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09-16-85 agenda~~' / HOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No. 54 Agenda September 16, 1985 Housing and Redevelopment Authority Commissioners City of Richfield Subject: Setting Date of Hearing for 1986 HRA Budget Document Dear Commissioners: The city staff is in the process of preparing the 1985 revised and the 1986 proposed HRA budgets. It is expected that this document will be completed during the week of September 23rd . At the present time, two HRA commissioners are out of the city on extended vacations. Therefore, the Executive Director recommends that the HRA set the date of hearing for review of the budget document for Monday, October 7, 19$5, at 7:30 p.m. The adopted budget must be certified to Hennepin County by October 10, 1985. Respectfu 1 mitted, G'r/vr John G. Car righ Executive Directo JGC/eja ~~~ % HOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter Na. 53 Agenda September 16, 1985 Housing and Redevelopment Authority Commissioners City of Richfield Subject: HRA Recommendation for Candidate for the Office of NAHRO National Senior Vice-President Dear Commissioners: Ballots will soon be received for the election of key officers far national NAHRO. One of the offices is that of national Senior Vice President for the 1985-87 term. The two candidates for this office are: Jack D. Herrington, Executive Director of the Dallas Housing Authority, Dallas, Texas. Mr. Herrington brings more than 20 years of experience in both housing and community development to this leader- ship task. Helen L. Souse, Project Director of the Yerba Buena Center Development project of the San Francisco Redevelopment Agency. Her professional development in community development in particular and housing in general exceeds 20 years. The HRA may want to make a recommendation as to which of the candidates they prefer the Executive Director should cast our agency ballot for. R pect 1 submitted, ohn G. Ca rig Executive Direc a JGC/eja v~ HOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter Na. 52 Agenda September 16, 1985 Housing and Redevelopment Authority Commissioners City of Richfield Subject: Review of Preliminary Plans, 66th Street and Rae Drive, and Authorization to Clear Vacant Structures Dear Commissioners: At the August 19, 1985, HRA meeting, George Branton Construction Co, was selected as the developer far construction of twinhomes at 910 and 1016 W. 66th Street and 801/903 Rae Drive, and for a single family home at 7508 Colfax Avenue. The developer has completed preliminary project plans which have sufficient detail to proceed with rezoning the 66th Street development site. If the HRA is satisfied with the preliminary plan that accompanies this letter, it would be appropriate to request the Planning Commission and the City Council to consider a rezoning request to a "Planned Unit Development (PUD) Two Family Residential District" in late September and October . This letter also recommends that the HRA authorize demolition of the vacant structures at 901/903 Rae Drive, 910 W. 66th Street and 7508 Colfax Avenue. A variance will be required to develop the single family home at 7508 Colfax since the platted lot size of 6,500 sq. ft. is 250 sq. ft. below the minimum lot area allowed. At the August meeting, the HRA reviewed a housing design concept for the 66th Street and Colfax Avenue projects. Since that time, staff has worked with the developer to refine the concept and provide detail more closely approximating a final plan. The attachments to this letter include: a site dimension plan, grading plan, and planting plan for the 66th Street site; elevation and interior plans for units to be located at 1016 W. 66th Street (the westerly units); elevation and interior plans for units to be located at 901 and 903 Rae Drive and 910 W. 66th Street (the easterly units); and elevation and interior plans for the new house at 7508 Colfax Avenue. Minor modifications include: (1) site plan contains slightly narrower drives, re-siting the structures forward toward the street and away from neighbors; (2) a smaller tot -2- L9~/ lot, and, (3) separate rather than combined decks for the easterly units. One off-street parking space was deleted; however, there are still more spaces than required by code. A fire hydrant and a fire personnel access lane have been added adjacent to 920 and g24 W. 66th Street (the recently completed twin home). Reducing the size of the tot lot-may require a variance to the "recreational space" as defined by the PUD ordinance. However, the considerable amount of site open space and the adjacent recreation areas at Richfield Lake and Woodlake, will minimize the need for space. The grading plan presents the manner in which the developer directs surface water drainage to the street and away from the neighbors. The existing retaining wall adjacent to 920/g24 W. 66th Street running north to south in the middle of the site would be removed. The landscape plan indicates a variety of deciduous screening materials and some evergreens that will be utilized with existing trees and bushes.. The rear property line would be planted with Cottoneaster, Dogwood, Honeysuckle, and Cranberry bushes varying in initial size from 3 to 4 feet. Similar types of deciduous plantings, slightly shorter in height, will increase privacy and screen the development from street activity. Two large existing cotton-wood trees, seen as nuisance trees by the neighbors, would be removed. The exterior of the two unit structures would have horizontal siding. A "masonite" hardboard material is being considered. Anew type of aluminum framed energy efficient window is being considered because it has good qualities relative to resistance to air infiltration and thermal conductivity. The interior floor plans vary and retain most of the features of the original concept plans. Vaulted ceilings, walk-in closets, bay windows, skylights, large bedroom and living spaces, basements, and double garages will all improve livibility. The westerly two bedroom, one story units will have approximately 900 sq. ft. of finished living area. The westerly three bedroom, two story units will have approximately 1240 sq. ft. of finished living area. The easterly two bedroom, 1-1/2 story units will have approximately 870 sq. ft. of finished living area. The easterly three bedroom, 1-1/2 story units will have approximately 1170 sq. ft. of finished living area. The three bedroom single family home at 7508 Colfax, utilizing the same types of materials as the 66th Street development, would have approximately 1500 sq. ft. of finished living area. The Rae Drive site neighbors were invited to attend a meeting on Thursday, September 12, 1985. The plans are to be reviewed with those anticipated to attend (the. Sjaquists, 1001 Rae Drive; Burkhardts, 921 Rae Drive; and Howards, 915 Rae Drive). The neighbors have been pleased with the planning to date. The results of the September 12th meeting will be available to the HRA at Monday evening's meeting. The -3- neighbors identified above September 16th HRA meeting Commission meeting. have been invited to attend the and the September 24th Planning ~3 The existing structures at 910 W. 66th Street and 901/03 Rae Drive must be removed before construction (scheduled for December) can begin. The alternatives for site clearance include the sale and removal of the existing structures (followed by removal of the basements and site grading), or demolition of structures and basements. The g10 W. 66th Street structure cannot be used by the Vo-Tech School as originally planned. The structure was to be relocated to 6820-12th, a cleared vacant lot owned by HRA, and rehabilitated by Vo-Tech. However, it would be early summer, 1986, before Vo-Tech would be ready to begin another project. Thus, another structure will be identified for this purpose. At 901/03 Rae Drive, the concrete span .type construction limits the practicality of relocating the structure and modifying it to meet building and energy codes. The existing structure at 7508 Colfax Avenue is substandard as to size and construction. .For these reasons it is recommended that all three structures be demolished. The garage at 7508 Colfax Avenue should also be demolished to accomodate the new house plan as proposed. Staff has a long record of experience with house. movers not completing their work on time both within the LHN and on housing projects. This is another reason for recommending demolition of the structures. A final consideration is timing. Delays in the construction of this project will be costly and it is important that construction begin in December, 1985. Secondly, the mortgage commitments for financing the sale of the units are already available and must be utilized by July. The cost of demolition is estimated at less than $10,000. CDBG funds have been budgeted for this expense. Demolition work will be undertaken by the company submitting the lowest cost estimate. It is recommended that the HRA authorize:. -submitting the preliminary development plans for the 66th Street and Rae Drive development area to the Planning Commission and City Council for rezoning consideration. -demolition of the structures at 910 W. 66th Street, 901 and g03 Rae Drive, and 7508 Colfax Avenue. ~~ -~- -requesting a variance by the Planning Commission and City Council from the lot size ordinance requirement to allow development to proceed at 7508 Colfax. Res eetfu ubmitted, John G. Cartwr' ht Executive Director JGC/eja ~-' HRA RESOLUTION N0. ~"•, Review of Preliminary Plans, Authorization to Process a Rezoning and Variance Request and Clear Structures At 66th Street and Rae Drive WHEREAS, the Housing and Redevelopment Authority in and for the City of Richfield (HRA) has selected a developer, George E. Branton Construction Co., to construct housing at g10 and 1016 W. 66th Street, 901 and g03 Rae Drive, and 7508 Colfax Avenue; and WHEREAS, development is subject to preparation of a more detailed development plan, the rezoning of the 66th Street and Rae Drive site to a "Planned Twa Family Residential District", and a variance to the lot size ordinance requirement at 7508 Colfax Avenue; and WHEREAS, the detailed plan has been prepared to be reviewed by the HRA and forwarded to the Planning Commission and City Council for rezoning and variance consideration. NOW THEREFORE BE IT RESOLVED, by the Housing and Redevelopment Authority in and for the City of Richfield, Minnesota; -the preliminary development plans far g10 and 1016 W. 66th Street, g01 and 903 Rae Drive, and 7508 Colfax Avenue have been reviewed by the HRA. -the preliminary development plans may be forwarded to the Planning Commission and City Cauneil for consideration of a request to rezone the 66th Street and Rae Drive development site as a Planned Two Family Residential District. -staff and the developer are authorized to request a variance at 7508 Colfax Avenue from the lot size ordinance requirement. -the structures at 910 W. 66th Street, g01 and g03 Rae Drive, and 7508 Colfax Avenue may be demolished and the site cleared in preparation for construction. Passed by the Housing and Redevelopment Authority of Richfield, Minnesota, this 16th day of September, 1985. Thomas E. 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'~. .~I, a~ ' - JI a Y - 4 r ~ ~ -0 ' 1 ~ a ,Tt rl -~% 4 . ~ ., 4 Z ~ I I 1 !i ~ i, ~ u X r ( ~ 3 LL p _ ~ a. ~ , F ) _ _ ~ ~ ~ ~ ~ ~' ~ ~' u ~~ a ~ ~ I ~ I - I ~ yy~ ~ S j~ _ G d 7?.. y ~ ~ r 2. ~ t V t I -• \ \t ~ ~ ~ ~ '1 K .l ~ ~ ~~ J~ `I ~ l , ~ y '~ s ' ~ ei F . ~ ~• ~ ~ l ; t .~ ~~ ii 7 •V i .~ ~ ~ ~ .l' C ~ j ~ j L J .-i j ~ 't ti' 3 c r ~~.._ . _ Y _ :S ' ~ #~.-/ HOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No. 51 Agenda Sept. 16, 1985 Housing and Redevelopment Authority Commissioners City of Richfield Subject: Amendment to Memorandum of Agreement with Richfield State Agency Dear Commissioners: On January 21, 1982, the Richfield State Agency entered into a contract with the HRA and the City .Council for the Sale of Land far Private Development. The Contract stated that the City Council would provide IDRB financing assistance for the expansion of the RSA facility in which Richfield Bank & Trust is the primary tenant. The HRA agreed to acquire and sell to RSA two parcels of land: one located at 67th and Lyndale; and the other located at 66th and Lyndale. The Contract provides that the structures located on these two parcels are to be removed within 90 days of the sale of the property to RSA. The structure at 67th and Lyndale was removed. However, because of delays in the RSA expansion project, it was not possible to remove the structure at 6601 Lyndale Avenue. Thus, on December 13, 1983, the original Contract was amended through a Memorandum of Agreement between the Richfield State Agency and the HRA. This Agreement permitted the structure at 6601 Lyndale Avenue to remain until June 1, 1885, or no longer than g0 days following the vacation of the property by its tenants. The HRA amended the Memorandum of Agreement on June 17, 1985, by extending the date for removal of 6601 Lyndale Avenue from June 1, 1985 to September 1, 1985, or within g0 days following the vacation of the property by its present tenants. This date was determined in consultation with representatives of RSA. This letter proposes another modification and extension. The RSA project final phase is underway. The parcel occupied by Hagen Furs and the adjoining structure to the east will become a below grade level parking lot to provide parking for customers to the McDonald's Restaurant. The restaurant will be located in the lower level of the building. The RSA project has been delayed. Much of the delay is reportedly related to difficulties in making changes inside the -2- ~-,~ building which necessitates moving employees of the bank from place to place. Because of these delays, the new date for removal should be November 1, 1985, or within g0 days following the vacation of the property by its present tenants, which ever date is earlier. It is recommended that the HRA approve the proposed Amendment No. 2 to the Memorandum of Agreement, dated December 13, 1883, which would call for the removal of the structure at 6601 Lyndale by November 1, 1985, or within 90 days fallowing the date the property has been vacated by its present occupants, which ever date is earlier. Respectf y submitted, ohn G. Cartwr ht Executive Director JGC/eja AMENDMENT NUMBER TWO TO MEMORANDUM OF AGREEMENT -3 THIS AGREEMENT made and entered into this day of September, 1985 by and between the City of Richfield, Minnesota, a Minnesota municipal corporation, hereinafter called "City", the Housing and Redevelopment Authority in and far the City of Richfield, a body politic and corporate and a Minnesota corporation, hereinafter called "HRA" and the Richfield State Agency, Inc., a Minnesota business corporation, hereinafter called "Developer". WHEREAS the parties hereto certain Contract for the Sale dated January 21, 1982, and have heretofore entered into that of band far private Development WHEREAS under Article III., remove all structures located g0 days following the date of the date of termination of any later, and Section 3.7, the Developer is to on each of tracts 2 and 3 within closing on each such tract ar leasehold interest, whichever is WHEREAS the parties hereto desired to change the removal time regarding the Hagen parcel (6601 Lyndale Avenue South, Richfield, Minnesota) and agreed to do so in an amendment approved June 17, 1985, and WHEREAS it has not been possible for the Developer to comply with that date; NOW THEREFORE, the parties agree that the requirement of demolition of the structures on the Hagen parcel shall be extended to November 1, 1985, or within g0 days following the date the Hagen property has been vacated by all of its present occupants, whichever date is earlier .\ IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first above written. THE HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF RICHFIELD RICHFIELD STATE AGENCY, INC. By: Its Executive Director Its Commission Chairman CITY OF RICHFIELD, MINNESOTA By: Its City Manager By: Its President Its Vice President Its Mayor '~/G HOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No. 49 Agenda September 16, 1885 Housing and Redevelopment Authority Commissioners City of Richfield Subject: ILN-Time and Events Schedule Dear Commissioners: If TIF is to be the principal financial resource, and staff so recommends in the HRA letter entitled "Report on Financing Alternatives Study for Proposed ILN Project Improvements and Developments Richfield, Minn" which is also to be considered at the September 16, 1985, meeting, then i~ is important to take the necessary steps to keep this financial tool available. The White House has submitted to Congress a series of tax reforms known as Treasury II proposals. One of the provisions of this proposed legislation is the elimination or a more limited use of public bond financing utilizing TIF. There is also the possibility the state legislature may attempt to amend the law and further limit TIF for commercial development. Congress is not expected to act this fall. However, financial consultants have cautioned cities that legislation could be enacted as early as July, 1986, and this legislation could contain retroactive provisions. Therefore, if TIf is to be a viable option, the city staff has put together a timetable to k-cep this option available. A possible TIF bond. issue could be ready by Late November or early December, 1885. 1 A Time & Events Schedule ILN is attached to this HRA letter. Respectfu ubmitted, ohn G. Cartwri t Executive Director JGC/eja 9/10/85 ,nr n TIME & EVENTS SCHEDULE ILN This time and events. schedule is intended.. to indicate the probable schedule for processing items related to the establishment of the ILN as a tax increment redevelopment project, sale of tax increment redevelopment bonds and negctiaton of a.developers agreement with CDR, all of which would permit the initiation of the right-of-way improvements needed for the CDR development. The schedule also reflects the need to close on a tax increment bond sale prior to December 31, 1985• If a bond sale cannot be completed by this time, it would be very difficult to provide the type of access needed by CDR as there is no other funding source which could provide the level of revenues required. 6/17 City Council, HRA C.D.R. Investment (CDR) development concept proposal presented. 8/12 City Council Resolution adopted which authorized City to enter into an agreement with C.D.R.. whereby C.D.R. would select and pay cost of consultant who would analyze the effect of their proposed development on the environment, authorize the preparation of an Environmental Assessment Worksheet (EAW), and contact MN Pollution Control Agency (PCA) regarding EAW and assess need for Indirect Source Permit (ISP). 8/19 HftA Staff authorized to initiate negotiations for developers agreement with CDR. 8/29 ILN Advisory Committee Meeting of committee and people from within and adjoining study area to consider concept plan for pursuing redevelopment of study area and financing alternatives. The committee adopted a motion approving the redevelopment strategy and the use of tax increment to fund the implementation of the plan. 8/30 CDR PUD application submitted to staff for review and analysis and formulation of recommendation for Planning Commission meeting on 9/24. 9/9 CDR EAW completed and delivered to staff . 9/10 Staff EAW submitted to PCA for review and approval for completeness. -2- /C;3 9/10 Planning Commission (special meeting) Informal presentation by CDR of their development concept proposal. 9/16 HRA Regular meeting to which City Council and Planning ..Commission have been invited to hear presentation of ILN redevelopment strategy and funding alternatives to be accompanied by a request for support. 9/17 PCA PCA returns EAW to staff with comments. g/23 City Council EAW presented to City Council with request to authorize its distribution, issue press release, and transmittal to Environmental Quality Board (EQB), and considers adoption of resolution calling a public hearing and directing publication of notice of hearing. 9/24 Planning Commission Receives staff analysis and recommendations regarding review of preliminary PUD application for CDR project and holds public hearing on application. 10/7 HRA (special meeting at 7:30 p.m. with invitation extended to City Council to participate) Receives proposed Redevelopment Plan and proposed Tax Increment Financing Plan (TIF) and considers recommendation to authorize transmittal of Plans to Planning Commission, Richfield school district and Hennepin County. (School Board and Hennepin County Board may, if they wish, comment upon TIF Plan) (City Council will not be requested to act on Plan documents at this time). 10/8 Planning Commission (special meeting) Considers adoption of resolution regarding conformance of proposed Redevelopment Plan and proposed TIF Plan with Comprehensive Plan, and, transmittal of that findir~ to HRA. 10/14 City Council Hearing on EAW for CDR development concept conducted (no formal action taken however) _3_ Reviews_CDR's.prelmnary PUD.plan and considers givng_frst_reading to rezoning ordinance; and; scheduling of public hearing and second reading on 10/28. 10/21 HC~A Consideration of resolution which; if adopted; would approve the proposed Redevelopment Plan, proposed TIF Plan, and, request the City Council to schedule a public hearing to consider approving the proposed Plans, and authorize the sale of tax increment bonds to fund the right-of-way improvements to provide access to the CDR project. 10/28 City Council Consideration of request from HRA to schedule a public hearing on the proposed Redevelopment Plan and proposed TIF Plan. If the Council responds favorably to the request, a hearing would be scheduled for November 12, 1985 (Monday, November 11th is Veteran's Day, a holiday). Public hearing and second reading of rezoning ordinance for proposed CDR development. If approved at second reading, tYie ordinance would be published and effective 12/5/85. 10/30 Richfield Sun /~- ~/ Publication of City Council hearing notice on proposed Redevelopment Plan and proposed TIF Plan. 11 /6 Richfield -Sun Publication of rezoning ordinance for CDR's property. 11/12 City Council (Monday, Nov. 11, is Veteran's Day, a holiday; HRA invited to meeting re action on developer's agreement with CDR) Makes decision on EAW for CDR development Holds public hearing on proposed Redeveloment Plan and proposed TIF Plan. Following the hearing, considers adoption of a resolution which would approve the Plans and establish the Redevelopment Project and TIF District. Consideration by HRA and City Council to approve proposed developer's agreement with CDR. Consideration of resolution based on HRA request to authorize sale of tax increment bonds to fund right-of-way improvements. -4- Wth_approval of _the_Plans; the. Planning Commission would be .requested to initiate the process for amending the Transportation Element _ of .the Comprehensive Plan to accomodate the changes in the rights- of-way contemplated by the Redevelopment Plan: 11/13 Staff PCA notified of City Council decision on EAW; EQB publishes decision in Monitor. CDR begins Indirect Source Permit process. 11/13 Richfield Sun Notice of Planning Commission hearing on amending Comprehensive Plan, Transportation Element published. 11/26 Planning Commission ~c Public hearing to consider amendment to Comprehensive Plan Transportation Element and authorization to transmit finding to City Council. 12/2 City Council (special meeting) If the sale of tax increment bonds was authorized November 12th, consideration of the adoption of a resolution awarding the bonds to the successful bidder. Consideration of request to transmit Comprehensive Plan amendment to Metropolitan Council (Council does not approve or disapprove amendment at this time). 12/5 Rezoning Effective The rezoning ordinance for CDR's property would be effective. 12/20 Metropolitan Council Preliminary review of Comprehensive Plan amendment completed. At this time, City will be informed of amount of time to be taken to complete detailed review (Legally they have 120 days of total review time or until 4/1/86. It is unlikely that the full time period would be utilized). 12/30, On or before Closing on bond sale 5/1/86 CDR Construction commences 6/1/86 HRA/City Council/staff Actions related to the initiation of negotiations for purchase of right-of-way. HOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No. 48 Agenda September 16, 1985 Housing and Redevelopment Authority Commissioners City of Richfield Subject: Report on Financing Alternatives Study for Proposed~Project Improvements and Developments Dear Commissioners: Executive Summary City staff analyzed 13 possible revenue sources to determine which alternatives could possibly be used to help finance the ILN public project costs. BRW, the project consultant, has said $14 to $15 million will be necessary to complete phase one of the concept plan approved by the ILN Task Force. These five revenue sources are the most likely revenue sources to help fund land acquisition (and related costs) and public improvements (streets, streetscapes and bridge): o Tax Increment Financing (TIF) o MNDat Appropriations for Frontage Roads (special appropriation) a Municipal State Aid (MSA) o Federal Aid to the Urban System (FADS) o Special Assessment Four of the revenue sources----MSA, FADS, special assessment and MNDot special appropriations----can finance a part of the needs, but not the entire $14-$15 million package. TIF can finance all or any remaining part of the public project costs. It is estimated that total new development value of $67 million will support a TIF bond issue that would provide over $14 million for financing ILN public costs. The city staff recommends that a TIF district be established. The project can not be implemented without a tax increment financing plan. -2- The other revenue sources can be used to lower the TIF bond issue size. The amounts that can be counted upon need further consideration by the City Council and the HRA. In the meantime, steps should be taken to complete the establishment of the ILN as a tax increment redevelopment project. A time and events schedule has been prepared and is provided with this report. ,The HRA will be asked at the proposed September 30th special meeting to receive the proposed Redevelopment Plan and proposed TIF Plan and to authorize their transmittal to the Planning Commission, Richfield School District and to Hennepin County. The Time and Events Schedule (dated September 10, 1985) anticipates a TIF bond issue sale prior to December 31, 1985, and a construction start by CDR in May of 1986 on the Lyons site. ILN .Financing Alternatives Introduction Preliminary plans and initial cost estimates being prepared by BRW for the ILN project have reached a point where consider- ation of financing alternatives is bath possible and desirable. Therefore, an examination of the alternatives and options available has been conducted aver the past several months by a task force assembled by the city manager. The Task Force consisted of: Wayne,Burggraaff - Evensen-Dodge Arijs Pakalns - BRW Clayton LeFevere - LeFevere, Lefler, et, al John Cartwright - City Manager City of Richfield Steven Devich - Administrative Services Director City of Richfield Dennis Kraft - Community Development Director City of Richfield Bruce Palmborg - Housing & Redevelopment Coordinator • City of Richfield Mike Eastling - City Engineer City of Richfield The first part of this report summarizes our conclusions and recommendations. This section includes comments on the need for the city to consider taking a number of actions prior to December 31,.1885, due to the potential ramifications of Treasury II proposals on tax-exempt financing. The second section lists the guidelines developed and utilized by the task -3- force in developing the conclusions and recommendations. The third and final section provides background information on the thirteen financing options which were considered. Staff .Financing,Concl,usions and Recommendations The report examines the following thirteen financial options: Community Development Block Grant Funds (CDBG) ~ Federal Aid to Urban Systems (FAUS) HRA Capital Fund * MN Dept. of Transportation (MNDOT) Special Appropriation ~ Municipal State Aid Funds (MSA) Permanent Improvement Revolving Fund (PIR) Proceeds From the Sale of Land Revenue Sharing * Special Assessment (Bonds). Special City Parking District Special Revenue Fund ~ Tax Increment Financing (TIF) Urban Development Action Grant (UDAG) ~ Financing alternatives that have been identified as possible financing resources for the ILN project. After extensive consideration of the 13 financing options available to the City for the ILN project area, the following conclusions and recommendations are made: 1) The use of Special Assessment Bonds are a source of revenue for funding a portion of the improvements in the ILN project area. A special assessment of $.51 per square foot (identical to LHN special assessment) in the ILN area would generate $1- 1.2 million, depending on what areas might be exempted. In turn, a $5-6 million bond issue would have to be sold based on this $1-1.2 million (20~) assessment, if a source for the remaining 80~ of the bond can be identified. The remaining 80~ could be funded through Tax Increment Financing proceeds. The public improvements undertaken. in the nearly completed L/H/N area are funded from CP 705. Revenues for CP 705 totaled about $9 million. Two-thirds, or $6 million was provided by a bond issue. Special assessments against the benefitting properties in the project area accounted for repaying about 28~ of the $6 million issue. The remaining 72~ of the debt service is retired by tax increments from the project area. As the HRA-may be aware, when the city negotiated to purchase properties in the L/H/N for redevelopment, the purchase agreement often provided that the City -4- of Richfield would also pay the outstanding asses- ments on the property being acquired. So, same properties, in effect, did not pay an assessment. The assessment rate for the L/H/N public improve- ments was $.51 per square foot. Due to inflation - the higher cost of constructing streets, curbs, gutters, etc. -- the equivalent assessment rate today could be in the neighborhood of $.75 per square foot when compared to the $.51 square foot rate established in the 1g70's for the L/H/N project. In order to establish a special assessment project, a minimum of 20~ of the project cost must be assessed to the benefitting property. The remaining 80~ can be provided from other revenue sources. The city must be able to establish that properties benefit by at least the. amount being assessed against the private property. The preliminary cost estimate from BRW far public improvements is just under $7 million dollars. Twenty percent of $7 million. is $1.4 million. Approximately $1.5 million could be provided by a bond issue supported by a $.75 square foot assess- ment in the ILN project area. Special assessments are also used to pay for maintenance of the L/H/N landscape improvements. The businesses in the L/H/N objected to the 1.7¢ per square foot proposed assessment (for a city block $3,000). The assessment today runs less than 1¢ per square foot to pay the annual cost of the $40,000 - $45,000 maintenance bill. One final note on special assessments. Staff believes that some special assessment financing should be utilized. The L/H/N has been financed in part this way. In fairness, the I/L/N and future redevelopment projects should be treated similarly. Special assessment financing will help to keep the TIF bond issue smaller so it can be paid off sooner. It is also recommended that special assesment financing be utilized to maintain the project public improvements once completed (i.e., snow removal, grass cutring, repairs to streetscape). 2) A redevelopment project area and a Tax Increment Financing district should be established for the I/L/N. The increment generated by the proposed CDR Investments/MN Project (to be located on the Cloverleaf Motel property within the ILN) and the -5- Hampton Inn project would. provide adequate revenues to proceed with improvements .identified in the ILN, especially the improvements to 77th Street. Tax Increment Financing is the only financial option available to the City which would generate sufficient funding to proceed with the scale of public improvements and land acquisiton targeted for the ILN area. The BRW total estimated cost for aquisiticn and public improvements is estimated at $14-$15 million dollars. 3) MSA funds should be considered far improvement of MSA designated streets in the ILN, provided that the City would be willing to delay some other street improvements now planned for MSA funds. However, this shift of street priorities will require further examination. The city receives $563,000 of MSA funds annually. Approximately $141,000 is budgeted for maintenance. The remaining $422,000 is available each year for major capital improvement projects. The Capital Improvement Program (Exhibit A), a five- year plan for utilizing MSA funds, only has a total of $250,000 earmarked for Lyndale at I4g4. The CIP has $620,000 allocated to frontage roads. The CIP was prepared before any ILN needs were developed by BRW. City Engineer Mike Eastling has prepared a possible revised CIP (Exhibit B) for the use of MSA funds. This is provided as just one example of many possibilities of how more MSA funds could be pledged to the ILN project if a delay in other projects is acceptable. City staff recommends against a street improvement bond issue because only the monies that are spent on .maintenance can be used to repay interest costs. on a MSA bond issue. The Street Division of the Department of Community Services requires the full maintenance allocation for street maintenance. purposes. Street maintenance includes these types of activities: sealcoating, joint sealing, sidewalk repairs; and curb and gutter repairs. However, the MSA fund balance and a portion of the annual allotments for major street improvements could be pledged to finance the Lyndale bridge widening project, for example. Hopefully, the city would be successful in obtaining -6- Federal Aid to Urban System (FAUS) monies for the bridge project, too. FADS pays for 75~ of the construction costs. Exhibit B shows that $710,000 - $1,047,802 could possibly be diverted to the Lyndale bridge project by December 31,-1989. 4) The City should begin to prepare an application far FAUS funds for the improvements to the Lyndale/4g4 bridge. Competition for FAUS grants is very keen, thus there is no guarantee that funding will be secured. However, if FADS funds are secured, FAUS project funding should be augmented with either MSA funds or tax increment proceeds. 5) The City should pursue acquisition of the frontage road properties in the ILN area available through special allotment from the State of Minnesota. Portions of the frontage road properties might then be incorporated into various development parcels, depending upon future road configurations. 6) Land sale proceeds should be utilized to the extent that on-going HRA programs do not suffer from a lack of funds. 7) Revenue sources identified in this report which are currently targeted for proposed capital improvements outside the ILN, or ongoing operational programs, not be diverted to the ILN project area, with the potential exception of MSA funding. ILN Financing Guidelines Once financing alternatives had been identified, it was necessary to evaluate their feasibility for use in the ILN project area. Several guidelines were established. The financing alternatives were evaluated to see if they met these guidelines. If so, the particular financing alternative was deemed to be a viable and passible option for ILN financing of public expenditures. A series of recommendations were then formulated for HRA and city council consideration on possible fundingsources by the city. The financial guidelines used by the Task Force were as follows: 1. It is expected that private development projects will contribute through generation of such revenues as tax increments, special assessments to Project Area improvements as are consistent with sound develop- ment procedures. ~'.,: -7- 2. To the extent that it is economically feasible, the redevelopment/TIF Project shall be self-supporting. 3. In so far as the Project will both directly and indirectly benefit the entire City, limited community- wide financial support may be warranted. 4. Financing of Project Area improvements will not take place to the detriment of the City's operating budget, CAPITAL. IMPROVEMENT PROJECTS, OR HRA ACTIVITIES. 5. Where appropriate, funding available from other governmental entities will be sought. Respectfu ubmitted, John G. Cartwri t Executive Director SECTION 3: BACKGROUND INFORMATION ON THE 13 FINANCING OPTIONS COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS (CDBG) Description The Community Development Block Grant program is a Federal program designed to aid primarily low and moderate income neighborhoods. CDBG funds can be used for public improvements in redevelopment areas. They must be used to encourage targeted revitalization and new development, or to remove slums and blight. The city utilized CDBG funds in the LHN redevelopment area to improve Lyndale Avenue and 66th Street. Analysis The city receives approximately $200,000 annually from the urban Hennepin County CDBG program. A majority of these funds ($150,000) are typically used for housing activities, including scattered site acquisition and housing rehabilitation grants. These programs are dependent upon CDBG funding and use of such funds for another purpose would result in the elimination of these and other programs presently funded with CDBG funds. Additionally, it appears as though Congress is going to reduce the level of funding for this program in the upcoming federal budget. Recommendation The Task Force conclusion is that CDBG funding is not a viable funding source far large scale improvements in the ILN area. The amount of funds .available are quite limited and would significantly disrupt current City/HRA programs. FEDERAL AID TO URBAN SYSTEMS (FADS) Description FAUS is a federal program which provides funding far arterial and collector road improvements. Under this program, a portion of federal gas tax revenue is allocated far improvements to streets on the Urban System. Lyndale Avenue is on this Urban System. An allocation of $7 to $8 Cities metro area each year. Advisory Board determines the stiff competition for funding testing far FAUS projects are transportation system funding inflate FAUS project casts. million is given to the Twin The Met Council's Transportation eligibility of projects. There is Standards, procedures and much more rigorous than far other programs. This factor tends to While FAUS will fund 74.6 of eligible construction casts, right-of-way and engineering casts are not eligible. Also, no street right-of-way can be purchased nor can improvements be made in before project approval. Analysi FAUS is grant money. The 25.6 City share of construction costs as well as the right-of-way and engineering costs must came from another source, such as MSA, special assessments or tax increment. The time schedule far FAUS assistance requires a two- to three-year wait. Thus a Spring, 1986, submittal would be appropriate for 1988-1990 construction. Recommendation An application far FAUS funding for the widening of the Lyndale Avenue bridge aver 494 is recommended. This application should be submitted in March of 1986. Construction could begin as early as 1988 if all approvals are made in time. Technical people experienced in the FAUS process should be retained to assure compliance with FAUS regulations. It may be necessary to widen the bridge before FAUS funding could be obtained. The preliminary bridge design calls far six lanes. On the other hand, the bridge widening project may be able to wait until FAUS funding is approved. This is a big question mark. It is also passible that the project would not be recommended far funding ar be delayed taa long for the city to obtain FAUS monies. The City of Richfield needs to identify an alternative funding resource to finance the bridge project. The preliminary cast estimate is $2,000,000. HRA CAPITAL FUND Descri,pt,ion The HRA Capital Fund was established to account far proceeds received from the sale of property located within the L/H/N redevelopment area. The monies have been used primarily to support other redevelopment activities within the tax increment district. Also, these funds financed redevelopment planning in orther areas of the community (ILN, Cedar Liquor Stare site, etc.). Analysis, Capital Fund revenues have resulted primarily from the sale of land in the LHN and interest earnings of those funds. These monies may be expended an HRA activities authorized by statute and are thus under local control. The fund provides revenues far HRA programs in two ways. A portion of it is set aside as a trust to fund on-going HRA programs. The interest earnings from principal provides revenue far the Housing Assistance Program (Section 8), New Home Program and the Rehabilitation Loan Program. The other portion of the fund is "revolving" ar venture capital. That is, it funds HRA programs for which there is some probability that the expended revenues will be replenished when a project develops its own funding sources. The present ILN activities, including the BRW study and staff time, are being funded in this way. Also, the Cedar Avenue liquor stare feasi- bility project is funded this way. Recommendation The HRA Capital Fund is not recommended as a viable source of revenue far the ILN project area. If funds in the Capital Fund were expended on the ILN project area, on-going programming. in the HRA, such as the New Hame Program and Housing Assistance Program, would be impaired, since funding far 1985 and 1986 is dependent an the interest from the Capital Fund. Additionally, use of the fund would deplete the HRA venture capital activities. Richfield, unlike mast suburbs involved in redevelopment, has been very successful because the HRA has a sizeable capital fund to initiate new redevelopment projects. This advantage would disappear if substantial funds were diverted from the HRA capital fund to the ILN project. MN DEPARTMENT OF TRANSPORTATION (MNDOT) SPECIAL APPROPRIATION Description MNDOT has agreed to pay half the costs of improving frontage roads. In return, the City acquires jurisdiction of the roadway and all future maintenance responsibilities. The city share far improving frontage road turnbacks is financed by a combination of special assessments and MSA funds. Analysis Portions of the frontage roads along I~g~ may be eliminated according to same ILN proposals. Those frontage roads that remain may be upgraded using MNDOT Funds. If the roads were to be eliminated, they could be acquired from MNDOT and incorporated into the redevelopment area. Recommendation Once the ILN plan is finalized, the plan should be submitted to MNDOT officials. Funding and turnbacks can be determined at that time. In any event, Richfield should take full advantage of MNDOT's frontage road turnback policy to further the objectives of the ILN redevelopment plan. MUNICIPAL STATE AID FUNDS (MSA) Deser,iption Minnesota Statutes, Chapters 161 and 162, enable cities to use an allotment from gas tax revenues for improvements to local streets. Richfield was allotted $563,052 in 1985. Twenty-five percent or $140,763 is designated for maintenance purposes. The money must be spent on designated MSA streets. In addition, bonds may be sold against future MSA allotments. The interest on such bonds must come from the maintenance portion of the MSA funds. Also, MSA funds may also be used for right-of-way and engineering costs. Analysis MSA funds are a dependable revenue source to pay for eligible street improvements. MSA funds could be used for street improvements in the ILN project area for MSA designated streets. However, the use of MSA money for ILN street improvements would delay other street improvements, such as frontage roads, the Portland/66th intersection, reconstruction of county roads, or other city streets and any future improvements due to stadium site traffic or 35W changes. If bonds were to be sold for future MSA allocation to fund ILN street improvements, the maintenance account would have to be used to fund interest. This, however, would mean that maintenance work may have to be paid for by the General Fund. The use of General Fund money for street maintenance would impact on current programs to some degree. Recommendation If the City is willing to delay some other street improvements now planned for MSA funding, MSA construction funds could be a viable source of revenue for the ILN project area. Street maintenance now funded from the MSA maintenance account should not be delayed or shifted to another funding source. Therefore, a $1.5 million bond should not be consider- ed. It may be possible to use some annual allotment or portions of annual allotments for the Lyndale Avenue bridge project. Further cost estimates and analysis are needed to make a final determination on the viability of this funding source. However, the sole use of MAS revenues for the construction program falls way short of the 7.5 million dollars needed for public improvements. PERMANENT IMPROVEMENT REVOLVING FUND (PIR) Description ~.~.._ - Section 7.12, Subdivision 6 of the City Charter provides that Internal Service Funds are authorized: "There may be maintained in the City Treasury, whenever the Council deems it advisable; (1) One ar more working capital or revplving funds, for financing self-sustaining activities not accounted far through other funds." One such fund authorized by Section 7.12 is the Permanent Improvement Revaluing Fund (P.I.R.). The P.I.R. Fund is used to advance to local improvement projects the funds to finance the cost of improvements far which special assessments are to be levied and to provide interim financing of capital expenditures of the City's Housing and Redevelopment Authority. Analysis The fund balance of the P.I.R. Fund as of January 1, 1885, is $ 308,000. Currently the P.I.R. Fund has advanced $272,760 to fund the 1983-84 alley improvement projects and has an additional $78,139 designated far permanent working capital to fund future capital projects. Work an the current year's alley and sidewalk improvements will also be funded out of the P.I.R. Fund until a special assessment bond issue is marketed in late 1985. At that time, band proceeds will repay the P.I.R Fund far the funds advanced far the alley and sidewalk projects. Since the City does not issue special assessment bonds every year, it is essential that the fund retain an adequate balance to fund such projects far a two-year period. Currently, the fund has enough working capital to achieve this goal and must remain at this level to continue to temporarily fund capital projects of the City and HRA. Recommendation The P.I.R. Fund is not recommended as a viable source of funding the ILN project area. The amount of funds available in the P.I.R. Fund are not sufficient to fund significant improvements. Mare importantly, however, use of P.I.R. Funds far this project would seriously impair the City's current projects funded out of the P.I.R. Fund. PROCEEDS FROM THE SALE OF LAND Description Land sale proceeds result when the HRA or city sells real estate. The sale price is established through an appraisal process and through negotiations. Thus, sale of land is locally controlled. Analysis There are limitations to this revenue source. First, the HRA or city must own real estate. Often the ownership is the result of first expending large sums of money to acquire privately owned property. In the LHN, for example, the K-Mart site of approximately six acres required the expenditure of $3:$ million. It was subsequently sold for $600,000 for redevelopment. Secondly, redevelopment financing has changed considerably in the last few years. It is not always possible to sell property and realize proceeds at the time of sale. Again, in the LHN, the Woodlake Point/Market Plaza's development, negotiations resulted in the HRA receiving land proceeds in the form of a lien against Market Plaza, payable upon the sale of the development at a future date. Thirdly, land proceeds can be a very significant revenue source to pay far the operation of HRA programs. In the LHN redevelopment project, land sales have built up a Capital Fund which, in turn, helps to fund feasibility studies and funds to plan new projects (ILN and Cedar Liquor Stare site). Recommendation In the ILN area, neither the HRA nor the city have significant land holdings. A small amount of revenue may be realized by the city. if MNDOT were to relinquish ownership of portions of the frontage roads, ar if other smaller parcels of land were purchased and then resold. Through vacations of the right-of-way and sale to adjoining property owners, same revenue could result. Land proceeds do not represent a revenue source for funding major improvements in the ILN area, although a small positive revenue flaw might be realized. REVENUE SHARING Descr,iptian Congress created the Revenue Sharing Program with the passage of the State and Local Fiscal Assistance Act of 1972. ,The program was renewed and modified by the-State and Local Fiscal Assistance Amendments of 1976, 1980, and 19.83• Revenue Sharing was originally conceived as a way of sharing Federal income taxes with State and local governments. The major Baal of this act is to disburse Federal funds with minimum restrictions on use, permitting the local decision-making process to determine the programs and activities where the money is mast needed. The amount of payments ar entitlements is computed an an annual basis (October 1-September 30) with quarterly payments made to local governments in January, April, July, and October. The current legislation expires an September 30, 1985. Analysis Since its inception, Revenue Sharing allotments to the City of Richfield have been used far capital improvements. Thus, Revenue Sharing funds have become an integral part of the City's Capital Improvement Budget, funding an array of capital projects. In 1985, Revenue Sharing funds will be expended far forestry, parkland acquisition, City Hall Licensing improvements, fire vehicle and Public Safety communications reserve. In 1986, the funds are targeted for parkland acquisition, energy improvements, City Hall coaling tower, and fire vehicle and communications reserves. The 1985 Revenue Sharing allocation to the City will total $141,000. In 1986, the City's share will be reduced to $80,000. Additionally, the Revenue Sharing program will mast likely be eliminated as of September 30, 1986.. The City's Capital Improvement Program anticipates no further Revenue Sharing funds after that date. Recommendation Beaause Congress is not expected to extend General Revenue Sharing, this revenue source cannot be considered far the ILN project area. The remaining $80,000 that the City will receive has been planned far several years as part of the 1986 Capital Improvement Program. SPECIAL .ASSESSMENT (BONDS) Deseripti,an Minnesota Statutes, Chapter 42g, allows cities to make public improvements and specially assess benefited properties. After a public hearing is held on the proposed improvement, bands may be sold providing that more than 20~ of the casts are specially assessed. The remaining casts may be paid by general property taxes. This amount is not included in the levy limit (e.g. street paving program). Analysis Richfield~s water, sewer and street systems were financed in this fashion, and sa is paying far public improvem improvements were financed aver twenty percent of the assessed and the remainder FAUS Funds. generally accepted as a method of ants. The LHN public using special assessments. Just improvement band was specially was funded through tax increment and In the LHN area, special assessments were used exclusively for public improvements. The LHN special assessment was $.51 per square foot. Today's value is $.75 per square foot. A $.75 per square foot assessment in the ILN area would generate ..~ ~ ~.. ,t: $1.5 - $1.8 million, depending an what areas might be included or exempted. A $7.5 - $g million band issue can be sold based an this $1.5 - $1.8 million assessment if a source far the remaining 80% of the band could be identified. .However, special assessments may not be used far write-dawns an land purchases. Recommendation Special assessments can be utilized as a funding source far the ILN project area.. The use of special assessments does not disturb other City programs already in place and provides that the casts of the direct benefits of the project be borne by the project area. This method was used successfully in the LHN area and other capital improvement projects. However, this funding source by itself would be insufficient to provide for extensive ILN public improvements. Property owners in the ILN project area are unlikely to support a special assessment project when they know that a TIF plan can finance all project costs. A special assessment project will be necessary as a means to finance the maintenance upkeep of the ILN project once it is completed. This is the financing tool used in the LHN project. ,• :. SPECIAL CITY PARKING DISTRICT Descr,iptio,n Under Minnesota Statutes, Chapter 459.14, authority is granted tocities to build and operate automobile parking facilities. Analysis The fallowing points may be of particular significance, insofar as the CDR Investments/MN project and ILN area are concerned: A municipality may issue bands for automobile parking facilities without an election if the bonds are wholly payable from the net revenue from the parking facility. Thus, if a parking facility were built by the city and leased to a developer (such as CDR) under terms which would repay the bands and cover operating expenses, an election would not be necessary. Bands to finance such a facility may be issued as G. 0. bands without an election if mare than 50% of the amount of the bond issue is levied in special assessments. The city could, therefore, build the ramp and levy mare than 50~ of the costs against benefited property owners. Unless the city levied 100 of the amount of the bonds, it would be necessary for all of the taxpayers in the city to subsidize the facility - unless tax increment money were available and used for that purpose. Where special assessments are used, the governing body follows the procedures of Chapter 42g (Local Improvement Assessments), except that the governing body may take into account existing improvements and the present and potential use of land in the area being assessed. In the ease of the CDR project, it would seem likely that only the CDR property should be assessed. If the city were to own the ramp but recover the entire costs of it through assessments or the rentals from the CDR project, the only apparent advantage would be that the facility would be financed with lower interest tax-exempt financing. This benefit, too, may be in grave jeopardy. Attached are two "Legal Impact Papers" from the National Association of Bond Lawyers which discusses the Treasury II proposals (See Exhibits B and C). The proposal would define as a private purpose any bond issue if more than 1~ of its proceeds are used directly or indirectly by any person other than a State or local government. Because of the predominant, if not exclusive, use of the parking ramp on a CDR property by occupants of the CDR project, the bond issue would fail this test and would not qualify for tax- exempt status.. of course, we do not know when and if all of the Treasury's proposals will be enacted into law. Recommendation Even if the law is not changed, there is a problem, under existing law, in avoiding having the parking facility bonds classified as industrial revenue bonds. Where there is a predominant use by one private party, e.g. CDR, the bonds may be ~~IDR~~ bonds, necessitating compliance with federal IDR bond procedures and requiring the use of Richfield~s IDR allocation. This result has been avoided in the case of several Minneapolis ramps by having leases run from a large number of project tenants. But it is by no means certain that the circumstances involved in this (CDR) development would permit that procedure here. SPECIAL REVENUE FUND Descripti_an The Special Revenue Fund was created according to Section 7.12, Subdivision 2 of the City Charter. The primary purpose of this fund is to receive profits from the municipal off-sale liquor operations. These funds are restricted in use to capital improvement projects, such as those typically financed by a General Obligation Bond Issue. Project appropriations from the Special Revenue Fund are authorized by ordinance. Analysis, The city has far a number of years adapted a plan known as the five-year Capital Improvement Budget. The major source of money to pay far capital projects is liquor profits. The annual funding requirements from-the Special Revenue Fund far the year 1885 was actually determined five years ago when projects were approved in the CIB. Similarly, plans have been made far the expenditure of Special Revenue Funds far the next 5 years . The amount of funds transferred from the Liquor Fund to the Special Revenue Fund far the years 1982-1885 is as follows: 1982 - $379,000 1983 - $400,000 1984 - $393,000 1985 - $216,000 (est.) Fewer funds are estimated to be available in 1985, due to a dramatic increase in Dram Shop insurance premium costs, lower investment returns and computer casts. Thus, if one were to the Special Revenue Fund would disrupt the 5-year serious impact upon seve to occur within the next year Capital Improvement Recommendation use the limited amount of funding of for any other purpose at this point, it Capital Improvement Budget and have ral projects which have been. scheduled 5 years. Attached is a most recent 5- projectian. The Special Revenue Fund is not recommended as a viable .revenue source for the ILN project area. Use of Special Revenue Fund. money for the ILN-would seriously disrupt the City's Capital Improvement Program (CIP). Such programs would have to be either eliminated or delayed for a prolonged period of time. TAX INCREMENT FINANCING (TIF). Description Tax Increment Financing is authorized and regulated by the state in Minnesota Statutes, Chapter 273.71 to 273.78. The use of TIF is locally controlled. TIF may be used to fund redevelopment activities such as land acquisition, relocation, public improvements, etc. A tax increment results when vacant land is developed ar existing development is removed and replaced with development of greater value, or when existing development is improved or expanded. These changes result in a higher market value on the property which in turn results in an increased assessed value and tax yield. The difference between the lower assessed value and higher assessed value results in a tax increment. It should be remembered that with TIF, it is only the increment which is utilized to fund activities. The amount of assessed value existing at the time the project is established, continues to be available to all taxing jurisdictions. Analysis The annual TIF cash flow may be utilized in different ways to fund activities: a "pay as you go" approach or to issue bands to finance the major project activities of land acquisition and public improvements. The decision to pay as you go ar band is determined by the size of the increment, and the type and cost of proposed activities. Mast projects require a large sum of money up front; thus, the sale of bands and the use of the tax increment to pay principal and interest aver a period of time. Generally, if the public expenditures are to be relatively small and funds are not needed far a period of about two years after the establishment of a TIF district, the "pay as you go" approach may be practical (an increment is usually not available far a period of two to two and one-half years following implementation of a tax increment project because because this time is needed to complete construction of the redevelopment projects). In the LHN, the approach used was to sell bands and utilize the increment to retire the debt service. Recommendation Tax Increment Financing should be considered the best source of revenue to finance the ILN project. TIF would not disrupt other City programs already in place. It also provides an opportunity for the area to fund its awn improvements. It is the only revenue source that can generate the 14-15 million dollars required. It is the best option available to accomplish bath major goals: property acquisition and the construction of major public improvements. URBAN DEVELOPMENT ACTION GRANT (UDAG) Description The UDAG is a federally-funded grant program. Through this program, monies maybe utilized for redevelopment activities, including public improvements.. ' Not all communities are eligible far UDAG's. Ta qualify, cities must be classified as being "distressed". Richfield does ...-- not.qualify as a "distressed city" and therefore cannot participate in the UDAG program.. ~~ EXHIBIT A MUNICIPAL STATE AID CONSTRUCTION FUND ESTIMATED FIVE YEAR BUDGE'T~ 1985 gth/Penn Signal System $ 50,000 Longfellow Avenue (CP 803) 15,000 1985 Estimated Ending Fund Balance $797,802 1986 th/Penn (CP 780) $375,000 66th Street (CP 7g2) 150,000 Frontage Road 155,000 1986 Estimated Ending Fund Balance $540,091 19.87 Penn/76th/4g4 (CP 790) $750,000 Frontage Road 155,000 1987 Estimated Ending Fund Balance $ 57,380 1.9..88 Frontage Road $155,000 1988 Estimated Ending Fund Balance $324,669 1.9,89 Lyndale/I4g4 $250,000 Frontage Road 155,000 1989 Estimated Ending Fund Balance. $342,338 1.9.90: Portland/66th Street $500,000 Frontage Road 155,000 1990 Estimated Ending Fund Balance $109,627 Assuming yearly allotment of $422,289 remains constant 66th Street bus turnaround not included - $40,000 Additional Needs Identified for the Five-Year CIP 1. Continuation of 77th Street across the city garage property 2. 66th Street at Cedar intersection 3. Traffic signal replacement 70th Street and 12th Avenue ~. New sidewalks 5. 135W reconstruction 6. Mega Mall/Homart developments and their impact on I494 v _. 4 NATIOIVTAL ASSOCIATION of BOND LAWYERS Post Office Box 397 • Hinsdale, Illinois 60521 • (312) 920-0160 Legal Impact Paper PUBLIC PURPOSE AND THE ONE-PERCENT TEST Treasury II lumps together and eliminates as "private purpose" bonds three types of financings that Congress in the past has treated .separately -- small issue industrial develop- ment, "exempt facility" and "exempt person" bonds. In addi- tion, a wide range of undertakings traditionally regarded as public or public-purpose facilities would be affected. Trea- sury II defines as "private purpose" any bond, regardless of its purpose, if more than 1% of its proceeds are "used directly or indirectly by any person other than a State or local govern- ment." Furthermore, Treasury II indicates that "(g)enerally, use of a facility financed with proceeds of tax-exempt obliga- tions would be considered to be use of those proceeds." "Pri- vate purpose" is therefore a serious misnomer, since the defi- nition does not turn on purpose, or even ownership, but use. The impact of this definition will be deceptively broad. Affected financings range from airport runways to mu- nicipal art galleries. The effects include the following: Public Transportation Facilities. All commercial air- port and dock financings will be eliminated, whether such fi- nancings are secured by revenues or taxes. This includes run- way, clear-zone, air terminal, and hanger financings for airports and channel widening, docks, wharfs, and breakwater or backland financings for harbors and ports. Parking facilities could not be financed to the extent more than 1% of the space would be reserved or held for use by a particular user or class of users. Public transit and commuter facilities, such as bus or rail stations, would have to be both owned and operated by a local government unit, and as described below, ownership or op- ' eration by a limited power governmental agency, authority or a non-profit corporation may not be sufficient. One anomalous result. could be that a government-owned airport serving only that small part of the population that uses private planes ("general aviation") might qualify for tax-exemption, but an airport serving the public through airlines would not qualify. Sports, Convention or Trade Show Facilities. These fa- cilities could not be financed if they were owned by or leased to a person other than a local government. Operating, conces- sionaire, and promoter contracts fora term of more than one year as well as contracts with professional teams may cause the facility to fail to qualify, at least in part, for tax-exempt financing. Even the use by a sports team from a non-profit private college could limit the financing available. .. ~- _ p~.: :l4'0 -- , ::-~A. Public Utility Facilities. Governmentally owned and operated sewer, water, storm water, gas and electric facilities would be financeable only if not more than 1% of the output of such facilities is purchased by a private utility or other non- governmental unit. Assuming the Treasury maintains its current position, take or take-or-pay contracts would cause the facili- ties to be treated as used by the purchaser of the output. Fa- cilities subject to management contracts or distribution sys- tems to private utilities may be affected. Similarly, governmentally owned and operated solid waste disposal facili- ties may not be financeable to the extent, for example, steam from the facilities used to generate electricity is sold pursu- ant to an output contract to a private utility. Nonprofit Colleges, Hospitals and Other Charities. Be- cause nonprofit colleges, hospitals and other public charities are not. local governments, facilities used by such entities could not be financed. In this context, use can arise as a re- sult of a management contract with a term of more than one year. A municipality, for example, could not issue tax-exempt bonds to finance facilities for its zoo, art museum or music center if the facility is operated by a nonprofit corporation or charity. A separate problem arises for municipal schools or hos- pitals. If professors or doctors have management or similar contracts-with a term of over one .year, the municipality could not finance the facilities used by such professionals. A school district. employing a caterer to operate its lunchroom could lose its right to finance such facilities. Urban and Rural Development. Many states have agencies that finance redevelopment of blighted areas, in part, with bonds secured by the proceeds of the additional property taxe s generated by their efforts. These agencies in most instances would not be able to issue tax-exempt bonds, even though the bonds are secured by property taxes, because the agencies' most important activity involves assembling and clearing land for use by nongovernmental entities. In addition, more than. l% of the bond .proceeds could not be used, for example, to improve store fronts or repaint store walls in a blighted area. Similarly, the infrastructure of no longer be bond-financed to the extent persons, unless such use was on the same the general public. For example, a rail road and the local business in the Indus financed. industrial parks could used by non-exempt basis as is the use by spur used by a rail- trial park could not be -2- ~~ In more rural areas, irrigation, diking and drainage districts may not be able to finance their facilities unless the farms within the district are treated as the "general pub- lic." Flood control districts may confront a similar problem. Housing. Financing for both multifamily and single family housing would be eliminated. Governmental Agencies, Authorities and Nonprofit Corporations. Many state and local governments for a variety of valid reasons have formed agencies, authorities and nonprof- it corporations to perform various governmental functions, ranging from unemployment counselling to urban development. Facilities or offices used as such entities may not be bond fi- nanced unless the entities themselves qualify as local govern- ments. Under the initial Treasury proposal issued prior to the Treasury II, "on-behalf" of entitites and non-profit corpora- tions controlled by a local government clearly could not issue. bonds on behalf of political subdivisions. This provisions was omitted from Treasury TI, so that the status of such entities is not entirely clear, although it appears that at least some of such entities are intended to be treated like local govern- menu. Clarification is needed to avoid a rather pointless re- striction on the ability of states and localities to use spe- " vial entities to carry out governmental functions. Loans or Grants to the General Public. The use of bond proceeds to provide student loans and mortgage loans would be prohibited. In addition, bond proceeds could not be used for relocation or disaster loans or grants (even if the bonds are secured by tax revenues) since such loans or grants may. not be treated as available to the general public. Other Government Facilities. Treasury II affects nu- merous other governmental activities. For example, if a city wishes to build a marina, the financing must be reduced to the extent that the facilities include privately owned or operated fueling, launching or commercial facilities. There is even a question as to whether "boat owners" represent the general pub- lic; if they are not, the marina may be considered a "private purpose" facility. Other prohibited facilities include those that will .serve only a limited number of businesses or homeowners .and are not parts of a system that serves the general public. Such fa- cilities may include a short breakwater or firebreak to protect only a few homes. -3- .~ ... •., Finally, if a local government finances an office building, any areas rented to an agency, authority, charity, or even the federal government may. not be financed, unless such entity qualifies as a "State or .local government." If nonlocal government use increases after-the bonds-are issued, the bonds' tax-exempt status may be ,lost. Other "Exempt Facilities." The current version of Section 103 of the Internal Revenue Code relating to "exempt facilities" is purpose-oriented in that it allows the issuance of tax-exempt bonds for specific facilities that Congress has determined serve a public purpose, regardless of ownership. Treasury II will eliminate tax-exempt financings for all of these facilities, including those for pollution control, sewer- age and solid waste disposal and other public purpose "exempt facilities" described above. Small Issue Industrial Development Bonds. Treasury II will eliminate all such financings, regardless of the priority given to them by local governments and regardless of any-state law finding that such facilities serve a public purpose (such as the creation of jobs, revitalization of decayed areas or the __ increase of the local tax base). -4- Cx~-~~ ~ ~-c~ G NATIONAL ASSOCIATION of BOND LAWYERS Post Office Boz 397 • Hinsdale, Illinois 60521 • (312) 920-0160 Legal Impact Paper STATE AND LOCAL GOVERNMENTS AND THE ARBITRAGE PROVISIONS The "arbitrage" provisions in Treasury II will restrict the financing flexibility of state and local governments.. In particular Treasury II will limit the ability of every public borrower to invest bond proceeds, and in nearly every case will require it either to make direct payments to the federal gov- ernment or invest bond proceeds. in below-market federal securi- ties pursuant to a formula that will result in an actual "arbi- trage" loss to the borrower. By eliminating all "advance refundings," Treasury II also will restrict the ability of lo- calities to take advantage of declining interest rates or elim- inate burdensome financial covenants contained in outstanding financings. Current federal tax regulations substantially restrict the ability of local borrowers to make an arbitrage profit, i.e., to invest bond proceeds at an interest rate higher than the rate borne by the. bonds because of the differential between taxable and tax-exempt rates. For reasons of practicality, ad- ministrative simplicity and respect for local government rights, however, the temporary investment of bond proceeds at a "unrestricted yield" is generally permitted if the local gov- ernment reasonably expects to spend bond proceeds for a govern- mental project within three years and proceeds to complete such project with "due diligence." Other existing requirements pre- vent the use of any "artifice or device" to make arbitrage profits and preclude the premature issuance or_overissuance of bonds by local governments. Rebate and Reporting. Treasury II imposes on all bond issues, no matter what the purpose or how small the issue, the complicated arbitrage reporting and payment requirements in a manner more onerous than was imposed on most private purpose industrial development bonds in 1984. All net earnings, i.e., arbitrage, on the investment of bond proceeds will have to be paid to the federal government. (This payment is referred to in the legislation as a rebate, so none of such earnings. were derived from the federal government.) Treasury II does not in- clude the exception that currently permits industrial develop- ment bond issuers to avoid the payment requirements if all pro- ceeds are spent within six months. All bond proceeds, without exception, will have to be invested at below market rates or the arbitrage profit will have to be paid to the federal gov- ernment. 4t 4 ~... To comply, local governments will have to calculate the amount of bond proceeds invested, the .yield on such investment and the yield on the bonds. These calculations can be compli- cated by the fact that these numbers can vary as frequently as daily, in the case of variable rate bonds and investments. In some cases the locality may not know if a payment is required until long after the investment earnings are spent. Such de- layed payments to the federal government .may be forbidden under certain state laws if earnings have been spent before the obli gation to pay arises, and it is not at all clear in many states that local governments will be legally permitted to make the required payments under any circumstances without major modifi- cations in state law. Below Market Investments. The proposed rebate calcula- tion will effectively require .state and local governments to lose money`on investments made with bond proceeds. Not only underwriting fees, cost of bond printing and legal-fees but also bank letter of credit fees will be disallowed as expenses of issuance. The result will be both to impose a de facto "negative arbitrage" requirement on local government borrowings and to penalize. local governments that choose to reduce inter- est costs by use of credit enhancements when compared to-those that accept higher rates in lieu of such approach. Temporary Periods and Investment. Treasury II states that all issuers will be required to spend "a significant part" (probably 5%) of bond proceeds within one month of issue and spend all bond proceeds (except for reserve funds) within three years. The first provision could materially limit the ability of local governments to choose the most advantageous time to take their bonds to market. The second provision will substan- tially restrict and in some cases even preclude the financing of projects with a construction period of more than three years. The most obvious solution, the issuance of a second se- ries of bonds at a later date, will of course involve addition- al transaction costs. Furthermore this may not be a practical or legal alternative to certain localities because (1) state law may require assurances of available funds before any prot- ect can be undertaken, (2) the contractor for such a project may be unwilling, at least without additional compensation, to undertake such project without assurances that adequate funding for completion will be provided and (3) the bond market may re- ject, or require a high interest rate for, an issue for a proj- ect whose successful completion will depend on a second bond issue at a future date (since there could be no assurance that such second issue could be sold at all, much less at interest rates assumed at the time of the original issue). -2- ,.. ... ~~ p W ~' ~~ - Treasury II eliminates any temporary period for acqui- sition projects. Tax .revenue and grand anticipation notes do not appear to quality for any temporary period. It is not clear how a municipality will determine which of its general funds must be invested at a restricted yield. In addition to limiting the temporary periods, Treasury II will also reduce the amount of proceeds that may be invested at an unrestricted yield to 150% of the annual debt service to the extent such amounts do not qualify for a temporary period investment. This provision will be especially difficult to comply with in the case of variable rate transactions because annual debt service would fluctuate from year to year. The indentures for many bonds permit the issuing munic- ipality to issue additional bonds only if they are parity bonds, i.e., bonds secured on the same terms as the prior bonds. By limiting the amount of a reserve fund to 150% of an- nual debt service, Treasury II may effectively preclude any parity bonds if an outstanding indenture requires some larger .amount of funds to be held in the reserve fund. The proposed limitation cannot be met by restricting yield on the reserve amount in excess of 150% of .annual debt service, so the munici- pality will .have no alternative other than a complete refunding of all of its debt, which, as shown below, may also be impossi- ble. Advance Refunding. Treasury II banned all local gov- ernment "advance refundings," i.e., the issuance of a second bond issue whose proceeds are used to cancel or "defease" a prior issue by the purchase of investment obligations that se- cure payment of the original issue. The stated reason for the proposed change is that advance refundings increase the volume of tax-exempt bonds. This is true and is why Treasury regula- tions have previously removed the arbitrage incentive for ad- vance refundings.by local governments by imposing yield re- strictions that eliminate arbitrage profits. Local governments engage in advance refundings for two basic reasons--to realize interest rate savings and to elimi- nate burdensome restrictions in bond documentation. Purchasers of tax-exempt bonds traditionally require substantial "no-call" protection i.e., a period during which their bonds cannot be redeemed, and the overwhelming majority of fixed rate tax- exempt bond issues now outstanding contain such provisions. If Treasury II were enacted, local governments would be completely unable to refund many outstanding issues for a number of years, no matter how restrictive the existing covenants or how much interest rates decline. Furthermore they will face the unhappy dilemma of having to choose for new issues between either (1) eliminating the no-call protection (and thus paying -3- ~. r substantially higher rates) or (2) losing all opportunity dur- ing the no-call period to reduce interest costs or eliminate restrictions. ~A number of practical problems would arise. Changes in regulatory schemes (such as Medicare reimbursement for municipal hospitals) frequently make bond covenants that originally made sense pointlessly burdensome. The ability to respond to these changes will be substantially reduced. Debt and operating restrictions that are either no longer appropri- ate to the particular issuer or no longer required by the bond market could not be easily eliminated. The ability to take prompt advantage of either an overall reduction in interest rates or an increase in the creditworthiness of the local gov- ernment (or its revenue producing project) will be substantial- ly eliminated. Treasury II states that refunding will be permitted only if proceeds of the refunding bonds are used immediately to retire the prior bonds. Even the current ban on advance re- fundings of industrial development bonds allows refunding with- in a 180 day period. The results of an immediate refunding rule could be disastrous. A local government could in good conscience plan a refunding on the first day the original bonds could be called and proceed to call such bonds, but in fact might not actually be able to deliver bonds on the call date because of the wide variety of events that can prevent the sale and delivery of bonds on any particular day, such as disruption - of the bond market or litigation or other developments that re- quire a delay in the sale in order to ensure compliance with the federal securities laws. In addition, the local government may be unable to give the advance call notice required by the prior bonds because the prior bonds may require that the funds needed to make the call be on hand on the date the notice must be given. Conclusion. Treasury II goes far beyond preventing .the systematic exploitation of the difference between taxable and tax-exempt rates, but severely limits the ability of local gov- ernments to make their own financial decisions with a minimum of federal interference. Congress should consider the practi- cal burdens that would be created on local governments by Trea- sury II's arbitrage proposals, the degree to which legitimate government borrowings will be restricted and whether continua- - tion of .the. current rules (which already impose substantial re- strictions) would have such a negative effect on the federal Treasury as to justify the restrictions and costs that Treasury II's proposals on arbitrage will impose on state and local gov- ernments. -4- -~~~ ~-/ HOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No. 47 Agenda September 16, 1885 Housing and Redevelopment Authority Commissioners City of Richfield Subjects: (1) Presentation of ILN Concept Plan and Redevelopment Strategy, and, (2) I/L/N Task Force Recommendations Dear Commissioners: At the HRA meeting on September 16th, Mr. Arijs Pakalns of BRW will present the ILN concept plan. The concept plan is based on the circulation plan which was presented to both the HRA and City Council on July 1, 1985. That plan envisioned extensive roadway improvements in the ILN to accomodate the CDR development and Hampton Inn as well as future redevelopment. The improvements envision the upgrading and widening of 77th Street, especially west of Lyndale Avenue, elimination of the intersection of 77 1/2 Street with Lyndale and the widening and lengthening of the X94/Lyndale bridge. This concept will serve as a basis for establishing a redevelopment project. The concept plan and a redevelopment strategy were presented to the ILN Advisory Committee an August 29th. After a presentation by Mr. Pakalns and discussion by both the committee members and the general public, the committee adopted a motion made by Mr. Bob Jensen and seconded by Mr. Bob Adelman in support of the plan and redevelopment strategy: The ILN Advisory Committee: a. agrees with the proposed Phase I Plan and long range redevelopment strategy. b. supports the use of tax increment financing to implement the proposed activities. c. feels the people in the area should from time to time be apprised of the schedule and aetivites realted to the implementation of Phase I. d. urges the City Council to pursue with haste, the upgrading of 77th Street to Nicollet Avenue e. recommends the business people being displaced should be informed of opportunities to rebuild. 1 -2- /~ f. believes the location, use and design of the "Focal Area" at the southwest corner of 77th Street and Lyndale Avenue should be re-evaluated. h. requests the City Council to amend the charge to this Advisory Committee so it (the committee) may continue to function during the plan implementation phase. With a favorable response from the HRA and City Council to the. concept, staff will be prepared to present to the HRA on October 7th, at a special meeting, the official documents related to the establishment of a redevelopment project and tax increment district. The HRA would be asked to officially receive the documents and authorize their transmittal to the Planning Commission, school district and Hennepin County. Formal approval would be scheduled for a later date. Res ectfu ubmitted, John G. Cartwri t City Manager JGC/eja