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HomeMy WebLinkAboutSP May 15, 1986 CITY of ANDOVER SPECIAL CITY COUNCIL MEETING - MAY 15, 1986 - AGENDA 7:30 P.M. l. Call to order 2 . Tax Increment Financing 3 . 4. Adjournment .. CITY of ANDOVER SPECIAL CITY COUNCIL MEETING - MAY 15, 1986 MINUTES A Special Meeting of the Andover City Council was called to order by Mayor Jerry Windschitl on May 15,1986,7:42 p.m., at the Andover City Hall, 1685 Crosstown Boulevard NW, Andover, Minnesota. Councilmen present: Elling, Knight, Lachinski, Orttel Councilmen absent: None Also present: Developers Jeff Wickert, Boisclaire and Wayne Anderson, Rademacher and Associates; Arlen Welton of Holmes and Graven; Dave Kennedy of LeFevere, Lefler, Kennedy, O'Brien & Drawz; > James Casserly of Miller & Schroeder; Ed Fiori and Dennis Niemann of the Andover Economic Oeve10pment Committee SHOPPING CENTER DEVELOPMENT/TAX INCREMENT FINANCING CONSIDERATION Mr. Wickert summarized the proposal as noted at the last meeting (See Minutes of the May 1 Special Council Meeting). The proposal to construct Phase 2, the shopping mall, includes the use of tax increment financing. He is suggesting the entire business area in that vicinity be included in the tax increment district; however, only the increment off the mall site would be captured for Phase 2. Including the entire area of the district provides a cushion and allows the City to capture the increase in valuation on the out lots based on the present value; and that realization can be used for other development. The valuation of those outlots will increase once the mall is constructed. Mr. Wickert stated at this time they have no proposal for those out10ts. Mr. Anderson stated there is a proposal before the Planning Commission to develop a car wash on Lot 1, Block 1. That lot is personally owned by Mr. Rademacher, sold contingent On the cãr wash project Ibeing approved by the City. Mr. Kennedy felt it is sound to include the larger area as part of the TIF district. If no development takes place on those lots, nothing is lost to the City. Ms. Welton then explained one of the areas of concerns expressed by the Council at the last meeting was on the type of bond -- tax exempt or taxable. In exploring the various alternatives of bonding and securities, they feel a taxable General Obligation bond would be the best alternative. The cost increase between a tax exempt and taxable bond is about .75 basis points. That means the issue would cost s 1 i gh t 1 y more. But the City is not subject to a larger number of limitations now pending under legislation. I , , Mr. Casserly then reviewed the bonding options explored by the various financial firms involved. He felt revenue bonds are very difficult to structure 'and to sell and recommended not taking that option. It was his opinion that a taxable GO bond has good market acceptance and would be very marketable for the City. He also reviewed a bonding proposal for a 17-year- $975,000 taxable GO bond at 8 percent for the shopping Center, noting the assumptions made were the worst-case scenerios. He used a mill rate as five mills under the current rate, a minimum estimated market value of $3,269,253, and provided for no inflationary increase, no mill rate increase, and no increase in valuation. The estimated market value on completion was calculated based on $1.50 per square feet net for taxes paid by the 1eesee times the amount of square feet to be constructed. It is a guarantee by the developer that the estimated market value will not be less than $3,269,253. Special City Council Meeting May 15, 1986 - Minutes Page 2 Mayor Windschitl questioned how the estimated market value could be lower than the cost of construction. Mr. Wickert explained the estimated market value doesn't have to equate to the dollars in the project. They are looking to keep their taxes as competitive as possible. He didn't think he could commit to more taxes than what is competitive. He stated this is comparable to what is estimated for his other centers. Also, going with a taxable GO bond means the project would be receiving approximately $100,000 less than he had originally planned. Mayor Windschitl still felt the estimated market value was low and felt a more reliable number should be determined. If the construction cost is about $9 million and the assigned market value is actually about $8 or $9 million, there would be a real problem if the developers are thinking the value is $3 million. Mr. Casserly went on to review the taxable bond issue noting the assumptions of providing the developer with $845,000, an administration fee of approximately $4,000 per year, a sale date of 8/86, first interest payment date of 2/87, and first principal payment date of 8/89. Based on those assumptions, the tax increment for each year would be $127,554. Under this arrangement, the $4,000 per year in administration fees would be to the municipality for operating the bond issue and for other expenses. When reviewing the cash flow analysis of the bond, he again emphasized this is a very conservative approach, a worst-case scenerio. Even so, he felt there was more than enough buffer to protect the city. Discussion returned to the estimated market value figure used in the analysis, with Mr. Wickert agreeing to talk to the Anoka County Assessor's office to gain more accurate tax figures for the estimated market value. Mr. Wickert also noted of the $7.4 million needed for Phase 2, $5 million is for construction costs. Part of their equality includes the value of the land. Additional costs include marketing, financing, surveying, soils tests, tennant allowances, etc. The Council was concerned that over $2 million is for "soft costs" in the project, asking that those costs be itemized. Mr. Wickert stated that can be done. Ms. Welton then explained in an effort to make the bond more marketable, the developers are proposing to provide the following security to the City: a Letter of Credit in the amount of one year's debt service coming in on Year 3 of the schedule. That Letter of Credit would expire in 1990. In addition, there would be personal guarantees by the owner of Boisclaire and Mr. Rademacher for one-third of the principal amount of the bond. Mr. Kennedy stated he has not determined whether the amount of security proposed would be adequate to protect the City; but the fact that they are making a proposal is very positive. It also makes the bond issue very marketable. He thought possibly a two- or three-year Letter of Credit shoûld be considered. Council expressed a concern of traffic flow and congestion in the shopping center area, noting additional signalization will probably be needed as a result of commercial development and growth. With no tax generated from the project because of the TIF, the city at large ends up paying for those lights. Also, additional police time and expense is generated. Ms. Welton noted the payment of semifores needed as a result of a development project is a valid project improvement cost and can be financed with the TIF bond. She felt it would be to the city's benefit to look at the city in a comprehensive way regarding traffic needs and to structure project areas where improvements are going to occur. As the project area develops, the increment generated can be ,used for such improvements. Speci a 1 City Council hceting May 15, 1986 - Minutes Page 3 Mr. Wickert then noted an issue raised at the last meeting was the difference between the City doing the improvements to the property versus the City acquiring the land and leasing it back to the developers. At this point, he preferred to look into those options further and discuss it at the next meeting, thou9h he asked that the Council remain open to the purchase/lease option. Council stated they would be willing to discuss it further, but tended to prefer the City doing the improvements at this time rather than outright purchasing the property. It was agreed the developers will look at the other City costs involved as a result of the project and propose how they would pay for those. Mayor Windschitl suggested the specific differences between the taxable and tax exempt bond issues be deter- mined for the next meeting so a comparison can be made. The calculations for both bond issues should be run using current quotes. It was agreed to meet again in approximately two weeks. When the developers have the information available, they will call the staff to set up a meeting. MOTION by Ortte1, Seconded by Knight, to adjourn. Motion carried unanimously. Meeting adjourned at 9:37 p.m. Respectfully submitted, ~~~ Mar ella A. Peach Recor . g Secretary