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09-16-91 agenda~~' .~.. HOUSING AND REDEVELOPMENT AUTHORITY SEPTEMBER 16, 1991 7:00 P.M. COUNCIL CHAMBERS AGENDA CALL TO ORDER APPROVAL OF MINUTES OF REGULAR HRA MEETING OF AUGUST 19, 1991. 1. OPPORTUNITY FOR CITIZENS TO ADDRESS THE HRA ON ZTEM$ NOT ON THE AGENDA 2. CONSIDERATION OF RESOLUTION AMENDING A SECTION 8 PROGRAM ADMINISTRATIVE AGREEMENT WITH METROPOLITAN COUNCIL HRA TO ~ ~~ PROVIDE AN INDEPENDENT- RICHFIELD PROGRAM.. HRA LETTER NO. 32 3. CONSIDERATION OF PROCESS. TO SPREAD FISCAL DISPARITIES CONTRIBUTION FOR THE ILN TO CITY IF STATE ENABLING . LEGISLATION ADOPTED HRA LETTER NO. 33 4. PUBLIC HEARING AND CONSIDERATION OF RESOLUTION WHICH ~~ AUTHORIZES DISPOSITION OF THE HRA OWNED PROPERTY AT 7101 FIRST AVENUE HRA LETTER NO. 34 5. CONSIDERATION OF PROPOSAL. FOR PURCHASE OF CLOVERLEAF SITE HRA LETTER NO. 35 6. EXECUTIVE DIRECTOR REPORT 7. CLAIMS AND PAYROLL ADJOURNMENT HOUSING-AND REDEVELOPMENT AUTHORITY HRA Letter No. 35 Agenda September 16, 1991 Issue Statement: Consideration of a proposal for the .purchase of the Cloverleaf site. Background: The HRA directed staff to explore options for the purchase of the Cloverleaf site. The Resolution Trust Corporation (RTC) has been attempting to sell the property for several years. There has been substantial market pressure on this property over the last several years. The property was purchased by CDR in July 1985 for $4,165,000. .Property values were being driven up by demand along I494. The Assessor, in recognition of this upward pressure, valued the property at $5,387,000. The CDR Partnership lost the property to Midwest Federal whose assets were taken over by RTC. An overbuilding of office space and lack of financing for construction has resulted in drying up the market and reducing property values. The RTC has challenged the valuation set for the last two years. An August advertisement .listed the property for .sale at $2,100,000. A proposal was submitted to the City by Ontra, Inc. for RTC to sell the property for 51,865,000 with $300,000 down and the remaining over 18 years at 6.5~. At a recent meeting with representatives of RTC, the HRA was solicited to make a concrete proposal and a lower figure of 51,700,000 with 5250,000 down was discussed. Recommended Motion: Authorize the Chair and Executive Director to submit a proposed purchase agreement to RTC as outlined. Basis of Recommendation: 1. The property is vacant and for sale. 2. A sale price of $1,700,000 is consistent with a recent independent appraisal of the property. 3. The terms of sale, including $250,000 down and the remainder through 2011 with interest at 6.5$ and the payments tiered to take into consideration existing bond payments, are financially feasible. 4. The ILN Tax Increment District cash flows are adequate to finance this purchase. 5. Publicorp has completed a worst case analysis of the proposal and such indicates adequate carrying capacity with a reserve for other required development. The worst case scenario includes financing with general obligation taxable bonds, no Cloverleaf development, site tax exemption, 0~ inflation rate, increase fiscal disparities to 40$ in 1993 and a tax class rate decline to 4.OOo in 2000. 6. Development of this area represents the greatest opportunity the City will have in the .foreseeable future to diversify the tax base which is now so dependent on residential uses. 7. The. opportunity to maximize diversification is threatened by potential users who would utilize a large amount of land and generate very little property tax revenue. 8. This purchase would not impair the ability of the HRA to finance redevelopment between Emerson and Lyndale Avenues. In fact, it will likely enhance development opportunities for this area. Alternative Recommendation: 1. Alter the proposed-terms of purchase. 2. Delay action. 3. Reject any consideration of purchase. Discussion/Decision Mode: Timely consideration will help assure the sale by RTC to HRA and -forestall undesirable development of the site. Respectf ly submitted, Jame Prosser Exec t've Director JDP:ds °~~'~ ~ ~i d-S-RI ~~ ~ r ain avaaas~ RICHFIELD, MINNESOTA $2,100,000 COMMERCIAL 13.4 ACRES Close proximity to major hotels, retail facilities, restaurants and entertainment establishments. Minutes to both downtowns and Mpls/St. Paul International Airport. Extremely high visibility - trafficcounts of 200,000+ vehicles per day. I'u~lico~•p Inc. :~G4 Century-Plaza 1 1'I '1 Tltird Avenue S~itlh linnealtolis, MN 5;404 September 12, 1991 'TO: Jim Prosser, City of Richfield FR: Sid Inman Marie Ruff RE: Cloverleaf Purchase Options L~ i C~~~. (G12) 3~l1-3G4(~ FAX (fi12) 3:11-~t192i we have prepared cash flows depicting th9 effects of the City's purchase of the Cloverleaf Slte upon the. c8sh balance of the fl.N Tax Increment Financing District {the "District"). The variables in the cash flows are two different types of financing for the project and `` changes to fiscal disparities and property tt~x class rates aver the next 20 years. The property tax changes include an increase In the fiscal disparities contribution ratio and a decrease in the commercial/industrial class rates, both of which would result fn less tax increment .for the bistriet. The two financing options include a purchase through a 20 year "contract for deed" with the Resolution Trust Corporation (RTC) at a fi.5 percent interest rate versus a 20 year taxable general obligation tax increment bond at a 9.25 percent interest rate. We have not included any inflation in market value or tax rates over the next 20 years in any of the Gash flows. !n addition, the Cloverleaf parcels, which currently contribute approximately $250,000 in tax Increment per year, are held in atax-exempt status for the duration of the district. In other words, we do not include any tax increment from future development on the Cloverleaf site. Both of these assumptions are conservative because same inflation and some Cloverleaf development will likely occur over the life of the District. Attached to this memo are four different cash flows for. the District. The first cash flow titled "Current Case Without a G.O. Bond" assumes that the current fiscal disparities contribution ratio remains at 20%, that commercial/Industrial (c/i) class rates stay constant at 4,fi% after 1994 and that the method of financing the purchase is a 20 year note to ITC with minimal principal payments until after the existing District debt is retired. The first cash flow projects an ending balance in 2011 of $5,299,000, artd the balance never drops below $2.2 million, assuming no other expenditures in the District. The second cash flow is titled "Worst Case Without a G.O. Bond" assumes that the fiscal disparities contribution doubles in 1993 and that property class rates for c/i property declines to 4% in the year 2000, The method of financing remains a note with RTC. The ending balance in 2011 under this combination of factors is $1,781,000 and the lowest balance is $1.4 million. The third cash flow is titled "Current Case With a G.O. Bond" and assumes current fiscal disparities and class rates with financing being a 2D year general. obligation bond. The ending balance In 2011 is $4,589,000 and the annual balance always exceeds $1.8 million, We have not included costs of issuance for the G.O. band in the cash flows for the benefit of comparison only. The final cash flow is titled "Worst Case Wlth a G.O.. Bond". This assumes higher fiscal disparities contributions and lower c/i class rates. The ending balance at the close of the District declines to $i~46,000. In none of the four cases do we anticipate than the purchase of the Cloverleaf having an adverse effect upon the City's ability to meet outstanding debt obligations. In addition, even under worst case scenarios, the City will sustain a balance in the listrict in excess of $500,000. The .RTC method of financing offers an advantage to the City beC$use It carries s lower interest cost (6.5% versus 9.25%), allows for lower issuance costs, and is more flexible In its payment schedule. A general obligation bond with an identical payment stream as the RTC note would net $4p0,000 less than the RTC note, $350,000 ,less in principal plus $50,000 in costs of issuance. As you can see in the. cash flows, the actual difference between a G.O. bond and the RTC note in the Current case is approximately $700,000. This difference is accounted for by adding interest income on the $350,OQ0 savings over 20 years. Please call with questions or comments. ca: John Dean, Holmes & Graven Page 2 « t« s t +I «* a s s• a« t t• t« +I a t«•« ~nd°~ba~l~hp M l~lp'~Qp~ {/W~ti ' O ~ r' N N N tv N N N N N N N M 17f M M ,7 .~ ~~~~~ ca 1 W . . . . pp• M N yy~~ ~Ny ~Mey ~My {~ ~My _ ~ M •~? N M ~ ~ N N ~ ~ N ~ N ~ ~ ~ ~ N N ~ ; ~ a ~ ~ M ; ~~~~~8~~~~~~~~~~~~~~~~ O •r M r r r r w w r w r w w •+ w ~ h. ~ O ~ ~ ~ y pQpp SS 6SS pppp 8 , u LL W! 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Background: The new construction project at 7101 First Avenue was authorized by the HRA in August, 1989, as a cooperative project with Vo- Tech. The project is nearing completion and a sale is anticipated in October,. 1991. A five member income qualified family has been selected as purchasers. They meet the requirements stated in Attachment A. HRA authorization to sell the property is required prior to final processing. The home is being sold-for $84,000. Special financing through the Minnesota Housing Finance Agency (MHFA) is available to the purchasing family. Special mortgage financing offers a 7-7/8% interest rate. The family is also eligible for monthly payment assistance through MHFA's Homeownership Assistance Fund (HAF). The HAF assistance is an interest free, second mortgage which is repaid on a gradual basis over a nine year period. To be eligible for HAF, a household usually has a lower income, in the $20,000 to 525,000 range, than can support a monthly mortgage without additional support. The HAF assistance from MHFA will total approximately $1,200. To allow the purchasing family to take advantage of the HAF assistance, the HRA lien must become a third lien. A third lien position .has not been used with this program before and does not provide as much security as a second position. The HRA's risk is minimized by the small amount of the HRA mortgage, $7,000, and the small amount of the HAF second mortgage, $1,200. In the event of a forclosure during the nine year HAF assistance term, the HRA potentially may not recover $1,200 of the third lien. However, over time, the likely impact is even less given expected increases in property values and purchaser repayment of the HAF assistance. To summarize the transaction: $73,150 first mortgage $ 3,850 buyer downpayment $ 1,200 MHFA mortgage $ 7,000 HRA mortgage $85, 200 The $85,200 amount of debt and equity is $1,200 more than the sale price. Project costs are covered by the downpayment and .first mortgage. The HRA third mortgage accomplishes the following: 1) makes the initial purchase affordable and 2)' prevents a speculative purchase in which the buyer might benefit from selling the home quickly.- Funds received when the HRA's mortgage is repaid are returned to the New Home Program for financing housing activities of the HRA. The HRA will pay 2-1/2 points for mortgage discounting (approximately 51,900) and. the cost of title insurance (approximately $200), at closing. After closing, the Vo-Tech contract of 559,101 will be paid. These costs have been anticipated in the 1991-92 budget and will be paid by the proceeds of sale. An information manual for new homeowners, developed by staff, will be provided and reviewed with the buyer at closing. The information provides an orientation to the City, housing, and property maintenance requirements and other tips. If during final processing the family is found ineligible by the lender, the purchase agreement is void and earnest money released. At this time, however, the lender has qualified the purchasers through the preliminary processing. Prior to sale, the HRA.. will have an opportunity to inspect the work during an "open house." Recommended Motion: It is recommended that following the public hearing, the HRA adopt the attached resolution which authorizes the disposition of the HRA owned property at 7101 First Avenue. Basis of Recommendation: 1. A five member family has been identified as purchaser and meets program requirements. 2. A purchase agreement cannot be processed further by the lender without HRA authorization of sale. 3. A purchase agreement is necessary to obtain a firm financing commitment. 4. A public hearing notice was published in the Sun-Current September 4 and allows the HRA to consider the sale at the September meeting. 5. The Planning Commission has determined that the sale for residential purposes is consistent with the Comprehensive Plan. 6. The home is nearing completion. Alternative Recommendation: Do not adopt the resolution. However, this would cause a delay in the sale of the property, increase HRA holding costs, and be very disturbing for the identified family. Discussion/Decision Mode: Authorization of the sale is required at the September 16 meeting so that the buyers can secure mortgage financing for a October, 1991 closing. Respectfully submitted James Prosser Execu ive Director JDP:ds ATTACHMENT A NEW HOME PROGRAM ELIGIBILITY REQUIREMENTS FOR HOME BUYERS - Have a 3-6 member family (a family is defined as persons related by blood, marriage or operation of law). - Be a first time home buyer (or have not owned in 3 years). - Have the following maximum annual income depending upon family size: Family Size Maximum Income 3 $34,200 4 38,000 5 41,050 6 44,.100 This income is 80$ of the metropolitan area median income - an accepted CDBG program income level. - Have the ability to make monthly payments on a 573,150 mortgage, pay 53,850 down, and pay buyer required closing costs. - Agree to be subject to a lien by the HRA for the difference between the initial sales price and the actual value. RESOLUTION N0. THE HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF RICHFIELD, MINNESOTA RESOLUTION AUTHORIZING SALE OF REAL PROPERTY LOCATED AT 7101 FIRST AVENUE SOUTH WHEREAS, the Housing and Redevelopment Authority (HRA), owns certain real property located at 7101 First Avenue South, legally described as: Lot 24, Block. 1, Sheldon Blair's Wooddale Fourth Addition WHEREAS, the HRA acquired the property so that the South Hennepin Vocational Technical College (Vo-Tech) could construct a new single family home at 7101 First Avenue, to be sold by the HRA to a moderate income family; and WHEREAS, construction work is nearing completion; and .WHEREAS,-the .Scott family has been identified as qualified purchasers for 7101 First Avenue; and .WHEREAS, the conditions of sale include a total sales price of 584,000, a first mortgage of 573,150 payable to the lender, a lien of 57,000 payable to the HRA, and a 53,850 downpayment; and WHEREAS, the sale of 7101 First Avenue may be authorized by the HRA following a public hearing which considers the disposition of the property; and WHEREAS, that hearing has been held following proper publication of notice. NOW, THEREFORE, BE IT RESOLVED by the Housing and Redevelopment Authority in and for the City of Richfield, Minnesota. that the HRA Chairperson-and Executive Director are authorized to execute the purchase agreement and other required documents so that the disposition of HRA owned property at 7101 First Avenue occurs as presented herein. Passed by the Housing and Redevelopment Authority in and for the City of Richfield, Minnesota this 16th day of September, 1991. Thomas E. Harms, Chair ATTEST: Joan Helmberger, Secretary Housing and Redevelopment Authority HRA Letter No. 33 Agenda September 16, 1991 Issue Statement: Consideration of a process for shifting the fiscal disparities contribution for the ILN to the entire City if state enabling legislation adopted. Background• This item. was discussed by the HRA at their August meeting.. Following a discussion, the Commissioners voted to delay further consideration until the September meeting. At the July 15, 1991 meeting, the HRA voted to request the City Council to include within their legislative package for 1992, legislation to permit the shifting of the ILN fiscal disparities contribution. The contribution would be shifted from the ILN to the entire City. At the present time, the ILN is at a competitive disadvantage because of the high cost of land, public improvements and the fiscal disparities contribution. Recent state legislation and proposed federal legislation will hopefully reduce the cost to be charged against new development for upgrading 77th Street. It would also be desirable to reduce costs by removing the fiscal disparities contribution which a new project must support. .When the HRA approved the request to be made to the City Council, they .requested staff to prepare a procedural statement which would be followed in implementing the legislation assuming its adoption.. Attached is the proposed process. Recommended Motion: Approval of the proposed process for shifting the fiscal disparities contribution from the ILN to the entire City. Basis for Recommendation: 1. The HRA requested staff to prepare and submit a process statement. 2. The statement reflects the way in which development proposals have been processed and incorporates the potential for a fiscal disparities shift. 3. The process would help gain support for the concept and would improve the ILN's competitive position. Alternative Recommendation: 1. Delay action. 2. Reject the proposal. 3. Modify the proposal. Discussion/Decision Mode: By proceeding, there is adequate time for the City Council to direct staff to include the fiscal disparity shift in the 1992 legislative package. Respectfully submitted Jam D. Prosser Exe tive Director JDP:ds PROCESS TO BE FOLLOWED WHEN CONSIDERATION IS BEING GIVEN TO SHIFTING THE ILN FISCAL DISPARITIES CONTRIBUTION. Assumptions A. The state legislature adopts legislation permitting the shifting of the contribution .from the project to the entire City upon authorization by the City Council.. B. A development concept proposal has been submitted, and; 1. Meets the goals and objectives of the ILN Redevelopment Plan and is in compliance with the C-3 zoning district. 2. Data analysis indicates it is financially feasible. The impact of the fiscal disparities contribution on the feasibility would be reported upon including the need to shift the contribution from the ILN to the entire City. C. The financial background of the developer is acceptable. D. The developer has paid the non-refundable development fee. Process When the above assumptions have been met, the following process would be followed. 1. Subject to direction from the HRA, public information meetings would be scheduled at which the development concept would be presented.. The developer would be responsible for presenting the development concept and responding to comments. If there is a need to shift the fiscal disparities contribution to make the development feasible, that information would be included in their presentation. 2. A joint meeting of the-HRA and City Council would be scheduled. 3. A staff report would be presented including Items A-D above. The report would include public comments and the developer's response to these comments as well as further analysis of the fiscal disparities issue. 4. The HRA may be requested to approve or reject the concept. An action~to approve would include, if appropriate, a request to the City Council to have the fiscal disparities contribution for the project made by the entire City. If the action is to reject the development concept, the HRA would state their reasons for the rejection. 5. At the request of the HRA, the City Council may act on the fiscal disparities request from the HRA at the joint meeting. 6. Staff would implement the actions of the HRA and City Council. HOUSING AND REDEVELOPMENT AUTHORITY HRA Letter No. 32 Agenda September 16, 1991 Issue Statement: Amending a Section 8 Program Administrative Agreement with Metropolitan Council HRA to provide an independent Richfield Program. Background: The Richfield HRA and Metropolitan Council HRA (Metro HRA) have been working cooperatively since November, 1988 to establish an independent Richfield HRA administered Section•8 Program. A transition agreement approved by the Richfield HRA and Metro HRA provided for the following: - The replacement of Metro HRA vouchers/certificates with. new HUD allocations of vouchers/certificates which would be received over a period of time by either the Metro or Richfield HRA. - This exchange would continue until all Metro HRA clients have either become Richfield clients or left the program by attrition. (It was generally felt the transition would take between two and six years). The Metro HRA originally served 362 clients in Richfield. To date the Richfield HRA has exchanged and independently administers 208 voucher/certificates. Approximately 111 contracts have expired by client choice and 43 Metro HRA voucher/certificates remain. However, because of a competitive process implemented by HUD approximately 14 months ago, it has become difficult for the transition/exchange process to proceed in a timely manner. -HUD allocations are not as readily available as they were in 1988. The last allocation of new units which Richfield received in cooperation with Metro HRA was October, 1989. It therefore is appropriate to proceed with an alternative approach for completing the transition. Richfield and Metro HRA staff have developed an alternative approach which includes the following: - establishes a completely independent program as early as the end of September, 1991. (A favorable response from both HRA's during September would make this possible). - minimizes disturbance to Metro HRA clients already residing in Richfield.' Under a relatively new provision of federal regulation called "portability", Metro HRA clients can be administered by the Richfield HRA for Metro as soon as Richfield is the sole administrative entity. The proposed amendment would accomplish this. - - allows HUD to allocate up to 43 units of assistance to either Metro HRA or .Richfield in the competitive process HUD presently has underway. Metro HRA agrees that this allocation may be given to Richfield. An announcement is expected by November, 1991,. with assistance being made available in early .1992. No exchange would be be .required. - is economically advantageous to the Richfield HRA. Administrative fees would increase by assuming all responsibility for Metro HRA "portables". Yet, Richfield responsibilities for program administration would be handled within existing staff. Metro-HRA presently pays Richfield $14.40/unit/month to administer these 43 clients. With implementation of a portability process planned for October 1 (26 clients) and November 1 (17 clients), fees would increase to approximately 533.00/unit/month for these same clients. The resulting independent program would approximate the following: 208 Richfield Vouchers (32 ported out) 43 Metro Certificates ported to Richfield, administered by Richfield. 57 Voucher/Certificates ported here from other communities. 308 Total Up to 43 additional voucher/certificates may become available from HUD as noted above. If .HUD were to award additional contracts to Metro HRA, Metro HRA would be willing to transfer the allocation to Richfield if Richfield would be willing to assist Metro HRA in the development of a central waiting list system for the metropolitan area. With a central list, when Richfield takes-applications in the future, applicants could elect to have their name placed on a Metropolitan HRA waiting list. Over a period of time, it is hoped that duplicative names on waiting lists at metro area HRA's would be minimized. Staff time needed to manage these lists would be significantly reduced. Recommended Motion: Adopt the attached resolution which authorizes the Executive Director to implement an agreement which accomplishes the following: 1. Completes the development of an independent Richfield, Program upon the occurrence of the following: a) The Richfield HRA assumes administrative responsibility for up to 43 Metro HRA clients which presently reside in Richfield. b) The assumption of responsibility begins September 30, 1991 and proceeds as reasonably possible thereafter until completed. Upon completion, Richfield is the sole Section 8 administrator in Richfield. 2. Secures an allocation of up to 43 units from HUD which although initially allocated to Metro HRA, would be provided to Richfield for which no exchange of Metro HRA clients is required.. 3. Directs staff to assist the .Metro HRA in the development of a centralized application waiting list management system. Basis of Recommendation: 1. The HRA objective of program independence is achieved in a timely manner in accordance with their intent established in 1988. 2. The revisions would provide additional administrative revenues without requiring additional staff. 3. Alternative waiting list strategies to be cooperatively explored with Metro HRA would reduce duplicative services now provided by metropolitan area housing agencies. 4. The Metro HRA appears receptive to the proposal and is evaluating it simultaneously with the Richfield HRA during September. 5. HUD has previously indicated support for an independent Richfield program. Alternative Recommendation: 1. Do not modify the exchange process implemented in 1988. However, the transition .period would be prolonged and the exact date upon which Richfield would achieve independence is unknown. 2. Delay support for the proposal. However, clients are receptive to the change at this time rather than later in the fall/winter. Delay reduces the amount of additional administrative fees which can be earned. Discussion/Decision Mode: With a positive response from both Richfield HRA and Metro HRA during September, implementation could be initiated September 30, 1991. Respect lly submitted, James Prosser Executive Director JDP:ds HRA RESOLUTION N0. THE HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF RICHFIELD, MINNESOTA AMENDING A SECTION 8 PROGRAM AGREEMENT WITH THE METROPOLITAN COUNCIL HRA WHEREAS, the Housing and Redevelopment Authority (HRA) has declared its intention, by resolution, to have the HRA develop a rental assistance program independent of the Metropolitan Council HRA (Council); and WHEREAS, the HRA intends to-have allocated in its own name and to administer all Section 8 vouchers and certificates from the U. S. Department of Housing and Urban Development, {HUD), pertaining to rental housing units located within Richfield; and WHEREAS, the Council desires to assist the HRA in expeditiously achieving an independent program by the transfer and exchange of Section 8 vouchers. and certificates from HUD in accordance with federal regulations; and WHEREAS, to complete the transfer in the most expeditious manner, the HRA has considered those steps necessary to complete the separation of the program. NOW, THEREFORE, BE IT RESOLVED by the Housing and Redevelopment Authority the Executive Director is authorized to enter into an agreement with the Council which accomplishes the following:. 1) Completes the development of an independent Richfield Program upon the occurrence of the following: a) The HRA assumes administrative responsibility for up to 43 Council clients which presently reside in Richfield. b) The assumption of responsibility begins .September 30, 1991 and proceeds as reasonably possible thereafter until completed. Upon completion, Richfield is the sole Section 8 administrator in Richfield. 2) An allocation of up to 43 units is secured from HUD based on funding available in 1991. The funds,~although initially allocated to the Council, would be provided to Richfield for which no exchange of Council clients is required. 3) Directs staff to assist the Council in the development of a centralized application waiting list management system. Adopted by the Housing and Redevelopment Authority in and for the City of Richfield, Minnesota this 16th day of September, 1991. Thomas E. Harms, Chairperson ATTEST: Joan Helmberger, Secretary