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EDSR 01-30-1995 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY MEMORANDUM TO: EDA Commissioners FROM: William Rubin, Executive Direct/4K, DATE: January 30, 1995 SUBJECT: Agenda Memo for EDA Workshop 1. OVERVIEW,OF TIF A. History - As a way to attract reinvestment into central business districts (CBD's), a locally-administered "grant" program became part of Minnesota state law. The program became known as Tax Increment Financing (TIF) and it operates under the premise that,a business or a developer receives grant funds from a city as reimbursement for extraordinary development 0, costs. These costs may include land acquisition values, demolition expenses, infrastructure upgrades or expansions, and pollution abatements, etc. The City recovers its grant expenses by creating a TIF District around the boundary of the TIF project. As a result, the city "captures" the new property taxes (known ,as the tax increments) to recover its expenses associated with the project. Once the city is repaid, the TIF District is dissolved and the local taxing jurisdictions (county, school district, city, etc.) derive the benefit in accordance with their respective levies. Over time, TIF gained greater popularity as the availability of Federal Block Grant Funds grew more scarce. TIF programs have also changed to include senior housing projects, low- and moderate-income housing projects, and industrial projects. B. Elk River Projects - The City of Elk River has established eleven TIF Districts: • TIF No. 1 Elk River Plaza Mall (terminates 12/95) • TIF No. 2 Guardian Angels' Project • TIF No. 3 - Elk River Plaza Mall Addition (terminates 12/96) 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 • TIF No. 4 RDF Facility (decertified 12/90) • TIF No. 5 - Alltool Manufacturing Company • TIF No. 6 - Mork Clinic • TIF No. 7 Americlnn Motel • TIF No_ 8 - Jarmoluk Dental Clinic, • TIF No. 9 Tescom Corporation • TIF No. 10 - Elk Terrace Senior Apartments • TIF No. 11 - Timron Precision Gear These projects represent a good cross section of redevelopment, housing, and industrial development projects. The Elk River TIF Districts are set up to exist only as long as grant funds are still outstanding. This helps ensure that the TIF projects benefit all of the local taxing jurisdictions as early as is practical. C. 1990 Restrictions - In 1990, State Legislators responded to the charges that TIF was being abused and TIF Districts were arbitrarily being established. As a result, significant restrictions were placed on new TIF Districts created after April, 1990. The biggest restriction was that of penalizing respective cities for each new TIF District created after April, 1990. The penalty is linked to state aid losses (LGA/HACA). Many cities, including Elk River, required that the developer or benefiting company repay the state aid losses. Regardless of the mechanisms, the 1990 legislative restrictions accomplished a basic objective - that of reducing the number of new TIF Districts that were created in Minnesota. D. 1993 Restrictions - In 1993, the Legislature further restricted the TIF program by prohibiting developer repayment of state aid losses. As with the 1990 restrictions, some state aid penalties are phased in depending on the type of TIF District. That is, redevelopment projects and housing projects are phased in with respect to the state aid losses. With manufacturing projects (i.e., economic development TIF Districts), the penalty kicks in the first year a project generates new property taxes. Therefore, the 1993 restrictions caused many communities to rethink how they went about establishing new TIF Districts for manufacturing projects, if at all. During the 1993 Legislative Session, at least two municipalities, St. Cloud and Brooklyn Park, successfully sought legislation which exempted specific manufacturing projects from state aid losses. In both cases, the • companies were multi-million dollar organizations whose stock is publicly traded. One wonders whether the Legislators would provide an exemption to the owner of a 15,000 square foot precision metal fabricating plant. E. Future of TIF - Whether or not TIF remains as a valid economic development tool remains to be seen. Time and time again, public administrators have been alerted that a senator or representative intends to introduce a bill to eliminate it. The 1995 League of Minnesota Cities Legislative Agenda includes not only retaining TIF, but also seeking specific legislation to eliminate the LGA/HACA aid penalty for TIF use. It is safe to assume that if TIF is not eliminated, it will be subjected to further restrictions. 2. THE UNEVEN PLAYING FIELD Pre-1990 Districts Versus Post-1993 Districts - Today, Elk River is in an uncompetitive position as it relates to creating new TIF Districts. If new Districts are created, it will result in the loss of state aid. Prior to 1993, companies and developers reimbursed the city for this loss. In 1993, this practice was prohibited. • Communities with pre-1990 TIF Districts have learned to perpetuate the life of these Districts so as to avoid: a.) state aid losses, and, b.) the need to create new Districts. Competing with these communities in an effort to attract manufacturing companies is very difficult. 3. TIF AND THE BUSINESS PARK Because of the long build-out period of an industrial park/business park, it may be necessary to utilize TIF as an incentive program to help attract manufacturing companies into this area. Finance Director Lori Johnson has provided a summary which highlights the implications of creating a new TIF District to support a hypothetical manufacturing project. This information is necessary to help determine the implications of utilizing TIF as a viable economic development tool. Please refer to Lori's summary on this topic. Although there are short-term losses associated with the creation of each new TIF District, there are also long-term benefits that each new manufacturing company brings to Elk River. These spin-off effects have been documented in numerous studies sponsored by the US Chamber of Commerce. That is, one hundred new manufacturing jobs actually create other positive situations throughout the community. They include increased personal income, additional retail establishments, more non-manufacturing jobs, greater retail sales, and an increase in population, etc. These elements should be taken into consideration in evaluating the merits of new TIF Districts in Elk River. 4. ESTIMATED UTILITY COSTS IN THE BUSINESS PARK At its December meeting, EDA Commissioners discussed possible public/private partnership scenarios related to developing the business park area. This matter was referred to the EDA Business Park Task Force for further analysis. Part of this analysis included estimating the infrastructure costs within the property held by Country Ridge Partnership and Bill Gagne. Terry Maurer of MSA Consulting Engineers provided city staff and the Task Force with these estimated costs - as outlined on a separate attachment in the agenda packet. Once determined, these estimates could prove helpful in determining the level of City/EDA assistance in a public/private partnership arrangement. These costs will be explored in greater detail at the EDA workshop. In • addition, a multi-colored map will help serve as a visual display for this discussion item. 5. POSSIBLE CITY/EDA ASSISTANCE OPTIONS A. Public Acquisition of B-P Property - One possible option relating to City/EDA participation in the business park is to publicly acquire various sites or tracts which would be improved and held by, say, the EDA until specific users are identified in the future. EDA Commissioners will recall that in mid-1994, it appeared as though a public agency would be the developer of last resort if a business park was to become a reality in Elk River. An appraisal of Country Ridge's B-P property was authorized, and, although a specific offer from the EDA was never tendered, Country Ridge rejected rounded acquisition estimates as presented by the Business Park Task Force. The issue of public acquisition has emerged again. In a letter dated January 9, 1995, the development manager for Country Ridge Partnership offered the EDA twenty one acres of B-P land for $300,000. A copy of the correspondence is included in the • agenda packet. Given the limited amount of public funds, the • EDA's acquisition of raw business park property is a low priority. B. Public/Private Partnerships - Utilizing the estimated infrastructure costs from MSA Consulting Engineers, a better fit for the City/EDA may be that of underwriting a portion of these costs. One potential public/private partnership model is that of reducing the land developer's out-of-pocket costs associated with assessments for roads, water mains, sewer lines, etc. The assessments could be underwritten by certain public funds available through the City. These funds could be used by the developer to pay for the street costs, etc. - thereby reducing his assessments. As future lots in the business park are sold, the developer would be obligated to pay off the lot's remaining assessments and repay the City/EDA a per acre payment that is reflective of the City assistance attributable to that site. A nominal interest charge could also be attached to the City's share. City funds would not be used to help,underwrite the assessments attributable to lots that may end up with a commercial or a limited use. From the MSA estimates, it is possible to reasonably calculate the pro-rated share of infrastructure costs attributable to both Country Ridge and Bill Gagne: Country Ridge $868,382.42 (71%) Gagne $356,847.15 (29%) Total $1,225,229.57 Assuming the $430,000 in Refuse Derived Fuel(RDF) funds is available in the business park, those funds can be pro-rated to the respective land developers: 71% of$430,000 = $305,300 29% of$430,000 = $124,700 $430,000 By providing the RDF funds in a public/private partnership scenario, the City/EDA has accomplished two things: a.) the level of assessments incurred by Country Ridge and Gagne have been reduced, and, b.) the carrying costs on the assessments have been reduced. The public funds would be repaid as land sale occur presumably on a per acre basis. As these funds are repaid, they can be used for subsequent phases of the business park. A nominal interest charge can help this pool of funds grow. Summary The Business Park Task Force will present three recommendations to the EDA at its meeting on February 13, 1995: a.) public acquisition of raw, unimproved business park sites is a low priority; b.) developing a public/private partnership which helps underwrite a portion of the assessment costs is a workable model that is worthy of further expiration. This illustration suggests that all public funds are repaid, with interest, as improved lots are sold to end users; c.) with respect to the availability of public funds, the RDF funds totaling approximately $430,000, should be utilized to help underwrite infrastructure costs. Funds from TIF District No. 1 and No. 3 would not be utilized in this illustration. s:eda\agmem130 SAMPLE TIF PROJECT • This analysis assumes that a new TIF district is created to assist a developer in the acquisition of 2.5 acres in the business park. The developer plans to construct a 30,000 square foot building. TIF ASSISTANCE Land purchase price 108,900 sq. ft. @ 1.10/sq. ft. $119,790 Other "civil" costs $20,210 TOTAL $140,000 Estimated finished value of land and building is $1,000,000. Net Tax Capacity (NTC) 100,000 X 3% 3,000 900,000 X 4.6% 41,400 NTC $44,400 Annual Tax Revenue generated by project (based on pay 1994 tax rate). $44,400 X 108.217% $48,048 • Total property tax payments (tax increments) needed to service debt for land acquisition and other related costs based on the following assumptions: Land purchase closes in Spring, 1995. Construction is complete in 1995. Full value of 1,000,000 is on for Jan. 1, 1996. First tax collection is May, 1997. First interest payment is due October, 1995. First principal payment is due April, 1998. First Increment income is collected in 1997. Total principal and interest due is approximately $215,000. Annual Debt service is approximately $43,000. Five years of TIF collections are needed. LGA PENALTY Penalty starts with first year of TIF collection. 100% of NTC is subject to the penalty. Estimated "Penalty Tax Rate" is 35% of the property tax collected on the project. Penalty = $48,048 X 35% $16,817 Total LGA loss = $16,817 X 5yrs. $84,085 • The City receives approximately $179,000 of LGA annually. TIF12595.XLS JAN.1 0 1995 -/pmmlymmimil �,- P = TONY EMMERICH HOMESwommar January 9, 1995 '7 William Rubin Economic Development Coordinator City of Elk River 13065 Orono Parkway Elk River, Mn 55330 Bill : At your request, I have discussed the willingness on the part of the EDA to participate in the development of the Business Park area with Tony Emmerich. I have shared with him the information that you covered with me at our last meeting. We discussed all of the different combinations that are possible with the funds that are available. I have checked with several other Cities who are aggressive in their efforts to help and invite this type of industrial development within their Communities. All of them are willing to assist the Developer with various incentives in order to attract • new businesses into the City. Most all of the ways you and I discussed to use EDA or TIF funds and financing are being implemented, various methods ranging from giving the Developer monies to do improvements to created "grants" for infrastructure work. Outright land acquisition by a particular City was among the top ways used to assure the success of an area designated for clean industrial development. I have sent along a map of the Business Park area. This is the proposed plat for the Country Crossing Business Center. (There are only three actual lots identified in the upcoming preliminary plat, the balance is open to redraw depending on the size of the next sales. . . ) . I have sold the four parcels not highlighted in yellow. The balance of the area highlighted is around 21 acres. Tony would like to propose this to the EDA: -He will sell the remaining acreage to the City for $300.000.00. There already is Council approval in this amount for Business Park land acquisition. -The City can install the roadways and utilities to service the entire Business Park area. The benefits to this proposal , we feel , are many. Tony will wholesale the property, and concentrate on the residential land to the South. I have sold two parcels South of the proposed service road for $1 .50/sa. ft. , including my 10% real estate commission. 10738 Hanson Blvd. NW • Coon Rapids, MN 55433 A1111119 di ,�,l TONY EMMERICH HOMES I am working with other potential clients and will no doubt keep selling this property if it is available for me to sell . ( If the City does purchase the land, I would like for my Commercial Real Estate Company, THE LAND PARTNERS, INC. , to have a contract to continue the work I am doing out here now) . So, with the established market value per acre, the future sales will quickly pay the purchase funds back, and will create profit dollars for the EDA to be applied against any monies spent for improvements. . . not to mention the return of funds in taxes. Monies spent should come back reasonably soon to utilize for the land lying to the West. Please give immediate consideration to this proposal , with your response directed to me, and I will meet with Tony. Sincerely, /1 ( *4240t1%1 • Development Manager • 10738 Hanson Blvd. NW • Coon Rapids, MN 55433 psi _ / ., x eee6 ...-- .µ j x 885.6 '0fl7�-. 3�LM. �T. .�. .... 886.-",!""' a•---����• .N..••i'' ::,: ^p �,,...�- M•,.,...--."' J; �w �w...Win.. -1• .. .....I. :'_ Vti�,... .......v. ..9.«- ..•�'�g'� / f Q x 887`.1 .. ..`"..'.'..-yam••• BB72 '‹ ' - : Q 0 . * -------- •m X 8ee.6 ,..✓- v '- x Y` ,,,, k 11y� �' "Alt- 9 t,,.1. 7 . .t T . Ai GE -3',IIIIIIII \ ��C.4�, E, ASEM T �- ; e ♦ v es6.e i \ -:.x.32 C i x \� !� � �,_.5, �eea.3 t 2�(`J2 A , ' �� ■ 00 `,-, 000e " \ 11\i' 00 -- ' \-1,( 879.41 .6-7, A C x :. - /' �\ �t i AMMMOMMOM Alli I x �' �_.:,-�1: 'f ' F i i 887.8 2iii .- ...---- _./ .10 1LT0 _i :1 1Ac ' _ • e i �� j n F- x 879.8 �. 'f�.� I .lr. r. II�y`w � ...tea -,.. L .fit kali ' -f 4.. x 885.9 x 887.3 \ J ./ 2.70 AC x .4.6 1 2.59�`.eC �; . 1 .5 ) AC 884.8 BUSINES` PARK` 0 ,, !�, x 883.9 x 883.3 I 18830 • I j 1 f x 8845 ' •--`•�._.....,._...- 1 E' t x v 1 f �.._ y x 8854 3 z x 8842 }r ! 884.3: J. 1 x 884.9 -i-- fr v 1�ti, 884. { 1 .53 AC 2.16 AC-, 3.50 AC ,0 L ffr,... f� i x BB33 1 883711 j i x '� x 883.'Y " x 883.5 I t iIIIIIIC. •. UM r , ¶' rJ45�1 x -.4741111 884.�� ♦ „ -` . 1 � 882.8 NI 10, 111 sl.: ell #16,- x �'' I� 117' � .... am. 4 ItiO CPSI [kJ i i) - 4c. , lig,..., lit Ati---,.. . rm. i ii .:' \ ...., ___ ,E 4 *AI sisal ',..... g-a 4", ..... , II I I i i -- x 884.5 6m� x 683= �1 \ . 't '1\111\ �� - wage and 1 - - --- - -..i2t�41♦ ,�♦iiii VII i ^' :.jk 1. glaillire x "sal 0 x ty` 13 14 �\ \\ x k 1` ♦� ,-.� ,'.. 89 , 9 886. 15 �I 1 1 t 1. x 1 � � � J \ - m. P . 885.3 t...- eehs �♦ 4 €- x-,e ! xy v_ 1.• \ j y $ 1 x :. . _ \ fi t! ��' r . 218 /� v 7 ` Ali 1 .II � ' t x 886.6 • ! x . - - 95 FRI 13 : 56 MSA ST PAUL P - 0 2 BUSINESS PARK COSTS (ESTIMATED) SCHEDULE 1.0 SOUTH FRONTAGE ROAD (STAT.0+00 TO 7+00) $49,522.15 SCHEDULE 2.0 SANITARY SEWER-SFR(STAT. 0+00 TO 7+00) $10,020.25 SCHEDULE 3.0 WATERMAIN-SFR(STAT.0+00 TO 7+00) $11,250.25 SCHEDULE 4.0 STORM SEWER-SFR(STAT. 0+00 TO 7+00) $12,317.25 SOUTH FRONTAGE ROAD(STAT.0+0 TO 7+00)-TOT L Q;4113773;71 ` CcM0011( Yhl D6� : l.Lot I (` gyp ce SCHEDULE 5.0 SOUTH FRONTAGE ROAD (STAT.0+00 TO 5+00) $38,449.31 SCHEDULE 6.0 SANITARY SEWER-SFR(STAT. 0+00 TO 5+00) $7,210.25 SCHEDULE 7.0 WATERMAIN-SFR(STAT.0+00 TO 5+00) $7,489.65 SCHEDULE 8.0 STORM SEWER-SFR(STAT.0+00 TO 5+00) $9.099.25 SOUTH FRONTAGE ROAD(STAT.0+00 TO 5+00)-TOIAL $62,248.46 CoNA t1/41-541q Vh I DEk- Le4P ( BastiorsrcM�v SCHEDULE 9.0 SOUTH FRONTAGE ROAD (STAT.7+00 TO 13+00) $37,959.37 SCHEDULE 10.0 SANITARY SEWER-SFR(STAT. 7+00 TO 13+00) _ $8_608.25 SCHEDULE 11.0 WATERMAIN-SFR(STAT.7+00 TO 13+00) $7,398.85 SCHEDULE 12.0 STORM SEWER-SFR(STAT. 7+00 TO 13+00) _ $13,193.25 SOUTH FRONTAGE ROAD STAT.7+00 TO 13+00)-TOTAL $67,159.72 SCHEDULE 13.0 SOUTH FRONTAGE ROAD (STAT. 5+00 TO 13+00) $55,788.61 . SCHEDULE 14.0 SANITARY SEWER-SFR(STAT. 5+00 TO 13+00) -$11,505.25 SCHEDULE 15.0 WATERMAIN-SFR(STAT. 5+00 TO 13+00) $11.209.25 SCHEDULE 16.0 STORM SEWER-SFR(STAT. 5+00 TO 13+00) ___$16.411.25 SOUTH FRONTAGE ROAD(STAT.5+00 TO 13+00) -TOTAL S94 914.3E u \m-111 ,q A MG 5c4,4•44.44 Pcs.. 1 SCHEDULE 17.0 SOUTH FRONTAGE ROAD CUL-DE-SAC - 562 807.3_ SCHEDULE 18.0 SANITARY SEWER- SFR CUL-DE-SAC __3___45.00 SCHEDULE 19.0 WATERMAIN•SFR CUL-DE-SAC -__---5`'565 OC SCHEDULE 20.0 STORM SEWER•SFR CUL-DE-SACS'i 5'.1 '0C C 1 t S ,- ( hl(p - SOUTH FRONTAGE ROAD CUL-DE-SAC E-S-TOTAL 5122.788.855 SCHEDULE 21.0 SOUTH FRONTAGE ROAD (STAT. 13+00 TO 26+00) S198.137.15 SCHEDULE 22.0 SANITARY SEWER-GAGNE PROPERTY(STAT. 13+00 TO 26+00) �_ _ $39.245.00 SCHEDULE 23.0 WATERMAIN-GAGNE PROPERTY(STAT. 13+00 TO 26+00) ___ __ 534.050.00 SCHEDULE 24.0 STORM SEWER SFR (STAT. 13+00 TO 26+00) _ ____S85.41.$_0C., SOUTH FRONTAGE ROAD(STAT 13+00 TO 26+00)-TOTAL 5356.847 15 Gant SCHEDULE 25.0 183RD NORTH SIDE AGAINST BUSINESS PARK _ 565.481.10 SCHEDULE 26.0 SANITARY SEWER- 183RD(STAT. 65+77 TO 78+38) ___.___.__533,536.70 . SCHEDULE 27.0 WATERMAIN- 183RD(STAT.65+77 TO 78+38) - _-$19_605.50 SCHEDULE 28.0 STORM SEWER- 183RD(STAT.65+77 TO 78+38) ,550.871.50 183RD(STAT.65+77 TO 78+38)-TOTAL $169,494.80 ComI.TCIYt 1100( - 14oi Y. cook SCHEDULE 29.0 183RD(STAT.78+38 TO 81+33) $18,712.19 SCHEDULE 30.0 SANITARY SEWER- 183RD (STAT. 78+38 TO 81+33) $12,421.00 $9.743.00 T - 9 5 F I I 1 3 : 5 7 MSA ST PAUL F 0 3 liper L6A��y D 6 183RD(STAT.78+38 TO 81+33)•TOTAL $40,876.19 SCHEDULE 32.0 JOPLIN STREET(STAT 12+78 TO 18+00) $28,534.75 SCHEDULE 33.0 SANITARY SEWER-JOPLIN ST(STAT. 12+78 TO 18+00) - $21,645.60 SCHEDULE 34.0 WATERMAIN-JOPLIN ST(STAT. 12+78 TO 18+00) $10,368.00 SCHEDULE 35.0 STORM SEWER-JOPLIN ST(STAT. 12+78 TO 18+00) $15,632.00 C���� D�� JOPLIN ST(12+78 TO 18+00 •TOTAL $76,180.35 �aSWEVS ftr, SCHEDULE 36.0 PROPOSED JOPLIN STREET (STAT. 18+00 TO 23+00) $44,132.52 SCHEDULE 37.0 SANITARY SEWER-JOPLIN ST(STAT. 18+00 TO 23+00) $18,523.35 SCHEDULE 38.0 WATERMAIN-JOPLIN ST(STAT. 18+00 TO 23+00) $9,507.75 SCHEDULE 39.0 STORM SEWER-JOPLIN ST(STAT. 18+00 TO 23+00) $12,542.75 65\A aillke 1411Q(k JOPLIN ST(STAT.18+00 TO 23+00)-TsinAL, $84,706.37 STREET (STAT.23+00 TO 27+00) $40,254.34 SCHEDULE 40.0 PROPOSED JOPLIN SCHEDULE 41.0 SANITARY SEWER-JOPLIN ST(STAT. 23+00 TO 27+00) $12,541.55 SCHEDULE 42.0 WATERMAIN-JOPLIN ST(STAT. 23+00 TO 27+00) $9,782.75 SCHEDULE 43.0 STORM SEWER-JOPLIN ST(STAT.23+00 TO 27+00) $4,324.75 ����� /4)ID 6� JOPLIN ST{�2�0�►T�O.2�7+�p0)�� $66,903.39 `' i • ry ,. 4. - Ci 1111 f Jèp(fr 0 INFRASTRUCTURE ESTIMATES • RETAIL/COMMERCIAL SITES U1�1WY 1O S 4- ------- N(e...2... 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" WOuslCvuxt.- stUct C r 1 '( cif))o ,i NU cl 5 0 `11.(-Io C n<bius-«) 3c)(0 ,8(-11 - 15 6/k6N6 k 6313 (oil 55 IN) cos-r5 pr(-1-4464rCoc6ck IN b u-rehiAt" 5%1€S 010.YVCreb = CcMgini ' C4osS9N6 500 of co5T3 GOct N6 CI t-VI o or Co STS A IIPLID 'co 4/-1301000 tN 0)1) F f 'I 500 of 443o1 oco = 42yo,6o Cl q go °F S(-130 i °up r 8 ,Zv O 443010oD Oorw.(tNb 16lNoC1, - I t % Z 9 °10 99(-11 1►�1 cos-rs ozyrnrut-f0 0)b1-7-- pS ltvC 5RAi c6vvOehY CA,oSStm, i 305,30 6p1/4AN(. k2-Lt loo '430k000 • 4 � � (09s-rs 3�S,30o 1N �b1= kwrA bivtb p �� 4% pT A0 ,,,00,0v0,,,TQ to CcnAn7fr\Y CINDSSti v% -':p-% saes - A,60k) (01 oto o1 Cos-S uv1)02 w n,I-r-reN fl� G�C� C' . f)D P ctNDS Pc✓'* (WA ID ACS Sam ocoM'L, - ---7-=; �- \\\\ GUARDIANANClES // __ -1 , \ \\ / t \ ,/, S �, ' 1 \ // f/IMpAN ANGLES \ / I ,I \ //V / J ' 1�32 / / 1 1 � 1 // - - 1 TNONAS L HARTMAN II E11O14AS E.HARMAN 111 ...... .---.• / y � �•- •• \ .wC 1i..� t� 4444. 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