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6.8. SR 07-10-2006 City of Elk River REQUEST FOR COUNCIL ACTION Agenda Section Meeting Date W orksession ul 10, 2006 Item Description YMCA U date and Ballot Question Lan ua e Review Administrator Introduction Representatives from the YMCA and the city (Mayor Klinzing, Councilmember Gumphrey, Bond Counsel Mary Ippel, City Attorney Peter Beck, and I) continue to meet to try to come to an agreement and define a relationship between the YMCA and the city based on the Council's previous action to ask the voters to consider funding two-thirds of the construction of a YMCA. Discussion The funding proposal for this YMCA is unique in that the voters are being asked if they want the city to pay two-thirds of the construction cost of the facility. If approved, the city will issue general obligation bonds to fund the entire project. The YMCA will fund one-third of the annual debt service on the bonds. The city will be the owner of the building and the YMCA and city will enter into an agreement defining the arrangement whereby the YMCA will operate programs out of the facility. Attached is an outline of the potential agreement and issues for Council consideration. This proposal was developed based on conversations with YMCA staff and its consultants; it has not been officially approved by the YMCA Board. The YMCA is aware that the proposal is also subject to Council approval. Peter Beck and I will go through the issues in more detail at the meeting. One of the other items yet to be decided is the amount that will be included in the bond question for construction of the facility. The question will include financing for the entire project even though the YMCA will repay one-third of the debt service over the life of the bonds. The YMCA has stated that it estimates construction to be $12 million although we have not been provided with any documentation of this estimate. The $12 million excludes the cost of energy efficiency improvements and the additional cost to use recycled products. The YMCA has requested that the city fund those costs in addition to funding two-thirds of the construction costs since those improvements are being made at the request of the city. If the $12 million construction estimate is used, the city would pay for $8,000,000 plus the energy efficiency and recycled product costs. Some of these additional costs may be eligible for the County's Landfill Abatement Public Building Grant that is being considered by the County Board on July 11. As proposed, the grant is available for projects that meet the national standard for Leadership in Energy and Environment Design (LEED). This means that 25 percent of the building materials must be recycled products that contain at least 25 percent post- consumer recycled materials. The city would be eligible to receive a maximum of 25 percent of the project cost up to a maximum allowed per city or township of $2,000,000. Addition.ally, the County will award only one grant per year so the city may be in competition with other cities or townships applying for a grant in that same year. If the County Board approves this proposal on July 11, the application period is likely to begin this fall. S:\Council\Lori\2006\ YMCA Legal revised.doc YMCA Update and Ballot Language July 10, 2006 Page 2 of 2 Finally, attached is the proposed ballot language. City Clerk Joan Schmidt has been working with Bond Counsel Mary Ippel toreflne the language. You will note that it does include a statement at the bottom indicating that voting yes for this will increase your property taxes. This is a required statement. Additionally, there is language stating that the YMCA is proposing to pay for one-third of the cost of this project. Financial Impact Tax increase to fund two-thirds of construction cost, two-thirds of ongoing capital improvements, and energy effIciency and recycled product costs. Attachments · Memo from Peter Beck. · Memo from City Clerk Joan Schmidt including ballot question ~esolution. Action Requested Provide comments on proposed agreement and issues. Determine maximum bond amount to be issued. Provide direction on placing ballot question on September 12, 2006, primary election. Council Action Motion by _ Second by _ Vote Follow Up s: \Council\Lori\2006\ YMCA Legal revised.doc Elk River YMCA Outline of Potential Agreement and Issues Staff s goal throughout its discussions with the YMCA has been to find a way to meet the Y's needs within the City's legal authority. Attached is a "Draft Memorandum ofDnderstanding" ("MOD") prepared by the Y which was presented to City staff on June 16. The City Administrator and City Attorney met with the City's financial advisor and bond counsel on June 19th to address the legal issues presented by the MOD. Staff then prepared a response to the Y, dated June 20, which was intended to address some of the City's legal concerns with the MOD. The Mayor, City Administrator and City Attorney met with Y staff and representatives on June 29 in an effort to find a way to meet the V's needs within the City's legal authority. It was agreed at the June 29 meeting that it is in the best interests of all parties to ensure that an agreement complies with state law. To alleviate the Y's concern that the City's legal advice may be too conservative, it was agreed that the City and Y will put together an outline of the proposed agreement and submit it to Kennedy & Graven for an independent review and analysis of the legality of the proposed agreement. Kennedy & Graven is a prominent municipal law firm which the City, as well as representatives from the Y, have experience with. The City and the Y will split the cost of Kennedy & Graven's review and opinion. The purpose of the Council's workshop discussion is to get input on several key issues as we prepare an outline to present to Kennedy & Graven. Issues 1. Form and Term of Agreement A. Lease or Management Agreement Minnesota Statutes Ch. 471.191 specifically authorizes the City to enter into a 30 year lease for this type of facility. However, that statute requires that the tenant (the Y) make lease payments in an amount sufficient to pay all of the debt service on any bonds issued for construction of the facility. Because our agreement with the Y will not fall within this statute, there is some concern as to whether the City has the legal authority to enter into a lease that does not comply with Section 471.191. Therefore, there has been discussion about whether to characterize the agreement as a "management contract" . Regardless of what it is called, the agreement will look like a lease in that the Y will be paying (one-third of the debt service) for the right to occupy and operate a City building. I would appreciate any feedback the Council has on whether a lease or management contract is preferable. After your feedback, this issue will be presented to Kennedy & Graven. B. Term and Termination After some back and forth, we agreed on June 29 that the initial term ofthe agreement will be equal to the term of the bonds sold to finance construction of the Y. We also agreed that either party could terminate the agreement following the initial term, with or without cause, upon a three year written notice of cancellation. The Y would like a provision to the effect that if the City terminates the agreement prior to 30 years, the Y would get back some portion of its one-third contribution. The amount of the "refund" would be dependent on how close the termination was to 30 years, and would be no more than 50 percent of the contribution. If the Y terminated the agreement following the initial term, they would not have a right to receive any of their contribution back. We did not agree on the issue of whether the agreement could be terminated for cause during the initial term. My advice is that we have such a provision, but I would appreciate Council input. We also had some discussion about whether the agreement could automatically renew after the initial term for rolling three year terms unless a notice of cancellation was served by either party. The Y would like something longer than a three year cancellation, if Kennedy & Graven found that lawful. We would like Council input on whether to present this issue to Kennedy & Graven. 2. City Control Over Design, Construction and Operation A. Generally My preliminary research has led me to the conclusion that the statutory authority which we would rely on to authorize this agreement is found in Minn. Stat. 471.15, et. seq. The Attorney General's opinions under this statute make it clear that a public recreation facility developed under this authority must be operated for a public purpose under the control of a public entity. The Attorney General opinions require that all important, or discretionary, decisions be made directly or indirectly by the public entity with only ministerial, or routine, decisions delegated to the entity managing or operating the program. We will be seeking direction from Kennedy & Graven on such issues as to where and how we draw this line and whether there i.s alternative statutory authority which would authorize a greater delegation of power by the City. As we frame these issues for presentation to Kennedy & Graven, I would appreciate Council input on how much control the Council would like the City to have over the design, construction and operation ofthe y. B. Design The MOD prepared by the Y proposes that the Y "will manage the design, construction and operation" of the facility. This is a publicly-owned building on City owned property which can only be built for a public purpose. We would like Council to discuss and to give us direction on what level of input the City should have over the design, including issues such as what facilities and amenities to include, the quality of the construction and design, etc. C. Construction As a publicly-owned facility, the building will have to be publicly bid under the state public contracting laws. D. Operation . Fees, Programming, and Budgeting The Y can not give up any control over fees charged to members or programming, as the fees and most programming are system-wide. They will agree that they can not exceed the system-wide fee for the Elk River location without City approval. The Y would be responsible for all day-to-day management, for paying all staff members and all operating expenses, and would take the risk that the fees generated from memberships would cover these costs of operation. One question is what level of oversight, if any, the Council would like to have over budgeting, day-to-day operations, and management of the facility. . Financial Reporting The Y will agree only to provide a financial report for their entire Metro area operations, as they typically do not prepare facility specific financial reports. . Maintenance The Y would like the agreement to provide that funds for maintenance would have to be generated from revenues. It is not clear to me how this squares with the concept of the Y taking the risk of operating the facility. We would like some input from the Council on what level of oversight the City would like to have to ensure that the facility is properly maintained. . Capital Improvements Facilities such as these are not only typically high maintenance (swimming pools, etc.), but frequently need upgrading and updating as the needs and interests of the public change. The Y has proposed that capital improvements to the facility would be funded two-thirds by the City and one-third by the Y. The initial improvements would come from a reserve funded by bond proceeds. After the initial reserve is depleted each party would be responsible for funding its share of the improvements. We would like input from the Council on whether this structure is acceptable and also on the issue of whether to fund a capital reserve account on an annual basis. Another issue would be how decisions on capital improvements are made. . Recreation Board If Kennedy & Graven concurs that Section 471.15 et. seq. will need to provide the authority for proceeding with this agreement, the City and Y will need to create a recreation board to operate the recreational program which will be the Y. My opinion is that such a board would have to be controlled by the City, with Y representation. However, we would like input from the Council on whether the City wants to control this recreation board or is comfortable with the Y having control over the Board and therefore ultimate control over the operation of the facility. If so, we can inquire of Kennedy & Graven as to whether the agreement can be structured to allow that under state law. Conclusion These are the main issues on which we need some policy input from the Council prior to submitting the proposed structure to Kennedy & Graven for legal input. There will be many other issues if the project moves forward as we refine and finalize a formal agreement with the Y. GP:1970392 vI City of Elk River REQUEST FOR COUNCIL ACTION Agenda Section Meeting Date Discussion Item ul 10, 2006 Item Description YMCA U date and Ballot Question Lan a e Review Item Number 6.8 Prepared by oan Schmidt, Ci Clerk Reviewed by Lori ohnson, Ci Administrator Introduction Staff met with representatives of the YMCA on Friday, June 30, and City Administrator Johnson will give an update. Discussion Attached is the ballot question language for council to review. This will be on the agenda of July 17 for final approval if council wishes to place this on the ballot for a special city election along with the primary election of September 12,2006. Financial Impact If this is on the primary or general election ballot, there will be a minimal cost for publication and cost of language on the ballot. Attachments -Resolution Calling for an Election -Notice of Special Election -City Question Ballot Action Reauested Input from council. Council Action Motion by _ Second by _ Vote Follow Up s: \ Council\] oan \ Council Issues \ YMCA.doc EXTRACT OF MINUTES OF MEETING OF THE CITY COUNCIL OF THE CITY OF ELK RIVER, MINNESOTA HELD: July 17,2006 Pursuant to due call and notice thereof, a regular meeting of the City Council of the City of Elk River, Minnesota, was duly called and held at the City Hall on July 17,2006, at 6:30 o'clock p.m. The following members were present: and the following were absent: Member introduced the following resolution and moved its adoption: RESOLUTION CALLING FOR AN ELECTION ON $12,000,000 GENERAL OBLIGATION BONDS BE IT RESOLVED by the City Council (the "Council") of the City of Elk River, Minnesota (the "City"), as follows: 1. Proiec1. This Council has investigated the facts and does hereby find, determine and declare that it is necessary and expedient to issue general obligation bonds to defray the expense of the acquisition and betterment of an approximately 51,000 square foot community center/YMCA with outdoor splash deck and playground area. [REVISE?]. 2. Election. The proposition of authorizing the issuance of not to exceed $12,000,000 general obligation bonds for said purpose shall be submitted to the qualified electors of the City at a special election to be held on September 12,2006. Said election shall be held between the hours of7:00 a.m. and 8:00 p.m. The polling places for said election will be as follows: Precinct lA IB 2A 2B 3A 3B 4A 4B 1920129vl Polling Place City Hall United Methodist Church River of Life Church Meadowvale School Ivan Sand School Lion's Park Center Twin Lakes Christian Assemblies of God Church The Church of S1. Andrew Address 13065 Orono Parkway 1304 Main Street 21695 Elk Lake Road 12701 Elk Lake Road 1232 School Street 1104 Lion's Park Drive 18912 Twin Lakes Road NW 566 4th Street 3. Notice and Ballot. The Clerk is hereby authorized and directed to post and publish according to law a Notice of Special Election and Ballot, and to prepare ballots for the question for use at said election, which notice and ballot shall be in substantially the following forms: 1920129vl 2 CITY OF ELK RIVER, MINNESOTA NOTICE OF SPECIAL ELECTION Tuesday, September 12,2006 NOTICE IS HEREBY GIVEN that a special election will be held in and for the City of Elk River, Sherburne County, Minnesota, on September 12,2006 between the hours of7:00 a.m. and 8:00 p.m., at which time the following question will be submitted: "Shall the City of Elk River, Minnesota, be authorized to issue its general obligation bonds in an amount not to exceed $12,000,000 to defray the expense of the acquisition and betterment of an approximately 51,000 square foot community center/YMCA with outdoor splash deck and playground area? [REVISE?]. The polling places for said election will be the following locations within the City, at which places all of the qualified electors of the City residing within such precinct may cast their ballots: Precinct lA IB 2A 2B 3A 3B 4A 4B Polling Place City Hall United Methodist Church River of Life Church Meadowvale School Ivan Sand School Lion's Park Center Twin Lakes Christian Assemblies of God Church The Church of St. Andrew Dated: July 17, 2006. 1920129vl Address 13065 Orono Parkway 1304 Main Street 21695 Elk Lake Road 12701 Elk Lake Road 1232 School Street 1104 Lion's Park Drive 18912 Twin Lakes Road NW 566 4th Street BY ORDER OF THE CITY COUNCIL /s/ Joan Schmidt City Clerk 3 CITY QUESTION BALLOT SPECIAL ELECTION CITY OF ELK RIVER SHERBURNE COUNTY MINNESOTA September 12, 2006 INSTRUCTION TO VOTERS: If you wish to vote in favor of the following proposition, completely fill in the oval ~ next to the word "YES". If you wish to vote against the following proposition, completely fill in the oval ( ) next to the word "NO". CITY QUESTION NO.1: ACQUISITION AND BETTERMENT OF COMMUNITY CENTER/YMCA AND RELATED FACILITIES. "Shall the City of Elk River, Minnesota, be authorized to issue its general obligation bonds in an amount not to exceed $12,000,000 to defray the expense of the acquisition and betterment of an approximately 51,000 square foot community center/YMCA with outdoor splash deck and playground area? [REVISE?] The maximum amount of increased levy as a percentage of market value is %. The maximum amount that would be raised by the new referendum tax rat~ in the first year if it were to be levied is $ NOTICE: BY VOTING "YES" ON THIS BALLOT QUESTION, YOU ARE VOTING FOR A PROPERTY TAX INCREASE. The City anticipates entering into an agreement with The Young Men's Christian Association of Metropolitan Minneapolis (the "YMCA") pursuant to which the YMCA will pay one-third of the debt service of the general obligation bonds. [REVISE?] YES (-) (-) NO 1920129vl 4 4. Election Judges. Electionjudges will be appointed at least twenty-five (25) days prior to said election. 5. Manner; Canvass. Said election shall be held and conducted in accordance with the statutes of the State of Minnesota applicable, and the Council shall meet as required by law for the purpose of canvassing said election and declaring the results thereof. The motion for the adoption of the foregoing resolution was duly seconded by member and, after full discussion thereof and upon a vote being taken thereon, the following voted in favor thereof: and the following voted against the same: Whereupon the resolution was declared duly passed and adopted. 1920129vl 5 STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER I, the undersigned, being the duly qualified and acting Clerk ofthe City of Elk River, Minnesota, DO HEREBY CERTIFY that I have carefully compared the attached and foregoing extract of minutes with the original minutes of a meeting of the City Council duly called and held on the date therein indicated, which are on file and of record in my office, and the same is a full, true and correct transcript therefrom insofar as the same relate to a special election on the proposed issuance of general obligation bonds. WITNESS my hand as such Clerk on July 17,2006. City Clerk 1920129vl 6