applicant of substantial debt service savings and/or the
removal of bond covenants significantly impairing the financial feasibility of
the project. A fee of$5000 will be charged.
2. Subsequent Proceedings - Where changes to the underlying documents or
credit facilities of outstanding bond issues are to be made and require
• Council action, a fee of$5000 will be charged. No formal application form is
required.
3. Deadlines - The Council conducts all conduit bonding matters at
4 August 1,2001
• regularly scheduled Council meetings held on the second, third, and fourth
Monday of each month. Documents for Council consideration must be at
the City office sufficiently in advance for comments, corrections, and
placement on the agenda. In the case of a publicly offered bond issue, the
documents, when submitted, may specify a maximum price and maximum
effective interest rate if prices and rates have not yet been established.
4. Public Hearings - Published and mailed notice of any required public
hearing may be set and arranged administratively by city staff.
E. Modification of Policy
This policy is intended as a general guide to be followed by the City Council in
considering applications for conduit bond financing. It is not binding on the
Council and may be modified by the Council in the case of any projects for which,
at the sole discretion of the Council, such modification is deemed necessary or
appropriate in the interest of the City.
Resolution:
Adopted:
•
•
5 August 1,2001
•
CITY OF ELK RIVER
Conduit Bonding Application
I. CONTACT INFORMATION
Company:
Address:
City/ State / Zip
Contact Person(s)
Business Phone Fax
Email
• Federal ID # State ID #
Proposed Bond Council
Proposed Underwriters Council
II. PROJECT INFORMATION
What type of project is proposed? Industrial Development/Expansion
Medical Facility
Multi-Family Residential Housing
Mixed Use Redevelopment
Other
What will funds be used for? Land Acquisition
Construction/Renovation
Capital Equipment
Other
• Bond Amount Requested: $
Total Project Cost: $
6 August 1,2001
. Please provide a summary of the proposed project:
Has the applicant ever defaulted on a bond or mortgage commitment or ever declared
bankruptcy? If so, please explain.
•
Please list the communities where the applicant has applied for conduit bonding within the
past five years.
•
7 August 1,2001
III. FINANCING
Sources of Funds
SOURCE NAME TERMS AMOUNT
Bank Loan $
Bank Loan $
Other Private Funds $
Other Private Funds $
Applicant Contribution $
Fed Grant/Loan $
State Grant/Loan $
• City Financing $
Conduit Bonding $
Total Financing $
Uses of Funds
Land $
Construction/Renovation (attach plans & costs) $
Capital Equipment $
Other
Total Costs $
• Comments:
8 August 1,2001
IV. PROJECT GOALS
41,
Directions
• Industrial/Medical Facilities Applicants to complete Section 1 only.
• Housing applicants to complete Section 2 only.
• Mixed use applicant to complete both Sections 1 & 2
SECTION I: Industrial/Medical Facilities
Present # of Employees Total Payroll
Job Creation
Average Are the Jobs Expected
Number Hourly Annual Permanent or Hiring
Job Title of Jobs Wage Salary Temporary? Date
•
Current Market Value of Property $
Estimated Market Value upon Completion $
SECTION 2: Housing Developments
Housing Unit Data
Type of Unit Number of Units Rent Range Percent Available to
LMI
1 bedroom
2 bedroom
3 bedroom
1 bedroom
2 bedroom
3 bedroom
1 bedroom
2 bedroom
3 bedroom
•
9 August 1,2001
IV. PROJECT CONTACTS
•
Attorney
Name
Address
Phone
Email
Accountant
Name
Address
Phone
Email
Developer/Builder
Name
Address
Phone
Email
Financing Sources (lenders, partners, etc...)
Name
Address
Phone
Name
Address
Phone
Name
Address
Phone
Name
Address
Phone
Parent Company
Name
Address
•
10 August 1,2001
V. ATTACHMENTS CHECK LIST
110
Please attach the following:
A) Written Business Plan:
1. Description of Business
2. Ownership
3. Management
4. Date Established
5. Products/Services
6. Future Plans
B) Audited Financial Statements for Past Two Years
C) Financial Projections for Two Years
D) Resume of Owner/Management
E) Personal Financial Statements of Proprietor, Partners,
Guarantors
F) Letter of Commitment from the other sources of financing,
• stating terms and conditions of their participation in
project
G) Non-refundable Deposit of$5000
H) Administrative Fee of one half of one percent of the bond
request.
I) List of References including project name, city and address.
VI. AGREEMENT
I/ We certify that all information provided in this application is true and correct to the
best of my/our knowledge. I/ We authorize the City of Elk River and the Finance
Committee to check credit references and verify financial and other information. I/ We
agree to provide any additional information as may be requested by the City and the
Finance Committee.
NAME
40 TITLE
SIGNATURE DATE
11 August 1,2001