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7.0. SR 01-25-1999 rCI ~'\) ( ); !l}{ Item #7 River MEMORANDUM TO: Mayor & City Council FROM: Pat Klaers, City Administrator DATE: January 25, 1999 SUBJECT: East Elk River Development As most everyone is aware, the east Elk River improvement project has a long and involved history. For the past six years, the project has been a priority of the City Council and a public informational meeting on the proposal was held over 2~ years ago in July 1996, at Salk Junior High. The project really started to gain momentum about a year ago when the city received petitions for the extension of utilities from the developers of the Waddy Schulz farm and the developers of the Earl Hohlen property. . Last January a number of City Council worksessions were held on the east Elk River project. One of the focuses of those worksessions was a debate over whether a large or small public improvement project should be undertaken. At that time, staff strongly supported only doing the small project based on the deficit, the overall financial size of the projects, and especially the potential cash flow problems due to deferred assessments. By doing the small project there was less risk. . Following those worksessions, the city received $2.8 million in federal funding for the street component of the project. This funding significantly changed the picture of the east Elk River project. The sewer, water, street, and storm drainage public improvement project still does not cash flow, but with the federal funds for the street, it is in a better overall financial condition. With these federal dollars for the street, the city would not be depleting its municipal state aid construction fund for the foreseeable future, although some MSA money is still needed. Also, with the federal street money there would be less tax increment financing monies needed for the street. However, with the federal dollars for the street, also came a requirement for the city to complete the project within six years. Since the trunk sewer and water has to be under the street, the large versus small project debate has now changed to become a debate over phasing in the project with the entire project being required within six years and the small project being phase I to be done now. 13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330. TDD & Phone: (612) 441-7420. Fax: (612) 441-7425 . . . Over the past six months or so, the city has approved the preliminary plat for the Trott Brook Farms residential project, the Planning Commission has approved the preliminary plat and CUP for the commercial redevelopment project, the city has rezoned the commercial redevelopment area to PUD, and the industrial plat south of the commercial redevelopment project has been approved. Additionally, public hearings on the extension of trunk sewer and water have been held, bids have been received for the project, and the assessment hearing for the large project has been conducted. Assessments for the large project have been levied in the amount of $6,000 per acre and three property owners have appealed this assessment. This east Elk River public improvement project is incredibly complex with all of the various funding sources, matching funding requirements, and numerous governmental agencies involved, not to mention the overall cost of the project exceeding $10 million. It is difficult to discuss the project in an orderly manner without having the topic under discussion being interconnected with many of the other components of the project. Staff hopes to adequately review, discuss, and answer council questions on the east Elk River project on Monday evening. We would like to somewhat follow the outline shown on the next page. For financial information on the project, please see the attached 11/23/98 summary from Lori Johnson. Also attached as background information are the minutes and staff memo from the last worksession on 11/30/98. . 1. TRUNK SEWER AND WATER PROJECT · Bid Amount, Assessment Revenues, Project Shortage, and Cash Flow Concerns . Water Department Contribution · Proposed Sewer Department Contribution · Proposed TIF Funding for the Lift Station · Status of the Assessment Appeals · Status of Necessary Right-of-way and Easements · When to Consider and Finalize the Project (Big versus Small, with Small being Phase I) · Timing of Bid Award and Construction II. STREET AND STORM DRAINAGE PROJECT · Federal Approval of Project and Availability of Funds · Street Financing Overview (south of CR 12 & North of CR 12; Developer payments, TIF funds, MSAfunds, and federal funds) . Railroad Crossing and 171 st Signal . Storm Drainage Financing Overview . Right-of-way Acquisition . Timing of Bids and Construction . III. OVERALL FINANCES AND ISSUES . Water Shortage and Water Department Contribution · Sewer Shortage and Sewer Department Contribution (City Council action needed) and TIF Financing of the Lift Station . Street - Federal Funds, MSA Funds, TIF and Developer Charges . Storm Drainage - City Tax Levy and TIF · City Matching Fund Requirement - TIF and Federal Grant . Cash Flow and Deferred Assessment Concerns IV. COMMERCIAL REDEVELOPMENT AND INpUSTRIAL PROJECT (SEE ATTACHED MEMO FROM PAUL) · Review Development Plans and Planning Commission Comments . TIF 19 Goals, Finances, and Development Agreement . Eminent Domain Process (and status of appraisals) . Wetlands Issue V. OTHER ISSUES . Purchase of the Brown and Kirkeide Properties . Scenic and Wildlife Ordinance . Status of the Trott Brook Farms Plat . rCI ~'\) ( ); !l}{ Item #7. MEMORANDUM TO: Mayor & City CouncillEconomic Development Authority ~M: Paul Steinman, Director of Economic Development DATE: January 21, 1999 SUBJECT: TIF 19/Hohlen Redevelopment Project Issue One of the east Elk River public improvement project discussion topics for tonight's meeting will be the various financing issues involving the Hohlen redevelopment project and TIF District No. 19. . BackI!round Associated Developers recently closed on the purchase of the Hohlen Mobile Home Park and adjacent Hohlen properties. Associated Developers is now in control of enough of the properties within TIF District No. 19 to proceed to the next steps for redevelopment of these properties into a commercial and industrial component. The EDA has started eminent domain proceedings on the two remaining residential properties within TIF District No. 19. The current boundaries of TIF District No. 19 include approximately 40 acres of property previously owned by the Vandenbergs. This 40 acre parcel is zoned Business Park and is located adjacent to and south of the proposed commercial redevelopment area. Further conversations with the city's financial consultant and bond attorney have indicated that it is likely that this 40 acre business park parcel cannot be included within the boundaries of TIF District No. 19. At the present time this change does not appear to be a major challenge to accomplishing our previously discussed goal of building the industrial park. One advantage of this change to the boundary of the District is that all of the tax base created in the industrial park will lie outside the TIF District, and therefore provide immediate benefit to all taxing jurisdictions. A potential disadvantage with this proposed smaller . TIF boundary, is that TIF District No. 19 may have to remain in existence for 13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330. TDD & Phone: (612) 441-7420 . Fax: (612) 441-7425 - . a longer time period than was originally planned due to less tax base being generated from that District. A proposed outline of a development agreement has been discussed and negotiated over the past couple of months. The significant components of this development agreement outline have not changed due to a decrease in size of the District. These are as follows: . · Developer to receive approximately $2.9 million in assistance in the following manner: o $300,000 at the time of issuance of a certificate of occupancy on the first 50,000 square foot multi tenant industrial building o $2.6 million in the form of a pay-as-you-go note holding an interest rate of approximately 8% for a term which will likely be identical to the life of the tax increment district. . Developer will be required to meet specific goals regarding construction of buildings in the industrial park (an additional 50,000 square foot building every other year), or a certain percentage of tax increment will be withheld in that given year. · Tax increment received annually by the city will first be applied to the annual debt service retirement of any city general obligation bonds for which tax increment has been pledged. A likely scenario will be that the developer will receive little or no tax increment in the first years of the project. The reason for this is that it is projected to take a couple of years to build out the commercial project, thereby generating enough tax increment revenue to pay the city's annual debt service on its general obligation bonds and have enough left over to make payments to the developer on the pay-as-you-go note. The other major financial issue with regard to TIF District No. 19 is the dollar amount of tax increment anticipated to be used by the city for public improvement portions of the project. The amount of TIF that the city uses will determine the size of the general obligation bond, thereby helping staff and the developer determine both parties' risk based upon the anticipated build out of the commercial project. The following costs have been discussed by staff and the previous council as appropriate expenditures for tax increment generated from District No. 19: . · Approximately $630,000 for a lift station to provide sanitary sewer service to the redevelopment project and greater east Highway 10 area. . Approximately $1.9 million in street and storm sewer costs within the redevelopment property. . . . · Approximately $1 million to acquire the Brown and Kirkeide business park properties lying south of TIF District No. 19. Also, an additional approximately $4 million in tax increment proceeds are proposed to be used to pay interest charges on various tax increment general obligation bonds, and pay-as-you-go notes issued to fund the expenditures identified above. The tax increment expenditures proposed break down as follows: . Developer incentive - $ 2.9 million . City costs - approximately $ 3.5 million . Interest costs - approximately $ 4 million . Total $10.4 million (approx.) At the present time staff is working with Dave MacGillivray of Springsted, Inc. to complete various TIF cash flows based upon the following scenarios: . Approximately $10.4 million in costs to be funded through tax increment revenues. · Approximately 140,000 square feet of commercial space completed within TIF District No. 19 in 1999. · Approximately square feet of additional commercial space to be completed in the year 2000. Staff proposes to complete an administrative modification to the boundary of TIF District No. 19, and the budget within this TIF District, at the completion of the negotiation. EAST ELK RIVER PROJECT . November 17 Bid Water Sewer Lift Station Total Proiect Costs Construction 1,929,269 2,623,684 492,201 5,045,153 Overhead 540,195 734,631 137,816 1,412,643 Total Costs 2,469,464 3,358,315 630,017 6,457,796 Revenues Trunk Assessments 1,395,460 2,790,920 4,186,380 Hohlen Lateral Assmts 103,500 103,500 207,000 Trott Brook Oversizing Cr. (99,000) (176,000) (275,000) Trott Brook Addl Trunk Assmt. 270,887 436,088 706,975 Total Identified Revenues 1,670,847 3,154,508 4,825,355 Balance to be Funded 798,617 203,807 630,017 1,632,441 .er Financino Sources TIF 19 XXX XXX 630,017 630,017 Water Fund XXX Sewer Fund XXX Financing to be Identified 1,002,424 (amounts from above sources not yet determined) July estimated shortfall (without TIF for Liftstation) was $964,745. November bid shortfall (without TIF for Liftstation) is $1,632,441 Budget vs Actual Construction Water Sewer Lift Station Total Only Budget 1,809,313 2,47~,206 800,606 5,083,125 3,971,191 Actual 2,469,464 3,358,315 630,017 6,457,796 5,045,153 (Less Trott Brook Request) 165,120 541,775 706,895 552,262 Adjusted Actual 2,304,344 2,816,540 630,017 5,750,901 4,492,891 Variance (Over Budget) (495,030) (343,334) 170,588 (667,775) (521,700) . 11/24/98 Page 1 . EAST ELK RIVER PROJECT July 1998 Construction Estimates Proiect Costs Construction Overhead Land Acquisition South of CR 12 North of CR 12 Railroad Crossing Total Costs Revenues High Priority Project $ TEA 21 .tt Brook Farms Assessment fV1SA Funds (Land N of 12) Total Identified Revenues Balance to be Funded Other Financino Sources TIF 18 TIF 19 SWM Tax Levy Tax Levy Other Financing to be identified (amount from above sources not yet determined) . 11/24/98 Storm Streets Sewer TOTAL 1,976,598 1,621,527 3,598,126 553,448 454,028 1,007,475 458,500 458,500 300,000 300,000 508,992 508,992 3,797,538 2,075,555 5,873,093 2,400,000 2,400,000 264,320 183,680 448,000 295,764 264,457 560,220 300,000 300,000 3,260,084 448,137 3,708,220 (537,454) (1,627,418) (2,164,873) 508,992 508,992 (1 ,655,881) Page 2 EAST ELK RIVER PROJECT . Projected Shortfall PROJECT SUMMARY Water Sewer Lift Station Streets* Storm Sewer* TOTAL 798,617 203,807 630,017 537,454 1,627,418 3,797,313 630,017 508,992 1,139,009 798,617 203,807 28,462 1,627,418 2,658,304 Other Funding Sources TIF FUNDING TO BE IDENTIFIED Possible Sources include: Additional TIF 19- Tax Levy SWM Tax Levy Water and Sewer Funds MSA Other *Based on July Estimates -TIF 19 projections assume including some City costs. . . 11/24/98 Page 3 -..,.'.",. . . . LEGEND PROPOSED TRANSPORTA~ON AND UTILITY CORRIDOR TRUNK SANITARY SEWER LATERAL SANITARY SEWER 11I011I0101111I11I11111I111 FORCEMAIN TRUNK WA TERMAIN LIFT STATION COUNTY ROAD NO. 12 l? 1 f I .. .'_'~.''''_'_;....~'_'' _~_ ,'J."".. ~ _"_, ,~_~.~~.. _.-._N-..4":".~~-'_'___"'" ,,_,'.'.._.b'~~_,,_.,,~_~..~, _'M_"~'_""~'_""'_" ,..~~... ....~..._'..... @ o JOO .............. Joouory 22. 1999 9:36:12 o,m, 230220m \EXHIBITS\EERCP-UT.DWG RKM DRAWN: -~~~ 1 mi.l I EAST ELK RIVER UTILITY ALIGNMENTS AJB APPROVED: JANUARY 1999 DAlE: 80011 OJ JOB NO, 175TH I I _~___l__ I I I I --t --- ~. 1[2] Elk River City Council Meeting November 30. 1998 Page 3 . 5.2. Resolution Providinq for the Issuance and Sale of the City's $1,375,000 General Obliqation Improvement Bonds, Series 1998A . Resolution Providinq for the Issuance and Sale of the City's $820,000 General Obliqation Water Improvement Bonds, Series 1998B 5.3. Bond Consultant Dave MacGillivray indicated that the GO Improvement Bonds fund the 1998 overlay. Railroad Drive, Boston, Business Center Drive. Lake Orono.--- and Guardian Angels projects. He indicated that the low bidder for the GO Improvement Bonds was Piper Jaffray. Inc. at 4.3091 percent. Dave MacGillivray indicated that the $820.000 GO Water Revenue Bonds Series 1998B would fund well #6 and related treatment facilities. He indicated that the low bid for the GO Bonds was from Norwest Investment Services, Inc. at 4.7755 percent. Dave MacGillivray recommended that the City Council adopt the resolutions providing for the issuance and sale of the GO Bonds and the Water Revenue Bonds. COUNCILMEMBER FARBER MOVED TO ADOPT RESOLUTION 98.130 PROVIDING FOR THE ISSUANCE AND SALE OF THE CITY'S $1,375.000 GENERAL OBLIGATION IMPROVEMENT BONDS, SERIES 1998A. COUNCILMEMBER DIETZ SECONDED THE MOTION. THE MOTION CARRIED 4-0. . COUNCILMEMBER FARBER MOVED TO ADOPT RESOLUTION 98-131 PROVIDING FOR THE ISSUANCE AND SALE OF THE CITY'S $820,000 GENERAL OBLIGATION WATER REVENUE BONDS, SERIES 1998B. COUNCILMEMBER THOMPSON SECONDED THE MOTION. THE MOTION CARRIED 4-0. 5.4. Discuss Proposed Public Improvements for East Elk River City Administrator Pat Klaers indicated that the purpose of this Council worksession is to update the City Council on the issues relating to the east Elk River project. He reviewed the issues to be discussed which included reviewing the bids for the project, the shortage between the bids and the assessment amounts. funding options for the shortage. and cash flow issues. The City Administrator informed the Council that the trunk sewer and water project is only part of the entire east Elk River public improvement project. Assistant City Administrator Lori Johnson reviewed the project costs. revenues. and balance to be funded. Following her review of the east Elk River project funding options, she noted that there is funding yet to be identified in the amount of $2.6 million to cover the shortage in the streets. storm sewer. sewer. and water improvements, after funding the railroad crossing and lift station through tax increment financing. Bond Consultant Dave MacGillivray addressed the shortfall. He indicated that some of the uncertain issues include the life of the T1F District, special assessments, connection fees, and storm water management fund. . Mayor Duitsman indicated that there are other issues that are not part of the equation. Some of the issues include expenses for County Road 12 and the purchase of the Brown property. . . . Elk River City Council Meeting November 30. 1998 Page 4 Discussion was held regarding possible funding for the purchase of the Brown property. Mayor Duitsman indicated that 10 percent of the total TIF issue can be used off site. The Mayor further suggested putting the total deficit. $2.6 million. into the TIF District. Discussion was held about the possibility of using the Development Fund for the purchase of the Brown property and for the payment of assessments on the Brown property. Council member Dietz stated that. if eligible. he would like to plan some of the TIF revenue for the sewer and water shortfall. The City Administrator indicated that he felt the city should keep the length of the TIF District as short as possible. Dave MacGillivray discussed the risk factors which included non payment of assessments. cash flow concerns associated with Green Acres. the TIF district not being developed as projected. etc. He discussed options to address these risk factors which included internal transfers or a different type of bond structuring. Lori Johnson indicated that cash flow and making sure that the timing of revenues matches debt and other payment obligations is a concern which needs to be considered. Mayor Duitsman indicated he felt it was important that the Council was fully aware of all of the risk factors and various components involved in this project. 6. Other Business There was no other business. 7. Staff Updates There were no staff updates. 8. Adiournment There being no further business. Mayor Duitsman adjourned the meeting at 8: 1 0 p.m. Respectfully submitted. ~VL- . Sandra Peine ~ City Clerk Item 5.4. MEMORANDUM TO: Mayor & City Council FROM: Pat Klaers, City Admi~or November 30, 1998 1 ~ DATE: SUBJECT: East Elk River . The trunk sewer and water bids have been received and are being evaluated. The bids are higher than the engineer's estimate as included in the July 1997 feasibility report. The trunk sewer and water assessment public hearing is scheduled for a special city council meeting on Thursday, December 3, 1998, at 6 p.m. in the City Council Chambers. On December 3 it is expected that the City Council will assess the benefited property owners in the trunk sewer and water project area $6,000 per acre, and other City Council action (on the bid award) is possible. The purpose of this November 30 agenda item it to try to get everyone prepared for the 12/3 assessment public hearing. In this regard, on Monday evening, staff plans to review the bids with the Council, discuss the shortage between the bids and the assessment amounts; review funding options for the shortage, and most importantly, discuss cash flow issues with making bond payments. Additionally, we will discuss the anticipated property owner comments, requests, and assessment appeals. The agenda and background material for the assessment public hearing V\ill be distributed Monday evenIng. . The trunk sewer and water project is only part of the entire eastern Elk River public improvement project. In order to adequately prepare for the 12/3 meeting, the Council also needs to look at the other components of the east Elk River project. Mter federal grant paper work is completed, the city anticipates bidding out the street and storm sewer components of the east Elk River project. There are less financial shortage concerns related to the street project because of the number of funding sources available (grant, developer payments, TIF, MSA funds, etc.). However, there are significant 13065 Orono Parkway. P.O. Box 490. Elk River, MN 55330. TOO & Phone: (612) 441-7420. Fax: (612) 441-7425 . . . East Elk River November 30, 1998 Page 2 concerns about the shortage in the storm drainage component of the project and the lack of funding sources to eliminate this shortage. Additionally, when we look at the big picture out east, we also have to take into consideration the anticipated acquisition of the Brown and Kirkeide properties, along with the city assuming the Brown assessments. Last July, when staff met with the City Council to review this project, I noted that the trunk sewer and water numbers were getting closer and that this project was less of a financial concern than previously indicated. These comments were based in part on the TIF redevelopment project financing the sanitary sewer lift station. Now that the bids have been opened, we have a different situation to discuss with the City Council. The funding shortage has gotten larger as the low bid is about 10 percent above the July 1997 estimate. Mter financing the lift station with TIF 19 funds, and after assessments are levied, the water and sewer components are underfunded by about $1 million. We knew the trunk sewer and water project was underfunded, but we did not know it would be to this extent. (Inflation and demand are part of the reason for higher bids. Additionally, the city is still working on obtaining the trunk utility easements and necessary right-of-way so there may be some additional costs.) TIF 19 could finance all of the trunk water and sewer shortage as it is an eligible activity, but a more likely source of funds is for the water department and sewer department to each fund their shortages. This is based on the goal of keeping the total number of years in TIF District No. 19 as small as possible, along with the fact that the city has some other needs for TIF 19 funds such as financing as much of the storm drainage component as possible. In spite of reviewing a $1 million shortage in the trunk utility project after TIF 19 fund finances the lift station, I need to indicate to the City Council that the biggest concern 'with the trunk sewer and water project is the cash flow of receiving assessments in order to make bond payments. How to structure the bond repayment schedule when considering assessment and/or interest deferrals is the issue. Dave MacGillivray, the city's bond consultant from Springsted, "will present information on this issue on Monday. As previously noted, the trunk sewer and water project at a cost of about $6 million, is only part of the total east Elk River proposal. The other two components of the overall proposal are the street and storm drainage improvements. Also as previously noted, the street improvement is not as big of a financial concern as the storm drainage improvement, due mainly to the . . . East Elk River November 30, 1998 Page 3 federal grants that have been obtained. Additionally, we have municipal state aid funds which are eligible to be used on this street project, some TIF money that can be used if necessary, and some developer participation from the Trott Brook Farms project is anticipated. Based on the July 1997 feasibility study, the most underfunded improvement in this project is the storm drainage component. There are limited funding resources that can be used for this improvement and we are concerned about depending heavily on the surface water management (SWM) tax levy. This is because the SWM tax levy available for new debt is very limited, and also there will be future SWM projects that are not known at this time. Accordingly, it is most appropriate to try to have TIF 19 finance as much of the storm drainage improvements as possible. However, this is in conflict \\lith the goal of keeping the TIF 19 total years small. Additional financial issues related to the overall project include a desire to acquire the Brown property and the Kirkeide property and, if this takes place, then the city has to deal 'with financing the assessments associated with the Brown property. Two other financial considerations that everyone needs to keep in mind are the grant matching requirements placed upon the city and the TIF penalty or participation requirement. At this time staff believes there are viable options for the TIF penalty or participation and also the grant matching requirement, but these are additional pieces of the puzzle that need to be put into place, and with any puzzle, these pieces are interrelated with the whole. On Monday evening we will visit 'with the City Council about the options for funding this project, the goal of keeping the TIF District as short as possible while at the same time not depleting all of our other funding sources (i.e. IVISA funds, SWM funds, development funds), and the issue of meeting all of our bonding debt and cash flow requirements.